Nonprofit’s reconstitution breathes new life into tenants’ fight
By William Crooks
Local Journalism Initiative
In a landmark December 2024 ruling, Justice Martin F. Sheehan of the Superior Court annulled the dissolution of Faubourg Mena’sen, a nonprofit organization in Sherbrooke. This decision effectively reconstitutes the organization, granting it the ability to pursue legal actions against its former administrators and the buyer of its properties. The judgment is detailed in court records and was a critical victory for tenants and advocates seeking accountability.
Faubourg Mena’sen was founded in 1976 under Part III of the Quebec Companies Act to provide affordable housing to low- and middle-income individuals, particularly retirees, according to the judgment. Operating 19 buildings with 172 apartments, the nonprofit received significant public funding through the Canada Mortgage and Housing Corporation (CMHC). The organization’s mission was reinforced by strict clauses in its letters patent requiring its assets, upon dissolution, to be transferred to another nonprofit pursuing similar goals. According to the ruling, these conditions were blatantly ignored by the administrators during its controversial sale and dissolution.
Events leading to the crisis
The judgment states the administrators began soliciting private offers for all of Faubourg Mena’sen’s properties in May 2021 without public notification. By February 2022, they accepted an $18.25 million offer from 9254-1556 Québec Inc. and executed the sale. On March 1, 2022, the administrators renamed the nonprofit “L’Orientation Éphémère,” removed clauses mandating asset transfers to nonprofits, and then dissolved the organization on April 5, 2022. The notice of dissolution was inconspicuously published in the Montreal newspaper “Le Devoir”, bypassing local awareness. This strategic maneuvering ensured that objections from tenants or other stakeholders were unlikely.
Tenants, unaware of these developments, only learned of the sale when introduced to the new owner. This shift resulted in the immediate loss of housing subsidies, as subsidies provided through CMHC were contingent on the properties being owned by a nonprofit organization. Court documents revealed that many tenants lost between $2,400 and $4,800 annually in subsidies, creating severe financial strain. The impact was particularly harsh for retirees on fixed incomes, many of whom struggled to make ends meet following the sudden increase in housing costs.
The judgment
Justice Sheehan’s judgment recognized the administrators’ actions as an abuse of their fiduciary duties. The ruling annulled the dissolution of Faubourg Mena’sen, allowing the nonprofit to pursue claims against its administrators and the buyer. The court noted that the administrators acted in secrecy, failed to respect the nonprofit’s mission, and violated the Quebec Companies Act’s spirit.
The judgment emphasized the importance of protecting public funds used for nonprofit purposes. Justice Sheehan highlighted that public subsidies and the nonprofit’s social mission were intended to benefit tenants, not be exploited for personal gain by administrators. The ruling further underscored the role of transparency and accountability in nonprofit governance, criticizing the administrators for their deliberate attempts to obscure their actions from public scrutiny.
