Protecting Minority Shareholders: Oppression Remedy Under the Business Corporations Act (Ontario)
It can be difficult for a minority shareholder (or other qualified stakeholders) to protect their interest against shareholders with a majority ownership. At times, a majority shareholder will direct the company to take actions which are beneficial to the majority shareholder and detrimental to the minority shareholder.
In such instances, the Business Corporations Act (Ontario) (the “BCA”) provide a mechanism to protect a minority shareholder through what is referred to as an “oppression remedy”.
Who Can Seek Relief
In order to obtain oppression relief under pursuant to the BCA, you must first show that you are “complainant” within the meaning of Section 245 of the BCA, which states, in part:
In this Part:
(a) a registered holder or beneficial owner, and a former registered holder or beneficial owner, of a security of a corporation or any of its affiliates,
(b) a director or an officer or a former director or officer of a corporation or of any of its affiliates,
(c) any other person who, in the discretion of the court, is a proper person to make an application under this Part.
As defined in the BCA, “security” means a “share of any class or series of shares or a debt obligation of a body corporate and includes a certificate evidencing such share or debt obligation”.[i]
As defined in the BCA, “beneficial ownership” includes “ownership through a trustee, legal representative, agent or other intermediary”. The definition is not exhaustive. It includes a person claiming the status of a beneficiary of a constructive or resulting trust where the subject of the trust is security in an Ontario Corporation. A claim as a security holding under a constructive or resulting trust is sufficient to establish standing as a complainant.[ii]
What principles are to be applied to determine if the actions of the majority shareholder are “oppressive”, “unfairly prejudicial to”, or “unfairly disregard the interests” of the complainant?
Sections 248(1) and (2) of the BCA state:
(2) Where, upon an application under subsection (1), the court is satisfied that in respect of a corporation or any of its affiliates,
(a) any act or omission of the corporation or any of its affiliates effects or threatens to effect a result;
(b) 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
(c) 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.
In BCE Inc. v. 1976 Debentureholders, the Supreme Court of Canada stated that, in assessing a claim of oppression, a court must answer two questions:
(a) Does the evidence support the reasonable expectations asserted by the claimant; and
(b) Does the evidence establish that the reasonable expectations were violated by conduct falling within the terms “oppression”, “unfair prejudice” or “unfair disregard” of a relevant interest? [iii]
The oppression remedy is an equitable remedy, which grants the court jurisdiction to find an action is oppressive, unfairly prejudicial, or unfairly disregards the interests of a claimant “even if it is not unlawful”.[iv]
The concept of reasonable expectations is objective and contextual. Whether the expectation is reasonable depends on the facts of the specific case, the relationships at issue, and the entire context, including the fact that there may be conflicting claims and expectations.
The Supreme Court of Canada in BCE Inc., provided the following comments with respect to the concepts of oppressive conduct referred to in Section 241 of the Canada Business Corporations Act, which section is essentially the same as that of Section 248 of the BCA: In most cases, proof of a reasonable expectation will be tied up with one or more of the concepts of oppression, unfair prejudice, or unfair disregard of interests set out in s. 241, and the two prongs will in fact merge. Nevertheless, it is worth stating that as in any action in equity, wrongful conduct, causation and compensable injury must be established in a claim for oppression. The concepts of oppression, unfair prejudice and unfairly disregarding relevant interests are adjectival. They indicate the type of wrong or conduct that the oppression remedy of s. 241 of the CBCA is aimed at. However, they do not represent watertight compartments, and often overlap and intermingle. The original wrong recognized in the cases was described simply as oppression, and was generally associated with conduct that has variously been described as “burdensome, harsh and wrongful”, “a visible departure from standards of fair dealing”, and an “abuse of power” going to the probity of how the corporation’s affairs are being conducted: see Koehnen, at p. 81. It is this wrong that gave the remedy its name, which now is generally used to cover all s. 241 claims. However, the term also operates to connote a particular type of injury within the modern rubric of oppression generally — a wrong of the most serious sort. The CBCA has added “unfair prejudice” and “unfair disregard” of interests to the original common law concept, making it clear that wrongs falling short of the harsh and abusive conduct connoted by “oppression” may fall within s. 241. “[U]nfair prejudice” is generally seen as involving conduct less offensive than “oppression”. Examples include squeezing out a minority shareholder, failing to disclose related party transactions, changing corporate structure to drastically alter debt ratios, adopting a “poison pill” to prevent a takeover bid, paying dividends without a formal declaration, preferring some shareholders with management fees and paying directors’ fees higher than the industry norm: see Koehnen, at pp. 82-83. “[U]nfair disregard” is viewed as the least serious of the three injuries, or wrongs, mentioned in s. 241. Examples include favouring a director by failing to properly prosecute claims, improperly reducing a shareholder’s dividend, or failing to deliver property belonging to the claimant: see Koehnen, at pp. 83-84.[v]
What remedies are available to a successful complainant?
The range of remedies available for relief from oppression is extremely broad. The BCA enumerates a long list of remedies and expressly indicates that the list is not exhaustive. The remedies enumerated include:
(a) an order restraining the conduct complained of;
(b) an order appointing a receiver or receiver-manager;
(c) an order to regulate a corporation’s affairs by amending the articles or by-laws or creating or amending a unanimous shareholder agreement;
(d) an order directing an issue or exchange of securities;
(e) an order appointing directors in place of or in addition to all or any of the directors then in office;
(f) an order directing a corporation, subject to subsection (6), or any other person, to purchase securities of a security holder;
(g) an order directing a corporation, subject to subsection (6), or any other person, to pay to a security holder any part of the money paid by the security holder for securities;
(h) an order 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;
(i) an order 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 section 154 or an accounting in such other form as the court may determine;
(j) an order compensating an aggrieved person;
(k) an order directing rectification of the registers or other records of a corporation under section 250;
(l) an order winding up the corporation under section 207;
(m) an order directing an investigation under Part XIII be made; and
(n) an order requiring the trial of any issue.
Section 248(3) provides that the court “may make any interim or final order it thinks fit”. In Wind Ridge, the Court of Appeal made the following comments concerning available remedies: … The wording of s. 234 makes it clear that the court has the power to ignore the technical rules binding the shareholders and to apply some unspecified combination of fair play and legitimate shareholder expectations to resolve the dispute the shareholders are unable to resolve themselves. Typically it involves a situation where the majority has all the strict legalities on its side while the minority have all the equities. The intent of the section is to protect the interests of the minority and to provide it with an appropriate remedy.[vi]
Furthermore, in fashioning a remedy for oppression, the court may make orders against individuals. In particular, where relief is sought against a controlling shareholder(s), director(s) or officer(s) of a closely-held corporation, an individual may be personally liable for his acts, and ordered to act in a certain fashion. Relief may be granted to a complainant against an individual shareholder, director or officer where that individual’s conduct, such as removing assets from the corporation, was unfairly prejudicial to the corporate stakeholders’ interest and directly benefited him.[vii]
[i] Business Corporations Act, R.S.O., 1990, c. B.16, s. 1(1)
[ii] Csak v. Aumon (1990), 69 D.L.R. (4th) 567 (Ont. H.C.J.) at 571-574 [case decided under the substantially similar oppression remedy provisions in the Canada Business Corporations Act]
Maloney v. Maloney (1993), 109 D.L.R. (4th) 161 at 177 (Ont. Ct. (Gen. Div.)) [case decided under the substantially similar oppression remedy provisions in the Canada Business Corporations Act]
[iii] BCE Inc. v. 1976 Debentureholders, 2008 S.C.> 69 (S.C.C.), at para 56.
[iv] BCE Inc. v. 1976 Debentureholders, 2008 S.C.C 69 (S.C.C.), at para 71.
[v] BCE Inc., Re 2008 SCC 69, 2008 CarswellQue 12595, 2008 CarswellQue 12596,  3 S.C.R. 560,  S.C.J. No. 37, 172 A.C.W.S. (3d) 915, 301 D.L.R. (4th) 80, 383 N.R. 119, 52 B.L.R. (4th) 1, 71 C.P.R. (4th) 303, J.E. 2009-43
[vi] Wind Ridge Farms Ltd. v. Quadra Group Investments Ltd. 1999 CarswellSask 592,  12 W.W.R. 203,  S.J. No. 602, 178 D.L.R. (4th) 603, 180 Sask. R. 231, 205 W.A.C. 231, 50 B.L.R. (2d) 1
[vii] See for example: Prime Computer of Canada v. Jeffrey, Tropxe Investments v. Ursu Securities, Canadian Opera v. 670800 Ontario, Sidaplex-Plastic Suppliers, Inc. v. Elta Group Inc. (1995), 131 D.L.R. (4th) 399 (Ont. Ct. (Gen. Div.))