BACKGROUND
The Applicant mother (the “Applicant”) and the Respondent father (the “Respondent”) were married for 10 years with 4 children. The parties co-owned several assets including a Layer Egg Farm (the “Egg Farm”) which was a Partnership and a Broiler Chicken Farm (the “Chicken Farm”) which was a corporation. They also jointly owned a matrimonial home, as well as two other 2 vacant pieces of farmland. The Applicant oversaw the Egg Farm, which was more labour intensive, while the Respondent oversaw the Chicken Farm. The parties operated these farms as a single business, with funds flowing between them and bills as well as compensation flowing from the Egg Farm through Partnership draws. The Applicant was responsible for all bookkeeping and finances for both farms. Among various other issues, the Applicant sought an Order for the dissolution of the Partnership or an Order that its assets be listed for sale in addition to an Order that the Corporation be wound up or its assets be listed for sale. The Applicant showed an interest in purchasing the Egg Farm while the Respondent wished to eventually purchase the Chicken Farm.
ISSUES
- Should an Order to sell the assets of the businesses be granted?
- Should the Partnership be dissolved, and the Corporation wound up?
ANALYSIS
While the Respondent agreed that the farm businesses and their assets needed to be wound up/dissolved and sold, he also argued it would be premature and prejudicial to him to Order this on the interim motion. The Egg and Chicken Farms remained viable businesses providing him with his only source of income.
The Court found that ordering the immediate sale of the business assets would be prejudicial to the Respondent as there was evidence of significant post-separation adjustments. There was evidence the Applicant had routinely drawn substantially more funds out of the Partnership than was originally agreed upon in addition to making draws in the Respondent’s name without his consent or knowledge. The Applicant had also written several cheques to herself and made cash withdrawals from the business bank accounts.
These would need to be reconciled in order for the Respondent to have a good understanding of his buying power toward the Chicken Farm.
In addressing the dissolution/winding up issue, the Court ruled that such courses of action are not available on interim family law motions given that they are final Orders which cannot be undone.
Even if such a remedy were available, the Court further commented it would not be “just and equitable” to do so as required under s. 207 (1) (b) (iv) of the OBCA and s. 35(1)(f) of the Partnerships Act.
The Court outlined that it may be just and equitable to wind up a corporation where there is irreparable mutual lack of confidence or trust between the parties, but this must result in a serious breach of reasonable expectations pertaining to the conduct of the family business. Furthermore, the breach must amount to a termination or repudiation of the business arrangements between the family members. The Court further commented that this entails acrimony between shareholders resulting in failure of the most basic expectations of the parties such as continuing to reach decisions on significant business matters. The standard is such that it is not the discord but the resulting inability of the parties to make decisions affecting the business which triggers a winding up. The Court applied the same standard to dissolve a Partnership.
The Court disagreed with the Applicant that the inability of the parties to resolve a parenting time dispute concerning their son’s first communion exemplified the required level of incapability to make business decisions. The Applicant’s second example being the parties’ inability to agree on the lease of one of their vacant pieces of farmland also did not meet the threshold. The Court held that their disagreement was not based on personal issues, but rather on the parties’ different views regarding how leasing the vacant land might affect its value. Because these kinds of arguments arise between business partners who get along, they are not a marker of the kind of discord which makes business decisions impossible between parties.
CONCLUSION
The Court dismissed the Applicant’s interim motion for Orders dissolving the Partnership and the winding up of the Corporation as well as for the sale of the assets of both businesses. The business practices were to be maintained on an interim basis with appropriate safeguards put in place to protect the Respondent’s interests in the businesses while the Respondent remained the primary bookkeeper.