When Shareholders Need an Auditor or Inspector

David Alderson, LL.B, LL.M (Commercial and Corporate), Q.Arb, Lawyer and ArbitratorBusiness Dispute Arbitrator, Business Disputes, Commercial, Commercial List Matters, Commercial Litigation, Corporate Litigation, Directors' and Officers' Liability, Financial Services | Investment, Fraud Recovery, Injunction & Specific Performance, Mareva Injunction, Norwich Order, Oppression Remedies, Preservation Orders0 Comments

I address here in a general way the procedures available for a shareholder or group of shareholders seeking the assistance of the court to have an auditor or inspector appointed.

Financial Statements  – None or Inaccurate 

Shareholders in closely-held Ontario corporations sometimes have concerns about the accuracy of the financial statements when the company does not have an auditor.

Oppressive or Unfairly Prejudicial Conduct

In other cases, a shareholder in an Ontario corporation may consider that the corporation has been carried on, or the powers of the directors are, or have been, exercised, in a manner that is oppressive or unfairly prejudicial to, or that unfairly disregards, the interests of the shareholder.

Corporation and Fraud

One or more shareholders may have concerns that the corporation’s business is, or has been, carried on with the intent to defraud,  that the corporation was formed or dissolved for a fraudulent or unlawful purpose, or that a person concerned with the formation or business /affairs of the corporation have acted fraudulently or dishonestly.

Appointment of Auditors and Inspectors  

I do not discuss here the shareholder’s oppression remedy which may be available to shareholders and others (see our webpage and blog  posts on the oppression remedy).

Instead, I provide general information here about the provisions of the Business Corporations Act in force in Ontario, that provide aid to shareholders concerned about the events and conduct described above, whether in conjunction with an ongoing proceeding for an oppression and other remedies, or as preparatory steps.

Appointment of an Auditor 

Under s140(2)(a) the BCA the corporation is required to prepare and maintain “adequate accounting records”.  Though s 145 of the BCA provides a shareholder with access to inspect corporate records, it does not extend to accounting records.  By s148 of the BCA corporations that are not an offering corporation and where all shareholders consent to an exemption for appointment of an auditor, no auditor need be appointed.  Otherwise, shareholders may, under various provisions and requirements of s149 of the BCA, appoint or remove an auditor (except a court-appointed arbitrator) at the first meeting of shareholders, special meetings or each annual meeting).

By s149(8) of the BCA, if a corporation does not have an auditor, the court may, upon the application of a shareholder or Director, appoint and fix the remuneration of an auditor to hold office until an auditor is appointed by the shareholders.  Conversely, under s151(6) and s152(4) of the BCA any interested person can apply to the court for an order declaring that the auditor to be disqualified and the office of auditor vacant.

I do not describe here the other provisions of the BCA concerning auditors, auditor’s report and financial statements.

In a small or closely held corporation, the demand to appoint an auditor, followed by an application to court, may provide considerable powers of investigation, However, there may be facts and circumstances that where a court may decline the court-ordered appointment of an auditor if it would be of limited benefit and great expense.

Appointment of an Inspector

The court may order an investigation to be made of the corporation or its affiliates on the application of a shareholder, without notice, or with the notice the court requires.  Special rules apply to an offering corporation.  If the application is made without notice, the hearing is closed to the public and there is a publication ban.

Availability 

An investigation may be ordered under s162(2) of the BCA where it appears to the court that:

(a) the business of the corporation or any of its affiliates is or has been carried on with intent to defraud any person;
(b) the business or affairs of the corporation or any of its affiliates are or have been carried on or conducted, or the powers of the directors are or have been exercised, in a manner that is oppressive or unfairly prejudicial to, or that unfairly disregards, the interests of a security holder;
(c) the corporation or any of its affiliates was formed for a fraudulent or unlawful purpose or is to be dissolved for a fraudulent or unlawful purpose; or
(d) persons concerned with the formation, business or affairs of the corporation or any of its affiliates have in connection therewith acted fraudulently or dishonestly.

Order the Court Thinks Fit 

In connection with an investigation, by s162(1) of the BCA, the court may make any order it thinks fit including, without limiting the generality of the foregoing:

(a) an order to investigate;
(b) an order appointing and fixing the remuneration of an inspector or replacing an inspector;
(c) an order determining the notice to be given to any interested person, or dispensing with notice to any person;
(d) an order authorizing an inspector to enter any premises in which the court is satisfied there might be relevant information, and to examine anything and make copies of any document or record found on the premises;
(e) an order requiring any person to produce documents or records to the inspector;
(f) an order authorizing an inspector to conduct a hearing, administer oaths and examine any person upon oath, and prescribing rules for the conduct of the hearing;
(g) an order requiring any person to attend a hearing conducted by an inspector and to give evidence upon oath;
(h) an order giving directions to an inspector or any interested person on any matter arising in the investigation;
(i) an order requiring an inspector to make an interim or final report to the court;(j) an order determining whether a report of an inspector should be made available for public inspection and ordering that copies be sent to any person the court designates;
(k) an order requiring an inspector to discontinue an investigation; and
(l) an order requiring the corporation to pay the costs of the investigation.

Other Provisions 

Other sections of the BCA address the the Inspector’s Report, Powers of Inspectors, Rights at Hearings, Right to Counsel, Privilege, and other matters

This is a very powerful remedy, and bringing an application for an inspection requires the potential applicant to obtain legal advice and representation.

Why Gilbertson Davis LLP?

We have senior company commercial litigators in our Business Dispute Practice Group, who ask the right questions, provide timely and detailed legal advice, and provide cost efficient representation.  Our lawyers have experience in both courtrooms and arbitration hearings.  Our senior lawyers have experience in cases before the Commercial List, and obtaining urgent equitable remedies such as Mareva  / Freezing Orders and Norwich Order for early disclosure.

We are Easy to Work With. Tough to Oppose.”

Please view our related practice area webpages, including Business Disputes, Oppression Remedy, Removal of Directors, Business Fraud Recovery, and Urgent Remedies.

Contact Us 

You may contact our intake coordinator, to make arrangements for an initial consultation, by telephone 416 979 2020 ext 233, by email on info@gilbertsondavis.com or by using the Request Consultation Box on this webpage.


Brief informational summaries about insurance litigation, commercial litigation and family law litigation matters in the courts of Ontario and Canada are periodically published on our website. Please note that our website content is for informational purposes only, and should not be construed or relied upon to provide legal advice. If you require legal advice, please request an initial consultation with Gilbertson Davis LLP using the Request Consultation Form on this webpage or by contacting our Intake Coordinator on (416) 979-2020, ext. 223 (both subject to the Terms of Use described on our Contact page).

About the Author
David Alderson, LL.B, LL.M (Commercial and Corporate), Q.Arb, Lawyer and Arbitrator

David Alderson, LL.B, LL.M (Commercial and Corporate), Q.Arb, Lawyer and Arbitrator

David Alderson, LL.B, LL.M (Commercial and Corporate), Q.Arb, Lawyer and Arbitrator David has practiced over 35 years as a commercial and business litigator in diverse matters in the courts and in domestic and international arbitration proceedings in Ontario, England & Wales, Bermuda and Dubai. Also admitted in New York. The ADR Institute of Canada has accredited David as a Qualified Arbitrator (Q.Arb). He accepts appointment as a commercial, business, condo and marine arbitrator. Bio | Lawyer | Arbitrator | Contact

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