Written by: Sara Bahadori
When a director or officer is suddenly shut out of the corporation, it can create major disruptions. Although the process may look different in each case, the Ontario Business Corporations Act (“OBCA”) offers a range of remedies for directors and officers who have been excluded from their corporation.
Under section 248 of the OBCA, the oppression remedy allows courts to enforce the reasonable expectations of directors and officers. Using this remedy, a director or officer who has been unfairly removed can seek an injunction to be reinstated. In some cases, though, a more straightforward option may be available under section 132(9) of the OBCA. This path applies where a director or officer is excluded through a resolution that breaches the conflict-of-interest rules.
Relief under the Oppression Remedy (s. 248 OBCA)
The oppression remedy is a common tool used when a director or officer feels they’ve been unfairly excluded. To succeed, the claimant must show:
- they had reasonable expectations about their role or treatment, based on factors like the nature of the corporation, their relationship with other directors, or established practices; and
- those expectations were violated in a way that was oppressive, unfair, or a clear abuse of power.
If oppression is found, courts have broad powers to intervene and relief can be sought under s.248 (3) of the OBCA. In the context of a director or officer getting unfairly locked out of their corporation, the court can order an interim injunction. However, a motion is required to obtain such injunctive relief.
Relief under Breach of Conflict of Interest (s. 132 OBCA)
Section 132 of the OBCA offers a more straightforward route to reinstating a director or officer who has been unfairly excluded, though it applies only in cases with clear conflicts of interest.
Under Section 132(1), a conflicted director is a director that has a direct or indirect interest in the outcome of a contract or transaction with the corporation. In such cases, the director must fully disclose the nature and extent of that interest.
Section 132(5) specifically prevents conflicted directors from voting on resolutions where they have a vested interest. Furthermore, section 132(9) provides a mechanism for shareholders to ask the court to set aside a contract or transaction where there is a director conflict of interest, even if disclosed. The court can also require the conflicted director to return any profits gained. In practice, this means a resolution removing a director or officer could be invalidated, and the excluded individual reinstated.
If you have any questions or if you would like to learn more about the rights and duties of corporate directors and officers, then do not hesitate to contact our team.
