Derivative action

The action is brought in the corporation’s name and on its behalf, not in the complainant’s own name. A buyer can meet the term when a target’s shareholders are in dispute, or when a claim against a director or insider may exist. A different route is the oppression remedy.

What the two Acts require

• Under CBCA s. 239(2), no action may be brought and no intervention made unless the court is satisfied about notice to the directors (if they do not bring, diligently prosecute or defend or discontinue the action), the complainant’s good faith and the interests of the corporation or its subsidiary
• The CBCA notice is not less than fourteen days before the application, or as the court otherwise orders
• Under OBCA s. 246, the notice is fourteen days, none is required if all the directors are defendants (s. 246(2.1)), and the court may make an interim order where notice is not expedient (s. 246(3))
• The Acts define who is a complainant: CBCA s. 238 and OBCA s. 245

What to ask in a deal

Ask whether any notice of an intended application, or any derivative action, has been given or started, and who the complainant is. Check which statute governs the corporation. This entry covers the federal Act and Ontario’s Act only. See also using a buyout remedy in a shareholder dispute.