Can a minority shareholder sue if a sale unfairly favours the majority?

A shareholder who thinks a sale was arranged to benefit the majority has statutory options, not only a contract claim. Two remedies matter most: the oppression remedy, which protects the applicant’s own interests, and the derivative action, which is brought for the corporation. Both are available to a “complainant”, a term the statutes define. The examples below come from the federal Canada Business Corporations Act (CBCA) and Ontario’s Business Corporations Act (OBCA).

The oppression application

CBCA s.241(1) allows a complainant to apply to a court for an order. Under s.241(2), if the court is satisfied that an act or omission, the way the business or affairs are conducted, or the way the directors’ powers are exercised is oppressive or unfairly prejudicial to, or unfairly disregards the interests of, any security holder, creditor, director or officer, it may make an order to rectify the matters complained of. Those three descriptions are alternatives. Under s.238, a registered holder or beneficial owner of a security, or a former holder or owner, can be a complainant. OBCA s.248 is the Ontario equivalent.

What a court may order

Under s.241(3), the court may make any interim or final order it thinks fit. The Act lists examples: restraining the conduct, appointing a receiver or receiver-manager, amending the articles or by-laws, replacing directors, directing a purchase of securities, varying or setting aside a transaction, compensating an aggrieved person, and directing an investigation. Under s.241(6), the corporation shall not make a payment ordered under paragraph (3)(f) or (g), which cover purchasing a holder’s securities or repaying what the holder paid for them, if there are reasonable grounds for believing it is or would be unable to pay its liabilities as they become due, or that its assets’ realizable value would be less than its liabilities. Nothing in the section promises any particular outcome.

The derivative action

A derivative action is different. Under CBCA s.239(1), a complainant may apply for leave to bring an action in the name and on behalf of the corporation or a subsidiary. Under CBCA s.239(2), where the directors do not bring the action themselves, the court must be satisfied that the complainant gave them notice not less than fourteen days before applying, or as the court otherwise orders, that the complainant is acting in good faith, and that the action appears to be in the corporation’s interests. Ontario’s version is OBCA s.246, which under s.246(2.1) needs no notice if all the directors are defendants. Because the claim belongs to the corporation, it suits a wrong done to the company rather than to one holder, although CBCA s.240 lets the court order an amount paid directly to former and present security holders instead.

Before filing

Corporations formed in other provinces fall under that province’s statute, not these sections. Collect the sale agreement, the shareholder agreement, the articles and the shareholder meeting materials. The guidance on telling minority holders about a sale covers a related question.