A Pragmatic Approach To Corporate Attribution

For years, the Canadian legal community has called for clarity on the "corporate attribution doctrine" – the rules that determine when the actions or knowledge of an officer are legally considered the actions of the company itself. The Supreme Court of Canada heard that call and released two landmark decisions that replace a rigid, one-size-fits-all test for corporate attribution with a more functional, common-sense approach.

"The Court rightly rejected a mechanistic approach in favor of one grounded in the specific legal context of each case," says Chanakya Sethi, a partner in Davies' litigation group, who was part of the team that represented the Insolvency Institute of Canada (IIC) in both Aquino v. Bondfield Construction Co., 2024 SCC 31, and Scott v. Golden Oaks Enterprises Inc., 2024 SCC 32.

Both cases involved corporate officers who orchestrated frauds that eventually led their companies into insolvency. When court-appointed officers tried to recover funds for the cheated creditors, they faced a legal hurdle: could the fraudster's own knowledge be "attributed" to the company to block the recovery claims?

While the Supreme Court ruled in favor of creditors in both cases, it reached that result using two different paths.

In Aquino, the Court applied corporate attribution. It ruled that since the particular bankruptcy provision at issue was intended by Parliament to protect creditors from debtors who siphon off assets, attributing the officer's intent to the company was necessary to claw back those funds.

In Golden Oaks, by contrast, the Court refused to apply attribution. Doing so would have triggered a statutory deadline (or "limitations period") that would have barred the lawsuit on behalf of creditors before a bankruptcy trustee was even appointed. The Court ruled that such a result would be an injustice to creditors, even if the recipients of the fraudulent payments in Golden Oaks did not know of the Ponzi scheme that they benefited from.

"What we see in these cases is the classic tension between predictability and flexibility," Sethi adds. "While different legal contexts may now yield different answers on attribution, businesses now have a clear set of principles to follow."

The impact of the cases, however, is particularly significant for the restructuring and insolvency sector.

Natasha MacParland, a partner in Davies' Financial Restructuring & Insolvency Group who was also on the Davies team and presented oral arguments for the IIC, notes the broader implications: "The Supreme Court has sent a clear signal: it will not allow the beneficiaries of fraudulent payments – even those who may be 'innocent' recipients – to be shielded from creditor claims once a fraud is discovered. So from the creditor perspective, these were major wins."

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