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Thread: Holding Company - Now or Later?

  1. #11
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    Quote Originally Posted by heyjude View Post
    Professional corporations do limit liability to some extent, but professional malpractice is an exception. As a physician with a professional corporation, this was a very important issue to consider as one could lose all one's personal assets in a negligence lawsuit.
    How many times has that really happened...a physician being personally wiped out due to a malpractice suit? The CMPA is a formidable adversary and I have never heard of a physician losing it all.


  2. #12
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    Mukhang, I don't know how frequently physicians in Canada have lost their personal assets in a medical malpractice lawsuit. You are correct; the CMPA is a well funded and powerful defender of physicians risk, which is why we pay them big bucks. The risk to physicians of severe personal financial loss may be more hypothetical than real in Canada, but the fact is that the law holds physicians personally responsible for all medical acts.

    I did find this case from the US, though.

    http://www.amednews.com/article/2006...n/301169971/5/

    Also, the OP is not a physician. But he may be subject to similar laws.
    Last edited by heyjude; 2017-01-12 at 02:15 AM.

  3. #13
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    Mukhang,

    First off don't compare a Walmart shareholder to a single guy, who owns a company and is also the sole (or co-owner with family) the two are not the same by any means.

    Second, just because you don't like it, doesn't change the fact that it can happen.

    Finally, you can't ditch responsibility by resigning your position as director. Just like you can't fold the company the day you are served with papers and walk away. If you are a director on record (and you need to file every year) at the time of the incident, then you are liable. If you resign years later when you are served, it doesn't help.

    If it were, we could all form companies, do all sorts of illegal things and then fold the companies and get away with it...sorry it doesn't work that way for obvious reasons, unfortunately those same rules are a double edged sword.

    A corporation offers some protection, but not as much as you think. If you are not liable, it can be limited to the company. It's the same as why a holding company doesn't get the same tax breaks as an operating company, corporations are not a device to protect the owner at the cost of their responsibilities. You can't use a holding company to dodge your taxes and you can't use a corporation to protect you from your liabilities.

    If you really own a corporation, I'd suggest you talk to your lawyer as I've done so that you start to understand instead of assuming you know how things are, or should be in your opinion.

    I don't mean to be insulting, if it comes across that way, but this is something that people really need to understand before something goes wrong and they learn it the hard way.

    Also, remember, this is an extreme case where you are personally found liable. I don't know what it takes to meet that criteria, and the settlement would have to be for more than your insurance coverage, but I do know the consequences of it.
    I'm not JustAGuy (without spaces), or Donald, or <insert name here>.

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  5. #14
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    Quote Originally Posted by Just a Guy View Post
    Mukhang,

    First off don't compare a Walmart shareholder to a single guy, who owns a company and is also the sole (or co-owner with family) the two are not the same by any means.
    I only mentioned Walmart because YOU brought it up. And, the concept of limited liability applies for corporations big and small. All of the same tenets of company law apply. So get off your high horse and prescribe me not the comparisons I choose to make.

    Quote Originally Posted by Just a Guy View Post
    Second, just because you don't like it, doesn't change the fact that it can happen.
    How do you know what I like and don't like? For me, there is no aspect of company law not to like. The corporate vehicle has served me well for years.


    Upthread I stated:

    I am sure I do not need to tell you that when companies appear to he headed towards financial difficulty, the first thing that happens is the directors tender their resignations.


    You replied with your smartass attitude, saying:

    Quote Originally Posted by Just a Guy View Post
    Finally, you can't ditch responsibility by resigning your position as director. Just like you can't fold the company the day you are served with papers and walk away. If you are a director on record (and you need to file every year) at the time of the incident, then you are liable. If you resign years later when you are served, it doesn't help.
    Well read my words again, if you are capable of any level of comprehension. I spoke of directors who have their finger on the pulse of corporate wellness and who can detect well in advance that insolvency may lie ahead. I know, you’ll argue that insolvency always strikes without warning, but let’s just disagree on that score. So my words applied not to he who is “on record…at the time of the incident”, but to he who is paying attention to where things are headed. That person can be long gone before those outside the boardroom know that troubles waters lie ahead.

    Now let’s look at but one example I gave, when I alluded to the Employment Standards Act of BC. It provides for corporate officer liability in this scenario:


    Corporate officer's liability for unpaid wages
    96 (1) A person who was a director or officer of a corporation at the time wages of an employee of the corporation were earned or should have been paid is personally liable for up to 2 months' unpaid wages for each employee.

    Please note the operative words. The gravamen of the provision is that liability attaches to a director for wages, but only if the person was a director when the wages were earned or should have been paid. Very clear. So yes, Virginia, one can “ditch responsibility” by getting out at an opportune time, which is exactly what I suggested and at which you take such vehement opposition. Heed your own words…just because you don’t like it, don’t mean it ain’t so.

    Quote Originally Posted by Just a Guy View Post
    If you really own a corporation, I'd suggest you talk to your lawyer as I've done so that you start to understand instead of assuming you know how things are, or should be in your opinion.

    I don't mean to be insulting, if it comes across that way, but this is something that people really need to understand before something goes wrong and they learn it the hard way.
    Insulting barely begins to describe your contumelious attitude. I have practiced law in BC for many years. I have written materials for use by law students, including materials on corporate law. Nothing of particular note there. What sets me apart from almost all other lawyers here is that since January 1982 I have read (with a very few exceptions) every single judgment from all BC courts - Provincial Court, County Court (when we still had County Courts), Court of Appeal and Supreme Court of Canada cases that had their origin in BC. I have done that prodigious amount of reading because I have been paid for doing so and what I have taken from it has been published in various works. So, I have read every single company law case (as well as all family, criminal, personal injury, insurance, etc. cases) in this jurisdiction over 35 years and you sit there and suggest I talk to my lawyer and “start to understand”! I KNOW, first hand, what is going on in the courts every day and I KNOW how a multitude of company law issues are handled. I can tell from your writing that you have read almost no law, yet you set yourself up as the last word on all matters legal. You certainly take the CMF chutzpah award.

    A few days ago, in another thread, humble_pie lamented:

    Quote Originally Posted by humble_pie View Post
    however, it is possible that this might be the cmf forum future. The finance threads are weak these past few months. Folks are drained to their bones by the horrifying likes of the nelleys, the basses, the newdogcoms, the rusties & other ruffians. Perhaps the remaing good folks who actually do care about other people, who respect other people, should pack up now & leave.
    I would add your name to the illustrious list of ruffians. I did not come here to be insulted well beyond what I have experienced on other forums. Packing up and leaving commends itself to me.

  6. #15
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    The problem with the written word is you don't always convey the proper intent. You're reading insults where none were intended.

    I said in there, I don't mean to be insulting and I meant it.

    It just so happens I know a guy, owns his own company which is incorporated. He's having a very hard time right now because of an accident which happened a few years ago to a client. His corporation is facing a very large lawsuit, more than his insurance coverage and has been very upset about it, heck it's more than his company made while he was in business. He and his wife are also personally named in the lawsuit because they are listed as directors. His lawyers aren't dismissing the claim as frivolous, they have told him there is a possibility that he could lose everything if he and his wife are found liable. Nothing seems contained by his incorporation, and the lawyers all confirm there is a chance he may be personally liable.

    From what he's said, I don't see any liability on his behalf personally, but that doesn't change the fact that he's still involved in the lawsuit and his lawyers haven't gotten it dismissed outright. The case will probably drag out for years more, and probably settle I expect but, as you said, I'm no lawyer. When I talked to my lawyer, he also didn't say the case was frivolous and that the corporation may not protect him.

    The worst part is, the person suing him has a lawyer paid on commission, whereas he has to hire lawyers out of his own pocket. The insurance company all initially seemed to look for a way to deny coverage then reluctantly decided to help out.

    I just get to see a good man and his family scared out of their minds for a long time, with no relief for years.

    It would be great if you'd tell him everything would be fine, he's got nothing to worry about, but so far no one has said that to him. Sometimes he's handling it quite well, other times he's thinking he's going bankrupt and facing homelessness. I try to keep him grounded by saying it's unlikely to happen, and he has no control so not to worry, but I doubt it helps much. Most days he's very depressed and his business is suffering because of it...probably his relationship as well.

    What I said wasn't meant to insult you in the least, it's just a personal observation that I see destroying a good friend of mine.

    You may be up on what's happening on the theory, but I'm watching it happen in real life.

    Hopefully you are right and everything works out for my friend, but we won't know that for years to come and that doesn't help others from facing the same stress just because they thought they were covered in theory.

    For my friend and his family there is a big difference between them and walmart in terms of resources, support, and the amount of worry over a lawsuit, not to mention the consequences if you are wrong.
    Last edited by Just a Guy; 2017-01-13 at 01:28 AM.
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  7. #16
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    Quote Originally Posted by Just a Guy View Post
    ...
    The worst part is, the person suing him has a lawyer paid on commission, whereas he has to hire lawyers out of his own pocket. The insurance company all initially seemed to look for a way to deny coverage then reluctantly decided to help out.
    I'll accept that you have a friend who is facing some uncertainty in the throes of a lawsuit.

    A couple of points. As for the plaintiff's lawyer being paid "on commission", that is not a term I have heard used, but perhaps it is where your friend is being sued. In BC, lawyers can accept "contingency fee" retainers. The lawyer will get a percentage of any amount recovered for the client. Most lawyers won't act on a contingency fee basis unless the plaintiff's case looks pretty certain to win, even if the quantum of the win might be uncertain. It is singularly unprofitable to pursue an action all the way through a trial - a trial that might last weeks - and get paid nothing. So, lawyers acting on a contingency fee basis are more likely to be settlement-conscious. Better to encourage the client to settle and get something than fail at trial and get zip.

    As for the role of the insurance company (ies), it sounds like your friend is now having his legal bills paid by his insurers, under what is known as the insurer's "duty to defend". A good explanation is captured in the following passage:

    "The duty to defend arises where allegations raise claims which would be payable under the agreement to indemnify established in an insurance policy. The duty to defend is triggered by the mere possibility that a claim within the insurance policy in question may succeed."

    http://www.courts.gov.bc.ca/jdb-txt/...10BCSC0904.htm (see para. 30)

    I have scant idea of the facts underlying your friend's predicament and can only speculate. But it strikes me as a bit odd that he is facing years for the matter to resolve. That is in part, again, because the lawyer acting on the contingency fee won't eat off the file for years in that case. In that sense, your friend has the upper hand. The insurers will be getting and paying regular bills from counsel defending the action. Plaintiff's counsel will be getting nothing and, quite likely, will be carrying the disbursements.

    There are also ways to drag these things across the finish line sooner rather than later. I do not know what province and court system we are talking about, but in most jurisdictions one can move things along by applying for summary judgment, summary trial, trial of an issue, including severance of the issue of liability from damages, etc.

    It would also be interesting to know the potential magnitude of the claim compared to the insurance policy limit. Sometimes these things settle for the policy limit where uncertainty surrounds issues of liability and/or quantum of damages. Any way you slice it, litigating these things is expensive and there are no guarantees. I learned early at the bar that a bad settlement is worth more than a good lawsuit.


    Quote Originally Posted by Just a Guy View Post

    You may be up on what's happening on the theory, but I'm watching it happen in real life.
    I think Her Majesty's judges would be surprised to hear that the judgments they render in real cases on a regular basis are no more than some musings on legal theory. I tend to see things somewhat the other way. Before a lawsuit gets to trial, the outcome is somewhat theoretical. Lawyers for both sides pore over the legal precedents, the decided cases (that I read daily, within days of them being decided) and make their best prediction as to outcome, advising their clients accordingly. In most cases, one party wins, one loses. One party's prediction turned out inaccurate. It is only then that the "real life" outcome and ramifications become known. That is what I have seen in the 150,000 or so judgments I have read.

    Your friend not only has the advantage of insurer-funded counsel, but he holds the sword of Damocles over the other side. If he goes to trial and loses, he might end up with a company bound by a judgment. Insurance might cover the judgment. He might have some personal liability, perhaps modest in amount. Almost for sure he won't have to indemnify his insurers for legal costs paid. Now, as for the plaintiff, if the case is not a sure thing, and he goes to trial and loses, what is his situation? He has no judgment on which to collect. True, he has no legal fees to pay, thanks to his lawyer's bad decision to accept a contingency fee retainer. Most probably he will be faced with a very large bill for disbursements, particularly if his counsel retained experts to give evidence. Very pricey indeed. And then, to rub salt in the wound, the disappointed plaintiff will end up saddled with paying your pal's legal costs. That's the ordinary rule. "Costs follow the event". Loser pays winner's costs. True, it probably won't be on a full indemnity basis, probably what are often called "part/party" costs, or "ordinary costs". But even then, such costs can easily exceed $100,000. Today, that's a small bill.

  8. #17
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    You are partially right in that the insurance companies are paying for a lawyer but, since the claim was higher than the insurance, I'm unclear by how much he's never really said it could be by multiple times, it may be less than multiples (he had multiple insurance companies and I'm not sure all accepted that they were covering him), but overall it was more than he was covered for so he was advised to get, at his own cost, a lawyer to represent him as well.

    His lawyer then told him that, if it goes to trial, the judge always finds for the victim where insurance coverage exists, a little different than what you say, but it isn't in BC so it could be different.

    As for why it'll take years, it's still fairly early in the case. Both sides are still getting their experts in line. It was his insurance guys who said it would be a long time because of the magnitude of the claim. There is also multiple companies/people named in the suit besides him.

    My bet is the settlement number is really large just because of the number of people being sued and they are hoping for multiple insurance companies all chipping in, but I don't know the details.

    I agree that the case will likely settle and that the plaintiff's lawyers are just after the insurance money, but that doesn't make my friend sleep any better at night. His layers, probably because the outcome is uncertain, won't give him any assurance and say that the "worst case scenario" could happen. I figure they're covering their butt just in case.

    Funny part is, well not really funny if you think about it, my lawyer was telling me a story about a lawyer friend of his who got injured while on vacation and wound up in a wheelchair. It was just an accident, no one to blame, and it didn't happen at any "resort", so he was forced to live with the consequences of bad luck. A similar case to what happened to me when I was injured no one was responsible.

    For my friend however, because the accident happened at his company, and it sounds like it was just a normal event that ended in severe reprocussions, my friend, his wife, his company and other people and companies are all somehow responsible for the plaintiff.

    Again, neither of us knows all the details, nor how things are going to turn out. Maybe the suit will be dropped, maybe he'll wind up homeless, maybe he'll wind up winning the case. I could ask him more details, but I won't because that's the last thing my friend needs to talk about. He's very upset as it is, hard to work when you think "what's the point I could lose everything".

    I figure my job is to reassure him and just let him vent. Keep him from doing something stupid that may have worse ramifications. The only details I get from him is what he tells me, I don't think it would be good for him to bring it up when he's not thinking about it. I want him to focus on something, anything else to keep his spirits up.
    I'm not JustAGuy (without spaces), or Donald, or <insert name here>.

  9. #18
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    Quote Originally Posted by Just a Guy View Post
    For my friend however, because the accident happened at his company, and it sounds like it was just a normal event that ended in severe reprocussions, my friend, his wife, his company and other people and companies are all somehow responsible for the plaintiff.
    You say the accident happened at his company. From that, and what you have said earlier, I take it this is a personal injury case. Would that be right? Next, it "happened at his company". Do you know if that is the principal basis upon which the company and he are said to be liable? In short, is it was is known as an "occupier's liability" case? Perhaps not, since you also say that multiple companies/people are named in the suit besides him. While there may be at law more than one "occupier" of premises, long lists of occupiers are unusual. So it's hard to get a grasp on what kind of case is facing your buddy.

    Next, assuming we have one injured plaintiff, the quantum of non-pecuniary damages (sometimes called "general damages" or damages for pain and suffering) is actually fairly easy to predict once one has the basic facts concerning plaintiff's age, occupation, pre-accident medical history, etc. Then, armed with knowledge of the medical evidence concerning the nature of the injuries, effect on the plaintiff, prognosis, etc., one can compare to other cases and come pretty close to an accurate assessment. It is simplified by the fact that the Supreme Court of Canada decreed in a "trilogy" of cases in the 1970s, including Andrews v. Grand & Toy, that the "rough upper limit" of general damages should be set at $100,000. Since then, all Canadian courts have applied the trilogy as in no way being a "rough" upper limit. Rather, the CPI has been slavishly applied ever since, so now the "rough upper limit" is somewhere around $360,000. That would be the award in the "total wreck" cases, those of the worst injuries, eg., a young person rendered quadriplegic in an accident.

    Where the numbers can swell is looking at heads of damage such as "loss of future earning capacity". Posit, for eg., a 25-year-old JAG, making $500,000 a year being a very hands-on manager of his real estate empire. Now, due to that nasty tortfeasor's gross negligence, he is but a shell of his former self and the empire has been lost. JAG is a basket case, with no residual income-earning capacity. JAG's claim is for the present value of a lost income stream of $500,000 a year. He swears he would have worked at his business to age 75. The judge readily agrees. You get the idea where it can end up.

    Another head of damages that can be significant is future care costs. Take the young quadriplegic who will require special accommodation and the care and round-the-clock attendants, special equipment, therapies and on and on. Not hard to run into a few million.

    Let's hope your friend's case does not fall within any of the gloomy parameters outlined.

  10. #19
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    It is a personal injury, and the person, I gather was fairly young. No idea of their income i doubt they had a large income, I don't think they are a quadriplegic, but it was a spinal injury, no idea how bad.

    From what I understand there was nothing my friend did which would have caused the accident, he doesn't see what he could have done differently to prevent it, but suddenly he's now liable...

    As for the multiple companies, it's a little complex as you can understand. I think my friend is reading the suit as if he is solely responsible for it, which is how I'm sure it's written for everyone involved. However, I don't have a clue as to what's happening with the other involved. If they don't have any insurance for example, they may be trying to pin it all on him because he does have it. I've heard of this happening to other guys I know when they were in lawsuits. Unfortunately, no one ever wants to talk about them, so I rarely hear the final outcome...

    Anyway, it seems like his "corporate wall" is of no protection according to his lawyers which was the original point of this discussion.
    I'm not JustAGuy (without spaces), or Donald, or <insert name here>.

  11. #20
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    Quote Originally Posted by Just a Guy View Post

    Anyway, it seems like his "corporate wall" is of no protection according to his lawyers which was the original point of this discussion.
    It does sound like an occupier's liability case, although other grounds of liability are perhaps being pursued. If one is found to be an "occupier", the "corporate wall" protection might be of no assistance. Both the company and its principals might be found to be occupiers.

    For a BC case illustrating some of the issues that can arise, see:

    http://www.courts.gov.bc.ca/jdb-txt/...9/s98-0965.txt


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