Shareholder oppression

How BC law treats it

Section 227 of the Business Corporations Act, SBC 2002, c 57 (BCBCA) lets a shareholder, which includes a beneficial owner and any other person the court considers appropriate, apply to the BC Supreme Court on the ground that the company's affairs are being conducted, or directors' powers exercised, in a way that is oppressive, or that an act of the company or a resolution is unfairly prejudicial to the applicant. Under s. 227(4) the court must be satisfied the application was brought in a timely manner. Courts apply the two step test in BCE Inc v 1976 Debentureholders, 2008 SCC 69: did the applicant have a reasonable expectation about how the company would be run, and was that expectation violated by conduct that was oppressive or unfairly prejudicial? Expectations are drawn from the shareholders agreement, past practice, the relationship between the parties and representations made. In BC, 'oppressive' conduct has historically required something burdensome, harsh and wrongful, while 'unfairly prejudicial' covers a broader range of unfair treatment. Under s. 227(3) the court can make any interim or final order it considers appropriate, including requiring the company or another shareholder to buy the applicant's shares, regulating the company's affairs, setting aside a transaction, appointing a receiver, changing the articles or awarding compensation. Directors can be held personally liable where they were implicated in the conduct and personal liability is fit in the circumstances (Wilson v Alharayeri, 2017 SCC 39).

What it means for your business

The oppression remedy is the main protection for minority shareholders in closely held BC companies, and the main litigation risk for majority owners and directors. Cutting a co-founder off from information, dividends or management, diluting them, or paying excessive compensation to insiders can all lead to an application. Majority owners should document legitimate business reasons for decisions, and minority owners should act promptly once they see a pattern of unfair treatment. Example: Three founders build a Victoria marketing agency. After a falling out, the two majority shareholders remove the third as director and employee and stop all dividends while raising their own salaries. The court finds oppression and orders them to buy her shares at fair value.

Risks and common mistakes

Waiting years before applying, giving the respondents a delay argument. Assuming the remedy is only for minority shareholders, when any shareholder, including an equal partner, may apply. Majority owners treating a closely held company as their own and ignoring the legitimate expectations of the minority. Bringing an oppression application for what is really a wrong to the company, which may require a derivative action instead. Directors assuming the corporate structure always shields them from personal liability for oppressive conduct.