Corporate Matters Still Matter
This is a follow-up to a previous blog post about the real estate woes of a corporate client who was in hot water because of an outstanding mortgage balance, loss of ownership of the property, and a huge tax bill to boot. At long last, there has been progress on this case, and I’m delighted to report that we were able to help our client with this relatively common but complex problem. In this blog post, I’ll quickly summarize the situation from Part I, and then I’ll explain how we found a solution.
What Happens to Corporate-Owned Property When a Corporation Is Struck from the Registry
20-something years ago, I acted for a client in purchasing an apartment building through their corporation. Since then, our client had failed to file annual corporate returns. Therefore, their corporation had been struck from Alberta’s Corporate Registry. When the lender hired a law firm to collect the outstanding $50,000 balance on a vendor take-back mortgage for the apartment, we discovered a snowballing chain of problems:
- Client’s corporation struck from register
– corporations dissolved for five or more years cannot be revived
- Corporations struck from the register can’t own real estate
– corporate property to be transferred to government ownership
- Canada Revenue Agency may treat the transfer of a struck corporation’s property as a ’sale’ at fair market value
– corporation would owe $500,000 in taxes and late penalties
The only silver lining was that the Government of Alberta had not yet perfected their ownership of the apartment building. When we discovered that the now-struck corporation was still on title for the property, we thought there might be a way to save the situation…
How to Reclaim Corporate Property that Has Been Claimed by the Government
Further research revealed that there is legislation that allows for corporations dissolved or struck for less than 5 years to be revived to deal with what the legislation calls ‘abandoned’ property. I’m pretty sure the owners of the property don’t think they ‘abandoned’ it, but legally they have.
In our situation the corporation had been struck for more than five years. Once past five years, the corporation cannot be revived. In addition, the legislation governs the management of corporate property that has not been disposed of on the dissolution of a corporation.
Per the legislation, any property that a corporation has not disposed of on its dissolution will automatically vest in the Government of Alberta. ‘Vest’? What does, ‘vest’ mean? It means the Government of Alberta now owns your property!
Is it possible to make a claim against the Minister for the vested property or proceeds of the sale of the vested property when a corporation cannot be revived? The answer is yes! This type of a claim must be made within 10 years of the property being transferred to the Minister.
A sole shareholder or representative of all of the shareholders of the dissolved corporation can make a claim. The person making the claim must show:
- The shareholder or shareholders has reasonable grounds for not causing the corporation to be revived within the applicable revival period;
- An injustice or great hardship to the shareholder or shareholders has resulted or is likely to result if the claim is not considered; and
- There is no other person with a better entitlement to the property that is the subject of the claim.
So, you at least have a chance of recovering your ‘abandoned’ property that has been vested in the Crown. Here at Field Law, we took on this problem for our client’s $2.8 million apartment building and made a successful application!
Our client was then able to deal with his property where they had accumulated a potentially lost but now regained, $2,000,000 profit. And, they had a potential tax bill of $500,000 whether they retrieved their ‘abandoned’ apartment building or not. The difference is that they have their property back. If they sell, they have the funds to pay the tax.
Folks, this is not a guaranteed solution, and there are lots of hoops to jump through. Way better to not have the problem to start with. In other words, don’t let your corporation be struck from the corporate registry. But if you have this problem, we can help.
Does your corporation still own assets and property despite being struck or dissolved for longer than 5 years? Please do not hesitate to contact me.