Oppression Remedy as a Shareholder
A director locks a shareholder out from any audited financial disclosure. A majority shareholder schemes with a director to dissolve a corporation without telling the minority shareholder. A majority shareholder in a family-owned business treats the corporation as a piggy bank for their personal expenses. Does any of that sound familiar? If so, you’ll be relieved to know you can enforce your rights and seek justice.
A shareholder in a company governed by Ontario’s Business Corporations Act or the federal Canada Business Corporations Act, has access to a variety of legal actions and remedies to protect their shareholder interests and expectations. One of the most common shareholder remedies available under corporate statutes is oppression.
Shareholder oppression remedies are drafted and interpreted to be widely available to shareholders, with a lot of power given to the courts to grant an order to remedy the oppression. The best way to pursue shareholder oppression is to sue the corporation and other wrongdoers with the help of a corporate and commercial litigation lawyer.
This article will provide an overview of the shareholder oppression remedy. You will also learn how a corporate and commercial litigation lawyer can help you maximize your chances of success for a shareholder oppression claim.
What is Shareholder Oppression?
Under the OBCA, the oppression remedy is available for a registered or beneficial owner of a security when:
- any act or omission of the corporation or any of its affiliates effects or threatens to effect a result;
- the business or affairs of the corporation or any of its affiliates are, have been, or are threatened to be carried on or conducted in a manner; or
- the powers of the directors of the corporation or any of its affiliates are, have been, or are threatened to be exercised in a manner,
that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director, or officer of the corporation, the court may make an order to rectify the matters complained of.
What courts protect through the oppression remedy is a shareholder’s reasonable expectations in each scenario. What a court holds are reasonable expectations for a shareholder in a large corporation with hundreds of investors might be different from their reasonable expectations in a small family-owned corporation.
What is considered oppressive, unfairly prejudicial, or unfair disregard of a shareholder’s interests will depend on the circumstances as well. It can range from outright illegal behaviour to less severe bad faith and dishonesty. If this behavior violates a shareholder’s reasonable expectations, the court will likely hold there was shareholder oppression in need of remedy.
While every case of oppression is based on its own facts, some examples of oppressive, unfairly prejudicial, or unfair disregard of a shareholder’s reasonable interests include:
- Mistreating a shareholder in matters affecting their shareholder rights and interests;
- Dissolving a corporation or commencing insolvency proceedings fraudulently to avoid legal obligations to a shareholder or creditor;
- An officer or director of the corporation using corporate resources for their own personal benefit and not the corporation;
- Terminating a shareholder’s employment with the corporation when their employment is interrelated with their share ownership;
- Excluding a shareholder from the management of the corporation, in ways including but not limited to barring them from access to the corporation’s financial information and failing to provide them notice for shareholder meetings;
- Deciding to pay dividends in a manner that would adversely hurt individual shareholders; and
- Deciding to pay exorbitant compensation to a company’s management to the detriment of individual shareholders.
The above are just non-exhaustive examples, but the only way to determine if your situation warrants the shareholder oppression remedy is to discuss your issue with an experienced corporate and commercial litigation lawyer.
If a court were to find there was shareholder oppression, they would then need to fashion a remedy to address it.
What Remedies Are Available for Shareholder Oppression
The courts have wide discretion to fashion a remedy to address instances of shareholder oppression. However, the court will only go as far as necessary to remedy the shareholder oppression itself. This means the shareholder oppression remedy is not an absolute means to address all legal issues in a particular fact scenario, such as severance, fraud, and other torts against a shareholder, director, officer, or corporation.
Some examples of remedies a court may order for shareholder oppression include but are not limited to:
- Restraining the conduct complained of;
- Appointing a receiver or receiver-manager;
- An order to regulate a corporation’s affairs by amending the articles or by-laws or creating or amending a unanimous shareholder agreement;
- Directing an issue or exchange of securities;
- Appointing directors in place of or in addition to all or any of the directors then in office;
- Directing a corporation, or any other person, to purchase securities of a security holder;
- Directing a corporation or any other person, to pay to a security holder any part of the money paid by the security;
- Varying or setting aside a transaction or contract to which a corporation is a party and compensating the corporation or any other party to the transaction or contract;
- Requiring a corporation, within a time specified by the court, to produce to the court or an interested person financial statements in the form required by the OBCA or an accounting in such other form as the court may determine;
- Compensating an aggrieved person;
- Directing rectification of the registers or other records of a corporation under the OBCA;
- Winding up the corporation pursuant to the OBCA;
- Directing an investigation under the OBCA be made; and
- An order requiring the trial of any issue.
How To Make an Oppression Claim
Like most legal processes, you can start a shareholder oppression claim by serving an issued application or statement of claim on another party.
You can try to resolve your shareholder oppression claim before going to court by negotiating with the wrongdoers. Where this fails, a lawyer can help you explore other dispute resolution processes that are more cost-effective than commencing legal proceedings outright. Examples include mediation, arbitration, or a mixture of the two known as “med-arb”.
Where all else fails, a shareholder can continue negotiating their oppression dispute after preparing and serving their application or claim on the responding or defending parties. The shareholder alleging oppression would then need to navigate the legal process for having their rights enforced.
An experienced corporate and commercial litigation lawyer can assist you with everything throughout this complicated process, including negotiation, alternative dispute resolution, drafting, and advocating for you in court. Cost-effective corporate and commercial litigation lawyers can maximize your chances of success in your shareholder oppression claim with their expertise and advocacy.
Like many other legal proceedings in Ontario, losing a shareholder oppression claim can result in having to pay some or most of the other side’s legal costs. By proceeding without legal advice or representation, you risk not only putting in the time and effort involved with the litigation of your shareholder dispute without achieving the result you want but also owing legal costs anyway.
There is no substitute for the assistance of a legal representative experienced in corporate and commercial law during shareholder oppression litigation. If you suspect you are a victim of shareholder oppression, it is always best practice to seek legal advice about your rights and entitlements as soon as possible to determine the next steps. Every case is different and should be handled differently.
Further Reading
Strategies To Limit A Director’s Personal Liability
Fiduciary Duty: Employee Responsibilities To A Workplace
Conclusion
The oppression remedy is a way to protect your reasonable interests and expectations as a shareholder from oppression, unfair prejudice, or unfair disregard by other shareholders, directors, and officers. Courts have wide discretion to award remedies for cases of shareholder oppression, but only to the extent of protecting a shareholder’s reasonable interests and expectations in each case.
A corporate and commercial litigation lawyer can help you protect your shareholder interests from the negotiation stage up to a hearing in court. Our experienced lawyers at Achkar Law frequently help our clients with shareholder oppression claims and are happy to explore every possibility with you no matter where you are in the legal process.
Contact Achkar Law
If you are a shareholder and want to know more about your rights and the remedies available to you because of a corporate dispute, our team of experienced corporate and commercial litigation lawyers at Achkar Law are here to help.
Contact us today at 1 (800) 771-7882 or email us at [email protected], and let us help you find the solutions you need to move forward.
Facing Shareholder Disputes? Consult with Achkar Law
Shareholder disputes can significantly impact your business operations and growth. At Achkar Law, we offer strategic legal advice to effectively manage and resolve these disputes. Our experienced team supports you in navigating the complexities of shareholder issues, ensuring that your business interests are safeguarded and your corporate relations are maintained.
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