• Oppression Remedy for Third Party Security Holders and Creditors
  • August 13, 2013 | Author: Owen Bourns
  • Law Firm: Perley-Robertson, Hill & McDougall LLP/s.r.l. - Ottawa Office
  • The oppression remedy is a statutory remedy found at s.248 of the Ontario Business Corporations Act (“OBCA”) and s.241 of the Canadian Business Corporations Act (“CBCA”).  The sections are for the most part identical and, for simplicity, this article will only refer to the OBCA, however, the comments apply equally to the CBCA.

    The purpose of the oppression remedy is to defend against wrongs done to a potential “complainant” by a corporation’s shareholders (typically majority shareholders), directors and/or officers.  The wrongs to be punished are as set out in s.248(2) and broadly are those that are found to have been “oppressive or unfairly prejudicial to or that disregard the interests of” the complainant.

    Perhaps the most appealing reason to bring an oppression claim is the broad discretion that is given to the court under s.248(3) of the OBCA in terms of the potential remedies it may order.  In particular, the OBCA specifically states that the court “may make any interim or final order it thinks fit” including, but not limited to, an order: (i) amending the corporation’s articles, by-laws or shareholder agreement, (ii) compensating an aggrieved person, and (iii) an order winding up the corporation.

    The most traditional complainants are minority shareholders, however, s.245 of the OBCA permits that claims may be brought by:

    (a) a registered holder or beneficial owner, and a former registered holder or beneficial owner, of a security of a corporation or any of its affiliates,

    (b) a director or an officer or a former director or officer of a corporation or of any of its affiliates,

    (c) any other person who, in the discretion of the court, is a proper person to make an application under this Part.

    Section 245 must be read alongside s.248(2) which identifies the individuals the court will protect, namely any “security holder, creditor, director or officer of the corporation”.

    Security holders (as shareholder), directors and officers of a corporation are all actors within a corporation seeking relief for actions taken by other shareholders, directors or officers of that corporation or an affiliated corporation.  However, the categories of “security holder” (as non-shareholder) and “creditor” are developing and expanding to include certain third parties.

    In Caurina Ltd. Partnership v. Rio Algom Ltd. Spence J. of the Ontario Superior Court held at paragraph 96 that “a security of a corporation includes a debt obligation of the corporation”.

    In Levy-Russell Ltd. v. Shieldings Inc. the court dealt with the question of “under what circumstances can an involuntary creditor utilize the oppression remedy?”. The complainants in this action claimed to be creditors capable of bringing an oppression claim by virtue of a judgment against the corporation and its directors.  The court agreed for three primary reasons:  (1) the creditors satisfied the criterion of having a legitimate interest in the affairs of the debtor; (2) they were in a position analogous to that of a minority shareholder; and (3) they had reasonable expectations that the debtor’s affairs would be conducted in a manner that would protect their interests.

    Even further the courts have, in some instances, held that contingent creditors with a liquidated claim for damages may seek an oppression remedy where a company is being stripped of its assets that would render any future judgment hollow.  (See Tavares v. Deskin Inc. and the trial decision in Levy-Russell Ltd. v. Shieldings Inc.)

    In Tas-Mari Inc. v. DiBattista Gambin Develpments Ltd. a developer required that the builder put up significant security deposits from which the developer would receive payment for work completed.  The builder was to replenish the security deposits on an ongoing basis but failed to do so.  The developer had in fact paid out all of the profits, leaving nothing for the developer plaintiff who was left with various unpaid invoices.  By doing so, contrary to the reasonable and contractual expectations of the developer, the builder had unfairly disregarded the developer’s interests as a creditor.  The directors of the builder were also held personally liable in the circumstances.

    The courts have, however, elaborated on a threshold for creditors. In particular, they have expressed a concern that simple debt actions not be routinely turned into oppression actions.

    In Royal Trust Corp. of Canada v. Hordo the court held at paragraph 14 that a creditor is not a proper complainant “where the creditor's interest in the affairs of a corporation is too remote or where the complainants of a creditor have nothing to do with the circumstances giving rise to the debt or if the creditor is not proceeding in good faith”.  The court further held that complainant status should be withheld where the creditor has no particular legitimate interest in the manner in which the affairs of the company are managed.

    Finally, in 2003 the Court of Appeal held in Piller Sausages that the general rule is that the applicant must establish that it was a creditor at the time of the oppressive actions and not as a result of the oppressive actions.  In Apotex Inc., where it was held that the plaintiff was not a proper complainant, Belobaba J. stated at paragraph 42 that:

    If the oppressive conduct alone was enough to create the status of a creditor-complainant for the purposes of the oppression remedy, then the oppression remedy could be used by any plaintiff in any case where a corporation has caused damage through an otherwise conventional breach of contract or through tortious conduct.  This is obviously not the object or purpose of the oppression remedy.  Nor is it the law in Ontario

    Therefore, where a creditor is owed a sum of money by a corporation and that corporation takes steps that are oppressive or unfairly prejudicial towards that creditor, then the creditor will be a proper complainant to bring an oppression action under the OBCA.  However, an oppressive or unfairly prejudicial act that causes a debt will not be create a debtor/creditor relationship sufficient to support an oppression action under the OBCA or CBCA.