Remedying Unfairness For Corporate Stakeholders: Understanding The Oppression Remedy

The oppression remedy is one of the most helpful legal tools available for the protection of the rights of stakeholders in Canadian corporations. The oppression remedy is entrenched in both the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 (“OBCA”) and the Canada Business Corporations Act, R.S.C., 1985, c. C-44 (“CBCA”), applying to both provincially and federally incorporated businesses, and is designed to protect stakeholders from oppressive or prejudicial conduct by those in control of the corporation.

Understanding what protections are offered under this statutory remedy, as well as how it can be applied by the courts, can assist in navigating disputes and managing future risk.

What is the Oppression Remedy?

Section 248 of the ONCA and section 241 of the CBCA set out a complainant’s right to apply to the court to seek an oppression remedy, as a result of actions or omissions of a corporation or its directors which result in oppression or unfair prejudice against the complainant and/or which unfairly disregards the complainant’s interests.

Who can use the Oppression Remedy?

This statutory remedy is available to a range of corporate stakeholders, including:

1. Former or current shareholders;
2. Former or current directors and/or officers;
3. Creditors; and
4. Any other “proper person” with an interest in the corporation.

How is the Oppression Remedy applied?

In BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, the Supreme Court of Canada held that complainants need to satisfy two keys elements in order to be successful in an oppression claim:

1. The complainant must have had reasonable expectation as to how the corporation would be run and/or how they would be treated; and
2. The complainant must show that the corporation’s (or director’s) conduct violated the above-noted reasonable expectation in a manner that resulted in oppression, unfair prejudice or which unfairly disregarded their interests.

For example, some circumstances which may constitute oppression pursuant to section 248 of the OBCA and/or section 241 of the CBCA may include:

1. Excluding a minority shareholder from decision-making or management of the corporation;
2. Failure to deliver or allow access to information to which the stakeholder is entitled;
3. Dilution of shares without reasonable justification and/or notice;
4. Misuse or mismanagement of corporate funds or assets; and
5. Conflicts of interest by directors.

While the oppression remedy is available to all applicable complainants, oppression claims most often stem from circumstances involving closely-held corporations, such as in family-run businesses or in private corporations with limited shareholders where those shareholders are involved in the management and day-to-day operations of the business. These circumstances can give rise to a misuse of power by majority shareholders and/or directors of the corporation, often detrimentally excluding other stakeholders from proper disclosure and key decision-making, resulting in claims of oppression.

What remedies are available under the Oppression Remedy?

The legislation provides the authority for a complainant to seek from a range of equitable remedies, giving the courts broad discretion to order a remedy which is able to sufficiently and practically rectify the aggrieved oppressive conduct. Examples of some of these remedies include, but are not limited to:

1. Ordering for the corporation to purchase the complainant’s shares at fair market value;
2. Ordering an amendment of the bylaws of the corporation;
3. Setting aside an oppressive transaction or contract;
4. Appointing or removing directors;
5. Requiring the corporation to produce financial statements;
6. Ordering an accounting;
7. Ordering monetary compensation to the complainant for a loss; and
8. In extreme cases, ordering the windup of the corporation.

Key Takeaways

In determining whether to award a remedy under an oppression claim, the court must closely examine the unique facts, circumstances, conduct, and relationships between the applicable parties in each case and thus, detailed evidence is often required. Given the fact-specific nature of this type of claim, the outcomes can vary significantly from case to case. While this can result in some unpredictability for litigants, the fact-specific nature of each claim and the broad discretion given the court regarding the range of available remedies provide the opportunity for more tailored, practical solutions.

If you have specific questions or need more information on the oppression remedy and other corporate claims, please do not hesitate to contact our litigation team at Keyser Mason Ball, LLP.