March 2015

Inequity and serious injury do not necessarily constitute abuse

By Pascal Comeau Lawyer

In Groupe Renaud-Bray inc. v. Innovation FGF inc. (2014 QCCS 1683), Innovation FGF inc. ("FGF") is a joint shareholder of Groupe Renaud-Bray inc. ("RB"). In 2001, RB's shareholders entered into an agreement that provided that upon the death of FGF shareholder Jacques Floirat RB would purchase the shares held by FGF. The terms of the payment of such purchase stipulated that RB would pay $100 000 per year until full payment. When the shareholders agreement was signed, the RB shares held by FGF were valued at $850 000. When Mr. Floirat passed away in 2011, FGF's shares in RB were worth $4 342 806. As a result, the purchase price of the shares would be payable over a period of over forty years. RB refused to pay more quickly than that required under the shareholders agreement and therefore FGF declined to sell the shares, namely claiming that RB's refusal to pay quicker constitutes an abuse and oppression. FGF further argued that it would have to pay tax on the capital gain when the option is exercised even though it will only recover payment over a period of forty years.

The judge rejected FGF's arguments, stating that the agreement signed by the parties is very clear and cannot be overridden. She added that the inequity and disadvantages faced by a party as a result of the application of a shareholders agreement do not constitute criteria for a finding of oppression, since oppression is the result of abusive behaviour and not an inequity or disadvantage arising from the application of a clear agreement.

It is therefore very important to update your shareholders agreement on a regular basis to ensure that it evolves at the same pace as your business.