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Dissolving or Winding Up and Can't Locate Your Shareholders?

  • September 21, 2016
  • Daniella Murynka

How to convey corporate property to the Public Guardian Trustee under Ss. 235 and 238 of the Ontario Business Corporations Act.


A corporation that wishes to be voluntarily wound up or dissolved under the Ontario Business Corporations Act (OBCA) must distribute rateably the property of the corporation among its shareholders, subject to the satisfaction of its debts and liabilities. However, sometimes the whereabouts of shareholders are no longer known to the corporation. In such cases, the OBCA provides a mechanism by which a corporation may deliver the property of any shareholders whose whereabouts are unknown to be held in trust by the Public Guardian and Trustee (PGT). Any such conveyance is deemed to be a rateable distribution for the purposes of winding up or dissolution.

Although the language used in the OBCA is permissive, the applicable provisions nevertheless set out the default statutory scheme and it is unlikely that a court would permit a corporation to distribute the corporate assets of shareholders whose whereabouts are unknown in another way (for example, by conveying the assets to a successor organization).

A conveyance of the property of shareholders whose whereabouts are unknown to the PGT may only be done with the PGT’s agreement. To that end, the corporation must satisfy the PGT through a statutory declaration that the corporation has made reasonable efforts to locate its shareholders. If the PGT receives satisfactory information from the corporation, it then prepares an agreement pursuant to which the corporate property becomes a corporate trust held by the PGT. A court order is not ordinarily necessary to effect the conveyance of property to the PGT, but may be requested by the PGT, particularly where a liquidation proceeding is already before the court. If a court order is requested or required, the PGT should be consulted on the wording of the court order.

The PGT provides no formal guidance on what constitutes sufficient efforts to locate shareholders. However, it advises that corporations are expected to make diligent efforts, including conducting all available searches and contacting known shareholders who may have information as to the whereabouts of unknown shareholders. Corporations may also attempt to ascertain shareholder whereabouts by advertising in local media, but advertising is not required in all cases.

Law

Legislative Context

Summary

Part XVI “Liquidation and Dissolution” of the OBCA governs the voluntary winding up or dissolution of a corporation. Where a corporation is voluntarily wound up, the liquidator must, under s. 221(1)(a), distribute the property of the corporation rateably among its shareholders, subject to the property of the corporation being first applied in satisfaction of its debts, obligations, and liabilities. Similarly, where a corporation is voluntarily dissolved, the corporation must, under 238(1)(d), in its articles of dissolution set out that, after satisfying the interests of creditors, its remaining property, if any, has been distributed rateably among its shareholders.

If the whereabouts of shareholders are unknown, then either ss. 235 or 238 applies, depending respectively on whether the corporation will be voluntarily wound up or dissolved. In either case, the property of the shareholders may be conveyed to the PGT to be held in trust for shareholders. Any such conveyance to the PGT is deemed to be a distribution of a shareholder’s rateable share for the purposes of ss. 221(1)(a) and 238(1)(d).

The language used in ss. 235 and 238 is permissive. In light of this, the Superior Court of Justice held in Fund of Funds Ltd., (Re) that a court cannot order the PGT to enter into an agreement under these sections. However, the Court in Fund of Funds also noted that the PGT has a “duty and obligation to negotiate in good faith” in respect of any such agreement.[1] The Superior Court of Justice further held in Latvian House Toronto Ltd. v. Fraternity “Lidums” that the scheme set out in the OBCA is the “default” scheme and denied on that basis the applicant’s request to give “leftover” funds to a successor organization instead of transferring those funds to the PGT.[2] As such, it is unlikely that a corporation can satisfy its obligations under ss. 221(1)(a) and 238(1)(c) with respect to shareholders whose whereabouts are unknown except by transferring property to the PGT. The transfer of corporate property to a trustee other than the PGT will not satisfy a corporation’s obligations to rateably distribute property.

The property conveyed pursuant to ss. 235 or 238 may be in a form other than cash, but the PGT may then convert the property to cash at any time and must do so within ten years after delivery. A shareholder has ten years within which to claim its share from the PGT. At the expiry of the ten year period, the amount held in trust by the PGT vests in the PGT for the use of Ontario, and any shareholder must thereafter satisfy the Lieutenant Governor in Council of its right to the property.

Relevant Provisions

Where a corporation is voluntarily wound up, ss. 235(1) and (2) apply in respect of shareholders whose whereabouts are unknown:

Where shareholder unknown

235. (1) Where the liquidator is unable to distribute rateably the property of the corporation among the shareholders because a shareholder is unknown or a shareholder’s whereabouts is unknown, the share of the property of the corporation of such shareholder may, by agreement with the Public Guardian and Trustee, be delivered or conveyed by the liquidator to the Public Guardian and Trustee to be held in trust for the shareholder, and thereupon subsections 238 (5) and (6) apply thereto.  R.S.O. 1990, c. B.16, s. 235 (1).

Idem

(2) A delivery or conveyance under subsection (1) shall be deemed to be a distribution to that shareholder of his, her or its rateable share for the purposes of the winding up.  R.S.O. 1990, c. B.16, s. 235 (2).

For the purposes of bringing a dissolution authorized by the shareholders into effect, ss. 238(4), (5), and (6) apply:

Where shareholder unknown

(4) Where a corporation authorizes its dissolution and a shareholder is unknown or a shareholder’s whereabouts is unknown, it may, by agreement with the Public Guardian and Trustee, deliver or convey the shareholder’s share of the property to the Public Guardian and Trustee to be held in trust for the shareholder, and such delivery or conveyance shall be deemed to be a distribution to that shareholder of his, her or its rateable share for the purposes of the dissolution.  R.S.O. 1990, c. B.16, s. 238 (4).

Power to convert

(5) If the share of the property so delivered or conveyed to the Public Guardian and Trustee under subsection (4) is in a form other than cash, the Public Guardian and Trustee may at any time, and within ten years after such delivery or conveyance shall, convert it into cash.  R.S.O. 1990, c. B.16, s. 238 (5).

Payment to person entitled

(6) If the amount paid under subsection (3) or the share of the property delivered or conveyed under subsection (4) or its equivalent in cash, as the case may be, is claimed by the person beneficially entitled thereto within ten years after it was so delivered, conveyed or paid, it shall be delivered, conveyed or paid to the person, but, if not so claimed, it vests in the Public Guardian and Trustee for the use of Ontario, and, if the person beneficially entitled thereto at any time thereafter establishes a right thereto to the satisfaction of the Lieutenant Governor in Council, an amount equal to the amount so vested in the Public Guardian and Trustee shall be paid to the person.  R.S.O. 1990, c. B.16, s. 238 (6).

These provisions were subject to minor amendments in August of 2010, where any reference to the “Public Trustee” was struck out and substituted with “Public Guardian and Trustee”.

Corporate Trusts with the Office of the Public Guardian and Trustee

Any payment to the PGT under ss. 235 or 238 is subject to the PGT’s agreement. The PGT does not publish its requirements or procedures under these sections but will provide such information upon request. The requirements set out in this article are provided following consultation with the PGT, but are subject to change at the PGT’s discretion. For current information, contact the PGT.

The PGT refers to conveyances under ss. 235 and 238 as “corporate trusts”. Before the PGT will agree to accept corporate property to be held in trust for shareholders whose whereabouts are unknown, the corporation or liquidator must provide the PGT with a statutory declaration setting out:

(a)  how the unclaimed funds arose;

(b)  the capacity of the applicant supported by evidence (as liquidator or voluntarily dissolving corporation or corporation surrendering its charter);

(c)   the statutory provision under which the applicant proposes to pay the PGT and evidence that the terms of the provision are or will be met;

(d)  the amount of the funds or nature of the property held and its estimated value;

(e)  if the applicant proposes to transfer funds in kind to the PGT, an explanation as to why the property has not been converted into cash;

(f)    the number of shareholders or creditors that cannot be found and the names and amounts owing to the missing persons; and

(g)  the efforts made by the applicant to find the missing shareholders or creditors.

The approval process for statutory declarations submitted to the PGT under ss. 235 or 238 generally takes a number of weeks but can take longer depending on the complexity of the matter. If the PGT is prepared to accept the corporate property following review of a corporation’s statutory declaration, the applicant corporation must also provide all available identifying shareholder information to the PGT for the purposes of administering future claims, including shareholder names, last known addresses, and the number and value of shares held. The PGT conducts no searches and makes no efforts to locate shareholders once a corporate trust is accepted.

The PGT will then prepare an agreement pursuant to which the corporate property is held in trust. The PGT’s current fee for entering into such an agreement is $1,000.00 plus $130.00 HST. Costs may be higher if the matter is before the court. The PGT is also entitled to charge additional fees for the administration of claims. The current claims processing fee on corporate trust payments is $200.00.  

A court order is not required to effect a corporate trust, but can act as a substitute for an agreement in the event that a liquidation proceeding is ongoing. However, the consent of the PGT is still required in such cases. Section 7(1.1) of the Public Guardian and Trustee Act specifically provides that a court cannot appoint the PGT as trustee without the PGT’s written consent. The PGT may also, at its discretion, request that a court order be sought before accepting corporate property. If an order is requested, the PGT should be consulted on the terms of the court order.

Requisite Efforts to Locate Shareholders

As set out above, before the PGT will accept a corporate trust, it expects the corporation or liquidator to have conducted a reasonable and thorough search for shareholders whose whereabouts are unknown. Neither the OBCA nor the PGT expressly specifies what steps, if any, are required of a corporation or liquidator in the process of attempting to locate shareholders whose whereabouts are unknown. The case law on this point is very limited, and simply suggests that corporations are required to make “reasonable” efforts.Substantively such efforts typically include advertising or otherwise publishing notices in community media.

It appears from the case law that corporations typically do everything within their power to locate shareholders whose whereabouts are unknown:

[The corporation] filed extensive evidence detailing its efforts to identify the shareholders of the corporation entitled to share in the distribution of its assets, as well as the history of the structure of the shareholdings in the company. I am satisfied that [the corporation] has used reasonable efforts to locate its shareholders, including publishing notices in community media.

Further guidance is found in the context of the liquidation of Sapawe Gold Mines Limited (Sapawe). Sapawe’s liquidator moved before the Superior Court of Justice for an order approving the final distribution of corporate property to shareholders whose whereabouts were unknown under s. 235 of the OBCA. The results of this motion are unreported, but the motion record is available online.

In its motion record, Sapawe’s liquidator set out the history of the shareholder records of Sapawe and the corporation’s efforts to locate shareholders whose whereabouts were unknown. In particular, the liquidator stated that Sapawe had held two special meetings of the shareholders, issuing over 1000 invitations based on last known addresses. Many of the responses to these invitations were responses from next of kin regarding estates that had previously held an interest in the shareholdings of Sapawe. Sapawe also ran advertisements in local and national papers, which resulted in additional shareholders being located.

In conclusion, in order to satisfy the PGT that a corporation has made all reasonable efforts to locate shareholders, a prudent corporation will undertake most or all of the following efforts:

  • Conduct all reasonable online searches, including searches of online directories and land registry searches through Teranet;
  • Contact shareholders whose whereabouts are known or other individuals with knowledge of the affairs of the corporation, including current and former directors and officers, to request further information on shareholders whose whereabouts are unknown;
  • Call a shareholder meeting for the purpose of locating shareholders whose whereabouts are unknown; and
  • Advertise in local media in the communities relevant to the last known whereabouts of the shareholders whose whereabouts are unknown.

About the Author

Daniella Murynka is an associate with Ricketts, Harris in Toronto.


 

[1] 2004 CarswellOnt 2483 at para. 23.

[2] 2012 ONSC 2237 at para. 7.

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