Estate litigation often intersects with other areas of law, and frequently with corporate law where, for instance, a testator has an ownership interest in a corporation and/or is a director of a corporation. Accordingly, we pay attention to important cases in corporate law that may impact upon our practice. One such case is Wilson v. Alharayeri, a recent Supreme Court of Canada (SCC) decision, where the SCC considered when an oppression remedy may lie against a director personally.
The facts in brief are that Mr. Alharayeri (Mr. A) was the president and CEO of a corporation. He was also a director and a significant minority shareholder of the corporation, with half of the shares being convertible into common shares if the corporation met certain financial targets. Mr. A resigned for failing to disclose a conflict of interest. The appellant, Mr. Wilson, replaced Mr. A as president and CEO. A few months later, the board of directors issued a private placement of convertible secured notes to its existing common shareholders. Prior to doing so, the board accelerated the conversion of certain convertible preferred shares, but not those held by Mr. A given the conduct leading to his resignation. Wilson played a lead role in this decision. The result was that the value of Mr. A’s portfolio was diluted.
Mr. A brought an oppression claim against four of the directors, including Wilson. The Superior Court of Quebec found oppression, and Wilson and another board member were held personally liable for the board’s failure to convert Mr. A’s shares. They were Ordered to pay Mr. A compensation. The Quebec Court of Appeal affirmed the decision, and Wilson appealed to the SCC on the question of when personal liability for oppression may be imposed on corporate directors.
The SCC dismissed the appeal, and in doing so applied a two-pronged approach. First, the oppressive conduct must be attributable to the director. Second, a personal remedy must be “fit” in all of the circumstances – four general principles should guide the court, being:
(i) whether personal liability is fair in consideration of all circumstances;
(ii) any order should go no further than needed to remedy the oppression;
(iii) any order may serve only to vindicate the reasonable expectations of a security holder, creditor, director or officer as a corporate stakeholder; and
(iv) the general principles of corporate law.
It is noteworthy that the hallmarks of conduct attracting personal liability remain, being where a director derives a personal benefit and where a director acts in bad faith, but they are not necessary conditions of the two-pronged approach.
Thanks for reading and have a great day,
Natalia R. Angelini
You may also enjoy the following blogs:
https://hullandhull.com/2016/11/beneficiaries-corporate-documentation/
https://hullandhull.com/2014/11/control-of-private-corporations-in-the-event-of-incapacity/
https://hullandhull.com/2006/09/trusteedirector-conflicts-part-ii/