Fiduciary Duties After the Deal: Lessons from Megory Holdings

Purchasers often rely on the continued involvement of sellers to facilitate a seamless transition following a business sale. But what happens when a seller, who remains with the business, undermines the very value of the business they sold?

The Supreme Court of British Columbia’s decision in Megory Holdings Inc. v. ABZ Falling Inc., 2025 BCSC 2318, provides a cautionary example and guidance for enforcing post-closing fiduciary obligations.

The Facts: Sale, Transition, and Trouble

Pursuant to a share purchase agreement (“SPA”), Michael Beck sold shares in his company, Banner Installations Ltd. (“Banner”), to Bradley Loring’s holding company, ABZ Falling Inc. (“ABZ”), for $3 million, payable in four annual instalments. Beck, through his own holding company, Megory Holdings Inc. (“Megory”), stayed on as a consultant for Banner.

Beck also signed a “Non-Solicitation, Non-Competition and Confidentiality Agreement” with ABZ (the “Non-Competition Agreement”). Its terms expressly imposed duties of loyalty and confidence, as well as fiduciary duties, on Beck.

Nearly a year later, Beck’s daughter and son-in-law, on behalf of “several” Banner employees, sent a detailed complaint to Banner’s largest customer alleging safety and management failures under Loring’s ownership.

As a result of the complaint, the customer terminated its contract with Banner, forcing Banner to cease operations. ABZ thereafter refused to pay the final two instalments of the purchase price to Beck, which would have totaled $1.5 million.

The Litigation: Claims and Counterclaims

Megory sued ABZ and Loring for the unpaid $1.5 million. ABZ and Loring counterclaimed, alleging breaches of post-closing obligations and seeking damages for defamation and unlawful interference with economic relations. Banner also sued Beck and Megory for breach of the SPA and the Non-Competition Agreement.

A central question was whether Megory, through Beck, owed a fiduciary duty to ABZ and Banner, and whether that duty was breached. The court’s answers: yes and yes.

The Non-Competition Agreement expressly imposed fiduciary duties on Beck. The SPA incorporated the Non-Competition Agreement by reference and deemed it part of the SPA, binding Megory to its terms. The court relied on Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, and Skycope Technologies Inc. v. Jia, 2023 BCSC 1288, to confirm that fiduciary duties — in this situation, the same common law duties owed by employees to employers — can be created, defined, and enforced by contract, in this case, the Non-Competition Agreement.

The Breaches: What Went Wrong

The court found that Beck breached his fiduciary and contractual duties in several ways:

1. Failure to raise safety concerns constructively: Beck did not privately discuss safety concerns with Loring. Instead, he held onto information and used it to criticize Loring in front of others.
2. Failure to assist with employee relations: Beck failed to inform Loring about employee alienation or impending resignations and took no steps to help alleviate these issues.
3. Undermining employee–employer relations: Text messages sent by Beck encouraged employees to “take matters into [their] own hands,” undermining Loring’s authority.
4. Disparagement: Beck openly criticized Loring in front of Banner employees, knowing it could lead to resignations and further destabilize the company.
5. Disclosure of confidential information: Beck communicated with Banner’s largest customer about Banner’s internal issues without informing Loring, contrary to his confidentiality obligations.
6. Participation in the customer complaint: Beck actively participated in, and failed to take any steps to dissuade, his daughter’s efforts to send a complaint to Banner’s largest customer, which contained serious allegations against Loring and Banner.
7. Encouraging further complaints: Beck encouraged and facilitated further complaints to regulatory bodies about Loring and Banner.

The court applied the doctrine of corporate attribution, holding Megory liable for all of Beck’s actions, as he was the corporation’s sole directing mind and acted within the scope of his authority. The doctrine of corporate attribution allows courts to ascribe the actions or mental states of natural persons to a corporation for a particular purpose in particular circumstances. Where a wrongdoer was the directing mind of the corporation at all relevant times and the directing mind’s wrongful act was performed within the sphere of corporate operations assigned to them, the wrongful act may be attributed to the corporation, subject to certain exceptions and to the court’s discretion (Aquino v. Bondfield Construction Co., 2024 SCC 31).

For more information, please refer to our firm’s previous blog posts about the corporate attribution doctrine:

• Corporate minds do not all think alike: The Supreme Court affirms a purposive approach to the corporate attribution doctrine; and
• M&A Disputes: When will a corporation be liable for an officer’s or director’s fraud? Supreme Court provides new guidance.

Damages: The Cost of Breach

The breaches were found to be the “effective or dominant cause” of ABZ’s loss. The court awarded $5,070,000 in damages for lost profits, less the unpaid $1.5 million owed to Megory.

Takeaways

Megory Holdings reminds purchasers and sellers that:

• Fiduciary duties can be created and enforced by contract—and courts will look to the substance, not just the form, of post-closing arrangements.
• Sellers who remain with the business post-sale may be obligated to act in the company’s best interests where the contract imposes fiduciary duties. Sellers who remain on as consultants or employees post-sale, and who want to avoid assuming fiduciary duties, should expressly disclaim the creation of fiduciary duties in their consulting or employment agreement and avoid language recognizing or imposing fiduciary duties in any contracts connected with the transaction. This approach may not be entirely foolproof, however: a court may supersede contractual terms and impose a fiduciary duty where the nature of the relationship between the parties post-sale justifies it, such as where there is a continuing relationship of trust, confidence, and discretion. Sellers should consider obtaining legal advice on this point before closing.
• Purchasers should draft clear, enforceable post-closing obligations and be prepared to hold sellers accountable for breaches, including through the doctrine of corporate attribution.

McCarthy Tétrault can help. For assistance with post-closing disputes, please contact the authors or any member of our team.