Owner of Corporation Faces Personal Liability for Stripping Assets

The owner of a corporation faces personal liability under the oppression remedy for stripping assets but not under an action based on piercing the corporate veil. The case of FNF Enterprises Inc. v. Wag and Train Inc., 2023 ONCA 92, explains why a claim for a personal remedy against the owner should be under the oppression remedy.

In the FNF case, commercial premises were leased to a corporation for the use of a canine grooming, training, and day care business. The owners of the premises commenced an action against the corporation and its sole director, officer and shareholder for breach of the lease, alleging that the director stripped value from the corporation and caused the same business to be carried on elsewhere, knowing that amounts were owed by the corporation under the lease. They claimed the director conducted herself in a manner that justified piercing the corporate veil and imposing the corporation’s liabilities on her, while also claiming that she acted in a manner that entitled the owners to relief against her under the oppression remedy in section 248 of the Ontario Business Corporations Act (“OBCA”). The motion judge determined that the statement of claim did not disclose a reasonable cause of action against the director and should be struck out against her without leave to amend.

On appeal, the Ontario Court of Appeal allowed the appeal in part, holding that value stripped from the corporation by the director with knowledge that the corporation had incurred liabilities by breaching its lease was actionable under the oppression remedy rather than the doctrine of piercing the corporate veil. The facts alleged in the statement of claim did not arguably support a claim for piercing the corporate veil.

The Court of Appeal [at paras. 17 and 18] described what is generally required to pierce the corporate veil as follows:

Piercing or lifting the corporate veil is an equitable exception to certain statutory rules. Those rules provide that a corporation is a separate legal person (with the consequence that its property, rights, and obligations are its own, not those of the individuals through whom it acts) and that a shareholder is not liable for any act, default, obligation, or liability of the corporation: … The test for piercing the corporate veil in Ontario is that set out in Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co. … That case set out a two-part test: “courts will disregard the separate legal personality of a corporate entity where it is completely dominated and controlled and being used as a shield for fraudulent or improper conduct.”

In addressing the improper conduct test and the director’s alleged value stripping, the Court of Appeal stated [at paras. 26 and 27] as follows:

However, it is important to identify what this allegation is and what it is not. As the appellants describe it, the gist of this allegation is that [the director] Ms. Ross stripped value from [the corporation] Wag and Train knowing of its lease liabilities, that is, the amounts it owed by reason of its breach of the lease. It is not alleged that removing value from Wag and Train knowing of the lease liabilities is what gave rise to those liabilities in the first place – they arose because of Wag and Train’s breach of the lease. This is important because it is the lease liabilities that the piercing the corporate veil claim seeks to impose on Ms. Ross … This situation is unlike cases in which courts have pierced the corporate veil given the nexus between the liability the plaintiff sought to recover by piercing the corporate veil and the wrongful conduct directed by the individual in control of the corporation that gave rise to that very liability.

In holding that this kind of link between the alleged wrongful conduct and the liabilities sought to be imposed by piercing the corporate veil is missing, the Court of Appeal suggested [at para. 29] a more suitable remedy, as follows:

To be sure, the alleged value stripping may be conduct that prejudices the appellants, as creditors of the corporation, in their ability to collect the liabilities of Wag and Train that arose from its breach of the lease. But the remedy for conduct that defeats reasonable expectations of a creditor of a corporation is, as discussed below, under the oppression remedy, rather than piercing the corporate veil.

The Court of Appeal then summarized [at para. 31] the two requirements for an oppression remedy claim to succeed:

First, the complainant must identify the expectations it claims have been violated by the conduct at issue and show that those expectations were reasonably held. Second, the complainant must show that these reasonable expectations were violated by corporate conduct that was oppressive or unfairly prejudicial to or that unfairly disregarded the interests of any security holder, creditor, director, or officer: Wilson v. Alharayeri.

In discussing when oppression remedy relief should be granted against an individual director personally, rather than simply against the corporation, the Court of Appeal referred [at paras. 33 and 34] to Wilson as follows:

The Supreme Court held that personal liability may be imposed on a director for oppressive conduct if two criteria are met: (1) the director has the requisite degree of involvement in the oppressive conduct so that it is attributable to them; and (2) personal liability is fit in the circumstances. An order against a director personally will be fit where it is a fair way of dealing with the situation, the order goes no further than necessary to rectify the oppression, the order serves only to vindicate the reasonable expectations of the complainant, and other forms of statutory and common law relief are not more fitting in the circumstances. … In Wilson, the court identified the obtaining of a personal benefit by the director, or the director misusing a corporate power, as situations in which it would typically be fair to impose personal liability on the director.

The Court of Appeal concluded that the allegations set out an arguable case that a personal remedy against the director would be fit. She was alleged to have stripped value in priority to unpaid creditors and thus misused corporate powers to her own benefit, arguably making a personal remedy a fair way of dealing with the situation. The appeal was therefore allowed to permit the appellants to amend their statement of claim to assert their claim for a personal remedy against the director under the oppression remedy.

In light of the foregoing, the FNF case provides guidance as to when a claim for piercing the corporate veil may succeed and when a claim for an oppression remedy may succeed in order to obtain a personal remedy from an individual director, officer or shareholder of a corporation.

Given the allegation in FNF of unpaid amounts owing to creditors, the corporation’s sole shareholder was arguably not entitled to use the corporation’s money as her own or to appropriate its business. Even though a personal remedy was granted against her under the oppression remedy relating to the stripped value, there should still be kept in mind the statutory prohibition on directors who are also shareholders from taking assets in priority to, and to the prejudice of, unpaid creditors. The power of a director to declare a dividend to shareholders is subject to the corporation being able to pay its creditors (see OBCA, s. 38(3)). A shareholder of a corporation does not have a right to the corporation’s assets while it is ongoing but that right arises if and when the corporation is wound up. On winding up, a shareholder’s right to payment or to receive assets is subject to the prior rights of unpaid creditors: (see OBCA, s. 221(1)(a)).

As seen in FNF and so many other cases, unpaid creditors will continue to seek recourse against directors, officers and shareholders of private companies in a variety of ways.

“Entire Agreement” Clause Does Not Preclude Fraudulent Misrepresentation Defence

An “entire agreement” clause in a purchase agreement was held not to preclude a defense of fraudulent misrepresentation in the enforcement of the agreement. The case of 10443204 Canada Inc. v. 2701835 Ontario Inc., 2022 ONCA 745, explains the scope of “entire agreement” clauses.

In the “104” case, the purchasers of a coin laundry business entered into a purchase agreement that contained an “entire agreement” clause which provided that there was no representation, warranty, collateral agreement or condition affecting the agreement except for what the agreement expressed. The agreement was conditional on certain matters, including the right of the purchasers to attend the business for at least 15 days to “verify the income”. The conditions gave the purchasers the right to terminate the agreement within a specific time window if not satisfied but they did not exercise such right. The parties later agreed to amend the terms concerning how the purchase price would be paid, including a partial payment made on closing, and the balance of the purchase price to be paid with interest over a four-year term after closing, secured by a vendor take-back mortgage that required monthly payments. The vendor commenced an action against the purchasers in the Ontario Superior Court alleging that there was default in payment of an instalment under the mortgage such that the entire balance of the purchase price was then due. The purchasers defended and counterclaimed, alleging that the agreement had been the result of fraudulent misrepresentations made to them by the vendor concerning the gross revenues of the business.

The Superior Court in a summary judgment declared the purchasers liable for the balance of the price they agreed to pay the vendor for the business, holding the purchasers’ defence that they had been induced by the vendor’s fraudulent misrepresentations about the revenues of the business to enter into the purchase agreement, waive its conditions, and complete it, did not raise a genuine issue that required a trial. The purchasers then appealed.

The Ontario Court of Appeal allowed the appeal, set aside the summary judgment, and directed that the matter return to the Superior Court to proceed toward trial. The Court of Appeal decided that the motion judge’s approach to the effect of the “entire agreement” clause was not consistent with settled law.

In analyzing the law, the Court of Appeal stated [at para. 20] the following about fraudulent misrepresentation:

Fraudulent misrepresentation affords a defence to a claim on a contract, because a contract that results from a fraudulent misrepresentation may be avoided or rescinded by the victim of the fraud (who may also have an action in damages against the maker of the statement) … In other words, where a contract is the foundation of the plaintiff’s claim, the right of the defendant to avoid the contract because it was entered into in reliance on a fraudulent misrepresentation by the plaintiff will undo the basis of the plaintiff’s claim.

The Court of Appeal then addressed the effect of disclaimer clauses, stating [at para. 21] that a “clause in a contract that purports to limit remedies arising from a misrepresentation does not immunize the maker of a fraudulent misrepresentation from the remedies available to the innocent party”.

When explaining “entire agreement” clauses and fraudulent misrepresentations, the Court of Appeal continued [at para. 24 and 25] as follows:

Entire agreement clauses are “generally intended to lift and distill the parties’ bargain from the muck of negotiations”. … They are generally read to apply to what was said or done before the agreement was made, so as to exclude such dealings from affecting the interpretation of the agreement. They are essentially a codification of the parol evidence rule. … However, it is one thing to exclude pre-contractual dealings from the interpretive process. It is another to attempt to extend the reach of an entire agreement clause so that it effectively limits the remedies available for a fraudulent misrepresentation. … [S]uch a clause, in denying recourse to representations before the making of the contract, could not be read as applying to fraudulent misrepresentations. It could not be read as denying the right of an innocent party to a remedy for a fraudulent misrepresentation, including to rely on the fraudulent misrepresentation as a defence to the action.

The motion judge held that it was not only the “entire agreement” clause but several other factors that combined with it to suggest that the purchasers could not rely on the defence of misrepresentation. The purchasers, according to the motion judge, could have demanded other contractual protections such as a guaranteed minimum income for the business, or the right to walk away from the transaction based on the lawyer review or financing condition, or they could have sought the assistance of an accountant or included an audit of the business’ income as a condition of the purchase agreement, or they could have attended at the business and verified income.

Yet the Court of Appeal disagreed with this approach, stating [at para. 32] as follows:

In other words, one cannot take an entire agreement clause, which cannot on its own preclude a defence of fraudulent misrepresentation, combine it with a failure of a defendant to take opportunities or exercise due diligence to discover the truth, which on its own cannot preclude such a defence, and treat them together as having that preclusive effect.

The Court of Appeal further clarified that the availability of a defence of fraudulent misrepresentation when faced with an “entire agreement” clause does not depend on inequality in bargaining power. Nor can other factors, such as the ability of the purchasers to conduct due diligence or walk away from the deal, preclude them from raising fraudulent misrepresentation. Their opportunities to “discover the truth,” even if provided for under the purchase agreement, do not deprive them of their right to avoid the agreement based on fraudulent misrepresentation.

“Entire agreement” clauses are a standard feature of purchase agreements and will continue to be used to exclude representations or conditions outside of agreed terms. However, the settled law confirmed by the Court of Appeal in the “104” case is that an argument that there was fraudulent misrepresentation, whether as a defence to a claim of breach of contract or as a claim for damages, will not be barred by an “entire agreement” clause or the existence of opportunities to verify the truth of a false statement. 

Royalty Payments Not Subject to Criminal Rate of Interest Prohibition

Two royalties purchased by an investor were held not to exceed the criminal rate of interest. The case of Hybrid Financial Ltd. v. Flow Capital Corp., 160 O.R. (3d) 122, 2022 ONSC 892, illustrates a financial arrangement that is more an equity investment than a debt or credit transaction.

In the Hybrid case, an Ontario company that carried on a sales and distribution business involved in the provision of capital market services, investor relations, asset management and shareholder services was indebted to a chartered bank. Because the bank debt was secured by the personal guarantee of the company’s owner who did not want to carry a personal guarantee, the company searched for an alternative form of financing. The owner approached an investor corporation that provided growth capital for businesses across North America and the United Kingdom with a view to securing financing that would allow the company to pay off the bank debt and not require the owner to give a personal guarantee. The investor agreed to provide $750,000 in capital to the company, and in exchange, the investor acquired two royalties which were essentially revenue generating assets, subject to a buyout option exercisable by the company.

The company was obliged to make a minimum monthly royalty payment for the first two years of the term, and thereafter the monthly royalty payment was to be the greater of a set amount or an amount tied to the company’s revenues based on a trailing 12-month revenue figure. There was no obligation on the company to repay the $750,000 provided by the investor, since the company had a buyout option to repurchase the royalties once it had made royalty payments totalling at least $750,000. The company eventually gave notice of its right to exercise the buyout option when it had paid an aggregate of $828,205 in monthly royalty payments. Following the notice, the parties engaged in a dispute over the valuation of the buyout option, and the company ceased to provide the required financial disclosure and the royalty payments. The company then applied to the Ontario Superior Court seeking an order that the financial formula stipulated in the agreement relating to the buyout of the royalties by the company exceeded the criminal rate of interest under section 347 of the Criminal Code.

In dismissing the application, the Court found that the financial transaction reflected in the agreement was not captured by section 347 because it was a hybrid transaction that was predominantly more akin to an equity transaction than a debt or credit transaction. The Court concluded that the agreement “chosen by two sophisticated corporate entities through negotiations aided by lawyers, lacks most of the hallmarks of a loan, debt or credit facility”.

The Court cited [at para. 91] the following examples of the agreement reflecting an equity transaction: the agreement was styled as a Royalty Purchase Agreement; the subject royalties were described throughout as a “purchase” not a loan; the royalty payments after the second year of the agreement were tied to the company’s revenues; the buyout amount for the royalties was tied to the company’s net equity value; potential third parties that could contribute to further royalty purchases were described as “investors”; the investor was provided with an opportunity to purchase more royalties from the company (to a maximum amount) and this opportunity was called a “potential investment”; and there was no provision requiring the repayment of any amount of fixed debt.

The Court [at para. 93] continued:

As stated by the courts, in today’s commercial environment, parties are entering into creative financing agreements to permit the movement of capital to risky ventures beyond the constraints of conventional debt financing. This Royalty Agreement reflects a creative financing hybrid arrangement that features the potential of a high or low return for [the investor] Flow (or even no return if [the company] Hybrid ceases business) depending on the success of Hybrid.

In discussing the company’s argument that section 347 of the Criminal Code applied to render the amount of the royalty payments illegal, the Court explained [at para. 94] as follows:

Section 347 of the Code was not intended to capture creative commercial financing arrangements including hybrid agreements in which the true nature of the agreement is more akin to an equity arrangement and not a loan arrangement. Here, the royalties were sold by a sophisticated corporate entity, aided by lawyers, as a revenue generating asset that could be bought back, to allow it to retire a bank debt. The royalty payments are not incidental to a debt repayment scheme. Section 347 of the Criminal Code was not intended to foreclose creative financing commercial arrangements between sophisticated parties negotiating on a level playing field. There is no suggestion that [the company] Hybrid was in dire straits and had nowhere to turn for financing other than [the investor] Flow. Hybrid had secured financing in the form of a traditional debt/loan from a bank. It wanted a different type of financial arrangement and that is what it bargained for. It cannot now resile from that arrangement because it is more successful than it anticipated it would be when it entered into the Royalty Agreement.

In light of the foregoing, the Hybrid case illustrates an attempt by a company to use the criminal interest rate prohibition in the Criminal Code to avoid payment of amounts agreed upon in a financing arrangement. By agreeing to use a structure that came with the risks as well as the rewards of an equity transaction, the company couldn’t complain later on that it had not bargained for a better result.

Contract Termination Held To Be In Good Faith Though Invalid

The invalid termination of certain agreements was held to be committed in good faith. The case of 2161907 Alberta Ltd. v. 11180673 Canada Inc. (“Tokyo Smoke”), 2021 ONCA 590, distinguishes good faith and bad faith in contract performance.

In the Tokyo Smoke case, a licensor holding the Ontario rights to the “Tokyo Smoke” cannabis brand entered into a series of agreements with a licensee for the operation of a Tokyo Smoke-branded cannabis store in Toronto, including a license agreement for the use of the Tokyo Smoke brand and a sublease under which the licensee rented the store’s retail premises from the licensor. The licensor also offered the licensee funding for start-up costs, including rent, and an inducement of approximately $2 million as a branding fee to open under the Tokyo Smoke banner. Two days before the store was supposed to open, a dispute arose as to the licensor’s obligation to fund the payment of the licensee’s rent for the month of opening. Faced with the licensor’s refusal to pay, the licensee advised the licensor that it would not be opening the store as planned. The licensor took the position that this was a threat to cease carrying on business and accordingly constituted a breach of their agreement. The licensor terminated its relationship with the licensee, refusing to pay the branding fee.

The licensor then brought an application in the Ontario Superior Court seeking a declaration that the licensee had breached the various agreements in effect between the parties, that the branding fee was not payable to the licensee, and that the licensee must therefore vacate the retail premises. The licensee brought a counter-application seeking, among other things, payment of the branding fee and a declaration that the licensor had wrongfully terminated the license agreement and breached its duty of good faith in the performance and enforcement of contractual relations. The application judge dismissed the licensor’s application and granted the licensee’s application, declaring that the licensor had no valid reason to terminate the agreements and had acted in bad faith, and ordered the licensor to pay the branding fee.

The licensor appealed to the Ontario Court of Appeal. While the Court of Appeal dismissed most of the appeal, it set aside the finding of bad faith. In so doing, it provided helpful guidance in interpreting the current law relating to the duty of good faith in contract performance.

The Court of Appeal initially framed its discussion of the duty of good faith by summarizing [at para. 44] the approach taken by the Supreme Court of Canada in Bhasin v. Hrynew, 2014 SCC 71, as follows:

In Bhasin, the court identified four distinct legal doctrines operating as manifestations of the general organizing principle: 1) the duty of cooperation between the parties to achieve the objects of the contract; 2) the duty to exercise contractual discretion in good faith; 3) the duty not to evade contractual obligations in bad faith; and 4) the duty of honest performance. These doctrines generally reflect the situations and relationships in which the law requires contracts to be performed honestly, and reasonably, and not capriciously or arbitrarily. Accordingly, the list of recognized duties is not closed.

As stated by the Court of Appeal [at para. 45], “The application judge did not specify which of these doctrines was at play in this case, nor did she have the benefit of the Supreme Court’s decisions in C.M. Callow Inc. v. Zollinger, 2020 SCC 45, 452 D.L.R. (4th) 44, or Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7, 454 D.L.R. (4th) 1, both of which were released after her decision”.

The Court of Appeal then addressed [at para. 48] four potential sources of bad faith: first, that the licensor knowingly misled the licensee; second, that the licensor “pounced” on a default that it did not believe had occurred; third, that the licensor sought to evade payment of the branding fee in bad faith; and fourth, that the licensor seized upon a breach of its own making.

Regarding the second potential bad faith source, the Court of Appeal held the licensor’s desire to end its relationship with the licensee and chose to “pounce” on what, incorrectly, it saw as providing the opportunity to do so was not sufficient to justify a finding of bad faith. The Court of Appeal explained [at para. 57 and 58] as follows:

A party is not prevented from exercising a right of termination simply because it wishes to bring its relationship with the other party to an end. Nor should a party be prevented from ending a relationship because it will deprive the defaulting party of a payment that it would have received had the relationship continued. Where a party is anxious to end a relationship, and a valid reason to do so presents itself, that party is not, in the absence of some other relevant fact, prevented from “pouncing” on it… While [the licensor] 216’s basis for terminating the License Agreement ultimately proved invalid, … its position on termination was not unreasonable, malicious, or so inconsiderate of [the licensee] 111’s legitimate contractual interests as to constitute bad faith. It was neither manufactured nor concocted.

Regarding the third potential bad faith source, the Court of Appeal held [at para. 66] that the licensor’s seeking to avoid the branding fee did not amount to bad faith, as follows:

I acknowledge that, in Bhasin, the Supreme Court explained that a party has a duty not to evade its contractual obligations in bad faith. As a result, a party that manufactures an artificial reason to terminate a contract in order to avoid future payment obligations would likely be found to have acted in bad faith. However, … 216 believed the termination was justified. The fact that termination releases a party from making a significant payment does not amount to bad faith, even where a court later finds that the termination was invalid.

The Court of Appeal expressed [at para. 72] its conclusion on bad faith as follows:

Put simply, in terminating the License Agreement, 216 did not seek to undermine 111’s interests in bad faith. While 216’s notice of termination was, by definition, an attempt to put an end to the agreement, the termination right in question formed part of the parties’ bargain and reflected, among other things, the licensor’s legitimate interest in protecting its brand in circumstances that the parties expressly stipulated would give rise to a right of termination.

In light of the foregoing, the Tokyo Smoke case helps to differentiate good faith and bad faith conduct. Just because a party may be found to have terminated an agreement invalidly doesn’t mean that it violated its good faith contractual obligations when doing so. In distinguishing an honest mistaken belief from bad faith conduct, Tokyo Smoke suggests that courts will be less likely to find a party violated its good faith duties when the termination arose from the terms of the contract and the termination decision was made honestly and reasonably, not capriciously or arbitrarily.

Having a pre-existing desire to terminate a contract and then “pouncing” on what turns out to be an incorrect basis for doing so does not necessarily amount to bad faith conduct. Misleading or misinforming the other party about something related to the contract does not indicate bad faith unless done knowingly. Where a party honestly believes it has the right to terminate, that conduct does not amount to bad faith even though a court ultimately finds the termination to be invalid.

However, creating an artificial reason to justify terminating a contract and avoid obligations under it most likely comprises bad faith conduct.

Guarantors of Mortgage Liable Despite Postponement Given by Lender

A postponement agreement was held not to supersede a guarantee of a mortgage. The case of Sicotte v. 2399153 Ontario Ltd., 2021 ONCA 912, illustrates how guarantees and postponements are separate and distinct contractual obligations.

In the Sicotte case, a lender loaned $800,000 to a borrower in 2014 in exchange for a mortgage over the borrower’s property pursuant to the terms of a loan agreement. Three individuals who were officers, directors and shareholders of the borrower guaranteed the mortgage pursuant to a separate guarantee agreement in which they agreed to guarantee the borrower’s debts and liabilities “at any time owing” by the borrower to the lender. The lender maintained that the borrower was obligated to make monthly mortgage payments, had failed to do so, and was therefore in default under the loan agreement. The lender looked to enforce the guarantee against the three guarantors.

However, enforcing the guarantee was complicated by a loan to the borrower made by a second lender in 2018 for $3.9 million in exchange for a mortgage over the same property. As part of the loan with the second lender, a postponement agreement was signed by the first lender, the borrower and the second lender which provided that the loan to the second lender was to take precedence over and be fully paid in priority to the loan to the first lender, and the first lender would not, so long as the borrower was indebted to the second lender, demand payment, either in whole or in part, of the first lender’s loan. In reliance upon the postponement agreement, the second lender advised the first lender not to demand payment from the borrower or enforce the mortgage against the property until such time as the second lender was paid in full, the ultimate due date being in August 2043 or, possibly by extension, even later.

Considering the postponement agreement, the first lender commenced an action in Ontario Superior Court on the guarantee and brought a motion for summary judgment against the guarantors. The motion judge dismissed the motion, and in its place, granted an order dismissing the entire action because there were no liabilities to the first lender under the mortgage presently “owing”, the mortgage was not in default, and the guarantors’ obligations were not triggered. The motion judge’s decision therefore prevented the first lender from enforcing the guarantee until the second lender’s mortgage was paid out, a payout that might not occur until 2043, or even later if the second lender granted an extension.

The first lender appealed to the Ontario Court of Appeal. In allowing the appeal and granting summary judgment in favour of the first lender, the Court of Appeal held that the motion judge erred by failing to distinguish between a debt being “owed” and a debt being subordinated and temporarily unenforceable against the borrower, and by failing to distinguish between the obligations of the primary debtor/borrower to the first lender as a lender and those of the guarantors.

The Court of Appeal explained [at para. 16 and 17] as follows:

In my view, the motion judge’s central error is that she confused the [first lender] appellant’s rights as they relate to the underlying debt with her rights as they relate to the guarantee. The two are separate and distinct contractual obligations, and that distinction must be respected. The result arrived at by the motion judge improperly conflates the two. … The guarantors were not parties to the Postponement Agreement. Nothing in the Postponement Agreement purports to, or does, involve, much less alter, the relationship between the appellant and the guarantors. Simply put, there is nothing in the Postponement Agreement that purports to address or affect the appellant’s rights vis-à-vis the guarantors.

The Court of Appeal specifically ruled [at para. 18] that the obligation of the first lender to postpone any right in any security for the loan in favour of the second lender did not apply to the guarantee, as follows:

I do not accept that the reference in the Postponement Agreement that “the [appellant] at the request of the [second lender] [BDC] shall postpone in favour of the [BDC], all its or his right, title and interest in any security in respect of the Debt postponed by these presents” refers to the guarantee. First, the guarantee is not a security “postponed by these presents”. Second, if the BDC had intended to impact on the rights and obligations of the guarantors, it presumably would have sought their concurrence to that impact, either by making them parties to the Postponement Agreement or through the execution of a separate agreement.

The question of whether a debt is due and owing is different from a question of whether a lender can enforce payment of a debt that is due and owing. The Court of Appeal [at para. 21] discusses the difference:

The former addresses liability and the latter addresses enforcement. As this case demonstrates, just because a debt is due and owing does not necessarily mean that a lender can take steps to enforce payment of the debt. In this case, the appellant disentitled herself to enforce payment of the debt by the Borrower because of the contractual arrangements she entered into with the BDC, so as to permit the BDC to advance other monies to the Borrower. Understandably, the BDC insisted on being first in priority in terms of any enforcement rights against the Borrower (and its assets). The appellant contractually agreed to give the BDC that priority by postponing her enforcement rights as against the Borrower.

But while the first lender postponed her rights against the borrower, she did not postpone or otherwise alter her rights of enforcement against the guarantors. Contrary to the finding of the motion judge, the postponement agreement did not do so; the guarantors were not parties to it.

The Court of Appeal concluded [at para. 36] that the motion judge’s interpretation of the applicable agreements could lead to an absurd result, as follows:

In the end result, as I have already observed, the conclusion of the motion judge has the effect of precluding the appellant, not only from being repaid the monies that were borrowed from her for the next twenty-two years, but also from receiving any interest payments to her on those same funds. Indeed, the time for repayment could go beyond that point since the BDC has the right to extend its financing. It means that the appellant must wait more than two decades, not only to be repaid the monies that she lent, but even to receive any return on those monies. That is a result that drives the interpretation of the security arrangements between the appellant and the guarantors to an absurd result.

In allowing the appeal, the Court of Appeal granted summary judgment against the guarantors, each as to one-third of the outstanding debt, in accordance with the terms of the guarantee.

In light of the foregoing, the Sicotte case illustrates what makes a debt due, in contrast to what makes a debt enforceable. A guarantee and a postponement are separate and distinct contractual obligations. The Sicotte case also illustrates that a guarantor may still be liable regardless of what a borrower does. The fact that a borrower enters into a new agreement with a bank or other lender may not change the guarantor’s obligations.

Notice Required Before Seizing Security Under Promissory Note in Default

The seizure of assets given as security for debt evidenced by a promissory note in default was held to require prior notice. The case of 1758704 Ontario Inc. v. Priest, 157 O.R. (3d) 481 (C.A.), 2021 ONCA 588, is a reminder of the common law duty on a creditor to give notice before realizing upon security.

In the Priest case, the buyers of a business almost two years after its sale defaulted on a promissory note secured by heavy construction equipment. Without notice the sellers seized these assets from the buyers, putting them out of business. The sellers sued in the Ontario Superior Court for the money still owing. The buyers filed a counterclaim pleading breach of contract, intentional interference with economic relations, and the tort of conversion based on the seizure without notice. In the main action, the trial judge granted judgment in favour of the sellers, based on the unpaid debt. She also dismissed the buyers’ counterclaim, based on her conclusion that the sellers were not required to provide notice to the buyers prior to seizing the assets. The buyers appealed from the judgment against them in the main action and from the dismissal of the counterclaim, but at the oral hearing, they focused solely on the counterclaim.

The Ontario Court of Appeal allowed the appeal from the dismissal of the counterclaim, holding [at para. 5] that “At common law, and under the terms of the Asset Purchase Agreement (“APA”) entered into by the parties, the appellants were entitled to notice before the equipment was seized. This amounted to a breach of contract”.

The Court of Appeal reviewed the APA, the promissory note, the General Security Agreement (“GSA”) which secured payment under the promissory note and granted security over the purchased assets, and the Ontario Personal Property Security Act (“PPSA”) under which the GSA was registered. The APA, promissory note, GSA and PPSA all included provisions relevant to an event of default. The APA provided that, if the buyers defaulted on any payments under it, the sellers were required to give to the buyer 15 days’ notice before seizing the purchased assets. The promissory note included an acceleration clause in the event of default, such that the entire unpaid balance and accrued interest would become payable immediately, but it contained no notice requirement. Similarly, the GSA made any outstanding obligations immediately payable in full upon default, and specified the remedies available to the sellers, including the right to enter any premises where the purchased assets were located and to repossess and sell those items. But like the promissory note, the GSA stipulated no notice requirement.

The Court of Appeal held that the trial judge erred in finding that the PPSA relieved the sellers of the obligation to give the buyers notice of their intention to seize the secured assets. In summarizing Part V of the PPSA as it provides rights and remedies to a creditor upon default of a debtor, the Court of Appeal stated [at para. 41 and 43] as follows:

More specifically, s. 62 gives the creditor the right to take possession of the secured goods, unless otherwise agreed, or if the secured goods are equipment, the right to render the equipment unusable, but without removing it from the debtor’s premises. Section 63 then grants the creditor the right to dispose of the secured goods, provided the creditor gives the debtor at least 15 days’ advance notice, in writing: s. 63(4). However, pursuant to s. 63(7), no notice is required under s. 63(4) where the goods are “of a type customarily sold on a recognized market.” … In my view, s.63(7) of the PPSA had no application in the circumstances; it could not relieve the respondents of its common law obligation to provide notice to the appellants, and its contractual obligation under the APA.

The Court of Appeal then referred [at para. 50] to the common law obligation to give notice to a debtor before seizing secured assets, a principle adopted in Canada in R.E. Lister Ltd. v. Dunlop Canada Ltd., [1982] 1 S.C.R. 726., as follows:

The Lister principle has been embedded in Canadian debtor-creditor law for decades. This reality is important when considering the reach and effect of the PPSA. The respondents submit that it has been ousted by the PPSA. Even if I were to accept the respondents’ interpretation of s. 63(7) of that Act, there is no basis to conclude that the Legislature intended to extinguish the Lister v. Dunlop line of authority.

The Court of Appeal mentioned the notice requirement in the APA which also provided a duty to give notice in the event of default and rejected the sellers’ submission that the notice provision was inapplicable because it “merged” on closing. In concluding that the notice provision remained operative and did not “merge” upon closing, it held [at para. 61 and 62] as follows:

Although the doctrine of merger has some application to real property transactions …the doctrine has never applied to transactions involving personal property, such as goods. … Moreover, even when applicable, merger is not automatic; it is the intentions of the parties that must prevail. … In this case, the inclusion of [notice] Article 3.03 would make no sense if it were to “merge” upon closing. The entire transaction, for both purchased and leased equipment, was structured on installment payments to satisfy outstanding debt. It provided that, in the event of default “of any payment owing hereunder”, the respondents would have certain remedies, and the appellants would be entitled to notice.

In holding that the trial judge erred in finding that the sellers had no duty to give the buyers notice upon the default on the promissory note, the Court of Appeal [at para. 65] noted the failure to provide notice was not an academic exercise or a mere formality in this case:

The record before the trial judge established that, in October 2012, the appellants applied to their bank for financing to retire the balance on the promissory note, which was roughly $120,645 at the time. Just days after the illegal seizure, on December 12, 2012, the bank approved the advance of $122,000.

The Court of Appeal then set aside the trial judge’s order dismissing the counterclaim, allowed the counterclaim, and remitted the matter to the Superior Court for an assessment of damages.

In light of the foregoing, the Priest case illustrates the need for creditors to provide debtors with notice of their intention to seize the debtors’ property given as security. Even if the documentation applicable to the debtor/creditor relationship makes no mention of notice being required prior to seizing security upon default, the common law imposes such an obligation.

Although the trial judge in Priest rejected the buyers’ argument that the duty of good faith in the performance of contracts obliged the sellers to tell the buyers that they considered a missed payment a default on the promissory note and that they intended to seize the equipment, the raising of good faith arguments generally in future creditor enforcement litigation remains a possibility. It seems that the effects of Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494, and C.M. Callow Inc. v. Zollinger, 2020 SCC 45, 452 D.L.R. (4^th) 44, will continue to be felt.

Parent Company Not Liable for Subsidiary’s Liabilities to Employee

A parent company avoided liability for its subsidiary’s liabilities because of the corporate separateness principle. The case of O’Reilly v. ClearMRI Solutions Ltd., 2021 ONCA 385, illustrates how the common employer doctrine can establish such a liability in certain circumstances.

The O’Reilly case involved a parent company, its Canadian subsidiary, and that subsidiary’s wholly owned US subsidiary. The CEO of both subsidiaries had a written employment agreement only with the US subsidiary. He reported to, and his performance goals were set by, the board of directors of the Canadian subsidiary. When the CEO’s employment ended, he was owed substantial sums for salary and other entitlements. He brought an action in the Ontario Superior Court seeking recovery of all outstanding amounts from both subsidiaries and the parent company. While he did not have a formal position or written agreement with the parent, he alleged that it, along with the subsidiaries, were his “common employers”. He obtained default judgment against the subsidiaries. He subsequently moved for summary judgment against the parent, and his motion was successful. The parent company then appealed.

The Ontario Court of Appeal allowed the appeal, holding that the motion judge erred in her articulation and application of the common employer doctrine and thus made an extricable error of law in concluding that the parent was a common employer.

In addressing the corporate separateness of the parent and the subsidiaries, the Court of Appeal [at para. 44 and 45] stated the following:

The fact that one corporation owns the shares of or is affiliated with another does not mean they have common responsibility for their debts, nor common ownership of their businesses or assets. A corporation’s business and assets are not, in law, the business or assets of its parent corporation. … Similarly, a parent (shareholder) corporation is not liable, as such, for the debts and obligations of a subsidiary. … The fact that corporations are related and coordinate their activities does not, in and of itself, change this paradigm. Ontario law rejects a “group enterprise theory” under which related corporations that operate closely would, by that very fact, be considered to jointly own their businesses or be liable for each other’s obligations. Although the group might, from the standpoint of economics, appear as a unit or single enterprise, the legal reality of distinct corporations governs.

The corporate separateness principle has exceptions, and a court may pierce the corporate veil and hold a parent corporation liable for obligations nominally incurred by a subsidiary corporation that is a mere façade. The Court of Appeal suggested [at para. 47] that “as the test for piercing the corporate veil makes clear, control by one corporation over another, on its own, does not make the controlling corporation liable for the obligations of the controlled corporation; a fraudulent or improper purpose must also be present”.

Since there were no grounds to pierce the corporate veil of any of the relevant corporations, the common employer doctrine was argued to hold the related corporations liable while remaining consistent with the concept of corporate separateness. The common employer doctrine does not involve piercing the corporate veil or ignoring the separate legal personality of each corporation, but instead imposes liability on companies within a corporate group only if, and to the extent that, each can be said to have entered into a contract of employment with the employee.

In analyzing whether a contract of employment was entered into, the Court of Appeal described [at para. 53] the following:

A variety of conduct may be relevant to whether there was an intention to contract between the employee and the alleged common employer(s). As they bear upon this case, two types of conduct are important. One is conduct that reveals where effective control over the employee resided. The second is the existence of an agreement specifying an employer other than the alleged common employer(s).

In concluding on the key question of whether there was an intention that the parent company was a party to the employment arrangement with the CEO, the Court of Appeal held that the motion judge’s conclusions about control over the CEO as an employee were legally insufficient to support summary judgment, and that the corporate interrelationships could not fill that gap. It explained [at para. 90] as follows:

The motion judge did not consider or explain why the aspects of the corporate relationship between [the parent] Tornado and the [subsidiary] ClearMRI companies indicated an intention that Tornado was a party to the employment agreement with [the CEO] Mr. O’Reilly. In the absence of something that shows such an intention, share ownership and its incidents, including the power to elect directors and the alignment of financial objectives between parent and subsidiary corporations, are insufficient to establish common employer status on the parent. The motion judge referred to an overlap in directors, but there was no suggestion of confusion about the capacity in which directors were acting when they interacted with Mr. O’Reilly concerning employment. And while the motion judge relied on Tornado’s consent rights under the Unanimous Shareholder Agreement, those rights did not extend to employment agreements or changes in senior management – matters reserved to the ClearMRI Canada board.

In light of the foregoing, the O’Reilly case illustrates that even though the common employer doctrine allows a court to treat separate legal entities as a single employer for liabilities such as outstanding wages, termination pay or severance pay in appropriate circumstances, the fact that companies are related and coordinate their activities does not mean they have common liability. A parent or shareholder company is not liable as a common employer unless there is a clear intention to create an employer-employee relationship.

Furthermore, the principle of corporate separateness, of companies being treated as distinct for liability purposes, is not undermined simply because of their relatedness. Those businesses that have organized their corporate structures to accomplish various objectives, often tax effectiveness or creditor proofing, should be aware of the need to establish clear lines of liability, especially with respect to their employees.

Alleged Oppression Leads to Share Buy-Out with Minority Discount

The case of Locke v. Quast, 156 O.R. (3d) 384, 2021 ONSC 3988, illustrates when a minority discount may be applied in oppression cases.

In Locke, the sole shareholder and president of an ironworks company invited a journeyman machinist to run the company’s day-to-day operations, and the machinist was appointed vice-president and secretary-treasurer and issued 20% of the company’s common shares. Although two shareholder agreements were drafted, neither was executed. The working relationship of the two men eventually broke down and the machinist left the company, alleging in an application to the Ontario Superior Court that he had been treated in an oppressive fashion. The Court disagreed. Yet despite no finding of oppression, the Court found that upon the breakdown in the relationship, the machinist’s expectation that he be paid for his shares was a reasonable one. A further trial took place to determine the proper value of the machinist’s shares and the terms and conditions for their purchase and sale.

The opinions of three different valuators were considered. All three used the same financial records of the company. All three valued the business as a going concern. All three utilized an income-based technique which applied a capitalization rate to the earnings of the company. Earnings were treated as before interest, taxes, depreciation and amortization. All three deducted the value of the president’s preference share interest of $400,000 from the value of the company. The capitalization rates used by the valuators were in a comparable range from 25.2% to a high of 33.3%. After considering the valuators’ opinions, the Court found the value of all of the company’s common shares was $2,870,000.

The machinist argued no minority discount should be applied in determining the value of his 20 common shares, whereas the president argued that a minority discount of 25% should be applied. The Court [at para. 47] addressed the different approaches to applying a minority discount as follows:

A minority discount is an economic concept that relies on free market experience. Generally, the offer to purchase a minority share position in a closely held company is not as attractive as a majority or equal position, because the minority will be practically unable to assert any control over the direction of the affairs of the company. This leads to a lessening of the value of the shares and a “minority discount”. On the other hand, in oppression proceedings, generally speaking, valuations should be made without reference to a minority discount (see Markus Koehnen, Oppression and Related Remedies (Toronto: Thomson Carswell, 2004), at p. 370, citing, among other Naneff v. Con-Crete Holdings (1995), 23 O.R. (3d) 481 (C.A.), at 493). This approach relies on the theory that but for the oppression, the sale of shares would not occur and the minority shareholder could continue to enjoy the benefits of share ownership equivalent to the full pro rata value of whatever percentage position was held. A sale in a circumstance of oppression often allows a majority shareholder to consolidate their holdings, which is considered beneficial. Conceptually allowing a minority discount on an occasion of oppression is a reward of behavior the legislature has disavowed by enacting the oppression remedy sections of the OBCA.

The Court continued [at para. 50] in explaining why the value of the machinist’s shares should be subjected to a minority discount:

[The machinist] Mr. Locke is receiving value for shares for which he paid one dollar. No doubt he contributed to the growth and success of the company leading up to its August 2014 value. However, he was brought into [the company] LII on a minority basis. There was no evidence to suggest he would have been offered to increase his position to that of a 50% owner, for example, nor be offered the opportunity to buy out [the president] Mr. Quast. These facts, in my view, militate towards a valuation that gives recognition to an open market approach to value as opposed to one that reflects a sale arising from oppressive conduct.

The minority discount was determined by the Court [at para. 51] as follows:

The valuators all provided an opinion on the quantum of a minority discount. [One valuator] Mr. Leung proposed a range of between 25% to 30%, and the other two valuators proposed 27.5%. They all acknowledged this amount was based on their overall experience and the trends they had seen in the case law. In this matter, I find that a minority discount of 20% is appropriate. In my view, it represents a fair amount for the reasons stated above. As there was no finding of oppression, a value that represents the impact of an open market sale is most fair and equitable in all the circumstances of this case.

The value of the machinist’s 20 common shares was set by the Court [at para. 52] “at $459,200.00 ($2,870,000.00 X .20= $574,000 less 20% = $459,200.00)”. The company was then ordered to buy the 20 shares and the machinist was ordered, upon payment in full, to resign as an officer and director of the company.

Company Owner Held Not Liable Under Personal Guarantee for Company Debt

Personal guarantee included in updated company credit application and security agreement was not brought to the owner’s specific attention and the owner’s signature thereon was thereby held to be obtained by misrepresentation and unenforceable. The case of Tire Discounter Group Inc. v. MacGibbon, 2021 ONSC 5199, illustrates that a guarantor in a special commercial relationship must be treated fairly.

In Tire Discounter, a large tire supplier sued its long-standing customer in the Ontario Superior Court to recover funds owed for goods it provided, but given that the action had been stayed due to the customer’s bankruptcy, the supplier pleaded that the company’s owner was bound by his personal guarantee of the funds owed. While the owner admitted that his company owed funds to the supplier, he denied knowingly giving a personal guarantee to secure the funds owed by his company. The Court was not satisfied that the owner was bound by a personal guarantee for these funds. Evidence about the Credit Application and Security Agreement (which contained the Guarantee) and how it came to be signed varied amongst the witnesses.

The Court emphasized [at para. 41] that individuals are generally liable on contracts they have signed whether they have read the contracts or not, quoting Fraser Jewellers (1982) Ltd. v. Dominion Electric Protection Co. et al., [1997] O.J. No. 2359 (C.A.), as follows:

As a general proposition, in the absence of fraud or misrepresentation, a person is bound by an agreement to which he has put his signature whether he has read its contents or has chosen to leave them unread. Failure to read a contract before signing it is not a legally acceptable basis for refusing to abide by it.

That case was “not a case in which the clause limiting liability was so obscured as to make it probable that it would escape attention. The language was clear and unambiguous. There was no special relationship between the parties that imposed any obligation on the defendant to bring the clause to the specific attention of the plaintiff.”

The Court also referred to [at para. 43] another case, Coast Wholesale Appliances Ltd. v. Armitstead, 22 BCAC 84, which upheld a trial judge’s finding that although the corporate defendant was liable for a debt to the plaintiff, the personal defendant was not liable as guarantor of the corporate defendant’s indebtedness to the plaintiff. It was upheld in that case that there had been a misrepresentation to the personal defendant to the effect that the document he was being asked to sign was simply a “credit application”.

In Tire Discounter, the Court was satisfied on a balance of probabilities that the owner did sign the guarantee, and that in the absence of fraud or misrepresentation, would find the owner bound by the guarantee he signed.

Yet the Court concluded that the owner’s signature on the guarantee was obtained by misrepresentation. The guarantee was set out within a box with the title “Security Agreement and Release of Information” but the guarantee was set out in a separate paragraph and under the subtitle “Guarantee”. The location and size of printing of the guarantee did not make that portion of the document stand out. In looking to the surrounding circumstances, including the special relationship between the parties, the Court found there was a positive obligation imposed on the supplier to bring the paragraph to the specific attention of the owner. The Court accepted the owner’s evidence that the document was presented to him as an update form and nothing else.

Concluding that the owner’s signature on the guarantee was obtained by misrepresentation and in finding that the guarantee was not enforceable, the Court held [at para. 59 and 60] as follows:

In these circumstances it was not sufficient for [the supplier] TDGI to present to [the owner] Darren MacGibbon the document entitled “Credit Application and Security Agreement” in a casual way as merely an “update”, without bringing to his attention the personal guarantee contained within the document. The casual way in which TDGI treated the document once it was signed reinforced Mr. MacGibbon’s impression that the document was not important. I find that there existed between these parties a special relationship that imposed a positive obligation on TDGI to bring the guarantee clause to the specific attention of Darren MacGibbon. I am satisfied they did not do so, and therefore misrepresented the contents of the document…. I find that TDGI obtained Mr. MacGibbon’s signature on the guarantee by misrepresentation. I find that TDGI thereby acted in an unfair and unreasonable way toward Mr. MacGibbon. I find that the guarantee is not enforceable.

In light of the foregoing, the Tire Discounter case illustrates how a company owner is able to avoid personal liability under a guarantee for company debts. Business owners are often asked by lenders to provide a personal guarantee for loans to their company as additional security to the security already granted by the company. The lenders should ensure that they take measures to draw the specific terms of a personal guarantee to the owner’s attention so that it is not buried within the terms of a credit agreement or related security documents, or stuck in just before signing.

While parties are generally not able to avoid the legal obligations of agreements that they sign, whether or not they have attempted to read them, the Tire Discounter case is unusual in that the supplier was found to have acted unfairly towards the owner based on their long-standing relationship. If the supplier had taken more care to ensure that the terms of the guarantee were drawn to the owner’s attention, the owner may well have been held personally liable for the full amount of the company’s debt.

Court Orders Buyout of Shares and Appointment of Receiver as Remedy for Oppression

Oppressive conduct including the failure to provide basic financial information and the appropriation of company funds for personal use results in order of share buyout and appointment of receiver. The case of V.M. Koury Investments Ltd. v. Bolton Steel Tube Co. Ltd., 154 O.R. (3d) 538, 2021 ONSC 3408, imposes liability on sole company director as the personal beneficiary of the oppression.

In the Koury case, a company operating in the steel industry had been managed by its sole director and officer in a manner that was oppressive to the interests of a shareholder holding 30% of the company’s shares. The shareholder applied to the Ontario Superior Court for an oppression remedy, and while the company and the shareholder agreed that the shareholder should be bought out, they disagreed on the mechanism or valuation to do so. The director had operated the company as his own, violated numerous court orders, failed to provide the most basic financial information, and appeared to have used the company as his personal piggy bank from which to withdraw funds and assets at will. When he was called out for the defalcations, he delayed, obfuscated or destroyed records.

In describing the director’s oppressive conduct, the Court stated that the director stopped preparing audited financial statements, stopped sharing information about the company with the shareholder, stopped paying dividends to the shareholder, and stopped preparing even review engagement financial statements. A specific example of the oppressive conduct was cited by the Court [at para. 9] as follows:

It appears that [the director] Mr. Penny had caused [the company] Bolton to advance money $3.3 million to himself as “shareholder advances” which he appears to have used to fund his own lifestyle, including his purchases of numerous racehorses. Mr. Penny appears to have funded the shareholder advances either in whole or in part with high-interest mortgages on real estate owned by Bolton.

The Court stated [at para. 15] that “the issue of financial statements and calculation of financial misappropriations was additionally complicated because financial records before 2018 were ‘erased’ from the computer system” and “Mr. Penny has offered no explanation for this”.

In holding that personal liability ought to be imposed upon the director, the Court [at para. 41] stated “that Mr. Penny was the personal beneficiary of the misconduct” and he “used personal advances to himself for his own benefit. … Moreover, it was Mr. Penny who had to engineer the transactions from a corporate perspective as the sole director.”

Noting that courts have appointed receivers in oppression cases where it was necessary to preserve a company’s assets and protect the interests of all stakeholders, the Court decided [at para. 49] as follows:

The appointment of a receiver is warranted here. Mr. Penny has shown himself incapable of managing Bolton in a trustworthy manner. He has destroyed financial records, failed to produce audited financial statements, failed to cooperate with his own auditors sufficiently to enable them to produce audited statements, has misused corporate assets for his own purposes and has failed to provide an adequate explanation for the dissipation of millions of dollars of corporate funds.

Having concerns with the shareholder’s approach to valuation for the purposes of a share buyout, the Court stated that it was left in the position of making a financial calculation based on very imperfect information. It continued [at para. 64] as follows:

I greatly appreciate that my approach to the valuation set out above is on the rough and ready side. I recognize that it does not meet any gold standard of valuation or accounting. The reason for that, however, is attributable solely to Mr. Penny. If he has managed Bolton in a way to make its financial dealings opaque and has destroyed financial evidence, he is in no position to complain of the imperfection surrounding any valuation exercises.

Reflecting its desire to provide the parties with a mechanism to accomplish a share buyout, the Court stipulated [at para. 66] as follows:

Until a final value of the share by it has been determined, the receiver will manage the business of Bolton in the ordinary course. Once a value has been determined, Mr. Penny will have 15 days to pay that amount. If he fails to do so, the receiver may either mortgage the assets of Bolton in an amount sufficient to pay the applicant its shares and costs or sell the assets of Bolton with a view to paying the applicant her shares.

The Court concluded [at para. 67] as follows:

That means Mr. Penny should energetically seek out financing now to buy the applicant out unless he already has funding for that purpose. Mr. Penny is at liberty to explore placing a further mortgage on Bolton’s real estate to effect the buy out. Mr. Penny may not, however, place any further mortgage on the property without the applicant’s approval. The purpose of that condition is to ensure that any financing is paid directly to the applicant and does not give Mr. Penny an opportunity for further oppression.

In light of the foregoing, the Koury case illustrates the challenges a court can face in fashioning a suitable remedy for oppressive conduct, especially when a company’s financial records are incomplete or unavailable.