Shareholder Remedies
Under the Ontario Business Corporations Act (“OBCA”), shareholders of a corporation have a variety of rights. Outlined below are a few rights that all shareholders should be aware they possess.
Voting Rights
The board of directors, under s. 115 are ultimately responsible for managing or supervising the management of the business and affairs of a corporation. Major business decisions also involve the participation of the board of directors, though sales, leases, or exchanges of all or substantially all the property of the corporation that is not in the ordinary course of business requires the approval of shareholders (s. 184(3)). Shareholders also have voting rights that allow them to control the makeup of the board of directors (s. 119(4)), and also the ability to remove directors under s. 122(1) (though this is subject to exceptions under s. 120(f)). Shareholders have additional voting rights under s. 100(2).
Access to Information Rights
Under s. 140(1) corporations have the duty to maintain certain records, and s. 145(1) states that shareholders have the right to examine any of the records listed in s. 140(1) during business hours and take extracts of those records free of charge. Shareholders are also entitled to have notice of shareholders’ meetings (s. 96(1)).
Rights with Respect to Meetings
Under s. 94(1), an “annual meeting of shareholders not later than eighteen months after the corporation comes into existence and subsequently not later than fifteen months after holding the last preceding annual meeting” shall be called by the directors, and the directors can also call a special meeting at any time. Shareholders with “not less than 5 per cent of the issued shares” can “requisition the directors to call a meeting of shareholders” (s. 105(1)).
In the Event of Liquidation and Dissolution
By special resolution, the shareholders can require the corporation to be wound up voluntarily (s. 193(1)). Shareholders can also, through ordinary resolution passed at a meeting, remove an appointed liquidator and appoint a replacement (s. 196).
Oppression Remedy
It is first important to note that as per the Ontario Court of Appeal decision Maurice v. Alles, the standard two-year limitation period set out in the Limitations Act applies to oppression remedy claims. The “clock starts to run” when the oppressive conduct first began, meaning that individuals must not delay if they wish to pursue an oppression remedy.
The oppression remedy under s. 248 of the OBCA is broad in nature, and there is a large amount of judicial discretion afforded in its application. The oppression remedy can be an especially strong tool in protecting minority shareholders. When the Court determines that there has been oppressive conduct, unfairly prejudicial conduct, or conduct that disregards the interests of any shareholder it may make an order to resolve the matter in a variety of ways.
Examples under s. 248 include: restraining the conduct, appointing a receiver, amending the articles or by-laws, amending a unanimous shareholder agreement, directing an issue or exchange of securities, new director appointments, directing a corporation to purchase securities of a security holder, setting aside a transaction or contract, compensation, rectification of the registers, winding up the corporation, directing an investigation, or requiring a trial.
It is important to note that the oppression remedy only protects shareholders’ legitimate and reasonable expectations.
Derivative Action
Under s. 246, a shareholder may commence an action on behalf of the corporation when the corporation refuses to do so. The claim must be framed as being aimed towards remedying wrongs committed against the corporation, and not against the individual shareholder.
Other Remedies
Section 106(1) states that if calling a meeting of shareholders is “impracticable”, the Court may order a meeting to be called, held and conducted in such a manner as the Court directs. Beyond Court ordered meetings, there are instances where shareholders are entitled to be paid by the corporation the fair value of their held shares as per s. 185(4). Moreover, as stated in s. 207, in some circumstances the Court may order a winding-up of the corporation. Also, in the case of public companies, securities law remedies may also be available.
When Shareholders Need an Auditor or Inspector
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 OBCA the corporation is required to prepare and maintain “adequate accounting records”. Though s 145 of the OBCA provides a shareholder with access to inspect corporate records, it does not extend to accounting records. By s148 of the OBCA 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 OBCA, 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 OBCA, 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 OBCA 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 OBCA 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
If you require legal advice regarding these practice areas, please contact Gilbertson Davis LLP for an initial consultation.
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.
*the author of this blog acknowledges that portions of this blog are based on earlier blog posts of this author, and of Janice Perri, a former summer student at Gilbertson Davis LLP
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