Shareholder Disputes: The Date That Can Affect the Value of Your Shares

However, determining the value of these shares can be a complex exercise, particularly when it comes to establishing the date on which this value should be assessed. This question will largely depend on the specific circumstances of each case, which will be decisive in setting the valuation date. It should be noted, however, that there is no fixed rule in this regard: Courts have broad discretion to determine the valuation date of shares for a shareholder who claims to have been oppressed.

The Principle of the “Fairest Date”

Case law recognizes that the valuation date of a shareholder’s shares in the context of a remedy claim for abuse of power or unfair treatment should be determined based on the “fairest date.” This principle aims to accurately reflect the contribution of the aggrieved shareholder to the creation of value in the company, while avoiding either penalizing them or, conversely, providing them with undue enrichment.

In many shareholder disputes, the oppressed shareholder is often, in practice, excluded from the company’s affairs. In such circumstances, certain dates may be particularly relevant for determining the value of a shareholder’s shares—most notably, the date the targeted shareholder withdrew from the company’s affairs or the date of the judgment that concludes the remedy claim for abuse of power or unfair treatment.

The Date of Shareholder Withdrawal

When an oppressed shareholder stops participating in the company’s activities, and subsequent growth is entirely attributable to the efforts of the other shareholder(s), it may be unfair to allow them to benefit from the increase in the value of their shares.

In such cases, the withdrawal date or the date the oppressive acts began may be considered the “fairest date,” especially when the oppressed shareholder personally chose to cease participating in the company’s affairs in any manner.

The Judgment Date

Conversely, in some cases, the company’s value continues to grow after the oppressed shareholder’s withdrawal, and this growth cannot be separated from the efforts they made before leaving. For example, a shareholder who contributed to establishing the company’s structure, negotiating contracts or securing initial financing may have laid the groundwork for growth that manifests after their departure.

In these circumstances, it would be unfair not to allow them to benefit from the fruits of this growth. Accordingly, in such contexts, the court may be inclined to select the judgment date that concludes the proceedings as the valuation date for the oppressed shareholder’s shares, in line with the goal of identifying the “fairest date.”

What Other Dates Might Be Considered?

Since the court has broad discretionary power in establishing the valuation date for an oppressed shareholder’s shares, several other dates may be considered the “fairest date.” This will depend entirely on the facts specific to each situation.

For example, the date the proceedings were initiated may be considered the fairest date in the eyes of a court. This may be the case when the court considers that a shareholder contributed to part of the company’s value increase but cannot be credited with significant growth occurring after the proceedings were initiated, a period during which they were no longer involved in the company in any meaningful way.

Looking Further

The analysis above demonstrates that the valuation date of shares in a remedy claim for abuse of power or unfair treatment is not governed by a fixed rule; it depends instead on the facts of each situation.

The valuation date of an oppressed shareholder’s shares should reflect their actual contribution as well as the circumstances specific to each case, leaving room for the broad discretion granted to the courts in this regard.

Whether it is the withdrawal date, the judgment date or any other relevant date, the court will always seek to identify the “fairest date.” Therefore, in the context of a remedy claim for abuse of power or unfair treatment, it is crucial to remain vigilant and not blindly accept a valuation date without first examining the relevant facts of the case.

Indeed, a shareholder, especially a founding shareholder, may very well claim the growth of a company they helped build and nurture, even if they are no longer actively involved. This may be the case, in particular, if they were excluded from the company’s affairs or subjected to oppressive acts.

It is therefore always relevant to consider the specific facts of each situation to avoid costly compromises that would make the end of the business relationship unfair, inequitable and unrepresentative of the efforts invested in the company. In other words, as the Court of Appeal noted a few years ago, “There is no rigid rule or formula. Rather, all of the circumstances of the case must be considered in making the decision.”

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For any questions regarding shareholder disputes, do not hesitate to contact our shareholder litigation team, who will be pleased to assist you.