Shareholder action violates anti-deprivation rule

ATB Financial v Mayfield Investments Ltd, 2025 ABKB 61
Is a forced share sale provision in a unanimous shareholders agreement void under the anti-deprivation rule?

Summary: In this case, the court considered whether a provision in a shareholders agreement violated the anti-deprivation rule. The provision entitled two shareholders to purchase the shares of the other shareholder if that shareholder entered receivership. Mayfield was placed in receivership, and the other two shareholders sought to exercise their rights under the provision. They argued that the triggering event they relied upon was not Mayfield’s receivership, but a notice that its appointing creditor sent to the shareholders. The Court found that the receivership was the only triggering event that the shareholders were entitled to rely upon, meaning that the anti-deprivation rule was violated.

Ernst & Young Inc., in its capacity as receiver of Mayfield Investments Ltd. (“Mayfield”), applied for a declaration that a forced share sale provision in a unanimous shareholders agreement (the “USA”) between Mayfield (who owned 50% of the shares in 1995472 Alberta Ltd. (“1995”)) and Albert Stark and Cameron Christianson (who owned the other 50% of the shares) (collectively, the “Shareholders”) was void under the anti-deprivation rule. The Shareholders opposed the receiver’s application and applied for an order that the receiver comply with the forced sale provision and, if necessary, a lifting of the stay in the receivership order.

The anti-deprivation rule renders void contractual provisions that, upon insolvency, remove value that would otherwise have been available to an insolvent person's creditors from their reach. This test has two parts: first, the relevant clause must be triggered by an event of insolvency or bankruptcy; and second, the effect of the clause must be to remove value from the insolvent's estate. Contractual provisions that eliminate property from the estate, but do not eliminate value, may not offend the anti-deprivation rule. Nor do provisions whose effect is triggered by an event other than insolvency or bankruptcy.

In this case, the share sale provision entitled two shareholders to purchase the shares of the other shareholder if that shareholder entered receivership, with a 25% discount on the purchase price and payment in installments over 36 months without interest. Thus, Mayfield’s insolvency triggered removal of value from the insolvent person’s estate. The discount and favourable terms were a deprivation triggered by receivership, so the anti-deprivation rule applied.

The Shareholders submitted that the triggering event they relied upon was not Mayfield’s receivership, which occurred on October 24, 2024, but a notice that its appointing creditor, ATB Financial, sent to 1995 and the Shareholders on August 26, 2024. The Shareholders submitted that that letter was enforcement against Mayfield’s shares in 1995, and consequently a “Withdrawing Event” under Article 4.01(e) of the USA.

Even assuming this to be so, Pursuant to Article 4.03, the Shareholders were required to advise Mayfield of the price the Shareholders were prepared to pay for Mayfield’s shares within 45 days of the enforcement (i.e. by October 15, 2024), in a document called a “Withdrawing Purchase Notice”. Such notice was only provided on December 20, 2024, when their lawyer wrote to the receiver.

Accordingly, the Shareholders were limited to relying on Mayfield’s receivership as the trigger giving rise to their right to purchase Mayfield’s shares under Article IV because their right to do so based on the August 26, 2024 letter expired on October 15, 2024, or earlier. While Article IV could perhaps be enforceable if a trigger other than insolvency were relied on, in this case, the only trigger the Shareholders could rely on was the receivership. The removal of value from an estate triggered by receivership engages the anti-deprivation rule. In this context, the Court held that Article IV was void.

The Court granted the receiver’s application for a declaration that Article IV of the USA violated the anti-deprivation rule and was void and unenforceable in the context of these receivership proceedings. The Court further granted the receiver’s application for an order that it was authorized to market and sell Mayfield’s shares in 1995 in the sale and investment solicitation process approved by the Court on January 14, 2025. The Shareholders’ application for an order compelling the receiver to sell Mayfield’s shares in 1995 was dismissed because Article IV was void in these circumstances. The Shareholders’ application for the stay to be lifted to accomplish that sale was moot, because the Court did not order the sale sought by the Shareholders.

Judge: Honourable Justice G.S. Dunlop

Professionals involved:

• Sean Collins, K.C., Pantelis Kyriakakis and Nathan Stewart of McCarthy Tétrault for ATB Financial

• Darren Bieganek, K.C. and Edward Feehan, K.C. of Duncan Craig for Howard Pechet

• Kelly Bourassa, Claire Hildebrand and Wajeeha Sattar of Blakes for EY as receiver

• Terry Czechowskyj, K.C., Karishma Akbari (Student at Law) and Krishni Hettiaratchi (Student at Law) of Miles Davison for Albert Stark

• David Corrigan, K.C. of HMC Lawyers for Cameron Christianson