Just and Equitable Division

What can you do when you have lost trust in your fellow shareholders in a closely held company and you no longer see eye to eye on daily operational decisions or where the business is going?

The answer may lie in the “just and equitable” provisions of the Ontario Business Corporations Act, RSO 1990, c B.16  (the “Act”). Like the remedies described in the Oppression Remedies section of this website, s. 207 of the Act also gives the court the authority to make orders granting remedies to shareholders, including a wind-up of the company or other relief under the oppression provisions of the Act, where it would be “just and equitable” to do so.

The ”just and equitable” analysis usually focuses on a breakdown of the shareholders’ relationship and its detriment to the running of the business. In Ontario, Courts have applied the “just and equitable” principle where:

• a dominating or more powerful shareholder attempts to exclude or force another shareholder out of the relationship;
• there is such disharmony between the shareholders that the Court can reasonably infer that the business arrangement between the parties has been repudiated or terminated; and
• the company is akin to a partnership that can no longer function because of a breakdown of trust and confidence.

Therefore, the test is similar to the oppression remedy claim in that it involves the breach of a shareholder’s reasonable expectations. There must also be a link between the breakdown in mutual confidence and the financial fate of the company.

Remedies Available

Winding up is a remedy of last resort and it may not be appropriate where the company may continue to operate profitably. In those circumstances, the Court will consider whether there are less restrictive options available. For example, the Court could order the corporation to purchase a shareholder’s shares at fair market value. The Court also has discretion to make the same types of orders as in a shareholder oppression context.

Family Companies

Family companies may be particularly subject to frequent or personal quarrelling between shareholders. However, irreconcilable differences between the owners of a family business, alone, is not sufficient to wind-up a company under s. 207 of the Business Corporations Act.

The same test above applies to family-owned businesses. The breakdown of the relationship must support a reasonable inference that the parties did not intend their business association to continue.

Further information about family businesses can be found here, and 50/50 shareholders can be found here.

For the Leading Cases & Statutes related to Just and Equitable Division go here.