Executive Summary: Key Legal and Evidentiary Issues

• Dispute centered on whether liquidation under the ABCA was justified due to alleged shareholder oppression and breakdown of business relationships.

• Babenek’s unauthorized cash withdrawals and false invoices were pivotal in assessing his credibility and equitable entitlement.

• Informal financial practices among shareholders blurred lines between acceptable use and misconduct but did not justify dissolution.

• The court examined if Driven operated as a de facto partnership and whether exclusion from management warranted equitable relief.

• Allegations of oppression were rejected due to lack of reasonable expectations and commercially justifiable decisions by the remaining shareholders.

• The applicant’s misconduct barred equitable remedies under the doctrine of “clean hands,” leading to the dismissal of the application.

Facts of the case

James Babenek and his holding company, Ranek Enterprises Ltd., filed an application to liquidate and dissolve Driven Energy Ltd. under sections 215 and 242 of the Alberta Business Corporations Act (ABCA). Driven, an oilfield services company formed in 2011, was owned by Babenek, Kirk Newsted, and Bradley Randell through their respective holding companies. The company had no unanimous shareholders agreement and operated under an informal governance structure.

Babenek was General Manager of Driven and responsible for office operations, staffing, and finances. Between October 2023 and May 2024, he made a series of ATM withdrawals totaling approximately $75,000 from Driven’s operating account for personal use. Initially, he provided false handwritten invoices to Driven’s bookkeeper to justify these as corporate expenses, which he later reclassified as shareholder loans. He admitted the actions and claimed he intended to reconcile the withdrawals at year-end.

The Respondents—Newsted and Randell—acknowledged a history of personal financial benefits among all three shareholders but emphasized these were typically discussed and reconciled annually. In contrast, Babenek’s conduct involved concealment and unilateral decision-making.

Following internal concerns about Babenek’s proposed new business venture and his delays in sharing financial records, the other shareholders removed him from his role, revoked his access to Driven’s assets, and changed compensation structures from shareholder draws to salaried employment. Babenek, no longer receiving income from Driven, sought liquidation, alleging unfair exclusion, loss of confidence, and failure to buy out his shares.

Policy terms and clauses at issue

The legal arguments relied on two statutory provisions under the ABCA:

• Section 215(b)(ii): Allows for liquidation if it is “just and equitable.”

• Section 242(3)(n): Permits remedies, including dissolution, for conduct that is oppressive, unfairly prejudicial, or unfairly disregards a stakeholder’s interests.

As no unanimous shareholders agreement existed, these statutory rights formed the sole basis for relief.

Outcome

Justice L.K. Harris dismissed the application. While the court accepted that Driven operated in a manner similar to a partnership and that its governance was informal, Babenek’s exclusion resulted directly from his own actions. The court refused to grant liquidation on three asserted grounds:

1. Partnership breakdown: Although the company resembled a partnership, Babenek’s unilateral and concealed cash withdrawals broke the trust necessary for equitable relief. The clean hands doctrine precluded his request.

2. Deadlock in management: No deadlock existed because Driven continued operations and decision-making with two remaining directors.

3. Loss of confidence in management: The change from dividends to salary for the remaining directors was commercially justified due to litigation risk and did not constitute mismanagement.

Under section 242, the court found Babenek had not demonstrated reasonable expectations of a share buyout, equal dividend treatment post-dismissal, or comparable precedent from the prior shareholder exit. Even if his expectations were reasonable, the Respondents' actions were not oppressive, prejudicial, or indicative of bad faith.

Ultimately, the court found that liquidation would cause disproportionate harm to Driven, its employees, and stakeholders, and would be unjustified, particularly in light of Babenek’s own conduct. Accordingly, the application was dismissed.

Final disposition

Babenek’s application was dismissed. No monetary award was granted at this stage.