Icahn Partners LP v. Lions Gate Entertainment Corp., 2011 BCCA 228

The British Columbia Court of Appeal considered the corporate law oppression remedy in light of the Supreme Court of Canada’s decision in BCE Inc. v. 1976 Debentureholders. The Court held that a deleveraging transaction, which had the effect of diluting a minority shareholder’s (the “Shareholder”) interest in the corporation at a time where the Shareholder was making a bid for control of the company, was not oppressive conduct. The Shareholder had threatened to engage in a proxy contest to remove the directors at the next shareholders’ meeting. The stated purpose of the deleveraging transaction was the reduction of the corporation’s debt load. The Shareholder alleged that the transaction had the effect of entrenching the board and accordingly constituted oppressive conduct. The appeal focused on whether the Shareholder held reasonable expectations that had been violated with an unfair effect. Justice Newbury dismissed the appeal, holding that the Shareholder could not have reasonably expected the directors not to approve the dilutive transaction so that the status quo would be preserved for the Shareholder’s benefit. The directors were also found to have acted in the corporation’s best interest.

The appellant argued that the dilution of its interest by the deleveraging transaction made it more difficult to succeed in its stated intention of unseating the board. The court applied the two- step analysis for the oppression remedy from BCE. This required the court to examine: first, whether the evidence supports the holding of a reasonable expectation by the claimant; and, second, whether that expectation was violated by conduct that was oppressive, was unfairly prejudicial or unfairly disregarded a relevant interest. The court held that where the interests of the shareholders and corporation do not coincide, the directors owe their duty to the corporation, and the reasonable expectation of the shareholders is that the directors will act in the best interests of the corporation. Since the trial judge found that the directors acted in the corporation's best interests in reducing the corporation's debt, even though it had the consequent effect of diluting the Shareholder's stake, the court held that the appellant could not complain of a violation of its reasonable expectations as a shareholder. The court expressed doubt, but assumed without deciding, that the Shareholder truly held its stated expectations.

May 10, 2011
Link to Decision

Grant Bishop & Steve Holinski
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