Executive Summary: Key Legal and Evidentiary Issues

• Whether Jason Reis, as de facto sole manager, oppressed co-shareholder Nicola (Nick) Surace and breached his fiduciary duties by diverting corporate opportunities and labour from V.G.A. Carpentry Limited to Dupont Carpentry Limited.
• Centrality of the 2022 unanimous shareholders’ agreement, including the “Schedule A” wind-down plan, dual-signing requirement, disclosure and record-keeping duties, and the “no interference” clause restricting Dupont from disrupting VGA’s existing jobs.
• Extent to which Reis’s commingling of funds, inaccurate books, and failure to remit statutory withholdings and HST constituted actionable mismanagement and violated the parties’ reasonable expectations.
• Significance of timesheets, financial statements and the Interim Receiver’s investigative reports in showing under-allocation of payroll to Dupont and use of VGA employees on Dupont projects.
• Appropriateness of using a disgorgement-of-profits remedy, rather than project-by-project damages, to address the conflict of interest and wrongful acceleration of Dupont’s business.
• Continued exposure of Surace as a director for tax arrears and the court’s refusal to retroactively remove him from the board, while still granting him oppression relief and protective indemnity rights.

Background and relationships between the parties

V.G.A. Carpentry Limited (VGA) was a trim and finish carpentry contractor built up over many years by its founder, Nicola (Nick) Surace. By 2019, share ownership was split 51% to Surace and 49% to Jason Reis, who held his interest through 1905247 Ontario Inc. Although Surace was the majority shareholder, he was elderly (82 at the time of the decision) and had stepped back from day-to-day operations. Reis, significantly younger, was effectively running the business as its sole active manager. Over time, tensions developed. Reis believed Surace had previously agreed to sell him the business and grew frustrated that an inactive founder continued to draw value from the company. Matters escalated in 2022 when Reis discovered that Surace had taken funds out of VGA, some of which were said to be problematic from a tax perspective. Rather than litigating immediately, the parties negotiated a transition structure to wind down VGA’s existing work and shift future business to a new company that would be under Reis’s sole control.

The unanimous shareholders’ agreement as a succession plan

The parties executed a unanimous shareholders’ agreement (USA) dated October 1, 2022, which functioned as a detailed succession and wind-down plan for VGA. Several key features of the USA defined the parties’ rights and expectations. First, VGA would continue with Surace and Reis as its only two directors, and all contracts and documents binding the corporation required both of their signatures. All cheques likewise needed dual signatures. This created a formal check-and-balance structure even though Reis ran operations. Second, the USA imposed strict financial transparency and record-keeping obligations. VGA’s books were to be maintained in accordance with GAAP, and each party was obliged to give the other correct statements “concerning all transactions pertaining to the Corporation without concealment or suppression.” This language was important because it codified an expectation of full disclosure and accurate records in the winding-down phase. Third, the USA addressed funding and shareholder loans. VGA was to seek external financing first, with both shareholders agreeing to provide information and, if needed, joint and several personal guarantees. If third-party borrowing proved unavailable, either shareholder could make a cash call. Loans were to be made proportionately to shareholdings on terms set by the board; if one shareholder refused, the other could advance funds and earn a high interest rate from the non-funding party. Fourth, Schedule “A” contained a list of 15 specific jobs that VGA was to complete. VGA was not to take any new work beyond these Schedule “A” projects, and the company would be dissolved once those projects were finished. These jobs represented more than $26 million in revenue, and finishing them was the heart of the transition deal. Fifth, Schedule “B” recorded the parties’ negotiated resolution of disputes about Surace’s prior withdrawals. VGA acknowledged substantial obligations to Reis’s holding company, including a shareholder loan, management fees, weekly outstanding fees of $1,500 plus HST, and reimbursement for miscellaneous items. These were to be paid before dissolution, with the parties agreeing to act reasonably to reduce the balances. Sixth, the USA permitted Reis to incorporate a new company—Dupont Carpentry Limited—to carry on new business, including the right eventually to use VGA’s name after dissolution. Critically, Article 9.1 barred Reis, his holding company and Dupont from soliciting or interfering with any Schedule “A” jobs, although they were free to solicit new work not listed there and to employ VGA’s current staff. The “no interference” clause was central: it allowed Dupont to compete for new business, but not at the expense of VGA’s ability to complete its existing Schedule “A” obligations. Finally, Surace and Reis personally guaranteed the performance of the USA and agreed to indemnify each other for all losses, costs and damages, including solicitor-and-client costs, arising from breaches. All prior agreements were terminated, except for a separate 2019 agreement with Surace’s spouse, Anna.

The 2019 CIBC lending arrangement and Reis’s guarantee

In October 2019, Nick and Anna Surace had arranged a credit facility from CIBC for VGA, with a maximum draw of $550,000, secured by a mortgage on their residence. The 2019 agreement required VGA to pay all costs associated with the loan. In the event of VGA’s default, Reis agreed to guarantee 50% of the facility and to secure that guarantee by granting a mortgage on his own residence in favour of Nick and Anna Surace. After VGA failed, CIBC pursued the Suraces personally under the mortgage on their home. Reis, however, refused to grant the promised mortgage on his residence, leaving the Suraces exposed and creating a separate area of dispute that the court later addressed through an indemnity order.

Divergence from the succession plan and conflicts of interest

Once Dupont was incorporated, Reis began to take on new projects under the new entity. Evidence showed that by late 2022 and early 2023, Dupont was billing revenue on projects in months where its records showed no corresponding payroll costs. The court inferred that VGA’s workforce—ostensibly dedicated to the Schedule “A” projects—was being used for Dupont jobs, with the labour costs booked to VGA while Dupont captured the revenue. Reis conceded some “cross-pollination” between VGA and Dupont but minimized it as informal back-and-forth on expenses. The court found this characterization inaccurate. Payroll and project timesheets later produced showed employee hours allocated by job, contradicting Reis’s claim that time allocations were not recorded. Financial data further revealed that Dupont enjoyed extremely high gross profit margins (around 40–50%) while reporting very low payroll costs relative to billings, in stark contrast to VGA’s historical performance with the same type of work and employees. Once VGA stopped operating, Dupont’s profitability and payroll ratios normalized, reinforcing the inference that Dupont had been using VGA labour without bearing its true cost during the overlapping period. At the same time, Reis failed to maintain proper accounting records. QuickBooks postings and ledgers were inaccurate, and bank reconciliations stopped in mid-2023. Despite repeated written demands from Surace and his accountant for up-to-date financial information, Reis delayed and failed to provide reliable records. The court later endorsed an earlier finding by another judge that there was a “total lack of accurate, up to date and reliable information” about the affairs of VGA and Dupont well into the receivership stage. This was a clear breach of both the USA and basic management duties.

Additional capital injections by Surace and neglect of tax remittances

Relying on information from Reis, Surace continued to inject significant funds into VGA: $25,000 and then $193,000 in February 2023, followed by another $250,000 and $100,000 in June 2023. Surace advanced this capital without knowing that VGA funds were being used to pay employees working on Dupont projects. Mid-2023, Surace and his accountant discovered that VGA had amassed very large arrears in statutory remittances: approximately $1 million in employee withholdings and about another $1 million in unremitted HST. Reis simply stopped making required remittances for income tax, CPP, EI, Employer Health Tax and WSIB, even though employee deductions are actual trust funds and not just accounting constructs. The court regarded this as serious misconduct, not mere oversight, and held that being “too busy” was no excuse for failing to remit trust funds or to instruct bookkeepers and accountants to regularize the records.

Walking away from Schedule “A” projects and shutting down VGA

Reis also unilaterally terminated or allowed others to terminate significant Schedule “A” projects. In April 2023, VGA performed no work on the Gillam project, which still had roughly $500,000 in potential revenue. When the client complained, Reis agreed, without Surace’s knowledge, that third-party contractors could complete the job. Timesheets showed that VGA employees were simultaneously being used on Dupont projects. The court found that Reis had no authority to abandon a Schedule “A” job without board approval and that doing so, while diverting staff to Dupont, breached both the USA and his fiduciary duties. In January 2024, Reis executed documents to terminate another major Schedule “A” contract known as Westbank, with about $5 million in remaining potential revenue. Again, he did so without Surace’s signature, contrary to the two-signature requirement. Any operational difficulties on the project were not a legitimate basis for unilaterally walking away from such a large job under the agreed wind-down plan. By early 2024, VGA’s financial situation had become dire. From October 2022 to March 2024, Dupont billed more than $2.1 million while recording only $254,000 in payroll. By late April 2024, Reis informed Surace that VGA could not meet payroll unless Surace advanced more funds. Surace refused, in part because he still lacked reliable financial data. On April 24, 2024, Reis terminated all VGA employees and immediately rehired them at Dupont. Records of Employment from April 12, 2024 suggested this transition was planned in advance. VGA ceased operations entirely from that point. Three Schedule “A” jobs remained unfinished. The parties, with independent legal advice, agreed that Dupont would take assignments of these contracts (subject to client consent) and pay VGA 10% of the resulting profit. One client refused an assignment and entered a new contract directly with Dupont. The court rejected Surace’s claim that he entered these arrangements under duress, holding that although he was under economic pressure, he had legal options (including urgent court relief) and was represented by counsel.

Appointment and work of the Interim Receiver

Given the severe record-keeping problems and intertwined dealings between VGA and Dupont, Surace later applied for the appointment of a receiver. In October 2024, the court appointed an Interim Receiver primarily to reconstruct the books and records, and that judge condemned the “total lack” of reliable financial information. The Interim Receiver analyzed the available data and concluded that Dupont owed VGA a gross amount of approximately $2.9 million, netting to about $2.43 million after limited set-offs. The calculation included a large “payroll understatement” figure, and various project-specific amounts (Strachan, Reunion Crossing, Thornhill, Block 8), less certain costs Dupont had covered. However, Justice Myers viewed parts of the Receiver’s analysis—especially the payroll understatement and assumed profit margins—as a valuation exercise based on assumptions, not tested evidence. He stressed that the Receiver was not acting as an expert witness who could be cross-examined, nor as a claims officer empowered to adjudicate adversarial claims. In this oppression application, the Receiver’s reports could inform the court but could not serve as conclusive proof of liability or quantum.

Defences, counter-considerations and evidentiary disputes

Reis raised multiple factual and equitable points. He contended that the Strachan project had been mis-listed on Schedule “A” and that the customer approached him directly after losing confidence in VGA. He disputed the Receiver’s assumption of a 25% profit margin on Strachan and alleged substantially higher costs. He also emphasized that his holding company and associates had significant capital at risk: Schedule “B” claims, additional loans (including $500,000 injected into VGA), and other contributions, which collectively exceeded Surace’s shareholder loan claims. Counsel for Reis argued that the assignment agreements on the remaining projects were a commercially sensible solution and that Reis had at times tried to address liens and tax remittances, though Surace had not always agreed. Reis maintained that his failures were due to being overburdened, not a deliberate scheme to strip VGA. He also pointed to offers to let Surace’s accountant review the books, though Surace said the records were neither current nor accurate, limiting the utility of such access. Justice Myers accepted that a full, project-by-project adjudication based on the Receiver’s numbers and Reis’s factual responses would effectively require a mini-trial that was not feasible within a summary oppression application. This context shaped the remedy: rather than trying to quantify VGA’s lost profits on each job, the court considered an alternative route that focused on the gains realized by Dupont and Reis from their conflicted conduct.

Findings on oppression and breach of fiduciary duty

The court held that Surace had clearly established oppression and breach of fiduciary duty by Reis. As the managing director and a fiduciary, Reis repeatedly violated the USA and corporate law principles. He diverted VGA’s workforce and opportunities to Dupont while VGA was still obliged to complete the Schedule “A” projects; unilaterally terminated or undermined significant contracts such as Gillam and Westbank; failed to keep accurate books and provide transparent, timely financial disclosure; and allowed substantial unremitted tax and trust-fund arrears to accumulate. These actions placed Reis in an ongoing conflict of interest, benefiting Dupont at VGA’s expense, contrary to the “no interference” clause and to statutory duties under the corporate legislation. Importantly, the court did not need to find Reis acted with subjective bad faith or a conscious plan to loot the company, although it noted that innocent explanations were hard to reconcile with the pattern of misconduct. It was enough that his conduct violated Surace’s reasonable expectations under the USA and unfairly prejudiced him by causing VGA’s failure and leaving Surace exposed to tax liabilities.

Choice of remedy: disgorgement rather than damages

Having found oppression and fiduciary breaches, the court turned to remedy. Justice Myers declined to award damages based on the Interim Receiver’s project-level calculations and profit-margin assumptions. He concluded that the very nature of Reis’s wrongdoing—commingled records, missing data, abnormal profit ratios, and undocumented project decisions—made it impractical and prohibitively expensive to assess VGA’s losses with precision. Instead, the court characterized Reis’s conduct as having given Dupont an improper “springboard” advantage: it started earlier and more profitably than it should have by leveraging VGA’s labour, funding and opportunities while impairing VGA’s ability to finish Schedule “A.” Drawing from principles of equitable breach-of-confidence and fiduciary law, the judge held that the most appropriate relief was prophylactic disgorgement of Dupont’s net profits for the period in which the conflict existed. The focus shifted from attempting to quantify Surace’s and VGA’s losses to stripping Reis and Dupont of the gains derived from their breaches. Financial statements showed that Dupont earned net income of $180,399 for the eight-month period ending June 30, 2023, and $2,067,929 for the year ending June 30, 2024. The court treated these figures as the profits unjustly earned during the conflict period, extending slightly beyond VGA’s shutdown to include a short ramp-up period where Dupont benefited from the accelerated growth enabled by its earlier misuse of VGA resources.

Liability of Reis and Dupont and derivative nature of the award

Justice Myers ordered that both Reis and Dupont were jointly and severally liable for the disgorgement. Reis was the principal fiduciary who breached his duties and the USA, while Dupont was the corporate vehicle that directly received the profits. To ensure that any distributions could be properly managed through the receivership and dissolution process, the court directed that the disgorged funds be paid to VGA itself, even though the proceeding was an oppression application launched by Surace personally. This approach is consistent with case law recognising that an oppression remedy can, in appropriate circumstances, restore value to the corporation without requiring a formal derivative action. The court also refused Surace’s request to be removed retroactively as a director to avoid potential tax-remittance liability, noting his own slow response once he became aware of arrears and the need to respect regulatory processes. Likewise, the judge declined to award punitive damages because they had not been pleaded in the Notice of Application, and he struck two late-filed affidavits from Reis for non-compliance with the scheduling order and procedural rules governing evidence after cross-examinations.

Treatment of set-off claims and creditor-ranking issues

Reis and related parties sought to set off various claims they asserted against VGA—including loans, Schedule “B” amounts and other advances—against the disgorgement order. The court rejected this as premature. It held that the disgorgement sum represented profits improperly obtained and that any claims by Reis, his holding company, Dupont or his spouse should instead be asserted through the receivership process like other creditor or equity claims. If VGA ultimately proved solvent after receiving the disgorged funds, both Surace and Reis could share in any residual value as shareholders. If, however, VGA remained insolvent, it would be inequitable to allow the very parties who profited from the wrongdoing to reduce their liability through early set-off before other creditors’ rights were determined.

Final orders, successful party and monetary outcome

In the result, the court found for the applicant, Nick Surace, on his oppression and fiduciary-breach claims. It ordered Reis and Dupont Carpentry Limited, jointly and severally, to pay $2,248,328 to VGA as disgorgement of profits. The Interim Receiver is then to proceed with a conventional liquidation and distribution process. To address the outstanding CIBC facility secured against the Suraces’ residence, the court directed that if, after distribution of VGA’s assets (including the disgorgement payment), there are insufficient funds to pay the approximately $502,000 outstanding line of credit, Reis must indemnify and pay to Surace 50% of any shortfall and, if necessary, raise the funds by mortgaging his own residence in accordance with the 2019 agreement. The court also authorized Surace to register a certificate of pending litigation against Reis’s home to preserve security until the final position is known. Interest and costs were left for subsequent written submissions, so the precise total for those components has not yet been determined. Overall, the successful party is the applicant, Nick Surace, with the court ordering a principal monetary disgorgement of $2,248,328 in favour of VGA, plus a contingent 50% shortfall indemnity on the CIBC loan, while the amounts for interest and costs remain to be fixed in future orders.