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CORPORATIONS - Unanimous shareholder agreement - Directors and officers - Breach of duty

Wednesday, October 07, 2020 @ 6:17 AM  

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Appeal by the plaintiffs from the dismissal of their action against Liao for breach of fiduciary duty as a director of Ascent One and the allowance of Liao’s action seeking repayment of a shareholder’s loan. Liao and Yang both provided $2.3 million shareholder loans to Ascent One at its inception. Ascent One was incorporated by Liao, Yang and Chiang, to develop a real estate project. The shareholders agreement provided that the original shareholder loans had priority over any subsequent shareholder loans. Liao requested a full financial risk assessment to allow for re-evaluation of the investment, but her requests were refused. She commenced an oppression action against Ascent One that she subsequently agreed to dismiss. Yang provided a further $1.3 million to Ascent One to increase its equity. Liao refused to provide further funds until she received financial documents. She often sent her votes in by e-mail rather than attending directors’ meetings in person. In 2014, Yang and Chiang executed resolutions that declared the shareholders agreement was at an end and granted a separate loan agreement to Yang with priority over existing shareholder loans. Ultimately, Ascent One sold the lands. The net sale proceeds of $1,903,648 as well as Yang’s additional $1.3 million, were held in trust.

HELD: Appeal dismissed. The trial judge did not err in concluding Liao had not breached her fiduciary duty by filing her lawsuit, refusing to participate in the daily management of the company or by thwarting financing. He was entitled to find Liao’s action was brought to protect Ascent One’s interests. The trial judge did not err in concluding Liao was permitted to vote by e-mail and that the directors were able to communicate. The trial judge erred in his analysis in Liao’s action but there was no basis to interfere with his conclusion that all funds held in trust for Ascent One, including Yang’s further $1.3 million, were available to repay the original shareholder loans in equal amounts. Had the trial judge properly assessed the evidence and the applicable legal principles, he would have concluded that Liao was the non-repudiating party who had elected to accept the repudiation of the shareholders agreement by the other parties. The effect of Liao’s acceptance of the repudiation was that the shareholders agreement was terminated but the rights and obligations under it that had matured continued to be enforceable. The obligation to repay the original shareholder loans in priority to any subsequent loans was not extinguished. While the 2014 loan agreement was not invalid, it was unenforceable against Liao.

Ascent One Properties Ltd. v. Liao, [2020] B.C.J. No. 1344, British Columbia Court of Appeal, A.W. MacKenzie, G.J. Fitch and B. Fisher JJ.A., August 31, 2020. Digest No. TLD-October52020006