Anonymised, illustrative composite. A holding company sold its operating subsidiary’s shares, distributed the proceeds to its own shareholders, and wound up — while a general indemnity it had personally given was still ten months from expiring.
At a glance
A buyer acquired all of the shares of an Ontario industrial-parts distributor for $4,200,000 from its sole shareholder, an Ontario holding company the family had used to hold the operating business for a decade. The share purchase agreement gave general representations and warranties an 18-month survival period, backed by a $100,000 holdback but no separate escrow for the balance — the buyer's counsel treated Holdco's continued existence as the backstop for anything above the holdback.
That assumption did not survive closing by very long. Eight months in, Holdco's three individual shareholders — siblings who had run the business before selling — distributed the remaining net proceeds to themselves and filed articles of dissolution. Nothing in the purchase agreement had addressed what happened to the indemnitor itself during the survival period.
At month 10, a WSIB audit turned up $310,000 in unremitted premiums covering periods before closing — a straightforward breach of the seller's representations, well inside the 18-month window. The buyer's counsel wrote to Holdco. There was no Holdco to write to: a corporate registry search showed it dissolved two months earlier, its proceeds already in the hands of three private individuals.
The buyer's first instinct, and the input assumption this file started from, was that a dissolved indemnitor is the end of the analysis — the only real protection is a covenant negotiated before the fact, and this deal did not have one. That is not what the statute says.
The claim: $310,000 in unremitted WSIB premiums, interest and penalties. Holdco's distribution eight months earlier had been $3,850,000, split unevenly among the three siblings at 42%, 34% and 24% of the total — reflecting their original ownership of Holdco itself, not any allocation tied to this claim.
Ontario’s Business Corporations Act does not treat dissolution as the end of a corporation’s exposure. Section 242(1) provides that, despite dissolution, “a civil, criminal, administrative, investigative or other action or proceeding may be brought against the corporation as if it had not been dissolved”. Dissolution is not a defence to being sued — it is a change in how the defendant is served, not whether it can be one.
That gets the buyer a claim against an empty shell. The provision that actually matters is s.243(1): “each shareholder to whom any of its property has been distributed is liable to any person claiming under section 242 to the extent of the amount received by that shareholder upon the distribution, and an action to enforce such liability may be brought”. Read the unit: the liability is personal to each shareholder, and it is capped at what that individual shareholder actually received — not at the total claim, and not joint among the three of them. Where more than one former shareholder is targeted, s.243(2) lets the court run the claim as a representative action against them as a class rather than requiring three separate suits.
The current OBCA text carries no express time limit inside s.242 or s.243 themselves — unlike the federal Canada Business Corporations Act, whose equivalent provision, s.226(2)(b), states that “a civil, criminal or administrative action or proceeding may be brought against the body corporate within two years after its dissolution as if the body corporate had not been dissolved”, with the matching shareholder-liability rule at s.226(4) carrying the same explicit two-year clock from the dissolution date. Which regime applies turns on where the indemnitor was incorporated — Holdco was an Ontario corporation, so the OBCA route governed, and Ontario's general limitation periods, not a fixed statutory window tied to the dissolution date, set the outer boundary.
The buyer's counsel named Holdco as defendant under s.242(1)(b), served the last director of record under s.242(2), and brought the shareholder claim under s.243 in the same action, seeking each sibling's proportionate share of $310,000 up to the cap of what they had personally received. Facing personal exposure supported by a live statutory claim — not a request they could simply decline — the three siblings settled for $268,000, allocated in the same 42/34/24 proportion as the distribution, without a trial.
The buyer did not recover the full $310,000; legal costs on both sides and the discount for settling rather than litigating a representative action to judgment ate the rest.
Had the three siblings already spent or moved the distributed funds — a real risk with eight months' head start — s.243 would have given the buyer a legal right with nothing behind it to collect against. The statute creates liability up to the amount received; it does not freeze, trace or secure that amount, and it does not appear until dissolution has already happened. A buyer who is counting on a corporate indemnitor's continued solvency, rather than an escrow or personal guarantee fixed at signing, is relying on the sellers not doing something the corporate statute lets them do at any time.
The tell was in Holdco's own post-closing plan, which the buyer's diligence never asked about: a holding company with no operations left the moment its only asset — the sale proceeds — existed was always a candidate for a prompt wind-up. A buyer relying on a corporate seller as its indemnity backstop should ask, before signing, whether that seller intends to keep operating or distribute and dissolve, and negotiate a covenant against voluntary dissolution during the survival period, or an escrow that does not depend on the seller still existing to answer for anything.
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