Is an unreasonable offer to a minority shareholder oppressive?
Can an unreasonable takeover offer constitute oppression against a minority shareholder? The Superior Court recently ruled on the possibility of such an action.
The oppressive remedy is a mechanism provided for in the Business Corporation Act1 that allows you to claim corrective measures when a corporation has behaved abusively or unfairly towards a shareholder.
In June 2021, it was in the case of Vigneault c. Bouclin2, that the Superior Court had to rule on such an action when two shareholders of a corporation operating in the field of residences for retired people found themselves before the Court to present their dispute.
Highlights
Vigneault and Bouclin were long-time friends. In the early 2000’s, Bouclin invited Vigneault to join the company known under the banner of ” Groupe Sélection ” and Vigneault thus became a non-controlling shareholder of the corporation. In 2012, Vigneault, having gradually lost his interest in the corporation’s activities, informed Bouclin of his plan to retire. The two men agreed on various provisions to allow Vigneault’s immediate withdrawl without Bouclin having to buy back his shares from that moment.
The contract provides in particular that the parties must subsequently negotiate in good faith the conditions for the purchase of all the shares of Vigneault by Bouclin. To that end, they will have an expert establish the fair value and the fair market value of the shares of Vigneault as of December 31, 2013 and April 1st, 2016. It is also expected, for the majority of the shares of Vigneault, that their value will be calculated based on their fair market value, as of December 31, 2013, less a discount to be negotiated. The parties agree that they will be bound by the expert’s valuation in establishing the fair market value of the shares.
However, the negotiations did not lead to an agreement between the two men. They disagree on how much should be paid for the shares. Vigneault considers the offers made by Bouclin to be “insulting and steeped in bad faith”. The main sticking point is that for Bouclin, as well as for the expert in charge of the valuation, the fair market value must be lower than the fair value because it takes into account the fact that the shares of Vigneault do not grant control of the corporation and must therefore be subject to a discount for minority participation.
Claims of the parties
Vigneault considers that he is the victim of oppression on behalf of Bouclin. He finds his buyout offers unfair and in bad faith. Bouclin, for his part, rejects this contention and claims that the oppression remedy is not the appropriate remedy to settle the dispute. He considers that the only element to be decided is the price he must pay for the redemption of the shares. He wants to pay the fair market value as calculated, applying a discount to reflect the reduction in price that an independent buyer would be willing to pay, considering that shares would not give him control of the corporation.
Court’s analysis
With regard to the oppression remedy, the Court agreed with Bouclin. The offers made by the latter reflected the price at which he hoped to obtain the shares in the circumstances. The fact that one party makes an offer to purchase can hardly oppress the one who receives it since neither party is obliged to proceed with the transaction. Bouclin was perhaps not respecting the spirit of the agreement and it is possible that he was negotiating in bad faith. However, this cannot be called oppression. The dispute between the parties is of a purely private nature. The Court finds no factual basis to conclude that the defendant’s actions constituted oppression.
In short, when neither party is obligated to agree to proceed with a transaction, an offer to purchase, no matter how bad, cannot constitute oppression.
This decision may, at first glance, seem to go against the decision Gestion Simon-Pierre Péladeau inc. c. Placements Péladeaux inc.3 (hereinafter the “Péladeau case”) which we commented recently. It is therefore appropriate to briefly review the discintions between these two cases.
In the Péladeau case, the Court pf Appeal notably retained certain specific facts in order to conclude there was oppression. More specifically, the family context surrounding the dispute had to be taken into consideration. In addition, the shares of Esther and Simon-Pierre Péladeau could not be traded freely on the market since following the buy-back agreement, the shares had been converted so that they no longer bore dividends and were only redeemable at the option of the issuer. They were thus devoid of value on the market unless their eventual redemption y the issuer constitutes a certain or almost certain event.
Written with the collaboration of Mr. Luc Robitaille, law student.
1 Business Corporations Act, RLRQ, c. S-31.1, art. 450-453.
2 Vigneault c. Bouclin, 2021 QCCS 2333.
3 Gestion Simon-Pierre Péladeau inc.c. Placements Péladeau inc., 2021 QCCA 956.