Remedies for Excluded Directors and Officers

The law is equipped to urgently deal with unjust exclusions of directors and officers from corporations. However, the path to reinstating an unfairly excluded director or officer can vary in length and difficulty, depending on the facts and circumstances of an exclusion. Walker Law’s experienced commercial litigation lawyers are here to breakdown the remedies available for corporate directors and officers who are unfairly excluded from their corporations.

In this post, we will explore the expansive oppression remedy under s. 248 of the Ontario Business Corporations Act (“OBCA”), which presents the more traditional path. Then, we will explore a more direct path to reinstatement through s. 132 of the OBCA. This sort of commercial litigation can be lengthy, but obtaining an injunction while waiting for trial can make matters much more manageable.

The Traditional Path: Relief Under the Oppression Remedy – s. 248 of the OBCA

Whether an oppression remedy is owed to a claimant is a fact-specific question that looks into the reasonable expectations of the claimant.^[1] To show oppression, a claimant must prove the following:

• that the claimant had reasonable expectations; and
• that those expectations were violated in a way that is oppressive.

(1) What are Reasonable Expectations

Naturally, the next question to answer is what reasonable expectations can be. The Supreme Court of Canada (“SCC”) has held that reasonable expectations can be proved by pointing to, among other things, the nature of the corporation, the parties’ relationship, and past practices.^[2] For example, in the context of an excluded director or officer, the claimant could point to the nature of the relationship with other directors, as one of equal partnership, or the consistent access the claimant may have had to the corporation’s documents, staff, and decision-making process. Ultimately, the facts of each case determine what is reasonable to expect.

(2) Whether Reasonable Expectations are Violated

The SCC has held that it is not enough for reasonable expectations to be violated, but that they must be violated in a way that is oppressive, unfair, or disregards the excluded claimant’s interests.^[3] The types of violations listed often coincide.^[4] For instance, conduct that is oppressive often also disregards a claimant’s interests. The SCC has held that conduct that is harsh, or visibly departs from fair dealing, or is an abuse of power, are all examples of conduct that is oppressive.^[5]

Injunctions Under the Oppression Remedy

Once a claimant can show that they have been oppressed, they can seek relief under s. 248(3) of the OBCA. This section gives the court broad and flexible powers to remedy oppressive behaviour. In the context of a director or officer getting unfairly locked out of their corporation, the court can order an interim injunction (essentially, a pause) to undo the resolution that ousted the director or officer and have them reinstated. However, to obtain such an injunction, a claimant must bring a motion seeking it.

The courts borrow from the RJR-MacDonald test, used in traditional applications for interim or interlocutory injunctions, to find whether an injunction is appropriate. The test has three steps:

What About Injunctive Relief Under s. 101 of the Courts of Justice Act?

As we previously touched on above, injunctions sought under s. 248 are ordinarily expected to follow the RJR-MacDonald test for injunctions. However, there can be circumstances, under s. 248 applications, where a court can find that an interim injunction is warranted even without finding all the necessary elements of the RJR-MacDonald test.^[8] What this means is that, where possible, it makes more sense to seek injunctive relief through s. 248 of the OBCA rather than s. 101 of the Courts of Justice Act, as it may be a less challenging route to litigate. However, there is yet one more alternative that gives directors or officers an even easier path to reinstatement, should the facts align with their scenario.

A More Direct Path: Relief Under Breach of Conflict of Interest – s. 132 of the OBCA

Section 132 of the OBCA provides a much more direct path to reinstating an officer or director that has been unduly locked out, but it requires more specific facts.

Section 132(1) defines conflicted directors as directors who, directly or indirectly, have an interest in the outcome of a transaction or contract with the corporation. Further, this section requires conflicted directors to disclose the nature and extent of their interest.

Section 132(5) prohibits a conflicted director from voting on a resolution in which they have a vested interest. For example, in Penelas v Cruise, the defendant director breached this provision by voting on a resolution to exclude the plaintiff director, expanding his control of the corporation, and thereby gaining a financial advantage.^[9] The fact that the defendant director had an economic interest in the outcome of the resolution makes him a ‘conflicted director’ and prevents him from voting.

Finally, section 132(9) provides that, where a director fails to disclose conflicts and/or participates in a transaction or contract where they have an interest (even if disclosed), shareholders can apply to the court for an order to set aside (erase) the transaction and require the conflicted director to return any profits or gains they made due to the transaction. In this context, setting aside the transaction means reinstating the unfairly ousted director or officer.

What is a Transaction Under s. 132 of the OBCA?

The court has held that “transactions” under s. 132 should be interpreted broadly and, in fact, case law supports the argument that resolutions to remove a director or officer amount to transactions for the purpose of this section.^[10] The Ontario Superior Court has cited the Alberta King’s Bench (Court of Appeal), due to the similarities in Alberta’s Business Corporations Act, in support of that definition of “transactions”. The court in Venini v Venini held that so long as “the corporation’s business, affairs or powers is material and a director or officer is party to it”, the transaction is captured by Alberta’s equivalent to s. 132 of the OBCA. More specifically, the court explicitly considered the termination of relationships to be transactions.^[11]

The Key Takeaways – How A Director or Officer Can Get Reinstated Pending Trial

The oppression remedy under s. 248 of the OBCA allows courts to enforce reasonable expectations. In this context, an unduly ousted director or officer can seek an injunction through this remedy to be reinstated. However, a more direct path available is to apply for an order under s. 132(9) of the OBCA. This alternative path is open if a director or officer is ousted through a resolution that breaches the conflict-of-interest rules under s. 132(5).

If you have any questions or if you would like to learn more about the rights and duties of corporate directors and officers, then do not hesitate to contact Walker Law’s team of experienced commercial litigation lawyers.

^[1] BCE Inc v 1976 Debentureholders, 2008 SCC 69 at para 56 and 68.

^[2] BCE Inc v 1976 Debentureholders, 2008 SCC 69 at para 72.

^[3] BCE Inc v 1976 Debentureholders, 2008 SCC 69 at para 89.

^[4] BCE Inc v 1976 Debentureholders, 2008 SCC 69 at para 91.

^[5] BCE Inc v 1976 Debentureholders, 2008 SCC 69 at para 92.

^[6] RJR-MacDonald Inc v Canada (Attorney General), 1994 CanLII 117 (SCC) [RJR-MacDonald].

^[7] Loops LLC v Maxill Inc, 2020 ONSC 5438 at para 44.

^[8] Jonshal Enterprises Limited v JDH Holdings Limited, 2025 ONSC 3216 at para 37.

^[9] Penelas v Cruise, 2024 ONSC 6679 at para 106.

^[10] Penelas v Cruise, 2024 ONSC 6679 at paras 101 to 106.

^[11] Venini v Venini, 2023 ABKB 524 at para 84.

 

Tags: Civil Litigation Law, Commercial Litigation Law, Injunctions