Answer Happy

Himmel, a German immigrant, carried on an electrical business
for many years under the name “Himmel Electrical”. On advice from
his accountant, he incorporated Himmel Electrical Ltd. with himself
as sole shareholder and director. He sold all his equipment and
machinery to the new company and as payment, received 1000 common
shares and a mortgage for $125,000 on all equipment and machinery
which he had just sold as well as any future assets the company may
acquire. The mortgage was by way of a Security Agreement and was
registered with the government registry as required under the BC
Business Corporations Act. The new company carried on the
electrical business; however, Himmel overlooked changing the sign
outside his shop and did not tell his customers or suppliers that
the business was now owned and run by a company. Business invoices
were nevertheless rendered in the company name and all letters were
on company stationary. Several years later, the business ran into
financial problems because of a loss of customers to larger
competitors and Himmel shut the business down. The business assets
were sold for $55,000 and Himmel claimed payment in priority to
creditors’ claims totalling $82,500. The creditors claimed priority
instead, since they were unaware of the change of ownership.

Discuss the issues raised in this case and how the dispute
might be resolved.