Mayfield Television Productions Ltd v Stange, 2016 ABQB 329

Court of Queen ’ s Bench of Alberta Citation: Mayfield Television Productions Ltd v Stange, 2016 ABQB 329 Date: 20160616 Docket: 1503 01578 Registry: Edmonton Between: Mayfield Television Productions Ltd Applicant - and - Shawn Stange and Kevin Van der Kooy Respondents _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice Robert A.

Graesser _______________________________________________________ Introduction [ 1 ] Mayfield Television Productions Ltd. seeks oppression remedies against Shawn Stange and Kevin Van der Kooy in relation to their minority shareholding in Vanshaw Enterprises Ltd.

Mayfield holds 20 percent of the shares in Vanshaw, although its shares are non-voting. [ 2 ] Mayfield argues that the sole business of Vanshaw was agreed to be the operation of a casino, and that its expectations were that Vanshaw’s business activities were to be limited to that enterprise. [ 3 ] Contrary to its expectations, Vanshaw became involved with a tour company, and also helped finance and eventually owned a golf course.

Mayfield says that these activities unfairly treated its interests as a shareholder in Vanshaw. [ 4 ] In addition, Mayfield points to a number of transactions and business activities that it alleges to be oppressive and unfairly

prejudicial to its interests as a minority shareholder, as well as being in breach of duties under the unanimous shareholders agreement affecting Vanshaw. Background [ 5 ] Vanshaw operates a casino in Medicine Hat, Alberta. [ 6 ] Kevin Van der Kooy is the sole voting shareholding in Vanshaw. Until March, 2015, he owned 40.8 percent of the shares. His shares were voting shares. Shawn Stange formerly owned 39.2 percent of the shares. His shares were voting shares. Thus, Mr. Van der Kooy held 51 percent of the voting shares. [ 7 ] A unanimous shareholders agreement was entered into among Mayfield, Mr.

Van der Kooy’s holding corporation and Mr. Stange’s holding corporation. The agreement is dated June 1, 2000. The parties entered into a supplemental unanimous shareholders agreement dated March 30, 2004. [ 8 ] Until March, 2015, Mr. Van der Kooy and Mr. Stange were the sole directors of Vanshaw and were responsible for the management of the corporation. Mayfield did not have a director on the board of Vanshaw, and played no role in the management of Vanshaw. From the evidence before me, it would appear to have been, and continues to be, a passive shareholder. [ 9 ] In March, 2015, Mr.

Van der Kooy acquired all of Mr. Stange’s shares. Mayfield claims that the share transaction is ineffective as approvals necessary under the Unanimous Shareholders Agreements binding the shareholders were not complied with. [ 10 ] Mr. Stange resigned from the board of Vanshaw, leaving Mr. Van der Kooy as the sole director. [ 11 ] Mayfield alleges that a number of actions have occurred which were oppressive, unfairly prejudicial to or disregarded Mayfield’s interests as a shareholder. [ 12 ] In particular, Mayfield complains that:

a) The directors transferred shares from Mr. Stange’s holding corporation to Mr. Van der Kooy’s holding company in violation of the June 1, 2000 unanimous shareholders agreement;

b) The directors caused Vanshaw to lend $935,000 to Vanshaw Tours Inc. (“Tours”), a corporation owned by Mr. Van der Kooy and Mr. Stange;

c) The directors caused Vanshaw to write off the debt owed by Tours;

d) The directors caused Vanshaw to advance $650,000 in relation to a golf course owned in part by a corporation owned by Mr. Van der Kooy;

e) The directors caused Vanshaw to write the golf course debt off;

f) The directors caused Vanshaw to purchase a $300,000 unsecured, non-interest bearing third party receivable otherwise payable to Mr. Van der Kooy’s and Mr. Stange’s holding corporations;

g) The directors authorized Vanshaw to fund a deposit on a property for $300,000;

h) The directors authorized Vanshaw to acquire the golf course referred to above;

i) The directors caused Vanshaw to write down the value of the golf course land by $800,000;

j) The directors then caused Vanshaw to transfer the golf course to a holding company owned by Mr. Van der Kooy for $850,000 on an unsecured, no interest basis;

k) The directors diverted $812,073.26 of Vanshaw funds into something described as the “coffee fund”;

l) The directors misled Mayfield as to transactions involving ATM machines in the casino, which Mayfield alleges have placed Vanshaw at financial risk; and

m) The directors caused Vanshaw to breach a contract in relation to the ATM machines. [ 13 ] During argument on this application, concern was also raised about ongoing payment from Vanshaw to Mr.

Stange, notwithstanding that he is no longer a shareholder or director. [ 14 ] The unanimous shareholders agreement requires the directors to obtain the unanimous approval of all shareholders to “any financial commitment of any kind whatsoever...in excess of the sum of $150,000” or to “grant a loan...to any person or entity, other than as an advance or draw in accordance with existing practices of the corporation at the date of this agreement.” [ 15 ] It is apparently conceded by Mr. Van der Kooy that shareholders’ approval was not obtained every time he and Mr.

Stange entered into financial commitments exceeding $150,000. Those transactions include the transactions involving Tours and various dealings concerning the golf course and the golf course lands. [ 16 ] Mayfield seeks various remedies under section 243(2) of the Business Corporations Act , RSA 2000 c B-9, including:

a) The removal of Mr. Van der Kooy as a director of Vanshaw;

b) Leave for Mayfield to commence a derivative action against Mr. Van der Kooy and Mr. Stange (the “directors”) relating totheir “improper conduct as directors”;

c) An accounting by the directors and repayment of the funds lent to Tours and subsequently written off;

d) An accounting by the directors and repayment of the funds lent to the golf course and subsequently written off;

e) An accounting by the directors and repayment of the funds provided as a deposit;

f) An order that Mr. Van der Kooy’s holding corporation repay the $850,000 debt to Vanshaw; and

g) An order prohibiting Vanshaw from lending funds to corporations related to the directors. [17] The relief sought in relation to these remedies include the appointment of a forensic auditor to conduct a forensic audit of “allsalary, compensation, dividends, bonuses, interest payments, expenses, cash withdrawals, reimbursements or other payments made byVanshaw to the directors and an order requiring Mr. Van der Kooy’s holding company to dispose of its shares in Vanshaw. [18] Mr. Van der Kooy and Mr. Stange are separately represented. They argue that the sale between their holding companies thatresulted in Mr.

Van der Kooy acquiring Mr. Stange’s interest in Vanshaw did not offend the unanimous shareholders agreement. [19] Mr. Van der Kooy explains each of the transactions complained of and argues that:

a) He acted with a view to the best interests of Vanshaw, and “while not perfectly, competently”;

b) Many of the transactions complained of were “book entries” that did not result in any personal benefit to Mr. Van der Kooy;

c) Oppression has not been made out as the complaints relate to “book entries” and not actual money transfers or the receipt ofbenefits;

d) The appropriate remedy for any complaints is under the unanimous shareholders agreement, which allows for Mayfield to have itsshares in Vanshaw purchased; and

e) The remedy usually granted by the courts to a complaining shareholder such as Mayfield is to have its shares bought out. [20] In argument, Mr. Van der Kooy emphasized that all of the book transactions were done at the recommendation of Vanshaw’saccountants. [21] Mr. Stange provides an explanation regarding some of the transactions complained about, and argues that:

a) He always complied with the unanimous shareholders agreement;

b) He carried out his role as director in good faith and met all obligations of a director;

c) He acted in good faith with respect to his involvement with Tours;

d) He acted in good faith regarding the dealings over the casino’s ATMs; and

e) Some of the transactions post-date his tenure as a director. [22] It is obvious that the relationship between Mayfield and the other shareholders has broken down. It is also obvious thatMayfield would rather purchase Mr. Van der Kooy’s interest in Vanshaw, rather than sell its interest to him. It seems from Mr. Van derKooy’s submissions that he would be prepared to purchase Mayfield’s interest in Vanshaw, but Mayfield is not interested in that andwants to pursue oppressive conduct remedies. Authorities [23] The parties have cited a number of authorities in support of their positions. Mayfield:

a) BCE Inc v 1976 Debenture Holders, [2008] SCC 69; b) 1216808 Alberta Ltd. (Prairie Bailiff Services) v Crown Capital Corporation, 2014 ABQB 285;

c) R Floden Services Ltd v Solomon, 2015 ABQB 450;

d) Hunka v Degner, 2012 ABQB 207;

e) First Edmonton Place Ltd. v 315888 Alberta Ltd., (AB KB), [1988] AJ No 511;

f) GC Capital Inc. v Condominium Corporation No. 0614475, 2013 ABQB 300 (Master);

g) Krulc v Krulc , 2015 ABQB 213 ;

h) Shefsky v California Gold Mining Inc , 2016 ABCA 103 ; and

i) Nowosad v Boutillier , 2015 ABQB 763 . Mr. Van der Kooy:

a) Zhang v Chick and AC Enterprises Ltd. , 2011 MBQB 262 ; and

b) Neri v Finch Hardware ,

(1995) CanLII 7412 (ONSC). Mr. Stange:

a) Nutreco Canada Inc. v Agrimarine Industries Inc. , 2002 BCCA 661 ;

b) Bhasin v Hrynew , 2014 SCC 71 ; and

c) Markakis v Yuck , 2003 ABQB 122 . Analysis [ 24 ] It appears from the parties’ arguments that Vanshaw’s casino operations are continuing and are viable. There was no suggestion about any solvency issues, and the oppressive conduct application is not urgent other than with respect to the apprehension of further transactions. [ 25 ] S 242 of the Business Corporations Act provides as follows: 242(1) A complainant may apply to the Court for an order under this section.

(2) If, on an application under subsection (1), the Court is satisfied that in respect of a corporation or any of its affiliates (

a) any act or omission of the corporation or any of its affiliates effects a result, (

b) the business or affairs of the corporation or any of its affiliates are or have been carried on or conducted in a manner, or (

c) the powers of the directors of the corporation or any of its affiliates are or have been exercised in a manner that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer, the Court may make an order to rectify the matters complained of.

(3) In connection with an application under this section, the Court may make any interim or final order it thinks fit including, without limiting the generality of the foregoing, any or all of the following: (

a) an order restraining the conduct complained of; (

b) an order appointing a receiver or receiver manager; (

c) an order to regulate a corporation’s affairs by amending the articles or bylaws; (

d) an order declaring that any amendment made to the articles or bylaws pursuant to clause (

c) operates notwithstanding any unanimous shareholder agreement made before or after the date of the order, until the Court otherwise orders; (

e) an order directing an issue or exchange of securities; (

f) an order appointing directors in place of or in addition to all or any of the directors then in office; (

g) an order directing a corporation, subject to section 34(2), or any other person, to purchase securities of a security holder; (

h) an order directing a corporation or any other person to pay to a security holder any part of the money paid by the security holder for securities; (

i) an order directing a corporation, subject to

section 43, to pay a dividend to its shareholders or a class of its shareholders; (

j) an order varying or setting aside a transaction or contract to which a corporation is a party and compensating the corporation or any other party to the transaction or contract; (

k) an order requiring a corporation, within a time specified by the Court, to produce to the Court or an interested person financial statements in the form required by

section 155 or an accounting in any other form the Court may determine; (

l) an order compensating an aggrieved person;

(

m) an order directing rectification of the registers or other records of a corporation under

section 244; (

n) an order for the liquidation and dissolution of the corporation; (

o) an order directing an investigation under

Part 18 to be made; (

p) an order requiring the trial of any issue; (

q) an order granting permission to the applicant to (

i) bring an action in the name and on behalf of the corporation or any of its subsidiaries, or (ii) intervene in an action to which the corporation or any of its subsidiaries is a party, for the purpose of prosecuting, defending or discontinuing an action on behalf of the corporation or any of its subsidiaries. ... [ 26 ] In my view, for the purposes of relief, I cannot conclude that the actions of Mr. Van der Kooy and Mr.

Stange have been oppressive or unfairly prejudicial to Mayfield or disregarded Mayfield’s interests. [ 27 ] It appears that the concerns over the “coffee fund” relate to the manner in which bookkeeping entries are printed out by Vanshaw’s accounting program, rather than any inappropriate handling of Vanshaw’s funds. [ 28 ] However, the evidence provided in Mr. Pechet’s affidavit in support of Mayfield’s application suggests that Vanshaw was to operate a casino. Mayfield has a reasonable argument that its legitimate expectations were that Vanshaw would be operated by Mr. Van der Kooy and Mr.

Stange as a casino business, and that they would not venture into other operations, such as a tour company and a golf course. [ 29 ] Mayfield also has legitimate issues concerning Vanshaw’s involvement with Tours and the golf course, regardless of whether those were within Vanshaw’s normal business operations. [ 30 ] Further, Mayfield has legitimate questions about whether Vanshaw is assisting Mr. Van der Kooy with the purchase of Mr. Stange’s shares by making payments to Mr. Stange. [ 31 ] There are unanswered questions as to the extent to which Mr. Van der Kooy and Mr.

Stange may have benefitted from various transactions. [ 32 ] The respondents have explanations concerning the complained-of transactions. Their explanations may ultimately be accepted, and they may ultimately be found to have acted in good faith and with a view to the best interests of Vanshaw. [ 33 ] However, with respect to the loan to Tours, the explanation is that no transfer of funds occurred and that this was a bookkeeping entry only and that it was to Vanshaw’s benefit. The explanation provided may be legitimate.

Nevertheless, the transaction is at best confusing, and clearly exceeded the $150,000 threshold on transactions without unanimous shareholders’ approval. [ 34 ] The golf course transactions are explained in the first instance that Mr. Van der Kooy was permitted by the 2004 Supplemental Unanimous Shareholders Agreement to take compensation from Vanshaw in an amount equal to or greater than the monies advanced by Vanshaw in relation to the golf course. That may be the case, but the initial transaction had the effect of involving Vanshaw in what has obviously turned out to be a bad investment.

Rather than it being Mr. Van der Kooy’s bad investment, it has become Vanshaw’s bad investment. This is also a transaction that (at least in the way it was structured) required unanimous shareholder approval. [ 35 ] While Mr. Van der Kooy may not have required shareholder approval for compensation to be paid to him, he appears to have used corporate funds for personal benefit other than by way of taking compensation. [ 36 ] His explanation leaves a question as to whether the golf course transactions had anything to do with the best interests and benefit of Vanshaw, as opposed to being soley for Mr.

Van der Kooy’s interests and benefit. [ 37 ] The ultimate acquisition of the golf course by Vanshaw is explained as an investment that may be suitable for the development of a future casino. That may be the case, but it does not explain why no approval was sought from Mayfield as required under the unanimous shareholders agreement. [ 38 ] The ATM dealings exceed the $150,000 threshold. Mayfield’s evidence suggests that the dealings may have resulted in personal benefits to Mr. Van der Kooy and Mr. Stange. [ 39 ] In addition, there was no real explanation provided as to why Mr.

Stange was continuing to receive funds from Vanshaw. [ 40 ] Section 242(3) (

o) of the Business Corporations Act provides that the Court may make an order directing an investigation under

Part 18.

Part 18 provides:

Section 232 of the Business Corporations Act , which is included in

Part 18, includes the following powers: 232(1) On an application under

section 231 or on a subsequent application, the Court may make any order it thinks fit including, without limiting the generality of the foregoing, any or all of the following: (

a) an order appointing an inspector, fixing the remuneration of an inspector or replacing an inspector;

(

b) an order determining the notice to be given to any interested person, or dispensing with notice to any person; (

c) an order authorizing an inspector to enter any premises in which the Court is satisfied there might be relevant information, and to examine any thing and make copies of any document or record found on the premises; (

d) an order requiring any person to produce documents or records to the inspector; (

e) an order authorizing an inspector to conduct a hearing, administer oaths and examine any person on oath, and prescribing rules for the conduct of the hearing; (

f) an order requiring any person to attend a hearing conducted by an inspector and to give evidence on oath; (

g) an order giving directions to an inspector or any interested person on any matter arising in the investigation; (

h) an order requiring an inspector to make an interim or final report to the Court; (

i) an order determining whether a report of an inspector should be published and, if so, designating the persons to whom all or part of the report should be sent; (

j) an order requiring an inspector to discontinue an investigation; (

k) an order requiring any person other than the corporation to pay all or part of the costs of the investigation. [ 41 ] I am satisfied that there are sufficient concerns regarding the operation and management of Vanshaw to warrant the appointment of an investigator to inquire into and report on the transactions complained of by Mayfield. [ 42 ] I make no finding as to the extent to which breaches of a unanimous shareholders agreement may also constitute oppressive conduct.

Any overlap may be an issue relating to remedies, and whether remedies should be limited to the remedies provided under the unanimous shareholders agreement. [ 43 ] Mayfield’s allegations go beyond breaches of the provisions of the unanimous shareholders agreement, such that there may well be remedies available under both the unanimous shareholders agreement and the Business Corporations Act . [ 44 ] Those are considerations to be addressed after it has been determined whether Mr. Van der Kooy and Mr.

Stange have committed acts that are breaches of the unanimous shareholders agreement or oppressive conduct, or both. [ 45 ] I leave it to the parties to agree on the investigator. If they are unable to agree within a reasonable time, I will appoint someone for them. [ 46 ] The costs of the investigation will, in the first instance, be borne by Vanshaw. No information was provided to me suggesting that Vanshaw would be unable to pay the costs of an investigation. Mr.

Van der Kooy shall, as the director of Vanshaw, take all necessary steps to authorize Vanshaw to make any necessary payments, including any required retainer. [ 47 ] Compensation will ultimately be subject to review by the Court if there is any disagreement among the parties. [ 48 ] If the parties have any disagreement over the terms and conditions of the order necessary to give effect to the investigation, I will determine the terms and conditions, including the timing for completion of the investigation. Heard on the 18 th day of May, 2016. Dated at the City of Edmonton, Alberta, this 15 th day of June, 2016.

Robert A. Graesser J.C.Q.B.A. Appearances:

Edward R. Feehan Duncan Craig LLP for the Applicant Luke M. Day Stringam Denecky LLP for the Respondent Stange Kent W. Jesse McLennan Ross LLP for the Respondent Van der Kooy