Can a shareholder dispute be resolved with a buyout remedy?

A court can order a buyout when a shareholder dispute becomes an oppression claim, but a buyout is one remedy among many, not a right any shareholder can demand. The federal and Ontario corporate statutes give a court a wide list of orders, and which one it makes depends on what it finds.

What opens the door to the remedy

Both the Canada Business Corporations Act and Ontario’s Business Corporations Act let a complainant apply to a court. The court must be satisfied that an act or omission of the corporation, the way its business or affairs are carried on, or the way its directors’ powers are exercised is oppressive or unfairly prejudicial to, or unfairly disregards the interests of, a security holder, creditor, director or officer. The court may then make an order to rectify the matters complained of.

Where the buyout sits among the orders

In both Acts the list of possible orders includes one directing the corporation, or any other person, to purchase the securities of a security holder. The list also includes appointing a receiver or receiver-manager, varying or setting aside a transaction, and liquidating and dissolving the corporation (federal Act) or winding it up (Ontario Act). The court may make any interim or final order it thinks fit, so the list does not limit it.

Who can ask, and what can limit a buyout

A complainant includes a registered holder or beneficial owner of a security, and a former one. When the corporation itself is ordered to pay, both Acts bar the payment if there are reasonable grounds to believe it is, or after the payment would be, unable to pay its liabilities as they become due, or that the realizable value of its assets would then be less than its liabilities. A buyout order can therefore be shaped by what the corporation can lawfully pay.

Other routes out of a dispute

A court order is not the only path. Owners can set buyout terms in advance in a shareholder buy-sell agreement, and Corporations Canada’s guide to dissolving a federal corporation describes shareholders authorizing a voluntary dissolution by special resolution. This page covers only the federal and Ontario Acts; check the statute your corporation was formed under. Paying for a buyout is a separate problem; see your options for financing a partner buyout.