A missed election deadline nearly split two business partners

The situation

Farhan and Taras had known each other since they were teenagers, long before either of them had anything to do with an electrical contracting business. Farhan went on to become a firefighter; Taras built a 30-person electrical contracting company in Casselman with his business partner Andriy, an electrician who had joined him early and taken a minority stake. When Taras decided it was time to step back, he did not want to sell to a competitor or a private equity buyer. He wanted the crew who had built the business with him to own it, and Farhan, who had stayed close to the company as an informal advisor over the years, agreed to lead the employee ownership trust the crew formed to buy it.

An employee ownership trust does not usually pay the full price in cash at closing. It typically borrows what it can, pays some cash up front, and finances the rest through a note or retained equity interest repaid from the company's future earnings. For a transaction in the $15 million to $30 million range, that meant Taras and Andriy each needed to elect how much of their proceeds they wanted in cash versus how much they were willing to leave invested in the business as a note or equity stake, a mixed-consideration election with a firm deadline set out in the purchase agreement.

The election forms went out by mail, as the agreement specified. Taras's arrived and he completed it within the week. Andriy's did not arrive at all. A processing error at the printer meant a portion of the mailing, including Andriy's package, was never sent. Andriy did not realize anything was missing until after the election deadline had already passed, by which point the agreement's default provision had taken effect, and the default happened to be the option Andriy would not have chosen: it assigned him the maximum retained equity and the minimum cash, at a moment when he needed a meaningful cash sum for a family medical expense.

Andriy raised the problem with Taras directly, and the two of them might have sorted it out between themselves. Before that happened, Andriy mentioned it to an uncle who had run his own business for decades. The uncle told Andriy the mailing failure meant the whole election clause was void and that Andriy could simply refuse to sign off on closing until the trust agreed to pay him entirely in cash. Andriy, unsettled and short on cash-flow options, took the advice. By the time Farhan called us, the deal that was supposed to keep a group of tradespeople and two old friends on the same side had turned into a standoff over one missing envelope.

What the other side was relying on

Andriy's position, once his uncle's advice had shaped it, rested on the idea that a procedural failure on the trust's side, the mailing that never went out, gave him the right to reject the outcome the agreement's default provision assigned him and demand a different one entirely. That is not how a default consideration clause generally works. The clause exists precisely to give a transaction certainty when a shareholder does not make an active election by the deadline; it is not conditioned on the shareholder having received a reminder, only on the deadline itself, unless the agreement says otherwise. Andriy's actual legal position was narrower and less favourable than his uncle had suggested: he had a strong argument that the mailing failure was not his fault and should not simply be held against him, but that argument supported reopening the election, not rewriting the deal to give him whatever outcome he now wanted.

The uncle's advice also treated 'void' as a word that could be applied loosely to any process whose result someone disliked. In fact, whether a clause is void, voidable, or simply capable of being corrected are three very different things with three very different consequences, and conflating them left Andriy believing he had far more room to dictate terms than he actually did. His stronger, narrower argument, that fairness required reopening the choice he had been denied, was one the trust could reasonably agree to without conceding that the entire consideration structure was open for renegotiation.

There was also a practical reality Andriy's uncle had not accounted for. The trust's financing, arranged with a lender to fund the cash portion of the purchase price, was built around a specific split between cash paid at closing and value retained as notes and equity across both sellers. That split was not arbitrary; it reflected what the company's cash flow could service without straining operations in its first years under employee ownership. A demand for Andriy to be paid entirely in cash was not simply a negotiating position the trust could concede if it wanted to; funding it would have required new borrowing the lender had not underwritten, on a timeline the closing did not allow.

Taras, for his part, was relying on the friendship holding the deal together even as the dispute dragged on, which was understandable but was making the actual legal and financial issues harder to see clearly. He kept assuming Andriy would come around once he calmed down, and Andriy kept assuming the trust would simply cave rather than let a founding partner walk away angry. Neither assumption addressed the real, fixable problem: a mailing failure had denied one shareholder a choice he was contractually entitled to make, and the fix needed to be a corrected election process, not a unilateral rewrite of the deal's economics.

What we did

1. Confirmed the mailing failure with the printer and documented it in writing. Before addressing what Andriy was owed, we needed an undisputed factual record showing the failure was the trust's vendor's error, not Andriy's inaction. This mattered because it supported treating him fairly without conceding that the default clause itself was invalid, which would have undermined the deal's structure for everyone.
2. Distinguished between a fairness argument and a contractual right. We explained to Farhan and the trustees that Andriy had a legitimate grievance worth addressing directly, separate from whatever his uncle had told him about voiding the clause. Conceding the grievance did not mean conceding the legal theory, and keeping those two things separate let us negotiate in good faith without setting a precedent that any missed deadline could unravel the deal.
3. Reopened a limited, time-boxed election specifically for Andriy. Rather than litigate whether the default should apply, we proposed giving Andriy a short window to make the election he had been denied the chance to make, on the same terms available to Taras, closing the fairness gap without touching the rest of the transaction's structure or timeline, instead of arguing the point in court.
4. Modelled what a full-cash election for Andriy would actually cost the trust. We worked with the trust's lender to confirm how much additional cash the financing could realistically absorb without breaching the lender's covenants, which showed the trust could stretch to cover a meaningfully larger cash portion for Andriy than the default provided, though not the full amount his uncle had suggested demanding.
5. Negotiated a blended outcome directly with Andriy's own counsel. Once Andriy retained a lawyer independent of his uncle's advice, the conversation moved quickly. We proposed a split roughly midway between the default and Andriy's original preference, more cash than the default assigned him, with the balance retained as equity, addressing his immediate need without requiring financing the lender would not support.
6. Rebuilt the closing timeline around the revised election. The standoff had already delayed the transaction by several weeks past its original closing date. We coordinated an amended closing schedule with the lender and Taras's counsel so the revised terms for Andriy did not require reopening any other part of the purchase agreement, keeping the lender's commitment letter intact on the new dates.
7. Documented the resolution as a formal amendment, not an informal understanding. Given how quickly an informal misunderstanding had escalated once a family member's opinion entered the picture, we insisted the revised election and its cash and equity split be captured in a signed amendment to the purchase agreement, so there was no ambiguity left for anyone to interpret differently later.
8. Repaired the working relationship alongside the legal fix. Because Taras and Andriy still needed to run the company together after closing, we suggested the two of them, along with Farhan, sit down separately from the lawyers to talk through what had happened, so the resolution did not just settle the paperwork while leaving the personal rift from the standoff to fester into the post-closing period.

The outcome

The transaction closed roughly six weeks later than originally scheduled, with Andriy receiving a cash-and-equity split partway between the agreement's original default and the full-cash outcome he had been pushed to demand. He did not get everything he asked for; the retained equity portion was larger than he wanted, and the delay itself cost him several weeks of access to funds he needed for the family expense that had made the cash question urgent in the first place. That gap between what he demanded and what he received is the honest measure of a negotiated compromise once both sides' real constraints were on the table.

The trust, for its part, absorbed a somewhat larger cash outlay at closing than its original financing plan contemplated, requiring a modest adjustment to the lender's terms that added a small amount of additional interest cost over the life of the loan. That was the price of resolving the dispute without either forcing Andriy to accept an outcome he felt was imposed on him by an administrative error, or letting the entire transaction stall indefinitely while the two founders' relationship deteriorated in front of the crew both men had built the company with. Six weeks of delay also meant six weeks of uncertainty for the employees counting on the sale to secure their own stake in the trust, a cost that does not show up in either side's ledger but was real for the people waiting on it.

Taras and Andriy remained business partners through the transition, though the episode left a mark; Andriy has said since that he wished he had spoken to independent counsel before he spoke to his uncle, and that the advice, offered in good faith, cost him weeks of stress he did not need to carry. Farhan and the other trustees, for their part, changed how the trust handles shareholder communications going forward, adding a confirmation step after any mailing tied to a contractual deadline, so a printer's error cannot again turn into a threat to the deal itself. The company's ownership transition, once it finally closed, proceeded largely as planned, with both founders staying involved through the handover period they had originally agreed to.

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