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.
Reactions and legal strategies
Danyel Bouffard, spokesperson for Sauvons Mena’sen, expressed relief at the ruling. “This is a victory for fairness and justice,” he said during an interview a few days later. He added that tenants organized a celebratory gathering following the judgment to discuss its implications. Sauvons Mena’sen, which comprises many former tenants, has been instrumental in advocating for transparency and accountability in the case.
Bouffard underscored the financial challenges of their campaign. “We are asking for support from the community to continue this fight. Every donation strengthens our ability to ensure justice prevails,” he stated. He also praised the resilience of the tenants, noting that their collective efforts had been pivotal in bringing attention to the issue.
Louis Fortier, the lawyer representing Mena’sen tenants, detailed the case’s complex legal journey in a Dec. 10 conversation. The organization initially filed a class-action lawsuit in May 2024 seeking damages against the administrators and buyer. A derivative action was also filed to annul the sale, void amendments to the nonprofit’s letters patent, and reclaim its assets. However, the nonprofit’s dissolved status created significant hurdles, as dissolved entities generally lack legal standing to initiate lawsuits.
“This judgment reopens the door for Faubourg Mena’sen to act as a legal entity,” Fortier said. “It allows us to challenge the administrators’ actions directly and work towards restoring what was lost.” He noted that the administrators’ decision to dissolve the nonprofit in secrecy was unprecedented in its level of concealment. The name change to “L’Orientation Éphémère” and the minimal publication of the dissolution notice were particularly egregious, he said.
Fortier also highlighted the administrators’ failure to involve tenants in key decisions, describing this exclusion as a fundamental breach of the nonprofit’s founding principles. Fortier pointed out that many tenants had invested years of trust in the organization, only to have their confidence betrayed.
Broader implications
Justice Sheehan’s decision also carries implications beyond this specific case. The court’s interpretation of nonprofit governance could influence future cases involving mismanagement of publicly funded organizations.
Fortier emphasized that this judgment underscores the need for legislative reforms to improve oversight of nonprofits. “The lack of enforceable safeguards allows bad actors to exploit these organizations, as we’ve seen here,” he said. He also pointed out that the administrators distributed the proceeds of the sale among themselves, violating clauses meant to protect public investments in the nonprofit sector.
The judgment further drew attention to systemic issues in how nonprofits are regulated in Quebec. Advocacy groups have called for tighter controls to prevent similar abuses, suggesting mandatory audits and greater transparency requirements for organizations receiving public funds, Fortier said.
Future proceedings
Moving forward, Faubourg Mena’sen aims to consolidate its legal actions. Fortier stated that the team is pursuing the nullification of the 2022 sale and the recovery of funds distributed to the administrators. Additionally, a motion has been filed to merge the class-action lawsuit with the derivative action, streamlining the judicial process. “We hope to see substantive progress by early 2025,” Fortier said. “This isn’t just about one nonprofit. It’s about restoring faith in the accountability of organizations entrusted with public funds.”
Tenants remain hopeful that the legal proceedings will lead to the recovery of lost subsidies and potentially the reacquisition of the sold properties. Fortier explained that these outcomes would be critical in addressing the harm caused to vulnerable tenants and in reaffirming the principles upon which Faubourg Mena’sen was established.
The advocacy group also plans to host public forums to raise awareness about the broader issues of nonprofit governance and tenant rights. These events aim to engage the community in discussions about preventing future abuses and ensuring accountability in organizations that serve public interests.
Efforts were made to contact Doug Mitchell, the lawyer representing the administrators and buyer, for a comment or interview. However, no response was received before this article went to print.