Crossover issues between estates and corporate law are becoming more and more frequent given the number of Canadians with interests in complex, privately held companies. It is not unusual for the family business to be a corporate asset. In fact, it is an advisable way to go from a financial planning perspective.
There was an interesting decision recently from the Ontario Superior Court of Justice that dealt with this exact nexus between estates and corporate law. Husack v. Husack et al., 2023 ONSC 949, is an application under the Ontario Business Corporations Act with facts that morphed out of a deceased father’s Last Will and Testament.
The applicant is the daughter of Frank Husack and Evelyn Husack. Frank died on February 21, 2008 survived by his wife Evelyn and their four children, Donna (the Applicant), Donald, Dianne, and Doreen (I did not select this case because of my own name, I swear). The primary asset in Frank’s Estate was his shares in an Ontario holding corporation (the “HoldCo”) which had interests in a number of real estate joint venture projects and developments. Frank’s wife Evelyn was an officer and director of the HoldCo for many decades prior to Frank’s passing. On Frank’s death, Frank’s Will named Evelyn, all four children, and a trust company as the Estate Trustees of his Estate but Evelyn was essentially given a veto power because she always has to be a part of the majority in order for the Estate Trustees to act. In other words, Frank’s children and the trust company could not take any actions without Evelyn’s agreement.
After Frank’s death, there was an amalgamation of the HoldCo with another company of the Estate’s into a NewCo. The directors of the NewCo are Evelyn and Donald. The shareholders of the NewCo are the Estate, which held Class A Special voting shares, and Class B Special shares of a fixed value for the benefit of the Spousal Trust for Evelyn, and the four children which held the common shares.
On May 1, 2010, all of the shareholders of the NewCo (i.e. the Estate, and each of the four children, personally) entered into a unanimous shareholder agreement. Of particular interest, section 3.01 stated that:
“Notwithstanding the foregoing, the ESTATE shall have the right at its option to cause the Corporation to sell all or substantially all the assets owned by it to such person or persons at such time and upon such terms and conditions as the ESTATE in its sole and exclusive discretion considers advisable.”
Over time following 2010, communications became strained between Evelyn and some of her children, and amongst the children themselves. In 2019, a vote was held where all of the Estate Trustees, except for Donna, voted to liquidate all the assets of the NewCo and to wind up the NewCo. Hence, Donna’s OBCA application.
Ultimately, Justice MacNeil determined that the unanimous shareholder agreement and section 3.01, in particular, operated to divest Donna of her rights under the OBCA to dissent to the liquidation of NewCo’s assets as a common shareholder. When Donna and the rest of the shareholders signed the unanimous shareholder agreement, section 3.01 dealt with the very situation that Donna is now objecting to. Going back to the Will and Frank’s intentions, it certainly made sense back in 2010 why all of the shareholders were willing to allow the Estate (and essentially Evelyn through the majority clause) to have more power than the provisions in the OBCA.
In my blog later this week, I will tell you all about how Donna ended up with a mixed result, despite the liquidation of the NewCo, by getting an independent liquidator appointed for the wind up.
Thanks for reading,