Brokerage Uses Oppression Remedy to Collect Commission #422
An Ontario brokerage recently used a modern corporate remedy to collect its commissions, when the principal of a corporate seller stripped virtually all the assets out of the company, leaving the seller an empty shell with no money.1
Some legal background is useful. Statutes require directors to make reasonable business decisions in light of all the circumstances known by the directors, or about which they ought to have known.2Sometimes, directors must consider the impact of their actions on a company’s creditors.3
Depending on circumstances, the legislation also permits certain persons to ask a court for a remedy when the affairs of a company, or the powers of the directors, are used in a way that is oppressive. To remedy oppression, the court may order a director to pay compensation.4
In Remo Valente Real Estate (1990) Ltd. v. Portofino Riverside Tower Inc., four businessmen incorporated a company (the “Development Company”) to build a large condominium project. All four were principals of the Development Company. One of the four owned a real estate brokerage. He arranged for the sale of the property to the Development Company. As part of the deal, everyone agreed the brokerage would be the exclusive agent for the sale of all the condos in the project. The Development Company also signed an exclusive listing agreement with the brokerage.
When relations within the group broke down, one of the principals bought out the others and took over sole control of the Development Company. As the Development Company’s sole director and shareholder, he then reorganized the company, effectively transferring the property to other entities. This left the Development Company an empty shell, without money to pay the brokerage’s commissions. The principal also caused the Development Company to terminate the brokerage’s listing and change the sales office locks.
The brokerage successfully sued the Development Company, its sole principal and several related entities. In part, the brokerage sued, as a creditor of the Development Company, for an oppression remedy.5
In the court’s view, the principal reorganized the Development Company to prevent the brokerage from collecting its past and future commissions. The reorganization disregarded the interests of the brokerage, as a creditor of the Development Company.6 The court ordered the principal, the Development Company and several related entities, jointly and severally, to pay the brokerage’s commissions, past and future, with interest and apparently court costs. This made the principal personally liable to pay the commissions owed by his Development Company.
In Ontario, the oppression remedy is available to a shareholder, and to “any other person who, in the discretion of the court, is a proper person to make an application.”7 BC’s Business Corporations Act uses similar wording, though the BC courts haven’t yet decided whether a creditor of a company may sue its directors for an oppression remedy. Nevertheless, an oppression remedy in a similar situation should be considered. Even better, when listing with a corporate seller, a brokerage can strengthen its ability to later collect commission by also getting a written promise from the company’s principal(s) to personally guarantee the performance of their company’s obligations to the brokerage.
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