Call rights in shareholders’ agreements: Navigating the anti-deprivation rule

Law360 Canada (April 23, 2025, 1:24 PM EDT) --

Charlie Kim

Matthew McGuigan

Darya Maltseva

The shareholders’ agreement governs the relationship among a corporation’s shareholders. It often establishes the rules governing the exit of a shareholder — for instance, by way of call right provisions upon the occurrence of certain triggering events.

When a triggering event occurs in respect of a shareholder, the call right gives the corporation and/or remaining shareholders the right to purchase that shareholder’s shares, often at a discount. The triggering events are typically enumerated in the shareholders’ agreement and can include:


The mechanism to determine the purchase price when exercising a call right is set forth in the shareholders’ agreement and is often calculated by way of a discount on the fair market value of the shares. Parties to current or potential shareholders’ agreements should be cognizant, however, that such discounts are unenforceable when the call right is triggered due to a shareholder’s insolvency or bankruptcy; such unenforceability being a consequence of the anti-deprivation rule.

The anti-deprivation rule

The anti-deprivation rule is a common law principle that voids contractual provisions that remove value from the bankrupt’s estate.

In 2020, the Supreme Court of Canada, in Chandos Construction Ltd. v. Deloitte Restructuring Inc., [2020] S.C.J. No. 25, affirmed the anti-deprivation rule for the first time. The court set out a two-step test to determine whether a contractual provision violates the anti-deprivation rule:


If both conditions of the test are met, then the provision violates the anti-deprivation rule and the discount in the provision is void. The court emphasized, however, that it is the removal of value, as opposed to the removal of property, that is a violation of the anti-deprivation rule. In other words, a call right triggered by bankruptcy that does not include a discount on the purchase price would not be avoided by the anti-deprivation rule.

Chandos was decided in the context of a subcontract agreement, however the Court of King’s Bench of Alberta recently considered the anti-deprivation rule in the context of a shareholders’ agreement.

ATB Financial v. Mayfield Investments Ltd.

In the 2025 decision ATB Financial v. Mayfield Investments Ltd., [2025] A.J. No. 95, the agreement in question contained a call right in the event of a shareholder’s bankruptcy. The applicable purchase price was set out in the agreement and included a 25 per cent discount.

The court applied the Chandos test and ultimately found that the entire call right provision was void in respect of the bankruptcy/insolvency triggering event.

It appears that the court overstepped in voiding the entire call right as opposed to only voiding the portion of the provision that established the 25 per cent discount. In Chandos, the Supreme Court of Canada only voided the specific discount provision and held that “contractual provisions that eliminate property from the estate, but do not eliminate value, may not offend the anti-deprivation rule.” The discrepancy between these cases leads to ambiguity as to how the court will apply the anti-deprivation rule in the future.

It should be noted that the decision by the Court of King’s Bench of Alberta has persuasive authority in Ontario, but it is not binding on Ontario courts. The Chandos decision by the Supreme Court of Canada is binding in Ontario.

The anti-deprivation rule is specific to the contexts of insolvency and bankruptcy

With respect to shareholders’ agreements, the anti-deprivation rule only applies in the context of bankruptcy and insolvency. Nonetheless, shareholders should be cognizant that courts possess other tools that may render a discounted call right unenforceable:

• Unconscionability: Courts have used the doctrine of unconscionability to protect vulnerable persons in transactions with others by setting aside unfair agreements and clauses.
  
• Economic duress: An agreement is voidable when there is illegitimate pressure applied to such a degree that it leaves the coerced party with no realistic alternative but to submit and enter into the agreement.
  
• Transfers at undervalue: A transfer at undervalue is defined under s. 2 of the Bankruptcy and Insolvency Act as a disposition of property or provision of services where the debtor either receives no consideration or conspicuously less consideration than the fair market value that the debtor has given initially.
  
• Fraudulent conveyance: A fraudulent conveyance is a transfer of property that is made with the intent to defeat, hinder, delay or defraud creditors.
  
• Family law: Scholars argue that the court may disregard a discount for equalization purposes under the Family Law Act when a spouse imprudently agrees to a price discount with the intention of harming his or her spouse.

Key takeaways

Parties entering into and drafting shareholders’ agreements should pay special attention to call right provisions to ensure that they are enforceable in light of the anti-deprivation rule. The court in Mayfield applied the Chandos test in the context of call rights in a shareholders’ agreement, and ultimately found that the provision was void.

In Mayfield, however, the court voided the entire call right, thus preventing the other shareholders from relying upon the call right without the discount applied. Although this decision appears to be overly cumbersome, parties should recognize that until a future court applies the Chandos test in a less cumbersome way, Mayfield is persuasive law in Ontario. Therefore, the inclusion of a call right discount may lead to catastrophic consequences for non-defaulting shareholders looking to purchase a bankrupt or insolvent shareholder’s shares.

Finally, parties should be cognizant that even if their shareholders’ agreements do not violate the anti-deprivation rule, courts have various other mechanisms to avoid a call right.

Charlie Kim is a partner in the Robins Appleby business and transactions group. His practice is focused on mergers and acquisitions, debt financing, private capital markets and shareholder and partnership arrangements in a Canadian, cross-border and international context. 

Matthew McGuigan is an associate in the Robins Appleby business and transactions group advising clients on mergers and acquisitions, debt financing, private capital markets and shareholder and partnership arrangements. His practice areas encompass the Canadian, cross-border and international context. 

Darya Maltseva joined Robins Appleby as a summer law student in 2023 and has returned as an articling student after graduating from the University of Ottawa Law School in June 2024.  

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the author’s firm, its clients, Law360 Canada, LexisNexis Canada or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.   

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