A risk of getting into business is doing so with the wrong people. When it comes to public corporations, shareholders are often at the mercy of the majority shareholder(s). When the majority shareholder is a corporation that begins to act in a manner that is oppressive or otherwise irresponsible, courts may need to intervene.
In 2321492 Ontario Inc. v. Taetlbum, both the plaintiffs and the defendant were seeking relief for conduct by the other party which they claimed to be oppressive. The main issue at the hearing was whether the conduct of each of the parties warranted entitlement to relief.
The defendant was terminated by the majority shareholders of three corporations
In the case at hand, both plaintiffs, who resided outside of Canada, each owned 40% of the shares of an Ontario corporation, NAWC2000 Inc., which operates as the Canadian Centre for Addictions, treating mental health and substance abuse.
The defendant, who served as the Director of Operations of the Canadian Centre for Addictions from April 2015 to January 2022, owned 20% of the shares in the company. The defendant was terminated by two of the plaintiff shareholders of NAWC2000 Inc., in January 2022. NAWC2000 Inc., is related to numbered company 2321492 Ontario Inc., which owned land in Port Hope, and another numbered company, 2759655 Ontario Ltd., which was used to hold title to property in Coburg. Both properties were used for, or were to be used for, treatment facilities.
The defendant owned 20% of 2321492 Ontario Inc., and 100% of the shares of the latter. However, all parties agreed that 80% of the shares relating to numbered company 2759655 Ontario Ltd., was being held for the plaintiffs.
In this matter, the first issue to be determined was whether each individual party could be a complainant within the Ontario Business Corporations Act (the “Act”). Under the Act, a complainant “includes a registered holder and beneficial holder of a security as well as director or officer or former director or officer of a corporation.” The plaintiffs were shareholders of NAWC2000 Inc., and 2321492 Ontario Inc., as well as beneficial owners of 2759655 Ontario Ltd. The defendant was the shareholder of NAWC2000 Inc., 2321492 Ontario Inc., and 2759655 Ontario Ltd. Therefore, all were valid complainants under the Act.
Next, the Court had to decide whether the meeting terminating the defendant in January 2022 was properly held. In particular, the Court examined whether the defendant had received proper notice of the meetings held for NAWC2000 Inc., and 2321492 Ontario Inc. Notice here is essential as shareholders meetings are a shareholder’s opportunity to be heard in relation to the corporation.
The defendant had only perceived that the meeting was not properly being held and chose not to attend. He had even logged into the Zoom meeting early but chose to leave. Therefore, the Court found that the meeting was properly held.
At the NAWC2000 Inc., shareholders’ meeting, the defendant was removed as Director of Operations, which resulted in the election of two new members to the Board of Directors. The shareholders further authorized the Directors to “enter a new banking resolution and appoint new signatories to the accounts.” Similar things occurred in the meeting for 2321492 Ontario Inc.
The Court was unable to find sufficient evidence that the meeting for 2759655 Ontario Ltd., was properly held, but it was also not able to conclude that it was improperly held.
Shareholders seeking relief must come to court with “clean hands”
When making a finding on whether a remedy should be awarded, the Court is required to consider whether any of the parties have acted unfairly or oppressively in a way which would warrant the Court’s intervention.
Due to the circumstances of his dismissal, the defendant claimed he was the subject of wrongful dismissal and oppressive conduct, as his employment was enmeshed with his role as Officer and Director. In considering the oppression remedy, the Court was tasked with assessing the conduct of all parties involved. In order for a party to be successful in obtaining a remedy, they must come to court with “clean hands”.
The Court found that the defendant had not come to the court with clean hands. Instead, the Court determined that the defendant had “conducted the business and affairs of the Corporate Plaintiffs and exercised his powers as director of the Corporate Plaintiffs in a manner that is oppressive, unfairly prejudicial or which unfairly disregards the interests of the Individual Plaintiffs as shareholders, creditors, directors, or officers of the Corporate Plaintiffs.”
The Court outlined several of the allegations which were made against the defendant when considering conduct in the “clean hands” analysis. It was clear to the Court that the defendant had operated entirely in his own interest. This was determined based on the defendant transferring funds between accounts which resulted in a default of the corporation’s financial loan, and withholding funds and shares of NAWC2000 Inc., to the detriment of both the corporation and the plaintiffs.
As a result, the Court ordered that the beneficial shares of 2759655 Ontario Ltd., were to be transferred to NAWC2000 Inc.
Plaintiff’s motion for relief was successful
Ultimately, the Court held that the defendant should not expect payment of his dividends from NAWC2000 Inc., after transferring over $702,000 out of its account to 2759655 Ontario Ltd. The plaintiffs opted to credit his dividends against these transferred funds.
The Court found it reasonable for the defendant to be provided with information about the corporations for which he is still a shareholder, therefore it was ordered that he have access to a read-only version of the bank accounts and financial statements.
The Plaintiff’s motion for relief was granted.
Contact Bader Law in Mississauga for Advice on Shareholder Disputes
The business law team at Bader Law provides comprehensive business organization advice to our clients including share purchase options, buy-sell arrangements, corporate reorganization and restructuring, and shareholder disputes. We work with our clients to help them determine the legal structure best suited for them in order to reduce liability and maximize income. To speak with a lawyer about your business needs, contact us online or call us at 289-652-9092.