Anonymised, illustrative composite. A closely held CBCA corporation, a majority that assumed a 90%-plus acceptance level was enough on its own, and a statute that applies only to a corporation that has actually distributed shares to the public.
At a glance
A family-owned distribution company, incorporated federally under the CBCA three generations earlier, had grown to 14 shareholders across three branches of the family. When a strategic buyer offered to acquire the whole company, twelve shareholders holding 92% of the shares supported the sale; one cousin, holding roughly 8% directly, refused to sign on any terms, objecting to the price rather than to the sale in principle. The buyer's offer was conditioned on acquiring 100% of the shares.
The family's first instinct, based on advice recalling a public-company transaction years earlier, was that a 90%-plus acceptance level gave the majority a statutory right to simply take the holdout's shares under CBCA s.206. That provision does let an offeror acquire the shares of a “dissenting offeree” once a take-over bid is “accepted by the holders of not less than ninety per cent of the shares of any class…other than shares held at the date of the take-over bid by or on behalf of the offeror.” But the definitions that open the section limit it to a formal “take-over bid” made “to shareholders of a distributing corporation” — and this company had never filed a prospectus, was not a reporting issuer, and had no securities listed for trading. The CBCA Regulations define “distributing corporation” as, in substance, “a corporation that is a reporting issuer under any legislation that is set out in column 2 of an item of Schedule 1”, or one that “has filed a prospectus or registration statement under provincial legislation or under the laws of a jurisdiction outside Canada”, or one whose securities are “listed and posted for trading on a stock exchange in or outside Canada” — none of which described this company. Part XVII, and s.206 with it, was never available here, no matter what percentage of shares the majority held.
The buyer's offer valued the whole company at $18.5 million; the holdout cousin's 8% stake was worth roughly $1.48 million at that price. Her own valuation expert, engaged once the family shifted to the correct legal route, put fair value closer to $1.7 million based on a different minority-discount treatment — a $220,000 gap that ultimately had to be resolved.
The mechanism that actually reaches a private, non-distributing CBCA corporation is a squeeze-out transaction, defined in s.2(1) as “a transaction by a corporation that is not a distributing corporation that would require an amendment to its articles and would, directly or indirectly, result in the interest of a holder of shares of a class of the corporation being terminated without the consent of the holder”, without substituting shares of equivalent value. s.193 authorizes a corporation to carry out such a transaction, typically executed here as an amalgamation that converted the holdout's shares into a right to a cash payment rather than shares of the resulting company. Because a squeeze-out transaction amends the articles, it required a special resolution — “a majority of not less than two-thirds of the votes cast” — comfortably available on a 92% base, and it gave the holdout dissent rights: CBCA s.190(1)(f) lets a shareholder dissent where the corporation resolves to “carry out a going-private transaction or a squeeze-out transaction”, entitling her to be paid the shares' fair value rather than the amalgamation consideration.
The family proceeded by special resolution and amalgamation squeeze-out rather than any take-over bid mechanic. The cousin exercised her dissent rights under s.190 rather than accepting the deal price, and the $220,000 valuation gap was resolved by negotiated settlement shortly before a court application to fix fair value would have been required, at a figure close to her expert's number. The sale to the strategic buyer closed on schedule once her shares were bought out through the dissent process.
Had the family proceeded on the mistaken assumption that s.206 applied — for instance, by sending a formal take-over bid document and purporting to invoke the compulsory-acquisition notice procedure — the holdout would have had a strong basis to challenge the entire acquisition as ultra vires the statute, potentially unwinding a signed deal with the strategic buyer and exposing the majority shareholders to the cousin's legal costs on top of their own. Correcting the route before any notice was sent avoided that risk entirely.
A 90%-or-better acceptance level feels like it should be enough on its own, and in the one context most people have heard of — a public company take-over bid — it is. That intuition does not carry over to a private company, because Part XVII of the CBCA is built entirely around the machinery of a public take-over bid and expressly limited to a distributing corporation. Any closely held company facing a holdout shareholder needs the squeeze-out-transaction route from Part XVI, not the compulsory-acquisition route from Part XVII, however high the acceptance percentage runs.
Where a special resolution genuinely is not practicable — a unanimous shareholder agreement requiring unanimous consent to any amalgamation, for instance — s.192(3) lets the corporation apply directly to court for an order approving an arrangement instead, and s.192(1)(f.1) confirms that an “arrangement” for this purpose expressly includes “a going-private transaction or a squeeze-out transaction in relation to a corporation”, substituting a judicial fairness hearing for the special-resolution vote.
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