Oppression Remedy For Shareholders
The Oppression Remedy is a powerful for shareholders. To bring an oppression remedy, an applicant must meet a two-part test. First, the applicant must identify the expectations that he or she claims have been violated and establish that the expectations were reasonably held. Second, the stakeholder must then show that those reasonable expectations were violated by conduct that was “oppressive, unfairly prejudicial to or unfairly disregarded the interests of any security holder.”
The Supreme Court of Canada revisited the oppression remedy in the recent Supreme Court case of Mennillo v Intramodal Inc., 2016 SCC 51. In that case, Mr. Mennillo and Mr. Rosati incorporated a small start up transportation company in 2004. The two businessmen were friends and decided to issue 49% of shares to Mr. Mennillo and 51% of shares to Mr. Rosati. Throughout their time as directors and shareholders, they rarely complied with the formalities and requirements of corporate statutes, and advanced substantial sums of money without written documentation.
Mr. Mennillo handed in his resignation as director and officer in 2005. A few months later, an amending declaration was added that stated Mr. Mennillo was also removed as a shareholder of the company. The removal was not performed in accordance with the terms of the Canada Business Corporations Act. The share transfer occurred between Mr. Mennillo and Mr. Rosati personally; the corporation was not a party to the agreement.
In the years after his resignation was handed in (albeit improperly), Mr. Mennillo advanced over four hundred thousand dollars to the company, met with the other shareholder, and received money from the company. In 2009 he received $40,000 marked “full and final payment.” By this time, Mr. Mennillo now understood that the corporation was taking the position that he was no longer a shareholder. He claimed that he was unduly and wrongful removed as a shareholder and brought an oppression remedy claim.
The issue was whether a corporation’s failure to comply with the strict requirements of the Canada Business Corporations Act in completing a share transfer was oppressive.
Justice Cromwell held that because Mr. Mennillo had the intention to transfer his shares, he could not reasonably have expected to continue to be treated as a shareholder. Mr. Mennillo’s express wishes were to be removed as a shareholder. It would be unjust and inequitable to regain the status of “shareholder” due solely to the corporation’s failure to properly remove him as a shareholder. The Chief Justice also wrote a concurring judgement, stating that Mr. Mennillo failed to establish a reasonable expectation that he would remain a shareholder of the company.
As this case illustrates, a stakeholder will have a difficult time taking advantage of mistakes and non-compliance to gain a benefit with respect to the oppression remedy. Because there was no violation of a reasonable expectation, Mr. Mennillo was not entitled to a right to relief from oppression. This right to relief requires a certain level of conduct from the corporation, conduct that is: oppressive, unfairly prejudicial or unfairly disregards the interest of any security holder.
However, this case does not stand for the proposition that a corporation may avoid consequences for non-compliance with the Canada Business Corporations Act or similar legislation. Conversely, it was due to the company’s mistake in Mennillo v Intramodel Inc., the corporation was dragged into a complex, lengthy and expensive legal battle that led all the way to the Supreme Court of Canada. In order to avoid this costly mistake, shareholders must ensure the corporation properly adheres to the requirements of all applicable corporate statutes.
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