Legal Blog

Oppression

We have previously discussed how the oppression remedy can be used to obtain judgments against directors and officers of a corporation (Gignac Sutts and Woodall Construction Co. v. Harris, October 1998 newsletter). The latest case on the oppression remedy under the Business Corporations Act, Levy-Russell Ltd. v. Shieldings Inc., an unreported 1998 Ontario Court (General Division) decision, deals with the use of the remedy by an “involuntary creditor”.

Involuntary Creditor

An involuntary creditor is a fancy name for a judgment creditor. The debt is incurred after the creditor sues the debtor (for example, in tort or contract) and obtains a judgment. A voluntary creditor is a creditor in the normal course of a credit arrangement (e.g. bank and customer).

Facts

The applicant creditor obtained a judgment for breach of fiduciary duty after a long battle against a corporation. The applicant alleged that, in the interim, the corporation had established a cosy relationship with its bank and conducted its affairs to assist the bank, at the expense of the soon-to-be judgment creditor. Once the applicant obtained judgment, the corporation went into receivership and the bank was the only secured and unsecured creditor – other than the applicant. Rather than commence an action alleging a fraudulent conveyance or preference, the applicant commenced an application for oppression. The tests are much broader in an oppression application and more defendants can be ensnared by the application.

The defendants moved to dismiss the application arguing that the applicant was not a complainant under the Act.

Voluntary-Involuntary

A voluntary creditor can, in some cases, be classified as a claimant. However, the courts do not want the oppression remedy being used for debt collection. Accordingly, a voluntary creditor must show that (i) the creditor’s interest in the manner in which the affairs of the corporation were conducted was not too remote, (ii) the complaints of the creditor were related in some way to the circumstances giving rise to the debt, and (iii) the corporation acted in bad faith.

The trial judge decided that an involuntary claimant should be treated differently. An involuntary claimant is more akin to a minority shareholder. It has a direct financial interest in how the corporation is managed; it has no legal right to influence what it views as abuses of management, contrary to the corporation’s interests; and it has a reasonable expectation that the corporation’s affairs be conducted with a view to protecting its interests.

Continue

The judge ruled that the application could continue.