Derivative Action vs. Oppression Remedy In Ontario 

Ontario law gives shareholders two powerful tools to fight corporate misconduct: the derivative action and the oppression remedy. They look similar from the outside. They arise from the same situations. But they are fundamentally different remedies.

This is the single most important question in choosing between these two remedies:

• Was the corporation harmed? — Derivative action
• Were you personally harmed as a shareholder? — Oppression remedy

Everything else flows from this distinction. The same misconduct can sometimes harm both the company and its shareholders simultaneously; and in those cases, both remedies can be pursued at the same time.

A derivative action is a lawsuit brought by a shareholder on behalf of the corporation to remedy a wrong done to the company itself.

The harm is to the corporation; not directly to the shareholder. The shareholder steps in and sues because the people running the company are the ones who caused the harm and will never authorize the company to sue itself.

Any money recovered goes to the corporation — not to the shareholder personally. The shareholder benefits only indirectly, through their proportional interest in the company.

Common situations for a derivative action:

• Directors misappropriate corporate funds for personal use;
• An officer diverts a business opportunity away from the company;
• A fiduciary duty owed to the corporation is breached.

Court approval is required. Before bringing a derivative action, the shareholder must apply to court for leave; that is, permission to proceed. The court will grant leave only where the shareholder gave reasonable notice to the directors, is acting in good faith, and the action appears to be in the best interests of the corporation.

The oppression remedy is a personal claim brought by a shareholder for harm done directly to them.

Under section 248 of Ontario’s Business Corporations Act, a court can intervene where the corporation or its directors have acted in a way that is:

• Oppressive to a shareholder’s interests;
• Unfairly prejudicial to a shareholder; or,
• Unfairly disregardful of a shareholder’s interests.

The focus is on the reasonable expectations of the shareholder: what they were entitled to expect as a participant in the business.

Common situations for an oppression remedy:

• A majority shareholder cuts off a minority shareholder’s salary or dividends while continuing to pay themselves;
• A shareholder is excluded from management and decision-making without justification;
• New shares are issued to dilute a minority shareholder’s interest;
• Corporate funds are diverted in a way that personally damages a shareholder’s investment;
• A shareholder is frozen out of the business entirely.

No court approval required. Unlike a derivative action, the oppression remedy does not require leave of the court before proceeding. 

The same conduct can sometimes give rise to both claims simultaneously; Ontario courts permit shareholders to pursue both in parallel.

The Ontario Court of Appeal confirmed this in Rea v. Wildeboer (2015), holding that while the two remedies are separate and distinct, they are not mutually exclusive. Where a majority shareholder’s misconduct harms both the corporation and a minority shareholder personally, the minority shareholder can bring both a derivative action on the company’s behalf and an oppression claim for their own losses in the same proceeding.

However, the court also confirmed that where the real harm is to the corporation rather than the individual shareholder, an oppression claim will fail. Many shareholders try to pursue the oppression remedy because it does not require court leave, only to have their claim struck because the harm was to the company, not to them personally. 

In a derivative action:

• Damages payable to the corporation;
• Accounting of profits — wrongdoers hand over gains made from the breach;
• Rescission of improper transactions;
• Injunctions preventing further wrongdoing.

In an oppression remedy:

• A forced buyout of the shareholder’s shares at fair market value;
• Damages paid directly to the shareholder;
• Restraining orders preventing further oppressive conduct;
• Setting aside transactions made improperly;
• Appointment or removal of directors;
• Winding up the corporation in serious cases.

At Pinto Shekib LLP, we represent shareholders, corporations, and directors in derivative actions, oppression remedy applications, and corporate disputes across Ontario. Contact us at 416.901.9984 or info@pintoshekib.ca.