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CORPORATIONS - Directors and officers - Personal liability - Oppression

Wednesday, October 09, 2019 @ 6:17 AM  

Lexis Advance® Quicklaw®
Application by Badr for an order imposing enterprise and personal liability for repayment of a shareholder loan owed by 2305136 Ontario Inc. to him. The applicant sought to impose liability not only on 2305 but the GLAD companies, of which 2305 was the majority shareholder, and personal liability on the estate of Wong and the estate trustee. The applicant had assisted Wong to restructure his business. His fee was left in the GLAD companies as a shareholder loan. He and Wong were, through their holding companies, equal shareholders in 2305. The applicant obtained a judgment in 2015 for repayment of the shareholder loan by 2305. Wong died in 2017 prior to buying out the applicant’s interest in 2305 as directed. It was subsequently discovered Wong had diverted significant funds from 2305 for his personal benefit. He ignored the separate corporate status of 2305 and the GLAD companies.

HELD: Application allowed in part. It was a reasonable expectation of the applicant that the affairs of 2305 and the GLAD companies would be conducted fairly, not oppressively or prejudicially, and with due regard for the interests of the shareholders, including the applicant as shareholder and creditor. Wong’s conduct of the affairs of 2305 and the GLAD companies defeated the applicant’s reasonable expectations and constituted oppression, unfair prejudice and unfair disregard of the applicant’s interests. The evidence did not support the conclusion that the GLAD companies or the estate trustee engaged in any oppressive behaviour. Wong’s estate was personally liable for repayment of the shareholder loan, fixed at $2,421,300, as it was Wong who organized and conducted the affairs of the corporations to defeat the applicant’s reasonable expectations in a manner that was oppressive.

Badr v. 2305136 Ontario Inc., [2019] O.J. No. 4297, Ontario Superior Court of Justice, M.A. Penny J., August 16, 2019. TLD-October72019008