Two boards, one family trust, and a written protocol that closed a King City dispute

The situation

Emre spent his days working as an insurance adjuster, and Edgardo managed an office, but in the evenings and on weekends the two of them ran a King City company held in trust for their extended family. The company, a modest but steady operation generating somewhere between one and five million dollars a year, had been placed into a family trust a decade earlier so that several siblings and cousins could hold an interest without any one of them running the business day to day. Emre and Edgardo, as the two family members with the most relevant experience and the most time to give, were appointed directors, a role neither of them had sought out but that both had grown into over the years.

The arrangement worked well for years. The company occasionally did business with a related family holding company, one that owned the building the operating company worked out of and provided some shared administrative services like bookkeeping and payroll processing across both entities. Emre and Edgardo sat on that related company's board too, a natural outcome of being the two people the family trusted to keep an eye on both sides of the arrangement. Nobody had ever formally written down how that overlap, an interlocking directorship, was supposed to be handled when the two companies did business with each other, largely because for years there was never any friction that made anyone stop and ask.

The ordinary plan was simple: keep both companies running smoothly, keep the rent and service arrangements between them roughly fair, and let the trust distribute its returns to the beneficiaries each year without much drama. For a long stretch, that is exactly what happened. The two directors managed both boards competently, the arrangements between the companies were reasonable by any outside measure, and the family trust's beneficiaries received their distributions each year without asking many questions about how the sausage was made or who was minding the relationship between the two related entities.

The plan held until one beneficiary, Lorna, began asking those questions directly. She was not on either board and had no operational role in either company, but as a beneficiary of the trust she had a right to understand how the company she partly owned was being run, and after reviewing a set of financial statements more closely than she had in previous years, she did not like what she found when she looked at the relationship between the two entities and who was on both sides of it.

Where it went wrong

Lorna's concern centred on a service agreement the operating company had renewed with the related holding company the previous year, on terms that had not changed materially in several years and had never been put to any kind of independent review. Because Emre and Edgardo sat on both boards, Lorna argued that the renewal had effectively been approved by the same two people on both sides of the table, with no real check on whether the terms were still fair to the operating company and, by extension, to her as a beneficiary who depended on that company's profitability for her own annual distribution.

Under Ontario corporate law, directors who have an interest in a contract the company is entering, including through a role on the other side's board, are expected to disclose that interest formally and, in many cases, step back from voting on it, leaving the decision to directors without a competing loyalty. Nothing in how Emre and Edgardo had handled the renewal was dishonest, and neither of them had personally profited beyond their ordinary role in either company, but nothing had been formally disclosed or recorded either. It had simply been assumed that everyone already knew how the two boards overlapped, which is precisely the kind of assumption that governance rules exist to replace with something written down.

Lorna's lawyer sent a letter raising the possibility that the renewal could be challenged as improperly approved, given the lack of any documented disclosure or independent review at the time the decision was made, and asking what the company intended to do about it going forward. The letter did not accuse anyone of dishonesty or self-dealing outright, but it raised a real procedural gap, one that existed regardless of how fair the underlying terms actually were, and it left open the possibility of a formal challenge to the transaction if the concern was not addressed to her satisfaction.

The family did not have deep pockets set aside for this kind of dispute. The trust's returns were modest, distributed among several beneficiaries each year, and neither director wanted to spend what would effectively be family money fighting a family member in a drawn-out proceeding over a governance issue that, at its core, had a reasonably simple fix once someone sat down to write it properly. The pressure from the outset was to solve the actual problem cheaply and credibly, in a way Lorna could trust, not to win an abstract argument about who had been right all along.

What we did

1. Reviewed the service agreement and the history of the interlock from the beginning, to confirm whether the terms themselves were actually unfair, not just undisclosed, because a poorly disclosed but genuinely fair arrangement calls for a very different response than one that had quietly favoured the related company at the operating company's expense over the years, and the two problems needed to be told apart before anything could credibly be said to Lorna.
2. Confirmed the terms were within a reasonable range by comparing them informally against what similar rent and service arrangements would typically cost for a business of that size, which let us tell the family honestly and early that the substance of the deal was defensible even though the process around approving it was not, a distinction that shaped every document that followed.
3. Drafted a written conflict of interest and disclosure protocol for both boards, setting out that any transaction between the two companies would be disclosed in writing before a vote and approved only by directors without a competing interest in the outcome, so the interlock could continue operating without repeating the original problem in future years, and so any future beneficiary asking the same question Lorna had asked would find a paper trail waiting rather than a shrug.
4. Prepared a short retroactive ratification of the prior renewal, disclosing the interest plainly on the record and confirming, with the comparison work already done, that the terms were fair, which addressed Lorna's specific complaint about the past transaction directly, giving her the documented answer she was owed, without conceding that anything improper had actually taken place at the time the original renewal went through.
5. Chose mediation over a formal application to resolve Lorna's objection, given the family's limited budget for this kind of dispute, since a negotiated fix that both sides could sign off on quickly would cost a small fraction of what a contested governance application through the courts would run, likely tens of thousands of dollars the trust simply did not have earmarked, on top of the strain a courtroom fight between family members would put on relationships that mattered well beyond this one company.
6. Kept the mediation narrowly focused on the disclosure gap and the new protocol rather than letting it expand into a broader review of family dynamics, past grievances, or unrelated complaints about how the companies were run, which kept costs contained and the process moving steadily toward a resolution both sides could actually reach within a single mediation day, rather than letting the meeting drift into old wounds that had nothing to do with the interlock itself.
7. Walked Lorna's counsel through the new protocol directly, showing exactly how future related-party transactions would be disclosed, reviewed and voted on, which gave her the ongoing structural assurance she was actually asking for, rather than a one-time apology or a bare promise about the past that offered nothing for the years ahead or for the next beneficiary who happened to look closely.
8. Set a plain review schedule for the protocol itself, agreeing with both boards that the disclosure process would be revisited every few years or whenever the relationship between the two companies changed materially, so the fix would not simply age out of use the way the original informal understanding had, and so no future beneficiary would face the same uncertainty Lorna had.

The outcome

Lorna accepted the protocol and the ratification, and the matter closed without any formal proceeding being filed against either director. The service agreement stayed in place on its existing terms, now backed by a documented disclosure and an independent director vote each time it comes up for renewal. The total cost to the family trust of resolving the dispute was a small fraction of what a contested application over the transaction would have run, and the trust's annual distributions to beneficiaries continued without interruption through the process.

The tight budget shaped the whole approach from the start: rather than building a defence designed to win a drawn-out fight on principle, the work focused on producing the smallest set of documents that would actually satisfy a reasonable beneficiary's concern, and then getting those documents in front of her quickly, before positions on either side had a chance to harden. That efficiency was itself part of the outcome, since a prolonged dispute would have cost the family more in legal fees and strained relationships than the underlying service arrangement was ever worth to any of them.

Since then, the protocol has been used twice more for other related-party arrangements between the two companies, each time with a clean paper trail from the outset rather than a disclosure written after the fact to answer a complaint. Lorna remains a beneficiary and has raised no further concerns about how the two entities interact, and the two boards continue to overlap in exactly the way they always have, now with a clear, written process for exactly the situation that started the dispute in the first place. Emre and Edgardo still run both companies; what changed was simply that the arrangement between them is now written down instead of assumed. For a family that had never thought of itself as needing formal corporate governance, that single change turned out to be the difference between an ongoing family rift and a business relationship everyone could still trust.

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