Anonymised, illustrative composite. A share purchase of an Ontario Business Corporations Act company, three directors who resigned at closing, and a wage claim brought well after two years — inside the limitation period only because the target was not federally incorporated.
At a glance
A buyer acquired all the shares of an Ontario-incorporated warehousing and logistics company for $6,300,000. The company was incorporated under the Business Corporations Act (Ontario) — not the federal Canada Business Corporations Act — a distinction nobody on the deal flagged as consequential at the time. At closing, the three vendor-side directors resigned and the buyer’s two nominees were appointed the same afternoon, the ordinary sequence of a share closing.
A post-closing payroll reconciliation found $178,000 of wages that had become payable before the closing date and were never paid. The company, already thin on cash, struggled for another eighteen months before being wound up; a creditor’s claim for the $178,000 was proved in the winding-up at month twenty-two. The vendor’s three former directors were sued personally for the debt at month twenty-seven — three months past the two-year mark from the day they resigned.
Their counsel’s first instinct was the CBCA analysis: a director cannot be sued more than two years after ceasing to hold office, full stop. That instinct was built on the wrong statute for this target.
Wage arrears: $178,000, all attributable to services performed before the closing date, squarely inside the outgoing directors’ own period of office. Resignation to suit: 27 months. Resignation to claim proved in the winding-up: 22 months. The creditor’s own evidence was that it did not learn the wages predated the change of control — the fact that made the former directors, rather than the company alone, a target worth suing — until reviewing archived payroll records during the winding-up, at approximately month 24, roughly three months before commencing suit.
Section 131(1) of the OBCA is, on its face, the same rule as its federal counterpart: directors are “jointly and severally liable to the employees of the corporation for all debts not exceeding six months’ wages that become payable while they are directors for services performed for the corporation.” Section 131(2) sets the same two conditions precedent as the federal Act — suit against the corporation with execution returned unsatisfied, or liquidation, winding-up or bankruptcy with the claim proved. On the cap and the trigger, the two statutes track each other closely.
They diverge on the clock. The Canada Business Corporations Act s.119(3) provides, without qualification: “A director, unless sued for a debt referred to in subsection (1) while a director or within two years after ceasing to be a director, is not liable under this section.” That is a complete, self-contained limitation built into the section itself — a date-certain cutoff running from the day a person stops being a director, regardless of when the underlying debt is discovered by anyone. The OBCA has no equivalent. Section 131 runs from subsection (1) directly to subsection (5) — the liability, the conditions precedent, the amount recoverable after execution, and contribution between directors — and nowhere among them sets a limitation period specific to a s.131 wage claim.
Where a specific statute is silent on when a claim must be brought, Ontario’s general limitations regime fills the gap. The Limitations Act, 2002 s.4 provides: “Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered.” The clock does not start on a fixed date the way the CBCA’s does; it starts on discovery, defined in s.5 by when the claimant knew or ought to have known the elements of the claim, and it is backstopped only by the ultimate fifteen-year limit in s.15(2): “No proceeding shall be commenced in respect of any claim after the 15th anniversary of the day on which the act or omission on which the claim is based took place.” A claim discovered at month 24 was therefore still well within time at month 27 — the same suit that a federally incorporated company’s former directors could have had dismissed on the pleadings.
The former directors’ limitation defence failed. Because OBCA s.131 sets no cutoff of its own, and the claim was discovered inside two years of when suit was actually brought, the Limitations Act, 2002’s general two-year discovery rule governed and the action was permitted to proceed on the merits, where the $178,000 pre-closing arrears were not seriously disputed on the facts.
Had this same company been federally incorporated, the identical claim would have been barred outright the moment it was filed at month twenty-seven — CBCA s.119(3)’s cutoff runs from cessation of office and takes no notice of when a creditor happens to discover the debt. The three former directors’ entire exposure on this file turned on a fact that had nothing to do with the wages, the closing, or anything either side negotiated: which corporate statute the target happened to be constituted under before the deal ever began.
The tell is a director’s liability memo that cites “s.119” or “two years from resignation” as a general rule of Canadian corporate law. It is a federal rule, specific to the CBCA. Provincially incorporated targets need their own statute checked, subsection by subsection, for whether an equivalent cutoff exists at all — and where it does not, the general limitations regime of that province, running on its own clock, fills the space instead.
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