Director Liability: The Corporate Veil May Not Be Pierced, But It Will Not Protect You From An Oppression Remedy Claim

• Published date: 12 September 2023
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Real Estate and Construction, Corporate and Company Law, Directors and Officers, Contracts and Commercial Law, Arbitration & Dispute Resolution, Landlord & Tenant - Leases, Shareholders
• Law Firm: McMillan LLP
• Author: Mr Brett Harrison and Anthony Labib

Directors can face personal liability if the corporate veil is lifted, or under the oppression remedy. But when are these remedies appropriate?

The Ontario Court of Appeal's ("ONCA's") decision in FNF Enterprises Inc. v Wag and Train Inc.¹ provides a framework for when a director may be personally liable under each remedy. The Court reinforced the doctrine of corporate separateness and refused to pierce the veil, but nevertheless ruled that a commercial landlord may pursue an oppression remedy claim personally against a director who value-stripped a corporation when it faced liabilities under a lease.

Takeaways to Know

• The doctrine of corporate separateness is respected by Ontario courts. The corporate veil should not be pierced in cases where there has been improper conduct, but that conduct did not cause or give rise to the disputed liability.
• Even if the doctrine of corporate separateness is respected directors may face personal liability under the oppression remedy If a director uses corporate powers to prefer themself in priority to stakeholders, personal recourse against the director may be justified.
• If suing a director personally, it may be prudent to plead the oppression remedy in addition to piercing the corporate veil.
• A director value-stripping a corporation may provide grounds for creditors to pursue the oppression remedy personally against a director, especially in a case where the creditor has no effective means of protecting itself from this risk (like through a contract).
• Despite directors owing no fiduciary duties to anyone other than the corporation itself, a creditor may, as in FNF Enterprises, use the oppression remedy to protect its reasonable expectations.

Facts

The appellants were landlords who owned a commercial premise. The landlords leased the premises to the respondent, Wag and Train Inc. ("W&T") in 2015. The lease ended in 2021.

W&T had one sole director, officer, and shareholder: Ms. Ross.

Ms. Ross was sued personally by the landlord, who sought to pierce the corporate veil for alleged improper conduct by Ms. Ross. The landlord also pursued an oppression remedy claim under s. 248 of the Business Corporations Act ("OBCA") against Ms. Ross personally for her conduct as a director of W&T.

W&T abandoned the premises early in 2020, left the property in a state of disrepair, stopped paying rent, and relocated to another location and begun operating under a different name. Ms. Ross also stripped all value from W&T, knowing that...