A physician couple's cash moves looked worse than they were

The situation

Nasrin and Willem had built their working life around the same two companies for eleven years. Nasrin, a specialist physician, ran the clinical side of a diagnostics practice near Wasaga Beach. Willem, a surgeon, handled the parts of the business a hospital never asks a doctor to learn: staffing, equipment leases, and the slow accumulation of retained earnings a successful practice throws off once its debts are paid down. Early on, their accountant, Anneke, had set them up with two companies under common ownership: an operating company that billed for services and held the clinical contracts, and a holding company that owned the building and absorbed surplus cash the operating company did not need for day-to-day work.

The structure was ordinary. Physicians in group practices use holding companies constantly, both to protect surplus funds from the operating company's liability exposure and to defer personal tax on income the couple was not spending. Every year, once payroll, equipment costs and reserves were covered, the operating company declared a dividend to the holding company and the cash moved. Nasrin and Willem barely thought about it; Anneke handled the mechanics and they signed what was put in front of them.

That inattention became a problem when a mid-sized health services group made an offer to buy the operating company outright. The price was strong, the timeline was reasonable, and the buyer's lawyers began the diligence process that any serious purchase requires: pulling years of corporate records, bank statements and minute books to confirm the company they were buying was the company they thought it was.

What they found was eleven years of cash leaving the operating company in amounts that did not always match a corresponding dividend resolution. Some transfers had resolutions dated well after the money moved. A few had no resolution at all, just a bank record and an accountant's journal entry. To a buyer's counsel reading cold, without the couple's own memory of why each transfer happened, the pattern looked less like ordinary tax planning and more like an operating company being quietly stripped of value before a sale.

The buyer's lawyers raised the concern in a formal diligence memo rather than a phone call, which told Nasrin and Willem how seriously it was being taken. The memo did not accuse anyone of wrongdoing, but it flagged the gap as a closing risk: if the corporate records could not confirm each transfer had been properly authorized, the buyer's own lender might refuse to fund the purchase, or the buyer might insist on a lower price to account for the uncertainty. For a couple who had spent a decade building the practice, the prospect of the sale stalling over paperwork neither of them had ever thought to check felt disproportionate to what had actually happened.

The gap nobody had noticed

The buyer's lawyers raised the issue formally, and it landed harder than either Nasrin or Willem expected. Their position was not accusatory so much as cautious: if the corporate records could not establish that each transfer had been properly authorized as a dividend, the buyer could not be certain what liabilities might attach to the operating company it was about to purchase, or whether the transfers themselves could later be challenged as improper. The purchase agreement's closing conditions required clean corporate records as a condition of closing, and clean did not yet describe what existed.

When we reviewed the file, the gap was real but narrower than it first appeared. Anneke had, in most years, calculated and moved the dividends correctly for tax purposes, then treated the paperwork as an afterthought to tidy up at year end. In a handful of years that tidying had simply never happened. The board resolutions that should have accompanied each dividend declaration existed in draft form in her files, unsigned, dated to match nothing in particular.

Under the Business Corporations Act, a company can only pay a dividend if its directors have properly authorized it, and if paying it will not leave the company unable to meet its debts as they come due. Both companies could clearly meet that solvency requirement in every year in question; the operating company had never come close to being unable to pay its obligations. What was missing was not substance but form: the record showing the directors had turned their minds to each declaration at the time it was made.

That distinction mattered enormously to how the problem could be fixed. A dividend paid without proper authorization is not automatically void, but it needs to be regularized, and a buyer's counsel is right to want to see that done before relying on the company's books. The couple's instinct, once they understood what was being asked, was to assume the worst about themselves. Reviewing eleven years of transfers with them made clear the money had gone exactly where the tax planning intended it to go. What had never happened was the paperwork that would let a stranger looking at the file believe the same thing without having to take their word for it.

There was also a narrower question inside the larger one: whether a defect in a dividend's authorization could expose the couple personally as directors to any residual liability surviving the sale. Directors who declare a dividend the company cannot actually afford can, in some circumstances, be held personally liable to restore the shortfall. That risk did not apply here, since solvency was never genuinely in doubt, but it was a question a careful buyer's counsel was right to want answered with evidence rather than assurance.

What we did

1. Pulled every corporate record for both companies going back eleven years, including minute books, bank statements, T2 filings and Anneke's working papers, to build a complete transaction history independent of anyone's memory of events. Starting with the full record rather than the specific transfers the buyer had flagged mattered because a partial response invites more questions than it answers; it let us see the true scale of the gap before deciding how to respond, and confirmed the problem was confined to paperwork rather than anything worse.
2. Matched each cash transfer to its underlying purpose, confirming which were dividends, which were intercompany loans that had since been repaid, and which were reimbursements for expenses the holding company had paid on the operating company's behalf. This step came before any drafting because the three categories needed very different documentation to be considered valid under Ontario's Business Corporations Act, and treating a loan as though it were a dividend, or the reverse, would have produced a record that still did not withstand scrutiny.
3. Prepared and had the board formally pass ratifying resolutions for every dividend declaration that lacked one, using the actual dates the funds moved and the actual financial position of the company at that time, so the paper record matched what had truly happened rather than being backdated to look tidier than it was, which would have created its own credibility problem.
4. Documented the intercompany loans properly, including promissory notes and interest terms for the amounts that had moved as loans rather than dividends. This closed a second gap the buyer's counsel had flagged alongside the dividend issue, since an undocumented intercompany loan carries its own tax and characterization risk quite apart from the dividend question, and confirmed the loans had in fact been repaid on commercially reasonable terms rather than left outstanding indefinitely between related parties.
5. Prepared a solvency confirmation for each year in question, using the company's historical financial statements to show that every dividend declared left the operating company comfortably able to pay its debts as they came due. This mattered more than the missing resolutions themselves, because a buyer's real fear was never the paperwork gap in isolation but what it might be concealing; showing the company was never close to insolvent in any of the years reviewed answered that underlying concern directly rather than leaving it to inference.
6. Interviewed Anneke, the couple's longtime accountant, to reconstruct the reasoning behind transfers where the contemporaneous notes were thin. Her memory of specific years was the only remaining source for some of the earlier transfers, so we cross-checked her recollection line by line against the bank records and tax filings, keeping only what could actually be corroborated rather than accepting a version of events that was simply convenient to believe.
7. Assembled the full package into a disclosure binder organized by year, with a narrative summary explaining the group's structure and the reasoning behind each transfer. Presenting the material this way, rather than handing over boxes of raw records for the buyer's team to reconstruct on their own timeline, let the buyer's lawyers review the entire eleven-year history in an afternoon and removed any incentive to read the gaps in the worst possible light.
8. Negotiated the closing conditions directly with the buyer's counsel, agreeing to specific representations and a modest holdback tied to the historical records rather than a price reduction. Once the disclosure binder answered the substantive question, a holdback that released on a fixed schedule was the right structure because it gave the buyer real protection without either side pretending the underlying business or its financial position had ever genuinely been in doubt.
9. Completed a final pre-sale reorganization step, confirming the operating company held only the assets and contracts the sale agreement described and that the holding company's ownership of the building and retained surplus was clearly separated before closing. This confirmation mattered because any lingering overlap between the two companies would have reopened exactly the kind of diligence question the parties had just spent weeks resolving, so the buyer received precisely the business it had priced and nothing the couple intended to keep for themselves.

The outcome

The buyer's counsel accepted the reconstructed record. Once the ratifying resolutions, the loan documentation and the solvency confirmations were in the binder, the pattern that had looked troubling on a cold read of bank statements resolved into what it actually was: ordinary tax planning between two related companies, with paperwork that had lagged behind the substance of what Anneke had already done correctly for tax purposes each year.

The sale closed on the price and terms the parties had originally agreed, with a small holdback tied to the historical corporate records that released in full once the closing period passed without incident. Nasrin and Willem did not have to accept a lower price, extend the timeline materially, or restructure the deal to get there, and the holding company kept the building and the accumulated surplus exactly as the original plan intended, with no adjustment to what it retained.

The buyer's diligence team also flagged, separately, that a small handful of the earlier transfers had been recorded at slightly different amounts in the operating company's books versus the holding company's, differences small enough to be simple transposition errors but large enough that they needed explaining. Reconciling those figures took an additional week but ultimately supported the same conclusion: nothing had gone missing, and the discrepancies were clerical rather than substantive.

What the couple took from the experience was less about the outcome than about how close it came to costing them. Neither of them had ever asked to see the signed resolution behind a dividend before signing whatever their accountant put in front of them; the paperwork simply was not something either of them thought a doctor needed to understand. The sale process made clear that the moment a company's history matters to someone outside the family, the difference between a transaction that happened and a transaction that can be proven to have happened becomes the whole ballgame, and the couple now reviews and signs their own resolutions every year rather than delegating that step entirely.

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