OSHAWA COURT FILE NO.: CV-20-903
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
GABRIEL STEFANESCU and RE STATS INC.
Plaintiffs
– and –
KENNETH DECENA
Defendant
Counsel:
Brian D. Belmont, for the Plaintiffs
Gordon A. Meiklejohn, for the Defendant
HEARD: January 17-21 and 27, 2022
REASONS FOR DECISION
DE SA J.:
Overview
1The Plaintiff, Gabriel Stefanescu (“Stefanescu”), and the Defendant, Kenneth Decena (“Decena”), are the shareholders, directors and officers of the corporate Plaintiff, RE Stats Inc. (“RE Stats” or the “Corporation”).
2The action seeks to remove the Defendant as a shareholder, director and officer of RE Stats (ie. achieving a “corporate divorce”) and obtain repayment by the Defendant to RE Stats for monies taken from the Corporation in what the Plaintiff alleges is a breach of the Defendant’s fiduciary obligations.
3The Plaintiffs seek:
A declaration that the conduct of the Defendant, Kenneth Decena, has been oppressive, unfairly prejudicial to and with unfair disregard to the interest of RE Stats Inc. and to the interests of Gabriel Stefanescu as a shareholder, director and officer of RE Stats Inc., pursuant to section 248 of the Business Corporations Act (“BCA”);
An Order pursuant to s. 248(3) of the BCA restraining the oppressive conduct, and directing RE Stats Inc. to purchase for cancellation all shares owned by Decena in RE Stats Inc.;
An Order requiring the transfer of Decena’s shares to Stefanescu;
An Order removing Decena as a director and officer of RE Stats;
An Order preventing Decena from taking, withdrawing or receiving any funds belonging to RE Stats or its bank accounts; and
An Order directing Decena to compensate Stefanescu, an aggrieved person pursuant to s. 248(3)(j) of the BCA, and require Decena to disgorge, repay and return to RE Stats any or all amounts taken, and to repay RE Stats the amounts paid by the Corporation to the CRA on his behalf.
4The Defendant is not opposed to transferring his shareholding interest in RE Stats but wishes to receive payment in return for his shareholding interest.
5He also disputes the amounts alleged to be owed to the Corporation. According to the Defendant, the Plaintiffs are statute-barred from any claim outside the relevant limitation period.
6I agree that a corporate divorce is warranted. My decision regarding the valuation of RE Stats and the appropriate purchase price for Decena’s 50% share (less deductions) is outlined below.
Summary of Facts
Background of RE Stats
7In 2005, Stefanescu and Decena left their previous employment at IMS Incorporated to create their own real estate statistics company. RE Stats Inc. was incorporated on September 14, 2005.
8There is no formal shareholders agreement between Stefanescu and Decena with respect to RE Stats Inc. The Plaintiff, Gabriel Stefanescu, and the Defendant, Kenneth Decena, each own one common share of RE Stats and are the only directors and officers of the Corporation. They each own one-half interest in the Corporation.
9From 2005 until 2014, both Stefanescu and Decena dealt with establishing the Corporation. Stefanescu was focused primarily on the development of the company’s products/software. Decena worked on developing the customer base and putting together a sales team.
10Decena helped set up an office and brought in a team comprised largely of family and friends which included Chris Atiga, Don Tortal, Benjamin Frias, Alvin Amparo and Mae Amparo (accounting). Donna Harrison and William Pepper who worked at IMS were also brought in by Decena to assist with sales. Decena would travel to the U.S. for trade shows and to promote the company.
Decena’s Unauthorized Spending
11As part of his sales activities, Decena would travel to various locations in North America to meet with potential customers. Initially, Decena was using his personal credit cards for travel expenses and was reimbursed by RE Stats. However, Decena eventually got company credit cards and according to Stefanescu, Decena began to charge his personal expenses on the cards.
12As time went on, Decena’s withdrawals from the company bank account were creating problems for RE Stats’ financial situation and impeded the company’s ability to achieve healthy growth through the reinvestment of its earnings.
13After 2012, Stefanescu took over the finances. He told Decena to stop making random withdrawals. He stopped the credit card payments from the company’s accounts and Stefanescu began to file the tax returns for the Corporation.
14He began to pay both himself and Decena a salary of approximately $2,000 bi-weekly. Stefanescu also had a lease for his car that was paid by the company.
15Between 2012 and 2015, given Stefanescu’s management, the company accumulated close to $180,000 in cash. Stefanescu felt it was important to keep a cash buffer for expenses, and to assist with the company’s growth. This was only possible after he took over the company’s finances.
Decena stops working for RE Stats but continues to withdraw funds
16Between 2006-2012, RE Stats had not been deducting taxes from payments to its employees/directors. Each director/employee was expected to file his/her own tax returns.
17Decena did not pay his taxes from 2010-2013. Accordingly, he had outstanding taxes in the amount of $116,050 owing.
18In 2015, the company started to receive CRA notices requiring payment of a portion of Decena’s salary towards his outstanding taxes. Given the notice was sent to RE Stats requiring payment, Stefanescu told Decena he would pay it, and did so with the Corporation’s funds.
19Stefanescu explained to Decena that he would not be able to pay him his regular salary given he was paying his tax arrears. For accounting purposes, Stefanescu treated the tax payment of $116,050 as part of Decena’s director’s fees for the year.
20Between 2014 and 2015, Decena began to withdraw from the Corporation and attend at the office less regularly. After February 26, 2015, he stopped coming into the office altogether. Decena did not provide Stefanescu with any reason for not coming into the office. According to Decena, he was overwhelmed by the CRA notices. He knew he did not have the money to pay the amounts owing. He was depressed and did not know what to do. He was just trying to hide.
21Decena did not discuss his absence, nor did he communicate with Stefanescu regarding his situation. He made no further inquiries about the Corporation.
22Given Decena’s absence, Stefanescu started to manage both sides of the company himself. Moving forward, there was no communication with Decena regarding the operations or profits of the business.
23In July 2015, given Decena’s non-attendance, Stefanescu also stopped paying Decena a salary. Stefanescu continued to pay himself a director’s fee. However, he cut Decena from the payroll altogether as he was no longer doing work for the Corporation.
24After stopping his salary, there was a complete breakdown in communication between Decena and Stefanescu. According to Decena, he felt betrayed by Stefanescu given that he had put so much of himself into the company.
25In 2016 Stefanescu increased his director’s fee from $95,250.00 in 2015 to $130,256.00 in 2016 without consulting Decena.
26Decena continued to withdraw money from the bank account of RE Stats to cover his personal expenses without consulting Stefanescu and without any knowledge of RE Stats’ financial requirements.
27On August 25, 2017, Decena used RE Stats’ funds to pay $10,000 towards his personal credit card debts. He would pay monies towards casinos and towards other personal expenses without considering the impact on the Corporation’s operations, and without any communication with Stefanescu.
28According to Decena, he attempted to withdraw an amount consistent to what he would normally receive as part of his salary prior to being cut off by Stefanescu. He was not receiving any money from Stefanescu despite being a half owner of the company. Given that the Corporation’s revenues and profit were driven by his sales force, Decena felt that he was entitled to withdraw the money.
29Stefanescu paid himself director’s fees of $121,534.00 in 2017, $138,852.00 in 2018 and $138,862.00 in 2019.
30For accounting purposes, Stefanescu treated Decena’s withdrawals from 2016-2018 as dividends/profit sharing (2016, 2017, 2018). He offset the withdrawals made by Decena as part of a dividend payout.
31He paid both himself and Decena dividends of approximately $45,000 per year which was essentially the funds withdrawn by Decena. If Decena withdrew less than $45,000 in a year, RE Stats would pay a cash amount at the end of the year for the difference.
32Given these payouts, the net withdrawals + any additional payments made by RE Stats to Decena between 2016-2018 was approximately $135,000.
33In 2016, Stefanescu also paid an additional $30,000 to CRA towards Decena’s taxes.
34In 2019, RE Stats did not have adequate profits to pay out dividends. Despite this fact, Decena still withdrew $20,000 from the corporate account. Decena’s last withdrawal was July 9, 2019.
35Stefanescu was not able to offset this $20,000 with dividend payout for himself.
Relations between Decena and Stefanescu since 2015
36In 2018, RE Stats moved to a new office. Decena asked Alvin Amparo (the office manager) for a key to the new office, however Stefanescu told Alvin to have Decena come into the office to get it. Decena did not.
37Decena reached out to Stefanescu again in 2019 to ask for his cell phone bill to be paid. Stefanescu refused.
38In June 2019, RE Stats again received another requirement to pay taxes for Decena and this time it was in the amount of $178,075.52. Unlike before, this time Stefanescu refused to pay it.
39Since 2019, there has been no communication between Stefanescu and Decena. Stefanescu continues to operate the Corporation on his own. Decena has had no meaningful involvement since February 2015.
40Most of the associates that Decena hired when the company opened have since left the Corporation. Stefanescu hired a number of replacement employees in 2021.
41Decena has essentially been completely divorced from RE Stats. However Decena still retains access to the accounts given that he remains a director of the Corporation.
Valuation of the Company
42Marnie Silver was called as an expert for the Plaintiffs.
43Ms. Silver prepared a report which set out her approach to valuating the Corporation based on maintainable after-tax earnings. Using a capitalization multiple in the range of 3.98 to 3.69 based on the cost of equity for a company like RE Stats, she determined the capitalized value of RE Stats at the 2015 Valuation Date was in the range of $301,195 to $371,956. The value at the 2020 Valuation Date was between $324,705 to $452,600.
44Ms. Silver calculated Decena’s pro-rata 50% interest in RE Stats to be $201,783 to $265,731 and imposed a 10% to 20% minority discount. Given that discount, Ms. Silver estimated Decena’s interest at the 2020 Valuation Date to be in a range of $181,605 to $212,585.
45Similarly, the Defendant’s expert, Tom Dyson, estimated the fair market value of the shares of RE Stats to fall between the range of $389,000 to $418,000 as of August 31, 2020.
46While he considered the cost of equity to be lower, (resulting in a higher multiple), he used a lower number as the company’s maintainable after-tax earnings. He also attributed a higher redundant cash amount which resulted in a similar capitalization value.
47Ms. Silver reduced the redundant cash amount based on expected “operating costs” whereas Mr. Dyson indicated that the company routinely carried a lot of cash, and accordingly expected receivables to be sufficient to cover operating costs. According to Mr. Dyson, Ms. Silver did not consider receivables in reducing the amount of redundant cash.
48In his evidence, Mr. Dyson also indicated that he would not impose a minority discount as there was no “minority” position, and the shares were being sold to Stefanescu who would be obtaining control of the company through the purchase.
49In the end, both Ms. Silver and Mr. Dyson were not far off in their calculation of the 2020 capitalization value of the company.
50For 2021, Ms. Silver indicated her valuation would be similar as that arrived at in her 2020 valuation. Mr. Dyson indicated that he expected that the 2021 financial statements would increase the valuation amount by some degree.
Analysis
Limitations Defence advanced by the Defendant
51According to the Defendant, the claim based upon Decena’s conduct from 2015 is statute-barred by operation of section 4 of the Limitations Act, 2002, S.O. 2002, c. 24, (Sched. B). Any conduct prior to May 10, 2018 cannot form the basis for any claims including the oppression remedy claim as it occurred more than two years before this action was commenced. Similarly, the claim for reimbursement of the monies paid to the CRA by RE Stats in 2015 ($116,050) and 2016 ($30,000) is statute-barred by reason of the operation of the Limitations Act.
52Decena requests an Order of this Court allowing him to amend his Statement of Defence pursuant to Rule 26.06 so as to plead the limitation period defence.
53The limitation issue was raised by the Defendant at the end of trial, just prior to closing submissions. It was never part of the Defendant’s pleadings, nor was it raised during the course of the trial.
54In Singh v. Trump, 2015 ONSC 4461, Justice Perell dismissed a plaintiff’s claim as time-barred despite the defendants not pleading the Limitations Act, seeking leave to amend to plead it, or raising it in their written submissions.
55In granting an appeal of the decision, the Court of Appeal held that a limitations defence is an affirmative defence and must be pleaded. Justice Rouleau’s decision provides a helpful review of the relevant jurisprudence at paras. 132-133:
This court has consistently held that “[t]he expiry of a limitation period is a defence to an action that must be pleaded in a statement of defence”: Collins v. Cortez, 2014 ONCA 685, [2014] O.J. No. 4753, at para. 10, per van Rensburg J.A. (citing S. (W.E.) v. P. (M.M.) (2000), 2000 16831 (ON CA), 50 O.R. (3d) 70 (C.A.), at paras. 37-38, leave to appeal to S.C.C. refused, [2001] 149 O.A.C. 397). This requirement is embodied in rule 25.07(4) of the Rules of Civil Procedure, which Ontario courts have consistently held “applies to pleadings relating to limitations that might bar an action”: S. (W.E.) v. P. (M.M.), at para. 37. rule 25.07(4) provides as follows:
In a defence, a party shall plead any matter on which the party intends to rely to defeat the claim of the opposite party and which, if not specifically pleaded, might take the opposite party by surprise or raise an issue that has not been raised in the opposite party’s pleading.
Justice Cronk explained the rationale behind the requirement that a party specifically plead a limitation period defence in Hav-A-Kar Leasing Ltd. v. Vekselshtein, 2012 ONCA 826, 225 A.C.W.S. (3d) 237, at para. 69:
The failure to raise substantive responses to a plaintiff’s claims until trial or, worse, until the close of trial, is contrary to the spirit and requirements of the Rules of Civil Procedure and the goal of fair contest that underlies those Rules. Such a failure also undermines the important principle that the parties to a civil lawsuit are entitled to have their differences resolved on the basis of the issues joined in the pleadings.
Singh v. Trump, 2016 ONCA 747
56In S. (W.E.) v. P. (M.M.), 2000 16831 (ON CA), MacPherson J.A. confirmed that Ontario courts “have consistently held that rule 25.07(4) applies to pleadings relating to limitations that might bar an action”: at para. 36. He went on to explain that even though in that case the trial judge had given counsel time to prepare submissions on the issue after he raised it during closing arguments, it did not remove the potential prejudice.
57In this case, the timing of the request would clearly be prejudicial to the Plaintiffs. Both the Plaintiffs and the Defendant have closed their cases. There was no reason for the delays in advancing the limitations position.
58If the Defendant had raised the defence in his pleadings, the Plaintiffs might have tried to settle, or even have abandoned certain aspects of the action. The Plaintiffs might have adopted different tactics at trial that had an impact on costs.
59Given the delay in the timing of the request, and the obvious prejudice to the Plaintiffs, I am not prepared to grant the request to amend at this stage of the proceedings.
60Accordingly, I will consider the defences as advanced in the pleadings and maintained during the course of trial.
The Oppression Remedy – General Principles
61Section 248(2) of the BCA provides:
(2) Where, upon an application under subsection (1), the court is satisfied that in respect of a corporation or any of its affiliates,
(a) any act or omission of the corporation or any of its affiliates effects or threatens to effect a result;
(b) the business or affairs of the corporation or any of its affiliates are, have been or are threatened to be carried on or conducted in a manner; or
(c) the powers of the directors of the corporation or any of its affiliates are, have been or are threatened to be exercised in a manner,
that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer of the corporation, the court may make an order to rectify the matters complained of. R.S.O. 1990, c. B.16, s. 248 (2).
62The oppression remedy recognizes that a corporation is an entity that encompasses and affects various individuals and groups, some of whose interests may conflict with others. BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 SCR 560, at para. 60.
63The oppression remedy gives a court broad, equitable jurisdiction to enforce not just what is legal but what is fair. What is just and equitable is judged by the reasonable expectations of those involved. As explained in BCE Inc. v. 1976 Debentureholders, supra, at para. 61:
“Rights” and “obligations” connote interests enforceable at law without recourse to special remedies, for example, through a contractual suit or a derivative action under s. 239 of the Canada Business Corporations Act (“CBCA”). It is left for the oppression remedy to deal with the “expectations” of affected stakeholders. The reasonable expectations of these stakeholders is the cornerstone of the oppression remedy.
64Like many equitable remedies, oppression is fact-specific. What is just and equitable is judged by the reasonable expectations of the stakeholders in the context and in regard to the relationships at play. Conduct that may be oppressive in one situation may not be in another: see BCE Inc. v. 1976 Debentureholders, supra, at para. 59.
65The concept of reasonable expectations is objective and contextual. The actual expectation of a particular stakeholder is not conclusive. In the context of whether it would be “just and equitable” to grant a remedy, the question is whether the expectation is reasonable having regard to the facts of the specific case, the relationships at issue, and the entire context, including the fact that there may be conflicting claims and expectations. BCE Inc. v. 1976 Debentureholders, supra, at para. 62.
66As the Supreme Court explained in BCE at paras. 63 and 64:
Particular circumstances give rise to particular expectations. Stakeholders enter into relationships, with and within corporations, on the basis of understandings and expectations, upon which they are entitled to rely, provided they are reasonable in the context: see 820099 Ontario; Main v. Delcan Group Inc. (1999), 1999 14946 (ON SC), 47 B.L.R. (2d) 200 (Ont. S.C.J.). These expectations are what the remedy of oppression seeks to uphold.
Determining whether a particular expectation is reasonable is complicated by the fact that the interests and expectations of different stakeholders may conflict. The oppression remedy recognizes that a corporation is an entity that encompasses and affects various individuals and groups, some of whose interests may conflict with others. Directors or other corporate actors may make corporate decisions or seek to resolve conflicts in a way that abusively or unfairly maximizes a particular group’s interest at the expense of other stakeholders. The corporation and shareholders are entitled to maximize profit and share value, to be sure, but not by treating individual stakeholders unfairly. Fair treatment — the central theme running through the oppression jurisprudence — is most fundamentally what stakeholders are entitled to “reasonably expect”. [Emphasis added.]
67Even if reasonable, not every unmet expectation gives rise to claim under s. 241. The section requires that the conduct complained of amount to “oppression”, “unfair prejudice” or “unfair disregard” of relevant interests.
Application to the Facts
68In this case, the Plaintiffs maintain that the Defendant’s actions are properly characterized as “oppressive”. Decena has engaged in actions that are clearly contrary to the company’s interests as a going concern and accordingly Stefanescu’s interest as a shareholder. Decena has randomly drawn funds from the company accounts without any concern for the company’s operational needs, he has not paid his taxes subjecting the company to CRA demands, and he has not assisted with the company’s operations despite remaining a listed officer and director of the Corporation.
69He continues to have access to the company’s accounts subjecting the company to further risk.
70The Defendant, Decena, takes the position that Stefanescu’s conduct was oppressive, and unfairly disregarded Decena’s interests as a shareholder when he assumed complete control of RE Stats’ finances and essentially cut him off from the business.
71The Defendant also submits the Plaintiffs’ conduct was oppressive in the following manner:
a. In the summer of 2015 Stefanescu caused RE Stats to stop paying Decena director’s fees and completely cut Decena off from the Corporation despite his efforts to return.
b. In 2016 Stefanescu caused RE Stats to increase the amount of director’s fees it paid himself from $95,250 in 2015 to $130,256 in 2016 without consulting Decena.
c. Stefanescu paid himself director’s fees of $121,534 in 2017, $138,852 in 2018 and $138,862 in 2019 again without informing Decena.
d. In November of 2021 Stefanescu retained lawyers to represent himself and RE Stats in the action brought by the Toronto Real Estate Board. He did not have them represent Decena in the same action.
e. According to the Defendant, the Plaintiffs re-allocated a substantial amount of RE Stats’ expenses as income paid to Decena. This resulted in Decena being assessed for over $191,000 for personal income tax in 2013.
72I agree that Decena’s conduct was oppressive towards Stefanescu in his capacity as a director and shareholder of the Corporation. Decena, despite being an officer and director of the Corporation, made cash withdrawals from the Corporation’s accounts without any consideration for the financial situation of the Corporation. The funds were taken for Decena’s own purposes, not for those of the Corporation. The withdrawals were done without any consideration for the other stakeholders of the Corporation. These withdrawals clearly impeded the Corporation’s ability to grow.
73I also agree that Decena’s ongoing relationship with RE Stats as an officer/director and owner creates risks to the Corporation as a going concern.
74While Stefanescu did cut off Decena from the Corporation’s payroll and operations, this was necessitated by Decena’s own conduct. Decena was no longer acting in the interests of the Corporation. Stefanescu’s decision to increase his own salary was reasonable given he assumed the entire responsibility for the Corporation’s operations. I do not consider this to be oppressive conduct.
75There has been a complete breakdown in the relationship between Stefanescu and Decena. Despite both being listed as officers/directors, Decena and Stefanescu do not communicate, or have any discussions regarding the operations of the Corporation.
76Stefanescu has maintained an active role in the Corporation, whereas Decena has not. There is no realistic possibility of them reconciling in my view to the point where they would be able to jointly manage the Corporation. Decena and Stefanescu clearly resent each other. Decena is clearly not in a position to manage the Corporation on his own.
77In the circumstances, a corporate divorce is warranted to prevent any future risks to the Corporation.
Date of Valuation for Decena’s Share
78The Plaintiffs rely on a capitalized value of RE Stats at the 2015 Valuation Date in the range of $301,195 to $371,956. The Plaintiffs maintain that this should be the applicable Valuation Date given that Decena’s oppressive conduct can be traced back to his abandonment of the Corporation in 2015.
79Alternatively, RE Stats’ value at the 2020 Valuation Date was between $324,705 to $452,600.
80As noted above, Ms. Silver calculated Decena’s pro-rata 50% interest in RE Stats to be $201,783 to $265,731 and imposed a 10% to 20% minority discount. Given that discount, Ms. Silver estimated Decena’s interest at the 2020 Valuation Date to be in a range of $181,605 to $212,585.
81The Defendant’s expert, Tom Dyson, estimated the fair market value of the shares of RE Stats to fall between the range of $389,000 to $418,000 as of August 31, 2020. He would place the current capitalized value of RE Stats slightly higher given the consistency of the income, and the redundant cash on hand.
82According to the Plaintiffs, where the Court orders the offending shareholder to transfer his shares to the corporation or to the aggrieved shareholder pursuant to s. 248(3)(f) of the BCA, it is appropriate to set the valuation date as at the time the wrongdoing by the offending shareholder took place.
83According to the Plaintiffs, in this case, the appropriate valuation date is in early 2015, as that is the time period in which Decena’s abandonment of RE Stats became permanent.
84The Plaintiffs place reliance on Falcon Motor Xpress Ltd. v. Grewal et al, 2019 ONSC 1529 (S.C.J.), where it was held that in determining the appropriate valuation date, the Court should ensure that the offending shareholder who is being bought out “should not profit by his own misconduct.”
85The Plaintiff argues that Decena has contributed nothing to the Corporation’s development or growth since 2015 and accordingly should not profit from Stefanescu’s work.
86The misconduct in Falcon was of a very different quality than the misconduct alleged here. In that case, the defendant had diverted 3.5 million in gas rebates, lured employees away from the company and stole customers.
87Decena’s conduct was not of a similar nature. Decena was not trying to sabotage the Corporation. He was having personal problems. Having been cut off from his only source of income, he was making withdrawals from the accounts of RE Stats. Part of this can be attributed to Stefanescu’s refusal to communicate with Decena regarding the operations of RE Stats.
88Decena is a 50% shareholder. I do not agree that he should be deprived of his proper share of the Corporation’s value. The evidence demonstrates that both Decena and Stefanescu built RE Stats into a viable company. Decena maintains that most of the major clients of the Corporation are still the ones he brought in.
89If Stefanescu wanted to negotiate the purchase of Decena’s share back in 2015, it was open for him to do so. He did not. He chose not to communicate with Decena.
90In my view, the appropriate date for calculating the Corporation’s value for the purposes of determining Decena’s share is the current date. In this case, the parties have been relying on the 2020 estimate as the most relevant approximation of the Corporation’s current value. Accordingly, I will treat that date as the valuation date.
Value of RE Stats
91In my view, there is no proper basis for the minority discount which has been imposed by the Plaintiffs’ expert. The discount does not apply, as it is Stefanescu that is obtaining the control of the Corporation with the purchase.
92In my view, given the passage of time, the appropriate valuation is at the higher end of $356,852 to $435,300 (which is the average of the 2 ranges provided by the experts).
93I agree with the Defendant’s expert that a current valuation would be at the higher end of the range. At 50%, Decena’s proportion would be approximately $217,500 minus any deductions that should apply.
Deductions
94The amounts the Plaintiffs seek for deductions are as follows:
a. In July 2015, RE Stats Inc. paid $116,050 to the CRA for Decena’s outstanding personal taxes. This amount was treated as director’s fees for the year.
b. In 2016, RE Stats Inc. again directly paid $30,000 to the CRA on Decena’s behalf. This was not treated as Decena’s pay.
c. In the years 2016, 2017, and 2018 Decena made numerous withdrawals. Given that he was no longer working at the company, Stefanescu could no longer treat the withdrawals as “Director’s Fees” and characterized them as “dividends”, giving himself an equivalent payout of approximately $45,000 per year. For Stefanescu, this dividend amount was paid in addition to his salary as a director. Decena stopped receiving a salary after July 2015.
d. In 2019, there were insufficient funds to permit for dividends to be paid out. There was profit of only $34,000. Accordingly, no dividends were paid. Despite the lack of available funds, Decena still withdrew approximately $20,000 from the corporate accounts.
95Given that the $30,000 in tax was paid by the Corporation towards Decena’s taxes, this amount should be deducted. In addition, the $20,000 in withdrawals in 2019 should also be deducted.
96The tax amount of $116,050 the Corporation paid towards Decena’s taxes is more complicated. It was treated as Decena’s pay and paid out as director’s fees. Decena was taxed on this amount as income. In subsequent years, he was cut off from a salary altogether. No doubt, Decena was overpaid by receiving $116,050. However, I am not prepared to deduct this amount.
97The withdrawals made by Decena in 2016, 2017, and 2018 were treated as dividends, and a total of $45,000 was paid out to both Decena and Stefanescu as shareholders for each of those years. (Total of $135,000)
98In my view, this amount should also not be deducted from the purchase price, as it has already been accounted for as “dividends” and the exact same amount was paid out to Stefanescu as a shareholder. They have each received their “dividends” as shareholders of the Corporation. This amount has nothing to do with Stefanescu’s additional contributions as a director of the Corporation. That contribution has been adequately compensated by way of his increased director’s salary in the relevant years.
99As such, the total amounts to be deducted are the $20,000 of withdrawals in 2019 and the $30,000 in taxes in 2016.
100Accordingly, Stefanescu can purchase Decena’s share for $217,500 - $50,000, which is $167,500.
Disposition
101Accordingly, I find that that the conduct of the Defendant, Kenneth Decena, has been oppressive, unfairly prejudicial to and with unfair disregard to the interests of RE Stats Inc. and to the interests of Gabriel Stefanescu as a shareholder, director and officer of RE Stats Inc., pursuant to s. 248 of the BCA.
a. I will grant an Order pursuant to s. 248(3) directing RE Stats Inc. to purchase for cancellation Decena’s share in RE Stats Inc. for the amount of $167,500. This purchase amount contemplates deductions for the amounts owed by Decena to RE Stats Inc.
b. Once this amount is paid, Decena’s share in RE Stats Inc. is to be transferred to Stefanescu.
c. Decena is removed immediately as a director and officer of RE Stats Inc.
d. Decena is not to take, withdraw or receive any funds belonging to RE Stats Inc. or its bank accounts.
102I thank counsel for their assistance throughout the trial.
103I will receive costs submissions from both parties within 4 weeks of the release of this decision.
Justice C.F. de Sa
Released: August 2, 2022
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
GABRIEL STEFANESCU and RE STATS INC.
Plaintiffs
– and –
KENNETH DECENA
Defendant
REASONS FOR DECISION
Justice C.F. de Sa
Released: August 2, 2022