21 Juil 2011

The effects of the revival of a corporation on legal proceedings under the CBCA

par Michael Schacter
Kaufman Laramée LLP
In 2001, Parliament made several amendments to the Canada Business Corporations Act, R.S.C. 1985, c. C-44 (“CBCA”), which included changes to the effects of dissolving and reviving a corporation. In the matter of Wong v. Leung (2011 QCCS 3619), the honourable Mark Peacock analyzes one of these effects.

Although there are several parties to the suit, our focus falls on Pak Sang Investments Corporation (“Pak Sang”), an entity incorporated under the CBCA. As a result of a default to file annual returns, Pak Sang was automatically dissolved pursuant to Section 212 of the CBCA on January 11, 2007.

Pak Sang filed suit on March 27, 2007, more than two months after its dissolution. It was not revived until November 20, 2009. At trial, the defendant argued that Pak Sang had lost its claim as a result of its dissolution, which would have been the case prior to the amendment of the CBCA. Justice Peacock states the following:
[48] Under the prior version of the CBCA to the one relevant here, the Court in the Groupe Sérico inc. case noted the revival of a dissolved corporation did not have a retroactive effect. This interpretation was based on the use of the word « dès lors » (in English, “thereafter”) by the Legislator. As the Court decided in Groupe Sérico inc.: « La reconstitution n’a pas d’effet rétroactif car la loi stipule que la société recouvre, « dès lors », ses droits, privilèges et obligations antérieures ».

In a rare contradiction to the acclaimed author Paul Martel, Justice Peacock finds that the CBCA, as amended, allows a revived corporation to continue its commercial claims against third parties.

[49] Author P. Martel, La Société par Actions au Québec, Volume 1, Les Aspects Juridiques,states that only legal actions relating to the internal affairs of the company are revived (by art. 209(5)CBCA) and since legal proceedings for commercial litigation are not specifically mentioned in art. 209(5), the author says they are not revived.
[50] For the reasons that follow, the Court respectfully disagrees with this position.
[51] A legal author opines that the federal legislator undertook this amendment to « completely revamp and improve the revival provisions of the CBCA. …Section 209(4) now goes to great lengths to make it clear that a revival restores the revived corporation to its previous position in law to the same extent as if it had never been dissolved”.
[52] In this regard, the Court is persuaded by the reasoning to the same effect for similarly worded provincial statutes by two Courts of Appeal: one in Newfoundland: M. Hodge & Sons Ltd. v. Monaghan et al and one in Manitoba.
[53] In this Court’s opinion, art. 209(5) CBCA deals exclusively with legal actions respecting the company’s internal affairs. On the other hand, general commercial litigation falls under art. 209(4) CBCA, where its revival is ensured subject to three potential restrictions:
(1) reasonable terms imposed by the Director;
(2) rights acquired by any person after dissolution; and
(3) any changes to the internal affairs of the company.

[54] None of these potential restraints arise on the facts of the present case. Hence, art. 209(4) CBCA provides for the revival of the present legal proceedings.
[55] This Court believes that the mischief that the federal legislator sought to protect under the amended CBCA was to ensure proper and timely filing of corporate information without depriving a corporation of the rights it possessed before such omissions were corrected, except for these specific restrictions.
[56] As a result of this 2001 amendment, the Court is satisfied that the revival of Pak Sang means the present action has been revived and is deemed properly taken.
Although Section 209(4) is relatively clear, this judgment certainly does away with any uncertainty surrounding the effects of a corporation’s revival in the scope of legal proceedings.
The full text of the judgement is available here: http://bit.ly/psiHtZ
Neutral reference: [2011] CRL 288

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