The estate of a former CEO brought an oppression action under s. 248 of the Ontario Business Corporations Act seeking recovery of a $750,000 loan advanced to finance a corporate break fee.
The loan was structured through a related entity and contained provisions stating that proceeds from certain Irish transactions could be used, at the lender’s discretion, to repay the loan.
After the corporation received nearly $1 million from three of the four transactions, the directors and CFO used the funds for payroll, operating expenses, tax arrears, and to repay their own loans rather than repaying the lender.
The court held the lender had a reasonable expectation that proceeds from the Irish deals would be applied to the loan principal.
While some expenditures were made in good faith to keep the company operating, the repayment of insiders and a later lender constituted conduct that unfairly disregarded the lender’s interests.
Personal monetary orders were made against certain directors and the CFO.
