Piercing the Corporate Veil
In the case of Wildman v. Wildman 2006 CarswellOnt 6042 (Ont. C.A.),the appellate court was asked to re-consider the order of the trial judge in which liability for spousal support and child support was imposed on the appellant husband’s corporation. The husband, a sole shareholder in his successful landscaping business, had over the course of the lengthy litigation period ignored various orders of the court, so that the wife succeeded in having his pleadings struck and proceeded to an uncontested trial, where she was awarded monthly spousal support of $16,072.00 and arrears of approximately $450,000.00 and child support in the amount of $7,481.00 per month and arrears of about $73,000.00. Suspiciously to the court, none of these amounts and further awards to the tune of $800,000.00, were contested by the husband, rather his challenge was to the order requiring that the amounts owing be secured by way of a charge against his corporation. The appeal court in upholding the trial judge’s decision noted that although an important principle, the notion of a corporation as a separate legal entity was not an absolute principle – the court also opined that the usual worry of unexpected personal liability in piercing cases was not at issue. Further the court brushed aside the husband’s argument that to justify a piercing of the corporate veil it would have to find that the company had been created with an improper purpose in mind, instead the court held that in the matrimonial context, the focus must be on how the controlling spouse uses the corporation after the separation of the parties and before the resolution of their financial issues. The court adopting three factors from corporate case law, held that the husband, as the only shareholder, exercised complete control of finances, policy, and business practices of the company; used his control to commit a wrong in that he allowed clients to make cash payments that went into his personal pocket; and, finally, that the husband’s wrongful behaviour infringed his wife’s and children’s right to receive the sums awarded them by the courts.
Corporate counsel may have shuddered in the past upon hearing the term “piercing the corporate veil”; this ruling, particularly the court’s summation that the court must be vigilant to ensure that corporate arrangements do not work an injustice in family law and that piercing the corporate veil may be an essential mechanism to ensure financial resolution in matrimonial disputes, opens up a new line attack on the notion of the corporation as separate legal entity that the wary practitioner is well-advised to acknowledge preventatively.