2014 QCCQ 1213, 2014 QCCQ 1213

Unofficial English Translation Placements Place Désormeaux inc. c. Shukrun 2014 QCCQ 1213 COURT OF QUEBEC CANADA PROVINCE OF QUEBEC DISTRICT OF MONTREAL “Civil Division” No.: 500-22-205496-139 DATE: February 24, 2014 ______________________________________________________________________ PRESIDED BY: THE HONOURABLE ALAIN BREAULT, J.C.Q. ______________________________________________________________________ PLACEMENTS PLACE DÉSORMEAUX INC. Plaintiff v. AVNER SHUKRUN -and- 9094-5668 QUÉBEC INC.

Defendants ______________________________________________________________________ JUDGMENT ______________________________________________________________________ [ 1 ] As it now stands, the dispute between the parties addresses the sections of the Business Corporations Act [1] that concern the dissolution and revival of a corporation by a sole shareholder. [ 2 ] The plaintiff, Placements Place Désormeaux inc. (the "plaintiff" or "Place Désormeaux"), claims $30,770.31 from the defendants Avner Shukrun ("Shukrun") and 9094-5668 Québec inc. ("Québec inc."), solidarily. [ 3 ] The amount claimed arises from the obligations Québec inc. undertook toward the plaintiff pursuant to a commercial lease between them. [ 4 ] Québec inc. does not contest the legal proceedings.

It was not represented by counsel at trial and did not even appear in the case at bar. It will therefore be condemned to pay any amount awarded to Place Désormeaux. [ 5 ] The defendant Shukrun, who represented himself at trial, does not contest the amount claimed so much as he opposes any personal condemnation of himself. He argues that the operations that led to Québec inc.'s dissolution and subsequent revival were due solely to an error committed by his accountant. He adds that he was never a party, either as debtor or surety, to the commercial lease between Place Désormeaux and Québec inc.

BACKGROUND [ 6 ] On April 15, 2010, 6913041 Canada Inc. and Québec inc. signed a commercial lease [2] pursuant to which Québec inc. rented a commercial space to operate a clothing store under the name "Boutique Désirée". [ 7 ] The defendant Shukrun does not contest that he is Québec inc.'s sole shareholder and director. [ 8 ] The lease provided for an initial term of ten years and two months and stated that the rent for the period from June 1, 2010, to May 31, 2014, would be $13.70 per square foot or $13,699.99 per annum, payable in equal and consecutive monthly instalments of $1,141.66.

Québec inc. also agreed to pay $850 in additional monthly rent ($10.50 per square foot or $10,500 per annum) and a portion of the property taxes, or $233.33 per month ($10.50 per square foot or $10,500 per annum). [ 9 ] On August 31, 2011, Place Désormeaux bought from Canada inc. the shopping centre in which Québec inc. operated its boutique and consequently acquired all the rights and interests in the leases, including the one signed by Québec inc. [3]

[ 10 ] In 2013, Québec inc. became unable to meet its obligations. It did not pay the rent from April to July of 2013. At that point, Place Désormeaux's claim added up to $13,961.01. [ 11 ] On July 24, 2013, the plaintiff sent Québec inc. a demand letter. [4] In it, the plaintiff claimed payment for the amounts due, failing which it would bring the relevant legal proceedings without further delay. [ 12 ] The evidence reveals that Shukrun communicated with a representative of Place Désormeaux soon thereafter and informed her that Québec inc. no longer existed as it had been dissolved.

The representative of Place Désormeaux relates that Shukrun then made a settlement offer, which was refused outright because it was ridiculously low. Shukrun denies making this offer. [ 13 ] On July 12, 2013, a certificate of dissolution was indeed issued by the Registraire des entreprises [5] following a declaration of dissolution filed and signed by Shukrun, [6] in which he declared, among other things: [ translation ] (

c) that the rights and obligations of the corporation become those of its sole shareholder, who declares the corporation to be dissolved and states that he can pay the corporation's debts as they become due. [ 14 ] On July 30, 2013, the plaintiff sent Québec inc. a second demand letter. [7] It gave notice that it was terminating the lease immediately because of Québec inc.'s dissolution, the premises being henceforth used by a third party and the rent remaining unpaid. [ 15 ] On August 1, 2013, Place Désormeaux took possession of the leased premises and Shukrun left the shopping centre for good. [ 16 ] In addition to the rent due for April to July of 2013 ($13,961.01), the plaintiff claims from the defendants solidarily an additional indemnity corresponding to six months' rent and additional rent ($16,809.30).

The claim therefore totals $30,770.31. [ 17 ] Shukrun contests Place Désormeaux's theory that, in the circumstances described at trial, he can be personally condemned. [ 18 ] He testifies that the dissolution of Québec inc. occurred only as a result of an error committed by his accountant. He states that this accountant made a mistake as to which company was to be dissolved.

Rather than dissolving Québec inc., he should have dissolved 9282-2907 Québec inc., a corporation in which he and his wife are shareholders and the one that Shukrun claims he had asked his accountant to dissolve. [8] [ 19 ] On September 19, 2013, Shukrun obtained a certificate of revival for Québec inc. [9] He explains that he took steps to do so after noticing his accountant's mistake.

He states that because Québec inc. was revived, only Québec inc. can be sued and condemned to pay the obligations it undertook in the commercial lease. [ 20 ] For its part, the plaintiff argues that the revival of Québec inc. has not released Shukrun from his personal liability. The provisions of the Business Corporations Act regarding the dissolution and revival of a corporation by a sole shareholder are clear. They allow the plaintiff to obtain a personal condemnation against Shukrun.

ANALYSIS AND REASONS [ 21 ] Sections 304 , 305 , 312 , 313 of the Business Corporations Act address the dissolution of a corporation by its sole shareholder and the effects thereof: 304. A corporation may be dissolved by consent of the shareholders, by consent of the directors or by the filing of a declaration of dissolution by the sole shareholder of the corporation. A corporation may also be dissolved by a decision of the court in accordance with subdivision 8 of Division II of

Chapter XVII. 305. The shareholders of a corporation at the time of its dissolution are, as of that time, liable for the performance of the corporation's obligations up to the value of the share of the remaining property they received and any amount outstanding on the shares they held at the time of dissolution. 312. A corporation may be dissolved by the filing of a declaration of dissolution by the shareholder who holds all the shares issued by the corporation.

A shareholder who, without holding all the shares of the corporation, holds at least 90% of them may, in anticipation of filing a declaration of the dissolution, acquire the shares held by the other shareholders of the corporation in accordance with

Chapter XV. However, unless the corporation is a reporting issuer, the notice of intention under

section 401 must state the offeror's intention to dissolve the corporation and the price offered for the shares held by the other shareholders instead of stating the shareholders' acceptance of the bid; the shareholder is not required to send the notice to the Autorité des marchés financiers. 313. As of the dissolution of the corporation, its rights and obligations become those of the shareholder, and the shareholder becomes a party to any judicial or administrative proceeding to which the corporation was a party .

Sections 305 to 307 do not apply to a dissolution under this subdivision . (Emphasis added.) [ 22 ] Moreover, on the subject of reviving a corporation, sections 365 and 371 state: 365. The enterprise registrar may, on an application by any interested person and on the conditions determined by the enterprise

registrar, revive a corporation dissolved in accordance with this chapter. Likewise, the enterprise registrar may revive, as a corporation governed by this Act, a corporation to which the Companies Act (chapter C-38 ) applied and that was dissolved or liquidated, voluntarily or by the sole operation of law. 371. Subject to

section 24, to the conditions determined under this division and to rights acquired by a third party after the dissolution of the corporation , the revived corporation is deemed never to have been dissolved. The articles of the corporation at the time of dissolution are the articles of the revived corporation. (Emphasis added.) [ 23 ] Author Paul Martel, [10] addressing the liability of the sole director and shareholder in the event of dissolution, makes the following remarks: [ translation ]

Section 29 of the Companies Act set out the joint and several liability of the persons acting as directors at the time of the corporation's dissolution. This liability covered the corporation's existing debts at the time of dissolution for every creditor of the corporation who had not granted the intended consent. This directors' liability in the event of a provincial corporation's dissolution disappeared to make room for that of shareholders, up to the value of the share of the remaining property they received and any amount outstanding on their shares.

Under the Business Corporations Act , however, the directors are liable when a corporation is dissolved in the following situation: the directors of a legal person (whether or not it is governed by the Business Corporations Act ) that is the sole shareholder of a corporation that, in a declaration by the sole shareholder pursuant to

section 312 , voluntarily dissolves the corporation "although there were reasonable grounds for believing that the legal person [the sole shareholder] would be unable to pay the liabilities of the corporation [the dissolved subsidiary] as they became due". The directors then become solidarily liable for the obligations of the corporation that the legal person cannot perform.

In such a situation, the Business Corporations Act lifts the "corporate veil" of the parent company by making its directors personally liable for the dissolved corporation's obligations, which thereby become, by operation of law, those of the parent company. [11] [ 24 ] He then adds: [ translation ] From the moment the corporation is dissolved, its rights and obligations become those of the shareholder, and the shareholder becomes a party to any judicial or administrative proceeding to which the corporation was a party.

The shareholder becomes liable for all the debts of the corporation, without the benefit of the limit under

section 305 . [12] [ 25 ] On another note, he says the following about the effects of revival: [ translation ] The Business Corporations Act henceforth provides for the revival of corporations dissolved under its authority. This includes not only those corporations that are voluntarily dissolved pursuant to

chapter XIII, but also those dissolved by judgment. ... From this date or, as the case may be, from the hour noted on this certificate, the corporation is revived. Its statutes at the time of dissolution are its statutes.

The effect of the revival is retroactive: Subject to third-party rights, the corporation is deemed to have never been dissolved . [13] (Emphasis added.) [ 26 ] The Business Corporations Act thus establishes a scheme that allows the sole shareholder of a corporation to voluntarily and unilaterally dissolve it, if that shareholder takes on the corporation's existing debts and obligations. [14] By signing the declaration of dissolution, the sole shareholder acknowledges or confirms that he or she has the wherewithal to assume or meet the obligations of the dissolved corporation. [ 27 ] On July 12, 2013, the date on which the certificate of dissolution was issued, Shukrun became personally liable for Québec inc.'s debts and obligations, and in particular, those that bound Québec inc. to the plaintiff pursuant to the commercial lease.

This is in fact what he had understood and agreed to in the previously referred to declaration, which he incorporated into his declaration of dissolution. [ 28 ] In the opinion of the Court, when a corporation with a sole shareholder is revived, the words "[s]ubject to...rights acquired by a third party after the dissolution of the corporation" in

section 371 of the Business Corporations Act must be interpreted and applied in the spirit of and according to the mechanism implemented by the legislature in sections 312 and 313 of this Act . Because the legislature does not limit the scope of the term "third party" in

section 371 of the Business Corporations Act , the rights acquired by a third party after the dissolution of a corporation (and prior to its revival) remain protected, even if the sole shareholder later decides to revive the corporation. [ 29 ] That does not mean that courts will refuse to exercise their discretion to avoid applying the rigorous or even damaging effects of the Business Corporations Act to sole shareholders where, for example, they are in good faith and an honest mistake beyond their control

has occurred. [ 30 ] That being said, it clearly appears from the relevant provisions, supra , that the scheme applying to a corporation's dissolution and revival was not created so that the creditors of the dissolved corporation will lose their rights, in whole or in part, as a result of a false or inaccurate declaration by a sole shareholder or following manipulations tantamount to bad faith or an unreasonable and excessive exercise of shareholder rights. [ 31 ] In 9078-0669 Québec inc. v.

Gravel , [15] William Fraiberg, J.S.C., discussing the relevant provisions of the Canadian Business Corporations Act [16] relating to the dissolution and revival of a federal corporation, which are similar to those that apply in the province of Québec today, makes the following remarks about their scope, emphasizing the legitimacy that must characterize the operation of dissolution and revival: [ translation ] Lastly, in our opinion, the characterization under subsection 209(4) C.B.C.A . in favour of those rights acquired by third parties prior to the revival applies here, even if the assumption of 163943's obligations took effect as of its dissolution, not before.

Its revival should not result in depriving creditors of their remedies against the debtors that follow the dissolved corporation. Otherwise, settling the corporation's debts as stipulated under subsection 210(3) C.B.C.A . as a prerequisite to its dissolution may reveal itself to be illusory. Were that the case, the shareholders of a corporation could revive it at will and replace the new debtors who had assumed its debts with an empty vessel.

This is clearly D'Aragon's strategy. [ 32 ] Shukrun had the burden of proving and convincing the Court that he was in good faith and that the operation of dissolving and reviving Québec inc. was the result of an honest mistake made by his accountant. [ 33 ] The Court finds that he has not met his burden of proof in any way. [ 34 ] The explanations he provides are not probative.

They are, in fact, rather vague and often far-fetched, especially with respect to the reasons he decided to form 9282-2907 Québec inc. [ 35 ] The defendant explains that 9282-2907 Québec inc. was incorporated on May 14, 2013, [17] at his wife's request, since she wanted to protect herself by having a 50% interest in his business holdings.

The defendant testifies that he agreed to her request, then incorporated 9282-2907 Québec inc. to that end and also concluded that this new corporation could take over or continue Québec inc.'s business. [ 36 ] He claims that the couple went through a rough patch, however, and even considered separating. Consequently, he decided to dissolve 9282-2907Québec inc. and instructed his accountant accordingly (the accountant failed to execute his instructions correctly).

He adds that some time later, the situation with his wife righted itself, making the dissolution of 9282-2907 Québec inc. pointless. [ 37 ] The accountant and the defendant's wife did not testify before the Court. The defendant's version is not corroborated through independent evidence or by any documentary evidence. [ 38 ] Québec inc. was revived on September 19, 2013, about fifteen days after the plaintiff instituted its legal proceedings against Shukrun personally. [18] [ 39 ] Finally, despite the defendant's explanations, the assets of Québec inc. were never assigned to 2982-2907 Québec inc.

Nor does there appear to have been any written instrument setting out the terms of the project. Again, there is a dearth of documentary evidence corroborating or supporting the defendant's version in any way, shape or form. [ 40 ] The Court finds that the dissolution of Québec inc., which was then operating at a loss, was in truth nothing more than a manipulation by the defendant to avoid a more substantial financial loss.

Shukrun undoubtedly thought, ill-advisedly, that he could force or come to an advantageous agreement with the plaintiff by presenting it with a fait accompli, which the corporation's dissolution had become. [ 41 ] Therefore, in light of the provisions of the Business Corporations Act , supra , Shukrun became personally liable for Québec inc.’s obligations to Place Désormeaux under the commercial lease from the date of Québec inc.'s dissolution.

Reviving Québec inc. did not revoke the rights acquired by the plaintiff upon dissolution. [ 42 ] On August 1, 2013, a date falling between Québec inc.’s dissolution and its revival, the plaintiff took back the premises. On that day, the arrears on the rents for April to July of 2013 totalled $13,961.01. Because the lease was terminated as a result of the fault committed by Québec inc., which had clearly failed to meet its obligations, the plaintiff was also entitled to claim damages for loss of future rental income. [ 43 ] The premises that were occupied by Québec inc. have yet to be rented.

The lease includes no specific provision, however, establishing an anticipated liquidated indemnity. The plaintiff, seeking damages equivalent to six months' rent, had the burden of proving that it had made every reasonable effort during this period to find another tenant. [19] [ 44 ] The evidence reveals that these steps basically involved hanging signs in the premises' shop window and approaching some prospective tenants. [ 45 ] The Court is of the view that this evidence is insufficient to award the indemnity sought in its entirety.

The plaintiff should have provided more details to justify the rather limited nature of the steps it took. In particular, it should have provided details on the number of potential tenants contacted and, especially, the reasons it did not use any other means commonly used in the commercial rental market

to try to rent the premises. [ 46 ] Under the circumstances, the Court will use its discretion to award a reduced indemnity of three months' rent. The damages for loss of future rental income, including the additional rent, are thus established at $8,404.65 ($2,801.55 x 3 months). [ 47 ] Ultimately, Place Désormeaux's claim totals $22,365.66.

FOR THESE REASONS, THE COURT: ALLOWS the plaintiff’s claim in part; CONDEMNS the defendants Avner Shukrun and 9094-5668 Québec inc. solidarily to pay the plaintiff the amount of $22,365.66, with interest at the rate of 5% per annum and the additional indemnity under 1619 C.C.Q. , from July 24, 2013, the date of the demand letter; CONFIRMS that the lease binding the plaintiff and 9094-5668 Québec inc. is terminated; THE WHOLE with costs. __________________________________ ALAIN BREAULT, J.C.Q.

Lamarre Perron Lambert Vincent S.E.N.C. (Mtre Chantal Labelle) For the plaintiff Avner Shukrun Defendant (Representing himself) 9094-5668 Québec inc. Defendant (Absent and unrepresented) Date of hearing: January 10, 2014