Shareholder Claims and Remedies in Ontario

Shareholders are partial owners of a corporation and so are largely interested in maintaining a positive relationship with the corporation. But what happens when there is a dispute or wrongful conduct by the corporation? Luckily, there is legislation at the federal and provincial level that protect the interests of shareholders and stakeholders where there is wrongful conduct by a corporation.

Before getting into the types of remedies available for aggrieved shareholders, there are two preliminary aspects to keep in mind about the rights of shareholders and stakeholders:

• A corporation’s shareholder agreements, articles of incorporation, by-laws, and/or contracts may take precedence over legislated provisions; and
• A corporation may be incorporated in another jurisdiction, so the relevant legislation(s) should be consulted.

Ontario’s Business Corporations Act

In Ontario, the Business Corporations Act (“OBCA”) outlines the rights and several shareholder remedies. Shareholders rights include voting rights, the right to attend meetings, and access certain types of company records, among others. Where these rights are violated, the OBCA also contains provisions for enforcement of these rights.

Derivative Action

Section 246 of the OBCA outlines that a “complainant” (a broad term which includes shareholders, officers, and directors), may start, defend, or discontinue an action on the corporation’s behalf. This is known as a derivative action.

To commence a derivative action, a complainant is generally required to obtain leave of the court and provide at least 14 days’ notice to the corporation’s directors. Obtaining leave can be costly and time consuming, which may deter multiple proceedings against a corporation. These procedural requirements function to screen out excessive and meritless claims.

Derivative actions are often brought by complainants to remedy wrongs that the corporation has done to itself rather than to an individual shareholder. A derivative action may be appropriate where management is not taking action in addressing a wrong it was involved in, and the wrongful conduct is affecting all shareholders equally.

The OBCA also states that the court may make “any order it thinks fit”. This may include an order authorizing a person to control the conduct of the action, an order giving directions for the conduct of the action, and an order requiring the corporation to pay certain fees (see sections 247-249).

Oppression Remedy

In contrast to a derivative action, the oppression remedy is a flexible and all-encompassing remedy meant to address a wrong that occurs to a complainant personally (OBCA, section 248). Oppression of a shareholder’s interest can range from conduct that is abusive, coercive, or bad faith to unfair disregard.

The oppression remedy’s popularity partly stems from the fact that it does not require leave of the court and it provides courts with the discretion to award a variety of creative solutions. For example, a court may compensate the oppressed party, appoint or remove directors, set aside a transaction, dissolve a corporation, direct an investigation, and require a trial.

The oppression remedy may be broad in nature, but it is not limitless. A complainant’s expectations must be legitimate and reasonable. Both concepts have been interpreted by the courts over the years.

The Difference Between a Derivative Action and the Oppression Remedy

A derivative action and oppression remedy are separate remedies. The Ontario Court of Appeal clarified the distinction between these two remedies in Rea v. Wildeboer. The oppression remedy is appropriate where the shareholder suffered personal harm and the relief sought is for the particular complainant. A derivative action is appropriate where the complainant seeks to relief for the benefit of the corporation – there is no allegation of the complainant’s individual interests having been affected.

Although distinct remedies, there are circumstances where a derivative action and the oppression remedy overlap. This creates murkiness around which remedy is appropriate, especially for small and closely held corporations. Even so, only one remedy will generally have to be pursued in cases of overlap.

Other Remedies

The remedies discussed above are not exhaustive. For example, the OBCA also contains remedies in relation to calling a shareholders meeting (section 106(1)), entitlements to be paid the fair value of held shares (section 185(4), and appraisal remedies. It is also important to note that there may be different remedies available under securities law for public companies.

Contact Us

If you are a corporation or a shareholder and want to know more about the remedies available to shareholders and stakeholders, our team of experienced workplace lawyers at Achkar Law can help. Contact us by phone toll-free at 1 (800) 771-7882 or email us at [email protected] and we would be happy to assist.

 

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