In Golden Spigot Pub Ltd. v. Eddy Ng Management Services Ltd.[1], the British Columbia Court of Appeal found that a shareholder in a closely-held company operating like a partnership may seek a liquidation order specifically for the purpose of monetizing one’s investment. In doing so, the Court distinguished a long line of authorities cautioning courts against interfering in companies’ affairs with this “draconian” remedy. The Court’s decision confirms that liquidation petitions can provide a powerful strategic tool for deadlocked shareholders seeking to exit a company.
Prior to Golden Spigot, the Court emphasized that section 324 “must be exercised judicially, on a principled basis, and in recognition of the reluctance of the Court to interfere lightly in the internal affairs of a company”[2] , requiring more than a shareholder’s desire to monetize an investment in cases where partners were unable to negotiate a share purchase[3]. By contrast, the Court in Golden Spigot accepted that the very nature of partners operating a closely-held business is such that they would have reasonably expected that dissolution of the company would result in circumstances of deadlock.
Further, the Court in Golden Spigot confirmed that, in contrast to oppression claims, liquidation applications under section 324 are not subject to the Limitation Act. As such, liquidation orders can be a viable alternative option for unhappy business partners and would-be petitioners whose oppression claims may be vulnerable to a limitations defence, or otherwise difficult to establish on the facts.
Facts
In 2002, longtime co-workers David Wong and Eddy Ng realized their longstanding ambition to own a business together, and they incorporated Golden Spigot Pub Ltd. (“Golden Spigot”) to acquire the Six Mile Pub in Victoria—reputed to be British Columbia’s oldest pub. Although David and Eddy agreed to make equal capital contributions and be equal shareholders, Eddy was unable to raise the agreed amount. As such, David and his wife came to own 54.5% of the voting shares, with the rest owned by Eddy through his personal investment corporation Eddy Ng Management Services Ltd. (“ENMS”).
Eddy’s capital shortfall was made up by issuing non-voting shares to other investors, including Eddy’s mother and some of the pub’s employees. As is a common feature in shareholder deadlock disputes that come before the court, David and Eddy neglected to enter into a shareholder agreement and made no provision in the company’s articles through which a shareholder could sell their shares for fair value.
Following their purchase of the Six Mile Pub, David managed the day-to-day operations while Eddy ran the kitchen. After the first two years, Eddy’s involvement declined in 2004 due to substance abuse issues. Eddy returned to work in 2009 under conditions imposed by David, but the problems continued and Eddy’s responsibilities were ultimately reduced. David removed Eddy as a director in 2014 due to licensing concerns arising out of Eddy having been charged with a crime.
Eddy passed away in September 2016. After his death, ENMS, his estate and his mother’s estate (together, the “Estates”) sought to have Eddy’s and his mother’s shares bought out. David offered to purchase Eddy’s shares at a price representing an 11% increase over the amount Eddy invested in 2002. ENMS and the Estates rejected the offer, as it failed to account for the sharp increase in the pub’s value, including an increase of land value of over 200%. The parties had further discussions in 2019 and 2020, but the offer to purchase from David remained at just an 11% increase over the amount originally invested.
Having been unsuccessful in their buyout discussions with David, in 2024, ENMS and the Estates commenced a petition under the Business Corporations Act[4], alleging oppression. In the alternative, ENMS and the Estate’s sought a liquidation order under section 324, on the basis that it was “just and equitable” to do so.
British Columbia Supreme Court Petition Decision
Justice Anthony Saunders of the Supreme Court of British Columbia rejected the oppression claim. Although the ENMS and the Estate petitioners alleged an expectation that they would be involved in the corporation, Justice Saunders found there was no evidence they actually sought to be involved. Instead, their only interest had been in selling their shares.
Justice Saunders then considered the request for a liquidation order under section 324(1)(b), which provides:
324 (1) On an application made . . . by the company, a shareholder of the company, a beneficial owner of a share of the company, a director of the company or any other person, including a creditor of the company, whom the court considers to be an appropriate person to make the application, the court may order that the company be liquidated and dissolved if
(b) the court otherwise considers it just and equitable to do so.
Turning to the jurisprudence, Justice Saunders observed that, in the context of a closely-held company resembling a partnership, like Golden Spigot, liquidation under section 324(1)(b) is “just and equitable” in certain circumstances, including where there is:
- A breakdown of the mutual trust and confidence upon which the original undertaking was founded;
- A “destruction of mutual confidence”; and
- A refusal to meet on matters of business, continued quarreling and such a state of animosity as precludes all reasonable hope of reconciliation and friendly cooperation[5].
On the evidence, Justice Saunders found that David and Eddy originally embarked on a partnership-like undertaking. Although David contributed more capital, and there were other shareholders involved in the business, Justice Saunders accepted evidence that Eddy was understood to be the co-leader in the business, together with David.
The breakdown in their relationship, together with the change in Eddy’s role, was enough to establish a breakdown of the “mutual trust and confidence” on which the venture had been founded. On that basis, Justice Saunders held that liquidation was just and equitable.
However, acknowledging that a liquidation order is draconian in nature, Justice Saunders suspended the order for 90 days to allow the parties further opportunity to negotiate a buyout.
British Columbia Court of Appeal Decision
David appealed the Petition decision on the basis that:
- A liquidation order cannot be granted for the sole purpose of allowing a party to monetize their investment;
- The Court erred by finding a breakdown in mutual trust and confidence on which the business undertaking was founded was sufficient to justify liquidation;
- The Court erred by finding that liquidation orders are not subject to the Limitation Act, or the doctrine of laches, and
- The Court erred by not ordering a less draconian remedy.
In rejecting David’s first ground of appeal, the Court distinguished a long line of authority and found that a partner in a closely-held corporation can, in fact, avail themselves of a liquidation order under section 324(1)(b) for the purpose of monetizing their investment. In doing so, the Court distinguished its recent decision in Weisstock v. Weisstock[6], and several lower court authorities, which specifically held that section 324 is not a mechanism for a shareholder to monetize their investment. The Court of Appeal noted that for companies intended to operate as partnerships, the “mutual expectations of the shareholders will frequently be that, in the event of a breakdown in relations between them, the company could be liquidated.”[7] In making this observation, the Court does not require specific evidence as to the business partners’ actual expectations at the time they formed the business—it is sufficient for a petition judge to presume what those expectations would have been.
On the second ground of appeal, the Court rejected David’s arguments that there had been no breakdown of trust and confidence between shareholders because the shares were held by ENMS (not Eddy directly), and that the real dispute between David and Eddy was in respect of the pub, whereas the shares were for Golden Spigot Ltd., which was not the operating company. The Court of Appeal characterized these arguments as improperly attempting to place the discretion under section 324 into a “straitjacket”, and “to place technical roadblocks in the way of making an order under a provision that has as its very purpose the elimination of such impediments.”[8]
On the third ground of appeal, the Court rejected the limitation argument, noting that while oppression remedies are subject to the Limitation Act[9], section 324 petitions do not arise out of identifiable, date‑specific acts or omissions, and are therefore not subject to the Limitation Act. Similarly, because laches is an equitable doctrine and liquidation can be ordered under section 324 where it is “just and equitable” to do so, questions of acquiescence or reliance under laches is conducted within the broader section 324 analysis and is not required as a standalone.
On the fourth ground of appeal, the Court accepted David’s argument that Justice Saunders should have considered less drastic section 227(3) remedies before making a liquidation order[10]. Accordingly, rather than simply suspending the liquidation order to give the parties more time to negotiate, as Justice Saunders had done, the Court ordered that, before the liquidation order was issued, David shall have 30 days to decide whether to purchase ENMS’s and the Estates’ shares. If David elected to do so, the parties must retain a business valuator to make a binding fair market valuation of the business for the purposes of the share purchase price[11].
Key Takeaways
The Court of Appeal’s decision in Golden Spigot confirms that liquidation petitions are a powerful tool in corporate governance disputes between deadlocked partners in closely-held companies. A petitioner seeking to exit the company and monetize an investment is not required to show evidence that the partners agreed at the outset of the venture to dissolve the company in the case of a relationship breakdown. Rather, a petitioner can rely on the presumption that business partners will have reasonably expected that dissolution would occur in such circumstances.
The Court’s confirmation that the Limitation Act does not apply to section 324 will also increase the attractiveness of this remedy for litigants. Indeed, a prospective oppression claimant whose claim is vulnerable to a limitations defence may instead bring a petition under section 324, but seek specific oppression remedy relief from the court, as is expressly contemplated under section 324(3)(b) of the BCA. This was the ultimate result for the petitioners in Golden Spigot, who, as a result of the Court’s decision, put David in the unenviable position of deciding between losing the Six Mile Pub business through liquidation, or being required to buy out the minority shareholders pursuant to a binding third-party valuation.
