Ontario courts use oppression remedy statute and fraudulent conveyance legislation to assist creditors chasing runaway debtors
By Ray Thapar
As an entrepreneur, how frequently have you faced a situation where the business that you’ve been dealing with suddenly closes?
And, how frequently have you watched with mounting dismay and consternation that the business that just closed, miraculously restarts under a different yet similar name, same employees, same address and same resources?
Well, there is a remedy available, and if you’re facing such a situation, Simmons da Silva LLP can assist you recover your debts from a recalcitrant entity.
In what has been described as the widest and broadest common law remedy available in the common law world, Ontario business can successfully hold directors and of the new company accountable for the debt of the original debtor company. Ontario courts have resorted to the oppression remedy powers of the Ontario Business Companies Act and the fraudulent conveyance legislation to provide remedy to businesses facing the scourge of defaulting debtors.
Under the oppression remedy statute, the Court has unlimited powers to make any order it deems fit to address the oppressive or unfair conduct against a creditor; and under the fraudulent conveyance act, the Court has the power to declare any transfer conveyance void if it was done to defeat creditors.
In a recent case between Schreiber Foods Inc. (Schreiber) and Wepackit Inc. (Wepackit), the Ontario Superior Court of Justice observed in January 2014 that Wepackit transformation into Wepacit 2009 Inc. (Wepackit 2009) was a “fraudulent conveyance.” It held David Wiggins, the director, officer, and sole shareholder of Wepacit liable for the company’s unpaid debt owed to Schreiber.
Briefly, Schreiber had sought Ontario Superior Court’s intervention in implementing a judgment against Wepacit to recover its outstanding account. Schreiber claimed that Wiggins of Wepackit had manipulated the operations of three of his corporations to avoid paying his dues.
Wepacit was indebted to Schreiber to the tune of US$266,774.56, and the Schreiber obtained judgement against Wepackit in February 2009. In early 2009, Wepackit’s Wiggins, the sole shareholder, officer, and director, used another company of his to seize all the assets of Wepackit for arrears in rent, and then he created Wepackit 2009.
The transformation occurred on February 2, 2009, the same day that Schreiber obtained judgement against Wepacit. Schreiber led evidence that Wepackit was spiralling downward rapidly, and owned money to several creditors; its sales were dwindling, and had incurred a loss in two consecutive years. Wepackit 2009 continued to operate the business formerly operated by Wepackit by using all the same assets, customers, and employees.
The Ontario Supreme Court held that the actions of Wepackit’s sole shareholder, director, and officer constituted oppressive conduct unfairly prejudicial to Schreiber as creditors of Wepackit and the transfer / conveyance of assets to Wepackit 2009 was fraudulent, was done to defeat creditors, and therefore void.
The Court observed:
“It is clear that the transfer of all assets to a new company resulted in creditors being left without recourse and that the judgements of two courts were to remain unpaid.”
While holding Wiggins personally liable, the Court observed that where a director or a shareholder is the controlling mind of the corporation, it may be “sufficient to ground personal liability.”
The litigation lawyers at Simmons da Silva LLP have the experience in enforcing creditors’ rights and in particular the oppression remedy provisions of the Ontario Business Companies Act as well as the fraudulent conveyance legislation.
If you have a matter that you would like to discuss / pursue, Ray Thapar will be pleased to meet you. He may be reached at 905.861.2804 / firstname.lastname@example.org