What Is Fair Value for Dissenting Shareholders in Ontario?

Sometimes a corporation proposes a change that a shareholder cannot accept, such as a sale of the business or a restructuring that changes what the shares are. Dissent rights exist so that a shareholder in that position can leave and be paid, rather than being pulled along against their will.

This article explains the idea in plain terms. It does not set out step-by-step deadlines, because those depend on the type of change and the exact wording of the statute, and they are strict. Get advice before the shareholder meeting, not after.

What dissent rights are

A dissent right is a route under the Ontario Business Corporations Act (OBCA) that may be open to a shareholder who opposes a major corporate change and wants out. It is not a way to overrule every decision the majority makes. Whether it applies depends on the change and the exact wording of the statute, so it is worth confirming with a lawyer.

Because dissent is a statutory process, the details matter, and a shareholder's general sense of unfairness is not the same thing as following the process. How this applies depends on your situation, so it is worth confirming with a lawyer.

When can you use it

Whether you have a dissent right depends on what the corporation is doing and on how your shares are affected. A lawyer should check the current statute against the specific proposal. Useful questions to bring to that conversation include:

• What exactly is the corporation proposing, and what is the vote on?
• How would the change affect the shares you hold?
• What do the articles and any shareholders agreement say?
• What do the meeting materials say about your options?

Not every proposal gives a right in every case, so do not assume either way until the proposal has been reviewed.

What fair value means

Fair value is a way of describing what shares are really worth, as opposed to whatever figure one side puts forward. How it is worked out in a dissent depends on the statute and the facts, so confirm the approach with a lawyer. In practice, valuation is often where the parties disagree most.

Expert opinions can differ widely. In an oppression case, the Court of Appeal for Ontario upheld a damages award based on a trial valuation set between two experts' figures of $20.8 million and $52.8 million. Dissent valuation disputes can involve similar differences, although that case was not a dissent case.

Questions such as the valuation date and whether a later sale price counts also come up in buyout valuations. Whether and how they apply to a dissent depends on the facts.

Steps and deadlines

Steps and dates depend on the type of change and on the statute, so confirm them with a lawyer before the vote rather than relying on general information.

In general terms, you will want to do the following.

• Read the notice of meeting and any circular as soon as you receive them.
• Note the meeting date and any other dates or steps your lawyer identifies.
• Ask a lawyer how voting on the change may affect your options before you vote.
• Keep copies of everything you send and proof of delivery.
• Ask a lawyer to confirm the dates in writing.

Dissent compared with oppression

Dissent and oppression are different tools. Oppression is under OBCA s. 248, and the Supreme Court of Canada's BCE test asks whether you had a reasonable expectation that was breached and whether the conduct was oppressive, unfairly prejudicial or unfairly disregarded your interests.

To see how oppression can look in practice, the Court of Appeal for Ontario has upheld a finding that refusing to redeem a terminated shareholder's shares was oppressive. Whether your own situation fits that kind of pattern depends on the facts.

What to do next

Act as soon as you hear about the proposal. Collect the shareholders agreement, articles, financial statements and the meeting materials, and speak to a lawyer and an accountant before the vote. If you also feel you have been treated unfairly, ask whether oppression is a better or an additional route.

If the change is a sale of the business, other rules may matter alongside your shareholder rights. Points worth raising with your lawyer and accountant include:

• Employees: when a purchaser employs a seller's employee, the employment is deemed not terminated under the Employment Standards Act, and past service counts for later length-of-employment calculations. The exception is an employee rehired by the purchaser more than 13 weeks after the earlier of the last day with the seller or the day of the sale.
• GST/HST: the s. 167(1) election is available only if the buyer acquires all or substantially all of the property reasonably necessary to carry on the business or part of it. If the supplier is a registrant, the buyer must also be a registrant.

How these points apply depends on the deal, so it is worth confirming them before the vote.

Frequently asked questions