Can Business Conducted at Invalid Corporate Meetings Still be Valid and Effective? The BC Court of Appeal Says "Yes"

Written By Eunize Lao and Amelia Neo

Case Summary

In Yinghe Investment (Canada) Ltd. v CCM Investment Group Ltd., 2024 BCCA 285 (CCM Investment), the BC Court of Appeal upheld the chambers judge’s decision, ruling that: (1) an annual general meeting (AGM) and subsequent directors’ meeting of CCM Investment Group Ltd. (CCM) were invalid under section 229 of the BC Business Corporations Act, RSBC 1996, c 62 (BCBCA) which addresses corporate mistakes; and (2) despite the invalidity of these meetings, certain business conducted thereat was still valid and in the best interests of CCM.

Facts

The litigation arose in the context of a shareholders’ dispute in CCM, a closely-held real estate development company with four shareholders. Yinghe Investment (Canada) Ltd. (Yinghe Investment) was CCM’s largest shareholder. Each of the shareholders had a representative serve on CCM’s board of directors. Yinghe Investment’s representative, Mr. Jiang Shen Chen, served as a director and chairman of the board until March 2023, when the disputed meetings occurred.

The impugned AGM was called by only one director of CCM. Notice of the AGM was sent to each shareholder and director via registered mail, but the copy sent to Yinghe Investment and Mr. Chen went uncollected and was returned to CCM’s law firm. As a result, Yinghe Investment and Mr. Chen were absent from the AGM. At the AGM, certain business was conducted that negated Yinghe Investment’s influence, including the removal of Mr. Chen as director and chairman of the board. At a directors’ meeting held immediately after the AGM, the new directors passed a resolution changing CCM’s registered and records office.

Yinghe Investment and Mr. Chen were later made aware of the meetings and filed a petition seeking an order that the meetings and business conducted thereat be declared invalid and ineffective. They argued that since CCM’s articles require that shareholder meetings be called by “directors” (in the plural), the AGM called by only one director and the subsequent directors’ meeting (held by the newly constituted board) were held contrary to CCM’s articles. Yinghe Investment and Mr. Chen further argued that these actions constituted a corporate mistake that the court should remedy under section 229 of the BCBCA.

Chambers Judge’s Decision

The chambers judge, Justice Stephens, decided that the AGM and subsequent directors’ meeting were indeed held contrary to CCM’s articles. Justice Stephens rectified this corporate mistake, pursuant to section 229(2) of the BCBCA, by invalidating both meetings. Subject to the exceptions described below, Justice Stephens also invalidated the business conducted at the meetings, which resulted in Mr. Chen being reinstated as director of CCM. Justice Stephens also ordered that CCM hold a valid AGM.

In rendering his decision, Justice Stephens considered the best interests of CCM and made three exceptions to his order under section 229, ruling that:

1. the decision to reappoint the previous auditor for CCM should not be set aside;
2. the decision to appoint two new directors, in place of their fathers as directors, should not be set aside; and
3. the appointment of a law firm as the registered and records office of CCM should not be set aside
   
   (collectively, the Exceptions).

BC Court of Appeal Decision

On appeal, the appellants Yinghe Investment and Mr. Chen submitted that Justice Stephens erred, inter alia, by:

1. exercising his discretion to make an order under section 229 of the BCBCA without considering the statutory criteria for making such an order, or alternatively that he erred in principle in the exercise of his discretion; and
2. ordering the Exceptions in the absence of extraordinary circumstances, as no party had sought orders requesting that exceptions be granted.

On the first ground, the BC Court of Appeal stated that the standard of review for a discretionary decision is deferential, and the appellants’ argument relied on evidence that was not before Justice Stephens. It also noted that subsection 229(3) of the BCBCA requires only that the court consider the interests of the company and its directors, creditors, and shareholders.

The BC Court of Appeal decided that two of the three Exceptions—the re-appointment of CCM’s previous auditor and the appointment of a law firm as its registered and records offices—were reasonable and innocuous. The remaining exception—the appointment of the two new directors in place of their fathers—restored in a general sense, the status quo existing before the invalidated meetings, such that:

1. each shareholder had a representative on the board;
2. the number of directors remained at four; and
3. Mr. Chen remained the fourth director.

Accordingly, the BC Court of Appeal determined that Justice Stephens properly exercised his discretion under section 229 of the BCBCA and did not fail to consider the interests of the appellants, other shareholders, or CCM itself.

On the second ground, the BC Court of Appeal held that “[t]he powers granted by s. 229(2) may be exercised by the court ‘either on its own motion or on the application of any interested person’”. Therefore, Justice Stephens did not err in granting relief that was expressly contemplated by the wording of the BCBCA, even though it was not requested by the parties to the litigation.

Key Takeaways

CCM Investment demonstrates the following key points:

1. The court has broad discretion under s. 229 of the BCBCA to rectify corporate mistakes, either on its own motion or on the application of any interested person.
2. Even if a meeting is deemed invalid under s. 229 of the BCBCA, it does not automatically render all business conducted at that meeting invalid and ineffective—certain business may still be valid if it would be in the best interests of the company.
3. It is important for BC-incorporated companies to strictly adhere to the BCBCA, the regulations thereunder, and its own governing documents when conducting its business or affairs. Failure to do so may lead to costly litigation and uncertainty, given the court's broad discretion in remedying corporate mistakes.

Relevant Provisions for a BC-Incorporated Company to Note

Subsection 229(1) of the BCBCA defines “corporate mistake”, as follows:

229 (1) In this section, “corporate mistake” means an omission, defect, error or irregularity that has occurred in the conduct of the business or affairs of a company as a result of which

(a) a breach of a provision of [the BCBCA], a former Companies Act or the regulations under any of them has occurred,

(b) there has been a default in compliance with the memorandum, notice of articles or articles of the company,

(c) proceedings at or in connection with any of the following have been rendered ineffective:

(i) a meeting of shareholders;

(ii) a meeting of the directors or of a committee of directors;

(iii)any assembly purporting to be a meeting referred to in subparagraph (i) or (ii), or

(d) a consent resolution or records purporting to be a consent resolution have been rendered ineffective.

As seen in CCM Investment, section 229(2) of the BCBCA grants the court broad discretion to make orders and give directions to correct a corporate mistake:

229 (2) Despite any other provision of [the BCBCA], the court, either on its own motion or on the application of any interested person, may make an order to correct or cause to be corrected, to negative or to modify or cause to be modified the consequences in law of a corporate mistake or to validate any act, matter or thing rendered or alleged to have been rendered invalid by or as a result of the corporate mistake, and may give ancillary or consequential directions it considers necessary.

Subsections 229(3) and 229(4) of the BCBCA provide further direction to the court when making an order to rectify a corporate mistake:

229(3) The court must, before making an order under this section, consider the effect that the order might have on the company and on its directors, officers, creditors and shareholders and on the beneficial owners of its shares.

229(4) Unless the court orders otherwise, an order made under subsection (2) does not prejudice the rights of any third party who acquired those rights

(a) for valuable consideration, and

(b) without notice of the corporate mistake that is the subject of the order.

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