Can a company refuse to pay a dissenting shareholder if it cannot pass the solvency test?

The rule that decides it

CBCA s.190(26) is unconditional in its wording: “A corporation shall not make a payment to a dissenting shareholder under this section if there are reasonable grounds for believing that (a) the corporation is or would after the payment be unable to pay its liabilities as they become due; or (b) the realizable value of the corporation’s assets would thereby be less than the aggregate of its liabilities.” CBCA s.190(26) That test applies regardless of how fair value was determined or how long the dissent has been outstanding — a court order fixing the amount does not create an obligation the solvency test can override.

What happens to the dissenter while payment is blocked

s.190(25) answers this directly for a shareholder in that position: they may “retain a status as a claimant against the corporation, to be paid as soon as the corporation is lawfully able to do so or, in a liquidation, to be ranked subordinate to the rights of creditors of the corporation but in priority to its shareholders.” CBCA s.190(25)(b) That is a specific statutory rank, not ordinary unsecured-creditor status and not a return to being a shareholder — the dissenter is neither, until the corporation can lawfully pay.

The consequence for the people who authorize payment anyway

Directors who cause the corporation to pay in breach of s.190(26) are personally exposed. CBCA s.118(2) makes directors who vote for or consent to a resolution authorizing certain payments “jointly and severally, or solidarily, liable to restore to the corporation any amounts so distributed or paid and not otherwise recovered by the corporation,” and paragraph (e) of that list is specifically “a payment to a shareholder contrary to section 190 or 241.” CBCA s.118(2)(e) Confirming the corporation can lawfully pay is therefore not a formality — it is the step that decides whether the directors who approve the payment are personally on the hook for it.

Where This Plays Out in the Case Files

• • A dissenter the company could not lawfully pay — fair value was fixed at $1.34M, and the acquisition debt landed on the target's balance sheet before the cheque could legally go out.
• • The holdout cousin the majority could not simply vote out — the same s.190 dissent right used as the exit route out of a squeeze-out transaction.

Sources

• • Canada Business Corporations Act, R.S.C. 1985, c. C-44, s.190 — s.190(25) (the dissenter's claimant status while payment is blocked) and s.190(26) (the limitation on payment, quoted above).
• • CBCA s.118(2)(e) — director liability to restore an unlawful payment to a dissenting shareholder.
• • Treadstone Law — how fair value of dissenting shares is determined — on point for the valuation half of the process; it does not address the statutory limitation on paying the amount once fixed, which is the point above.