SUPERIOR COURT OF JUSTICE – ONTARIO
COMMERCIAL LIST
RE: Latvian House Toronto Limited, Applicant
AND:
Fraternity “Lidums” et al., Respondents
BEFORE: D. M. Brown J.
COUNSEL:
J. Heller and D. Kuze, for the Applicants
Y. T. Kim, for the Public Guardian and Trustee
HEARD: April 10, 2012
REASONS FOR DECISION
I. Motion for further directions on the liquidation of a corporation
[ 1 ] As I noted in my February 17, 2012 Reasons in this matter ( 2012 ONSC 1195 ), the Latvian House Toronto Limited (“LHTL”) sought directions on how to distribute the portion of its assets to shareholders for whom it does not have current addresses (the “Unlocated Shareholders”). That part of the motion for directions was adjourned to permit discussions with the Office of the Public Guardian and Trustee.
[ 2 ] In paragraph 3 of my February Reasons I found that LHTL had used reasonable efforts to locate it shareholders. The question then becomes: what should LHTL do with the funds representing the entitlement of shareholders whom it was not able to locate? Each shareholder is entitled to receive a distribution of approximately $1,250.00 per share. LHTL has identified 128 shareholders who own 156 shares and whose addresses are unknown.
II. Positions of LTHL and the PGT
[ 3 ] In its notice of motion LTHL sought an order permitting it, at the second distribution stage, to pay the distributions otherwise payable to the Unlocated Shareholders to the Latvian Canadian Cultural Centre, a descendant organization to LHTL, or alternatively to the PGT. LHTL stated that the Cultural Centre pursued objects and goals similar to those of LHTL and the Cultural Centre was prepared to hold the distributions in trust for two years for Unlocated Shareholders, following which the funds would be paid into the general account of the Cultural Centre to use for its own purposes.
[ 4 ] The PGT opposed such a distribution, arguing that the distributions for the Unlocated Shareholders should be paid to it pursuant to section 268(1) of the Corporations Act .
III. Analysis
[ 5 ] I accept the submissions of the PGT. Section 268(1) of the Corporations Act provides as follows:
- (1) Where the liquidator is unable to distribute rateably the property of the corporation among the shareholders or members because a shareholder or member is unknown or the person’s whereabouts is unknown, the share of the property of the corporation of such shareholder or member may, by agreement with the Public Guardian and Trustee, be delivered or conveyed by the liquidator to the Public Guardian and Trustee to be held in trust for the shareholder or member, and thereupon subsections 319 (5) and (6) apply thereto.
Section 319(6) provides:
If the share of the property delivered or conveyed under subsection (3) or its equivalent in money, or the amount paid under subsection (4), as the case may be, is claimed by the person beneficially entitled thereto within ten years after it was so delivered, conveyed or paid, it shall be delivered, conveyed or paid to the person, but, if not so claimed, it vests in the Public Guardian and Trustee for the use of Ontario, and, if the person beneficially entitled thereto at any time thereafter establishes the person’s right thereto to the satisfaction of the Lieutenant Governor in Council, an amount equal to the amount so vested in the Public Guardian and Trustee shall be paid to the person.
[ 6 ] Under this statutory scheme an Unlocated Shareholder would be entitled to make a claim for payment out of its share of the distribution for up to 10 years, following which an order in council would be required to have the monies released to the shareholder. In both cases the application requirements for an Unlocated Shareholder would be the same: providing proof of ownership and a release, and payment of an administrative fee of $125.00.
[ 7 ] Although the Corporations Act grants courts broad powers on winding-up applications, including the power to make “any interim or other order as is considered just”, [1] and although the statutory scheme created by section 268 is permissive, I think that the statutory scheme operates as the default scheme in the event a liquidator is unable to distribute rateably the property of the corporation among shareholders because a person’s whereabouts is unknown. A transfer of the funds to the PGT will maximize the opportunity for Unlocated Shareholders to make claims in the future for their rateable share of LHTL’s assets. In addition, in Fund of Funds, Ltd. (Re) [2] Ground J. questioned whether this court possessed the authority to transfer to a third party funds from a liquidation for shareholders who could not be located:
This issue was not thoroughly canvassed in the submissions made to this court on the hearing of this motion but I am not satisfied as to the authority of a liquidator to transfer to a third party property belonging to shareholders of a corporation who cannot be located, particularly when the applicable statute under which the liquidation is proceeding makes provision only for the transfer of such property to the PGT or for such property to forfeit to and vest in the Crown. I am, accordingly, not prepared to order that the funds held by the Liquidator for Inactive or Non-Responding Fundholders or Claimants be transferred to a trust.
[ 8 ] Since the PGT is agreeable to receiving delivery of the undistributed funds for the Unlocated Shareholders under section 268(1) of the Corporations Act , I conclude that LHTL shall deliver such funds to the PGT to be dealt with in accordance with sections 268(1) and 319(6) of the Corporations Act .
[ 9 ] The PGT seeks costs of $2,700.00 for its participation in this motion. The PGT is entitled to such costs from LHTL, payable within 30 days. As I stated during the hearing, in light of the default statutory scheme this motion was unnecessary and LHTL should have entered into a consent agreement with the PGT.
D. M. Brown J.
Date : April 12, 2012
[1] Corporations Act, s. 245.
[2] [2004] O.J. No. 2580 (S.C.J.), para. 7 .