Oil and water do not mix. People who work outside of legal circles might think the same about family law and corporate law. Family law deals with the nature and structure of relationships; when relationships end, things usually get emotional and messy. Corporate law on the other hand deals with the nature and structure of companies. When companies end, the expectation is that settling matters would be more dispassionate. After all, it’s just business.
However, over the past few years, family and corporate worlds have been crossing over in cases where one or both spouses have interests in closely held corporations. A closely held corporation is one where all or a majority of company shares are owned by just a few individuals, and these are not publicly traded in a stock market. The 2021 case of Berman v 905952 Alberta Ltd involved a closely-held Calgary corporation.[1]The case addressed whether an equitable remedy for what is known as shareholder oppression is available and whether a judgment against one principal shareholder can also impact the rights and interests of another principal shareholder.
Two Calgary businesspeople, Richard Berman and Harold Sicherman, are business partners. They own two corporations in equal shares: 905952 Alberta Ltd. and Boulevard Investments Corporation. The two companies are used to develop real estate. This particular case arose out of ongoing litigation between Richard and his wife, Stephanie Berman following the breakdown of their marriage. Stephanie’s interest in the corporations comes from an earlier matrimonial property and support judgment that granted her an equitable interest in her husband’s shares in the corporations. Stephanie sued for oppression remedies against the defendants, alleging they had engaged in a course of conduct with the intention of harming her interests in the two companies. To remedy the alleged oppression, Stephanie sought an order to liquidate and dissolve the corporation, so she could recover the monies she had been awarded on judgment in the matrimonial trial.
That matrimonial trial two years previous concerned issues of matrimonial property, parenting, child support and spousal support. Stephanie’s claim had prevailed at trial. She was awarded sums for retroactive spousal and child support, prospective spousal and child support, and a matrimonial property equalization payment. In total, these amounts came to $1,379,432. However, Richard claimed at the time he was without the means to pay, in spite of evidence that he had earned a substantial income during his marriage and separation as a property manager and real estate developer.
There was also evidence at the trial that Richard’s history and credibility regarding financial matters was sketchy. For example, before the trial, 905952 Alberta had sold two apartment buildings and that in accordance with an existing court order, Richard was supposed to deposit his share of the sale proceeds into Trust with Stephanie’s lawyer. However, he failed to do so, instead drawing on the capital for his own needs. By the time of the matrimonial trial, Richard’s only assets were his corporate shareholdings valued at just over $2 million. At the conclusion of the matrimonial trial, The Honourable Justice D.A. Labrenz ruled that Stephanie had an equitable interest in her estranged husband’s shares in the two companies.
In early 2020, Stephanie called an Annual General Meeting (AGM) for the two companies to enhance her rights as a beneficial shareholder under the Business Corporations Act (BCA). She requested and received the corporate financial statements and minute books. These financials revealed that a sale of corporate assets had netted far more profit for Richard than what had been discovered at the trial. However, at the AGM, Stephanie was ineligible to vote as a provision in the BCA restricted the right to vote to registered shareholders. So, she subsequently launched her claim, arguing that her interests had been oppressed, unfairly prejudiced, or unfairly disregarded by the defendants. As remedy for the oppression, Stephanie asked the court to order a liquidation and dissolution of 905952 Alberta Ltd. and Boulevard Investments Corporation, pursuant to the power given by section 215 of the BCA.
An oppression remedy is an equitable remedy that gives a court broad discretion to ensure fair treatment of corporate stakeholders. Stakeholders can include a minority shareholder, a judgment creditor, a wrongfully dismissed employee, or as in this case, somebody with an equitable claim to the company’s shares. In order to establish a claim of oppression, the party asserting it must meet a two-part test: 1. that reasonable expectation has been breached and 2, the breach amounts to oppression, unfair prejudice or unfair disregard.
Section 215 of Alberta’s BCA gives a court the power to liquidate and dissolve a corporation where any action or omission by it, an affiliate or its directors has been so oppressive, unfairly prejudicial or unfairly disregards the interests of any shareholder, creditor, director or officer that a court deems it just and equitable that the company and its operations be terminated. It is an extraordinary remedy that has been described as “draconian”[2] and to be used as a last resort when there is no other apparent means to achieve an equitable result.[3] A line of prior court decisions has established four potential grounds to justify a “just and equitable” remedy for dissolution: 1. Deadlock in management; 2. Business is akin to a partnership; 3. Loss of substratum (in other words, the company has essentially failed because of inability to make a profit or its liabilities are far greater than its assets); or 4. Loss of confidence in management.
In essence, Stephanie Berman’s claim against these two closely held companies and their only shareholders, Richard Berman and Harold Sicherman, came down to this. She was seeking enforcement of the two outstanding Orders: the one regarding Richard’s share in the proceeds from the sale of the two apartment buildings 905952 Alberta had owned and the other arising from the matrimonial trial. Justice Labrenz found that although it was reasonable to expect compliance with those two Orders, the act or omission of non-compliance, although improper, did not constitute oppression. Furthermore, Stephanie was neither a registered shareholder nor a beneficial shareholder at the time the Orders were granted. So, in the absence of oppression and since Stephanie was neither a registered nor beneficial shareholder when the Orders were granted, the extraordinary remedy of terminating 905952 Alberta Ltd. and Boulevard Investments Corporation and using the proceeds to satisfy the two Orders was unavailable.
In the final pages of his decision, the judge was scathing in his comments about Richard Berman’s actions. He found that Mr. Berman’s conduct in regard to not selling his shares so as to meet his obligations to comply with the two Orders constituted oppression toward Mrs. Berman but was clear in distinguishing that personal conduct from that of the companies. Justice Labrenz noted that the business partner was willing to consent to selling properties that Boulevard Investments owned in order distance himself from the emotional distress of being involved, even if in a peripheral way, in the Bermans’ divorce litigation. Finally, in rejecting the liquidation and dissolution remedy of section 215 of the BCA, Justice Labrenz made note of how such a remedy would not be equitable “…due to the disproportionate and unwarranted detrimental effects upon Mr. Sicherman’s interests.”
Since the Plaintiff’s claim for relief focused only on a forced liquidation in accordance with legislation, other possible remedies were neither advanced nor considered in any depth. Consequently, Justice Labrenz invited the parties to return another day and argue what remedies might be appropriate.
[1] Berman v 905952 Alberta Ltd., 2021 ABQB 434 https://canlii.ca/t/jg7r0
[2] Hull Ltd. v Bean Services Inc., 2013 BSCS 1208 at para. 58.
[3] Scozzafava v. Prosperi, 2003 ABQB 248 at para. 60.