Litigation

Dissolution Not a Shield to Oppression Claims

By , December 18, 2020 December 23rd, 2020 No Comments
Litigation

Dissolution Not a Shield to Oppression Claims

Our article focuses on the recent Alberta Court of Appeal decision of 698829 Alberta Ltd. v Elite Homes (1998) Ltd. et al., 2020 ABCA 154 (“Friesen“). This case serves as a reminder of the liabilities of a dissolved corporation and that dissolution does not protect a directing mind from claims of oppression. This decision is of interest considering the current economic conditions due to the COVID-19 pandemic and the increased number of struggling businesses.

Background

698829 Alberta Ltd. (“698“) and Elite Homes (1998) Ltd. (“Elite“) entered into a joint venture agreement (“JVA“) wherein 698 contributed $692,626 to assist in the purchase of lots where 62 homes were to be constructed. Robert Friesen (“Robert“) was one of the signatories of the JVA on behalf of Elite, and provided that Elite was responsible for managing the enterprise, including the distribution of eventual profits to 698 in each succeeding year. Elite was a division of a home builder, Unity Builders Group (“UBG“).

In April of 2007, Elite provided 698 with a cheque representing 698’s proportionate share of proceeds for the first 11 homes that were built. Following this payment, no further payments were ever provided. In 2009, 698 received a letter from a UBG representative, which advised 698 was owed an additional $3,217,597 pursuant to the JVA. Prior to the first, and only, payment made to 698, in early 2007, Elite was struck off the corporate registry. Robert did not advise 698 of Elite’s dissolution, and 698 only learned about the dissolution following a corporate search in late 2009.

Homes that were built on the remaining lots by UBG had been sold, but there was no tracing to show where the proceeds wound up. Numerous large sums were paid to Robert Friesen Investments Inc., the parent company of UBG and Elite, the sole directors being Robert and his wife.

At trial, the judge found that the action commenced by 698 was statute-barred as being commenced outside the limitation period. However, had the action not been statute-barred, Robert would have been liable to 698 pursuant to the oppression provisions of the Business Corporations Act (Alberta) (“ABCA“).

Court of Appeal

Upon appeal, the trial judge’s ruling that the action was statute-barred was overturned and the Court of Appeal upheld the finding that Robert was liable for oppression.

The judge found that the very act of dissolving Elite was Robert’s oppressive conduct. Hiding the dissolution from 698 and transferring the assets to another corporation allowed the misconduct to remain hidden and delay formal proceedings.

The Court of Appeal agreed with the trial judge’s conclusion that the oppressive conduct was the dissolution of Elite. A claim against a controlling director, such as Robert, is within the scope of the oppression provisions. There is no requirement that an oppression claim must be against the corporation itself. If a controlling director of a corporation could simply, through dissolution, avoid potential damages for oppressive conduct, the effect of the oppression remedy would be defeated.

Invitation for Discussion:

If you would like to discuss this blog in greater detail, or any other business litigation matter, please do not hesitate to contact Mohamed Amery.

Disclaimer:

Note that the foregoing is for general discussion purposes only and should not be construed as legal advice to any one person or company. If the issues discussed herein affect you or your company, you are encouraged to seek proper legal advice.

Share This Article: