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The oppression remedy is a mechanism in the Ontario Business Corporations Act and the Canada Business Corporations Act to protect the interests of shareholders and stakeholders in a corporation against wrongful conduct. Whether the Ontario or Canada Act will apply depends on the jurisdiction in which the corporation was incorporated.
Section 248 of the Ontario Business Corporations Act and Section 241 of the Canada Business Corporations Act
The Ontario BCAand the CBCAcontain similar provisions allowing an application to the court to remedy conduct that is “oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer of the corporation.”
As indicated by the focus of the provisions on the “interests” of the complainant, conduct does not need to be illegal or wrongful to count as oppression. Courts have interpreted the word “interests” broadly to mean the reasonable expectations of the stakeholder. The definition of reasonable expectations in a given case is a mixed question of law (the legal rights of the stakeholder) and fact (given the context of those rights, what were the reasonable expectations of the stakeholder). Many factors are relevant for determining the factual question, including normal business practice, the nature of the corporation, the relationship between the corporation and the stakeholder, protective measures available to the complainant, as well as previous conduct, representations and agreements between the parties.
Oppression of Shareholders, Directors, Officers or Creditors
The oppression remedy can be used to protect the interests of shareholders, directors, officers or creditors against the acts of other shareholders, the board of directors or other affiliates of the corporation.
Examples of Oppression
There are many situations to which the oppression remedy may apply, including where:
- a majority shareholder is treating a minority shareholder unfairly
- a majority shareholder manages payment of dividends to force a minority shareholder to sell shares
- a majority shareholder imposes excessive costs or risks on only some shareholders
- a majority shareholder inappropriately pays dividends or imparts bonuses to management
- a shareholder, officer or director misappropriates or uses corporate resources for personal benefit, to the detriment of the other shareholders
- a shareholder excludes other shareholders from management of the corporation
- a shareholder withholds required information or manages the corporation under a shroud of secrecy
- a shareholder’s employment is terminated without cause
- the relationship between shareholders in a small, closely-held corporation has become antagonistic and the shareholders cannot agree
Closely-held Corporations | Start-Ups | Family-Run Corporations
Oppressive conduct is especially pronounced in closely-held corporations, where shares are held by only a few individuals. Since there is typically no active market for these shares, an oppressed shareholder has limited ability to exit by selling his or her shares. The lack of internal safeguards or clearly defined roles makes closely-held corporations especially prone to oppression conduct. A complainant often has no recourse but to apply to the court for relief.
These problems are compounded when a closely-held corporation is a start-up or is run by family and close friends, as is often the case. Roles are frequently blurred in start-ups as officers juggle the responsibilities of multiple positions in the corporation. The lack of formal documents or organization may lead to excessive control or unentitled action on the part of an officer who deliberately or mistakenly misapprehends his or her entitlements within the corporation.
In a closely-held corporation run by family members or close friends, the relationship between shareholders and officers is commonly predicated on trust. This can pose a problem if the relationship erodes and the parties find themselves without any internal or formal safeguards to protect their interests. In these instances, relief can be provided by involving the courts through an oppression remedy.
Remedies for Oppression
The Court has wide discretion to rectify the oppressive conduct, and can order a variety of remedies, including:
- ordering a corporation to pay damages to an oppressed party
- restraining the conduct complained of
- appointing a receiver or receiver-manager
- regulating corporate affairs by amending the articles and by-laws or by creating or amending a unanimous shareholder agreement
- directing an issuance or exchange of securities
- appointing directors in place of or in addition to all or any of the current directors
- directing a corporation to purchase securities of a security holder
- ordering a corporation to refund the funds paid for the purchase of shares
- terminating or varying a contract to which the corporation is a party
- varying or setting aside a transaction or contract to which a corporation is a party
- requiring a corporation to produce financial statements or an accounting as the court may determine
- ordering a corporation to reemploy a shareholder that has been wrongfully terminated
- directing an investigation to be made
- winding up the corporation
- ordering the trial of any issue in dispute
Arbitration of Oppression Claims
Ontario courts, including the Ontario Court of Appeal, have held that an oppression claim may be subject to arbitration where the dispute is captured by an arbitration agreement made by the parties. It is important to note that if the jurisdiction and powers of the arbitrator are derived from the parties’ agreement instead of the statutory provisions, then there may be some differences in the remedies available through arbitration, such as in relation to the rights of third parties that are not signatories to the arbitration agreement.
The lawyers at Gilbertson Davis LLP have experience advising and acting in shareholder disputes and in arbitration matters. For more information about appointing one of our lawyers to serve as an arbitrator, please see our Arbitration page.
Generally, Ontario’s two-year limitation period commences for an oppression claim on the date that the oppressive conduct first arises.
Please contact Gilbertson Davis LLP to arrange an initial consultation.