A shareholder unable to sell their shares may seek a liquidation order under s. 324 of the BC Business Corporations Act as a remedy. A court can look at whether shareholder conduct contributed to the situation. The discretionary test is if it is “just and equitable” to grant an order.
In Castilloux v. Mitchell, 2024 BCSC 1985, Dan Castilloux was a senior manager of a family-owned printing company, Mitchell Press, in Burnaby, BC, run by his former father-in-law Howard Mitchell. After a restructuring, Howard retired and gifted most of the Mitchell companies’ shares to his children and to Dan.
Dan ran the Press’s operations, but Howard’s son David controlled 101 of 200 voting shares in the parent company. Dan controlled 99.
During COVID, tensions between Dan and David led David to resign as President, Dan agreeing to consult David on major company decisions. Instead, Dan froze David out of decisions, threatened to fire senior managers if they spoke to David, and conspired to take voting control of the business. Dan also refused to wear a mask or socially distance to attend work, instead regularly staying home, where he held company meetings without trying to minimize infections.
Dan ignored an offered severance package and, to wreak havoc on his way out, tried to fire, secretly, the CFO. David found out and Dan was fired for just cause.
Dan rejected the Mitchells’ share buyout offer, asking the court to liquidate the companies on the basis of alleged wrongful dismissal.
As there was no shareholders agreement, Dan’s rights were determined by the articles of incorporation. The court examined the following:
1. Partnership analogy
If a company historically operated as a quasi-partnership, and where mutual trust and confidence breaks down, a court may order liquidation. Dan was not a quasi-partner – the business was always led by a Mitchell, and Dan was only an employee before he was gifted shares in 2017. There was no harsh or burdensome conduct toward Dan, so the oppression remedy also did not apply.
2. Locked up shares
Dan could not monetize his shares without an accepted offer or liquidation, as the articles allowed David to block any share sale. The court refused to interfere. Dan could have obtained legal advice when he received the shares – a lawyer would likely recommend obtaining a shareholders agreement with share sale clauses.
3. Conduct
Dan’s basis for a liquidation order was wrongful dismissal, but his dismissal was justified due to his conduct, including insubordination, mischief, and health measure violations.
It was neither just nor equitable to grant, and Dan’s conduct disentitled him from, the remedy he sought.
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This case reminds us that when a senior employee is offered shares in a family company, they should consider what rights they will have to sell their shares on departure or if the employment relationship breaks down.
Further, a shareholder’s obstructive or outrageous conduct can influence whether a court grants a remedy.
Link to judgment: https://www.canlii.org/en/bc/bcsc/doc/2024/2024bcsc1985/2024bcsc1985.html
