Winding-up and Restructuring Act

Marginal note:Inquiry into dividends and redemptions of shares

• 102.1 (1) If a company that is being wound up under this Act has, within 12 months preceding the commencement of the winding-up, paid a dividend in respect of any share of the company, other than a stock dividend, — or, in the case of a federal credit union, paid a dividend in respect of a share or membership share, other than a share or membership share dividend — or redeemed or purchased for cancellation any of the shares of the capital stock of the company — or any of the shares or the membership shares of the company, if it is a federal credit union — the court may, on the application of the liquidator, inquire into whether the dividend was paid or the shares or membership shares redeemed or purchased for cancellation at a time when the company was insolvent, or whether the payment of the dividend or the redemption or purchase for cancellation of its shares or membership shares rendered the company insolvent.

• Marginal note:Judgment against directors

  (2) The court may give judgment to the liquidator against the directors of the company, jointly and severally, in the amount of the dividend or redemption or purchase price, with interest thereon, as has not been paid to the company where the court finds that

  • (a) the transaction occurred at a time when the company was insolvent or the transaction rendered the company insolvent; and

  • (b) the directors did not have reasonable grounds to believe that the transaction was occurring at a time when the company was solvent or the transaction would not render the company insolvent.

• Marginal note:Criteria

  (3) In making a determination under paragraph (2)(b), the court shall consider whether the directors acted as prudent and diligent persons would have acted in the same circumstances and whether the directors in good faith relied on

  • (a) financial or other statements of the company represented to them by officers of the company or the auditor of the company, as the case may be, or by written reports of the auditor to fairly reflect the financial condition of the company; or

  • (b) a report relating to the company’s affairs prepared pursuant to a contract with the company by a lawyer, notary, an accountant, engineer or appraiser or other person whose profession gave credibility to the statements made in the report.

• Marginal note:Judgment against shareholders

  (4) If a transaction referred to in subsection (1) has occurred and the court makes a finding referred to in paragraph (2)(a), the court may give judgment to the liquidator against a shareholder, or a member of a federal credit union, who is related to one or more directors or to the company or who is a director not liable by reason of paragraph (2)(b) or subsection (5), in the amount of the dividend or redemption or purchase price referred to in subsection (1) and the interest on it, as was received by the shareholder or member and not repaid to the company.

• Marginal note:Directors exonerated by law

  (5) A judgment under subsection (2) may not be entered against or be binding on a director who had, in accordance with any applicable law governing the operation of the company, protested against the payment of the dividend or the redemption or purchase for cancellation of the shares of the capital stock of the company or of the shares or membership shares of the federal credit union and had exonerated himself or herself under that law from any liability for it.

• Marginal note:Directors’ right to recover

  (6) Nothing in this section is to be construed to affect any right, under any applicable law governing the operation of the company, of the directors to recover from a shareholder, or from a member of a federal credit union, the whole or any part of any dividend, or any redemption or purchase price, made or paid to the shareholder or member when the company was insolvent or that rendered the company insolvent.

• Marginal note:Onus

  (7) For the purposes of an inquiry under this section, the onus of proving

  • (a) that the company was not insolvent lies on the directors and the shareholders of the company or, if the company is a federal credit union, on the directors, members and shareholders of the company; and

  • (b) that there were reasonable grounds to believe any of the following lies on the directors:

    • (i) that the company was not insolvent when a dividend was paid or shares, or membership shares of a federal credit union, were redeemed or purchased for cancellation, or

    • (ii) that the payment of a dividend or a redemption of shares, or membership shares of a federal credit union, did not render the company insolvent.

• Marginal note:Meaning of dividend

  (8) In this section, dividend includes a patronage allocation within the meaning of section 2 of the Bank Act.