Court File and Parties

Court File No.: CV-12-0238-00, CV-12-0438-00 Date: 2023-10-06

ONTARIO

SUPERIOR COURT OF JUSTICE

B E T W E E N: CV-12-0238-00 Gina Gustafson and Juanita Curle, Applicants Mr. M. Holervich for the Applicants, Gina Gustafson and Juanita Curle

- and - Bruce Johnson, Allan Curle, Norall Group Inc. and Norall Group Contracting Inc., Respondents Bruce Johnson and Allan Curle, not appearing

CV-12-0438-00 Allan Curle, Bruce Johnson, Jeanette Johnson, Norall Group Inc. and Norall Group Contracting Inc., Plaintiffs - and - Gina Gustafson, Juanita Curle, Holly LeBrun, Carl Gustafson and D.J. Gustafson Engineering Ltd. c.o.b. as Aegus Contracting, Defendants Mr. M. Cupello for Respondent, Jeanette Johnson Mr. C. Gustafson, personally

HEARD: at Thunder Bay, July 5, 2023

Madam Justice H. M Pierce

Reasons on Corporate Winding-up

Introduction

[1] The history of the litigation involving these parties has been well documented in many court proceedings and need not be repeated. The reasons on the winding-up application of Norall Group Inc. and Norall Group Contracting Inc. are reported at Gustafson v. Johnson, 2016 ONSC 2804.

[2] The applicants are Gina Gustafson and Juanita Curle. The application determined that Juanita Curle held 49% of the shares, Gina Gustafson 35% (jointly 84%) and Jeanette Johnson 16%. A passing of accounts was ordered preliminary to the corporations being wound-up. Unsuccessful appeal proceedings delayed matters for another two years.

[3] By July 5, 2023, the corporations’ assets had been liquidated. The balance in their accounts, after adjustments, was $1,444,936.80. Regrettably, the corporate treasure has been squandered in ill-considered litigation.

[4] The application to wind-up the corporations commenced in 2012. Jeanette Johnson and others commenced a related action seeking damages from the applicants and others, including Mr. Gustafson. That action was dismissed for delay in 2019.

[5] In January 2021, apart from costs already ordered on motions and appeals, the applicants were awarded costs of the action and application against Bruce Johnson and Allan Curle, fixed at $436,610.43. In addition, costs of the action and application (exclusive of costs for motions) were awarded against Jeanette Johnson, fixed at $174,644.17.

[6] Mr. Gustafson was also awarded costs for his counsel and for representing himself. In January 2021, Mr. Gustafson, his corporation, and Ms. LeBrun were awarded costs against Mr. Johnson, Ms. Johnson, and Mr. Curle, for their legal fees of $20,724.51. They were also ordered to pay Mr. Gustafson’s costs for representing himself fixed at $19,500.00.

[7] In January 2021, the court also determined that the applicants were entitled to be indemnified by the corporations to the extent of $817,773.00. After crediting Ms. Johnson for payment of the applicants’ costs of $16,272.75, the net indemnification available was $801,500.25.

[8] By the time the indemnification order was made, the applicants paid their solicitors’ legal fees of $112,718.00 from dividends declared in 2012, and a further $627,322.65 from the 2018 interim disbursement order. The legal fees paid by the applicants totaled $740,040.65.

[9] Ms. Johnson takes no issue with the applicants’ payment for the corporations’ daily operating expenses which have been disclosed.

[10] Ms. Johnson has paid the applicants’ costs in the amount of $16,272.75. As of July 5, 2023, the balance of her costs outstanding, including interest, and crediting payments made, was $211,988.80. The balance owed to the applicants on the indemnification order was $801,500.25.

[11] A final hold-back of $25,000.00 is proposed to cover remaining operating expenses, with any left-over funds to be distributed.

[12] No costs have been collected from Bruce Johnson or Allan Curle.

[13] The following issues remain to be determined:

1. How an interim dividend of $21,470.00 declared in favour of Ms. Johnson in 2012 should be accounted for on the passing of accounts;
2. How the interim distribution order dated October 23, 2018, attributing a $160,000.00 share distribution to Ms. Johnson, should be accounted for on the passing of accounts;
3. Costs of the applicants’ motion returnable in November 2021, and of the case conferences held on June 6, 2022, January 12, 2023, and July 5, 2023; and
4. The final passing of accounts and ancillary orders to wind-up the corporations.

Interim Dividend from 2012

[14] How should the interim dividend of $21,470.00 declared in favour of Ms. Johnson in 2012 but not paid to her, be accounted for?

[15] Mr. Cupello submits that the dividend should be shown in the accounting and should be credited against unpaid costs orders.

[16] Mr. Gustafson submits that because Ms. Johnson’s declared dividend was not paid, her entitlement at distribution is not reduced.

[17] I agree with Mr. Gustafson’s submission. The applicants’ dividends were used to pay legal fees that applied to the corporations’ wind-up and to attempting to preserve their value. The applicants did not benefit personally. On the other hand, Ms. Johnson’s litigation strategy did nothing to preserve the value in the corporations and delayed their winding-up at great cost. Consequently, Ms. Johnson shall not be credited separately with the unpaid dividend on the passing of accounts.

Interim Distribution Order

[18] Ms. Johnson claims the sum of $160,000.00 as her pro rata share of the distribution order made by Justice Newton on October 23, 2018, in priority to the indemnification order and costs awards made against her. The applicants were entitled to an interim distribution of $840,000.00 collectively, based on their shareholdings.

[19] This issue has been driving the winding-up litigation.

[20] Mr. Cupello concedes that the funds paid out to the applicants by virtue of Justice Newton’s interim distribution order were paid solely to their solicitors for legal fees. They did not benefit personally.

[21] Ms. Johnson now submits that when the $1 million dollar distribution was ordered, everyone knew that the balance held in the corporate accounts, $477,000.00, was deemed sufficient to deal with the remaining liabilities of the corporations. However, she challenged this position on the motion, arguing that the findings with respect to shareholding made in the application were under appeal. She also submitted that the corporate by-laws mandating indemnification were then known.

[22] I do not accept these submissions for the following reasons.

[23] First, Ms. Johnson was on notice as of April 2017 that the applicants moved for indemnification from the corporations. If indemnification was granted, it would reduce the amount available to pay out to the shareholders.

[24] Second, it would not have been possible to anticipate the continuing burden of costs incurred after the matter was argued before Justice Newton on September 6, 2018. For example, both the application and the action were then on-going, and issues of costs and indemnification had not yet been determined.

[25] The following orders and litigations post-date the motion argued before Justice Newton:

1. The Court of Appeal dismissed all motions for leave to appeal on September 25, 2018, thereby finally confirming the shareholdings of the parties;
2. The Johnsons and Mr. Curle were ordered to pay costs of the interim distribution order;
3. In November 2018, the applicants moved for an order to pay Ms. Johnson’s share into court, a motion that was adjourned several times and ultimately abandoned in July 2020;
4. In April 2019, the applicants moved before Justice Newton to postpone payment to Ms. Johnson pending determination of costs and indemnification. Newton J. adjourned this motion to a case management conference in May 2019, when directions were given;
5. In June 2019, notwithstanding the case management court’s directions, Ms. Johnson garnished the corporate bank accounts, leading to a garnishment hearing in September 2019, following a contested adjournment argument in August;
6. In August 2019, the application was dismissed after a status review hearing;
7. Reasons on the garnishment hearing were released in November 2019, terminating Ms. Johnson’s garnishment, and requiring the Sheriff to repay $162,920.79 to one of the corporations;
8. On February 6, 2020, a scheduling order was made, peremptory to July 7, 2020;
9. The parties filed voluminous written submissions with respect to costs in the action and the application in the fall of 2020. Reasons for costs comprising 89 pages were released on January 21, 2021.
10. The parties also filed written submissions on the indemnification motion in the fall of 2020. Reasons were released on January 22, 2021;
11. A case conference was held on June 6, 2022, giving further directions;
12. Another case conference was held on January 12, 2023, also giving directions;
13. On July 5, 2023, a hearing with respect to the passing of accounts and winding-up was held.

[26] Third, as can be seen in the above chronology, the interim distribution order for Ms. Johnson’s shareholding was superseded by subsequent orders, requiring that her funds be held as security for indemnification and costs. I note that in addition to the balance of costs outstanding, including interest and credited payment, owed by Ms. Johnson to the applicants in the total amount of $211,988.80 as of July 5, 2023, she is also jointly and severally liable to Mr. Gustafson for his costs, in the principal amount of $40,224.51.

[27] Fourth, the order for indemnification was not made until January 2021, after orders for costs had been determined. This was almost two and a half years after the motion for interim distribution, during which time the day-to-day costs for the corporations continued to accrue.

[28] Fifth, sections 242 – 244 of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 provide that, despite dissolution of a corporation, shareholders remain liable to its creditors to the extent that corporate property has been distributed to the shareholders or is available to be distributed. Specifically, s. 242(1)(c) includes “property that would have been available to satisfy a judgment, order or decision if the corporation had not been dissolved remains available for that purpose.” I conclude that this includes orders for costs and indemnification.

[29] I conclude that Ms. Johnson does not enjoy a priority right to claim $160,000.00 in the interim distribution order of Justice Newton.

Costs of the applicant’s motion returnable in November 2021

[30] In November 2021, the applicants moved for an order for further indemnification.

[31] Mr. Cupello filed no responding material. Apart from brief written submissions on Ms. Johnson’s behalf, the motion was never formally argued. The motion was dismissed at a case conference on June 6, 2022, with reasons given orally.

[32] Mr. Cupello claims costs of $1,250.00 plus HST, based on 3.5 hours required to receive the motion, undertake a review of the file and to take a position on the motion. In my view, the costs claimed are excessive given how the matter proceeded. The applicants shall pay to Ms. Johnson costs of the second indemnity motion, fixed at $250.00.

Costs of the Case Conferences:

June 6, 2022

[33] This case conference required about an hour of court time and detailed filings. It dealt with the scheduling of passing of accounts; the second indemnity motion, for which costs have been ordered above; and arguments over collection and credits for Justice Newton’s interim distribution order. Had Ms. Johnson not insisted on priority of her share distribution, the matter could have been resolved at that time, saving at least a year of expenses to the corporations.

[34] Ms. Johnson shall pay the costs of this case conference as follows:

i. to the applicants’ costs fixed at $2,000; ii. to Mr. Gustafson’s costs fixed at $1,000.

January 12, 2023

[35] This case conference was established to schedule a final winding-up hearing in order to finalize this case. While the applicants delayed their response to the orders made at the June 6th, 2022, case conference, the heart of the matter was Ms. Johnson’s position that she was entitled to a priority distribution under Justice Newton’s order. This position delayed the winding-up of the corporations, resulting in additional operating costs for the corporations and additional legal fees, reducing the amount available for distribution.

[36] Ms. Johnson shall pay the costs of the case conference as follows:

i. to the applicants’ costs fixed at $2,000; ii. to Mr. Gustafson’s costs fixed at $1,000.

July 5, 2023

[37] This case conference required all parties to make detailed filings, including draft orders, and final submissions. About two and a half hours of court time was required. As the applicants and Mr. Gustafson have been largely successful, they are entitled to their costs from Ms. Johnson as follows:

i. to the applicants’ costs fixed at $5,000; ii. to Mr. Gustafson’s costs fixed at $2,500.

Conclusion

[38] Once the value of Ms. Johnson’s dividend and accrued interest claimed are removed from the calculation, and the maximum indemnification calculation is reduced by the amount of costs she paid to the applicants, the calculations the parties have filed for distribution of surplus are very similar.

[39] The corporations, being Norall Group Inc. and Norall Group Contracting Inc., are ordered wound up.

[40] The court declares that the applicants have accounted for the assets and liabilities of the corporations.

[41] The amount to which Ms. Johnson would otherwise have been entitled, $98,949.85 as of July 5, 2023, is set out in Schedule “A” to these reasons. However, Ms. Johnson is not entitled to any shareholder distribution of surplus or holdback from the corporations on winding-up because she is still obligated to pay the applicants’ costs fixed at $211,988.80 as of July 5, 2023, plus accruing interest as set out in Schedule “B”.

[42] In addition, Ms. Johnson has been ordered in these reasons to pay the applicants’ costs of $8,750.00 after her entitlement to costs of $250.00 is set-off.

[43] Ms. Johnson shall be credited with any costs already paid. However, she will not recover anything from the final shareholders’ distribution, nor from the hold-back of $25,000.00, because the outstanding costs she owes the applicants exceed her entitlement to surplus. Thus, her shareholder entitlement is deemed as nil.

[44] Mr. Gustafson may proceed with collection of his outstanding costs against Ms. Johnson.

[45] The sum of $25,000.00 shall be retained by the corporations to address any outstanding costs for accounting, rent, or other expenses necessary to complete the winding-up of the corporations.

[46] The applicants are appointed as the corporations’ trustees to complete the winding-up requirements. They are entitled to receive reasonable compensation for completing this work, not to exceed $100.00 per hour, payable from the retained amount of $25,000.00.

[47] The applicants shall report to Jeanette Johnson the final accounts upon completion of the winding-up. They shall retain the books and records of the corporations for a period of five years after the date of dissolution.

“original signed by”

The Hon. Madam Justice H.M. Pierce

Released: October 6, 2023

Schedule “A”

Shareholder Entitlement at July 5, 2023

Cash from liquidation: $1,444,936.80

	Juanita (49%)	Gina (35%)	Jeanette (16%)
Gross Entitlement	708,019.03	505,727.88	231,189.89
Less: Net Indemnification of $801,500.25 payable	(392,735.12)	(280,525.08)	(128,240.04)
Less: Holdback of $25,000.00 for Winding up	(12,250.00)	(8,750.00)	(4,000.00)
Net Entitlement	$303,033.91	$216,452.80	$98,949.85 (deemed zero)

Schedule “B”

Jeannette Johnson Costs paid and outstanding, as of July 5, 2023

Date	Item	Costs Outstanding
January 21, 2021		$217,749.74
June 6, 2022	Interest – 501 days	$5,977.68
		$223,727.42
June 6, 2022	Payment	($10,312.59)
		$213,414.83
September 19, 2022	Interest – 105 days	$1,227.87
		$214,642.70
September 19, 2022	Payment	($5,814.16)
		$208,828.54
September 28, 2022	Interest – 9 days	$102.98
		$208,931.52
September 28, 2022	Payment	($146.00)
		$208,785.52
July 5, 2023	Interest – 208 days	$3,203.28
		$211,988.80