Overview
In the specific context of Renda v. Bagiotas[1], the Superior Court of Quebec noted the mutual oppression of the majority shareholders of the Eggspectation Group of Franchised Restaurants (“Eggspectation”) and ordered the sale of their shares through a private auction, a remedy rarely granted.
Background Facts
The plaintiff, Renda, and the defendant, Bagiotas, are the principal shareholders of Eggspectation operating in Canada, the United States and other countries.
The parties are not bound by any agreement with respect to Canadian operations, although such an agreement, while not adduced in evidence, is apparently in effect for foreign operations.
The Court noted the reciprocity of the direct and indirect oppression of the co-shareholders and found that the impossibility of their coexistence had reached the point that the company’s survival was threatened.
The Appropriate Remedy
The Court considered that the appropriate remedy is for one of the shareholders to buy out the interest of the other; however, since the oppression is mutual, neither shareholder should receive preferential treatment vis-à-vis the purchase of the shares of the other:
[93]Since both parties in this case have engaged in oppressive conduct and regardless of the extent thereof, neither has a greater buy-out right than the other.
The Court therefore ordered that the sale of the shares take place at a private auction. Each party must submit a sealed offer to purchase the shares of the other party on the basis of a value of 100% of the shares and in the manner provided for in the judgment. The auction must take place in the presence of the parties and their lawyers in the office of an independent counsel who will be selected either with the consent of the parties or by the Court in the absence of such consent. Once all the conditions of sale have been met, the designated lawyer must report to the Court and mutual receipts must be signed as part of the proposed transaction.
Conclusion
This judgment, which has not been appealed, is certainly significant in view of the order to auction the shares, a mechanism rarely used by the courts, and is an illustration of the broad powers granted to judges when they are confronted with an oppression remedy.
An auctioning mechanism, while definitely more costly than a traditional “shotgun” approach, could prove to be an attractive solution to offer shareholders when none of them wants to “shoot” first or when there is no agreement providing for an exit mechanism in the event of an impasse.
Fasken has the experience and resources necessary to advise and assist you in the area of shareholder disputes. Our team includes lawyers practising in a number of fields of law, such as litigation, corporate law, taxation and labour law and is made up of Guy Dion, Charles Mercier, Vincent Girard, Danny Galarneau, Louis Carrière, Henrick Simard, Anne-Marie Naud, Sébastien Gobeil, Dave Robitaille, Kateri-Anne Grenier and Vincent Cérat-Lagana.
