Canada: Are Different Burial Rites Coming For Ontario Corporations?

Last Updated: May 15 2013
Article by Paul D. Shantz

The Ministry of Infrastructure (the "Ministry") for the Province of Ontario issued a consultation paper entitled "Revitalizing Forfeited Corporate Property" (the "Paper") in October 2012, setting out a wide variety of possible changes to the existing system governing the forfeiture, disposition, management and sale of property of dissolved corporations in Ontario. The proposals set out in the Paper are conceptual at this point, and the Ministry is now reviewing the comments received on them. However, it is clear that the Ministry is seeking stricter control for those corporations which dissolve owning real property in Ontario which has not been transferred to shareholders or other parties (whether deliberately or inadvertently). The Paper discusses the perceived shortcomings in the existing law and practice governing both dissolutions and revivals, which can result in the provincial Crown assuming liabilities and costs associated with real property owned by a dissolved corporate entity, and indicates that the Ministry does not feel there is adequate control of the dissolution process or ability to recover its costs. Third parties who may have an interest in such real property, such as lenders, municipalities, and neighbouring owners, will be affected by these initiatives, if implemented. Some of the ideas under consideration are outlined below. A full copy of the Paper can be downloaded here.

The Existing System

As outlined in the Paper, currently Ontario law provides that any property in Ontario owned by a corporation that has not been disposed of at the time of that corporation's dissolution is forfeited to the Crown. Dissolution may occur via an administrative process (usually initiated by the government due to persistent non-compliance with other statutes, such as failure to file corporate tax returns); a voluntary dissolution initiated by the corporation; and dissolution for cause. Administratively dissolved corporations may be revived for a period of 20 years after dissolution provided that consent is obtained from the necessary Ontario ministries, but thereafter a private bill passed by the Legislative Assembly is required to revive the corporation. For voluntary or for cause dissolutions, a private bill is the only mechanism for revival. Upon revival, the corporation usually recovers ownership of the forfeited real property, although its title may be subject to rights of third parties acquired during the period of dissolution.

The Office of the Public Guardian and Trustee has responsibility to transfer, assign or discharge the Crown's interest in forfeited corporate property when requested. Real property lawyers may occasionally need to seek releases from that office for real property which has inadvertently been forfeited to the Crown. The Ministry manages the Crown's portfolio of known forfeited corporate property. As noted in the Paper, there is no notification system now in effect under which the province is informed that any real property has been transferred to it due to dissolution. The dissolved corporation would still be shown as the registered owner in the land registry system, and the dissolution may only come to light when issues like the state of repair arise or for some other reason a third party brings it to the Ministry's attention.

The Paper is organized by general topical headings with a variety of specific options under each heading, as follows.

a. Reduction of the number of properties that forfeit to the Crown

The Ministry is proposing mechanisms to prevent the unwanted forfeiture of real property to the Crown by imposing enhanced due diligence requirements on corporations seeking to voluntarily dissolve. The goal is to encourage those corporations to dispose of all their property before a dissolution can legally be effected. The Ministry proposes that a statutory declaration to this effect or some other form of assurance be prepared and submitted by the representatives of the corporation to the government in all cases of a voluntary dissolution application. Another initiative proposed is that the Ministry of Finance be granted a general right to sell the corporation's property prior to dissolution in order to satisfy any arrears of taxes owed to the Ontario government, rather than solely relying on lien rights under provincial taxing statutes.

b. Returning forfeited corporate properties to productive use

Where property has already forfeited to the Crown but is subject to existing financial encumbrances such as mortgages, PPSA security interests, and execution creditors, the Ministry has set out several options for new remedies affecting those parties. These are all intended to encourage the holder of financial encumbrances to act on their interests in a more timely manner. After written notice is given by the Ministry to the holders of any encumbrances, it is proposed that the interest of the holder of the financial encumbrance in the forfeited real property can be wiped out. Another option proposed is that such encumbrances would be automatically removed without notice after the expiry of a 3 year period following the date of a dissolution. The Paper proposes safeguards to prevent the Ministry from removing encumbrances prematurely, such as prohibiting such removal if a creditor has commenced or intends to commence enforcement proceedings. However, if implemented, these changes would likely mean that such creditors need to more actively monitor the corporate status of corporations which have granted security over their real estate, and make quicker decisions whether or not to enforce their security. The option of waiting for another party to initiate a sale of such property and request a discharge of the security of the encumbrancer may not be available.

The Paper proposes creating a mechanism for the Ministry to deal with "stranded" parcels of real property which have been forfeited to the Crown in larger development sites after dissolution of a single purpose development company. In subdivisions these parcels might include unused blocks, one foot reserves, undedicated roads, and lands that are not developable due to their condition or location, and in the case of condominiums areas such as walkways, parking spaces and garbage pads. These situations might arise where the developer concluded the sale of all the marketable lands around those parcels had taken place and wound down its development business. In these situations, the Ministry proposes to have the right to transfer title to the stranded parcels to municipalities, conservation authorities, or an adjacent land owner, and in the case of condominiums to the condominium corporation, as appropriate. The Paper proposes that these transfers would not require the consent of the transferee party, which may prompt some discussion.

c. Increases in corporate accountability for costs associated with forfeited property

The Ministry proposes that the current administrative practice, in which only the Ministry of Finance consents to the revival of an administratively dissolved corporate entity, be expanded to require that both the Ministry of Infrastructure and the Minister of the Environment receive notice of and have the right to object to such revival. The intention is to enhance the likelihood that costs incurred by other ministries of the Crown also be recovered as a condition of a revival of the corporation. In a related initiative, the Paper proposes that the government would have the authority to revoke any administrative dissolution of a corporation retroactively where this was considered to be in the public interest. It is unclear what rights of appeal or notice of such action would be available, or how third parties' rights acquired in the interim would be dealt with.

In what may be perceived as an expansion of the current law under which corporate officers and directors may be personally liable for some environmental harms caused by a corporation, the Paper suggests that where real property with environmental issues is allowed to forfeit to the Crown, the Ministry be given authority to hold any director or officer of a corporation holding office at any time during the period of 2 years before the dissolution of the corporation responsible for any costs incurred by the government of Ontario to deal with legacy environmental issues.

d. Transparency and certainty in management and disposition of forfeited corporate property

A number of largely administrative changes are proposed under this general heading. Of interest to real property lawyers, the Paper raises the concern that a dissolved corporation may purport to execute and register a transfer or charge/mortgage to third parties who fail to conduct a corporate search to confirm the existence of such corporation, and then such third parties need to seek relief from the title issue caused by that oversight. As a means of preventing this, the Paper proposes a new solicitor's statement in electronic title documents to confirm that the lawyer has completed the appropriate corporate status search regarding a transferor or chargor and that the corporation is an active corporation which has not been dissolved.

Summary

The Paper sets out a number of interesting questions and potential initiatives and solicited comments on those. The comment period was open to December 31, 2012, was extended to January 30, 2013, and the comments received are now under review. Many of the changes proposed appear to be useful suggestions to reduce the likelihood that the province of Ontario is assuming liabilities and costs associated with real properties which are being abandoned by the owner through the mechanism of dissolution. Other ideas proposed may draw scrutiny. It will be interesting to see what feedback on the Paper has been received from the public, and if and how the initiatives proposed by the Paper advance further.

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