Ontario’s Business Corporations Act provides multiple ways a court may order the winding-up of a corporation. One common route for a court-ordered winding-up is a finding of oppression under section 248. However, other sections can also be used to force a corporation to be shut down by the courts, such as section 207(1)(b)(iv).

Section 207(1)(b)(iv) of the Business Corporations Act allows a court to order the wind-up of a corporation when the court is satisfied that it is “just and equitable” to do so “for some reason, other than the bankruptcy or insolvency of the corporation.” The court’s power to order the wind-up is found in that section and section 248, which generally applies to oppression remedies. Those sections allow a court to make whatever order “it thinks fit.” Given the broadness of this wording, courts and corporate lawyers must turn to past cases to determine what circumstances qualify as rendering a winding-up order as “just and equitable”, even if there is no corresponding finding of oppression.

When Is the “Just and Equitable” Wind-Up Remedy Used?

As the Court pointed out in Falus v. Martap Developments 87 Limited, the wind-up remedy has historically been used when a “dominating” shareholder attempts to exclude another shareholder or force them out of the corporate relationship entirely. A finding of oppression is not a precondition to an order winding up a company under section 207(1)(b)(iv) (per Libfeld v. Libfeld).

Requirements for Winding Up a Corporation on “Just and Equitable” Grounds

In Animal House Investments Inc. v. Lisgar Development Ltd., the Superior Court of Justice set out the requirements that must be met for a court to exercise its discretion to wind up a company on the “just and equitable” ground, specifically:

1. The parties must have rights, expectations and responsibilities that are not “submerged in the corporate structure”;
2. Those rights or duties must not have been fulfilled or discharged;
3. As a result, there must be unfairness or prejudice to one or more of the shareholders; and
4. The unfairness or prejudice must be “sufficiently serious” that it can only be fixed by a winding-up.

“Just and Equitable” Language Recognizes Individual Interests and Responsibilities Behind Corporate Personality

As used in section 207(1)(b)(iv) of the Business Corporations Act, the words “just and equitable” are to be broadly interpreted. In Falus, the Superior Court of Justice referenced an earlier U.K. case (Ebrahimi v. Westbourne Galleries Ltd.) and noted the words “just and equitable” are intended to act “as a kind of bridge between the statutory grounds for winding-up and ‘the principles of equity developed in relation to partnerships.’”

As the Court observed, the words recognize that a company is more than just a separate legal personality. There are individuals behind it who have “rights, expectations and obligations … which are not necessarily submerged in the company structure …” (as cited from Ebrahimi). As such, the purpose of the “just and equitable” ground is to “prevent one party from disregarding the obligation it assumed by entering a company.” This particular ground allows a court to consider equitable considerations, specifically considerations “of a personal character” between individuals. Where a party insists on or exercises her or his legal rights unjustly or inequitably, courts may intervene under this section of the statute.

Examples of “Just and Equitable” Circumstances for Winding Up a Corporation in Ontario

In Falus, the Court reviewed examples of circumstances justifying reliance on the “just and equitable” ground. Specifically, the ground may be triggered where equitable considerations also involve one or more of the following

1. An “association” between the parties involved was formed based on a personal relationship (such as when a partnership is converted into a corporation);
2. There was an understanding between the parties that one or more shareholders would participate in running the business;
3. There are restrictions on the ability of a member to transfer their interest in the corporation;
4. The parties are deadlocked in their decision-making; or
5. It is impossible to repair the parties’ relationship due to incompatibility or conflict.

Irreconcilable Differences: Considerations for “Partnership”-Type Corporations

The Court in Falus emphasized that, where the corporation is similar to a partnership, the wind-up remedy may be appropriate if the trust and confidence between the partners have broken down to the extent that they cannot continue to run the business as equal partners. Essentially, the breakdown in the relationship must have rendered it impossible for the “partner-shareholders” to work together in the way initially contemplated.

Disagreements Over Business Policies Alone May Not Warrant Winding-Up Remedy

In and of themselves, irreconcilable differences or a dispute over “business policy” may be insufficient to warrant a wind-up under section 207(1)(b)(iv) of the Business Corporations Act unless the parties reasonably expected the corporation would be wound up in such circumstances (per Animal House Investments). Likewise, a wind-up may be justified if the breakdown in the relationship gives rise to a reasonable inference that the parties did not intend for their business association to go on.

Individual Causing the Breakdown in Corporate Relationship Cannot Seek Winding-Up Relief

It is essential to note that the Ontario courts will not allow the person causing the issues in the corporate relationship to rely on section 207(1)(b)(iv) to obtain relief by winding up the corporation. As per the Ontario Superior Court in 2025925 Ontario Inc. v. Maramusche Holdings Inc., the Court will not grant a winding-up request to the person causing the loss of confidence between the corporate partners.

Link Between Breakdown in Relationship and Corporation’s Financial Fate

Lastly, it should be noted that the party seeking a wind-up order under section 207(1)(b)(iv) must establish a link “between the breakdown in mutual confidence and the financial fate of the corporate enterprise” (per Falus as cited in the recent case of Srivastava v. DLT Global Inc.).

Contact the Corporate Litigation Team at Milosevic & Associates for Advice on Complex Commercial Disputes

The experienced corporate litigation lawyers at Milosevic & Associates in Toronto can provide effective representation in shareholder and corporate disputes, including cases involving a corporate winding-up. We provide unparalleled representation in even the most complex matters and have developed a reputation for the highest professionalism and integrity. To schedule a confidential consultation, please contact us online or call (416) 916-1387.