Just and Equitable Division
What can you do when you have lost trust in your fellow shareholder(s) 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 BC Business Corporations Act, S.B.C. 2002, c. 57 (the “Act”). Like the remedies described in the Oppression Remedies section of this website, s. 324 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.
Section 324 of the Act provides the court with broad discretion to fashion a remedy that is “just and equitable” in the circumstances, where the conduct complained of may fall short of being oppressive or unfairly prejudicial. It also can provide relief for 50/50 shareholders who are in a deadlock. For example, courts have exercised their discretion under s. 324 of the Act in circumstances where:
- a “justifiable lack of confidence” amongst the shareholders has arisen;
- the shareholders are in a deadlock for decisions critical to the business; and/or
- where a “partnership analogy” applies, and there has been:
- a breakdown in the mutual trust and confidence upon which the original business undertaking was founded;
- a destruction of the mutual confidence between the parties resulting from the conduct reveals a lack of probity, good faith, or other improper conduct;
- a refusal to meet on matters of business, continued fighting, and a state of animosity that precludes all reasonable hope of friendly cooperation or reconciliation; and/or
- a situation has arisen where it is not possible for the partners to place confidence in one another: Sohi v. Best Choice Blueberry Farms Limited, 2018 BCSC 36
The “partnership analogy” applies where a business is effectively being operated as a partnership, despite being organized as a private company as a matter of law.
Some examples of the remedies available to the court are enumerated in s. 227(3) of the Act, which include, but are not limited to, orders:
- removing any director;
- directing a company or fellow shareholder purchase some or all of the shares of an aggrieved shareholder;
- varying or setting aside a corporate resolution;
- directing that the company compensate an aggrieved person; and/or
- directing that the company be liquidated or dissolved.
Parties are not limited to the remedies listed in s. 227(3). As discussed above, s. 324 provides the court with a broad discretion to fashion a remedy it considers appropriate, with a view to bringing the matters complained of to an end. This discretion allows the court to entertain more creative remedies which are responsive to the specific facts engaged in a dispute.
The law allows the court to take a more liberal approach to s. 324 in cases of family companies, because of the unique nature of the relationships they engage.
Family companies are frequently founded on the basis of a mutual trust that members will do right by one another, to a higher degree than private arms-length businesspeople. In result, shareholders agreements are often not drawn up, and differences between the shareholders arise, and are much more salient, not because one party acted poorly, but because the family members “[see] the world through different eyes”: Safarik v. Ocean Fisheries Ltd., 1995 CanLII 6269 (BC CA). In the view of the B.C. Court of Appeal in Safarik, these dynamics warrant the more liberal application of s. 324.
For the Leading Cases & Statutes related to Just and Equitable Division go here.