How to Resolve Shareholder Disputes in Alberta

How to RESOLVE SHAREHOLDER DISPUTES IN ALBERTA

People we work with are similar to our second family. Also, when business partners start a company and run it together, the pressures and dynamics resemble those in a marriage. And similarly to marital problems, sometimes, these relationships become dysfunctional. At those times, separation is often the only possible solution. So, if things get to this point, there could be an option of buying out one of the owners. In some cases, this option is not possible. Then, selling and dividing the business assets is the only solution, and finding appropriate ways to do so is critical. Therefore, this article will focus on ways to resolve shareholder disputes in Alberta.

ways to resolve shareholder disputes in Alberta

 

Shareholders are an essential part of many Alberta businesses. And sometimes, these shareholders want to participate in the management of the company or work in it. Also, these companies often began as family businesses, or they were a brainchild of two or more friends. That complicates the situation considerably.

In the business world, spouses cannot simply sign the divorce papers and go their separate ways. One can choose to stay put while the other may want to move to another place and organize an easy relocation across Canada with a few phone calls. While marital troubles are far from simple and pleasant, corporate divorces entail even more difficulties. Thus, it’s crucial to know how to address them.

Ways to resolve shareholder disputes in Alberta

If one or more shareholders decide to buy out a partner and continue to own the company, such shareholder disputes can be resolved in several ways:

  • Mutual agreement
  • Shotgun agreement
  • Minority rights
  • Litigation and ADR
  • Butterfly transaction
  • Liquidation
  • Selling to a third party
  • Informal wind-down

Which one will be the most appropriate will often depend on the relationship between the business partners.

Mutual agreement

This is by far the most efficient and the least costly way to transfer shares. This tactic implies that all parties are willing to negotiate and agree on a share value. In this case, the shares then transfer from one owner to the other.

Shotgun agreement

Usually, the selling and buying shares system has already been established and stated in a Unanimous Shareholders Agreement (USA). This document somewhat resembles the prenuptial agreement and outlines the steps which allow one of the shareholders to force the sale of shares. This process is called “shotgun agreement,” and it implies the following scenario. One shareholder offers the other to buy them out at a particular price per share. Then, the shareholder who has received the offer must either accept it or buy out the other shareholder at the same price.

Minority rights

Alberta Business Corporations Act and/or the Canada Business Corporations Act governs corporations in Alberta. These two legislative bodies impose that companies behave like good corporate citizens. It means they must consider shareholders’ and other stakeholders’ interests when conducting business. To ensure this, both of these pieces of legislation recognize an extensive array of corporate misconduct.

If a minority shareholder thinks that the company’s actions negatively impact their interests, there are different remedies to correct the issue. The problematic situation may involve an error, deletion, omission, or any other irregularity. The Court may order some other actions: meetings, investigations, derivative actions, arbitration, dissolution orders, the oppression remedy, interim and final relief orders, and appraisal remedies.

Oppression remedies

Oppression usually occurs if a group of shareholders abuses their power affecting other groups of shareholders negatively. So, the impacted party may file an appeal for the oppression order. The Alberta Business Corporations Act states all the requirements necessary for the grounds for this type of remedy. The Court will determine the appropriate oppression remedy upon closer examination of the facts. Typically, the Shareholder agreement sets the necessary grounds which can trigger an oppression remedy. As always, contracts and agreements are best dealt with in the presence of a lawyer.

Interim and final relief orders

The Court may order interim or final relief orders, which most commonly include:

  • Restraining the oppressive action
  • Share buy-out orders
  • Liquidation or dissolution orders
  • Order appointing a receiver
  • Order to replace the director

Litigation and ADR

Unless there is an oppression order from the Court, litigation cannot force the sale of shares. What litigation can do is pressure one party, which will lead to settlement negotiations.

Another option is for all parties to go to mediation, which is a more expeditious and cheaper way to resolve shareholder disputes than getting the Court involved.

Ending the business

The following few options involve closing the business one way or another. It happens in the case of serious disputes when resolution is improbable.

Butterfly transaction

In the case of a butterfly transaction, the disputed parties agree to divide the company into two separate entities. This process stipulated that both new companies have to continue the same business as the previous one. Although the asset division can be challenging, one significant advantage of this tactic is considerable tax savings.

Liquidation

In case of disputes where equal shareholders cannot reach any sort of agreement, the only solution that remains is liquidation. Either the Court will appoint a liquidator who will be in charge of selling the company assets, or the shareholders can vote to liquidate the company.

Selling to a third party

One way to end the dispute is also to sell company shares or assets to a third party. According to the Alberta Business Corporations Act, all shareholders have the right to vote for or against the sale.

Informal wind-down

The last option to resolve shareholder disputes is to gradually bring the company to a close. All the shareholders agree to pay off the creditors and stop company operations.

Final words

There are other ways to resolve shareholder disputes in Alberta, but these have been the most common tactics. Moreover, it is crucial to point out that some tax implications are involved in all of these actions. Therefore, a consultation with a tax advisor is highly advisable before any share transfers. Consultations with a lawyer are also necessary when taking any of the steps mentioned above. Finally, it’s necessary to underline that even when there is a shareholder agreement, different parties may interpret it differently, which often causes disputes.

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