DEAD by pptfiles



     Corporations serve a wonderful function. They allow a
number of people to engage in business under a defined set of
rules and to obtain possible limited liability and tax benefits.
However, many people with small privately owned corporations
take their corporations for granted. This can create problems,
one example of which was illustrated in Cornerstone Estates Ltd.
v. Polaris Restorations Inc., a 2001 Ontario Superior Court of
Justice decision.


     In the 1990s, many corporations were dissolved for failure
to file a special corporate notice updating their corporate
information and to pay a small fee for doing so. Additionally,
the income tax branch of the Province of Ontario has always had
the ability to dissolve corporations for failure to pay
corporate income tax.

     A corporation has an existence only because of the statute
under which it is incorporated. Once the corporation is
dissolved, it has no existence. It dies upon dissolution.

     Unlike a human, a corporation may be brought back to life.
For example, the corporation's directors can file the special
corporate notice and pay the filing fee or may pay the taxes
owing. The corporation can then obtain articles of revival by
which its existence is re-instated.

Rights Lost

     In the Cornerstone case, a contractor registered a claim
for lien and, ultimately, commenced an action to preserve that
claim for lien. Unfortunately, at the time that the contractor
registered its claim, it had been dissolved. The reasons for
decision did not say why. The contractor then obtained articles
of revival. The issue was whether the articles of revival were
able to regularise the lien action that had been commenced when
the corporation was legally dead.

     The trial judge correctly held, based on a number of Court
of Appeal cases, that the re-instatement of a corporation's
existence is effective retroactively unless the retroactive
effect of the re-instatement would adversely affect the rights
of others.

     Once the contractor was dissolved, it could not register
the claim for lien or commence its action. Just as dead people
cannot register claims for lien, dead corporations cannot do so
either. If the contractor were allowed retroactive existence,
the owner would be prejudiced. Accordingly, the judge held that
the lien was invalid.


     The judge easily disposed of the lien and ordered the
return of the security that the owner had previously filed to
vacate the lien from title. However, the state of the action was
more problematic. There was no reason why the action was not
valid. The owner could only claim lien limitations. The usual 6-
year contractual limitation period had not yet passed.

     The judge had the discretion either to dismiss the action
and force the contractor to commence a new action or to allow
the action to continue. The judge chose the latter alternative
and directed that the contractor be allowed to continue the
action under the usual rules of civil procedure rather than the
truncated rules under the Construction Lien Act.


     The judge ordered that the contractor pay for the costs of
the owner's motion to discharge the lien but only if the owner
were successful in the action. The judge made no order for the
contractor to reimburse the owner for its costs of posting
security and vacating the claim for lien. Accordingly, a dead
contractor registers a claim for lien, forces an owner to vacate
it, forces the owner to subsequently move to have the security
returned, and does not have to immediately pay the costs that
the owner incurs. This, we suggest, is absurd. It allows for the
improper registration of liens without sanction. Fortunately,
costs are a discretionary matter and we doubt that this aspect
of the decision will be followed by any other judge with a
modicum of a sense of fair play.

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