Executive Summary: Key Legal and Evidentiary Issues

• The case concerns a shareholder’s application for leave to bring a derivative action on behalf of a company against its sole director for alleged breach of fiduciary duty and negligence.

• Central to the dispute is whether the director acted in the company’s best interests when replacing a bank mortgage with a higher-interest loan from a related party.

• The court evaluated whether the applicant was acting in good faith and if the proposed claim had a reasonable prospect of success for the company.

• Evidence included the financial impact of the new loan, the director’s decision-making process, and the applicant’s motives.

• The court considered the parties’ history of litigation and personal disputes but found no overlap with the proposed derivative claim.

• Leave was granted for the derivative action, with the applicant entitled to reimbursement of litigation costs from company funds when available.

Background and facts

This case involves a dispute between two shareholders of a holding company (“Holdco”) that owns a property in Surrey, BC. The shareholders are 1076897 BC Ltd. (owned by Sunny Gill) and MKB Investments Ltd. (owned by Manpreet Berar), each holding 50% of Holdco’s shares. Manpreet Berar is also the sole director of Holdco.

Holdco’s primary asset is a property valued at $1,380,000. The company had a mortgage with TD Bank, which was due for renewal in early 2023. After the property’s house was demolished and a certificate of pending litigation was registered against the title, TD Bank declined to renew the mortgage. Ms. Berar, as sole director, arranged for new financing from Berar Capital Corporation, a company owned by her father, at a much higher interest rate and with significant fees. The petitioner, 1076897 BC Ltd., argued that this decision was made without shareholder approval, was financially detrimental to Holdco, and constituted a breach of fiduciary duty and negligence.

Litigation history

The parties have a history of personal and business disputes, including a discontinued family law action and several civil claims relating to other joint ventures. The current application is distinct from those prior proceedings.

Legal principles and analysis

The court applied the statutory requirements for a derivative action under the Business Corporations Act, which include acting in good faith and demonstrating that the action is in the company’s best interests. The court found that the applicant met these requirements, as the primary purpose was to benefit Holdco and not to pursue a personal vendetta. The court also found that the proposed claim had a reasonable prospect of success, given the evidence that the new mortgage terms were onerous and potentially damaging to Holdco’s equity.

Outcome

The court granted 1076897 BC Ltd. leave to commence and prosecute a derivative action in the name of Holdco against Manpreet Berar for breach of fiduciary duty and negligence. The applicant was also granted the right to be reimbursed for litigation costs from Holdco’s funds when available, such as from the proceeds of a future property sale. No damages were awarded at this stage, as the decision was limited to granting leave to proceed with the derivative action.