Oppression Remedy vs. Derivative Action in Ontario

The Core Distinction

Both remedies address situations where shareholders believe something has gone wrong in the corporation. The key distinction is about who was harmed and on whose behalf the claim is brought:

• The oppression remedy is for harm suffered by a complainant personally, as a shareholder, director, officer, or creditor. You are suing for your own loss or mistreatment.
• The derivative action is for harm suffered by the corporation itself. You are seeking to enforce the corporation's right to recover from those who wronged it, on behalf of the corporation.

The Oppression Remedy

Statutory Basis

The oppression remedy is found in section 248 of the Ontario Business Corporations Act (OBCA) and section 241 of the Canada Business Corporations Act (CBCA). It allows a "complainant" to apply to the court where the conduct of a corporation has been oppressive, unfairly prejudicial to, or has unfairly disregarded the interests of the complainant.

Who Is a Complainant?

Under the OBCA, a complainant includes: a registered holder or beneficial owner of securities; a director or officer, past or present; the Director under the OBCA; and any other person the court considers to be a proper person to make the application. This is a broad definition. Creditors have successfully brought oppression claims in Ontario in appropriate circumstances.

What Is Oppressive Conduct?

The test has two components: (1) whether the reasonable expectations of the complainant have been violated; and (2) whether the conduct was oppressive, unfairly prejudicial, or unfairly disregarded the complainant's interests. Courts assess what the complainant reasonably expected given the nature of the corporation, the relationships between the parties, and the agreements or understandings between them.

Remedies

Section 248 of the OBCA gives courts extremely broad remedial discretion. The court may make "any interim or final order it thinks fit." Typical orders include: requiring the corporation to pay compensation to the complainant; ordering the purchase of the complainant's shares (a "buyout" order); appointing a receiver; restraining certain conduct; requiring the corporation to take certain actions; amending the articles or bylaws; and directing that proceedings be brought in the corporation's name. Courts have also ordered directors personally liable in oppression remedy proceedings.

The Derivative Action

Statutory Basis

The derivative action is found in section 246 of the OBCA and section 239 of the CBCA. It allows a complainant to bring an action in the name of and on behalf of a corporation (or subsidiary) to enforce a right belonging to the corporation, where the corporation itself has failed or refused to do so.

When Is It Used?

A derivative action is appropriate where directors or officers have committed a wrong against the corporation: breaching their fiduciary duties, misappropriating corporate funds, engaging in self-dealing transactions, or causing the corporation to enter into transactions that harm it for personal benefit. The harm is to the corporation; the plaintiff is seeking recovery for the corporation (not directly for themselves).

Leave of the Court Is Required

Unlike the oppression remedy (which can be commenced directly), a derivative action requires the complainant to first obtain leave (permission) of the court. To obtain leave, the complainant must show that: the directors will not bring the action; the complainant is acting in good faith; and it appears to be in the best interests of the corporation that the action be brought. This is a meaningful threshold that filters out weak or improper claims.

Procedural Step: Notice to Directors

Before applying for leave, the complainant must give reasonable written notice to the directors of the corporation of the intention to apply for leave and the reasons for the proposed action. This gives the board an opportunity to take action itself and remedy the situation without court involvement.

Choosing the Right Remedy

Can Both Be Brought at the Same Time?

Yes. It is common for complainants to plead both an oppression claim and a derivative action in the same proceeding, particularly in shareholder disputes where the same misconduct both harms the corporation and personally prejudices the minority shareholder. Courts can grant relief under both provisions in appropriate cases.