Earlier this week, I blogged on how a Will ended up setting the stage in determining how a family run corporation will be liquidated notwithstanding one child’s objection under the Ontario Business Corporations Act.
Husack, 2023 ONSC 949, centers around a holding company that held a number of real estate joint venture projects and developments (the “HoldCo”). The HoldCowas the main asset in the Estate of Frank Husack. Frank was survived by his wife, Evelyn, and their four children Donna, Donald, Dianne, and Doreen. Although Evelyn, all four children, and a trust company were all appointed as the Estate Trustees, Evelyn was essentially given a veto because she had to be a part of any ruling majority. The voting shares of HoldCo belonged to the Estate, the fixed value preference shares belonged to the spousal trust for Evelyn, and the common shares belonged to the children. Following Frank’s death, HoldCo became amalgamated into “NewCo” and the Estate and all four children entered into a unanimous shareholder agreement that, in part, expressly gave the Estate the sole and exclusive discretion to sell all or substantially all of its assets.
After Justice MacNeil determined that Donna, as a common shareholder of NewCo, did not have any rights under the OBCA to dissent to the liquidation of NewCo due to the unanimous shareholders agreement, he turned his mind Donna’s claim for oppression and the appointment of an independent liquidator for the windup.
No oppression was found. On this issue, Donna claimed that her reasonable expectations regarding the frequency of shareholder meetings, her participation in discussions (Donna claimed that she became the only one excluded from governance discussions), access to information, and various other actions of the company and its directors were violated. In order to make out a claim for oppression, the claimant must prove that his/her expectations were reasonable, and that his/her reasonable expectations were violated by conduct falling within the terms “oppression”, “unfair prejudice”, or “unfair disregard” of a relevant interest (BCE Inc. Re, 2008 SCC 69, at para. 103 of Husack).
Donna’s expectations were not found to be reasonable. Justice MacNeil made an interesting comment that “It may very well be that Donna Huscack, as an estate trustee of Frank Husack’s estate, is entitled to more information than she has been receiving. But as a common shareholder of [NewCo], I am not persuaded that she proven a reasonable expectation to more information than she has received.” (para. 110) It is true that if the other Estate Trustees were provided with information about NewCo in their capacities as Estate Trustees then such information cannot be kept from Donna in her capacity as a Co-Estate Trustee, but, even if this were the case, such conduct would be misconduct at the estate level rather than at the corporate level with respect to a remedy under the OBCA. Justice MacNeil also declined to find that there were secret meetings where Donna was intentionally excluded. Donna’s other sisters had their own complaints about a lack of information and Justice MacNeil, rather helpfully for those of us dealing with family matters that span years if not decades, commented that the communication issues were “simply a function of the family dynamics at particular times” (para. 118).
Notwithstanding the Respondents’ success in defending Donna’s main claims, Donna was ultimately successful in having an independent liquidator appointed to sell and wind up NewCo. Justice MacNeil agreed with Donna that Evelyn and Donald (the child who was most involved in the running NewCo with Evelyn) were ill equipped under the circumstances because they had failed to seek tax advice before starting the sale process, and because they have failed to obtain a tax opinion comparing various windup scenarios, including that of an in specie share or asset distribution. Accordingly, Justice MacNeil found that an outside professional, who is not solely a real estate professional, was needed to properly conduct the wind up of NewCo.
Thanks for reading!