On September 17, 2018, the Ontario Superior Court of Justice released its decision in Kuhnreich v. Metcom Canada Limited et al, 2018 ONSC 5444 in which the court dismissed the application of a minority shareholder against a corporation and its officers and directors in connection with a change in the minority shareholder’s compensation subsequent to a change of corporate control. In this case, Kuhnreich held 32% of the common shares of Metcom. Prior to a share sale by Metcom’s majority shareholder in 2014, Kuhnreich routinely obtained reimbursement from Metcom for his personal expenses, along with the benefit of valuable “points” while using an American Express debit card for Metcom expenses. After the sale of a majority of the Metcom common shares to others in 2014, Kuhnreich alleged that he was constructively dismissed because the new officers and directors of Metcom discontinued the use of the American Express debit card and disallowed Kuhnreich’s from obtaining reimbursement of his personal expenses by Metcom. The court found that these changes by new management did not amount to constructive dismissal on various grounds, including that the arrangement that Kuhnreich had in place prior to the change of control at Metcom was only an arrangement between him and the previous majority shareholder; it was not enforceable against Metcom itself. Further, the court found that Kuhnreich’s previous entitlement to reimbursement for personal expenses was subject to Metcom having sufficient funds to make these payments to Kuhnreich in any event; the evidence demonstrated that Metcom was not financially able to reimburse Kuhnreich for his personal expenses at the material times such that he was not entitled to reimbursement on this basis as well. With respect to Kuhnreich losing the benefit of American Express “points”, the court found that Metcom had provided a legitimate corporate explanation for the discontinuance of the American Express debit card, namely the availability of a VISA credit card which was cheaper and which addressed cash flow concerns of Metcom. In short, the court found that Kuhnreich did not have a reasonable expectation that Metcom or new management would continue the arrangement that Kuhnreich had in place with a prior majority shareholder, and Kuhnreich was therefore not oppressed or constructively dismissed when these arrangements were discontinued by new management.
Kuhnreich also asserted that, in the absence of a shareholder agreement and based on his allegations of constructive dismissal, Kuhnreich was entitled to have his Metcom shares purchased on essentially the same terms that the prior majority shareholder had obtained in 2014. The court found that, absent oppression, the court could not impose the obligation to purchase Kuhnreich’s shares on either Metcom or the purchaser who had previously bought the majority of Metcom’s shares in 2014. This case, therefore, demonstrates the risks of holding minority shares in a private company, especially where there is no shareholder agreement that provides a mechanism for a forced buy-out of a minority shareholder’s shares.
Metcom Canada Limited and its officers and directors were represented by Robert B. Cohen and Chris Selby of Cassels Brock & Blackwell LLP. Click here to read the full decision.