Does the failure of a company to follow the legal formalities in the Canada Business Corporations Act, R.S.C. 1985 c. C-44 (“CBCA”) constitute oppression? The Supreme Court of Canada revisited the oppression remedy and concluded that it did not.

In Mennillo v. Intramodal Inc., 2016 SCC 51, the majority of the court outlined that the failure to follow certain formal requirements of the CBCA did not amount to oppression. The petitioner, one of two shareholders in the respondent, claimed he was oppressed as he was frozen out of equity participation in the respondent.

The trial judge concluded that the petitioner had agreed to remain a shareholder in the respondent so long as he guaranteed the respondent’s debts. The petitioner subsequently decided to stop guaranteeing the debts, resigned as a director and agreed to transfer his shares to the respondent’s controlling shareholder. Through an oversight of that shareholder’s lawyer, the appropriate paperwork was not completed to transfer the shares.

The affairs of the respondent company were “marked by extreme informality”. The transfer of the petitioner’s shares was not completed in accordance with the express requirements of the CBCA, including the endorsement of the petitioner on his share certificate.

However, even though those formalities were not complied with, the court found the petitioner had no reasonable expectation of being treated as a shareholder after agreeing to transfer his shares. The respondent’s failure to complete the “corporate formalities” did not constitute oppression and did not “strip” the petitioner of his status as a shareholder.

The decision reflected the equitable nature of the oppression remedy and that cases ought to be judged on the basis of business realities and not technicalities. However, the majority did not state that non-compliance with corporate legislation will never lead to an oppression remedy. A larger company, particularly one that is widely-traded, would likely be held to a higher standard with respect to adhering to corporate formalities than the company at issue in these proceedings.