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Lazarus-Like Nature of Corporate Dissolution under the CNCA

In Park v. Canada Korea Foundation (decided August 2017), Justice Bowden of the Supreme Court of British Columbia held that a dissolved (and, therefore, non-existent) corporation still had the limited capacity to take steps to recover litigation costs awarded in its favour and, to that end, to instruct counsel.

1. Facts

In earlier proceedings, the plaintiff, Park, was unsuccessful against the Canada Korea Foundation which, as the successful party, was held entitled to recover its costs against the plaintiff.

The foundation was incorporated in 2011 under Part II of the Canada Corporations Act (Old Act).

On October 17, 2011, the successor legislation, the Canada Not-for-profit Corporations Act (New Act) was proclaimed in force. The foundation had three years from proclamation (that is, until October 17, 2014) to continue under the New Act; otherwise, it was liable to be dissolved under the New Act. Administrative dissolution could not take place without prior notice to the foundation and an opportunity to continue under the New Act, even after the 2014 deadline.

In early 2016, Corporations Canada notified the directors of the foundation that the foundation would be dissolved if it did not continue under the New Act. No continuance took place, and the foundation was dissolved on October 8, 2016 and was never revived.

However, the New Act provides that, despite the dissolution of a corporation, any civil action or proceeding commenced by or against the dissolved corporation before its dissolution may be continued as if the corporation had not been dissolved.

Park then sought an order disallowing the earlier costs award in favour of the foundation.

2. Rulings

Justice Bowden of the Supreme Court of British Columbia held that the New Act plainly provides that the claim of the foundation should be allowed to proceed as if the foundation had not been dissolved. Despite its dissolution, the foundation still had standing to proceed with its claim for costs against the unsuccessful plaintiff.

Moreover, Justice Bowden held that the status of the foundation's directors and officers as of the date of its dissolution continued such that the person who would have instructed counsel on behalf of the foundation at the time of its dissolution may continue until the proceedings are concluded, and that any funds received must be distributed in accordance with the foundation's constating documents as they applied at the time of dissolution.

3. Key Observations

The first part of the ruling is legally unassailable. The New Act clearly enables a dissolved corporation to continue an action or proceeding brought before its dissolution as if it had not been dissolved. Had the corporation been first dissolved, it would not have been able to commence an action until it was revived.

Ordinarily, if a dissolved corporation is a plaintiff or applicant in litigation, it should not be permitted to take any further steps in the action or proceeding until it is revived. Once revived, it is a legal entity capable of instructing counsel and otherwise presenting its case without interruption. The revived corporation need not commence fresh proceedings. A non-existent corporation has no capacity, no directors and officers and is unable to instruct or pay counsel.

However, in this case, the litigation was concluded. There was nothing more to do except for the plaintiff to pay the costs awarded to the foundation. While reviving a dissolved corporation is not difficult or time-consuming, this case says that even that step is unnecessary. The dissolved corporation stays alive for the limited purpose of collecting the costs awarded to it in the litigation and paying out the net funds to its members - a refreshingly pragmatic result.

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