Corporate Liability As A Result Of Family Law Claim: Are You Prepared?

• Published date: 26 July 2021
• Subject Matter: Corporate/Commercial Law, Family and Matrimonial, Corporate and Company Law, Directors and Officers, Family Law, Shareholders
• Law Firm: McLennan Ross LLP
• Author: Mr Pat Haughian

A recent decision of the Alberta Court of Queen's bench sheds light on the application of the oppression remedy in the context of a matrimonial dispute and highlights the importance of anticipating potential shareholder disputes and having an appropriate unanimous shareholder agreement ("USA") in place to address them.

Legal Citation

Berman v 905952 Alberta Ltd, 2021 ABQB 434 (CanLII)

Facts

The Plaintiff, Ms. Berman, brought an action against her former husband, his business partner, and two corporations under sections 215 and 242 of the Business Corporations Act ("BCA"). She did so to recoup an equitable interest in the corporations granted to her at trial.

At trial, the Court awarded her child and spousal support, as well as an equalization payment on their matrimonial property. Since Mr. Berman claimed to be unable to pay this amount, Ms. Berman was granted an equitable interest in 70% of his shares. This made her a beneficial shareholder under the BCA.

In this action, she was seeking to compel Mr. Berman and his partner, Mr. Sicherman, to liquidate and dissolve their corporations under ss. 215(1) and 242 of the BCA for satisfaction of her property interest. Ms. Berman claimed oppression on the grounds that they had disregarded her interests as a beneficial owner for the purposes ordered by the court.

Decision

The Court began by quoting cases in which family law intersected with corporate law. The Court noted that, per Aubin v Petrone, 2020 ABCA 13, "obligations imposed by family law are on equal footing with other legal obligations and deserve fair balancing where interests compete." This tension is something of a theme throughout the decision, as Mr. Berman argued that any perceived act of oppression can be explained as a valid business decision conducted in the best interests of the corporate entity and his business partner.

The Court noted the oppression remedy is sometimes used to dissolve family-run corporations following divorce proceedings. This case was complicated by the fact that the oppression remedy is being used to resolve a dispute over unrelated matrimonial property. It was further complicated by the presence of Mr. Berman's business partner who owned 50% of the shares in both corporations and had nothing to do with the couple's separation. Sicherman was regularly identified as an innocent third party who was added as a defendant by the plaintiff, and not by the Court's earlier judgment.

The court mentioned that Peregrym v Peregrym, 2015 ABQB 176 "raised the possibility of utilizing the oppression remedy...