OBCA is only available in prescribed
circumstances. For example, Section
185 of the OBCA permits shareholders
to exercise their dissent rights in the
following situations:
substantially all the corporation's
property;
corporations; and
of incorporation that add or change
restrictions on the issuance, transfer
or ownership of shares.
exhaustive list. It is important to note
that the resolutions for which dissent
rights are available require at least two-
thirds shareholder approval to be passed,
but not every resolution that requires
two-thirds shareholder approval triggers
the availability of dissent rights.
Dissent Rights
marketplace may have minority
shareholders. Accordingly, it is important
to be aware of each shareholder's rights
under the OBCA or you may find your
company in the unenviable position of
dealing with a dissenting shareholder at
an inopportune time.
Further, failing to recognize that a
shareholder has a right to dissent at
the applicable shareholders meeting
can have serious consequences that
may ultimately delay or invalidate the
proposed business.
Note, a unanimous shareholders
agreement (USA) can limit shareholders'
rights under the OBCA, including in
some cases, the right to dissent.
"substantially all of a corporation's
property" requires both a quantitative
and qualitative approach.
As stated in Amaranth LLC v Counsel
Corp, "the quantitative approach
compares the proportion or relative
value of the transferred property to the
total property of the transferor. The
qualitative analysis assesses whether the
transferred property was integral to the
transferor's core business activity, so that
its disposition strikes at the heart of its
existence."
Ultimately, the qualitative analysis
will govern. There have been cases where
over 90 percent of a corporation's assets
were sold, but the sale was held not to
be substantially all of a corporation's
property. Determining the nature of the
corporation's business is critical in the
application of the test.
a demand for payment loses all rights as
a shareholder other than the right to be
paid fair value of his or her shares.
From the date such demand for
payment is made (and not withdrawn
in accordance with the OBCA) the
shareholder is not entitled to participate
in the future profits of the corporation.
If the corporation has a capital dividend
account, the shareholder should consider
whether he or she will lose the benefit of
the capital divided account if he or she
dissents.
There is no mention in the OBCA
that a dissenting shareholder is entitled
to any favorable tax treatment and there
is indication in case law that taxation on
the redeemed shares will not factor in to
the determination of "fair value."
Conversely, the dissenting
shareholder is able to affix in time,
the value of his or her shares. If the
corporation subsequently declines in
that will not affect the fair value of the
dissenting shareholder's shares.
purposely proceeded with amalgamating
two corporations, the end result of which
leaves the minority shareholders with
redeemable preference shares. This can
be a method to "squeeze out" unwanted
shareholders.
Similarly, a corporation can choose
to proceed with amending the articles
of incorporation to provide for the
redemption of certain shares, where
no such previous right of redemption
existed.
In each case, the minority
shareholders will be in a tough legal
position. A minority shareholder can
choose to exercise his or her right of
dissent, attempt to negotiate a private
settlement and/or pursue other remedies
under the OBCA, such as making a claim
that he or she is being oppressed by the
proposed action.
The options available to shareholders
in a situation where their shares
in the corporation are going to be
"involuntarily" redeemed are complex
and are beyond the scope of this
article. However, the common factor
in these situations is that deciding to
pass a resolution that makes dissent
rights available forces action. It is
important to be ready for and aware of
the consequences that could flow from
making such a decision.
part of corporate governance that is often
overlooked in privately held companies.
These meetings and any accompanying
rights of dissent should be considered
carefully with the help of legal counsel
with expertise in corporate governance
matters.