No Shortcuts: Courts Reaffirm Procedure for Director Removals

Shareholder Activism Revisited

In earlier blog posts, I wrote about amendments made to Ontario’s Business Corporations Act, which allow ordinary resolutions to be passed in writing outside of a meeting when signed by a majority of shareholders. As the ink dries on those reforms, a sharper picture has emerged of what has not changed, particularly regarding the removal of directors. While the law has made it easier for majority shareholders to act without meetings, recent case law clarifies the limits of shareholder activism and reinforces the importance of following meeting and notice procedures.

In OneMove v. Dye & Durham (2024 ONSC 5114), the Court provided guidance on the procedural requirements for removing directors under Ontario law. Drawing on common law principles, the Court reaffirmed that directors cannot be removed mid-term without clear statutory authority. That authority is not implied; it is conferred expressly and exercised only through a defined statutory process. Removal must occur at a shareholders' meeting convened with proper notice and must provide the affected director with a genuine opportunity to respond. The Court emphasized that these procedural safeguards are not discretionary formalities. Instead, they are structural features of a governance framework designed to balance shareholder rights with the integrity of board decision-making.

Key Takeaways from Recent Cases

1. Process is Paramount
   Courts have made clear that removal procedures must be followed to the letter. Directors facing removal are entitled to advance notice, a meaningful opportunity to respond, and the right to address shareholders.

2. Meetings Must Be Properly Convened
   Director removal must occur at a shareholders' meeting called specifically for that purpose. Attempts to bundle removal with unrelated business or rely on informal instruments will not suffice. Where directors decline to act, shareholders may requisition a meeting.

3. Governing Documents Control
   Statutory compliance is not enough. If a company’s articles or shareholder agreements impose specific procedural requirements, they must be respected. Courts will invalidate actions that breach a corporation’s own internal governance rules.

4. Jurisdiction Shapes Judicial Relief
   British Columbia courts may cure procedural flaws where fairness supports it. Ontario courts, however, lack parallel statutory discretion, making strict compliance with process essential from the outset.

Judicial Guidance on Shareholder-Led Removals

Recent case law further illustrates both pitfalls and procedural benchmarks:

• Olson v. River Green (Thunder Bay) Inc. (2022 ONSC 7039): A group of shareholders attempted to remove a director by written resolution without prior notice or an opportunity to respond. The Court held that this violated the OBCA’s procedural requirements, particularly s. 123(2), and reinstated the director. The ruling confirmed that written resolutions under s. 104 cannot bypass the statutory protections owed to directors facing removal.

• Sandpiper Real Estate Fund 4 Limited Partnership v. First Capital Real Estate Investment Trust (2023 ONSC 794): The court addressed the timing of a requisitioned meeting for the removal of directors, emphasizing that while boards have discretion in scheduling meetings, this discretion is not absolute. The Court ordered the issuer to hold the requisitioned meeting as soon as practicable, highlighting that undue delays in holding such meetings can undermine shareholders' rights.

• Mellace v. Mellace (2024 ONSC 6031): The Court upheld a director’s removal at a properly convened shareholder meeting, stressing that once the board fails to act on a shareholder request, shareholders may proceed independently. Delay can forfeit the right to object.

• Al-Ali v. Al-Ali (2024 ONSC 6292): A director used a power of attorney to remove another director and seize control. The Court found this oppressive and invalid, reaffirming that informal instruments cannot displace statutory procedure.

• McGinn v. Bleeker (2024 ONSC 6379): An attempted removal that violated a shareholder agreement was blocked. The Court confirmed that contractual rights may override unilateral board actions.

• Yinghe Investment (Canada) Ltd. v. CCM Investment Group Ltd. (2024 BCCA 285): A single director convened an AGM in breach of the corporation’s articles, which required collective board action. Although formal notice was issued, the Court of Appeal upheld the invalidation of the meeting and subsequent board changes due to the flawed process.

Conclusion: Avoid Common Pitfalls

The removal of directors must be executed through meetings convened in strict compliance with corporate statutes and governing documents. For founders, investors, and shareholders navigating activist campaigns or governance disputes, South Hill Law provides strategic advice on all aspects of contested boardroom matters. Contact us if you are considering changes to your board.