Executive Summary: Key Legal and Evidentiary Issues

• Dispute over alleged unauthorized withdrawal of $2,000 in company funds by a director/officer, justified by him as back pay.
• Corporate governance deadlock between equal shareholder-directors, raising concerns about the company’s viability without judicial intervention.
• Statutory test under s. 239 CBCA for leave to commence a derivative action, including notice, good faith, and the best interests of the corporation.
• Assessment of the applicant’s good faith, including whether the proceeding is a genuine corporate claim rather than a personal vendetta.
• Consideration of the strength and arguable merit of claims for negligence, breach of fiduciary duty, and breach of contract against a director.
• Exercise of the court’s discretion under s. 241(d) CBCA to order the corporation to fund the applicant’s reasonable legal fees for the derivative action.

Facts of the case

Christophe Desormeaux and Subair Abayomi Oloko are co-founders and equal controllers of 11368621 Canada Inc., a company that has installed 14 Bitcoin Automated Teller Machines in convenience stores primarily in the Ottawa area. They are the only directors of the company and each holds 46.6% of the non-voting Class A shares, as well as 50% each of the voting Class B shares. They also entered into a shareholders’ agreement dated 1 December 2023, which structures their relationship as shareholders, directors and participants in the business.
The relationship between the two principals deteriorated significantly. Desormeaux alleges that Oloko improperly took $2,000 from the company’s bank account to pay personal expenses without authorization. Oloko does not deny using the funds for personal purposes but claims he was owed back pay and therefore viewed the withdrawal as justified. In addition to this discrete financial issue, Desormeaux asserts that Oloko failed to meet the company’s reasonable expectations in his conduct and performance as an employee, director and officer, including broader concerns about his behaviour and contribution to the business.
On 9 May 2024, Desormeaux issued a formal “Notice of Dispute” to raise these issues. Oloko did not respond to this notice. Subsequently, on 14 June 2024, Desormeaux served a notice of intention to bring a derivative action on behalf of the company, as required by the Canada Business Corporations Act (CBCA). All other shareholders approved the move to pursue a derivative claim in the name of the corporation. Against this background, the company became effectively gridlocked: with only two director-shareholders in open conflict and each holding equal voting power, corporate decision-making stalled and there was a risk that the company would become insolvent or fail without court-ordered relief.

The application for leave to bring a derivative action

Faced with this impasse, Desormeaux brought an application in the Ontario Superior Court of Justice seeking leave to commence a derivative action in the name of 11368621 Canada Inc. against Oloko. The relief sought included permission to file a draft statement of claim and an order that the company pay his reasonable legal fees related to the derivative action.
The legal framework for such an application comes from section 239 of the CBCA, which imposes three key preconditions: the complainant must have given at least 14 days’ notice to the directors of the intention to apply for leave; the complainant must be acting in good faith; and the proposed action must be in the interests of the corporation. The court’s role is not to decide the merits of the underlying corporate claim at this stage, but to determine whether there is an arguable case and whether the proposed proceeding is a proper corporate, rather than personal, claim.

Analysis of statutory conditions and good faith

The court first examined whether the statutory notice requirement was satisfied. Desormeaux provided notice of his intention to apply for leave on 14 June 2024, which was more than 14 days before the application was brought. There was no procedural challenge on this point, and the judge found that the timing complied with section 239 of the CBCA.
The judge then turned to the good-faith requirement, which has both subjective and objective elements. Subjectively, the applicant must genuinely believe the derivative action has merit and be pursuing it to advance the company’s interests rather than to pursue a private vendetta. Objectively, the proposed claim must not be frivolous or vexatious and must present an arguable basis for the corporate causes of action.
Desormeaux alleged that Oloko’s conduct—including the $2,000 withdrawal and his general performance as a director and officer—constituted negligence, breach of fiduciary duty and breach of contract, all of which are classic forms of corporate claims against directors and officers. He stated in his affidavit that the proceeding was not motivated by personal animus but by a desire to recover losses suffered by the company and to address governance failures. Importantly, the other shareholders supported his proposed action, reinforcing the view that this was a corporate dispute about proper management and stewardship of company funds and not merely an interpersonal feud between two individuals.
Although the parties had been involved in a heated dispute, the court accepted that the applicant’s motivations were not purely personal. The judge noted that Oloko opposed the application but did not present evidence effectively countering the factual allegations or undermining the arguable merits of the proposed claims. On the record before the court, the judge was satisfied that both the subjective and objective aspects of good faith were met and that there was an arguable case warranting a full hearing in a derivative action.

Corporate interests, gridlock and the need for relief

Beyond good faith, the court had to consider whether bringing the derivative action was in the best interests of the corporation. Here, the overall governance context was critical. The company was effectively paralyzed by deadlock: with two equal director-shareholders in open conflict, ordinary corporate processes could not reliably resolve the dispute or address alleged misuse of corporate funds. The judge accepted that without intervention the company was at serious risk of bankruptcy or collapse.
In this context, granting leave to proceed with a derivative action would allow the company’s alleged claims against one of its directors to be adjudicated in a structured manner and could unlock a path toward financial and governance stability. The court concluded that the cost and inconvenience of litigation were justified by the potential benefits to the corporation, including possible recovery of misapplied funds and clarification of the director’s duties and obligations. This satisfied the “interests of the corporation” branch of the statutory test.

Funding of legal fees and costs

The applicant also asked that the company fund his reasonable legal fees associated with the derivative action. The court considered section 241(d) of the CBCA, which authorizes an order requiring the corporation to pay reasonable legal costs incurred in connection with a derivative proceeding. Given that the action, if permitted, would be brought in the name of the corporation for its benefit, the judge accepted that it was appropriate for the company—rather than the individual shareholder—to carry those legal costs on an interim basis.
The court therefore ordered that the company pay Desormeaux’s reasonable legal fees relating to the derivative action until the matter is finally decided. However, the judge was clear that the ultimate determination of the amount of legal fees and the final allocation of costs would be made once the derivative action itself has been heard and decided. Similarly, the costs of the leave application were reserved to be determined at the conclusion of the main action, leaving open the possibility that cost responsibility may shift depending on the eventual outcome.

Outcome and significance

In the result, the court granted Desormeaux leave to commence a derivative action in the name of 11368621 Canada Inc. against Oloko and allowed him to file the proposed statement of claim. The company was ordered to fund his reasonable legal fees for that proceeding on an ongoing basis, with the precise amounts and final cost consequences left to be determined after the derivative action is adjudicated.
This decision does not decide whether Oloko actually committed negligence, breached his fiduciary duties or breached his contractual obligations, nor does it make any findings on damages flowing from the alleged $2,000 withdrawal or other conduct. Instead, it confirms that there is a sufficient legal and evidentiary foundation for those allegations to be tested through a full derivative action brought on the company’s behalf. In that sense, the ruling underscores how the CBCA’s derivative action mechanism can be used to break shareholder-director deadlock and protect a closely held company where internal governance processes have failed.
Overall, the successful party at this stage is the applicant, Christophe Desormeaux, who secured leave to bring the derivative action and an order that the company pay his reasonable legal fees on an interim basis. No final monetary award, damages figure or fixed costs amount has yet been determined in his favour; the exact quantum of any damages, costs or legal fees will only be decided after the derivative action is heard and resolved, so the total amount ordered in his favour cannot presently be determined.