A Recipe for Good Governance

Shareholders agreement

The Dare brand name has long occupied the cookies and crackers aisle of North American supermarkets. Founded in 1889, the Kitchener, Ontario-based company has been well known for its tasty products, ranging from the kid-favourite Wagon Wheels to the dinner party-friendly Breton crackers. In recent years, however, the Dare name has also become associated with a very public legal dispute involving Dare family siblings. For insiders, airing this dispute in Ontario courts laid bare some sensitive personal issues. For the rest of us, it provided practical business lessons, highlighting the value of good corporate governance, not to mention a well-drafted shareholders’ agreement (SA).

Good corporate governance is a hallmark of well-run companies, whether they are private or listed on an exchange for public trading. Steps toward good governance in private companies include having experienced and competent leaders on boards, professional management, and informed shareholders. An SA tailored to the needs of shareholders and the company may also be a crucial tool to foster stability and ensure the smooth resolution of disputes. This is especially true with family-held companies.

A prime example of how good corporate governance and an SA can be a strong defence against a claim of oppression made by a disgruntled shareholder is the recent decision in the case of Wilfred v. Dare (currently under appeal by Carolyn Dare-Wilfred, filed on April 21, 2017).[1]


Appointing competent leaders on the board of directors and on the management team is vitally important for both public and private companies. For some private companies, this may mean looking outside family and friends to hire independent, experienced management and directors. Outside participation brings a perspective that allows for better identification of both risks and opportunities. Maintaining a simple role for the board of directors is also key—a board should be expected to identify and mitigate risk, validate and oversee the execution of a corporate strategy, and hire and manage the performance of the chief executive officer.[2]

Particularly important in private companies, and especially privately held family companies, is director and board independence. Ideally, such independence helps to ensure that these individuals are free to make the decisions they see fit without the distraction of personal relationships and outside concerns. In practice, however, even outside professional management can feel beholden to one or more of the shareholders or be unduly influenced by them.

Boards of private and public companies experience challenges. In 2015, Forbes Insights published a global survey, completed in association with KPMG, of 154 private company directors.[3] It also looked at governance challenges within private companies.[4] The top three challenges cited by the directors were: improving risk management oversight, assessing innovation and emerging competition, and confirming/establishing company strategy. Other challenges were also identified, including achieving regulatory compliance, leadership succession planning, global compliance, irregular meeting calendars, limited independent representation, underutilization of third-party resources/research, and lack of formal structure.

Specifically looking at board effectiveness, challenges identified included budget/resource constraints, conflicts of interest (including the presence of related-party transactions), and a compromised board due to an overrepresentation of controlling shareholders. The study found that private company directors were looking to their governance processes and controls to improve merger and acquisition outcomes, enhance financial risk oversight, and optimize the organization through performance evaluation and succession planning. The study found that there is general agreement about the need of boards to play a greater role in succession planning.[5]


Shareholders elect board members. If a mutual agreement between all shareholders of a company is in place (commonly referred to as a unanimous SA), the powers of a board may be limited or removed entirely.

An SA is an agreement between shareholders and the underlying company. It may prescribe rights, obligations, and company operational issues. It may also prescribe management, share ownership, privileges, protection of shareholders, and regulation of the shareholders’ relationships. SAs can contain any number of considerations. However, more detailed SAs will address items such as valuation, buy–sell clauses, and information and circumstances related to winding down a company.[6] SAs can be especially useful in the circumstances of family-related disputes.

Well-drafted SAs, as evidence of the parties’ intentions, can be the best protection in certain shareholder disputes. For example, in the case of oppression remedy claims, the SA may form the basis of what the court decides are the reasonable expectations of the shareholders with respect to many issues, such as the flow of dividends or a shareholder’s entitlement to cashing out.[7] A unanimous SA takes this a step further, where all shareholders are in full agreement with its provisions.

However, for many reasons, there is no perfect SA. All business relationships are vulnerable to periodic disputes or internal friction. SAs rarely provide for every dynamic of the businesses they govern. Drafters cannot predict all future corporate or personal circumstances, and an SA cannot account for any unforeseen event. To help ameliorate at least some of these risks, it is wise to revisit—and revise, if necessary—the SA on a regular basis. The SA should at least be revisited when major changes in the business or the personal circumstances of the shareholders occur.


The oppression remedy is a form of equitable relief provided for in the various Canadian corporate law statutes. It is available to address unfair conduct in respect of a corporation, and can be asserted by shareholders and a wide variety of stakeholders.[8] A broad range of orders are available to address infringement on the legitimate reasonable expectations of a corporation’s stakeholders.[9]

In its seminal decision on the oppression remedy, BCE v. 1976 Debentureholders, the Supreme Court of Canada articulated a two-part analysis that a court must consider before granting the oppression remedy. The court must ask two key questions:[10] (1) Does the evidence support the reasonable expectation asserted by the claimant? (2) Does the evidence establish that the reasonable expectation was violated by conduct falling within the terms “oppression,” “unfair prejudice,” or “unfair disregard” of a relevant interest?

Although reasonable expectations are particular to the circumstances of each case, their determination by the court requires consideration of “general commercial practice, the nature of the corporation, the relationship between the parties, past practices, steps the claimant could have taken to protect itself, representations and agreements between the parties, and any conflicting interests between corporate stakeholders.”[11]

SAs can be a powerful tool to dictate as well as provide evidence of the shareholders’ reasonable expectations as stakeholders in a company.[12] In Sieminska v. Boldt, the Saskatchewan Court of Appeal observed the following aspects of a unanimous SA:[13]

A unanimous shareholders agreement is simply a contract by and among shareholders and their corporation by which they agree to alter their statutorily prescribed relationships in accordance with their expectations. A unanimous shareholders agreement is therefore perhaps the best evidence of shareholder expectations at the time of its making. Moreover, the shareholder expectations it evidences must be presumed to have been reasonable because they received the unanimous agreement of the shareholders and the corporation.

In its recent oppression remedy decision in 1043325 Ontario Ltd. v. CSA Building Sciences Western Ltd., the British Columbia Court of Appeal reached the following conclusions about the case:

[It is a] cautionary tale for shareholders of closely-held corporations who proceed without a clear understanding or written agreement that sets out their mutual expectations and in particular, for minority shareholders who trust the majority to conduct the affairs of the corporation in a fair and equitable manner.[14]

SAs are among the best ways to establish and memorialize the reasonable expectations of shareholders. However, they do not always insulate companies from liability for oppressive behaviour. In some cases, courts have held that a given SA wrought an inequitable result and granted remedies for oppression despite the text of the agreement.[15]

In Neri v. Finch Hardware (1976) Ltd.,[16] an Ontario court found that an SA was being invoked as a shield by parties who were acting oppressively. The court stated that “where the conduct is oppressive or unfairly prejudicial, that conduct ‘strikes at the very underpinning of the contractual mechanism itself.’”[17] The applicant in that case, Neri, was a minority shareholder and former employee who left the company because of its toxic atmosphere. Following his departure, he wished to sell his shares.[18] An SA was in place that provided only for the buyout of other shareholders upon their deaths.[19] The court held that various acts of management were oppressive to Neri, including inflated compensation, and improper company loans and expenses. The court held that this conduct struck “at the very underpinning of the contractual mechanism [the SA] itself.”[20] Accordingly, the court applied its discretion to order the purchase of Neri’s shares, despite the fact that the SA provided a mechanism for shareholder buyouts. However, as we will see below, the court reached a very different result in the case Wilfred v. Dare.

Despite cases like Neri v. Finch Hardware (1976) Ltd., the evolution of the case law on this question appears to lean toward upholding SAs as being largely determinative of shareholders’ reasonable expectations. Also, courts will not grant a remedy for oppression where the effect is to give a shareholder or other investor a right that they were not able to obtain through negotiation.[21]


The Wilfred v. Dare case was a dispute between members of the Dare family, who were the indirect shareholders of the various branches of the Dare Foods business. The business had been a family business based in Ontario since 1889. In 2016, Carolyn Dare-Wilfred, the youngest of three siblings, brought an oppression remedy application seeking a court-ordered sale of her interest in the business to the respondents, which included holding companies belonging to her two brothers.[22]

The father of the three siblings, Carl Dare, had overseen a very successful expansion of the food empire in the decades prior to his death in 2014. In 1980, Carl transferred his interest in the three operating companies of the Dare Foods business into a holding company, Serad Holdings Limited (Serad). The common shares of Serad were issued to a family trust and held for the benefit of the three children. The children signed a number of SAs, including the Second Shareholders Agreement (SA2), dated November 24, 1980. SA2 included a “right of first offer” provision, requiring each of the children to offer to sell their shares to one another before selling to a third party at the same price and on the same terms. Carolyn was mostly uninvolved in the business, whereas her brothers held various positions for most of their adult lives.

Up to the year 2000, the principal operating company of the Dare Foods business was distributing most of its profits in the form of dividends to Serad, which would in turn lend the money back to the business on a secured basis. Consequently, dividends were generally not paid to the beneficiaries of the trust.

In 1993, Carl Dare arranged for the brothers (apparently, not for Carolyn) to obtain a 50 per cent interest in an operating company for Dare Foods’s U.S. business.

The trust was dissolved in 2001 and each sibling received an equal number of shares of Serad. The same year, Carolyn offered to sell her shares of Serad to her brothers for nearly $40 million, which they rejected. Carl intervened and arranged for 25 per cent of Carolyn’s shares to be redeemed by Serad for $5 million. Carolyn’s previous company salary would be terminated, but she was promised annual dividends of $335,000 for five years. Carolyn also rolled her shareholdings in Serad into a personal holding company.

A further reorganization of the business occurred in 2003. The operating companies were held by a new intermediate holding company, Dare Foods Holding Company, which was owned jointly by Serad, the brothers’ personal holding companies, and Saputo Foods Limited (Saputo), another major food company that briefly obtained an interest in Dare Foods. The brothers obtained this additional interest in the business (outside of their stake in Serad) in exchange for their shares in the U.S. operating company. Serad eventually acquired Saputo’s interest in the new holding company, returning complete ownership to the Dare family.

Serad continued to declare dividends (following the five-year period negotiated with Carolyn) until 2009. A further dividend was declared and paid in 2016 at Carolyn’s request. A portion of this money was paid to the Canada Revenue Agency by Carolyn, who had a very large outstanding tax debt.

Facing various financial difficulties in 2014, Carolyn offered to sell her Serad shares to her brothers for $55 million. The brothers rejected Carolyn’s offer. Carolyn then hired a financial advisor to market the shares. The only interested party was not prepared to agree to the terms of the SA, which it would be required to sign by acquiring Carolyn’s stake in the business. Consequently, Carolyn was not able to sell her shares.

In her oppression remedy application, Carolyn alleged that her brothers’ refusal to purchase her shares, combined with the absence of a market for a third-party buyer, was oppressive because it meant that her shares were being held hostage. She also alleged that the dividend policy was inequitable. The reinvestment of profits by Serad deprived her of income, while her brothers had other sources of income from the business through salaries, bonuses, and their ownership stake outside of Serad.

The court reviewed the considerations set out in BCE Inc. v. 1976 Debentureholders and asked whether Carolyn had a reasonable expectation of liquidity for her shares. It concluded that she did not. In doing so, the court noted that she received her shares as a gift from her father, who intended to provide a disincentive to his children to sell to a third party. The court’s analysis focused partly on the content of SA2, which did not include a buy–sell clause or a put right stipulation. Instead, it provided the siblings only with an opportunity to purchase one another’s shares. The court also found that the previous redemption by Serad of a portion of Carolyn’s shareholding had not created a reasonable expectation of liquidity.

The court considered jurisprudence, recognizing the difficult position that minority shareholders of private corporations are in with respect to liquidity, but found that a refusal by the majority shareholder to buy their shares at the desired price did not disregard the interests of the minority shareholder. The court concluded that the oppression remedy “is not designed to relieve a minority shareholder from the limited liquidity attached to his or her shares or to provide a means of exiting the corporation, in the absence of any oppressive or unfair conduct.” The court also found that Carolyn was putting her own interests ahead of those of the corporation by seeking to tie up Serad’s resources to purchase her shares. The business had significant capital needs to stay competitive, including outlays on new equipment.

The court also found that Carolyn had no reasonable expectation that she would receive dividends. It also noted that the proposed remedy—a forced purchase of shares—would not be appropriate even if the company’s dividend policy was oppressive.

“Good corporate governance reinforces the ability of courts to more readily rely on and defer to directors’ business judgment.”

Wilfred v. Dare is a textbook example of how private corporations can protect themselves through strong corporate governance practices, including having arrangements in place to govern the relationships between shareholders. The court’s reasons convey a sense that this is a company that has avoided some of the traps that family businesses often fall into when they are passed from one generation to the next.

Here are five key references to good governance that were evident in the case of the Dare Foods empire.

The importance of having an SA: The SA that the Dare siblings signed was central to the court’s analysis. The shareholders established certain reasonable expectations among themselves via SA2. They received independent legal advice before signing the agreements. The circumstances surrounding the agreements, including the father’s desire to keep the business within the family, informed the parties’ expectations.

While the shareholders’ agreement in this case did not address entitlement to dividends, there is nothing stopping shareholders from using such a unanimous shareholders’ agreement to prescribe a certain dividend policy. The failure to declare dividends was not found to be oppressive in the Wilfred v. Dare case. Carolyn is currently appealing the decision. In large part, she is challenging the trial judge’s conclusions about her reasonable expectation to receive dividends. In the appeal, Carolyn argues that the trial judge disregarded evidence about aspects of Serad’s dividend policy that unfairly prejudiced her interests, including the fact that her brothers are directors of both the first-tier holding company and Serad. The implication is that they have power over an amount of dividends that reach them (as independent owners of a stake in the first-tier holding company) but that Carolyn (whose only interest is through Serad) does not.

The traditional common-law view has been that dividends lie entirely within the discretion of a corporation’s directors.[23] However, there have been circumstances where courts have found that a failure to pay dividends was part of an oppressive pattern of conduct.[24] For example, in Wonsch (Litigation Guardian of) v. Wonsch, the Ontario Court of Appeal upheld a trial judge’s finding that majority shareholders of a corporation who acted as the company’s management were acting oppressively by paying themselves inflated salaries.[25] The trial judge found that this compensation was in effect “disguised dividends in the form of excessive management compensation” and that “the failure to pay a dividend under those circumstances defeated the reasonable expectation of [certain shareholders] to share in the profits of the company.”[26] Similarly, the Ontario Court of Appeal has upheld a finding of oppression where the “appropriation of a large proportion of [the company’s] earnings over several years without the payment of any dividend or other benefit . . . formed part and parcel of the sustained and deliberate course of conduct that was unfairly prejudicial.”[27]

Addressing dividend policy in a unanimous SA may be desirable, where a minority shareholder wishes to avoid the situation in which Carolyn has found herself. She has no share liquidity and no reasonable expectation of receiving dividends. Prescribing dividend policy may also be desirable for the majority shareholders and management as a means of establishing and memorializing the parties’ expectations regarding how profits will be treated, by distributing them as dividends or retaining them for future reinvestment purposes.

Deference to business judgement: Courts generally will not interfere with the business judgment exercised by a corporation’s directors, provided that their decisions fall within a range of reasonableness.[28] Good corporate governance reinforces the ability of courts to more readily rely on and defer to directors’ business judgment. In Wilfred v. Dare, this was evidenced in the court’s consideration of Serad’s dividend payments. Serad’s policy of reinvesting profits in the Dare Foods operating business was referred to repeatedly in the court’s reasons with apparent approval.

For example, the court appeared to accept Carolyn’s brother’s explanation that “one of the keys to Dare Foods’ profitability has been to reinvest in the company, finance operations internally and not take on external debt.”[29] The court found that “Dare Foods’ resources are better allocated for these business purposes than to buy Carolyn’s shares. As the directors with duties to do what is in the best interests of the corporation, they are entitled to make that determination.”[30] This is an example of the court deferring to the business judgement of a company’s directors, which it felt comfortable doing given extensive evidence of good corporate governance, including skilled leadership and business plans intended to benefit the company.

Good corporate management: Peter Luik, the president of Dare Foods, was not a Dare family member and had been in his role since October 2012 (previously serving as president of Heinz Canada). He reported to the board of directors and had disciplined reporting obligations. The fact that Luik was not a family member likely contributed additional, possibly unclouded, business perspective throughout the challenges initiated by Carolyn (which lasted years). It allowed the business to continue to function without major interruption. Dare Foods introduced professional senior management, as its business operations grew both in terms of size and complexity, in November 2002. The company appointed Fred Jaques, a seasoned management professional with food industry and packaged goods experience from Kellogg’s and Pfizer (Warner Lambert), among others. The company took this step when it was determined that the Dare family members would not have the necessary experience or diverse skills to occupy such a leadership position. Although they did not form an explicit basis for the court’s judgment, the reasons for the decision refer to the history and role of outside management, which might have helped to inform the court’s opinion about the equities at play between the corporation and its shareholders.[31]

Skilled leadership at the board level: Skilled leadership at the board level builds integrity for companies, and supports the right people in that structure. In this case, William Farrell, the executive chair of Dare Foods, was a seasoned investment banker with many years of experience in the food industry, including buying, selling, and financing corporations. His leadership and industry/market knowledge might have contributed to maintaining direction and strategy both prior to and throughout the oppression challenges. There is little doubt that he was appointed board chair because of his broad industry experience and investment-banking pedigree. The court noted that Farrell was co-operative with regard to Carolyn’s efforts to dispose of her shares in the market.[32]

Education of future generations: In its analysis, the court acknowledged that the Dare family spent time educating its future generations on the operations of the business.[33] This was a progressive effort and a valuable investment, despite the monetary costs. It demonstrated the family’s emphasis on succession and reinforced the interest of keeping the company in the family for future generations. Such a goal provided management with a long-term perspective for maintaining and growing the company for the benefit of future generations. In the Wilfred v. Dare case, it also likely assisted the court in its assessment of the dispute between Carolyn and her brothers.

The facts of the Wilfred v. Dare case are unique, but quarrels between shareholders of private corporations are common. This is especially true for successful family businesses dealing with succession issues. The best long-term strategy for avoiding or resolving disputes between shareholders is to put in place strong systems of corporate governance.

A tailored SA, with periodic updates to reflect changing circumstances, may keep the peace and act as a shield for the company and its shareholders, in the event of a shareholder dispute. Good corporate governance, combined with effective board leadership and professional management, is a preventative measure and a mechanism for success.

[1] Ontario Superior Court of Justice, Wilfred v. Dare et al., 2017 ONSC 1633, The Canadian Legal Information Institute, March 21, 2017, accessed October 12, 2017, https://www.canlii.org/en/on/onsc/doc/2017/2017onsc1633/2017onsc1633.html.

[2] “Corporate Governance for Private Business – Two Best Practices (Updated),” Boardroom Metrics, accessed October 12, 2017, https://www.boardroommetrics.com/blog/corporate-governance-for-private-business-two-best-practices-20130503.htm.

[3] Forbes Insights, in Association with KPMG, Private Company Governance: The Call for Sharper Focus, accessed October 16, 2017, https://home.kpmg.com/content/dam/kpmg/pdf/2016/02/private-company-governance-call-for-sharper-focus.pdf.

[4] Ibid.

[5] Ibid., 13.

[6] For example, “an agreement between the parties may provide for a buyout even where one would not be ordered under a statute.” See F. Hodge O’Neal and Robert B. Thompson, O’Neal and Thompson’s Oppression of Minority Shareholders and LLC Members, May 2016 Update (Eagan, MN: Thomson/West, 2016), Chapter 7.

[7] Michael Duffy, “Shareholders Agreements and Shareholders’ Remedies, Contract versus Statute,” Bond Law Review 20, no. 2 (2008): 19.

[8] Markus Koehnen, Oppression and Related Remedies (Toronto, ON: Thomson Carswell, 2004), 7–8.

[9] See, for example, Canada Business Corporations Act, RSC 1985, c C-44 s.241, Business Corporations Act (Ontario), RSO s. 248.

[10] Judgments of the Supreme Court of Canada, BCE v. 1976 Debentureholders, June 20, 2008, accessed October 16, 2017, https://scc-csc.lexum.com/scc-csc/scc-csc/en/item/6238/index.do, 68.

[11] Ontario Superior Court of Justice, Wilfred v. Dare et al., op. cit., 59 and 72 (citing BCE).

[12] Judgments of the Supreme Court of Canada, BCE v. 1976 Debentureholders, op. cit., 79.

[13] Law Society of Saskatchewan, Sieminska v. Boldt, 2013, SKCA 136, accessed October 12, 2017, http://canliiconnects.org/en/summaries/43466, 33 (emphasis added).

[14] Supreme Court of British Columbia, 1043325 Ontario Ltd. v. CSA Building Sciences Western Ltd., July 6, 2015, accessed October 12, 2017, http://robertfleminglawyers.com/pdf/2015_BCSC_1160_1043325_Ontario_Ltd._v._CSA_Building_Sciences_Western_Ltd.pdf, 2.

[15] Barry V. Slutsky, “Shareholders’ Agreements and the Oppression Remedy—A Lesson in the Fragility of Contract,” The Advocate (January 24, 1990): 378.

[16] Ontario Supreme Court, Neri v Finch Hardware (1976) Ltd., The Canadian Legal Information Institute, June 27, 1995, accessed October 16, 2017, www.canlii.org/en/on/onsc/doc/1995/1995canlii7412/1995canlii7412.html.

[17] Ibid., 41.

[18] Ibid., 18.

[19] Ibid., 19.

[20] Ibid., 41.

[21] Kevin Patrick McGuinness, Canadian Business Corporations Law, 2nd ed. (Markham, ON: LexisNexis Canada, 2007), 1251.

[22] Ontario Superior Court of Justice, Wilfred v. Dare et al., op. cit., 4-71.

[23] Quebec Superior Court, Sparling v. Javelin International Ltd., 1987, 37 BLR 265, 270. Consequently, the failure to pay dividends has generally not been regarding as oppressive conduct (see Koehnen, 133).

[24] Markus Koehnen, op. cit., 134.

[25] Ontario Court of Appeal, Wonsch (Litigation Guardian of) v. Wonsch, 2007 ONCA 453, 14–18.

[26] Ontario Superior Court of Justice, Wonsch (Litigation Guardian of) v. Wonsch, 2005, O.J. no. 3187 (reversed in part on other grounds), 69–70, 79; Ontario Court of Appeal, Wonsch (Litigation Guardian of) v. Wonsch, op. cit., 7.

[27] British Columbia Court of Appeal, 1043325 Ontario Ltd. V. CSA Building Sciences Western Ltd., 2016 BCCA 258, 80.

[28] Ontario Court of Appeal, Pente Investment Management Ltd. v. Schneider Corp., 1998, O.J. no. 4142 (ONCA), 36; citing BCE, 40.

[29] Ontario Superior Court of Justice, Wilfred v. Dare et al., op. cit., 13.

[30] Ibid., 71.

[31] Ibid., 14, 31.

[32] Ibid., 50–51.

[33] Ibid., 31.

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