The Oppression Claim Against a 50/50 Corporation
Two shareholders, A and B, each hold 50% of a Ontario business corporation that operates a chain of three fitness studios. The articles and unanimous shareholders' agreement provide that A is the sole director and that 'material decisions require unanimous shareholder approval.' Over 18 months, A caused the corporation to pay $260,000 in consulting fees to a company A controls, without shareholder approval, and caused the corporation to lease a fourth studio at above-market rent from A's spouse. B discovered this when reviewing the year-end financial statements. B has demanded that A repay the amounts, that the fourth lease be terminated, and that A be removed as director. A refuses, saying the USA gives him sole director authority and that B's remedy is to sell his shares at fair value. The corporation's EBITDA is approximately $400,000 and the business is otherwise profitable. B wants to know his options and whether he can obtain interim relief.
1. What statutory and common law remedies are available to B, and which is strongest?
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B has three overlapping routes.
First, the oppression remedy under the OBCA: B is a complainant, and the conduct - self-dealing payments to a company A controls, and a related-party lease at above-market rent - is conduct that is oppressive, unfairly prejudicial, or unfairly disregards B's interests. The test is reasonable expectations in the context of the corporation's history and the parties' agreement. The USA's unanimity requirement for material decisions is powerful evidence of B's reasonable expectation that related-party transactions would be approved. The court's remedial discretion is broad: it can order repayment, set aside the lease, order a buyout at fair value, or remove A.
Second, the derivative action under the OBCA: B can seek leave to bring a claim in the corporation's name against A for breach of fiduciary duty (A as director) and for the self-dealing. Leave requires good faith, a reasonable basis, and notice to the corporation.
Third, the personal action for breach of the USA and breach of the contractual duty of good faith.
Strongest is oppression: it is personal to B, does not require leave, and offers the broadest remedies. The derivative claim is better suited to recovering the $260,000 for the corporation, but the two can be combined. A's argument that B must sell at fair value misstates the remedy: a buyout is one option for the court, not an entitlement of the oppressor.
2. What must B prove to obtain an interlocutory injunction or other interim relief, and what practical steps should precede a motion?
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Interim relief in an oppression case is governed by the RJR-MacDonald test: a serious issue to be tried, irreparable harm not compensable in damages, and a balance of convenience. In a commercial oppression case, the second branch is often the weak link because the $260,000 is quantifiable.
B should reframe the harm: the ongoing related-party lease and A's control of cash flow create a risk of asset dissipation and continuing prejudice that damages cannot cure after the fact. Evidence of the above-market rent and the consulting payments is the core of the record.
Before moving, B should: (1) deliver a formal demand under the USA and the OBCA for repayment and termination of the lease, with a deadline; (2) requisition a shareholders' meeting or, if the USA permits, seek to remove A as director - though the 50/50 structure may make this impossible without court order; (3) obtain the corporation's books and records under the OBCA right of inspection; (4) preserve evidence of the consulting invoices and lease.
A realistic package: an oppression application seeking repayment, an order terminating the lease, and interim relief restraining further related-party payments pending hearing. Cost is a factor - an interlocutory motion in a $400,000 EBITDA business may consume the recovery. Advise B to seek a case management order and to consider a court-supervised buyout as the endgame, since a 50/50 deadlock is unworkable.