COURT FILE NO.: CV-22-90330 DATE: 2024/12/13 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Dongtao Wang, Yanyan Xu, Hongxia Guo and Bin Chen Applicants

– and –

Sixin Wei, XTP Holdings Inc. and Xtreme Trampoline Park Inc. Respondents

Counsel: Peter N. Mantas for the Applicants Allan Snelling for XTP Holdings Inc. and Xtreme Trampoline Park Inc Kevin Butler for Sixin Wei

HEARD: September 16, 2024 and supplementary materials filed on November 1, 2024

Reasons for Judgment Rees J.

I. Overview

[1] This is an oppression remedy application under s. 241 of the Canada Business Corporations Act, R.S.C. 1985, c. C-44 (“CBCA”). The applicants, who are the minority shareholders of the respondent Xtreme Trampoline Park Inc. (“Xtreme”), allege that the actions of the majority shareholder, Sixin Wei, oppressed them.

[2] Xtreme is in the business of operating an indoor trampoline park in Kanata, Ontario. Xtreme also owns 100 percent of the respondent XTP Holdings Inc.

[3] XTP Holdings was incorporated for the purpose of building an indoor trampoline park in Barrhaven, Ontario. The shareholders made loans to Xtreme to fund the Barrhaven project. These loans were advanced to XTP Holdings.

[4] XTP Holdings bought two properties in Barrhaven, but ultimately could not obtain a rezoning of the properties to allow it to run a trampoline park. Thus, the parties agreed to sell the properties and recoup their loans through a share repurchase.

[5] The applicants argue that Mr. Wei has refused to disburse to them their full share of the Barrhaven proceeds, contrary to a supplementary shareholders’ agreement and unanimous shareholders’ resolution. They also complain that Mr. Wei has denied them meaningful access to the accounting records of the corporate respondents.

[6] The respondents deny that Mr. Wei’s conduct was oppressive. They argue that the respondents cannot disburse the proceeds of sale while Xtreme is facing liquidity concerns. They also say that the applicants are not entitled to all of the proceeds of sale. Finally, they contend that the applicant Dongtao Wang has access to the corporate bank accounts.

[7] I conclude that Mr. Wei’s conduct violated the applicants’ reasonable expectations in three ways. First, I find that Mr. Wei denied Mr. Wang timely and meaningful access to the accounting records of Xtreme and XTP Holdings. This conduct was unfairly prejudicial to the applicants’ interests as minority shareholders and unfairly disregarded those interests.

[8] Second, by the summer of 2023, Mr. Wei breached the applicants’ reasonable expectations that the remaining proceeds of sale would be returned to the shareholders in the form of a pro rata share repurchase, after some of the proceeds were used to repay a contemplated loan for a project in Kingston. This conduct was unfairly prejudicial to and unfairly disregarded the applicants’ interests as minority shareholders.

[9] Finally, Mr. Wei surreptitiously obtained funds held in trust by the corporate respondents’ real estate solicitor, contrary to the agreement of the shareholders and the reasonable expectations of the applicants. Doing so was oppressive to the applicants’ interests.

II. Background facts

[10] The applicants, Dongtao Wang, Yanyan Xu, Hongxia Guo and Bin Chen, are minority shareholders in Xtreme. They hold, respectively, 17.5 percent, 15 percent, 10 percent and 7.5 percent of Xtreme’s shares. Collectively, the applicants hold 50 percent of the company’s shares.

[11] The respondent Mr. Wei is the beneficial owner of 50 percent of Xtreme’s shares, in his personal capacity and through a holding company, 8932514 Canada Inc.

[12] The shareholders of Xtreme entered into a Shareholders Agreement dated August 1, 2015.

[13] Mr. Wei and Mr. Wang are directors of the corporate respondents. Mr. Wei is president and chief executive officer of the corporations. Mr. Wang is the treasurer of Xtreme, but not of XTP Holdings.

[14] Xtreme and XTP Holdings are corporations duly incorporated under the CBCA.

III. Issues

[15] The issues raised on this application are twofold:

a. Was Mr. Wei’s conduct oppressive or unfairly prejudicial to the applicants or did it unfairly disregard their interests?

b. If so, what is the appropriate remedy?

IV. Analysis

A. The oppression remedy

[16] Section 241(2) of the CBCA provides that a court may make an order to rectify the matters complained of where:

(a) any act or omission of the corporation or any of its affiliates effects a result,

(b) the business or affairs of the corporation or any of its affiliates are or have been carried on or conducted in a manner, or

(c) the powers of the directors of the corporation or any of its affiliates are or have been exercised in a manner

that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer….

[17] Oppression is an equitable remedy. The court has a broad equitable jurisdiction to enforce not only what is legal but also what is fair. The court must therefore consider commercial reality in addition to the law. This is a fact specific inquiry: BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. 560, at paras. 58-59.

[18] The oppression remedy seeks to uphold the reasonable expectations of stakeholders: BCE, at para. 63. As the Supreme Court of Canada put it, “Fair treatment… is most fundamentally what stakeholders are entitled to ‘reasonably expect’”: BCE, at para. 64.

[19] In considering an oppression remedy application, the court must ask two questions: (1) Does the evidence support the reasonable expectations asserted by the applicants? and (2) Does the evidence establish that their reasonable expectations were violated by conduct falling within the terms “oppression”, “unfair prejudice” or “unfair disregard” of a relevant interest? See BCE, at para. 95.

[20] Not every failure to meet a reasonable expectation can properly ground an oppression application. The conduct must be “oppression”, “unfair prejudice” or “unfair disregard” of the applicants’ interests, within the meaning of s. 241 of the CBCA.

[21] Several classes of individuals qualify for protection under the oppression remedy, including “a registered holder or beneficial owner, and a former registered holder or beneficial owner, of a security of a corporation or any of its affiliates”: s. 238 of the CBCA. There is no question that the applicants as shareholders have standing under s. 241(1).

B. Factual findings

Financing and shareholder loans

[22] The shareholders of Xtreme entered into a Supplementary Shareholders’ Agreement on April 4, 2017. Among other things, this agreement governed the financing and liquidation rules for the Barrhaven project.

[23] Mr. Wang, Mr. Xu, Mr. Y He, Mr. Wei and Mr. Wei’s holding company advanced shareholder loans to Xtreme. (Mr. Y He is the spouse of the applicant Ms. Guo. Mr. Y He later transferred his shares to Ms. Guo.)

[24] These shareholder loans were converted into equity by way of a share issuance, effective March 1, 2017. This is evidenced by the Conversion Agreement dated March 1, 2017.

[25] Xtreme provided funding to XTP Holdings for the purpose of developing the Barrhaven project.

The Barrhaven project

[26] Two properties were purchased for the Barrhaven trampoline park. Unfortunately, the project ran into trouble. XTP Holdings was unable to obtain a rezoning of the properties which would allow XTP Holdings to use the properties for the trampoline park.

[27] As a result, the applicants and Mr. Wei agreed in July 2018 that the properties had to be sold.

The July 2018 shareholders’ meeting

[28] On July 23, 2018, all of the shareholders of Xtreme met to discuss the Barrhaven project and a new project, located in Kingston. Minutes of the shareholders’ meeting were made.

[29] Turning first to the Kingston project, the minutes note that a property in Kingston had been purchased. The minutes also note that suitable factory premises were found in Kingston, which Mr. Wei purchased and owns personally. The minutes record that setting up a new company for the Kingston project would require $2,000,000, but that the composition and structure of the Kingston company was not finalized given uncertainty around other investors.

[30] The minutes and evidence about the status of the Kingston project is far from clear. Although the minutes speak of using an approved loan from CIBC because of an urgent need for funds, I accept Mr. Wang’s uncontradicted evidence that no loan was ultimately obtained from CIBC.

[31] In respect of Xtreme’s temporary need for working capital, the minutes record that the shareholders agreed that Mr. Wang would advance a shareholder’s loan of $70,000, Mr. He would advance a shareholder’s loan of $20,000, and Mr. Wei would advance a shareholder’s loan of $140,000 – all to Xtreme. The loans would be for a period of one year, and bear annual interest of 6.5 percent. Xtreme could repay the loans in advance. It is unclear whether these shareholders loans were made and if so, whether they were repaid.

[32] At the same shareholders’ meeting on July 23, 2018, although the shareholders did not strike a formal liquidation team, they unanimously agreed that the Barrhaven properties would be sold. They agreed that once sold, a portion of the funds would be used to repay the loan for the Kingston project, and the shareholders unanimously agreed that the remaining funds will be returned to the shareholders in the form of a pro rata share repurchase in order to avoid the tax implications of a personal capital gain.

[33] Mr. Wang admitted on cross-examination that the shareholders agreed that a portion of the proceeds from the sale of the Barrhaven properties would be used to repay the loan for the Kingston project. Although there was ultimately no loan from CIBC, it remains unclear on the record whether the shareholders contemplated other loans being made to the Kingston project and that a portion of the Barrhaven proceeds would be used to repay those loans too.

COVID-19 pandemic

[34] In 2020, the COVID-19 pandemic struck. Xtreme’s business operations as an indoor trampoline park had to be suspended. On June 10, 2020, Mr. Wei asked the shareholders to make a short-term emergency loan to Xtreme. None of the applicants agreed to do so. Mr. Wei’s evidence is that he loaned Xtreme $150,000 until it could resume business operations. No supporting documentation was filed for the loan, and, in the absence of an accounting, the court is unable to verify this.

Sale of the Barrhaven properties

[35] The Barrhaven properties were sold in 2021 and closed on September 21, 2021. The sale included an eight-month vendor take back mortgage.

[36] Shortly before the sale of the properties closed, Mr. Wei advised the applicants that he opposed the distribution of all of the proceeds to shareholders. He contended that Xtreme owed money to shareholders – most significantly to himself – and that Xtreme had to meet its commitment to the Kingston project.

Funds held in trust by the real estate solicitor

[37] To avoid holding up the sale of the properties, the parties agreed that half the proceeds of sale from the Barrhaven properties – what the applicants claim is their portion – would be held in trust by the real estate solicitor.

[38] The real estate solicitor provided an undertaking to the applicants that he would hold the amount claimed by the applicants in trust pending the agreement of all shareholders of Xtreme or court order. The real estate solicitor paid out the balance of the proceeds from the sale of the Barrhaven properties on September 21, 2021, apparently to XTP Holdings. Because of the lack of an accounting, it is impossible to confirm this.

[39] After the vendor take back mortgage was paid out, the parties – including Mr. Wei – provided a direction to the real estate solicitor to hold half of the mortgage payout in trust “until such time as the parties agree or a court order directs otherwise”. The same direction instructed the real estate solicitor to release the other half of the mortgage payout to Mr. Wei. The parties to the direction described themselves as the “former beneficial owners” of the Barrhaven properties.

[40] There having been no resolution of the disagreement between the applicants and Mr. Wei, the applicants commenced this application on October 11, 2022, seeking an oppression remedy.

Shareholders’ resolution to distribute the remaining proceeds of sale

[41] Mr. Wei acknowledged that the financial performance of Xtreme had improved by the summer of 2023.

[42] As a result, on August 28, 2023, Mr. Wei introduced a motion at Xtreme’s annual shareholders meeting. He proposed that the shareholders “authorize the distribution by the Corporation to its shareholders, proportionately with the number of shares held by them, of the proceeds of sale of land obtained [by] the wholly owned subsidiary of the Corporation, XTP Holdings Inc., including the funds held in the trust account of the real estate [solicitor]”.

[43] The applicants opposed the motion because they did not trust Mr. Wei. But as chairman of the meeting, Mr. Wei cast the deciding vote and carried the motion for a resolution despite the applicants’ opposition.

[44] The applicants obtained an adjournment of the application in November 2023 because the dispute over the distribution of the proceeds from the sale of the Barrhaven properties appeared to have been resolved, although details remained to be worked out.

[45] The funds had not been distributed to the applicants by January 2024. Counsel for the corporate respondents advised the applicants’ counsel on January 4, 2024, that the delay was because the respondents were planning a tax advantageous transfer of funds. The corporate defendants shared the proposed plan – prepared by Turner Moore LLP – with the applicants on January 10, 2024.

[46] On February 20, 2024, counsel for the applicants wrote to counsel for the respondent corporations advising that the applicants wished to proceed with the proposed distribution plan and asking for more information about next steps.

[47] Unbeknownst to the applicants, Mr. Wei had already written to the real estate solicitor and obtained the release of the funds to XTP Holdings on January 19, 2024. It is Mr. Wei’s evidence that this amount was then transferred from XTP Holdings to Xtreme.

[48] In February 2024, there was a partial distribution of $1.2 million of the proceeds from the sale of the Barrhaven properties (half of which was paid to the applicants). But then in March 2024, Mr. Wei and Xtreme claimed that Xtreme could not distribute the balance of what is owed to the applicants because of Xtreme’s liquidity concerns.

[49] The respondents argue that the balance of the funds cannot be distributed to the shareholders until Xtreme’s dispute with its landlord and the issue of the potential liquidation of Xtreme is resolved. I will return to these issues below.

C. Mr. Wei’s conduct was oppressive and was unfairly prejudicial to and unfairly disregarded the interests of the applicants

[50] Recall that in assessing a claim of oppression, the court must ask two questions: (1) Does the evidence support the reasonable expectations asserted by the applicants? and (2) Does the evidence establish that their reasonable expectations were violated by conduct falling within the terms “oppression”, “unfair prejudice” or “unfair disregard” of a relevant interest?

[51] As president and CEO, Mr. Wei has control of the day-to-day management of the corporate respondents. As such, there is little to be gained by parsing whether the actions complained of by the applicants are attributable to the corporate respondents versus Mr. Wei. I find that the corporate acts and omissions at issue are attributable to Mr. Wei’s conduct.

[52] In effect, the applicants assert three reasonable expectations:

a. that Mr. Wang, as director, would have access to the financial records of Xtreme and XTP Holdings;

b. that the proceeds from the sale of the Barrhaven properties would be paid to the shareholders in proportion to their respective shares; and

c. that the funds held in the real estate solicitor’s trust account would not be released without the applicants’ knowledge and unanimous direction.

[53] I will consider each in turn.

Mr. Wang’s access to the accounting records of Xtreme and XTP Holdings

[54] Although the applicants’ written submissions focused on Mr. Wei’s obligations as a director under s. 155(1) of the CBCA to place before the shareholders at every annual meeting specific financial documents, it became clear during argument that the applicants’ real complaint is that Mr. Wei denied Mr. Wang timely and meaningful access to the accounting records of Xtreme and XTP Holdings.

[55] I am satisfied that the evidence supports the applicants’ reasonable expectation that Mr. Wang would have timely and meaningful access to the accounting records of Xtreme and XTP Holdings. Mr. Wang is a director of both Xtreme and XTP Holdings. This role and his access to the accounting records was intended to protect the minority shareholders’ interests. This is evidenced by section 2.01 of the Shareholders Agreement, which provides that Xtreme shall have two directors, one nominated by Mr. Wei and the other by the minority shareholders.

[56] The record also shows that Mr. Wei occupied the positions of CEO and president of Xtreme and one of the minority shareholders held the position of treasurer. At first, it was the then-minority shareholder Mr. Y He. Under the Supplementary Shareholders’ Agreement, Mr. Wang became treasurer of Xtreme. At that time Mr. Wang was also added as a second director of XTP Holdings.

[57] Under s. 20(4) of the CBCA, directors have a right to inspect, among other things, the accounting records of a corporation. The scope of documents that must be available to directors under the CBCA or similar provincial legislation as “adequate accounting records” is broad. Although not defined in the CBCA, comparable provincial and United Kingdom statutory definitions support the view that adequate accounting records should, at least, contain a record of the assets and liabilities of the company, as well as entries from day-to-day of all monies received and paid out and of the matters in respect of which these payments occurred: Leggat v. Jennings, 2013 ONSC 903, at para. 17.

[58] The right of directors to inspect records is necessary for them to discharge their responsibilities as directors: Sangha v. Sangha, 2002 BCSC 581. Directors must be able to do so to properly assess the financial position of the corporation.

[59] I also find that the minority shareholders’ expectation reasonably extended to the accounting records of XTP Holdings. Mr. Wang is a director of XTP Holdings. As such, he is entitled to, and the applicants reasonably expected that he would have, timely and meaningful access to XTP Holdings’ accounting records.

[60] Mr. Wei unfairly disregarded this reasonable expectation. Although it appears that Mr. Wang may have been able to access one of Xtreme’s bank account statements through the bank, this did not satisfy the minority shareholders’ reasonable expectations of timely and meaningful access to the corporation’s accounting records.

[61] Mr. Wei’s motives are unclear. I am, however, satisfied that Mr. Wei’s conduct was deliberate and that it had the effect of making Mr. Wang unable to properly fulfill his duties as director of both companies and as treasurer of Xtreme. Mr. Wei’s conduct also meant that Mr. Wang could not carry out the financial oversight reasonably expected by the applicants as minority shareholders.

[62] I find that Mr. Wei denied Mr. Wang timely and meaningful access to the accounting records of Xtreme and XTP Holdings. Doing so was contrary to the applicants’ reasonable expectations. This conduct was unfairly prejudicial to and unfairly disregarded the applicants’ interests as minority shareholders: 1217174 Ontario Ltd. v. 141608 Canada Inc., 2017 ONSC 7698, 77 B.L.R. (5th) 10.

The proceeds from the sale of the Barrhaven properties

(a) The applicants’ reasonable expectations

[63] The starting point in assessing the applicants’ reasonable expectations regarding the distribution of the proceeds of sale from the Barrhaven properties is the Supplementary Shareholders’ Agreement. Clause 3 of the agreement provides that “[i]f the development of the Barrhaven project cannot proceed due to any uncontrollable circumstance, all shareholders are required to vote to set up a liquidation team and liquidate the project in proportion to their respective shares held at that time.”

[64] The respondents argue that “liquidation” in this context means the liquidation of XTP Holdings under s. 211 of the CBCA. The respondents also contend that, since Xtreme is the sole shareholder of XTP Holdings, any proceeds of dissolution through liquidation are distributed directly to XTP Holdings and not to the applicants.

[65] I disagree with the respondents’ interpretation that “liquidation” in clause 3 of the Supplementary Shareholders’ Agreement means the liquidation of XTP Holdings under s. 211 of the CBCA.

[66] Unlike the Shareholders’ Agreement, the Supplementary Shareholders’ Agreement was not drafted using technical legal language. It was drafted using plain commercial language. It is a businessperson’s document. One would expect that if the parties intended s. 211 of the CBCA to apply, “liquidation” would be defined by reference to it. In fact, no reference to s. 211 of the CBCA is made anywhere in the document.

[67] I find that in the context in which the Supplementary Shareholders’ Agreement was made and in the context of the surrounding language, “liquidation” does not mean the liquidation of XTP Holdings under s. 211 of the CBCA. Rather, it refers to the termination of the Barrhaven project itself and the ultimate distribution of the proceeds from the sale of the Barrhaven properties to the shareholders of Xtreme, in proportion to their respective shares (at the time the assets are sold).

[68] In this context, clause 3 simply provides a roadmap as to what should happen if the Barrhaven project could not go ahead. Nothing more and nothing less was intended by this provision. Clause 3 supports the reasonable expectations of the applicants that they should receive the proceeds of sale from the Barrhaven properties in proportion to their respective shares at the time the Barrhaven properties.

[69] This is not the end of the analysis, however. The applicants’ reasonable expectation must also be considered in light of subsequent events.

[70] On July 23, 2018, the shareholders of Xtreme met to discuss both the Kingston project and the Barrhaven project. The shareholders unanimously agreed that the Barrhaven properties would be sold. They agreed that once sold, a portion of the funds would be used to repay a contemplated loan for the Kingston project. They also agreed that the remaining funds would be returned to the shareholders in the form of a pro rata share repurchase to avoid the tax implications of a personal capital gain.

[71] Mr. Wang admitted on cross-examination that the shareholders agreed that a portion of the proceeds from the sale of the Barrhaven properties would be used to repay the loan for the Kingston project.

[72] The respondents also argue that s. 2.07 of the Shareholders’ Agreement provides that before distributions are made by Xtreme to shareholders, the amount owing as shareholders loans be reduced proportionately to their Class A Shares. Accordingly, the respondents contend that any amount payable from the proceeds of the sale of Barrhaven properties could be paid only after shareholders’ loans were repaid.

[73] I am not persuaded by this argument. The shareholders were doubtless aware of s. 2.07 when they entered into the Supplementary Shareholders’ Agreement and passed the unanimous agreement on July 23, 2018. They chose to depart from s. 2.07.

[74] I therefore find that the reasonable expectation of the minority shareholders was modified by the shareholders’ unanimous agreement at the July 23, 2018 shareholders meeting. I return below to the lack of evidence about the Kingston loan that the parties intended to repay using a portion of the Barrhaven proceeds.

(b) Mr. Wei breached the applicants’ reasonable expectations

[75] I now consider whether Mr. Wei breached this reasonable expectation.

[76] The respondents rely on the business judgment rule. In the context of an oppression application, the rule may be simply stated. Courts should give appropriate deference to the business judgment of directors who take into account the best interests of the corporation, so long as a business decision lies within a range of reasonable alternatives: BCE, at para. 40; see also Maple Leaf Foods Inc. v. Schneider Corp. (1998), 42 O.R. (3d) 177 (C.A.); Kerr v. Danier Leather Inc., [2007] 3 S.C.R. 331, 2007 SCC 44.

[77] I am persuaded that Xtreme faced financial difficulties because of the pandemic. Its financial statements reflect this. It was therefore reasonable for Mr. Wei to oppose the distribution of the entire proceeds from the sale of the Barrhaven properties until Xtreme returned to financial health.

[78] But I find that Xtreme was returning to financial health by the end of 2022. I am not persuaded that it was reasonable for Mr. Wei to delay the distribution of the balance of the proceeds beyond the summer of 2023. By that time, the funds ought to have been distributed according to the reasonable expectations of the minority shareholders, as reflected in the minutes of the July 23, 2018 shareholders meeting. (I will return to the repayment of the Kingston loan below.)

(c) Xtreme does not presently face liquidity concerns

[79] As discussed, in February 2024, there was a partial distribution of $1.2 million of the proceeds from the sale of the Barrhaven properties, half of which was paid to the applicants. But then in March 2024, Mr. Wei and Xtreme claimed that Xtreme could not distribute the balance of what is owed to the applicants because of Xtreme’s liquidity concerns.

[80] The respondents argue that Xtreme could not distribute the balance of what is owed to the applicants because it cannot satisfy the liquidity test under s. 34(2) of the CBCA. Section 34 provides:

Acquisition of corporation’s own shares

34 (1) Subject to subsection (2) and to its articles, a corporation may purchase or otherwise acquire shares issued by it.

Limitation

(2) A corporation shall not make any payment to purchase or otherwise acquire shares issued by it if there are reasonable grounds for believing that

(a) the corporation is, or would after the payment be, unable to pay its liabilities as they become due; or

(b) the realizable value of the corporation’s assets would after the payment be less than the aggregate of its liabilities and stated capital of all classes.

[81] At the hearing of this application on September 16, 2024, Xtreme’s evidence supporting its liquidity concerns was scant. Mindful about a potential impact on Xtreme’s creditors, I allowed the parties to supplement this aspect of the record. They did so on November 1, 2024.

[82] A preliminary issue is whether the payment to the applicants is a share repurchase. If it is, the liquidity test under s. 34(2) of the CBCA is engaged. The applicants say that s. 34(2) is not engaged because it was a shareholder loan repayment; the respondents dispute this, saying it was a share repurchase.

[83] I find that the payment was intended to be a share repurchase, rather than a shareholder loan repayment. I come to this conclusion for two reasons: the unanimous agreement reached by the shareholders at their July 23, 2018 meeting and the agreement between the shareholders to the Turner Moore LLP tax plan. Both point to the intention that it be a share repurchase.

[84] That said, no share purchase was made. There are no corporate documents authorizing and recording a share repurchase. In other words, while the parties intended to structure the payment this way for tax purposes, the first tranche of the distribution was not executed as a share repurchase. But I accept the respondents’ argument that the transaction was an anticipated share repurchase, and that the first tranche of the funds were distributed on that basis.

[85] Thus, I will consider the liquidity test under s. 34(2) of the CBCA.

[86] Having considered the evidence, including the supplementary records filed, I conclude that Xtreme satisfies the liquidity test under s. 34(2). There are no reasonable grounds to believe that Xtreme is, or would after the payment be, unable to pay its liabilities as they become due. Nor are there reasonable grounds to believe that the realizable value of Xtreme’s assets would, after the payment, be less than the aggregate of its liabilities and stated capital of all classes.

[87] I come to this conclusion for two reasons. First, the corporation’s financial statements reveal no liquidity issue. Xtreme’s balance sheet shows assets of cash, GICs, and intercompany loans owed to Xtreme in the amount of $3,310,000. The debts of Xtreme are loans from the government in the amount of $240,000. This leaves $3,070,000, which is more than enough to repay the amount owing to the shareholders (even assuming the full amount ought to be distributed from the sale of the Barrhaven properties, and no deduction is made for the contemplated Kingston loan).

[88] Xtreme’s profit and loss statements also show that it is expected to make a profit, even as it pays a higher overhold rent to its landlord.

[89] Second, the dispute between the Xtreme and its landlord is not a liquidity issue within the meaning of s. 34(2).

[90] No liability arises for Xtreme from its dispute with its landlord. Xtreme’s landlord has brought an application seeking declaratory relief under the lease. Xtreme’s landlord alleges that Xtreme failed to renew the lease and is out of time to do so, and is in default. Xtreme’s landlord does not seek damages, it only seeks a declaration that overhold rent is payable under the lease. Xtreme is already paying the landlord overhold rent at a higher rate than its previous rent. I find that Xtreme has no difficulty paying the overhold rent and remaining profitable. This is not a liquidity issue within the meaning of s. 34(2).

[91] Further, I am satisfied that Xtreme could satisfy an adverse cost award if necessary.

[92] And I find that the possibility that Xtreme would have to move and potentially pay higher rent elsewhere is not an actual or contingent liability within the meaning of s. 34(2). The possibility is a business risk; it is not a liability or debt to a creditor. Mr. Wei admitted on cross-examination that Xtreme could move locations and retain much of its goodwill.

[93] Moreover, I find that the landlord dispute is a pretext for holding back the funds owed to the applicants. The landlord stated it would not renew Xtreme’s lease on December 5, 2023. Just over two months later, on February 15, 2024, Mr. Wei delivered cheques with the first portion of the repayment. The respondents’ position is not credible given the timeline and the partial repayment.

[94] The real reason Mr. Wei withheld the funds is a disagreement between him and the applicants over the future of Xtreme. In the context of Xtreme’s dispute with its landlord, the applicants have questioned whether Xtreme ought to remain a going concern or should be “liquidated”.

[95] Thus, I conclude that, by the summer of 2023, Mr. Wei breached the applicants’ reasonable expectations about the distribution of the proceeds from the sale of the Barrhaven properties.

(d) The need for a further accounting and evidence to resolve the amount owing to the applicants

[96] Because Mr. Wei denied Mr. Wang timely and meaningful access to the accounting records of Xtreme and XTP Holdings, there remain several questions over what happened to the partial distribution of funds on September 21, 2021 from the real estate solicitor to, apparently, XTP Holdings.

[97] According to Mr. Wei’s evidence, he used part of the funds to repay shareholders’ loans, including his own. He also says he paid money to the Kingston project and transferred money to Xtreme to enable ongoing operations.

[98] While the respondents have provided a high-level explanation of how the funds were distributed, it falls short of a proper accounting. It is impossible to scrutinize the explanation provided by Mr. Wei because he has not provided any supporting documentation relating to these purported transactions apart from the corporate respondents’ bank account statements.

[99] Without a proper accounting, the court cannot determine whether the use to which those funds were put was consistent with the reasonable expectations of the minority shareholders, as reflected in the minutes of the July 23, 2018 shareholders’ meeting. The same is true for the disposition of the funds that the real estate solicitor paid out to Mr. Wei from the vendor take back mortgage on or about April 28, 2022.

[100] There is also inadequate evidence to resolve what loan to the Kingston project the shareholders had agreed to repay at their July 23, 2018 meeting. Was it only the contemplated CIBC loan, which was never obtained? Or was another loan repayment contemplated? There is some evidence in the record that there was a shareholders’ loan made through Xtreme when it invested in the Kingston project, but the parties have not put sufficient evidence before the court to resolve this issue.

[101] Finally, the respondents have not provided an adequate accounting of the disposition of the funds that Mr. Wei caused to be transferred out of the real estate solicitor’s trust account on January 19, 2024.

Mr. Wei’s surreptitious removal of the funds held in the real estate solicitor’s trust account

[102] The applicants had a reasonable expectation that half the proceeds of sale from the Barrhaven properties would be held in trust by the real estate solicitor until the parties agree or a court directs otherwise.

[103] This reasonable expectation arose from the agreement of the parties to deposit 50 percent of the Barrhaven proceeds into the real estate solicitor’s trust account and from the direction provided by all the shareholders to the real estate solicitor on April 28, 2022, to hold in trust 50 percent of the vendor take-back mortgage payout for the applicants.

[104] Mr. Wei caused the real estate solicitor to release those funds from his trust account on January 19, 2024. He claims that he was unaware of the solicitor’s undertaking.

[105] I find that Mr. Wei’s explanation lacks credibility for five reasons.

[106] First, the parties agreed in September 2021 that 50 percent of the proceeds from the sale of the Barrhaven properties would be held in trust by the real estate solicitor so that the sale of the Barrhaven properties would not be delayed. Mr. Wei expressly agreed to this. The email from the lawyers for the applicants to the real estate solicitor – who was taking instructions from Mr. Wei – made it clear that a solicitor’s undertaking was required that the proceeds be held in trust “per agreement or a court order”. The real estate solicitor was professionally required to put the applicants’ terms to Mr. Wei. Both the solicitor’s response and Mr. Wei’s reply (through the real estate solicitor) indicate that the terms were conveyed to Mr. Wei.

[107] Second, Mr. Wei’s professed lack of awareness is contradicted by the direction to the real estate solicitor, which Mr. Wei signed along with the applicants, on April 28, 2022. This directed the real estate lawyer to hold in trust 50 percent of the vendor take-back mortgage payout for the applicants “until such time as the parties agree or a court directs otherwise”, and to release the balance to Mr. Wei.

[108] Mr. Wei was plainly aware that the amounts were being held in trust “until such time as the parties agree or a court directs otherwise”. This language is strikingly similar to the language in the solicitor’s undertaking of September 16, 2021, which provided that 50 percent of the proceeds would be held in trust “pending the agreement of all shareholders of [Xtreme] or court order”. It is implausible that Mr. Wei did not understand that the solicitor was holding the earlier proceeds received in trust on the same terms as in the direction, even if he had not seen the undertaking itself.

[109] Third, Mr. Wei misled the real estate solicitor into believing that the applicants were aware that he was directing that the funds held in trust be transferred to XTP Holdings. In emails exchanged between Mr. Wei and the real estate solicitor, the latter asked Mr. Wei to confirm when Mr. Wei had a chance to review the solicitor’s record of the funds being held in trust “with all of the shareholders”. Mr. Wei replied, “I checked the numbers with your previous emails. It matches.” He initially met the solicitor’s request to confirm with all the shareholders with silence. A few minutes later, Mr. Wei wrote again to the solicitor to ask him to provide detailed statements. Mr. Wei added, “I think it will be much easier for us to review” (emphasis added).

[110] I find that Mr. Wei’s reply to the solicitor’s request was calculated to mislead the real estate solicitor into believing that Mr. Wei would review the solicitor’s record of the funds being held in trust with all the shareholders. It also left the impression that Mr. Wei was acting with the agreement of shareholders. Neither was true.

[111] Fourth, Mr. Wei caused the real estate solicitor to release the funds from his trust account while the parties were negotiating over the terms of the distribution. No agreement was yet reached. The August 28, 2023 shareholders’ resolution cannot constitute a genuine agreement by the applicants to release the funds because it was opposed by the applicants. Mr. Wei was only able to pass the resolution because he could, as chairman, overcome a tie vote among the shareholders.

[112] Nor am I persuaded by the respondents’ argument that the October 19 and December 20, 2023 correspondence from the applicants’ lawyers implicitly authorized Mr. Wei to obtain the trust funds. The applicants remained distrustful of Mr. Wei. The October 19, 2023 letter shows that there were details be worked out. And on December 20, 2023, the lawyers for the applicants wrote to the lawyers for Mr. Wei to propose that they write jointly to the real estate solicitor to request the prompt and pro rata release of the funds held in his trust account. Far from an implicit authorization for Mr. Wei to do so unilaterally, the applicants proposed they do so jointly, consistent with the parties’ earlier agreement and the solicitor’s undertaking.

[113] Finally, Mr. Wei obtained the trust funds surreptitiously without informing the applicants that he did so. This is not the action of someone who acted honestly and in good faith. The applicants only learned that he had obtained the trust funds after their lawyer contacted the real estate solicitor. The respondents argue that the applicants ought to have known that he had obtained the funds when they were paid a portion of the proceeds in February 2024. But this is no answer – the partial payment was after Mr. Wei had improperly obtained the funds from the real estate solicitor.

[114] For all of these reasons, I find that Mr. Wei knowingly caused the real estate solicitor to release those funds from his trust account in breach of the parties’ agreement and the reasonable expectations of the applicants.

[115] Mr. Wei’s conduct in surreptitiously obtaining the money held in trust was abusive and demonstrated bad faith. It was a marked departure from standards of fair dealing. Before Mr. Wei’s actions, the money claimed by the applicants was preserved in the real estate solicitor’s trust account and their interests were protected. After he obtained the money, Mr. Wei had the upper hand. He did not implement what was intended, he only directed a partial payment to the applicants and held back the balance while the applicants disagreed over the future of Xtreme.

[116] In my endorsement making an interlocutory order, I held that, at a minimum, Mr. Wei’s conduct was unfairly prejudicial to or unfairly disregarded the interests of the applicants. Having now more carefully considered the record, I conclude that Mr. Wei’s conduct in obtaining proceeds held in trust was oppressive to the interests of the applicants.

[117] I turn now to the appropriate remedies.

D. Remedy

[118] Section 241(3) of the CBCA vests the court with broad remedial authority. It provides that “the court may make any interim or final order it thinks fit”, including a number of enumerated powers.

[119] The courts have repeatedly held that “the court enjoys wide discretion under s. 241 to fashion such remedy as it thinks fit”: Catalyst Fund General Partner I Inc. v. Hollinger Inc. (2006), 79 O.R. (3d) 288 (C.A.), at para. 49. But in fashioning a remedy, the court should only interfere with the affairs of the affected corporation(s) to the extent necessary to remedy the oppression in question: Hollinger, at para. 55. The reasonable expectations of the applicants “have an important bearing on the decision as to what is a just remedy in a particular case”: Naneff v. Con-Crete Holdings Ltd. (1995), 23 O.R. (3d) 481 at 490 (C.A.).

[120] With this guidance in mind, I make the following remedial order:

a. The respondents shall provide Mr. Wang with timely and meaningful access to the accounting records of Xtreme and XTP Holdings.

b. The respondents shall provide the applicants with an accounting of:

i. the Barrhaven project and the sale of the Barrhaven properties;

ii. the partial distribution of funds on September 21, 2021 and the partial payout of the vendor take back mortgage on or about April 28, 2022 from the real estate solicitor and the disposition of those funds;

iii. the disposition of the funds that Mr. Wei caused to be transferred out of the real estate solicitor’s trust account on January 19, 2024; and

iv. any loans made by the parties to the Kingston project and whether they were repaid.

c. The respondents shall preserve $1,359,497.05 (which is the $1,959,497.05 that Mr. Wei surreptitiously obtained from the real estate solicitor, less the $600,000 distributed to the applicants) in an interest-bearing account or interest-bearing instruments pending further direction of the court or the parties’ agreement.

d. My interlocutory orders of September 23 and December 10, 2024 are vacated.

e. If the parties cannot agree on what ought to be distributed to the applicants after the respondents provide Mr. Wang with timely and meaningful access to the accounting records of Xtreme and XTP Holdings and with the accounting ordered above, then the parties may return to the court to have that issue determined.

V. Disposition

[121] The application under s. 241(1) of the CBCA is granted and the above order is made under s. 241(3).

[122] The applicants are presumptively entitled to costs on the application. If the parties cannot agree on costs, they can each make written submissions to me of no more than 1,000 words within two weeks of the release of these reasons for judgment. These are to be sent to scj.assistants@ontario.ca to my attention.

Justice Owen Rees Released: December 13, 2024