Shareholder Disputes
SHAREHOLDER DISPUTES: UNDERSTANDING YOUR RIGHTS
Navigating the landscape of shareholder rights and disputes requires a deep understanding of the legal framework in Canada. At Grigoras Law, we are committed to providing expert guidance in this complex area. Below is an overview of the foundational principles that define shareholder rights:
1. Legislation
A Focus on the Ontario Business Corporations Act (OBCA)
In Canada, companies may fall under federal or provincial jurisdiction. The OBCA serves as a representative model, encompassing three primary aspects:
a. Voting Rights: This central right allows shareholders to influence the board’s composition and participate in critical corporate decisions. Additional rules may be imposed by a company’s by-laws or articles of incorporation.
b. Attendance at Meetings: Shareholders are entitled to be present at annual meetings and any special meetings convened. Shareholders owning a minimum of five per cent of the voting shares can requisition meetings, ensuring minority voices are heard.
c. A Right to Information: A transparent view of the company’s affairs is essential for informed voting. Statutes mandate the availability of documents such as articles, by-laws, meeting minutes, director registers, and securities information.
Courts can step in if there’s a failure in convening meetings or other missteps by the directors.
2. Corporate Articles and By-Laws
These documents delineate the various share types and classes a corporation can issue. They govern individual shareholders’ rights, including voting, profit-sharing, company dissolution procedures, and limitations on share transfers.
3. Agreements Among Shareholders
These can vary in complexity, from simple voting agreements to comprehensive unanimous shareholder agreements, potentially restricting directors’ powers. They might include elements like buy-sell agreements, rights to first refusal on share sales, or limitations on who may be a shareholder. Particularly in small or family-owned businesses, such agreements often clarify management roles and procedures for tackling new opportunities or succession planning. The agreements may also specify mechanisms for resolving disputes among shareholders.
SHAREHOLDER DISPUTES: UNDERSTANDING THE REMEDIES
1. Court-Ordered Meetings in Shareholder Disputes
Court-ordered meetings are a key tool in shareholder disputes, especially when voting rights and corporate governance are at stake. Section 106(1) of the OBCA empowers the court to order a shareholder meeting if it’s found to be “impracticable” to call or conduct one. This term is interpreted broadly, covering situations that go beyond mere impossibility and reflecting the realities of conducting business.
The courts retain wide jurisdiction to direct how such a meeting is called, held, and conducted, and they prioritize shareholders’ democratic rights even during ongoing litigation. Section 106(1) also allows the court to make ancillary orders, such as varying the quorum required, further ensuring that the meeting can proceed.
2. Derivative Actions
This specialized form of legal remedy plays a crucial role in ensuring the accountability and integrity of a corporation, and here’s what it entails:
What is Derivative Action?
Derivative Action is a unique, yet infrequently used legal remedy that allows a shareholder or other complainants to advance an action on behalf of the corporation when the corporation itself fails or refuses to do so. This action specifically targets wrongs committed against the corporation rather than an individual shareholder.
Who Can Be a Complainant?
According to Section 245 of the OBCA, a complainant may be:
- A current or former registered holder or beneficial owner of a security of the corporation or any of its affiliates.
- A director, officer, or former director or officer of the corporation or any of its affiliates.
- Any other person whom the court deems appropriate to make an application.
Why Derivative Action?
A derivative action intends to bypass the issue of management’s inaction to rectify wrongs where they may have been involved in or responsible for the damage sustained by the corporation. It upholds a fundamental principle of corporate law, where a corporation exists separately from its shareholders, preventing shareholders from suing for the corporation’s losses.
Conditions for Bringing a Derivative Action
A derivative action can be brought if the following preconditions are met:
- The corporation’s directors will not diligently prosecute, defend, or discontinue the action.
- The complainant has given reasonable notice of the intention to commence the action.
- The complainant is acting in good faith.
- It appears to be in the interests of the corporation that the action be taken.
Judicial Insight into Derivative Action
The courts have emphasized various elements, such as the need to provide more than mere suspicion to warrant granting leave, a broad interpretation of notice requirements, and an objective assessment of good faith.
Cost Considerations
In complex actions, the court must evaluate whether the corporation should fund the action and assess the impact on the continued operation of the corporation’s business, including potential obligations for legal costs.
Final Pre-condition and Potential Orders
The last prerequisite for initiating a derivative action is that it must appear to be in the interests of the corporation. If successful, the court may issue various orders, including authorizing control over the action, giving directions, ordering payment to former and present security holders, or requiring the corporation to pay legal fees and other costs.
3. The Oppression Remedy
Understanding the Oppression Remedy
The Oppression Remedy is a cornerstone of shareholder disputes, often considered a powerful tool in protecting the rights of shareholders, particularly those in minority positions. Its origin is deeply rooted in recognition of the unique challenges faced by minority shareholders within a majority-controlled corporate environment.
In 1928, the Ontario Court of Appeal articulated the inherent tension and complexity of minority shareholder rights. The minority’s position can be fragile, leading to situations where power can be abused, and inequitable results may occur. To address this, the oppression remedy was introduced, and since then, it has become a prominent feature in Canadian corporate law, developing an extensive jurisprudence.
Evolution and Impact of the Oppression Remedy
Over the years, significant legal battles have shaped the oppression remedy’s application and interpretation. Cases such as Waxman v. Waxman, resulting in nearly $50 million in judgment, stand as landmark decisions that showcase the remedy’s power.
The essence of the oppression remedy lies in the court’s broad authority to rectify conduct that qualifies as oppressive. This includes various actions like setting aside transactions, compensating the aggrieved party, purchasing shares at fair market value, and more. The statutory language allows flexibility and a wide scope, focusing on the effects of conduct rather than the intention.
Key Aspects of the Oppression Remedy
Definition of Oppression: Conduct is deemed oppressive if it’s wrongful, even if not unlawful. Bad faith or unlawfulness is not a requirement, and isolated incidents or patterns of conduct can be considered oppressive.
Remedy’s Reach: The oppression remedy can rectify self-dealing, particularly in closely-held corporations, and can trace the fruits of oppression into subsequent corporations.
Derivative Action Overlap: There’s a notable overlap between the oppression remedy and the derivative action, especially in closely-held corporations. Courts have acknowledged the considerable similarity between the two remedies.
Application by Non-Shareholders: The broad definition of “complainant” extends the remedy’s reach to non-shareholders, such as creditors and employees. Specific circumstances allow these individuals to apply the oppression remedy.
Criteria for Assessing a Claim: The court evaluates the reasonableness of the expectation asserted and whether the conduct falls within the terms “oppression,” “unfair prejudice,” or “unfair disregard” of relevant interest.
Limits and Requirements: Not all conduct causing harm qualifies for recovery. The conduct must violate the complainant’s reasonable expectations, as defined by existing arrangements, and must meet the specific terms defined in the legislation.
Conclusion
The Oppression Remedy represents a significant development in corporate law, providing a nuanced and flexible means to protect shareholder interests. Whether addressing the balance of power within a corporation or expanding the rights of non-shareholders, the remedy continues to evolve, reflecting the complexity of modern corporate relationships.
4. The Appraisal Remedy
Appraisal Remedy
An Appraisal Remedy is a legal provision that allows a shareholder to require the company to purchase their shares at an appraised “fair value” under specific circumstances. This remedy aims to protect the rights and interests of the shareholders and can be invoked in the following situations according to the OBCA:
Rights of Dissent: Shareholders are granted the right to dissent upon certain fundamental changes within the company. These changes may include:
- Amendments to the articles of incorporation that alter the rights or restrictions attached to the shares;
- Amalgamations, which involve the merging of one or more corporations into a single entity;
- Sales of all or substantially all of the assets of the corporation, affecting the shareholders’ equity in the company.
- Amendments to the articles of incorporation that alter the rights or restrictions attached to the shares;
Compulsory Acquisitions: This scenario occurs when a person making a takeover bid acquires 90% or more of the shares of a particular class. The remaining shareholders might find themselves in a vulnerable position, and the appraisal remedy ensures that their shares are bought at a fair value.
Shareholder’s Right to Request Acquisition: If a shareholder holds 10% or less of the outstanding shares of a particular class, they have the right to request acquisition by the company. This allows minority shareholders to exit the company under fair conditions, promoting fairness and equity within the corporation.
The Appraisal Remedy is a vital tool in the arsenal of shareholder rights, providing an avenue for redress and protection. Whether you are a majority or minority shareholder, understanding these rights can be crucial in navigating the complex landscape of corporate governance.
5. Winding Up
Winding-up is one of the most serious remedies available for a shareholder dispute. It’s a process where the court orders the dissolution of the corporation under various circumstances defined by corporate statutes like the OBCA. Here’s how the court may apply this drastic form of relief:
Disappearance of Substratum: This rule can be invoked in three situations:
- The subject matter of the company is gone.
- The object for which it was incorporated has substantially failed.
- It is impossible to continue the business without incurring a loss.
- The subject matter of the company is gone.
Justifiable Lack of Confidence in Management: When shareholders lack confidence in the corporation’s management, and this lack of trust is justified, the court may order a winding-up.
Deadlock: A situation where decision-making within the corporation has come to a standstill, and no progress can be made.
The Partnership Analogy: A concept that applies when the relationship between the shareholders resembles a partnership, and it justifies winding up.
Disagreements and interpersonal conflicts between shareholders, even to the point of a breakdown in personal relationships within a private company, are not by themselves sufficient grounds for an equitable winding-up of the corporation. A Court will only exercise its discretion to order a “just and equitable” winding-up of a corporation if the disharmony between the shareholders has resulted in a sufficiently serious failure of the parties’ reasonable expectations to warrant such equitable relief. In order to satisfy the test of a serious failure of expectations, an applicant must demonstrate that the parties regarded, or would have regarded, if they had turned their minds to it at the time of formation of the business association, the particular circumstances resulting from the disharmony to constitute the termination or repudiation of the business relationship among them. Accordingly, disagreement is significant only where it results in a situation in which the parties’ reasonable expectations are unattainable, and from which the court can reasonably infer that the business arrangement between the parties has been repudiated or terminated.
A fundamental aspect of winding up is the struggle to balance the protection of stakeholders and the ability of management to run the company without undue interference. This balance is sought to be maintained through various remedies under corporate law.
CONCLUSION
Understanding shareholder disputes and their remedies is essential for shareholders, managers, and other stakeholders within a corporation. It provides insight into the rights, protections, and legal processes that may be involved in resolving these complex issues. For those facing such disputes, legal guidance from experienced professionals in the field is often crucial in navigating these turbulent waters.
At Grigoras Law, we specialize in shareholder dispute litigation and offer expert representation for both plaintiffs/applicants alleging they’ve been wronged and defendants/respondents defending against such allegations.
FAQ
Disclaimer: The answers provided in this FAQ section are general in nature and should not be relied upon as formal legal advice. Each individual case is unique, and a separate analysis is required to address specific context and fact situations. For comprehensive guidance tailored to your situation, we welcome you to contact our expert team.
Reasonable expectations in the context of shareholder disputes and potential oppression claims are a complex and multifaceted concept. They are assessed through a combination of factors that may differ significantly depending on the circumstances:
Commercial Practice: The common commercial practices play a crucial role in defining reasonable expectations. If a company departs from normal business practices in a way that undermines a shareholder’s legal rights, it may give rise to a remedy. This departure must, however, be significant enough to affect the complainant’s rights.
Nature of the Corporation: Courts will take into consideration the size, structure, and nature of the corporation. Small, closely held corporations may be allowed more leeway by directors in deviating from strict formalities compared to larger public companies.
Personal Relationships: If there are personal relationships between the claimant and other corporate actors, such as family or friendship ties, different standards may apply. In close corporations, the relationship between shareholders might be considered beyond legal rights.
Past Practice: The past practices of the corporation, particularly in a closely-held corporation, can create reasonable expectations among shareholders. These may concern profit participation and governance. A breach of these expectations, especially if not justified by valid commercial reasons or if undermining the complainant’s rights, may constitute grounds for a claim.
Preventative Steps: Courts may also assess whether the claimant could have taken steps to protect themselves against the claimed prejudice. For instance, whether a secured creditor could have negotiated protections against the oppressive conduct.
Corporate Documents and Agreements: The legitimate expectations of a shareholder can also be affected by the provisions in the corporation’s articles of incorporation, by-laws, or any shareholders’ agreements. These legal documents must be considered in conjunction with the size, nature, and commercial practices of the corporation.
Oppression Remedy and Burden of Proof: The complaining shareholder must prove that oppression exists. Unlike other legal claims, evidence of fraud or bad faith is not necessary. Instead, conduct must be demonstrated to be burdensome, harsh, and wrongful.
Court Intervention: Under section 248(3) of the OBCA, the court has broad powers to intervene, from restraining conduct and appointing directors to winding up the corporation. The court may also award interim costs if the applicant has a meritorious case and genuinely cannot afford to pursue the claim.
Interlocutory Orders: In proceedings under section 248(3) of the OBCA, interim relief may be granted under certain conditions, even if the traditional considerations associated with an interlocutory injunction are not met. Fairness may dictate such an approach, consistent with the broad nature of the oppression remedy.
In conclusion, determining reasonable expectations in a potential oppression claim involves careful consideration of commercial practices, the nature of the corporation, relationships between shareholders, past practices, and various legal and equitable factors. It may require a detailed examination of the facts and legal documents, and possibly legal consultation to properly understand and assess a shareholder’s specific rights and expectations. It’s advisable to consult with a legal professional who specializes in corporate law if you believe you may have a claim.
Here are some specific cases examples:
Oppressive Conduct: Three couples owned shares in a corporation, and one wife, who worked largely without compensation, faced pressure not to sell her Class B shares after her marriage broke down. The company’s financial position allowed further dividends, but the other directors were pressured not to declare dividends beyond $0.05, forcing the applicant to sell her shares. The company also proposed a reorganization that would limit the applicant’s rights.
Outcome: The Court found the actions oppressive and unfairly prejudicial and prohibited the corporation from reorganizing its capital.
Oppressive Conduct: Substantial dividends, high directors’ fees, and other payments were made without proper authorization.
Outcome: The Court found this unfairly prejudicial to a minority shareholder and ordered either the corporation or the directors to purchase the applicant’s shares at fair value without a minority discount.
Oppressive Conduct: Majority shareholder issued new class shares to himself for a nominal price and declared a dividend equal to all retained earnings.
Outcome: The Court found this as oppression and ordered the majority shareholder to pay the minority shareholder his share of the dividend.
Oppressive Conduct: A corporation changed its dividend policy in a way that disregarded the interests of Class A shareholders. The corporation and directors failed to consult or inform the Class A shareholders or properly consider their interests.
Outcome: The Court found unfair disregard for the interests of the Class A shareholders and upheld an order for a forced purchase of the Class A shares.
Oppressive Conduct: The controlling shareholder of a corporation treated the business and assets as his own, failing to keep proper records and resulting in legal issues.
Outcome: The Court ordered the father to be removed as a director, and that his shares be made non-voting and redeemed.
Oppressive Conduct: A corporation in financial difficulty declared and paid a dividend when its liabilities exceeded its assets, affecting its ability to meet its liabilities.
Outcome: The Court found this conduct oppressive and ordered the dividend payment to be set aside and repaid to the corporation.
Oppressive Conduct: Payment of dividends to shareholders left the corporation unable to pay its tax liabilities, and the directors were held responsible.
Outcome: The oppression remedy was invoked, and the directors were held personally liable for the unpaid corporate tax.
Oppressive Conduct: In a family-owned corporation, conflicts led to the exclusion of one son from the business, dismissing him from his employment and altering voting control.
Outcome: The Court found these actions oppressive and integrally intertwined with the son’s interests as a shareholder. The resolution to delete the “twilight voting” attribute was also found oppressive.
Oppressive Conduct: Unilateral removal of a corporate director by the remaining directors after he demanded transparency and compliance with legal provisions.
Outcome: The Court found the conduct oppressive and unfairly prejudicial and ordered the director to be reinstated.
Oppressive Conduct: Refusal to provide audited financial statements preventing a shareholder from selling his shares.
Outcome: The court ordered the corporation to provide the financial statements, holding that the refusal was an oppressive act.
Oppressive Conduct: While applicant was ill, the respondents terminated his employment and removed him from management.
Outcome: The court found this as oppression and ordered the respondents to purchase the applicant’s shares, with a trial ordered for wrongful dismissal damages.
Oppressive Conduct: Directors controlling a corporation voted against desperately needed refinancing proposal.
Outcome: The court held that this was an act of oppression and that a remedy was available.
Oppressive Conduct: Directors declared dividends to themselves, causing the corporation to have a negative net worth, and executed other intra-corporate transfers to benefit personally.
Outcome: The court found this to be oppressive and held the directors personally liable for the debt.
Oppressive Conduct: An individual increased his compensation while the corporation was in financial difficulty, effectively stripping the corporation of its cash assets.
Outcome: The court ordered the individual to pay the increased compensation as it was found to be an act of oppression.
Oppressive Conduct: A director who fraudulently transferred assets to another corporation to avoid paying rent.
Outcome: The director was found to have acted oppressively and was held accountable.
Oppressive Conduct: A director transferred valuable assets to other corporations for self-interest, disregarding the interests of shareholders and creditors.
Outcome: The court imposed personal liability on the director and awarded substantial damages for the oppressive acts.
Oppressive Conduct: M acquired B’s interest and failed to make payments, withdrew money, and sold the assets to a new company, acting oppressively towards B.
Outcome: The court found M’s conduct to be oppressive and ordered personal redress.
Oppressive Conduct: Failure to provide financial statements, keep adequate records, pay GST, and pay dividends to applicant, acting as though the business was owned solely by the individual respondent. Outcome: Both the corporation and the individual respondent were found liable for oppressive conduct and were ordered to pay arrears of dividends and repurchase applicant’s shares.
Oppressive Conduct: Failure to pay discretionary dividends in line with the will of a deceased owner.
Outcome: The court found this to be oppressive and ordered payment of the dividends.
Oppressive Conduct: Directors took substantial managerial and consulting fees without disclosure, depleting working capital.
Outcome: The court found this to be oppressive conduct.
Oppressive Conduct: After a change in control, reports ceased, minority shareholders were denied information, and profits were not distributed fairly.
Outcome: Minority shareholders were successful in obtaining an oppressive remedy, with the court considering the reasonable expectations of shareholders.
Oppressive Conduct: Stopping the payment of dividends without valid justification, contrary to the reasonable expectations of the minority shareholder.
Outcome: The court ordered the payment of the dividends, finding the conduct oppressive.
Oppressive Conduct: An employee sued his corporate employer for wrongful dismissal. The corporate employer was restructured, leaving it as a non-operating entity. The reorganization unfairly disregarded the employee’s interests.
Outcome: The employee was entitled to recover his judgment from the individual directors.
Oppressive Conduct: Minority shareholders were denied access to audited financial statements. The majority shareholder failed to provide audited statements, claiming financial difficulties.
Outcome: The court ordered that audited statements be prepared and delivered to the minority shareholders.
Oppressive Conduct: Majority shareholders failed to provide copies of bylaws, minute books, and other corporate records to minority shareholders.
Outcome: The court ordered the majority shareholders to rectify deficiencies in financial reports and other reporting information.
Oppressive Conduct: A minority shareholder was removed as a director, breaching an understanding between principal shareholders that both would be involved in management.
Outcome: An injunction was granted to restrain the removal.
Oppressive Conduct: A family company was treated as personal property by the majority shareholder without regard for the rights of other family members. Basic corporate governance was oppressed.
Outcome: An oppression remedy was successful, highlighting the denial of shareholders’ rights.
Oppressive Conduct: A majority shareholder caused minority shareholders to pay outstanding accounts that belonged to the respondent and stripped the company of its assets.
Outcome: The court held the majority shareholder as being unfairly prejudicial and unfairly disregarding the interests of minority shareholders.
Oppressive Conduct: Two directors converted Class B and C shares but not Class A shares, causing a loss to a minority shareholder.
Outcome: The court held the directors personally liable for the loss.
Oppressive Conduct: A father and daughter, serving as directors, were liable for taking out a mortgage for the benefit of their family company and manipulating financial statements.
Outcome: Both were held liable for oppression to minority shareholders.
Oppressive Conduct: The sole director of a corporation failed to provide financial information and misused corporate funds for personal benefit, operating the corporation as a private company.
Outcome: The director was personally liable to a minority shareholder for oppression.
Oppressive Conduct: Directors of a company adopted a policy of never paying dividends and combined with excessive remuneration, promoting the success of the Company for their own benefit, thereby denying other shareholders a return on investment.
Outcome: The court found that the remuneration and no-dividend policies were prejudicial, amounting to oppression.
Oppressive Conduct: Intentional exclusion of a co-owner and director from a shareholder meeting and nullifying the meeting.
Outcome: Actions taken at the meeting were declared null and void.
Oppressive Conduct: Exclusion of a minority shareholder from management, denial of financial information, and failure to provide notices of meetings.
Outcome: Majority shareholders ordered to offer to purchase the minority shareholder’s shares at a determined price.
Oppressive Conduct: Self-dealing by the sole director, granting himself favourable compensation, loan arrangements, and prioritizing personal interests.
Outcome: Petition for an oppression remedy successful.
Oppressive Conduct: Mismanagement of a corporation, leading to biased treatment of an estate, improper usurpation of a corporate opportunity.
Outcome: Imposition of a constructive trust and ordered liquidation of the corporation.
Oppressive Conduct: Unilateral change of employment contracts leading to loss of key salespersons and breaching the share purchase agreement.
Outcome: Oppression claim against the purchaser allowed.
Oppressive Conduct: Terminating an employee and transferring corporate assets to avoid possible judgment in a wrongful dismissal case.
Outcome: Judgment granted to plaintiff, corporate veil pierced, and personal liability imposed on the defendant.
Oppressive Conduct: Misuse of corporate assets for personal benefits, gross inaccuracies in financial statements.
Outcome: Defendants found jointly and severally liable for compensating the plaintiffs.
Oppressive Conduct: Favoritism among family members, failure to charge a reasonable rate for business resources.
Outcome: Respondents found to have acted oppressively, appeal dismissed.
Oppressive Conduct: Suspension and removal of a CEO in violation of unanimous shareholder agreement and employment agreement.
Outcome: Application for oppression allowed.
Oppressive Conduct: Dissolving a corporation to rid themselves of a partner, harming the corporation’s interests.
Outcome: Application for oppression allowed.
Oppressive Conduct: Running the company in a way that disregarded minority shareholder’s interests, contrary to shareholder agreements.
Outcome: Action for oppression allowed, including damages for wrongful dismissal and punitive damages.
Oppressive Conduct: Breach of a unanimous shareholder agreement by a brother for personal benefit, taking control of property, and signing a lease surrender without approval.
Outcome: Application for oppression allowed, orders for compensation and payment for loss of profit.
The limitation period for oppression claims can be complex, and the applicability of the limitation period may vary depending on the governing statute.
Ontario Business Corporations Act (OBCA): In Ontario, the general rule is that a limitation period of two years applies to all claims unless specifically exempted by the Limitations Act. This two-year limitation period also applies to oppression remedy claims under the OBCA, starting from the date the cause of action arose, subject to the principle of discoverability.
Canada Business Corporations Act (CBCA): The situation under the CBCA is less clear. While the two-year limitation period applies to claims under the OBCA, the application of the limitation period to oppression remedy claims under the CBCA is uncertain.
In the case of Ford Motor Co. of Canada Ltd. v. Ontario Municipal Employees Retirement Board, the Ontario Court of Appeal expressed doubt, without reaching a definitive conclusion, about whether an action for oppression under the CBCA was subject to the six-year limitation period under the Ontario Limitations Act. This was the act that was in effect until January 1, 2004. The former statute contained a reference to “an action on the case,” a concept that was eliminated by the new Limitations Act, 2002.
No Ontario Court has definitively determined the matter, so it may be that the two-year limitation period applies to an OBCA oppression claim but not to a CBCA oppression claim. The potential distinction lies in the fact that a limitation period created by a provincial statute may not apply to a cause of action under a federal statute.
In Conclusion: If you believe you have an oppression claim, it’s vital to consult with legal counsel as soon as possible. The limitation period’s applicability can be complex, particularly under the CBCA, and the risk of missing a limitation deadline can have serious consequences.
In an oppression claim, the court has the authority to make “any interim or final order it thinks fit” under Section 248(3) of the Ontario Business Corporations Act (OBCA). While this provision is broad and provides the court with considerable flexibility, there are 14 specific examples listed in the statute that illustrate the types of orders that may be made, without limiting the court’s broader discretion:
Restraining Order: An order can be issued to restrain the conduct that is the subject of the complaint.
Appointment of a Receiver or Receiver-Manager: This includes appointing an entity to manage or liquidate the assets of the corporation.
Regulation of Corporate Affairs: The court can order amendments to the articles, by-laws, or a unanimous shareholder agreement to regulate the corporation’s affairs.
Issuing or Exchanging Securities: An order may direct the issue or exchange of securities within the corporation.
Appointment of Directors: The court may appoint directors in place of or in addition to the existing directors.
Order to Purchase Securities: This order directs a corporation or any other person to purchase securities of a security holder, subject to s. 248(6).
Order to Pay Money: An order may be made to pay to a security holder any part of the money paid by them for securities, also subject to s. 248(6).
Varying or Setting Aside Transactions: The court can vary or set aside a transaction or contract involving the corporation and provide compensation to the parties.
Requiring Financial Statements or Accounting: An order may require the corporation to produce financial statements or an accounting as determined by the court.
Compensating an Aggrieved Person: This order allows for compensation to a person aggrieved by the conduct of the corporation.
Rectification of Records: An order may direct the rectification of the corporation’s registers or other records under s. 250.
Winding-Up the Corporation: The court can order the winding-up of the corporation under s. 207.
Ordering an Investigation: This includes an order to conduct an investigation under Part XIX of the CBCA.
Requiring the Trial of Any Issue: An order may require that a specific issue be tried within the court system.
Additionally, it is important to note that Section 248(6) of the OBCA prohibits a corporation from making a payment to a shareholder if there are reasonable grounds for believing that the corporation would be unable to pay its liabilities, or if the payment would reduce the realizable value of the corporation’s assets to less than its liabilities.
The overarching aim of these potential remedies is to ensure what is “just and equitable.” In BCE Inc. v. 1976 Debentureholders, the Supreme Court of Canada noted that oppression is an equitable remedy that takes into account business realities and not merely narrow legalities. Therefore, the court’s powers in an oppression claim are wide-ranging and flexible, aimed at achieving fairness in the specific context of the dispute.
Yes, there are several circumstances in which a court may not allow someone to bring an oppression claim. The ability to commence an application under the oppression remedy is contingent on the applicant falling within the definition of “complainant” in the relevant provincial corporation statute, and the courts also exercise discretion in granting standing as a “proper person.”
1. Definition of “Complainant”:
- In provinces like Alberta, New Brunswick, and Nova Scotia, the definition of “complainant” expressly includes a “creditor.”
- In others such as the OBCA, CBCA, and business corporation statutes of several territories, “creditor” is not expressly included. The definition of “complainant” in such jurisdictions might mean a registered holder, beneficial owner, director, officer, or any other person who the court deems a proper person to make an application.
2. Courts’ Discretion to Grant Standing as a “Proper Person”:
- The court has the discretion to determine whether a creditor is a “proper person” to make an application for relief. This has been demonstrated in various decisions where creditors were recognized as proper persons to bring oppression remedy claims.
- The court may deny standing based on several factors, as outlined below.
3. Factors that may Lead the Court to Deny Standing:
- Not a Creditor at the Time: If the claimant was not a creditor when the disputed act occurred.
- Lack of Good Faith: If the court believes the claimant is not proceeding in good faith.
- No Legitimate Interest or Too Remote Interest: If the claimant has no genuine interest in the debtor’s affairs or the interest is considered too distant.
- No Reasonable Expectation of Protection: If there is no reasonable expectation that the debtor’s actions would protect the claimant’s interests.
- Lack of Legal Cause: If the impugned conduct was not the legal cause of the alleged harm.
- Irrelevance of Complaints: If the complaints have no connection with the circumstances leading to the debt.
- Wrongful Dismissal Claim: If the claim is for wrongful dismissal rather than an overall pattern of oppression.
- Unclean Hands: If the claimant has unclean hands, for example, a director who has breached fiduciary duties to the corporation.
In summary, while the definition of “complainant” varies among different jurisdictions, there are specific grounds and factors that a court will consider when deciding whether or not to allow an oppression claim. Courts exercise considerable discretion in this area, and applicants must satisfy the legal requirements to qualify as a complainant or proper person to bring the claim. Additionally, various factors related to the nature of the claim and the conduct of the parties can lead the court to deny standing to commence an oppression claim.
Yes, there are distinct differences between a derivative action and an oppression claim, and these differences might lead to specific advantages depending on the situation.
Derivative Action:
A derivative action is a lawsuit brought by a shareholder on behalf of the corporation itself when a corporation’s managers or directors have failed in their duties. The following are some characteristics of derivative actions:
Aimed at Enforcing Corporate Rights: Derivative actions focus on the corporation’s rights and seek to address the harm done to the corporation itself rather than individual shareholders.
Requires Court Approval: To proceed with a derivative action, one must obtain the leave (permission) of the court, which may involve demonstrating that the claim is brought in good faith and is in the best interest of the corporation.
Corporate Control: Since the cause of action belongs to the corporation, any relief sought must be for the benefit of the corporation and not individual shareholders.
Oppression Remedy:
An oppression remedy is sought when shareholders suffer actual oppression, unfair prejudice, or unfair disregard. Here are some characteristics and advantages of oppression claims:
Focuses on Individual Rights: Unlike derivative actions, oppression remedies focus on harm to the legal and equitable interests of individual stakeholders affected by the oppressive acts of the corporation or its directors.
No Need for Court Approval: Unlike a derivative action, an action for oppression does not require leave of the court, making it potentially quicker to initiate.
Shareholder Ratification: As a personal action, shareholder ratification (approval) of the disputed actions should be irrelevant in an oppression claim.
Not Mutually Exclusive with Derivative Action: Both an oppression remedy and a derivative action may be pursued for the same wrong, giving flexibility to the complainant in seeking redress.
Conclusion:
While derivative actions are aimed at enforcing the rights of the corporation and require court approval, oppression claims focus on individual shareholders and have advantages such as not requiring court leave and being unaffected by shareholder ratification. The choice between pursuing a derivative action or an oppression claim will depend on the specific facts and circumstances of the case, such as the nature of the harm, the parties involved, and the desired outcomes. Consulting with a legal professional well-versed in these areas of law would be essential in determining the most suitable course of action for a particular situation.
Yes, a corporation can be investigated under the provisions of the Ontario Business Corporations Act (OBCA). The process is quite comprehensive and may involve the following steps:
Initiating the Investigation: Under s. 161(1) of the OBCA, a security holder, or the Ontario Securities Commission in the case of an offering corporation, may apply to a court for an order directing an investigation into the corporation or any of its affiliates. The main goal is to reveal facts that might otherwise be hidden from shareholders.
Criteria for Investigation: The court may order an investigation if it finds evidence of fraudulent activity, oppressive or unfair conduct, unlawful purpose, or dishonest actions related to the corporation or its affiliates (OBCA, s. 161(2)).
Wide Discretion of the Court: The court has extensive authority to order various actions, including:
- Appointing an inspector, determining their remuneration, and defining their responsibilities.
- Authorizing entry into premises for the examination of documents.
- Requiring production of documents or conducting hearings under oath.
- Directing any aspect of the investigation, receiving reports, and determining the availability of reports to the public.
- Requiring the corporation to pay the costs of the investigation, or discontinuing an investigation (OBCA, s. 162(1)).
Rights of Those Investigated: Individuals whose conduct is being investigated have the right to legal representation, and all statements made during an investigation are granted absolute privilege (OBCA, ss. 164 and 165).
Inspector’s Powers: The appointed inspector has specific powers defined in the court order, and may also cooperate with public officials in Canada or elsewhere if investigating allegations of improper conduct similar to those being investigated by the inspector (OBCA, s. 163(1) and (2)).
In Camera Hearing: Any interested party may apply for an in-camera hearing and seek directions on any matter related to the investigation.
No Security Required: The applicant for the investigation is not required to give security for costs, and the hearing of the application without notice is closed to the public (OBCA, ss. 161(4) and (5)).
An investigation of a corporation under the OBCA is a detailed process involving court oversight, appointment of an inspector, careful examination of documents, potential hearings, and cooperation with other public officials. It serves as a remedy for shareholders concerned with the corporation’s financial status and can be a critical tool in addressing fraud, oppression, or dishonest practices within the corporation.
