January 9, 2025
We have recently written an article on the test for “piercing the corporate veil” to find officers, directors or others personally responsible for the corporation’s fault. That article was based on a recent Ontario Court of Appeal decision.
As discussed in that article, the test for piercing the corporate veil requires that a two-part test be met:
- The corporate entity is totally dominated and controlled by the individual and
- The corporation is being used as a shield for fraudulent or improper conduct.
The Court of Appeal revisits the issue, contrasts piercing the corporate veil with the liability of officers and directors generally, in 1417217 Ontario Inc. v. River Trail Estates Inc. , in which they point out that:
officers and employees are protected from personal liability unless it can be shown “that their actions are themselves tortious or exhibit a separate identity or interest from the company so as to make the act or conduct complained of their own”. Cases in which employees and officers have been personally liable for actions ostensibly carried out under a corporate name are fact specific and the facts said to give rise to personal liability must be specifically pleaded.
Piercing the corporate veil on the other hand “typically occurs when the company is incorporated for an illegal, fraudulent, or improper purpose or where the corporate entity ‘is completely dominated and controlled and being used as a shield for fraudulent or improper conduct’.”
TAKEAWAYS
- Where the corporation is incorporated for a legal proper purpose and is not used as a shield for fraudulent or improper conduct, the corporate veil will not be pierced.
- For an officer or director to then be personally liable, the much harder test must be met.
- It is, as the quotation above points out, important to understand the difference, and
- to plead the case properly.
- Failure to plead properly may be fatal to recovery even where there might otherwise be a valid claim.
WHAT WEILERS LLP CAN DO TO HELP YOU
Our litigation team has the knowledge and experience with the boundaries of personal liability of officers or directors and piercing the corporate veil to advise and represent you in this complex area. Though we use precedents to save time and cost, our pleadings are always custom drafted to put forward an appropriate argument.
If you are involved in complex corporate litigation, call Weilers LLP and see if we are the right lawyers for you.