The one thing about small privately held corporations is that the shares are not liquid. There is no ready market for such shares. The essence of the ordinary stock market is that shares are liquid and even there, you will find some shares are not liquid.
So what happens when there is a dispute about a closely held corporation? Can the minority shareholder or any shareholder force the other party to value and purchase the shares? This is a serious issue because of the aggressive approach taken by family court judges in Ontario. Numerous Ontario family law cases take it as a given that shares held by one party (usually the wife) must be forced- purchased by the husband. These forced-purchases are deeply problematic because the ‘valuation’ exercise creates an artificial price that often overvalues the asset. This is particularly the case in situations where the ‘valuation’ date (separation) differs from the trial date.
Often shareholders agreements contain forced sale provisions to deal with this exact scenario. What if the shareholders agreement does not contain a forced sale clause?
In Wilfred v. Dare (2018) 141 OR(3d) 345 the Ontario Divisional Court said that one shareholder could not force the other two shareholders to value and purchase her shares. The sister in the Dare cookie empire (family trust) tried to use s.248 of the Ontario Business Corporations Act, the ‘oppression’ remedy, to obtain a court-ordered buy-out from her brothers.
The judges said that the sister did not have a ‘reasonable expectation’ that her shares had to be purchased.
This is obviously the correct answer as the shareholders agreement was the opportunity to speak to forced-buyout. If the parties or the original creator of the trust (the father) chose to omit a forced-buyout clause, why should the court burden the remaining shareholders with this considerable obligation.
