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Creditors have remedies available when debtors close shop

It can be frustrating for a creditor to obtain a judgment against a company that subsequently takes extraordinary measures to avoid paying up — but as Toronto business lawyer Inga Andriessen tells, litigants have options to further pursue what they are owed.

As Andriessen, principal of Andriessen & Associates, explains, this situation happens frequently, including in one recent case where she obtained judgment for a creditor, only to have the debtor close up shop and open another business using a similar name.

“I’ve experienced this more frequently with construction companies, though not exclusively with them,” she says.

Enter the oppression remedy. Section 248 of the Ontario Business Corporations Act and s. 241 of the Canada Business Corporations Act outline this tool, which gives a complainant the right to bring a court action against a corporation “where conduct has occurred which is oppressive, unfairly prejudicial or which unfairly disregards the interests of a shareholder, creditor, director or officer,” according to Corporations Canada.

Specifically, says Andriessen, the oppression remedy provision can be used “if a debtor corporation closes shop because of the creditor and opens a new business doing the same thing.”

“A lawyer will bring an application to the court asking the new company and it’s officers and directors be responsible for the original judgment,” she says.

The provision will ultimately allow a court to make orders to counter oppressive behaviour, she explains, which can include awarding compensation, appointing a receiver, winding up the corporation, forcing the acquisition of securities and amending charter documents.

In the case of Andriessen’s client — the creditor — the directors and officers of the original company were found guilty of oppressive conduct and personally liable for the new judgment.

Andriessen notes that this is often the outcome of using this remedy.

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