Court Considers Oppression Claim by Creditors against Directors

Andrew Ottaway, B.A. (Hons.), LL.B.Business Law, Business Litigation, Civil Litigation, Directors' and Officers' Liability, Oppression Remedies, Summary Judgment0 Comments

In The Investment Administration Solutions Inc. v. Pro-Financial Asset Management Inc., 2018 ONSC 1220 (CanLII), the Ontario Superior Court considered an oppression claim under section 248 of the Ontario Business Corporations Act by a creditor against the directors of a debtor company.

The Plaintiff company provided back office services to the Defendant Pro-Financial. Pro-Financial was an Ontario Corporation which carried on business as an investment dealer.   Pro-Financial was poorly managed and did not comply with the applicable regulatory requirements.  Pro-Financial’s assets were eventually sold to another dealer at the insistence of the Ontario Securities Commission (“OSC”). As a result of the sale, there was no money left to pay the Plaintiff’s significant outstanding accounts.

The Plaintiff brought an action against, among others, directors of Pro-Financial.  The Plaintiff’s claim included a claim for an oppression remedy.  The Plaintiff argued that the directors of Pro-Financial had violated Pro-Financial’s reasonable expectation that the directors of Pro-Financial would not intentionally or negligently enter into an improvident sale of Pro-Financial’s assets and prevent Pro-Financial from paying its debt to the Plaintiff.

The defendants, including the defendant directors, brought a motion for summary judgment.  In respect of the oppression claim, the Judge considered the test of (1) whether the evidence supported the Plaintiff’s reasonable expectation; and (2) whether the evidence established that the reasonable expectation was violated by conduct falling within the terms “oppression”, “unfair prejudice” or “unfair disregard” of a relevant interest.

The Judge found that the Plaintiff did not make out its oppression claim against the directors.  He found that (1) the Plaintiff had no reasonable expectation that Pro-Financial’s winding down would be conducted in a way that would ensure that the Plaintiff would be paid for its debt.  In any event,  the Judge also found that (2) the sale of Pro-Financial’s assets was not improvident: the OSC’s regulatory action discouraged market interest in Pro-Financial; the directors communicated with three financial advisors in respect of the sale; and there was no alternative transaction rejected by Pro-Financial before completing the subject sale of its assets.  The Judge granted summary judgment dismissing the Plaintiff’s claims against the directors.

The lawyers at Gilbertson Davis LLP have experience with bringing and responding to summary judgment motions and oppression claims, and providing advice in respect of business disputes.  Please contact us for an initial consultation.

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About the Author
Andrew Ottaway, B.A. (Hons.), LL.B.

Andrew Ottaway, B.A. (Hons.), LL.B.

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