August 8, 2024
Good corporate record keeping is important. But for the case discussed in this article, we might have said that it is essential.
THE ISSUE
But what happens if the corporate minute book and other records are missing, and a dispute arises?
THE CASE
Family business disputes can be exceptionally bitter, as evidenced in John Richard Southwell v. Carlgate Development Inc., Julie Anne Reis and Isabelle Margaret Southwell, a dispute between a man, his mother and sister over corporate control and ownership.
The father/husband had passed away, so his evidence was unavailable. There were surviving documents showing the mother and sister as shareholders and directors of the corporation, but nothing showing that the shares had actually been issued or appointing the women as directors.
An “agreement to agree” is not enough. The proper corporate steps had to have been taken to complete the transactions.
The judge looked at the available existing documents and the conduct of the people involved to decide that the shares indeed had been issued and the directors appointed. Irregularities in the documentation, and the absence of key documents, did not matter. Control of the corporation had to be shared.
Not every case will have this result. For example, relying on unsigned copies of documents alone may not be enough. Additional evidence makes the difference.
In the Southwell case, this included both existing and available documents which made it appear that the transactions were complete and the recollection of the corporation’s lawyer that the transactions had been completed.
Where there is conflicting evidence, it is up to the judge to weigh that evidence in the context of the particular case to determine the truth, on a balance of probabilities. This is similar to any other dispute and parallels the dominant test for interpreting contracts. It allows the judge to fill in gaps, such as lack of proof that the shares had been paid for. It even allows the correction of errors, such as the father signing some documents as sole director after the appointment of mother and sister as directors. It is the intent that matters.
TAKEAWAYS
- Litigation is expensive. Avoiding it through good record keeping is always better.
- A missing minute book is not conclusive.
- In some situations, missing links can be excused where there is enough other evidence.
- The evidence of the corporation’s lawyer may be essential.
- Each case will be decided on its own facts.
WHAT WEILERS LLP CAN DO FOR YOU
The lawyers at Weilers LLP are adept at helping clients maintain corporate records to reduce the potential for future conflict. We have a proud tradition of over 75 years of acting on an ongoing basis as lawyers for shareholders, directors, and corporations. In many cases, clients ask us to store important records for them.
If conflict is inevitable, our litigation team has the experience and skills to bring the litigation to a conclusion in the least painful and least expensive fashion possible.
So, whether you need to get it in writing, or need advocacy after the fact, call us. Weilers LLP might be the right lawyers for you.