Corporate Statutory Remedies: Dissent and Appraisal Rights, Compliance Orders, 'Winding-Up' Orders, and Investigation Orders

• Author: Christopher C. Nicholls
• Pages: 437-467

437

CHAPTER FOURTEEN

Corporate Statutory Remedies:

Dissent and Appraisal Rights,

Compliance Orders,

“Winding-Up” Orders, and

Investigation Orders

DISSENT AND APPRAISAL RIGHTS

Framing the Issue

The principle of majority rule has long been considered the very cornerstone of corporate

democracy. As discussed in chapter 13, at one time the courts so rigidly applied this

principle that minority shareholders were often forced to endure rather heavy-handed

treatment by the majority, treatment that today would no doubt form the basis of success-

ful oppression applications.

But majority corporate rule—even absent oppression—may not always be appropriate.

On occasion, a corporation’s controlling shareholders may favour some important cor-

porate changes—changes genuinely undertaken in the interests of the corporation as a

whole and in no way motivated by any desire to harm the minority (or with any reasonable

expectation that such harm will occur). Such changes may nevertheless be so fundamen-

tal that some minority shareholders may legitimately protest that the very nature of the

corporation in which they had chosen to invest is being altered against their will.

Recall, for example, the imaginary corporation discussed in chapter 6—Nothing But

Beer Brewing Inc. This corporation was created solely for the purpose of brewing beer.

Its articles of incorporation contained an unusual restriction, forbidding the corporation

from carrying on any other sort of business.

Suppose that shares in this company have been sold to investors. Some years have

passed. The beer brewing industry has fallen on hard times. The managers of Nothing

But Beer Brewing Inc.—with the best and most honourable of intentions—determine that

the company’s resources might be far more profitably employed in a very different line of

business—manufacturing shoes. The majority of the shareholders of Nothing But Beer

Brewing Inc. heartily endorse such a change. The prospects of financial success in the

Copyright © 2005 Emond Montgomery Publications. All Rights Reserved.

438 Chapter 14 Corporate Statutory Remedies

shoe manufacturing business are much brighter than in the moribund beer brewing

industry. However, a very small group of shareholders—holding less than 1 percent of

the total outstanding shares—are opposed to this dramatic shift in business focus. They

have no interest in being shareholders in a shoe manufacturer. They had only ever

intended to own shares in a beer brewing business. Indeed, they would never have

purchased their shares in the first place if they had known such a radical change in the

business might one day be undertaken.

The concerns of these small shareholders are no doubt legitimate. But, equally legiti-

mate are the views of the majority shareholders who may well feel that it is both

undemocratic and commercially unreasonable to give to every shareholder—no matter

how small his or her investment in the company—a sort of perpetual veto over important

corporate changes.

The law in such cases might well have rigidly adhered to the paramountcy of corporate

majority rule. Minority shareholders might then have been required in every case to accept

the will of the majority (at least in the absence of oppression) as the fair and inevitable

consequence of their decision to invest in a capital-pooling vehicle such as a business

corporation. Alternatively, the law might—with equal justification—have decreed that,

while majority rule is appropriate for most corporate decisions, when the very essence of

the corporation itself is to be undermined by a proposed transaction, nothing short of

unanimous consent will suffice. Or, to put it differently, all shareholders might be said to

enjoy a kind of “vested right” in their property that cannot be altered by majority vote.1

In fact, the CBCA—and those provincial statutes that emulate it—chose a third route

that steers an intermediate course between these two equally rational, but inflexible,

extremes.

The shareholder dissent right and appraisal remedy is the means by which the CBCA

attempts to reconcile the competing values of majority rule and fair recognition of the

legitimate concerns of minority investors when the fundamental nature of their invest-

ment is to be changed. The dissent and appraisal remedy, accordingly, permits the

majority to make whatever fundamental changes to the business they deem appropriate,

but accords to the minority in the case of certain fundamental changes a right that

ordinary equity holders normally2 do not enjoy—namely, the right to demand that their

shares be repurchased by the company and their capital returned to them.3

1See Robert W.V. Dickerson et al., Proposals for a New Business Corporations Law for Canada, vol. I,

Commentary (Ottawa: Information Canada, 1971), at para. 344 (Dickerson committee).

2Of course, corporations can create shares with so-called retraction rights—that is, features that would

permit the shareholder, subject to certain conditions, to require the corporation to redeem his or her

shares at a price fixed by the share conditions. But common or ordinary shares—as those terms are

conventionally used—would not typically provide retraction rights. More important, however, the dis-

sent and appraisal right permits shareholders to require the corporation to repurchase their shares

notwithstanding that the shares themselves do not purport to grant the shareholders any such rights.

3Dickerson committee, supra footnote 1, at para. 347.

Copyright © 2005 Emond Montgomery Publications. All Rights Reserved.