The Superior Court issued a surprising decision this summer
concerning the determination of the value of shares in the context
of a purchase under a shareholder agreement. In this case,
following the second loan of Société Innovatech du
Sud du Québec ("Innovatech") to Signaflex Inc.
to Signaflex Inc. ("Signafl ex"), its
first loan had been converted into shares and a shareholder
agreement had been entered into, which granted to Innovatech the
right to request that its shares be purchased (the
"option") at a price per share equal to
the higher of (1) the highest price paid for any share by
"quiconque" ("any person") during the three
preceding fiscal years (the "reference
Period") (sec. 22.214.171.124) and (2) the fair market value
of the shares at the time the option was exercised (sec. 126.96.36.199),
as established by an independent expert (the
When Innovatech exercised the Option, since Signaflex had issued
no other shares during the Reference Period, it put Signaflex on
notice to pay to it an amount of $11,455,287, calculated according
to section 188.8.131.52 of the Agreement, such amount being equal to the
amount of its 2011 investment.
The main issue raised was the determination of the price at
which Signaflex was required to purchase Innovatech's shares.
Signaflex maintained that the expression "quiconque"
referred to a party not yet identified as of the time at which the
Agreement was executed and excluded Innovatech. For its part,
Innovatech argued that it was included in the term
"quiconque" and that its second loan had to be taken into
account in determining the price of the shares.
Although the common meaning of the word "quiconque" is
"any person", by analyzing the intent of the parties at
the time the Agreement was executed and reviewing the nature and
context in which the term was used, the judge concluded that the
second loan of Innovatech had been made in a context where it had
been anticipated that other investors would inject funds into
Signaflex and that therefore, the term "quiconque" was
referring to one or several other possible investors and not to
either of the parties to the Agreement. Since no investment had
been made during the Reference Period, other than that of
Innovatech, the Court decided that the purchase price could not be
determined under section 184.108.40.206 of the Agreement. This
interpretation undoubtedly surprised Innovatech, but not nearly as
much as what followed...
Considering that Innovatech had, according to the Court,
voluntarily ignored the only accounting report made, which stated
that the fair market value of its shares was between 2.2 and 2.9
million dollars, that it had not requested a supplemental report or
even a new report and that Innovatech had always maintained that
the value of its shares had to be determined under section 220.127.116.11,
the Court decided that section 18.104.22.168 could not apply in the
circumstances. In the opinion of the Court, Innovatech had
knowingly chosen not to rely on the mechanism provided under
section 22.214.171.124 and there was no reason to reopen the hearing or
request that a new report be prepared. The Court added that
Innovatech had the burden to demonstrate the value of its shares,
which it failed to do. The Court therefore dismissed the claim of
in excess of $11 million and fixed the purchase price of the shares
at $0! The decision has not been appealed.
Upon reading this decision, we realize once more that the words
used in a contract must be chosen with care and that it is crucial
to carefully defi ne the terms used when they may be interpreted in
several ways. The judgment also teaches us that a party exercising
a contractual right must be prudent in devising its strategy since
in law, things are not always as obvious as they seem to be.
1 *Société Innovatech du Sud du
Québec c. Signaflex inc., 2012 QCCS 3275.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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