A corporation or company is a legal entity. That means it has the same rights and abilities as person. Problems arise in that corporations involve the interests of many individuals, whether they be its shareholders, directors, officers or creditors. Decisions made through a Board of Directors may result in actions being determined by the majority to the harm and detriment of one or more of the other stakeholders.
The normal consequence of majority rule is that the minority may be left without a remedy. It is for that reason that both the Federal and Provincial legislatures created the “oppression remedy”. This is a statutory tool which is both powerful and comprehensive and does provide a means for the righting of corporate wrongs despite the lack of majority. The remedies available are very flexible and far more dynamic and varied than the usual legal remedies.
The relief is not, however, limitless. There are important limits imposed by the courts. The aggrieved party must have had a “reasonable expectation” that was ignored. Further, it is not all prejudicial or disregarding conduct that invites sanction. It is only that which is objectively unexpected and unduly fair. The aggrieved stakeholder must first establish that they have standing as a proper complainant within the legislation. Secondly, the conduct complained of must be oppressive, unfairly prejudicial, or unfairly disregard the interest of the stakeholder. The proof requires evidence, for the detailed the evidence, the more likely the case will be established. Once that is done, the court may make any interim and final order it thinks fit. The legislation provides a lengthy and non-exhaustive list of possible remedies.
Normally all three heads of conduct are alleged. Any are sufficient to establish the remedy. There is, however, no definition of the nature of the conduct that will give rise to the remedy. That is left to the facts and the court’s decision. The courts do that by looking for badges of oppressive conduct which can include a lack of a valid corporate purpose for the transaction, a failure on the part of the corporation and its controlling shareholders to take reasonable steps to stimulate an arm’s length transaction, the lack of good faith on the part of the directors of the corporation, a discrimination between shareholders with the effect of benefiting the majority shareholder to the exclusion or detriment of the minority shareholder, a lack of adequate and appropriate disclosure of material information to the minority shareholder and finally, a plan or design to eliminate the minority shareholder.
An important consideration is the reasonable expectations of the complainant. It is those expectations that are protected by the legislation. They must be objectively reasonable in the circumstances. They must be expectations which could be said to have been (or ought to have been considered as) part of the compact (their agreement) of the shareholders. These determinations are highly fact specific.
The Oppression Remedy provisions are a necessary safeguard of the rights of the minority stakeholders in a company. The remedies are powerful and capable of rectifying almost all such wrongs. The approach though is evidence based and the complaining stakeholder must establish a solid prima facie case. Once done, there are interim (pre-decision) remedies available for funding and direction to ensure a quick and efficient process to the final determination.