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 up proceeding.
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 stated:
"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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