Instructions Specific to This Exam

1. This examination contains four questions worth a total of 100 marks. The questions are not of equal value.
2. Suggested time allocations are provided for guidance only. Candidates remain responsible for managing their examination time.
3. You will be assessed primarily on your knowledge of the relevant cases, statutory provisions and principles contained in the assigned Business Organizations materials, together with your ability to identify the legal issues raised by the facts, apply the governing law and assess the competing arguments available to the parties.
4. No marks are awarded for merely reproducing or summarizing the facts. Use the facts in your legal analysis.
5. Each question is independent. Facts from one question should not be imported into another.
6. Unless otherwise stated, assume that every corporation referred to in this examination is incorporated under the Canada Business Corporations Act (“CBCA”) and is not a distributing corporation.
7. Where a statutory provision governs the issue, identify and apply it. Full citations are unnecessary. The relevant section number and statute are sufficient.
8. Do not assume that the legal effect of an agreement depends upon its title. Where appropriate, characterize an agreement or transaction according to its substance.
9. In considering directors’ and officers’ duties, distinguish among:
   • the fiduciary duty;
   • the statutory duty of care;
   • conflict-of-interest requirements;
   • statutory compliance obligations; and
   • any applicable reliance or other statutory defence.
10. In considering shareholder disputes, distinguish between:
    • harm personal to the shareholder;
    • harm suffered by the corporation;
    • the oppression remedy;
    • a derivative action; and
    • any other statutory remedy that may be appropriate.
11. Where a corporate transaction requires shareholder approval, consider both the voting rights created specifically by the CBCA and any dissent rights arising from the transaction.
12. Do not address securities regulation, taxation, insolvency, employment law, competition law or the substantive law of contract except where necessary to characterize a corporate-law issue expressly raised by the facts.
13. Write clear and organized answers in complete sentences.

QUESTION ONE

25 marks — suggested time: 45 minutes

FACTS

Pelorus Robotics Inc. (“Pelorus”) designs robotic inspection equipment for mines and hydroelectric facilities.

Pelorus was incorporated federally in 2021 by three founders:

• Maren Sloane, who owns 40% of the common shares;
• Quentin Aubry, who owns 35%; and
• Noor Fenwick, who owns 25%.

All common shares carry one vote per share.

Maren and Quentin are directors.

The third director is Hugh Redfern, an experienced technology executive who owns no shares.

Shortly after incorporation, Maren, Quentin and Noor signed a document entitled:

Founders Governance Agreement

The agreement provides:

“The board of directors shall manage the ordinary business of Pelorus.”

It then states:

“Notwithstanding the foregoing, the following decisions shall require approval of shareholders holding not less than 80% of the issued voting shares:
(a) the appointment or removal of the Chief Executive Officer;
(b) any acquisition having a value exceeding $1 million;
(c) any capital expenditure exceeding $1.5 million; and
(d) the issuance of additional voting shares.”

The agreement further provides:

“To the extent that authority over the foregoing matters is reserved to the shareholders, the directors shall have no authority to make those decisions independently.”

The agreement does not use the words “unanimous shareholder agreement.”

Pelorus’s articles and by-laws do not refer to the agreement.

For the first four years, everyone treated it as binding.

In January 2026, Noor decided to reduce her investment.

She sold 15% of Pelorus’s outstanding shares to Granite Arch Ventures Ltd. (“Granite Arch”) and retained the remaining 10%.

The share certificate delivered to Granite Arch did not refer to the Founders Governance Agreement.

Neither Noor nor Pelorus provided Granite Arch with a copy.

Before purchasing the shares, Granite Arch reviewed Pelorus’s articles, by-laws, financial statements and minute book.

The minute book contained several resolutions referring generally to:

“shareholder approval pursuant to the Founders Agreement,”

but no copy of the agreement itself was included.

Granite Arch’s lawyer noticed the references and asked Pelorus’s chief financial officer whether there was:

“anything unusual affecting the rights attached to these shares.”

The CFO responded:

“Nothing in the articles. The founders have some old understandings about major decisions, but the shares are ordinary voting common shares.”

Granite Arch completed the purchase.

Two months later, Pelorus’s board decided that the company required more experienced leadership.

Maren and Hugh voted to remove Quentin as CEO and appoint Sasha Devlin in his place.

Quentin opposed the change.

No shareholder vote was held.

Maren said:

“The board appoints officers under the CBCA. A private founders’ document cannot permanently stop directors from doing their statutory job.”

One week later, the board approved the purchase of a manufacturing facility for $3.2 million.

Again, no shareholder approval was obtained.

Noor objected to both decisions.

She said the board had breached the Founders Governance Agreement.

Maren responded that, even if the agreement had originally restricted the directors, Noor’s sale to Granite Arch meant that it was no longer an agreement among all shareholders and therefore could no longer operate as a unanimous shareholder agreement.

Granite Arch first received a complete copy of the agreement five days ago.

It is unhappy with the restrictions and says that, had it known shareholders could exercise direct control over major corporate decisions, it would not have purchased the shares.

It wants to know whether it may unwind its purchase from Noor.

A further dispute has arisen concerning responsibility for the manufacturing-facility acquisition.

Maren and Noor had previously participated directly in shareholder votes approving two earlier acquisitions under the Founders Governance Agreement.

Noor now says:

“We are shareholders, not directors. Even if shareholders vote on an acquisition, directors remain legally responsible for whether the decision is in Pelorus’s best interests.”

Pelorus has requested advice before taking further action.

QUESTION

Advise Pelorus, Noor and Granite Arch concerning the legal effect of the Founders Governance Agreement, the respective management powers and responsibilities of Pelorus’s directors and shareholders, the validity of the board’s recent decisions, and Granite Arch’s position following its acquisition of the shares.

25 MARKS

QUESTION TWO

25 marks — suggested time: 45 minutes

FACTS

Orchardline BioStorage Inc. (“Orchardline”) operates temperature-controlled warehouses used by pharmaceutical and biotechnology companies.

Its board has five directors.

One director, Anouk Ferrier, has extensive experience in industrial real estate.

Unknown to the other directors, Anouk owns 40% of Polar Reach Logistics Ltd. (“Polar Reach”) through a private holding company.

Her brother owns another 35%.

Polar Reach owns a specialized cold-storage warehouse outside Montréal.

In November 2025, Anouk proposed that Orchardline acquire the warehouse.

She told the board:

“I know Polar Reach’s management well and I am confident this facility is exactly what Orchardline needs.”

She did not disclose her ownership interest.

Polar Reach asked $9.2 million.

Orchardline had previously retained an independent commercial appraiser.

The appraiser valued the property between $7.7 million and $8.1 million.

Its report also stated that the building’s refrigeration roof system would likely require approximately $1.1 million in replacement work within three years.

Anouk prepared a two-page summary for the board.

The summary referred to the $7.7 million to $8.1 million appraisal range but did not mention the anticipated roof work.

It stated:

“A strategic premium is justified because comparable cold-storage properties rarely become available.”

The full appraisal was included electronically with the meeting materials.

Three directors read only Anouk’s summary.

The fifth director, Graham Iles, read the complete report and raised concerns about the price.

Anouk responded:

“You can always find reasons not to grow. This opportunity will disappear if we overthink it.”

The board voted four to one to approve the acquisition.

Anouk voted in favour.

Graham voted against and requested that his dissent be recorded in the minutes.

The purchase closed.

Six months later, Orchardline shareholders discovered Anouk’s ownership interest.

By then the refrigeration problems had become more serious and the warehouse required approximately $1.4 million in repairs.

Polar Reach had distributed much of the purchase money to its shareholders, including Anouk.

A separate issue concerns an adjoining industrial parcel known as Parcel 17.

Before Orchardline purchased the warehouse, its management had spent approximately $90,000 investigating Parcel 17 as a possible expansion site.

A consultant retained by Orchardline concluded that Parcel 17 would allow the corporation to construct a highly profitable second cold-storage building.

The board discussed the parcel during the same period.

Because Orchardline was concentrating its cash resources on the Polar Reach transaction, the directors decided:

“not to pursue Parcel 17 at this time.”

Anouk did not tell the board that she personally wanted the property.

Nine days later, a corporation wholly owned by Anouk purchased Parcel 17 for $2 million.

She used Orchardline’s consultant report when deciding what to offer.

Four months later, a competing logistics company agreed to lease the planned facility from Anouk’s corporation under a 15-year lease.

The expected value of Anouk’s interest increased substantially.

Anouk says she did nothing wrong.

She argues:

“The board rejected Parcel 17. Once Orchardline chose not to buy it, the opportunity was available to anyone.”

She also says the other directors cannot complain about the Polar Reach purchase because they had an independent professional appraisal and voluntarily approved the deal.

The shareholders have requested advice.

QUESTION

Advise Orchardline and its shareholders concerning the duties and potential liabilities of Anouk and the other directors arising from the Polar Reach transaction and Parcel 17.

25 MARKS

QUESTION THREE

30 marks — suggested time: 54 minutes

FACTS

Selborne Health Data Inc. (“Selborne”) develops software used by hospitals to manage patient scheduling and laboratory records.

It was founded eight years ago by:

• Jonas Harcourt, who owns 55% of the common shares;
• Sima Deneau, who owns 25%; and
• Etta Calhoun, who originally owned 20%.

All three initially worked full-time for Selborne.

Jonas became chief executive officer.

Sima became chief financial officer.

Etta became chief technology officer.

For the first six years, all three also served as directors.

There was no formal unanimous shareholder agreement.

However, shortly before incorporation, Jonas wrote to Etta and Sima:

“The three of us built this together. As long as each of us remains committed full-time, each founder will have a seat at the board table and a meaningful role in running Selborne.”

A second email stated:

“We are keeping salaries reasonable and sharing success through dividends so ownership means something.”

For the first six years:

• each founder remained a director;
• their salaries were broadly similar;
• Selborne paid annual dividends equal to approximately 30% to 40% of after-tax profits; and
• major strategic decisions were ordinarily discussed among all three before formal board approval.

Selborne became highly profitable.

By 2025, it had annual revenue of approximately $38 million.

A private-equity investor offered to purchase Selborne for approximately $62 million.

Etta supported the sale.

Jonas and Sima opposed it because they believed the business could become much more valuable.

Relations deteriorated.

Three months later, Jonas and Sima terminated Etta’s employment as chief technology officer.

For purposes of this examination, do not address employment law.

Jonas and Sima then used their voting control to remove Etta from the board.

They told her:

“Share ownership never guaranteed you a management job or a board seat forever.”

Selborne remained profitable.

The following year, however, the board stopped paying dividends.

Jonas’s annual compensation increased from $290,000 to $820,000.

Sima’s increased from $250,000 to $690,000.

The board recorded the increases as:

“market retention compensation reflecting the exceptional value of senior management.”

An independent compensation report obtained several months later estimated competitive compensation for comparable positions at approximately:

• $400,000 to $475,000 for Jonas; and
• $325,000 to $390,000 for Sima.

The board also approved an issue of 600,000 new common shares.

Before the issue, Selborne had 1,000,000 common shares outstanding.

The new shares were issued only to Jonas and Sima at $1.25 per share.

Six months earlier, an arm’s-length investor had offered to subscribe for common shares at $4 per share.

The board minutes state:

“Additional permanent capital is prudent in light of market uncertainty.”

Selborne had $9 million in cash and no significant long-term debt.

No external financing was sought.

After the share issue, Etta’s percentage interest fell substantially.

Approximately one month after receiving the $750,000 subscription proceeds, Selborne paid Jonas and Sima combined:

“founder retention bonuses”

of $610,000.

Etta says the share issue had no genuine financing purpose and was intended to dilute her while giving Jonas and Sima inexpensive additional equity.

Jonas denies this.

He says:

“We put additional capital at risk when Etta would not. Dilution is what happens when one shareholder does not participate in a financing.”

Etta was never offered the opportunity to subscribe.

She has now learned of another transaction.

Selborne paid Arcfield Strategy Group Ltd. $900,000 for two years of management consulting.

Arcfield is owned by Jonas’s adult daughter.

Its only other client paid approximately $80,000 per year for comparable services.

Jonas disclosed that his daughter owned Arcfield.

He did not vote on the board resolution approving the contract.

Sima and the corporation’s two newer independent directors approved it.

Etta believes the price is grossly excessive.

She wants:

1. to be bought out at the value her shares would have had immediately before the disputed share issuance;
2. repayment to Selborne of excessive compensation and bonuses;
3. recovery from Arcfield or Jonas in relation to the consulting payments; and
4. an order preventing Jonas and Sima from using their voting control to exclude her from the economic benefits of Selborne.

Jonas responds:

“Etta is unhappy because she lost a corporate power struggle. That is not oppression. Majority shareholders are allowed to control a corporation.”

QUESTION

Advise Etta concerning the shareholder remedies potentially available to her under the CBCA, the distinction among the different claims she wishes to advance, the principal requirements she must satisfy, and the relief a court could realistically grant.

30 MARKS

QUESTION FOUR

20 marks — suggested time: 36 minutes

FACTS

Cinderlake Diagnostics Inc. (“Cinderlake”) manufactures laboratory-imaging equipment and licenses diagnostic software.

It has two classes of shares:

• 600,000 Class A common shares, which ordinarily carry one vote per share; and
• 400,000 Class B participating shares, which ordinarily carry no voting rights.

Class A and Class B shares participate equally, share for share, in dividends and in the remaining property of Cinderlake upon dissolution.

Cinderlake operates through two divisions.

Its Imaging Division:

• owns Cinderlake’s manufacturing plant;
• employs 220 of Cinderlake’s 250 employees;
• generates approximately 82% of annual revenue;
• accounts for approximately 74% of the corporation’s asset value; and
• produces approximately 88% of operating profit.

Its Software Division:

• employs 30 people;
• owns several valuable patents and software licences;
• generates approximately 18% of annual revenue; and
• is expected by management to grow substantially over the next five years.

The board has negotiated a transaction under which Lattice Peak Medical Ltd. will purchase:

• the manufacturing plant;
• all Imaging Division inventory;
• the division’s equipment;
• its customer contracts;
• its trademarks; and
• substantially all other assets used by the Imaging Division

for $54 million.

Cinderlake will retain:

• the Software Division;
• approximately $11 million in cash; and
• several patents unrelated to the Imaging Division.

The board intends to use part of the sale proceeds to expand the Software Division.

The directors say no shareholder approval is required because:

“Cinderlake is not selling all of its assets and will continue operating a real business after closing.”

Several Class A shareholders disagree.

The board nevertheless schedules a shareholder meeting.

It sends notice only to Class A shareholders and states that the proposed transaction will be approved if two-thirds of the votes cast by Class A shareholders favour the transaction.

No materials are sent to Class B shareholders because their shares are described in the articles as non-voting.

Cora Lindell owns 80,000 Class B shares.

She learns of the transaction from another shareholder.

Three days before the scheduled meeting, she emails Cinderlake’s corporate secretary:

“I object to the sale of the Imaging Division and demand all rights available to me as a shareholder if the company proceeds.”

Cora attends the meeting and asks to vote.

The chair refuses.

He says:

“Your shares are non-voting. You bought them knowing that.”

The Class A shareholders approve the sale by more than two-thirds of the votes cast.

Cinderlake tells Cora that:

• her objection has no legal effect;
• she has no right to vote;
• she has no dissent right; and
• if she dislikes the company’s new direction she may sell her shares privately.

The transaction has not yet closed.

Cora seeks immediate advice.

QUESTION

Advise Cinderlake and Cora concerning the shareholder approvals required for the proposed transaction and Cora’s statutory rights if Cinderlake proceeds with the sale.

20 MARKS