Director Removal Under the Oppression Remedy
Removing a director using the oppression remedy under the Canada Business Corporations Act
In this blog post, we discuss the process for removing a director of a business corporation using the oppression remedy under the Canada Business Corporations Act, R.S.C., 1985, c. C-44 (the “CBCA”). Although this blog post addresses the CBCA, the same general analysis applies to corporations formed under the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 too.
Under the CBCA, a director of a corporation can cease to hold office in one of four general ways: (1) if he or she dies or resigns; (2) if he or she is voted out of office by an ordinary resolution of the majority of votes cast by the shareholders of the corporation at a special meeting called for that purpose; (3) if he or she becomes “disqualified” to act as a director (for example because he or she has become bankrupt or has been found to be of “unsound mind” by a court); or (4) if he or she is removed from office through an interim order using the “oppression remedy” under s. 241(3)(e) of the CBCA.
The fact that a director has died or resigns is rarely contentious. If a director declares bankruptcy or is adjudged to be bankrupt by a court, then the fact that he or she is no longer qualified to act as a director of a CBCA corporation is also rarely contentious.
In closely-held corporations, disputes often arise when two equal shareholders, who are also directors, become deadlocked in making decisions for the corporation and each refuse to resign. This is especially problematic when one director and shareholder is not acting in the best interests of the corporation, is in breach of their fiduciary duties owned to the corporation, or is acting in a manner that is oppressive or that unfairly disregards the interests of the other shareholder or director. This is where the oppression remedy could be utilized to remove a recalcitrant director.
The oppression remedy grants the court broad jurisdiction to find that an act or omission is oppressive, unfairly prejudicial, or unfairly disregards the interests of a director, shareholder or other “complainant” “even if it is not unlawful.”[1] .
What may be considered oppressive or unfairly prejudicial in one case may not necessarily be considered oppressive in different circumstances. However, the appropriation of corporate property, the diversion of corporate opportunities, outright theft from the business, or a fraudulent conveyance are all classic examples of oppressive conduct.[2]
Where oppression is alleged, a court is empowered to grant broad interim and final relief including the removal and replacement of a director under s. 241(3)(e) of the CBCA.
[1] BCE Inc. v. 1976 Debentureholders, 2008 SCC 69 at para. 71.
[2] Dennis H. Peterson and Matthew J. Cumming, Shareholder Remedies in Canada, 2nd Edition, (Toronto: LexisNexis) at para. 17.138.
