21st September 2011
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A Shareholder ‘Divorce’ Part 1: The Oppression Remedy by Stephen C. Mogdan

Many companies are small ones – family members who have incorporated to run the family business, or a pair or small group of equal partners in a small business enterprise. In these cases, their relationship as shareholders is much like a marriage – and they usually don’t go into it thinking about what the divorce will be like. In practice, these shareholders often rely on good faith or the strength of their underlying relationship to get them through disputes. But what happens when they have a dispute that ‘wrecks the marriage’?

Shareholders who are far-sighted or just more cautious – or who sought legal advice before ‘tying the knot’ – often have an agreement called a Unanimous Shareholders Agreement (“USA” for short). Such a USA does many things, but typically it contains a mechanism to allow a shareholder to get out, or to get another shareholder out, of the corporation. This is done by way of a ‘shot-gun’ or ‘buy-sell’ clause.  The specifics of the shot-gun clause are for another day, but for now just note that it allows a shareholder to demand to be bought out at a certain price per share (they set that price), or else they are required to buy the other shareholder’s shares for that same price per share.

If you don’t have a USA, and all attempts to negotiate a way out of a dispute have failed, you can find yourself in a deadlock which can increase conflict or even hurt the business. The Alberta Business Corporations Act (the “ABCA”)provides certain remedies for such a situation.  We will focus here on one of them: the so-called ‘oppression’ remedies. In the next installment we will discuss the ABCA’s provisions for dissolution of the corporation.

Section 242 of the ABCA provides remedies where a shareholder or director has been ‘oppressed’. These remedies require the shareholder to show that the corporation has been managed in a way that is oppressive to, or unfairly disregards, that shareholder’s rights. If they can show this, they can ask the Court to order one or more of a wide range of remedies – from requiring another shareholder (or the company) to buy their shares or requiring another shareholder to sell them their shares, to prohibiting the conduct found to be ‘oppressive’. The Court has a wide discretion in fashioning a remedy, and what exactly the Court will do will depend on many factors, one of the most important of which is the facts of the case and how the parties have conducted themselves.

If you are in a shareholder dispute, call Stephen Mogdan at Stringam Denecky LLP to discuss your rights and your options. Stephen will review the facts of your case and give you straight advice on how you can survive your ‘shareholder divorce’.

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Written by Stephen Mogdan