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Two Years, Too Late: Application of the Limitations Act, 2002 to OBCA Provisions
The Court of Appeal for Ontario recently confirmed that the Limitations Act, 2002 applies to provisions under the Ontario Business Corporations Act ("OBCA") requiring corporations to provide audited financial statements to shareholders. The decision, Lagana v. 2324965 Ontario Inc., has significant implications for asserting shareholder rights in Ontario.
Background
Carmelo Lagana, a shareholder of 2324965 Ontario Inc., sought to enforce his right to receive audited financial statements from the corporation, as mandated by the OBCA. The corporation, co-founded by Lagana's late father and his business partner, David Power, had not provided audited financial statements since its inception in 2012. When a dispute arose in 2021, Lagana requested statements covering the years 2013 to 2020. Lagana's request was initially granted with the Superior Court ruling that the request was not subject to the two-year limitation period under the Limitations Act, 2002.
The Divisional Court
The corporation and Power appealed the decision, arguing that the demand for audited financial statements constituted a "claim" under the Limitations Act, 2002, and was therefore subject to the two-year limitation period. The Divisional Court agreed, finding that the application judge erred in determining that the Limitations Act did not apply. The court held that the request for financial statements was indeed a "claim" as it sought to remedy a loss or injury resulting from the corporation's failure to comply with its statutory obligations.
The court held that Lagana was aware of the corporation's non-compliance by at least 2021, when he first requested the audited statements, thus starting the limitation period.
The Court of Appeal
The Court of Appeal upheld the Divisional Court's decision, affirming that the Limitations Act, 2002 applies to compliance orders under the OBCA. Justice Miller emphasized that the corporation's statutory obligation to provide audited financial statements correlated with a shareholder's right to receive them. This right, when unfulfilled, constitutes a "claim" under the Limitations Act, 2002, thereby triggering the two-year limitation period.
The court rejected the argument that compliance orders under the OBCA are merely statutory obligations without corresponding rights. Instead, the obligation to provide audited financial statements is not a free-floating duty but a specific obligation to shareholders, thereby creating a corresponding right that can be enforced through a claim.
Implications for Shareholders
For shareholders, the Lagana decision confirms the need for timely action to enforce statutory rights under the OBCA. Delays in seeking compliance with statutory obligations may result in claims being statute-barred under the Limitations Act, 2002.
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