Shareholders might assume that a corporation’s failure to comply with statutory transparency obligations can be challenged at any time. The Ontario Court of Appeal’s recent decision in Lagana v 2324965 makes clear that this is not the case and confirmed that limitation periods are applicable to shareholder compliance applications under the Ontario Business Corporation Act (“OBCA”). 

For business owners and minority shareholders, this decision underscores a critical point: the three different OBCA remedies, being oppression, derivative actions and compliance orders, are enforceable only within a specific time frame. Delay too long, and the right to require a corporation to comply with statutory obligations can expire.

Facts

A real estate development firm, 2324965 Ontario Inc. (“232”), was incorporated by two individuals, David Power and Carmelo Lagana Sr.  Upon the latter’s passing, Power became the sole director, and the Respondent, Carmelo Lagana, acquired his late father’s shares. For seven years, between 2013 and 2020, the corporation purchased and resold multiple development properties.

The corporation was considered non-offering, meaning it was a private corporation whose shares were not available to the public.

The requirements under the OBCA

Corporations have specific obligations pursuant to the OBCA, including:

  • The appointment of auditors annually (section 149(1));
  • An allowance for shareholders of a non-offering corporation to annually exempt the audit requirements (section 148);
  • Requiring audited annual financial statements to be provided to shareholders, unless exempted (section 154(1)); and
  • Requiring auditors to examine financial statements and report in accordance with generally accepted auditing standards (GAAS) (section 153(1)).

Lagana’s request

Throughout 232’s existence, no shareholder resolutions were passed exempting it from appointing auditors and producing audited financial statements.  Auditors were never appointed and audited financial statements were never produced.

In 2021, 232 ceased operations, and Lagana sought to review its financial records.  Power provided some unaudited financial statements, but refused to provide audited ones. 

Lagana then brought an application pursuant to section 253(1) of the OBCA for non-compliance with 232’s statutory obligations seeking the appointment of an auditor and production of audited financial statements going back to 2013.

The decisions below

The application judge granted Lagana’s application in full, ordering audited financial statements back to 2013, and rejected the limitation period defense which provided that, under the Limitations Act, 2002, a party only has two years to pursue a “claim” from the date it is discovered.

The Divisional Court allowed the appeal, holding that the application judge erred in finding that the Limitations Act, 2002, did not apply. The lower court’s order was varied to limit the audited financial statements to the two-year limitation period, effectively restricting relief to 2019-2021.

How did the Court of Appeal rule?

Justice Miller, writing for a unanimous panel of the Court of Appeal, dismissed Lagana’s appeal and affirmed the Divisional Court’s ruling that the Limitations Act, 2002 applies to compliance applications under section 253(1) of the OBCA.

The Court of Appeal rejected Lagana’s argument that OBCA obligations are “statutory obligations” that do not correspond to rights held by individual shareholders. Under this theory, the compliance provisions merely enforce the statutory obligations on a corporation, and unlike oppression remedies that provide individual redress, compliance orders (which do not create legal rights that qualify as a “claim”) only correct legislative breaches and do not expire.

The Court explained that legal rights involve three elements:

1. The rights-holder (the shareholder);

2. The person or entity under a duty (the corporation/directors); and 

3. The thing to be done (provide audited financial statements).

The Court held that what Lagana presented as a “two-term statutory duty” – involving only a duty-bearer (corporation) and an act (produce statements) – was actually a “three-term statutory right” creating a right of shareholders that the corporation provide audited financial statements to them.

Further, the legal relations exist independently of the enforcement remedies – whether a corporation has breached a shareholder’s right is one question, and whether there is an available remedy, or set of remedies, is another.

As a result, the nature of the “three-term statutory right” is the same whether the remedy sought is an oppression remedy or a compliance order, and it is reasonable for the same limitation period to apply to both.

However, where there are statutory compliance provisions that are genuinely a matter of public benefit that do not generate an individual claim to a legal remedy, the Limitations Act, 2002 may not apply as it may not constitute a “claim.”

What are the broader implications for corporations and shareholders?

The decision clarifies that corporate statutory obligations often create corresponding private rights to potentially include shareholder information and transparency rights such as record inspection rights and shareholder meeting requirements. However, the Court of Appeal noted that the compliance provision will need to be interpreted on a case-by-case basis to see whether a two-year limitation applies.

This decision also helps distinguish when these compliance provisions constitute private “claims” (when they create individual rights) versus public enforcement actions.

In addition, the decision reinforces that different OBCA remedies – oppression, derivative actions and compliance orders – may address the same underlying breach of rights, with consistent limitation periods applying across all three remedies.

What should minority shareholders and directors do now?

The decision has significant practical implications:

  • For minority shareholders: applications for compliance with transparency rights are time-sensitive. Even ongoing corporate non-compliance is subject to the limitation period. You must act within two years of discovering the breach or risk being unable to enforce for historical breaches.
  • For corporations and directors: Non-compliance is not immune from future challenge. Each year’s failure to meet statutory obligations will create a new limitation period, so diligence in corporate governance remains essential.

For guidance on shareholder rights and corporate compliance under the OBCA, contact a member of our Commercial Litigation Group.