February 23, 2005

Legal Corner

By David Bristow Q.C., LSM, C.Arb.

What if company charter lapses before registering lien?

After a lien has been registered and a statement of claim issued by a corporation against a defendant, the defendant in some cases begins to wonder if that corporation is still operating or is even in existence.

If the company is no longer in existence the defendant reasons, how can it have a valid lien?

This problem came before the courts last year.

In this case the company had let its charter expire and it was dissolved by the Ministry of Consumer and Commercial relations under the Ontario Business Corporations Act (OBCA).

There was therefore no company in existence.

It seems that the defendant only found this out during the examination for discovery of the lien claimant. After the lien action was underway.

The defendant then moved before the court to discharge the lien as the time to register a valid lien and to commence a proper action had expired under the provisions of the Construction Lien Act.

The defendant submitted that the OBCA allowed for a revival of the company as if the company had never been dissolved, and in fact by the time of the court motion, the company had been revived under the OBCA.

The issue was then as to whether a revived corporation can proceed with a construction lien action where the time limits under the Construction Lien Act for registering a lien and starting an action had expired while the corporation was dissolved.

The Court of Appeal held that the Construction Lien Act time limits took precedence over the OBCA and dismissed the lien action.

The court did, however, allow the action to continue as a simple contract action.

Companies should be very careful in the future to make sure that they do not run a foul of the OBCA and find their company dissolved at the critical time to register a lien and start an action.

David I. Bristow is a partner with Team Resolution in Toronto. www.teamresolution.ca. E-mail: bristow @gsnh.com. (416) 597-6585.

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