Section 18 of the Corporations Information Act, R.S.O. 1990, c. C.93 (the “Act”), sets out when a corporation that is not in compliance with its filing or payment obligations is barred from brining a legal proceeding in Ontario, and the limited circumstances in which the court may grant permission to do so, while confirming that the corporation’s contracts remain valid.
Section 18(1) of the Act, states:
18. (1) A corporation that is in default of a requirement under this Act to file a return or notice or that has unpaid fees or penalties is not capable of maintaining a proceeding in a court in Ontario in respect of the business carried on by the corporation except with leave of the court.
Essentially, a corporation that is in default of its statutory filing or fee obligations is not capable of maintaining a proceeding in Ontario except with leave of the court. While the plain language of s. 18(1) of the Act appears to suggest that only a corporation that is in default of its filing obligations or that has unpaid fees or penalties is required to obtain leave of the court in order to maintain an action, thereby implying that a corporation that is not in default may proceed
without restriction, Ontario courts have emphasized that s. 18(1) cannot be read in isolation. It must be interpreted in conjunction with s. 18(2). 1
Section 18(2) of the Act, states:
(2) The court shall grant leave if the court is satisfied that,
(a) the failure to file the return or notice or pay the fees or penalties was inadvertent;
(b) there is no evidence that the public has been deceived or misled; and
(c) at the time of the application to the court, the corporation has filed all returns and notices required by this Act and has no unpaid fees or penalties.
Effectively, section 18(2) of the Act, requires a corporation to obtain leave in order to continue any action that has been, in effect, stayed by operation of s. 18(1). Put differently, reading sections 18(1) and 18(2) together indicates that once a proceeding has been stayed because of a corporation’s default, it can only proceed thereafter with the permission of the court.2
Therefore, if a corporation who has been in default for not being in compliance with its filing or payment obligations cures its default, leave is still required to set aside the stay of proceedings. Curing the defaults do not automatically lift the stay of proceedings. The court must be satisfied that the conditions under section 18(2) have been met.3
Who Bears the Onus?
So, who is responsible to bring forth these proceedings to set aside the stay? While it may seem intuitive that the corporation should, as it’s the party in default under the Act and the one whose capacity to maintain the proceeding is affected, however, according to case law, the onus lies on the party seeking to continue the proceeding to bring an application for leave and to satisfy that the statutory criteria under section 18(2) has been met.4 In particular, under section 18(2)(c), the party must demonstrate that the corporation has filed all required notices and paid all fees under the Act. 5
Where a party does not bring an application for leave or otherwise comply with the requirements of s. 18(2), the court will not grant leave, and the stay of proceedings will remain in place. 6 Therefore, the statutory criteria is not optional. The party seeking to continue the action must take active steps to demonstrate compliance and obtain the court’s permission before the proceedings can resume.
Conclusion
In practical terms, section 18 of the Act operates as a procedural gatekeeping provision. A corporation’s non-compliance does not invalidate its underlying rights or contracts, but it does suspend its ability to access the court process. Until leave is formally obtained under section 18(2), the proceeding remains stayed, regardless of whether the corporation has since cured its default.
As a result, parties to litigation involving a non-compliant corporation must be alert to the operation of section 18 and ensure that the statutory requirements are addressed before attempting to move the matter forward.
References
1 Bloomsbury & Butterfield Ltd. v. Economical Mutual Insurance Group, 2011 ONSC 4889 (CanLII), at para 9).
2 Ibid
3 32262 BC Ltd (cob Sign-O-Lite) v Baynes Holdings Inc, [1993] OJ No 2889, at para 8.
4 Ibid.
5 Ibid.
6 Ibid, at para 15.