A Contract Cleanup In Brampton Exposed A Quiet $240,000 Gap

The situation

The company was a mechanical and electrical subcontracting firm based in Brampton, doing roughly $12 million a year in revenue on institutional and commercial builds. It had three shareholders. Winston ran the business day to day, overseeing crews and bidding work as its construction project manager. Micheline held a minority stake but worked full time elsewhere as an air traffic controller; she was a silent investor who checked in a few times a year. Chantal was the company's controller, handling the books, and held a small equity stake of her own.

For years the company had shared a warehouse, equipment, and a small back-office team with an affiliated company that rented equipment to other contractors — a company Winston owned outright, with no involvement from Micheline or Chantal. The two businesses split rent, insurance, and a shared bookkeeper's salary under an informal understanding: the affiliate reimbursed the company for roughly 40 percent of shared overhead, based on how much warehouse space and staff time it used. Nobody had ever put the split in writing. It had worked well enough for long enough that no one thought to insist on paperwork.

The trigger for change was the company's operating line of credit, which was up for renewal. Revenue had grown, and the shareholders wanted a larger facility to carry bigger contracts through to payment. As part of underwriting, the bank asked for the company's material contracts, including anything describing related-party dealings or shared costs with other businesses. There wasn't one. Facing an underwriting deadline, the shareholders retained our team to bring the company's contract file up to standard — a contract hygiene review, working through every agreement the company held to confirm it was signed, current, and matched what was actually happening on the ground.

What the review found

Contract hygiene reviews are usually uneventful. Our team reads every vendor agreement, subcontract, lease, and employment contract a company has, checks each one is properly executed, and flags anything stale, missing, or inconsistent with current practice. Most of what we found at the company was ordinary: a couple of expired supplier agreements still being relied on, a subcontractor working under a handshake instead of a signed contract, insurance certificates that hadn't been updated in two years. All fixable in a few weeks.

The sublease with the affiliated company was different. It specified a 60/40 cost split in the affiliate's favour, set when the arrangement began. But two years earlier, Winston had expanded the company's warehouse footprint and added staff to handle a run of larger contracts — space and people the affiliate also used, without the sublease or the cost split ever being updated. Working from utility bills, payroll records, and square-footage figures going back three years, we calculated that the company had been absorbing closer to 70 percent of the shared overhead while the affiliate kept paying under the original 60/40 formula. The gap worked out to roughly $80,000 a year, or about $240,000 over three years, in costs the company had carried that should have been billed to the affiliate.

Because Winston owned the affiliate outright and Micheline and Chantal owned no part of it, that $240,000 was money that had effectively moved from a company three people owned into a company only one of them owned — without a contract authorizing it, without the other shareholders' knowledge, and without it ever being disclosed as a related-party transaction. Under the Ontario Business Corporations Act, shareholders have a right to expect the company's affairs won't be run to unfairly favour one of them over the others; arrangements like this, however unintentional, are exactly the kind of thing that can support a claim that the company's business was conducted oppressively toward the minority. There was also a live tax exposure: the Canada Revenue Agency can disallow or reallocate expenses between related companies when the terms aren't documented and don't reflect what independent parties would have agreed to. And practically, the missing paperwork was already the reason the bank's underwriting had stalled.

What we did

1. Quantified the shortfall before raising it with anyone. We wanted a defensible number, not an estimate, before the conversation with Micheline and Chantal happened. Reconstructing three years of utility, payroll, and space-usage records took several weeks but produced a figure the shareholders could not credibly dispute later.
2. Disclosed the finding to all three shareholders together. Winston had not set out to shortchange his co-shareholders — the imbalance had crept in gradually as the business grew and nobody revisited the formula. Presenting the numbers to all three at once, rather than letting Winston explain it privately first, kept the process credible and gave Micheline and Chantal confidence the figure hadn't been softened.
3. Negotiated a repayment structure. Winston agreed to repay the company roughly $240,000 through the affiliate, structured as monthly installments over eighteen months rather than a lump sum the affiliate couldn't absorb without disrupting its own operations. The schedule was documented in a written settlement agreement signed by all three shareholders.
4. Recommended independent advice for the minority shareholders. Because Winston controlled the company and the affiliate on both sides of the arrangement, we advised Micheline and Chantal to have their own lawyer review the settlement before signing, rather than relying solely on our firm, which had been retained by the company. Both did so, which closed off any later argument that the settlement had been reached without proper independent input.
5. Put a proper cost-sharing agreement in place going forward. The new agreement fixed the split based on actual measured usage, set a schedule to review and adjust it annually, and required both companies' bookkeepers to reconcile and report the numbers to all shareholders each quarter — closing the exact gap that had let the imbalance build unnoticed for three years.
6. Rebuilt the contract file for the bank. With the related-party issue resolved and documented, we assembled the complete package the underwriter had originally requested: the corrected sublease, the new cost-sharing agreement, updated vendor contracts, and a short cover memo explaining what had been found and how it had been fixed.

The outcome

The bank approved the renewed line of credit, but not on the terms the company had hoped for. The underwriter treated the three years of undocumented related-party dealing as a governance flag even after it was corrected, and required a personal guarantee from Winston that hadn't been part of the previous facility, along with a smaller credit limit than the company had requested. Fixing the paperwork got the loan across the line; it did not erase the lender's caution about how the company had been run.

Winston repaid the company in full over the agreed eighteen months. Micheline remained a shareholder, but the relationship cooled, and she insisted on — and got — quarterly financial reviews with all three shareholders present going forward, along with advance written notice of any dealings between the company and any business Winston or his family controlled. Chantal, who had been closest to the numbers without ever seeing the full picture, took over responsibility for flagging related-party items as part of her regular bookkeeping.

What none of the settlement paperwork could fix was the three years already gone. The company had genuinely absorbed those costs, which meant three years of distributions to all three shareholders had been lower than they should have been — Winston's repayment made the company whole, but it could not retroactively restore the extra income Micheline and Chantal would have earned as shareholders had the split been correct from the start. That loss was real, and it was the direct, quantifiable cost of never having put the arrangement in writing. The correction limited the damage and avoided a much worse outcome — a shareholder application to court alleging oppression, or a forced buyout at a value depressed by the dispute — but it could not undo what had already happened.

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