My Contractor Doesn’t Exist, Can I Sue?

It is common for contractors and other service providers to incorporate prior to starting a business. A corporation can provide a certain level of insulation from liability for the people who operate it, and in addition, allows for other advantages such as tax planning. While it provides the operators with liability protection, it can leave an aggrieved customer with nowhere to turn. This is especially true where the issues are not evident at first instance. Many times a construction defect takes years to materialize.

Making this situation even worse for the customer is that by the time the construction defect materializes, the corporation that provided the service may no longer be in business. A corporation can, subject to certain requirements, dissolve and liquidate its assets at any time. If a corporation does so before it is sued, or even knows about the construction defects, any leftover assets can be paid out to its shareholders. At the first instance, the customer is left holding the bag, while the shareholders are left with a windfall.

Thankfully, The Business Corporations Act (Saskatchewan) (the “Act”) contemplated these issues. Section 219 specifically allows someone to sue an inactive corporation. However, even in that instance, you must act fast as you only get two years to do so. While not a perfect solution, it does provide an avenue for aggrieved customers to right the wrong.

In addition, the Act also allows you to attempt to recover the assets or at least their value, that were paid out to the shareholders. This prevents the corporation and its operators from side-stepping its liabilities.

That being said, deciding to sue a dissolved corporation will cost time and money. It may be that the corporation dissolved because it had no assets. In some situations, all of the assets of the corporation may have gone to other creditors such as a bank or someone else who sued the corporation. Therefore, any legal action is unlikely to provide meaningful results.

Before deciding to sue, some background work can be done to determine if legal action is worthwhile. These steps include:

  1. Pulling a corporate profile report from Information Services Corporation. A certificate of dissolution, and sometimes other supporting documents, may be filed online. Recovering a copy of these, for a small fee, may shed some light on the financial situation of the corporation; or
  2. Contact the Ministry of Finance. The Act specifically requires corporations with known creditors, who cannot be located, to payout a certain portion of their assets to the Ministry of Finance for future claims. There is no guarantee that the corporation will have done so, and if it did not know that the construction was faulty, the funds may not have been paid, but it is an inexpensive step that may lead to partial recovery.

At the end of the day, you should ask yourself whether you are ready to commit the time and financial resources to pursue an inactive corporation. In some instances, your first loss is your best loss, and throwing further money down the rabbit hole may only lead to frustration.

However, in others, meaningful recovery may be achieved. You should not simply give up because your contractor has gone out of business, especially where he or she has started a new business. They may have simply taken their assets to avoid their liabilities, and you can still recover.

This article is intended to provide legal information only, not legal advice. 

For further information, please contact:

Travis K. Kusch
Direct: 306-933-1373
Email: [email protected]

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