Legal Updates

In a bargaining between shareholders as part of dissolution of a corporation due to oppression, the oppressed party will have preference

August 2, 2020

In a family dispute between siblings over family assets it was held that the partnership in the assets should be dissolved after one of them oppressed the other’s rights. However, the brothers were unable to reach an agreement as to how to dissolve the partnership, as both demanded to buy the other’s share due to their unique relationship to the business.
The Court held that the powers should be separated by open bargaining while allowing preference to the party whose rights were oppressed. When determining the mechanism for dissolution, a variety of consideration may be taken into account, such as issues of justice and good faith, past bad behavior of any of the parties, each of the parties’ share, the oppression of a party and its manner, the special relationship of any of the parties to the business, the willingness of each party to find a peaceful resolution to the dispute etc. As such, when one of the parties holds a unique relationship to the business, for example, a party who works at the business or when dealing with a family business, the suitable solution is often a forced sale of the assets in favor of the party with the stronger connection to the business. Alternatively, when one of the parties acted in a manner that caused the other to lose faith in its ability to keep being part of the business, such as in a case when one of the parties was oppressed, the solution is often to obligate the oppressing party to buy out the oppressed, according to a neutral valuation, thereby remedying the oppression. However, when both parties have a strong personal connection to the business which is more than merely financial, and the oppressed party is not interested in selling the assets – the sale will not be forced. Therefore, in the event where both parties can show a meaningful involvement in managing the business, and one of the parties has been historically oppressed, the preferred mechanism for dissolution will be allowing both parties to bargain for the ownership of the assets, while granting the oppressed party a right of first refusal.