Public Legal Educationand Information Serviceof New Brunswick

How Unpaid SupportObligations May AffectCorporate Liability

This pamphlet was produced by Public Legal Education andInformation Service of New Brunswick (PLEIS-NB) incollaboration with Program Support Services, NewBrunswick Department of Justice and Consumer Affairs. Itdoes not contain a complete statement of the law in this areaand laws change from time to time. This booklet is part of aseries of publications that provide general information on thesupport enforcement system in New Brunswick, the rights andresponsibilities of payers and beneficiaries, and the toolsavailable to the Family Support Orders Service to enforcesupport.

PLEIS-NB is a non-profit organization that educates the publicabout the law. PLEIS-NB receives funding and in-kind supportfrom the Department of Justice Canada, the New BrunswickLaw Foundation and the New Brunswick Department of Justiceand Consumer Affairs. You can find more general informationon support and other related legal topics on the PLEIS-NBwebsite at www.legal-info-legale.nb.ca.

ISBN 978-1-55396-966-2

P.O. Box 6000Fredericton, NB E3B 5H1Telephone: (506) 453-5369Fax: (506) 462-5193Email: pleisnb@web.cawww.legal-info-legale.nb.ca

Program Support ServicesNB Department of Justice and Consumer AffairsP.O. Box 6000Fredericton, NB E3B 5H1

Published by:

In collaboration with

Public Legal Educationand Information Serviceof New Brunswick

November 2010

The Family Support Orders Service (FSOS) is a part of theNew Brunswick Department of Justice and Consumer Affairs.Its goal is to promote a dependable flow of supportpayments. FSOS focuses on helping parents support theirchildren. FSOS monitors and enforces support orders andagreements filed with the service by:

� receiving payments from the Payer (the personpaying the support);

� keeping records of payments that are made;

� forwarding the payment to the Bene;ciary (theperson receiving the support);

� taking steps (when necessary) to ensure the Payermakes the required payments.

What is a ‘corporation’?A corporation is an organization whose member(s)have chosento formalize their relationship according to certainrequirements set out in law. A corporation has a separate legalentity that is different from the legal status of the members.Corporations can sue and be sued in their own right.

What is Corporate Liability for Support?Corporate liability for support means that if you(the payer) have an order to pay support, acorporation you or your immediate family ownsor controls may become responsible for yourunpaid support obligations (arrears). If thecorporation becomes liable, FSOS may startenforcement action against the corporation.For example, FSOS may report the corporationto a credit reporting agency or it may requireanyone who owes the corporation money topay it directly to FSOS.

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A corporation has a separate legal entity that isdifferent from the legal status of the members.Corporations can sue and be sued in their own right.

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Once the corporation is made liable under the SupportEnforcement Act (SEA), you and your corporation will belegally responsible to pay the full amount owing in arrearsand on-going payments under the support order.

Under what circumstances can FSOS hold acorporation liable for support?The Support Enforcement Act (SEA) has specific provisionsthat allow FSOS to hold a corporation liable for your familysupport payments if your support order is filed with FSOSand you do not make full payments as ordered by the Court.

If you own a corporation: Section 28 (SEA) allows FSOS totake steps to hold the corporation liable when:

� you are the only shareholder and the only personwith a beneficial interest in the corporation and

� you have not made full payment as ordered by theCourt and

� the amount of money owing in arrears is more than2 months of support payments.

If you have a controlling interest in a corporation:Section 29 (SEA) allows FSOS to take steps to hold thecorporation liable when

� you, or you and your immediate family, hold enoughshares to elect 50% or more of the directors of thecorporation or otherwise control the operations ofthe corporation, and

� you have not made full payment as ordered by theCourt and

� the amount of money owing in arrears is more than4 months of support payments.

The Support Enforcement Act (SEA) has specific provisionsthat allow FSOS to hold a corporation liable for yourfamily support payments if your support order is filedwith FSOS and you do not make full payments as orderedby the Court.

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What steps must FSOS take to hold a corporationliable for support payments?The steps FSOS must take to hold a corporation liable differdepending on whether you, the payer, own the corporationentirely or have a controlling interest in the corporation.

If you own a corporation: Under Section 28 (SEA), whichapplies to corporations where you are the sole shareholderand beneficiary, FSOS does not need to go to court tomake the corporation liable. FSOS may simply serve thecorporation with a notice of the amount you owe in arrearson the support order and a statement that the corporation is“jointly and severally liable”with you for the amounts owed.

If you and/or you and your family have a controllinginterest in a corporation: Under Section 29 (SEA), whichapplies to corporations that involve more than oneshareholder or beneficiary, FSOS must obtain a courtorder to hold the corporation “jointly and severallyliable”. FSOS must serve a Notice of Claim informing thecorporation that it intends to seek an order from the court tohold the corporation liable. The Notice gives thecorporation 30 days to make arrangements to comply withthe order, or to persuade the payer to personally make thepayments he or she owes.

If the corporation does not make satisfactory arrangementswith FSOS within the 30 days, FSOS will proceed with theapplication to the court for an order to hold the corporationliable for the support you owe.

What does itmean to be“jointly and severally liable”?It means the corporation and you personally are equallyresponsible for the amount of money you owe on yoursupport payment. It allows FSOS to take action againstyou, the corporation, or both to enforce payment.

Must FSOS try to enforce family support orders withme personally before it can hold the corporationliable?FSOS can choose to use enforcement measures against youpersonally, against the corporation, or both. FSOS does nothave to exhaust all the enforcement options against youpersonally before they can use enforcement measuresagainst the corporation.

Any amount of money paid by a corporation for your familysupport becomes a debt you owe to the corporation. Thecorporation may demand payment from you and may seeka judgment against you for the amount paid.

How can FSOS enforce payment after a finding ofliability?FSOS can enforce payment against the corporation byissuing payment orders to the corporation’s income sources.An income source may be a person, corporation or financialinstitution that owes, or may in the future owe money to thecorporation. These garnishment orders require a person ororganization to pay any money they owe to the corporationto FSOS to pay off your support order. Possible garnisheesinclude:

� clients or customers

� suppliers

� shareholders

� corporate bank accounts (bothsingle and joint accounts)

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FSOS can enforce payment against the corporation byissuing payment orders to the corporation’s incomesources. An income source may be a person,corporation or financial institution that owes, or may inthe future owe money to the corporation.

Section 12 (SEA) gives FSOS the authority to ask about acorporation’s financial information. FSOS may require clients,banks, and others to provide information on thecorporation’s assets and accounts receivable. FSOS will usethis information to determine which individuals ororganizations it may serve garnishment orders.

Before FSOS begins enforcement procedures, it must takethe proper steps and give consideration to the effect on thecorporation. Again, these requirements differ depending onyour relationship with the corporation.

If you own a corporation: If the corporation is liable underSection 28 (SEA), FSOS may begin enforcement procedureswhen there is proof that the corporation was served with aNotice stating it is liable for the support payments andarrears. Before doing this, FSOS will consider if enforcementaction would be a significant risk to the solvency of thecorporation. If enforcing the payment will place thecorporation in financial jeopardy, FSOS will proceed in amanner that will reduce the risk, yet allow for effectiveenforcement.

If you have a controlling interest in a corporation: If thecorporation is liable under Section 29 (SEA), FSOS may beginenforcement procedures when a court order has been issuedmaking the corporation liable. The Court will haveconsidered whether there will be a serious risk to thecorporation’s continued solvency. If the Court determinesthat there would be a significant risk, it will imposeconditions on the order to reduce the risk, yet allow foreffective enforcement. FSOS must enforce the supportpayments in accordance with any court imposed conditions.

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FSOS may require clients, banks, and others to provideinformation on the corporation’s assets and accountsreceivable. FSOS will use this information to determine whichindividuals or organizations it may serve garnishment orders.

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How long will FSOS use enforcement measuresagainst a corporation?FSOS may continue enforcement action against thecorporation until:

� You or your corporation has paid the unpaidsupport and is consistently making the regularpayments in accordance with your support order.

� You no longer have a beneficial interest in thecorporation. To stop enforcement against thecorporation the director must receive both:

� Written notice from the corporation that youno longer have a beneficial interest in anyshares of the corporation and the date thistook effect.

� The name and address of the person ororganization that acquired your interest in thecorporation. If known, the corporation mustalso provide information on what you havereceived or will receive in exchange for yourshares in the corporation.

� Your case has been withdrawn from FSOS.

How can I get specific advice on my situation?If you have an order to pay support and have an interestin a corporation, you or your corporation should considerobtaining legal advice on your specific situation. If therehas been a significant change in your financial situationor ability to pay support, you may consider applying tothe court for an appropriate variation of your supportorder. This fact sheet provides only general informationabout the law in this area.

For information about your supportpayments 7 days a week contact:

FSOS 24 hour Toll-Free Infoline1-888-488-FSOS (3767)

Fredericton clients can call 444-FSOS (3767)Clients who live outside New Brunswick can call

long distance 1-506-444-FSOS (3767)**Long distance chargeswill apply.