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Personal Liability

Posted on June 1, 2024 | Posted in Collections

A corporate tenant shuts down, but the business pops up elsewhere. Can the disappointed landlord successfully claim its losses against the corporate tenant’s principal? The two most likely attacks to establish personal liability were discussed in FNF Enterprises Inc. v. Wag and Train Inc., a 2023 decision of the Ontario Court of Appeal.

A closed sign in a store window.


The landlord alleged in its action that the corporate tenant abandoned the leased premises with rent owing and that the sole director, officer, and shareholder then moved the business to a different location under a different name. The landlord alleged that the principal had treated the corporation’s assets as her own and benefitted personally by the move. This, the landlord alleged, was fraud.

The defendants (i.e., corporate tenant and principal) brought a motion to strike the statement of claim as disclosing no reasonable causes of action.

Corporate Veil

A corporation has a separate legal existence from its shareholders and, therefore, shareholders, officers, and directors are normally not liable for the debts and wrongful actions of a corporation. However, on occasion, a court has sufficient facts to enable it to strip away that separate existence (called piercing the corporate veil) and hold the principal personally liable for the corporation’s liabilities.

The court noted that, to be successful, an attack to pierce the corporate veil needed proof that:

  • the principal did not merely own or control the corporation; rather the principal completely dominated or abused the corporate form; and
  • the corporation was used for fraudulent or improper conduct, conduct that gave rise to the very liabilities that the attacker sought to enforce.

Given these requirements, the court held that allegations that the principal merely caused the corporation to abandon a lease and move its business were not sufficient to justify piercing the corporate veil.

In coming to this conclusion, the court reasoned as follows:

  • The landlord alleged that the principal somehow stripped the assets of the corporation. However, there was no nexus between the liability under the lease and the wrongful act of which the landlord complained. Stripping value from the corporation did not cause the arrears of rent or the abandonment of the leased premises. It may have made the corporation less likely to have assets to pay the landlord, but that is not relevant in determining whether to pierce the corporate veil. The lease liabilities had a source that was different from, and independent of, the alleged value stripping.
  • The mere decision of a principal to have a corporation breach its lease is not an abuse of the corporate form. Principals of a corporation have a duty to make decisions that are in the best interests of the corporation, and it may well be in a corporation’s best interests to breach a contract.

Asset Stripping

However, the principal was still not home free. Section 248 of the Ontario Business Corporations Act provides a remedy to minority shareholders, creditors, and others from the actions of principals (e.g. directors, officers, majority shareholders) in conducting the corporation’s affairs. To be successful, a complainant must:

  • identify the expectations it claims that the principal violated and demonstrate that its expectations were reasonable; and
  • show that the principal violated these reasonable expectations with conduct that was oppressive or unfairly prejudicial to the minority shareholder or creditor.

The court analysed the principal’s alleged actions as follow:

“in light of the allegation of unpaid amounts owing to creditors, (principal), as sole shareholder, was not entitled to use (corporation’s) money as her own or to appropriate its business. Nor could she, as sole director, confer (it) upon herself. The power of a director to declare a dividend to shareholders is subject to the corporation being able to pay its creditors: OBCA, s. 38(3). A shareholder of a corporation does not have a right to the corporation’s assets while it is ongoing … That right only arises if and when the corporation is wound up. On winding up, a shareholder’s right to payment or to receive assets is subject to the prior rights of unpaid creditors …”

The court noted that the landlord did not allege in its pleadings that it had a reasonable expectation that the value stripping would not occur. The court, however, stated that reasonable expectations are objectively derived (i.e. what the landlord might have expected subjectively is irrelevant; what an objective bystander would have presumed is). Accordingly, the court gave the landlord leave to amend its statement of claim to allege that it would have had a reasonable expectation that the principal would not strip the corporation’s assets.

The court therefore decided that the plaintiff had put forth an arguable case that a personal remedy against the principal was appropriate. She was alleged to have stripped value from the corporation in priority to unpaid creditors (i.e. the landlord) and thus misused corporate powers to her own benefit.


The landlord commenced its action against the corporate tenant and the principal. We therefore conclude that the principal used the tenant corporation to commence the new business under a different name and style, but used the same corporation, nonetheless. We find this fact to be very confusing. Normally, if a principal wants to get out of the lease liabilities, the principal incorporates a new corporation to carry on the new business and then (surreptitiously) uses the old corporation’s assets to assist the new corporation in carrying on the new business. What is the point of using the old corporation to carry on the new business? Once the landlord obtains a judgment against that old corporation, it will just attack its assets in the new business.

Note that, in a motion to strike a statement of claim, all allegations in the statement of claim are considered to be true. A court will strike the claim only if it is plain and obvious that, even assuming the factual accuracy of the pleaded allegations, the plaintiff will still lose. A plaintiff may well succeed in staving off this motion, but still lose the action. There is a big difference between allegations that are deemed to be true for purposes of the motion only and actually proving those allegations at trial.

Given all the unanswered questions that we have regarding exactly what the principal did with her corporation and its businesses, a satisfactory result for the landlord is far from a sure thing.


Image courtesy of igorovsyannykov.

Jonathan Speigel


Written by Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.


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