Litigation Shareholder Disputes — The Oppression Remedy

CBCA & The Oppression Remedy

‘Oppression remedy’ refers to the Canada Business Corporations Act. Under section 241, a shareholder or non-shareholder has the right to proceed with a court action against a corporation who has exhibited conduct that is deemed oppressive.

For shareholders to receive oppression relief, they must engage in a court action and successfully prove the company is engaging in conduct suited to a definition of oppressive or unfairly prejudicial. They must also prove the company’s decision is inconsistent with a shareholder’s reasonable expectation.
The first task an oppression remedy must accomplish is identify where oppressive conduct has occurred. A company’s actions which has resulted in a shareholder being impact unfairly compared to other shareholders, which has disregarded their interests, and/or which has caused actual harm all suits this definition. This can include;

• A company issuing shares which turns a majority shareholder into a minority shareholder.
• Providing dividends or payments selectively to some shareholders and not to others.
• Acting in the benefit of some shareholders and at the expense of others.

An oppression remedy is most likely to succeed when there is no discernible business reasoning behind a company’s conduct. To this point, a detrimental effect does not necessarily establish oppression under Ontario’s Business Corporations Act. In addition, the harm alleged must be suffered in the same capacity in which the complainant is seeking their remedy.

A remedy provided by the Court is going to be based on the rights of the parties as detailed in any articles of incorporation and/or shareholder agreement, as well as in a manner which is within objectively reasonable expectation of the complainant.

Under the Business Corporations Act, a Court can order a remedy ranging from prohibiting an act to regulating the conduct of company affairs, removing a director, appointing a director, directing the purchase or sale of shares, or liquidating a company.

Also, it must be noted that directors and offices of a corporation can be held personally liable for oppressive corporate conduct even though these acts or decisions are essentially a ‘corporate act’.

Unfortunately, oppression claims are oftentimes complicated and costly. They are claims reliant upon provable facts and rely on the credibility of the parties involved. It is not uncommon to have even the simplest claim end up before the Court for years before a decision is made. Oftentimes, they may involve multiple court appearances, extensive document discover, and witness examinations. Thereby, the cost of proceeding with an oppressive claim in addition to the risks of paying the other party’s costs should your claim be unsuccessful before the Court must be considered.

If you have any questions relating to this article or wish to discuss your particular concerns, you may reach the author at ybaykara@kmblaw.com or (905) 276-0427