July 8, 2020

Determining a Remedy After Oppression or Breach of Fiduciary Duty

Current Issues in Closely Held Businesses Series: Part 4
Holland & Knight Shareholder Rights Blog
Michael J. Zdeb
Shareholder Rights Blog

Once the court finds that oppression and/or a breach of fiduciary duty has occurred, it has to determine a remedy.

Either by statute or within its equitable authority, the court may offer many alternative remedies. Examples include those listed in the Illinois statute on oppression:

(1) The performance, prohibition, alteration, or setting aside of any action of the corporation or of its shareholders, directors, or officers of or any other party to the proceedings;
(2) The cancellation or alteration of any provision in the corporation's articles of incorporation or by-laws;
(3) The removal from office of any director or officer;
(4) The appointment of any individual as a director or officer;
(5) An accounting with respect to any matter in dispute;
(6) The appointment of a custodian to manage the business and affairs of the corporation to serve for the term and under the conditions prescribed by the court;
(7) The appointment of a provisional director to serve for the term and under the conditions prescribed by the court;
(8) The submission of the dispute to mediation or other forms of non-binding alternative dispute resolution;
(9) The payment of dividends;
(10) The award of damages to any aggrieved party;
(11) The purchase by the corporation or one or more other shareholders of all, but not less than all, of the shares of the petitioning shareholder for their fair value and on the terms.

The remedy ordered would be expected to address the nature of the conduct that resulted in the breach or the oppression.

Our experience is that The buy-out tends to be a more frequent remedy ordered by the court. As courts have found that in light of the oppressive conduct, the continued ownership of the stock becomes untenable, as it leaves the minority in the position that the shareholder interest is practically worthless. In addition, the underlying disharmony is likely to draw the court into continuing litigation with any remedy other than a buyout.

Consequently, a buy-out at "fair value," as determined by the court in an appraisal proceeding, is the most likely outcome.

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