How the Oppression Remedy can help shareholders

By Daniel Henderson

The oppression remedy, encoded in section 241 of the Canada Business Corporations Act (R.S.C., 1985, c. C-44), and in section 227 of the Business Corporations Act (S.B.C. 2002, c. 57), represents the most comprehensive and open-ended shareholder remedy available in Canada.

The origins of the oppression remedy

The oppression remedy was originally conceived to account for situations in which majority shareholders or directors of a corporation took advantage of that corporation’s minority shareholders; for example, where the directors award themselves excessive salaries which diminish company funds such that dividends cannot be paid out to shareholders. Another example exists in a situation where directors issue shares to themselves or others on special or advantageous terms, and to the exclusion of other shareholders. This creates an inequality of opportunity amongst the shareholders, and may even undermine the value of other shares.

Who can make use of it?

Courts have embraced the broad discretion permitted by the legislation to grant remedies to those who have been wronged by unfair corporate conduct. Indeed, while most oppression actions have been brought by minority shareholders, both provincial and federal legislation open the door for persons other than shareholders to seek remedies for corporate misconduct. Non-shareholder stakeholders, such as corporate creditors, may be able to hold corporations and their directors liable for having unfairly neglecting their legitimate interests. That said, courts have generally been reluctant to permit corporate creditors to bring oppression actions – sometimes stating that an oppression action is an inappropriate approach given that creditors have other legal remedies.

The key legal principles

The legal analysis requires the court to determine the liability of a corporation by assessing the following questions:

  1. Did the plaintiff have a reasonable expectation that the company would look after their interests?
  2. Did the company unfairly disregard that reasonable expectation?

Determining whether the expectations of a shareholder were reasonable must be done on a case-by-case basis, which takes into account the history between the shareholder and the corporation as well as the deference courts give to companies to make decisions which advance their business or maximize profits.

If you are a shareholder or other stakeholder in a company who finds the company treating them unfairly, consider consulting with a lawyer from Henderson and Lee Law Corporation. We can help you to understand the way a court may view your relationship with the company, and whether you may be entitled to compensation as a result of the company’s oppressive actions.