12th June 2015
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Shareholder Divorces: The Rights of Minority Shareholders

Family owned businesses are often operated as closely held corporations in order to obtain various tax and liability advantages. Unfortunately, the ownership of these corporations is not always held equally, and an abuse of power over minority shareholders can easily occur. Sometimes this may be an attempt to “squeeze” a minority shareholder out of the company, while other times it can lead to directors suspending the declaring of dividends on your shares for various reasons including a shareholders intention to separate from their shareholder spouse.

A solution for this sort of unfair/oppressive behavior is available in Alberta under section 242 of the Business Corporations Act (or section 241 of the Canada Business Corporations Act ) through a useful tool known as the “Oppression Remedy.”

The Oppression Remedy is generally available where the conduct of a corporation or its directors has been carried on in a way that is oppressive, unfairly prejudicial to, or that unfairly disregards the interests of any security holder, creditor, director or officer. The remedy allows the Court discretion to order a wide number of actions in order to rectify the oppression, including but not limited to:
(a) an order restraining the conduct complained of;
(b) appointing directors in place of or in addition to all or any of the directors then in office;
(c) directing a corporation, or any other person, to purchase securities of a security holder;
(d) directing a corporation, to pay a dividend to its shareholders or a class of its shareholders;
(e) varying or setting aside a transaction or contract to which a corporation is a party;
(f) an order compensating an aggrieved person;
(g) an order for the liquidation and dissolution of the corporation;

 

Of important note is that the Supreme Court of Canada has held that the Oppression Remedy will only protect the “reasonable expectations” of shareholders, where reasonableness is to be ascertained on an objective basis. Reasonable expectations may be ascertained from various factors including general commercial practices and the extent of any personal or business relationships or agreements between shareholders.

Situations of oppression are very fact specific. Determining what is a reasonable expectation and whether it was violated by conduct likely to be found oppressive, unfairly prejudicial or that unfairly disregards a relevant interest is often a complicated endeavor that requires the help of experienced legal counsel. Uncomplicated solutions are available, however.

If you have suffered an abuse of shareholder power and would like more information about your options including the Oppression Remedy, one of our knowledgeable corporate lawyers would be happy to assist. 

 

Stephen C. Mogdan

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[1] Business Corporations Act, RSA 2000, c B-9

[1] Canada Business Corporations Act, RSC 1985, c C-44

[1] BCE Inc v 1976 Debentureholders, [2008] 3 SCR 560, 2008 SCC 69 at para 56

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Written by Stephen Mogdan