CANADA Trends and Developments Contributed by: Ian M Hull, Suzana Popovic-Montag and Nick Esterbauer, Hull & Hull LLP
On the bright side, it may also be possible to use cor- porate governance documents as supporting evidence of the testator’s intent, if rectification of a will is sought in order to effect a gift involving corporate shares or corporate property. Returning to the decision of the Court of King’s Bench of Manitoba in Re Berry Estate , 2024 MBKB 81, the court rectified a deceased share- holder’s will in this case to transfer their interest in a holding company to a beneficiary. The shareholder’s will had originally been drafted to give mineral rights to the beneficiary, but those rights were held by the holding company, in which the beneficiary was also a shareholder. Since the corporation had been struc- tured to give the beneficiary an effective veto power over share transfers, the court found that it helped establish the deceased shareholder’s intent to give the mineral rights to the beneficiary and supported the application for rectification. It merits noting, however, that this case is unique because it dealt with a holding company, rather than a corporation that operates as a business; the court remarked that rectification was more appropriate because a holding corporation has limited duties and responsibilities. With this point in mind, it is unclear whether the court’s reasoning in this case can be extended to other cases. Using a will to gift liabilities owed to the deceased shareholder When a will gifts corporate shares or an interest in a corporation, a final issue that merits consideration in Canada is whether the gift is limited to corporate shares, or whether the shareholder also intended the gift to include liabilities owed by the corporation to the deceased shareholder, when applicable. Such liabili- ties could include mortgages or shareholder loans, a debt-like form of financing that a shareholder provides to a company in which they hold shares. Whether or not a testamentary gift includes liabilities owed by the corporation to the shareholder can have a significant impact on the value of the gift, both financially and also in terms of the beneficiary’s degree of control relative to other shareholders. If a shareholder intends liabilities to be included in a testamentary gift, this should be expressly addressed in the will. The case law is inconsistent as to how wills that are silent on this point ought to be interpreted, meaning that a gift of shares or a corporate interest
will not necessarily be constructed as including liabili- ties owed to the shareholder. When the issue arises, the way that the will is interpreted often turns on the particular circumstances of the case. If the corporation was financed by shareholder loans, rather than paid-up capital, the court may be more inclined to find that a gift of corporate shares includes shareholder loans, based on the decision of the Ontar- io Superior Court of Justice in Fekete Estate v Simon (2000), 32 ETR (2d) 202. The court held in this case that a bequest consisting of “all of my shares in the share capital of” two companies included sharehold- er loans owed to the deceased shareholder, and that the shareholder’s wishes would be frustrated by the exclusion of the shareholder loans. If a bequest is worded broadly as consisting of a shareholder’s “interest” in a company, the court may also find that the gift includes debts owed by the corporation to the shareholder. In Ali Estate (Re) , 2014 BCSC 340, for example, the British Columbia Supreme Court found that a bequest consisting of the deceased shareholder’s “interest in the company” included shares, plus a shareholder loan owed to the deceased shareholder, and the amount owed by the company to the deceased through a promissory note. In reaching this conclusion, the court noted that the ordinary meaning of the word “interest” was sufficient- ly expansive to include the entirety of the deceased shareholder’s stake in the company. However, even if a testamentary gift gives “any inter- est” that the deceased shareholder has in a corpo- ration, the court may still find that the gift does not include debts owed by the corporation to the share- holder. In Henley v Henley , 2022 NLSC 103, for exam- ple, the Newfoundland and Labrador Supreme Court held that a bequest which provided a “50% interest” in a corporation only included shares and did not include a shareholder loan owing to the deceased. In reaching this conclusion, the court took note of the fact that one of the shareholder’s children would essentially be disinherited if the loans were included in the gift. Similarly, in Wright, Re (1949), 4 DLR 678, the Ontario High Court held that a testamentary gift consisting of any interest in a corporation which the shareholder
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