Oppression Remedy - M. Hamel-Smith & Co.
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Oppression Remedy

How significant is the “oppression remedy”?

Some of the most radical changes introduced by the Companies Act concern the enhanced protection of minority interests. Perhaps none is more significant than the new “oppression remedy” which fundamentally affects minority rights and the way in which companies must be governed. The local courts have demonstrated a willingness to construe the oppression remedy provisions quite liberally and therefore it is expected that it may open up an avenue for aggrieved shareholders and others to seek remedies where they perceive they have been oppressed.

To what type of conduct does this remedy apply?

The Court is empowered to grant such a remedy in relation to conduct of a company (or any of its affiliates) which is oppressive, or unfairly prejudicial to, or unfairly disregards the interest of, any shareholder, debenture holder, creditor, director or officer of the company. In Canada, this has been interpreted by Courts and commentators as imposing a general standard of “fair” conduct on each company and its management.

How does on satisfy the Court as to “fairness”?

Unfortunately, there is no clear answer to the question of how one may satisfy a Court as to the “fairness” of one’s conduct. The very concept of corporate “fairness” means that the result will depend greatly on the facts of the particular case. However, it is clear that directors and officers must now be continuously sensitive to the effects of transactions upon the various stakeholders, including minorities. In considering and planning for any transaction that potentially impacts on such interests, they should:

  • Consciously consider the fairness of the proposed transaction to each group of stakeholders;
  • Identify any steps that can be taken to demonstrate the fairness of the proposed transaction; and
  • Ensure that all such steps are properly documented so that there will be little difficulty in proving what was done in the event that an application is subsequently made to the Court.

Who may complain of oppression?

Although most of the reported decisions in Canada involving the “oppression remedy” were initiated by minority shareholders, the range of persons who may apply to the Court is very broad and includes:

  • Shareholders or former shareholders;
  • Debenture holders or former debenture holders;
  • Directors or former directors;
  • Officers or former officers;
  • The Registrar; and
  • Any other person who in the discretion of the Court is a proper person to make an application for such remedy.

The Canadian Courts have adopted a generous interpretation of this section and, in certain circumstances, a creditor of the Company has been considered a proper person to make an application for this remedy.

What remedies may be granted?

Once the Court is satisfied that a complainant has been “oppressed” or “unfairly prejudiced” it is given a broad discretion to make any interim or final order it thinks fit. Some examples are orders that:

  • Restrain the conduct complained of;
  • Appoint a receiver;
  • Regulate a Company’s affairs by amending its Articles or Bye Laws or creating or amending a unanimous shareholders’ agreement;
  • Appoint directors in place of, or in addition to, all or any of the existing directors;
  • Compensate an aggrieved person; or
  • Wind-up and dissolve a company.

One of the more innovative changes introduced by the Companies Act is the power given to the Court to order a company to pay to the complainant interim costs, including legal fees. In this manner, a genuine complainant can afford to pursue his claim without having to fund the cost of such action out of his own pocket. However, he may be held accountable for these interim costs upon final disposition of the matter.