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Piercing the Corporate Veil in Canada When Company Is Used to Misappropriate Funds

August 26, 2014

Fraudsters cannot hide behind a corporate shield in Canada when they use a company for an “illegal, fraudulent or improper purpose.” The Ontario Court of Appeals in Shoppers Drug Mart Inc. v. 6470360 Canada, Inc., 2014 ONCA 85, addressed the situation where Shoppers Drug Mart (“Shoppers”) contracted with the defendant Energyshop Consulting to manage and pay utility bills for Shoppers’ stores nationwide. Michael Beamish (“Beamish”) described himself as President of Energyshop, but Energyshop was not incorporated. There was no formal contract. Several weeks after entering into the agreement, Beamish incorporated defendant 6470360 Canada (“647”). Shoppers and 647 then entered an agreement whereby they mutually confirmed the termination of the contract. Shoppers then began to receive notices of default from various utility providers and that in its view, 647 should pay. Shoppers commenced an action to recover its funds transferred to defendants for payment of the utility bills. Shoppers brought a motion against 647 and Beamish for summary judgment seeking payment of the remaining funds that it alleged had been misappropriated.

On appeal, the court granted summary judgment. The court noted that a corporate veil is pierced when the company is incorporated for an illegal, fraudulent or improper purpose. It can also be pierced if when incorporated, those in control expressly direct a wrongful thing to be done. In this case, there was no doubt that Beamish was directing the wrongful conduct and caused the misappropriation and misrepresentation by 647 and the ensuing unjust enrichment. Beamish had sole signing authority and authorized the transfer of significant funds, which were supposed to be dedicated to the payment of utility bills. The corporate veil should be pierced because Beamish expressly directed and caused the wrongful act.

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