Canada: Executors And Corporate Remedies

Last Updated: December 21 2012
Article by Seva Batkin

Not uncommonly, Executors (or Administrators) find themselves in the position of a minority shareholder of a private company. For example, the deceased may have had a minority stake in a family business, was a "silent" business partner in a venture – having contributed start-up capital, or was one of several business partners, each with a minority stake. Often, the Executor knows little about the affairs of the company and does not have a personal relationship with the majority shareholder(s) and/or directors in control of the company. Although the Executor may need to liquidate the shares to distribute the Estate, they may be faced with a lack of co-operation from other shareholders or directors. For example, the company may not be producing financial statements, providing access to corporate records or holding annual general meetings (AGMs).

In these situations, the Executor needs to be aware of the rights and remedies available under the British Columbia Business Corporations Act ("BCA").

First, the Executor needs to be aware of the entitlement of the deceased as a minority shareholder. There are three sources for shareholder rights:

  1. Minimum rights are set out in the BCA itself. For example:
    • sections 42 and 46 list various records that a shareholder is entitled to access, including lists of shareholders, directors, and previous resolutions passed by shareholders;
    • section 182 requires the company to hold AGMs;
    • section 198 requires the company, unless this requirement was waived by all shareholders, to produce annual financial statements; and
    • section 199 requires financial statements to be approved and signed by a director, and to include an auditor's report.
  2. Additional rights may be set out in the Articles of the company. For example, shareholders may be entitled to full access to the company's accounting records.
  3. Additional rights may also be set out in a Shareholders' Agreement (if any), between the shareholders and the company. For example, the shareholders may have agreed that certain decisions of directors require majority shareholder approval.

Note that the Articles and a Shareholders' Agreement may specifically limit the rights of a shareholder's personal representative in comparison to those of the shareholder him- or herself.

Second, once the Executor determines the nature of the deceased's rights as a shareholder of the company, they should request that directors of the company provide required information or take required steps. When the request is made in the context of a specifically identified right, there is a greater likelihood of compliance.

Third, if the directors refuse or ignore the request, the Executor will need to bring a legal action by way of a Petition, supported by an affidavit setting out the request made and the directors' failure to comply. In bringing this Petition, the Executor will rely on one or both of the following legal rights under the BCA:

  1. Section 227 of the BCA provides what is colloquially known as an "oppression remedy". This is the "Swiss army knife" for protection of minority shareholders. It operates on the basis of shareholders' legal rights as well as reasonable expectations, and allows the court to apply equitable principles to ensure that minority shareholders are not treated in a way that is "oppressive" or "unfairly prejudicial". These are open-ended concepts and wrongful conduct can take a myriad of different forms, including failure of directors to comply with requirements of corporate law.

    In the context of small companies, the oppression remedy can be used to compel the directors to comply with the BCA, the Articles, or a Shareholders' Agreement. For example, in a recent decision in Red Line Enterprises Ltd. v. Six Mile Pub Ltd., the petitioner was a 5% shareholder in the respondent's pub and was represented by one of the three directors on the board. The other two directors represented the majority shareholder and controlled the board. The majority directors stopped complying with the BCA by not holding AGMs, refusing to appoint an auditor, and failing to issue proper financial statements. These failures formed the basis for the oppression claim brought by the petitioner.

    The court found that this was "conduct of the affairs of the company in a manner oppressive to one or more of the shareholders" and the minority shareholder was "perfectly entitled to insist upon compliance with the provisions of the Act in order to protect its continuing minority interest" and "its proprietary rights demand nothing less". Accordingly, the court ordered an AGM to be held and financial statements to be produced in compliance with the Act.

    More generally, under the oppression remedy, the court can "make any ... order it considers appropriate", including appointing a receiver, directing purchase of shares, ordering liquidation of the company, or ordering the company or a director to financially compensate the aggrieved shareholder. Where the majority shareholders have used the testator's death to act against their interests, the Executor may use this section to seek compensation for the estate.
  2. Section 228 provides that the court can issue an injunction to direct a company, shareholder, or director to comply with the BCA or the Articles (but not a Shareholders' Agreement). In contrast to the oppression remedy, this section only requires a shareholder to prove lack of compliance by the directors, not that the effect of this conduct was oppressive or prejudicial. Although this section has not been extensively considered judicially, it should provide a straight forward and relatively inexpensive and quick way to force compliance with the BCA or the Articles.

Following these steps, the Executor will ensure that the Estate is dutifully administered and its assets, including the shares, are properly protected.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Alexander Holburn Beaudin + Lang LLP
Gehlen Dabbs
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Alexander Holburn Beaudin + Lang LLP
Gehlen Dabbs
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions