Corporate / Commercial Law
Shareholders’ remedies – Derivative Actions, Shareholder Oppression
There are a number of ways shareholders can enforce their rights and interests. The two most common methods are derivative actions and actions for oppression.
A shareholder may be injured indirectly if a wrong is done to the corporation, and the Ontario Business Corporations Act (OBCA) (for Ontario Incorporated Corporation) and the Canadian Business Corporations Act (CBCA) (for Federal Incorporated Corporation) provides shareholders with a statutory right to bring a derivative action.
With leave of the court, a derivative action may be brought by a “complainant,” in the discretion of the court where four conditions are satisfied:
The shareholder gives 14 days’ notice to the directors of the corporation of their intention;
The directors of the corporation will not bring, diligently prosecute, defend, or discontinue the action that necessitates the derivative action;
The shareholder is acting in good faith;
The proposed action appears to be in the best interest of the corporation.
Please note that unlike “Oppression”, the “complainant” is suing the directors or other corporate officials on behalf of the corporation against injuries suffered by the corporate due to the alleged wrongdoing of the defendants involved, and as such no equitable relief or monetary reward would be granted to the “complainant”.
Oppression, on the other hand, give a “complainant” the right to apply to a court for relief if any act or omission by a corporation or any affiliate or by the directors is oppressive or unfairly prejudicial to or unfairly disregards the interests of the “complainant”.
The range of remedy that can be awarded by the oppression remedy is very broad, and the Courts have discretions in granting a wide range of reliefs. For instance, if the oppression remedy is sought to grant relief to minority shareholders where directors or shareholders carry out acts that are unfair to them, the Courts have the power to force the directors and majority shareholders to act with a degree of fairness towards the minority similar to that of a fiduciary.
To claim oppression, a “complainant” must plead that:
He or she suffered personal harm distinct from that suffered by the corporation; and that
The focus of the grievance is on the effects of the impugned conduct on the complainant, not on the corporation.
While the derivative action and the oppression remedy are not mutually exclusive, they are distinct, and there are cases where shareholders or other interested parties are entitled to plead in the alternative when the corporation suffers injuries while at the same time the shareholder suffers direct personal harm from the alleged wrongdoing of the defendants.
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