Director’s Liability and the “Oppression Remedy” for Landlords

Typically, using the vehicle of a corporation insulates directors from personal liability to the corporation’s creditors for defaults, but that is not always true. A recent Ontario case highlights that risk for those who are the “directing minds” of the corporation.

In Pitney Bowes v. Belmonte, Pitney leased equipment to Company A in January 2007. Company A later defaulted on its lease payments. Pitney was awarded default judgement against Company A but Company A had no assets. Pitney then brought an application pursuant to s.248 of the Ontario Business Corporations Act for recovery against Mr. and Mrs. B. as directors of Company A and related companies. Section 248 of the Ontario Business Corporations Act offers protection to creditors (which can include landlords) from acts or omissions of a corporation that are “oppressive or unfairly prejudicial to or unfairly disregards the interests of” a creditor.

During the lease term with Pitney and due to a dispute with Company A’s landlord, Mr. B incorporated Company B, registered in its favour the trade name being used by Company A for the same business and Company B became the registered owner of a website using that same registered trade-name. Company B then paid lease payments to Pitney. Sales revenues from Company B went directly into the account of Mr. and Mrs. B.

Based on the evidence (including admissions from Mr. B. that the transfer of the business from Company A was done to escape obligations to its landlord and Pitney) the Court found that the sole purpose for Company B was to enable the transfer of the business to it to avoid liabilities or potential liabilities of Company A.

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