Anonymised, illustrative composite. The live dissent file in this library stops at the point that dissent is not a veto. This is the opposite failure: the exit right is perfect and the money cannot move.
At a glance
A fund acquired 91% of a CBCA-incorporated specialty-packaging manufacturer and dealt with the remaining 9% by amalgamating its acquisition vehicle with the target, converting the minority's shares into a cash entitlement — an amalgamation otherwise than under s.184, which is one of the triggers listed in CBCA s.190(1). See dissent and appraisal right.
One holder with 4.1% dissented and did everything correctly: written objection before the meeting under s.190(5), demand for payment within twenty days under s.190(7), certificates delivered within thirty days under s.190(8). No offer was agreed, the corporation applied under s.190(15), and eleven months later the court fixed fair value under s.190(22) at $1,340,000.
Between the dissent and the order, the corporation that owed the money changed shape. The $14,200,000 acquisition facility had been drawn by the fund's vehicle, secured on the target's assets but sitting on the vehicle's balance sheet. The amalgamation put both balance sheets into one, so the corporation that had to pay the dissenter was now also the corporation that owed the acquisition debt.
That single step is the file. Nobody added a liability, forgave a debt or made a payment; the steps were sequenced in the ordinary way, and the ordinary sequence moved the dissenter's claim onto a balance sheet that could no longer carry it. See leveraged buyout.
Immediately after the amalgamation the corporation had realizable assets of $16,800,000 against liabilities of $16,100,000. It paid every account as it fell due and had headroom on its covenants; on any cash-flow view it was solvent, and on a balance-sheet view it had $700,000 of positive net worth.
Pay the dissenter $1,340,000 and the assets fall to $15,460,000 while the liabilities stay at $16,100,000. That is $640,000 short. The payment is what causes the shortfall, which is exactly the relationship the word thereby in the provision describes.
Section 190(26) provides that “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.” Limb (a) was satisfied comfortably. Limb (b) was not, and limb (b) alone is enough.
Note what is absent. The balance-sheet limb here stops at “the aggregate of its liabilities”. Compare s.42(b) for dividends and s.34(2)(b) for a purchase of the corporation's own shares, where the same sentence ends “less than the aggregate of its liabilities and stated capital of all classes”. Three provisions, three balance-sheet tests, three denominators — and a file that reasons from one to another will be wrong in one direction or the other.
And note the unit. The test applies to the corporation that must make the payment, on its own balance sheet, at the time of payment. Acquisition debt sitting at a buyer's holding vehicle does not engage s.190(26) at all until an amalgamation, a push-down or a distribution moves it onto the paying corporation — so the sequencing of steps, not the leverage itself, decides whether the dissenter gets paid.
The Act handles the consequence rather than pretending it away. Under s.190(24) the corporation must, “within ten days after the pronouncement of an order under subsection (22), notify each dissenting shareholder that it is unable lawfully to pay dissenting shareholders for their shares”. The dissenter then has thirty days from receiving that notice to elect between withdrawing the dissent and being reinstated to full rights as a shareholder, or — s.190(25)(b) — retaining “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”.
That is not creditor status, and calling it that overstates the dissenter's position materially. The claimant ranks behind every creditor and ahead of every shareholder — a rung the Act creates for this situation. On a $16,100,000 liability stack, that difference is the difference between being paid and not.
Directors do not escape by paying anyway. Section 118(2) makes directors who vote for or consent to a resolution authorising “a payment to a shareholder contrary to section 190 or 241” jointly and severally, or solidarily, “liable to restore to the corporation any amounts so distributed or paid and not otherwise recovered by the corporation”.
The corporation gave the s.190(24) notice. The dissenter elected under s.190(25)(b) to retain claimant status rather than be reinstated as a shareholder in a company he had spent a year trying to leave, and was paid $1,340,000 with interest twenty-two months later, after a refinancing repaid $3,800,000 of the facility and restored the headroom.
The step that would have avoided it was a sequencing decision, not a legal one: fix and pay the dissent before the amalgamation put the acquisition debt onto the target, or fund the dissent payment with equity contributed to the amalgamated corporation rather than out of its existing assets. Both were available and neither was expensive; neither was considered, because nobody in the deal team was reading s.190 past subsection (3).
The same wall is reachable from the oppression side, and it is not identical. Section 241(6) provides that “A corporation shall not make a payment to a shareholder under paragraph (3)(f) or (g)” on the same two-limb test. But s.241(3)(f) and (g) empower the court to direct “a corporation, subject to subsection (6), or any other person” to purchase securities or repay what was paid for them — and an order against the majority shareholder personally is not a payment by the corporation. See an oppression claim during a sale process.
Section 241(5) runs the other way and is worth knowing before choosing a route: “A shareholder is not entitled to dissent under section 190 if an amendment to the articles is effected under this section.” Articles amended by an oppression order do not generate a dissent right.
This file is deliberately the mirror of a minority holder who blocked the sale, which is about a dissent that could not stop a transaction. Here the dissent stops nothing and wins everything and the money still does not move.
An open dissent claim and a closing structure that pushes acquisition debt into the target. Those two facts in the same file are a s.190(26) problem waiting for a court order to crystallise it. The second tell is a deal team that has priced the dissent as a cash line in the sources and uses, without checking whose balance sheet the cash comes off on the day it is payable.
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