Does the two year limitation period in Ontario apply when the
court is determining a just and equitable distribution of a
company's assets in a winding up proceeding? In 2011680 Ontario
Inc. v. 968831 Ontario Inc., 2011 ONSC 4595, the Honourable Justice
Perell considered this issue, on an application to wind up 968831
Ontario Inc. ("Cashcode") pursuant to the Ontario
Business Corporations Act, R.S.O. 1990, c. B. 16.
In the proceeding, both of the shareholders of Cashcode, 2011680
Ontario Inc. ("Levitan") and Saltsov Holdings Inc.
("Saltsov") agreed that Cashcode should be wound up. At
issue was whether adjustments should be made in favour of Saltsov
when distributing the assets of Cashcode. One the adjustments
related to cash distributions made in the period 2003 to 2005 to
shareholders and their wives which provided them with compensation
above that of the Saltsov shareholder and his wife. The second
adjustment sought by Saltsov related to tax liabilities incurred as
a result of a shareholder dividend.
One of the grounds upon which the Levitan opposed the
adjustments requested by Saltsov was the application of the
Limitations Act, 2002, S.O. 2002, c. 24, Sch. B. Levitan argued
that Saltsov was aware of the claims by August 2006, and that it
was therefore too late to raise the issue during the 2011 winding
The judge believed that it was "fair and equitable"
that the second adjustment related to tax liabilities be made
pursuant to the remedial powers in sections 248(3) and 207(2) of
the Business Corporations Act. The judge reasoned that if the
shareholders had elected to receive bonuses rather than dividends,
Cashcode would not have had to pay tax, interest and penalties. The
judge called it "the right thing", regardless of the
understanding between the parties or when the issue was first
raised, to adjust the accounts of Cashcode accordingly.
Although the judge remarked that he believed that an oppression
claim related to the second adjustment would have been
statute-barred, he held that he was not barred from making the
second adjustment as part of the wind-up order. Before referring to
limitations periods as a "technical defence", he
"It is to be remembered that a limitation period defence
does not extinguish the legal rights. The expiry of a limitation
period does not make the plaintiff's claim a nullity, but it
provides the defendant with a defence that if pleaded and proven
will bar the plaintiff's claim."
However, it appears that the expiry of a limitations period may
still be considered as part of the test as to what the court
considers to be "fair and equitable". The judge ruled
that the first adjustment requested by Saltsov, relating to
asymmetrical distributions of executive salaries, would not be just
and equitable. He held that the existence of a limitations period
which may have barred the equivalent oppression remedy "added
weight" to his decision.
The learning arising from the decision of 2011680 Ontario Inc.
v. 968831 Ontario Inc. is that a judge may make an order which
would otherwise be statute-barred as an oppression remedy on the
winding-up of a corporation. However, applicants must be prepared
to justify why the relief sought would be just, fair and equitable
and, perhaps, why limitations periods should not be given
overriding "weight" in such a consideration.
The foregoing provides only an overview. Readers are
cautioned against making any decisions based on this material
alone. Rather, a qualified lawyer should be consulted.
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