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Shareholder Remedies

Shareholders in a corporation have a variety of remedies available under the Ontario Business Corporations Act and the Canada Business Corporations Act. Whether the Ontario or Canada Act will apply depends on the jurisdiction in which the corporation was incorporated.

Application for a Compliance Order

Section 253 of the Ontario BCA and Section 247 of the CBCA provide that a complainant may apply to the court for an order that the corporation comply with the Act (Ontario CBA or CBCA, depending on where the corporation was incorporated), the regulations, articles, by-laws or a unanimous shareholder agreement.  On an application for a compliance order, the court may so order and make any further order it thinks fit.  This remedy is available in addition to any other rights held by the shareholder.

Inspectors and Investigators

Section 161 of the Ontario BCA and Section 229 of the CBCA provide that a shareholder can apply to the court to order an investigation “to bring to light facts which otherwise might be inaccessible to shareholders and other security holders.”  The court may make any order it sees fit, including:

• An order to investigate
• An order appointing or replacing an inspector
• 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
• An order requiring any person to produce documents or records to the inspector
• An order authorizing an inspector to conduct a hearing, administer oaths and examine any person under oath, and prescribing rules for the conduct of the hearing
• An order requiring any person to attend a hearing conducted by an inspector and to give evidence under oath
• An order requiring the corporation to pay costs of the investigation

Financial Disclosure | Shareholders Rights to Financial Information

Both the Ontario BCA and the CBCA provide that shareholders are entitled to at least an annual accounting of the business and affairs of the corporation. The financial statements provided to the shareholder must be properly audited. If a corporation does not have an auditor, the Act provides that the court, upon the application of a shareholder or director, may appoint an auditor for the corporation.  Further, the Act disqualifies an auditor if he or she is not independent of the corporation, its affiliates and the directors or officers of the corporation. A shareholder may apply to the court to disqualify an auditor that does not meet the requirements of the Act. Though generally a shareholder does not have access to financial information other than the financial statements, in some circumstances, a shareholder may apply to the court to seek disclosure of financial information and documentation beyond audited financial statements.

Appointment of Auditor

Section 149(8) of the Ontario Business Corporates Actprovides that if a corporation does not have an auditor,a shareholder or Director may apply to the court to appoint and fix the remuneration of an auditor to hold office until an auditor is appointed by the corporation’s shareholders.  Section 167(2) of the Canada Business Corporations Actprovides the same right for federally incorporatedcorporations.

These sections can be effective solutions for a shareholder that suspects that the operation and finances of the corporation differ from the information provided to the shareholder. As auditor of a corporation, the auditor is entitled to receive notice of every meeting of shareholders and, at the expense of the corporation, to attend and be heard thereat on matters relating to the auditor’s duties. Further, upon demand of the auditor of a corporation, the directors of the corporation are required to provide to the auditor all information and explanations, reasonably obtainable, that the auditor deems necessary to make an examination and report.

Derivative Action

Section 246 of the Ontario BCA and Section 239 of the CBCA allow a shareholder, with leave of the court, to bring a derivative action. Unlike the oppression remedy, which is a personal action of the shareholder, a derivative action is brought on behalf of the corporation. Accordingly, a remedy awarded for a derivative action typically belongs to the corporation and not individual shareholders.  The relationship the shareholders have to the action and remedy is only derivative through the corporation.

Examples of Derivative Action

Leave to the court to commence a derivative action might be appropriate where all shareholders are harmed through injury to the corporation. Instances where a derivative action may be appropriate include:

• Loss of share value as a result of a wrong to the corporation
• Directors or officers misappropriating corporate assets
• Breach of fiduciary duty owed to the corporation
• Breach of a contractual obligation owed to the corporation
• Misconduct of directors of officer causing harm to the corporation
• Fraud or theft committed against the corporation
• A departing officer, director or employee takes corporate date or clients

If a court grants leave for a shareholder to bring a derivative action, the court may at any time make any order it sees fit.

Choose Gilbertson Davis LLP

Gilbertson Davis LLP has lawyers with experience in a wide variety of businesses and industries which allows us to have a quick understanding of your business and the dispute at hand.

We can provide early and results-oriented strategic advice and representation.

Gilbertson Davis LLP has lawyers who have knowledge and experience in the management of business disputes including the urgent equitable remedies available through the courts. Some of our lawyers have considerable experience in the court procedures and process, including that of the Commercial List, a part of the Ontario Superior Court of Justice which is dedicated to the resolution of eligible Toronto-based business litigation.

Please contact us for an initial consultation to discuss your shareholders dispute or shareholders litigation.