Growthworks Commercialization Fund Ltd. v. Growthworks WV Management Ltd. 2017 ONSC 5099
On January 13 2017, the ‘Manager’ of a labour-sponsored venture capital corporation, abruptly resigned from his position as ‘Manager’ of the Fund. Before doing so, the “Manager’ cashed in a GIC owned by the Fund. in the amount of $1.5M. The ‘Manager’ then paid himself those monies by depositing those monies into a secret bank account.
The ‘Manager’ maintained throughout that all of this action was in the ordinary course – his ‘dividends-owing’ (para.12)and whatnot. Myers J. said: No it wasn’t. It was the hallmark of assets at risk of dissipation. Myers J. froze the monies (para.20).
While a labour-sponsored venture capital corporation is solvent it can pay dividends. Under s 42 of the Canada Business Corporations Act when the Funds becomes insolvent it is prohibited from paying dividends (para. 23). The Fund became insolvent in 2016 a year before the ‘Manager’ issued dividends. The dividends were prohibited.
Not to be deprived of his handy-work by a mere statute, the ‘Manager’ said that the monies he took was ‘debt‘ owing to him for services rendered to the Fund. Parenthetically, this ‘debt’ card is always played by corporate managers who illegitimately direct corporate monies to themselves. It never works.
Mesbur said that the termination clause under which the ‘Manager’ claimed the ‘debt’ spoke exclusively of payment in dividends. As dividends were not payable as a matter of statute, the termination obligation did not thereby get transformed into a species of quantum meruit debt (para.34)
