Anonymised, illustrative composite. The structuring answer everyone reaches for — do the divestiture one level down, so the parent’s minority never votes — is the step Quebec wrote a trigger for.
At a glance
A Quebec manufacturing group ran two businesses: metal forming in the parent, plastics in a wholly-owned subsidiary. A strategic buyer wanted the plastics business only, and offered $7,300,000 for the subsidiary’s assets.
The parent had a minority: two former operations managers holding 1,400 of the 10,000 issued common shares, and the founder’s holding company holding non-voting preferred with a $2,400,000 redemption amount from an earlier estate freeze.
The structuring instinct was the familiar one: do the transaction at the subsidiary level. The subsidiary sells its own assets, the parent’s shareholders never vote on a sale of the parent’s property, no dissent right arises. Federally that instinct is sound for a textual reason: CBCA s.190(1)(e) gives a dissent right where the corporation resolves to “sell, lease or exchange all or substantially all its property under subsection 189(3)”. Its property. A subsidiary’s property is not the parent’s property, and the federal trigger does not reach down.
Quebec wrote a trigger that does.
Section 372 of the Quebec Business Corporations Act opens: “The adoption of any of the resolutions listed below confers on a shareholder the right to demand that the corporation repurchase all of the person’s shares if the person exercised all the voting rights carried by those shares against the resolution”. Seven resolutions follow. Two of them have no CBCA counterpart at all.
Subparagraph 4 is the one that decided this file: “a special resolution authorizing the corporation to permit the alienation of property of its subsidiary”. It is drafted at precisely the step the federal structuring answer relies on. The moment the parent passes a special resolution permitting its subsidiary to sell, the parent’s own shareholders acquire a repurchase right against the parent.
Subparagraph 3 shows Quebec measuring the parent-level case differently too: “a special resolution authorizing an alienation of corporation property if, as a result of the alienation, the corporation is unable to retain a significant part of its business activity”. Not all or substantially all. A carve-out comfortably inside the federal threshold can sit outside the Quebec one. Subparagraph 1 goes further still, firing on an ordinary resolution authorising a squeeze-out.
The second paragraph of s.372 extends the reach further: “The adoption of a resolution referred to in any of subparagraphs 3 to 7 of the first paragraph confers on a shareholder whose shares do not carry voting rights the right to demand that the corporation repurchase all of the person’s shares.” The founder’s non-voting preferred qualified. A special resolution here means, under s.2, “a resolution that requires at least two thirds of the votes cast at a shareholders meeting by the shareholders entitled to vote on the resolution” — a threshold the family comfortably cleared without the minority.
The two managers’ 1,400 common shares and the holdco’s preferred were worth $1,780,000 and $2,400,000 on the corporation’s own valuation. Against $7,300,000 of proceeds already earmarked for a distribution, a full set of repurchase demands was $4,180,000 — payable in cash on a statutory timetable rather than when convenient.
Two conditions cut it down, and both are conditions the federal scheme does not impose.
The voting condition. The right arises only “if the person exercised all the voting rights carried by those shares against the resolution”. One manager voted his entire 900-share block against. The other held 500 shares, voted 300 against and abstained on the remaining 200, because he was still employed by an affiliate and did not want the fight on the record. He did not exercise all the voting rights carried by his shares against the resolution, and so acquired no right at all — not a partial right over 300 shares. That is a sharper condition than the federal one, where s.190(5) requires only a written objection sent at or before the meeting.
The notice condition. Section 376 requires a shareholder intending to exercise the right to inform the corporation before the meeting or advise the chair during it, “otherwise, they are deemed to renounce their right”. For a non-voting holder the deadline is harder: “In the case of a shareholder described in the second paragraph of section 372 none of whose shares carry voting rights, the notice must be sent to the corporation not later than 48 hours before the shareholders meeting.” The founder’s holdco sent nothing. $2,400,000 of exposure disappeared on a 48-hour rule.
What was left was one manager, 900 shares, and a repurchase demand of $1,144,000.
The corporation paid it and the sale proceeded. Price came from s.378: “The repurchase price is the fair value of the shares as of the close of the offices of the corporation on the day before the resolution conferring the right to demand a repurchase is adopted.” That is the federal moment, not the British Columbia one — see a separate case file.
Two mechanical points shaped the settlement. Section 380 requires confirmation within 30 days and provides that “The confirmation may not be limited to only part of the repurchasable shares.” And s.381 sets payment at 10 days after confirmation, subject to a solvency limit: where the corporation cannot pay in full, “the shareholders remain creditors of the corporation for the unpaid balance of the repurchase price and are entitled to be paid as soon as the corporation is legally able to do so”. The unpaid balance does not vanish; it converts.
Had all three holders perfected, the corporation would have owed $4,180,000 within 40 days of the resolution — 30 to confirm, 10 to pay — against proceeds already committed elsewhere. The structure meant to keep the minority out of the transaction would instead have handed them a cash exit at the moment of maximum liquidity, on a timetable the corporation did not control.
The tell is a structuring memo that says the sale is being done at the subsidiary level so no shareholder approval is required at the parent. In Quebec, ask the next question: is a parent resolution needed to permit the subsidiary’s sale? If it is, subparagraph 4 has already fired, and the fact that the parent’s own property never moved is irrelevant.
The second tell is a non-voting class. Advisers read the first paragraph of s.372, see a voting condition and conclude non-voting holders are out. The second paragraph says the opposite for subparagraphs 3 to 7 — and s.376 then gives those holders a shorter fuse than anyone else in the room.
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