A recent ruling by the Supreme Court of British Columbia has significant implications for minority shareholders who are also employees, as the court denied an application to liquidate Mitchell Press Limited following a shareholder’s dismissal from the company.
Mitchell Press Limited, a family-owned commercial printing business established in 1928, operates out of a 64,000-square-foot facility in Burnaby, B.C., and employs 109 workers, most of whom are unionized. The company was historically run by members of the Mitchell family, with H.M. and L.M. owning the majority of shares until a corporate restructuring in 2017–2018.
D.C., who married into the Mitchell family in 1990, was brought into the company by H.M. and eventually rose to senior management positions. Despite divorcing J.M. in 2010, D.C. continued his role in the company. In 2017, H.M. gifted shares to his children and D.C., resulting in D.C. holding 37.6 per cent of the equity shares and 99 of the 200 voting shares in Howard Mitchell Holdings Ltd., which controls the other companies in the group.
Escalating tensions and COVID
Tensions between D.C. and D.M. escalated over time, culminating in a heated meeting on November 9, 2020, where D.C. accused D.M. of “doing basically nothing for 28 years” and expressed frustration over carrying the workload. D.M. described the encounter as a “pre-planned attack” and “mean-spirited.” Although D.C. later apologized, the relationship remained strained.
Complicating matters, D.C.’s stance on COVID-19 protocols created friction within the company. He refused to comply with the company’s policies on mask-wearing and social distancing, which were in line with government mandates. Instead, D.C. worked remotely and occasionally held in-person meetings at his home without adhering to safety measures. This behaviour led to concerns among employees and management about workplace safety and leadership.
By early 2021, D.C. and D.M.’s relationship had deteriorated further. D.M. resigned from his operational role but remained a significant shareholder and director. D.C. hired G.G. as President without consulting D.M., and continued to exclude D.M. from major decisions, violating an “Expectation Document” agreed upon by both parties. This document outlined that significant company decisions, such as hiring or firing executive leadership and investments over $100,000, would be reviewed jointly.
Unilateral decisions
Despite agreeing to these expectations, D.C. proceeded to make unilateral decisions, including attempting to acquire a $300,000 printer without consulting D.M. He also planned to dismiss the company’s CFO, J.M., without following proper protocols. G.G. described D.C.’s actions as “unprofessional” and “gross misconduct,” noting that they put the company at significant risk.
In response to these actions, D.M. proposed that D.C. take a temporary leave of absence to alleviate tensions and allow the company to function effectively. When D.C. did not agree, D.M. initiated the process to remove him from his position. On March 21, 2022, D.M. informed D.C. of his immediate dismissal for just cause, citing his refusal to communicate, erratic behaviour, and unilateral decision-making that contravened agreed-upon governance policies.
Petition to liquidate
Following his dismissal, D.C. filed a petition seeking the liquidation of Mitchell Press Limited under section 324(1)(b) of the Business Corporations Act (BCA), arguing that it was “just and equitable” to do so. He contended that he was in “shareholder purgatory,” unable to derive income from his shares or sell them due to restrictions in the company’s articles of incorporation.
Justice Baird dismissed D.C.’s petition, finding that his dismissal was justified and that liquidation was neither just nor equitable. The court emphasized that D.C.’s conduct, including his failure to abide by governance agreements and his exclusion of D.M. from decision-making, contributed significantly to the conflict.
“The removal of a shareholder as an employee or director of a company is not a reason for ordering the company to be wound up, unless it can be shown that the removal was not exercised bona fide, or that the grounds for exercising the power were such that no reasonable person could think it was in the best interests of the company,” Justice Baird stated.
Can’t impose will on majority
The court further noted that D.C.’s reasonable expectations were limited by the company’s articles of incorporation and that he could not impose his will on the majority shareholders. “He bears responsibility for his role in deliberately contriving a situation in which his dismissal was not only justifiable but inevitable,” Justice Baird wrote.
Regarding the partnership analogy often considered in such cases, the court found it inapplicable. Mitchell Press Limited is a large, long-established corporation with a conventional corporate structure, not a quasi-partnership. D.C. received his shares as a gift and did not invest capital into the company, further distancing the situation from a partnership scenario.
The court also addressed D.C.’s allegations of mismanagement by the current leadership. It found no evidence of dishonest conduct by D.M. or the management team. Decisions made after D.C.’s dismissal were protected by the “business judgment rule,” as they were made in good faith and fell within a range of reasonable alternatives.
Justice Baird concluded that ordering liquidation would be inappropriate, especially given the unanimous decision of the majority shareholders to continue operating the business with the aim of returning it to profitability before considering a sale. “It would be neither just nor equitable to grant him the drastic remedy of a liquidation order in circumstances where the conflict that he claims to have rendered it necessary was substantially of his own making,” the judgment read.
The ruling underscores the importance of adhering to agreed-upon governance structures and the limitations of minority shareholders in influencing corporate decisions, especially when their own conduct has contributed to internal conflicts. For HR professionals and employment lawyers, the case highlights the critical role of clear communication, adherence to corporate policies, and the legal challenges associated with shareholder-employee disputes.
The court also awarded costs to the respondents. D.C.’s options moving forward may include negotiating the sale of his shares, but the court noted that he had not actively sought approval for such a sale, nor accepted offers made by the company.
For more information, see Castilloux v Mitchell, 2024 BCSC 1985 (CanLII).
