Two recent Supreme Court of Canada decisions demonstrate that the corporate attribution doctrine is not a one-size-fits-all approach.

The corporate attribution doctrine allows for the actions, knowledge, or intent of the corporation’s directing mind to be attributed to the corporation.^[1] This doctrine has been previously applied in the criminal context and in the civil context.^[2] Two recent decisions of the Supreme Court — Aquino v. Bondfield Construction Co., 2024 SCC 31 and Scott v. Golden Oaks Enterprises Inc., 2024 SCC 32 — now provide for the application of the doctrine in the insolvency law space.

1. Aquino v Bondfield Construction Co., 2024 SCC 31

Background

Bondfield Construction and its affiliate, Forma-Con Construction, were family-owned companies involved in projects in Ontario. John Aquino was the president and directing mind of the corporations. Financial difficulties lead to restructuring proceedings for the companies in 2019, and a monitor and trustee in bankruptcy were appointed. After investigations, the monitor and trustee in bankruptcy uncovered a false invoicing scheme whereby Mr. Aquino (and others) had defrauded the corporations to the tune of tens of millions of dollars.^[3]

The monitor and trustee in bankruptcy sought to challenge the transactions underlying the false invoicing scheme as transfers for undervalue intended to defraud, defeat, or delay creditors, pursuant to section 96(1)(b)(ii)(B) of the Bankruptcy and Insolvency Act (the “BIA”).

The application judge and Court of Appeal agreed that Mr. Aquino’s fraudulent intent ought to be attributed to the corporations under the corporate attribution doctrine.^[4]

The Supreme Court’s Decision

The appellants argued that even if Mr. Aquino intended to defraud, defeat or delay a creditor, his intent cannot be attributed to the corporations because of the fraud and no benefit exceptions to corporate attribution. In other words, the appellants argued that because Mr. Aquino intended to defraud the companies and the companies did not benefit from the fraud, his intent could not be attributed to the corporations and, therefore, the transactions could not be challenged under section 96(1)(b)(ii)(B) of the BIA.^[5]

The Supreme Court disagreed. Justice Jamal, who authored the Court’s unanimous reasons, explained that the corporate attribution doctrine “must be applied purposively, contextually, and pragmatically to promote the purpose of the law under which attribution is sought”.^[6] Accordingly, the Court examined the purpose of section 96 of the BIA, and held that it aims to remedy asset stripping by clawing back improperly transferred assets to protect creditors’ interests, regardless of whether the company benefited by the transfer.^[7] Applying the fraud and no benefit exceptions would deny creditors the benefit of the remedy under section 96 and would diminish the asset pool, thereby undermining the purpose of this section.

The Court concluded that the test for corporate attribution under section 96 of the BIA is “simply whether the person was the directing mind and whether their actions were performed within the sector of corporate responsibility assigned to them”.^[8] If these criteria are met, then the actions, knowledge or intent of the directing mind should be attributed to the corporation, regardless of whether the fraud and no benefit exceptions are engaged.^[9]

2. Scott v Golden Oaks Enterprises Inc., 2024 SCC 32

Background

The second appeal concerns the application of the corporate attribution doctrine to a “one-person” corporation.^[10] The corporation, Golden Oaks Enterprises, was a Ponzi scheme disguised as a rent-to-own property business. The corporation offered criminal interest rates to its investors and required new loans to repay existing loans. It also paid investors commissions for referring new investors to the company under referral agreements.^[11]

Upon its collapse, the corporation and its directing mind, Mr. Lacasse, went into receivership and made assignments in bankruptcy.^[12] The trustee in bankruptcy launched several actions to recover amounts the corporation had paid to investors, based mainly on unjust enrichment.

The investors asserted that the trustee’s actions were statute-barred by the Limitations Act, 2002. They argued that because the corporation was a “one-person” corporation, the knowledge of its sole directing mind, Mr. Lacasse, should be attributed to the corporation under pursuant to the corporate attribution doctrine.^[13]

The trial judge and the Court of Appeal both held that the trustee’s actions were not statute-barred, but for different reasons. The trial judge attributed the knowledge of the sole director to the corporation, but ruled that the trustee’s actions were nevertheless brought in time because a legal proceeding was not “appropriate” — under s. 5(1)(a)(iv) of the Limitations Act — until the corporation went into receivership. This delayed the “discoverability” of the claim and rendered it within time.

The Court of Appeal dismissed the appeal, holding that the trustee’s actions are not statute-barred because the knowledge of the corporation’s sole director ought not to be imputed to the corporation. The Court of Appeal held that attribution in this case would undermine the policy of insolvency law, which is to ensure equitable distribution of the assets among creditors. It would also compromise the social policy of promoting corporate responsibility to prevent fraud and regulatory non-compliance.^[14]

The Supreme Court’s Decision

At the Supreme Court, the investors argued that the knowledge of a directing mind must always be attributed to a one-person corporation because the two are essentially one and the same.^[15]

The Supreme Court rejected this approach. Justice Jamal, writing for a majority of the Court, explained that to automatically attribute the knowledge of a directing mind to a one-person corporation would be to disregard the bedrock principle of corporate separateness.^[16] Instead, the corporate attribution doctrine must be applied “purposively, contextually, and pragmatically to give effect to the policy of the law under which attribution is sought”.^[17]

As the appellants sought to attribute Mr. Lacasse’s knowledge to the corporation to trigger the discoverability rule under the Limitations Act and bar the trustee’s claims under the BIA, the Court considered whether corporate attribution would promote the purpose of each Act.

The purpose of the Limitations Act is to promote certainty and avoid the injustice of precluding an action before a person can raise it. In this case, Mr. Lacasse had no interest in suing the appellants while he was the sole directing mind of the corporation, as that would have exposed the Ponzi scheme. The lawsuit could only have been brought by the trustee, so attributing Mr. Lacasse’s knowledge to the corporation would create an injustice by barring the trustee’s claims.^[18]

A main purpose of the BIA is the equitable distribution of the bankrupt’s assets among its creditors. The Court found that attributing Mr. Lacasse’s knowledge to the corporation would not serve the public interest or the purposes of the BIA, as it would allow the appellants to retain wrongful gains and reduce the amount to be distributed to creditors.^[19]

In the result, the Court dismissed the appeal and held that Mr. Lacasse’s knowledge ought not to be attributed to the corporation. As a result, the trustee’s actions were not statute-barred.

Justice Côté, writing separately, agreed with the result reached by the majority, but would have declined to venture into the world of corporate attribution. Instead, for Justice Côté, the provisions of the Limitations Act provided a full answer. Like the Court of Appeal, Justice Côté reasoned that the claims against the investors were not discoverable until the trustee was authorized by the court to commence those actions. Before then, the claims were not an appropriate means to seek a remedy (pursuant to s. 5(1)(a)(iv) of the Limitations Act).

3. Key Takeaways

In this pair of decisions, the Supreme Court affirmed that the common law corporate attribution doctrine must be applied purposively, contextually and pragmatically to give effect to the policy of the law under which attribution is sought. The Court recognized the specific policy rationales underlying bankruptcy and insolvency law, and was specifically attuned to whether the application of the corporate attribution doctrine in these circumstances would advance, or undermine, those rationales.

Though the Court applied the doctrine in one appeal (Aquino) and declined to apply it in the other (Scott), the decisions rely on the same analytical approach to the application of the corporate attribution doctrine. They both make clear that the policy goals underpinning the statutory context in which the doctrine has been invoked are of primary importance, and adopted an approach that favours the protection of legitimate creditors.

These decisions may pave the way for greater attribution of the wrongful actions of a directing mind to a corporation in the insolvency context. This trend already appears to be emerging in certain appellate courts. For example, in Stevens v. Hutchens, 2024 ONCA 717, the corporate debtors’ assets were fraudulently funneled to them by the controlling mind, and the Court of Appeal pierced the corporate veil to pool the assets and satisfy the claims against the debtor in a receivership. The corporate veil may not be as thick and impenetrable as it has appeared in the last two decades, particularly in contexts involving fraud or other misconduct.

___________________________

[1] Canadian Dredge & Dock Co. v. The Queen, 1985 CanLII 32 (SCC), [1985] 1 SCR 662, at para 20 [Canadian Dredge].

[2] Canadian Dredge; Deloitte & Touche v. Livent Inc. (Receiver of), 2017 SCC 63 (CanLII), [2017] 2 S.C.R. 855; Christine DeJong Medicine Professional Corporation v. DBDC Spadina Ltd., 2019 SCC 30 (CanLII), [2019] 2 S.C.R. 530.

[3] Aquino v. Bondfield Construction Co., 2024 SCC 31 (CanLII), at para 12 [Aquino].

[4] Aquino, at paras 19-20.

[5] Aquino, at paras 55-56.

[6] Aquino, at para 56.

[7] Aquino, at para 86.

[8] Aquino, at para 89.

[9] Aquino, at para 89.

[10] Scott v. Golden Oaks Enterprises Inc., 2024 SCC 32 (CanLII), at para 2 [Scott].

[11] Scott, at para 2.

[12] Scott, at para 3.

[13] Scott, at para 4.

[14] Scott, at para 37.

[15] Scott, at para 7.

[16] Scott, at para 9.

[17] Scott, at para 9, citing Aquino at paras. 56, 64, 82.

[18] Scott, at paras 76-78.

[19] Scott, at para 79.