2008 BCSC 353 Park v. FinancialCAD Corporation

Before: The Honourable Mr. Justice Pitfield

Reasons for Judgment

Counsel for the Petitioners in Action S075887, and the Respondents in Action S075348 except FinancialCAD Corporation:	D.B. Kirkham, Q.C.
Counsel for the Respondent FinancialCAD Corporation:	J.C. McArthur
Counsel for the Petitioners in Action S075348:	B.D.M. Loewen
Date and Place of Hearing:	January 21, 22, 2008
	Vancouver, B.C.

Introduction

[1] These petitions arise from the fact that FinancialCAD Corporation (“FinCAD”), a company engaged in the business of providing software and services to support the valuation and risk management of financial securities and derivatives, amended its articles to include restrictions on the transferability of the company’s issued shares.

[2] The petitioners in Petition S075348 (the “Davidson Petitioners” and the “Davidson Petition”, respectively) own approximately 30.11% of the issued FinCAD share capital. They apply for a declaration that the amendment to the articles entitled them to pursue the dissent rights conferred by s. 190 of the Canada Business Corporations Act, R.S.C. 1985, c. C-44 (the "CBCA"), a declaration that FinCAD failed to properly endorse share certificates owned by six of the petitioners following adoption of the amendment by special resolution, and an order that FinCAD reissue those certificates with proper endorsements.

[3] The petitioners in Petition S075887 (the “Park Petitioners” and the “Park Petition”, respectively) own approximately 59.05% of the issued FinCAD share capital. Their petition was filed subsequent to the Davidson Petition. The Park Petitioners apply for an order rescinding the special resolution that resulted in the amendment, an order declaring that the dissents of the dissenting shareholders are void, and an order directing the Director of the CBCA to cancel the articles of amendment and the resulting certificate of amendment. The Park Petitioners say that FinCAD, its directors, and the shareholders who voted in favour of the amendment did not know and had not been advised that adoption of the amendment would trigger the right to dissent. Those who were FinCAD directors at the time claim that they would not have proposed the special resolution had they known of the consequences. FinCAD supports the Park Petitioners.

[4] The question for determination is whether the court has the jurisdiction entitling it to exercise discretion to rescind the special resolution, and if so, whether that discretion should be exercised in order to nullify the resolution.

Background

[5] When FinCAD was incorporated in British Columbia in 1990, its articles stipulated that the directors, in their absolute discretion, could decline to register any transfer of shares. At the outset, the principal shareholders were David Glassco and Robert Park who now own 24.4% and 15%, respectively, of FinCAD’s shares.

[6] On August 3, 1994, Mr. Glassco, Mr. Park, 554252 Saskatchewan Ltd. which was a company controlled by William Stevenson who is named in the Park Petition, Ron Butterley whose successor in title is Sandee-Jo Butterley named in the Park Petition, and FinCAD entered into a shareholders agreement which stipulated, among other things, that neither Mr. Glassco nor Mr. Park was permitted to transfer FinCAD shares without the consent of 554252 Saskatchewan Ltd. and Ron Butterley. Section 3.2 of the agreement provided as follows:

3.2 Restriction on Transfer

Neither Glassco nor Park shall assign, transfer, or otherwise alienate or dispose of any portion of the shares held by them in the Corporation without the prior written approval of the Subscribing Shareholders, which, in the event of a transfer following the death or incapacity of the proposed assignee or transferee shall not be unreasonably withheld.

[7] The shareholders agreement was in force on May 12, 2000, when FinCAD was continued under the CBCA. Unlike the original British Columbia articles, neither the articles of continuance nor any bylaw filed in relation to the continuance contained a restriction on the transfer of shares. There is no evidence to support a claim that removal of the restriction on transfer was an oversight.

[8] In April 2003, FinCAD terminated Mr. Glassco's employment. Thereafter, FinCAD claimed that the shareholders agreement prevented Mr. Glassco from selling his shares without the required approval which was not forthcoming. On November 21, 2005, FinCAD offered to purchase all of Mr. Glassco’s shares at a price of 15 cents per share or a total of $1,199,700. He did not accept the offer.

[9] In August 2006, Mr. Glassco informed FinCAD of his view that he was no longer bound by the 1994 shareholders agreement. On August 23, 2006, FinCAD advised Mr. Glassco that it intended to adhere to the terms of the agreement until it was terminated by all parties to it, or until FinCAD was provided with a court order declaring that the agreement was of no force and effect.

[10] On September 19, 2006, the FinCAD directors passed the following resolution:

After discussion, Management was advised to instruct counsel to prepare a change to the by-laws that require [sic] Directors approval for the transfer of shares in order to prevent the sale of shares to a party not in the best interest of the shareholders as a whole. This change is to be included in the information circular for the next annual general shareholder meeting.

[11] The uncontradicted evidence is that when the resolution was passed, the directors were not aware that adoption of the proposed amendment would trigger the statutory right to dissent.

[12] In December 2006, Mr. Glassco filed a petition seeking a declaration that the shareholders agreement was of no force and effect. The petition was heard by Beames J. on May 31 and June 1, 2007. Judgment was reserved and has not been pronounced.

[13] A draft Information Circular was prepared in anticipation of a FinCAD annual general meeting to be held in June 2007. The draft omitted any reference to the amendment that had been authorized by the September 19, 2006 directors’ resolution. As a result, the directors passed the following resolution on May 1, 2007:

13. Annual General Meeting

Upon review of the draft Information Circular it was determined that the circular should be amended to include a special resolution as requested in the September 19th Board of Directors meeting to change the by-laws to require Directors approval for the transfer of shares in order to prevent the sale of shares to a party not in the best interest of the shareholders as a whole.

[14] On May 25, 2007, the directors approved an amended Information Circular and related material advising of the proposed amendment to the articles. A notice of meeting, the Information Circular, and a form of proxy were mailed to shareholders on June 4, 2007. The notice of meeting advised of the intention to present the following special resolution:

Be it resolved that:

Section 4 of the Corporation's articles is hereby amended to add the following:

No securities (other than non-convertible debt securities) of the corporation shall at any time be transferred to any person without the consent of the directors to be signified by a resolution passed by the board or by any instrument or instruments in writing signed by a majority of the directors.

[15] None of the material advising shareholders of the meeting referred to the fact that adoption of the special resolution amending the FinCAD articles would trigger the right to dissent. The right to dissent was not raised or discussed at the annual general meeting. The special resolution was passed by the requisite two-thirds majority at the annual general meeting held June 26, 2007. None of the Davidson Petitioners attended that meeting in person or by proxy.

[16] The solicitor who advised FinCAD regarding the amendment deposed as follows in relation to the omission to include a reference to dissent rights in the Information Circular provided to shareholders:

8. Until July 4, 2007, I did not appreciate that the Special Resolution and amendment to the Articles would trigger dissent rights under the CBCA, although I was familiar with other corporate actions that trigger dissent rights under the CBCA. As a result, I did not advise FinCAD, or any of its officers, directors, or employees that dissent rights would be triggered by the passage of the Special Resolution and resulting amendment to the Articles, nor did I include information respecting dissent rights in the Information Circular.

[17] Mr. Glassco did not depose to the time at which he learned that adoption of the special resolution would trigger the right to dissent. However, on June 26^th, counsel acting on his behalf wrote to counsel for FinCAD asking whether the special resolution had been passed. On the same date counsel for FinCAD confirmed adoption of the resolution. The amendment became effective June 29, 2007, when the required documentation was filed with the Director as required by the CBCA. On July 4, 2007, counsel wrote to FinCAD advising that Mr. Glassco was exercising his right to dissent. FinCAD responded on July 12, 2007, saying that it reserved the right to seek rescission of the resolution, and that it was unable to lawfully pay dissenting shareholders because of s. 190(26) of the CBCA. The section prohibits payments to dissenting shareholders if, as a consequence, the company would be unable to pay its liabilities as they become due, or the realizable value of the company’s assets, after payment, would be less than the aggregate of its liabilities.

[18] Between July 4 and 9, 2007, Mr. Glassco advised the other Davidson Petitioners of his dissent. On or about July 16, 2007, those petitioners advised FinCAD that they also dissented. The FinCAD response to those dissents was similar to its response to Mr. Glassco.

[19] On the affidavit evidence filed in support of both petitions, I find that Mr. Glassco knew in advance of the annual general meeting that adoption of the special resolution would trigger the right to dissent. I find that the other Davidson Petitioners learned on or after July 4, 2007 that adoption of the resolution would trigger the right to dissent.

[20] FinCAD was ambivalent regarding its position in the face of Mr. Glassco’s dissent. On July 30, 2007, counsel for FinCAD advised Mr. Glassco’s counsel that Mr. Glassco would not be afforded access to any FinCAD corporate records because he had ceased to be a shareholder as a consequence of exercising the right to dissent. On August 13, 2007, counsel on behalf of FinCAD wrote to counsel for Mr. Glassco saying that because the company regarded the special resolution to be void ab initio, Mr. Glassco continued to enjoy all the rights of a shareholder and would be afforded access to the records to which he was entitled.

[21] The Davidson Petitioners filed the Davidson Petition naming FinCAD as the sole respondent on August 7, 2007. FinCAD entered an appearance on August 13, 2007. Rather than formally responding to the Davidson Petition, the directors and some shareholders filed the Park Petition, which is in the nature of a counter-petition, on August 31, 2007.

Summary of Claims

[22] The Davidson Petitioners claim that the special resolution amending the articles should not be rescinded because:

(a) the restriction on share transfer without the approval of the directors had been removed from the articles when FinCAD was continued under the CBCA;

(b) at the time Mr. Glassco’s employment was terminated, the only constraint on the transfer of his shares was that stipulated in the shareholders agreement;

(c) the directors’ decision to amend the articles followed upon Mr. Glassco’s refusal to accept the company’s offer to purchase his shares, and his advice to FinCAD that he intended to dispute the efficacy of the shareholders agreement;

(d) the fact that FinCAD and its directors had not been made aware of the fact that an amendment to the articles would trigger the right to dissent resulted from a solicitor’s negligence;

(e) dissent rights, once triggered, are irrevocable; and

(f) if dissent rights can be revoked, the equities do not favour revocation by rescission of the special resolution because the decision to amend the articles to include a restriction on transfer was the result of the directors’ effort to thwart Mr. Glassco’s right to transfer shares in the event the shareholders agreement was declared to be of no force and effect because of the termination of Mr. Glassco’s employment.

[23] The Park Petitioners claim that the special resolution should be rescinded because:

(a) FinCAD acted in contravention of the CBCA by failing to disclose the general effect of the proposed amendment on the rights of existing security holders and all other information material to the proposed modification;

(b) FinCAD acted in contravention of its bylaws by failing to set forth in the notice of annual general meeting information in sufficient detail to permit the shareholders to from a reasoned judgment regarding the proposal;

(c) the failure of the Information Circular to advise shareholders that the amendment would trigger dissent rights was a contravention of the CBCA and the company’s bylaws;

(d) the directors were unaware of the consequences associated with the amendment; and

(e) in the circumstances, s. 247 of the CBCA permits rescission of the special resolution and the amendment.

Analysis

[24] Section 190 of the CBCA governs the right to dissent asserted by the Davidson Petitioners. For present purposes, the relevant provisions are the following:

190. (1) Subject to sections 191 and 241, a holder of shares of any class of a corporation may dissent if the corporation is subject to an order under paragraph 192(4)(d) that affects the holder or if the corporation resolves to

(a) amend its articles under section 173 or 174 to add, change or remove any provisions restricting or constraining the issue, transfer or ownership of shares of that class;

(b) amend its articles under section 173 to add, change or remove any restriction on the business or businesses that the corporation may carry on;

(d) be continued under section 188;

(e) sell, lease or exchange all or substantially all its property under subsection 189(3); or

(f) carry out a going-private transaction or a squeeze-out transaction.

...

Payment for shares

(3) In addition to any other right the shareholder may have, but subject to subsection (26), a shareholder who complies with this section is entitled, when the action approved by the resolution from which the shareholder dissents or an order made under subsection 192(4) becomes effective, to be paid by the corporation the fair value of the shares in respect of which the shareholder dissents, determined as of the close of business on the day before the resolution was adopted or the order was made.

...

Objection

(5) A dissenting shareholder shall send to the corporation, at or before any meeting of shareholders at which a resolution referred to in subsection (1) or (2) is to be voted on, a written objection to the resolution, unless the corporation did not give notice to the shareholder of the purpose of the meeting and of their right to dissent.

...

Demand for payment

(7) A dissenting shareholder shall, within twenty days after receiving a notice under subsection (6) or, if the shareholder does not receive such notice, within twenty days after learning that the resolution has been adopted, send to the corporation a written notice containing

(a) the shareholder’s name and address;

(b) the number and class of shares in respect of which the shareholder dissents; and

Share certificate

(8) A dissenting shareholder shall, within thirty days after sending a notice under subsection (7), send the certificates representing the shares in respect of which the shareholder dissents to the corporation or its transfer agent.

...

Endorsing certificate

(10) A corporation or its transfer agent shall endorse on any share certificate received under subsection (8) a notice that the holder is a dissenting shareholder under this section and shall forthwith return the share certificates to the dissenting shareholder.

Suspension of rights

(11) On sending a notice under subsection (7), a dissenting shareholder ceases to have any rights as a shareholder other than to be paid the fair value of their shares as determined under this section except where

(a) the shareholder withdraws that notice before the corporation makes an offer under subsection (12),

(b) the corporation fails to make an offer in accordance with subsection (12) and the shareholder withdraws the notice, or

(c) the directors revoke a resolution to amend the articles under subsection 173(2) or 174(5), terminate an amalgamation agreement under subsection 183(6) or an application for continuance under subsection 188(6), or abandon a sale, lease or exchange under subsection 189(9),

in which case the shareholder’s rights are reinstated as of the date the notice was sent.

Offer to pay

(12) A corporation shall, not later than seven days after the later of the day on which the action approved by the resolution is effective or the day the corporation received the notice referred to in subsection (7), send to each dissenting shareholder who has sent such notice

(a) a written offer to pay for their shares in an amount considered by the directors of the corporation to be the fair value, accompanied by a statement showing how the fair value was determined; or

(b) if subsection (26) applies, a notification that it is unable lawfully to pay dissenting shareholders for their shares.

...

Corporation may apply to court

(15) Where a corporation fails to make an offer under subsection (12), or if a dissenting shareholder fails to accept an offer, the corporation may, within fifty days after the action approved by the resolution is effective or within such further period as a court may allow, apply to a court to fix a fair value for the shares of any dissenting shareholder.

Shareholder application to court

(16) If a corporation fails to apply to a court under subsection (15), a dissenting shareholder may apply to a court for the same purpose within a further period of twenty days or within such further period as a court may allow.

...

Limitation

(26) A corporation shall not make a payment to a dissenting shareholder under this section if there are reasonable grounds for believing that

(a) the corporation is or would after the payment be unable to pay its liabilities as they become due; or

(b) the realizable value of the corporation’s assets would thereby be less than the aggregate of its liabilities.

[25] By virtue of s. 190(1), the right to dissent has accrued to the Davidson Petitioners and will only be vitiated if the special resolution is rescinded or nullified. The Park Petitioners claim that rescission or nullification is permitted by s. 247 of the CBCA which provides as follows:

Restraining or Compliance Order

247. If a corporation or any director, officer, employee, agent, auditor, trustee, receiver, receiver-manager or liquidator of a corporation does not comply with this Act, the regulations, articles, by-laws, or a unanimous shareholder agreement, a complainant or a creditor of the corporation may, in addition to any other right they have, apply to a court for an order directing any such person to comply with, or restraining any such person from acting in breach of, any provisions thereof, and on such application the court may so order and make any further order it thinks fit.

[26] The Park Petitioners claim that s. 247 is engaged because FinCAD breached the CBCA, the Canada Business Corporations Regulation, 2001-SOR/2001-512 (the “Regulation”), and the company’s by-laws by omitting to advise shareholders that adoption of the special resolution would trigger the right to dissent. Specifically, they say that:

1. FinCAD unlawfully solicited proxies by means of a proxy circular in the form of the Information Circular that did not contain prescribed information. Section 150(1) of the CBCA and s. 57(z) of the Regulation provide as follows:

Soliciting proxies

150(1) A person shall not solicit proxies unless

(a) in the case of solicitation by or on behalf of the management of a corporation, a management proxy circular in prescribed form, either as an appendix to or as a separate document accompanying the notice of the meeting, or

(b) in the case of any other solicitation, a dissident’s proxy circular in prescribed form stating the purposes of the solicitation

is sent to the auditor of the corporation, to each shareholder whose proxy is solicited, to each director and, if paragraph (b) applies, to the corporation.

57 A management proxy circular shall contain the following information:

...

(z) if action is to be taken under section 173 or 174 of the Act to modify the rights, privileges, restrictions or conditions attached to any class of securities of the corporation or to authorize or issue securities in order to exchange them for other securities of the corporation,

(i) the designation and number or amount of outstanding securities that are to be modified, and, if securities are to be issued in exchange, the designation and number or amount of securities to be exchanged and the basis of the exchange,

(ii) details of material differences between the outstanding securities and the modified or new securities,

(iii) the reasons for the proposed modification or exchange and the general effect on the rights of existing security holders,

(iv) a brief statement of arrears in dividends or of defaults in principal or interest in respect of the outstanding securities that are to be modified or exchanged, and

(v) all other information material to the proposed modification or exchange, including, if the corporation is a distributing corporation, information required to be included in a prospectus or other similar document under the securities laws of any of the provinces of Canada, unless an exemption from the laws is available or a waiver of the laws or similar relief is granted by the relevant provincial securities regulator; ...

2. FinCAD omitted to comply with Article 10.4 of its By-law No. 1 which provides as follows:

...Notice of a meeting of shareholders called for any purpose other than consideration of the financial statement and auditor's report, election of directors and reapportionment of the incumbent auditor shall state the nature of the business to be transacted in sufficient detail to permit the shareholders to form a reasoned judgment thereon, and shall state the text of any special resolution to be submitted to the meeting...

[27] The fact of that there were breaches of the CBCA and the Regulation is not disputed. That being the case, the assessment of the Park Petitioners’ claim must begin with a consideration of the proper interpretation to be afforded s. 247 of the CBCA.

[28] Section 247 permits a “complainant” to seek redress in the event “a corporation or any director, officer, employee, agent, auditor, trustee, receiver, receiver-manager or liquidator of a corporation” fails to comply with the CBCA or the regulations, or the articles or by-laws of the corporation.

[29] A complainant is defined by s. 238 as follows:

238 In this Part,

"complainant" means

(a) a registered holder or beneficial owner, and a former registered holder or beneficial owner, of a security of a corporation or any of its affiliates,

(b) a director or an officer or a former director or officer of a corporation or any of its affiliates,

(d) any other person who, in the discretion of a court, is a proper person to make an application under this Part.

[30] Section 247 contemplates the restraint of action by any of the named persons, or an order requiring a named person to comply with the CBCA or the regulations, or with a company’s articles and by-laws. It does not expressly confer jurisdiction on the court to exercise discretion to rescind or nullify the special resolution adopted by the shareholders in this case. There is no provision in the CBCA which stipulates that any resolution of shareholders adopted without strict compliance with all of the provisions of the statute and the regulations, or the articles and by-laws of the company is a nullity and void ab initio. Likewise, there is no provision in the CBCA which empowers the court to ratify resolutions of shareholders which appear to have been adopted other than in strict compliance with the statutory and regulatory requirements. In that respect, the CBCA differs from some of its provincial counterparts: see, for example s. 229 of the Business Corporations Act, S.B.C. 2002, c. 57.

[31] In my opinion, s. 247 can only be construed to confer a discretion on the court to nullify or rescind a resolution by reading the word “and” in the last line disjunctively so that it means “or”, and by reading the word “further” to mean “other”. Construed in that manner, the discretion conferred on the court would be the following:

…on such application the court may so order [or] make any [other] order it thinks fit.

[32] In my opinion, because of the grant of the power in the context of restraining and compliance orders, the reading or modification that is required to provide the result urged by the Park Petitioners exceeds the reasonable limits of statutory interpretation. If follows that s. 247 must be construed to permit the court to restrain action or order compliance with some aspect of corporate governance, and to make any complementary order that is reasonably required in relation to the restraining or compliance order. Section 247 cannot provide the remedy which the Park Petitioners seek.

[33] At the same time, the court should not be deprived of the ability to rescind or nullify, in appropriate circumstances, corporate acts that result from a contravention of, or failure to comply with, the CBCA or the Regulation; or a contravention of, or failure to comply with, the articles or the by-laws; as was the case with the amendment to the FinCAD articles. In my opinion, the court must rely upon its inherent jurisdiction, rather than jurisdiction derived from a statutory discretion, to nullify an amendment to the articles resulting from the adoption of a special resolution by a company’s shareholders.

[34] Section 247 and its counterparts in provincial jurisdictions, have been the subject of infrequent judicial consideration. However, those cases that have considered comparable provincial legislation support the principles I have stated.

[35] In Caleron Properties Ltd. v. 510207 Alberta Ltd., 2000 ABQB 720, 278 A.R. 316, a shareholder, Caleron, applied for an order pursuant to s. 240 of the Alberta Business Corporations Act, S.A. 1981, B-15, directing certain directors of 510207, and anyone acting on their behalf, to comply with the by-laws of the corporation and the Act. In that instance, the company’s articles provided that holders of Class A shares were entitled to elect four directors and the holders of the Class B shares, one director, and stipulated that all matters coming before the board would be decided by majority vote. A resolution amending the by-laws of 510207 was adopted at an annual and special meeting of shareholders. The amendments specified a quorum and granted signing authority to Caleron’s principal shareholder. Two board meetings were conducted in a manner that did not conform to the by-law. Caleron, one of the proponents of the amending resolution, applied for an order compelling compliance. The company opposed the application saying that the amendment to its by-laws did not comply with the company’s articles. The court it was concerned with two issues: whether it had jurisdiction to rule on the validity of the by-law amendments and to order compliance if they were valid; and, if it had such jurisdiction, whether the amendments to the by-laws which were passed by a majority of shareholders were valid and binding on the company and its directors.

[36] In Caleron, the validity of the amendments to the by-laws was clearly raised by both parties. The question of whether the validity of the by-law could be resolved by application under s. 240 of the Alberta statute, or by reliance upon the court’s inherent jurisdiction was squarely before the court.

[37] The court remarked that “it would seem logical that when a court is deciding whether to exercise its discretion to enforce a corporation’s by-laws or articles, an inquiry into their legality will at times be a necessary part of the process”: para. 32. The court also stated that as a superior court of general jurisdiction, it had the powers necessary to do justice between the parties. The court then said the following at paras. 39 and 40:

There are no unequivocal terms divesting this Court of its universal jurisdiction to rule on the validity of a corporation’s by-laws, either in s. 240 or in any other section of the [Alberta Business Corporations Act].

Based on the foregoing, analysis, I conclude that this Court has the jurisdiction to rule on the validity of the by-law amendments and order compliance with them if it finds the by-law amendments to be valid.

[38] The court concluded that the portions of the by-law amendments pertaining to the quorum at a directors meeting and signing authority were ultra vires the articles of the company and the Act. The court declared those amendments to be void and of no force and effect. If found that other portions of the amendments did not conflict with the Act or the articles. Consequently, the court ordered the directors to comply with the amendments that it determined to be lawful.

[39] As I construe the reasons, the court in Caleron relied upon its inherent jurisdiction to strike down certain amendments preliminary to granting an order under s. 240 of the Alberta Business Corporations Act requiring the directors to comply with the by-laws the court determined to be lawful. The court did not rely on s. 240 of the Alberta Act to nullify the amendments.

[40] The approach outlined in Caleron was adopted by this court in D&G Developments Ltd. v. Crystal Cove Beach Resorts Inc., 2006 BCSC 1432, 274 D.L.R. (4th) 749. In that case, the court relied upon s. 228 of the Business Corporations Act, S.B.C. 2002, c. 57, the provincial counterpart to s. 247 in the CBCA, to order one Bergen to cease paying, or causing the company to pay, management fees to himself or any corporation in which he had an interest, and to cease causing the company to pay him or a company he controlled any amount for expenses not incurred in or about the business of the company.

[41] The court also required Bergen to repay management fees and expenses which had been paid to him in contravention of provisions in the company’s articles. The consequential order typifies the exercise of the power conferred on the court by s. 228 of the Business Corporations Act, and s. 247 of the CBCA, to make “any further order it thinks fit” when making a restraining order.

[42] Counsel for the Park Petitioners cited Re Trader Resource Corp., [1988] B.C.J. No. 1097 (QL) (B.C.S.C. Chambers) as authority for the proposition that the court could rely on s. 247 to nullify the election of directors for staggered terms of more than one year in contravention of the company’s articles which provided that directors should be elected annually for a term of one year. I do not find the decision to be persuasive in present circumstances. The ruling was made in response to an application under s. 230 of the Company Act, R.S.B.C. 1979, c. 59 (repealed), which authorized the court to rectify errors, defects, or irregularities in process. The court concluded that the application should be granted as the action had been taken in contravention of the articles. As a consequence, it declared that each of those elected would hold office for a period of one year.

[43] For similar reasons, I do not find the case of U.S. Gold Corp. v. Atlanta Gold Corp. (1989), 43 B.C.L.R. (2d) 71 (C.A.) to be of assistance. That case was also concerned with s. 230 of the former British Columbia Company Act for which there appears to be no equivalent in the CBCA. However, the decision is helpful for its statement that in exercising discretion in relation to the affairs of a corporation, the court must have regard for the interests of the company and its shareholders.

[44] In this case, the Park Petitioners do not seek a restraining or compliance order. Rather, they seek nullification of a special resolution in order to restore articles that contain no restriction on the transfer of shares. I find the reasoning in Caleron to be persuasive. In my opinion, s. 247 of the CBCA cannot be relied upon to achieve the result urged by the Park Petitioners. If the amendment to the articles is to be rescinded or annulled, the result must flow from the exercise of the court’s exercise of its inherent power as a superior court of general jurisdiction.

[45] I also conclude that the Park Petitioners are not entitled to relief under s. 265.1 of the CBCA which provides as follows:

265.1 (1) In the prescribed circumstances, the Director may cancel the articles and related certificate of a corporation.

No prejudice

(2) Before proceeding under subsection (1), the Director must be satisfied that the cancellation would not prejudice any of the shareholders or creditors of the corporation.

Request to Director to cancel articles

(3) In the prescribed circumstances, the Director may, at the request of a corporation or of any other interested person, cancel the articles and related certificate of the corporation if

(a) the cancellation is approved by the directors of the corporation; and

(b) the Director is satisfied that the cancellation would not prejudice any of the shareholders or creditors of the corporation and that the cancellation reflects the original intention of the corporation or the incorporators, as the case may be.

Application to court

(4) If, in the view of the Director, of the corporation or of any interested person who wishes a cancellation, a cancellation of articles and a related certificate would prejudice any of the shareholders or creditors of a corporation, the Director, the corporation or the person, as the case may be, may apply to the court for an order that the articles and certificate be cancelled and for an order determining the rights of the shareholders or creditors.

[46] The prescribed circumstances to which reference is made in s. 265.1(1) and (3) are specified in s. 96 of the Regulation which provides as follows:

96(1) For the purpose of subsection 265.1(1) of the Act, the prescribed circumstances are that

(a) the error is obvious;

(b) the error is made by the Director;

(d) the Director lacked the authority to issue the articles and related certificate.

(2) For the purpose of subsection 265.1(3) of the Act, the prescribed circumstances are that

(a) there is no dispute among the directors or shareholders on the circumstances of the request for cancellation; and

(b) the corporation has not used the articles and related certificate, or, if it has, if anyone dealing with the corporation on the basis of the articles and related certificate has consented to the cancellation.

[47] This is not an instance in which the error is obvious, the error was made by the Director, or the Director lacked the authority to issue the articles and related certificate. The only other prescribed circumstance is an order of the court directing cancellation of the articles and the related certificate which returns us, full circle, to the exercise of the court's general or inherent jurisdiction.

[48] The Director has advised that he will act upon any order the court may make regarding the cancellation of the amendment to the articles and the related certificate. In so stating, the Director has acknowledged that the order will be sufficient to satisfy him that the court has considered the potential for prejudice to shareholders and has concluded that any prejudice which results should not prevent cancellation of the articles or the amendment.

[49] In the result, s. 265.1 cannot be regarded as a statutory provision that justifies rescission of the special resolution and the resulting amendment to the FinCAD articles.

[50] The position of the Davidson Petitioners is different. Those petitioners satisfy the definition of “complainant” in s. 238 of the CBCA. In substance, they seek an order requiring FinCAD to comply with the provisions of s. 190 of the CBCA. In my opinion, it is appropriate for them to rely on s. 247 for the order they seek.

[51] In the result, the court’s task in this case is to decide whether or not to exercise its inherent jurisdiction to rescind or annul the special resolution, thereby nullifying the amendment to the articles. If the resolution is not rescinded, the Davidson Petitioners will be entitled to appropriate relief under s. 247 of the CBCA.

[52] I am satisfied that in deciding whether or not I should exercise my discretion to rescind, I must act judicially with appropriate regard for the interests of the company and all of its shareholders: see U.S. Gold Corp., supra.

[53] The factors that weigh in favour of rescission are the following:

1. Holders of approximately 30% of the issued FinCAD shares have claimed the right to dissent. Mr. Glassco is the most significant of the dissenting shareholders, owning as he does, approximately 24.5% of the issued FinCAD shares and approximately 82% of the shares held by all of the dissenters.

2. Mr. Glassco agreed to restrain his ability to transfer shares when he became a party to the 1994 shareholders agreement. If the amendment is not nullified, the resulting right to dissent will permit him to circumvent the restriction on the transferability of his shares, assuming that the shareholders agreement survived the termination of his employment.

3. While Mr. Glassco knew, some time before the annual general meeting, that the amendment would benefit him, he acted in manner that would not deter adoption of the resolution by remaining silent on the question of its effect, and by declining to attend the annual general meeting to vote for or against the resolution.

4. The evidence of the directors is that if they had been advised that the amendment would trigger the right to dissent, they would not have presented the proposed amendment to shareholders.

5. The price at which FinCAD will be obliged to purchase the dissenters’ shares and the effect of the purchase upon the ongoing viability of the company are uncertain. The amount to be paid to the dissenting shareholders may impose an unacceptable financial burden upon the company, possibly of a magnitude that it cannot discharge.

[54] The factors that weigh in favour of refusing to exercise discretion to rescind or nullify the special resolution and the amendment are the following:

1. Nothing in the CBCA suggests that failure to notify shareholders that the right to dissent will arise in the event of certain corporate acts necessarily means that the act will be invalid. To the contrary, s. 175(2) provides that the failure to notify shareholders of the right to dissent in circumstances where a director or shareholder, as opposed to the company itself, makes a proposal to amend the articles does not invalidate the resulting amendment. In addition, s. 190(5) contemplates that a company may not provide notice of the right to dissent. The section provides that a dissenting shareholder shall object in writing to a proposed resolution “unless the corporation did not give notice to the shareholder of the purpose of the meeting and of their right to dissent.”

2. The amendment to the FinCAD articles was the result of a conscious corporate strategy and a direct response to Mr. Glassco’s assertion that he did not consider himself to be bound by the shareholders agreement because of his dismissal from the employ of FinCAD. The strategy was intended to ensure that Mr. Glassco would not be able to sell his shares without the approval of directors, a requirement that might affect the size of the market and the price he could expect to receive for his shares. Rescission would inappropriately benefit the directors who devised the strategy.

4. The company prepared the Information Circular and all material related to the conduct of the annual general meeting and the adoption of the special resolution with the benefit of legal advice. The omission and the lack of knowledge about the consequences flowing from the adoption of the resolution have been admitted by the solicitor retained to advise FinCAD in that regard. Should it wish to do so, FinCAD may assert a claim in negligence in an effort to recover damages flowing from the foreseeable harm, if any, occasioned by the triggering of the right to dissent and the exercise thereof.

[55] The principal concern expressed by the Park Petitioners and FinCAD is the potential adverse financial impact on the company flowing from the exercise of the right to dissent. In that regard, s. 190 provides the company with some degree of protection against extremely adverse consequences. FinCAD cannot be obliged to pay an amount for the dissenters’ shares if, by doing so, it would become insolvent, or the value of its liabilities would exceed the value of its assets. There is no evidence from which one could reasonably speculate, let alone conclude, that the value to be accorded the dissenters’ shares will require FinCAD an amount that will impair the financial viability of the company. Valuation is for experts and trial, if necessary. Moreover, the evidence indicates that the company has a strong prima facie claim to damages for negligence. If pursued and if successful, the claim would avoid or reduce any adverse impact on the company.

[56] The circumstances faced by FinCAD as a result of the amendment to its articles are the direct result of a deliberate corporate strategy developed in response to a disagreement with a minority shareholder. In my opinion, it is not appropriate to validate that course of action by exercising discretion to ameliorate the possible adverse effects of that strategy in the circumstances that prevail.

[57] Having considered the foregoing factors, all of the evidence filed in support of the petitions, and the submissions of counsel, I conclude that I should decline to exercise discretion to rescind or nullify the special resolution and the amendment. As a result, the special resolution and the amendment are lawful and binding upon FinCAD, its directors, and its shareholders.

[58] In the result, the Park Petition is dismissed.

[59] The Davidson Petitioners are entitled to an order, which is granted, requiring FinCAD and its directors to comply with the provisions of s. 190 of the CBCA, and to accord any shareholder who has properly notified the company of his dissent, the rights granted the shareholder by s. 190 of the CBCA.

[60] Except to the extent consistent with my determination that the special resolution and amendment to the articles are binding, and the compliance order I have granted, the remaining claims for relief sought by the Davidson Petitioners are dismissed.

[61] Questions or issues regarding the status of any of the Davidson Petitioners as a dissenting shareholder, or arising as a consequence of the exercise of dissent, shall be resolved, if necessary, by a fresh proceeding commenced by FinCAD or any person who asserts rights as a dissenting shareholder.

[62] The Davidson Petitioners are entitled to costs at Scale B.

“I.H. Pitfield, J.”

Citation:	*Park v. FinancialCAD Corporation,*
	2008 BCSC 353