Shares

A Calgary shopping mall was sold by Harvard Properties and the other co-owners to a third party (“Abacus”) in a share sale transaction but at a price representative the mall’s asset value and, thus, at a premium to its share-sale value. This was accomplished by transferring their co-ownership interests on a s. 85(1) rollover basis to respective Newcos (“HP Newco”, in the case of Harvard Properties) in consideration inter alia for voting and non-voting shares, followed by a sale of those voting shares to an Abacus subsidiary (NH Properties) for promissory notes for under half of the sale price. The Newcos then sold the shopping centre to a third party (Bentall), and the co-owners then sold their Newco non-voting shares to NH Properties for the balance of the purchase price (receiving, by direction, the Bentall sales proceeds). Real estate counsel for the vendors negotiated for these transactions to all occur in one integrated interdependent closing.

In finding that s. 160 applied to the transactions in light inter alia of the cash proceeds received by Harvard Properties exceeding the FMV of the Newco shares sold by it, Boyle J found (at para. 166) that Harvard Properties had failed to establish any value for the shares, stating (at para. 174):

There appears to be little to no chance that any arm’s length party unrelated to these transactions would agree to accept, much less pay for, the HP Newco shares at the relevant time as the Newcos would moments in time later have no assets, no business, and the possibility of a significant liability for their roles in these transactions … .

Similarly, he found that the promissory notes had no value.

On April 1, 2006, the taxpayers, who were executives of Gluskin Sheff+Associates Inc. (“GS+A”) (but with less clout than the founders), sold a portion of their shares to newly established family trusts at a price that was approximately 4.8% of that at which those shares (or, to be more precise, the subordinate voting shares into which they were converted) were sold under an initial public offering that closed on May 26, 2006, following the filing of the preliminary prospectus on April 18, 2006. The pricing for the sale to the trusts applied a formula that had been used in agreements under which they (and other executives) had purchased their shares from the founders a few years previously, namely, 1.0 times the weighted average management fee revenues of GS+A for the three years preceding the valuation date, but excluding performance fees (which were largely bonused out to the executives). Such purchase agreements required the taxpayers to sell their shares back at an amount determined under the same formula if they were terminated, and gave the right to the Board to require them at any time to sell their shares back to other executives at the same formula amount.

The taxpayers did not provide a valuation expert. Pizzitelli J accepted the opinion of the Crown’s expert, who estimated the maintainable earnings of GS+A (including performance fees) and capitalized those earnings to arrive at an en bloc enterprise value for GS+A (which perhaps not coincidentally largely coincided with the IPO valuation), and then applied a 40% “marketability” discount (to effectively the IPO price) to reflect “the risks that the IPO may not take place or the market for the shares does not materialize, or there would be a failure to agree on price, or the worsening of market conditions or a change of heart by the Founders” (para. 77). Pizzitelli J considered this discount to be eminently fair to the taxpayers given his finding that, on the valuation date (April 1, 2006), the prospects for a successful IPO were high (and of the founders requiring the taxpayers to sell their shares back at the formula price, quite fanciful). Accordingly, the gains realized on the taxpayers’ sales to the trusts were substantially increased pursuant to s. 69(1)(b).

The respondent (Shanda) was an exempted limited company incorporated in the Cayman Islands whose American Depository Shares (“ADSs”) were listed on the NASDAQ. On 18 November 2015, Shanda merged with Capitalcorp Ltd as part of a transaction (“a take-private transaction”) to enable a group of investors in Shanda to purchase all the shares which they did not own and return it to a privately-held company. The consideration for each ordinary share was US$3.55 per share and US$7.10 per ADS. The closing price of Shanda’s ADSs as quoted by NASDAQ on 24 January 2014, the last trading day immediately prior to the announcement leading to the Merger, was US$5.65 per ADS, so that the merger price represented a premium of 25.7% over that closing price. The appellants (Maso), who held 1.64% of the Shanda ordinary shares, followed the dissent procedures under (s. 238 of) the Caymans corporate law (which had been stated to most closely resemble those in Canada) in order to be paid the “fair value” of their shares, and initially were successful in arguing that such fair value of their shares should be increased so that they were valued on the basis of a pro rata portion of the enterprise value of Shanda rather than reflecting a minority discount. The sole issue before the Board was whether it was appropriate for the fair value to reflect a minority discount, which the parties agreed should be fixed at 23%, if applicable.

Lady Arden stated (at para. 29):

The Board considers that Shanda is correct in its resistance to this appeal principally for three reasons: (1) comparable provisions of the Cayman Islands Companies Law do not provide for pro rata valuation; (2) the general principle of valuation of shares on sale is that what has to be valued is what the shareholder has to sell, and (3) the similarities between the Delaware appraisal remedy and section 238 do not justify departure from that principle.

Respecting the second ground, she stated (at para. 42):

[I]t is a general principle of share valuation that (unless there is some indication to the contrary) the court should value the actual shareholding which the shareholder has to sell and not some hypothetical share. This is because in a merger, the offeror does not acquire control from any individual minority shareholder. Accordingly, in the absence of some indication to the contrary, or special circumstances, the minority shareholder’s shares should be valued as a minority shareholding and not on a pro rata basis.

The taxpayer realized s. 7 stock option benefits in 2007 as a result of the exercise of warrants that had been issued to him by his employer (ZCL), and requested relief under the Financial Administration Act after having disposed of the shares in 2011 at a capital loss, with no ability to carry back that loss to offset any s. 7 benefit. Before confirming the reasonableness of CRA’s decision not to recommend relief, Roussel J commented as follows (at para. 5) on the quantum of the s. 7 benefit that ultimately was included in the taxpayer’s income for 2007 following his appeal of an assessment of his 2007 year:

He argued that since the shares acquired were subject to numerous blackout periods and he was considered an insider of ZCL for the purposes of the TSX and relevant shares legislation and regulations, the assessed value of the shares should not be more than 60% of the trading price on the date of purchase. Mr. Fink’s employment benefit was eventually reduced on consent by 30% ... .

The taxpayer directed 71 “swaps” under which TSX-listed shares were transferred between her self-directed TFSA and her taxable trading account at a discount brokerage (“TDW”), or between her TFSA and her self-directed registered retirement savings plan (also with TDW). The transfers were made near the close of trading for the day, and at the high price if she was transferring out of her TFSA, and at the low price where she was transferring in. Before finding that the taxpayer had received an “advantage” for 2009 that was described n s. (b)(i) of the s. 207.01(1) definition, Lamarre ACJ stated (at para. 45):

If there is a second-by-second market price, the FMV is the price at the second the swaps occur, not a price selected within a bracket of prices.

At para. 50, she distinguished Untermeyer ([1929] S.C.R. 84):

Because there was no actual market price that took into account a significant sale of shares, the Supreme Court recognized that a range of prices may be an appropriate proxy for the FMV of those shares at that time… .

The taxpayer, who owned all the shares of his dental corporation (“MDPC”), agreed to sell all the MDPC shares to third-party purchaser (the “Dental Corporation”) and its affiliate for $4.5 million. The taxpayer Immediately before the closing of the sale to MDPC, the taxpayer exchanged all his commons shares of MDPC under s. 86 for preferred shares with a redemption value of $2 million and for new common shares of MDPC, and then immediately sold 85% of those common shares equally to his wife and two children for nominal consideration. Those three family members then immediately sold those common shares to DCC for cash proceeds of $2.2 million in the aggregate. The preferred shares’ redemption value equalled the $2 million equity value of MDPC as estimated by a colleague at the same firm as the taxpayer’s tax advisor (Van Essen). She was not informed by Van Essen that DCC had agreed to purchase that equity for $4.5 million. The taxpayer also executed a Professional Services Agreement with DCC in conjunction with the sale, under which there would be a claw back in his salary if EBITDA growth projections were not achieved.

Hogan J affirmed the Minister’s alternative position that s. 69(1)(b)(i) applied to the sale by the taxpayer to his wife and children on the basis that the transferred common shares had a fair market value 85% of the excess of $4.5 million over the preferred shares’ redemption amount of $2 million. He stated (at paras 136-137, 140):

I accept the opinion of…the expert witness for the Crown… that the market price approach should be used to value the shares because the shares were sold by the Appellant and his wife after the parties had agreed to sell those shares to Dental Corporation for $4.5 million. …

The [wife and children] acquired the shares from the Appellant for a purchase price of $0.01 per share and immediately thereafter sold them for a cash purchase price of $8,645 per share. The purchase price paid by Dental Corporation to the Appellant’s wife and daughters was final. Unlike the Appellant, they were not parties to the SPA and had no obligations thereunder towards Dental Corporation. If the minimum EBITDA Target set out in the SPA was not met, the Appellant’s wife and daughters were still entitled to retain the full cash purchase price that they received.

… [T]he price agreed to by the Appellant’s wife and two daughters on the one hand, and Dental Corporation on the other, satisfies the definition of the term “fair market value”, which is understood to mean “the highest price an asset might reasonably be expected to bring if sold by the owner in the normal method . . . in a market not exposed to any undue stresses and composed of willing buyers and sellers dealing at arm’s length and under no compulsion to buy or sell”.

The taxpayer trust was deemed under s. 104(4) to have disposed of common and preferred shares of a holding company (“Holdco”) for their fair market value (“FMV”) on February 1, 2011 (the “Valuation Date”), which the Minister assessed as being $5.3 million and $2.7 million, respectively. The Trust held the only issued and outstanding common share of Holdco and most of its preferred shares. Holdco, in turn, held a construction corporation (“SPL”).

Lafleur J found (at para. 129) that substantial advances owing as at the Valuation Date to SPL by a director should be treated as having a nil value since the practice was for SPL to annually declare bonuses payable by way of set-off against the director’s advances, stating (at para. 134) that this approach accorded with “the general rule…that hindsight is not admissible except to test the reasonableness of the assumptions made by the valuators” (para. 134). However, advances owing as at the Valuation Date to Holdco by the shareholder were not to be reduced notwithstanding that they subsequently were repaid by way of set-off against a dividend. She stated (para. 141) that “I doubt that Ms. Grimes and Mr. Ozerdinc, as trustees of the Trust, would have agreed to sell their Class A Common Share of Holdco at a price that would not have taken into account an amount of $1,144,887 representing the Holdco Advances that they subsequently would have been called upon to pay to Holdco.”

The taxpayer’s expert considered that the FMV of the shares of Holdco should take into account income taxes payable by the shareholder of Holdco on its own account (discounted to 50%) in the event of a redemption of the shares. In concluding instead (at para. 145) that “income taxes at the shareholder level should not be taken into consideration in the determination of the fair market value of the shares of Holdco,” Lafleur J stated (at para. 150):

[T]here is no reason to believe that Holdco will be liquidated in the near future. If I were to take into account, in the determination of the fair market value of the shares of Holdco, the taxes payable at the shareholder’s level on the redemption of the shares of Holdco, that would not lead me to determine the highest price between a willing purchaser and willing seller.

One of the two individuals who was a trustee of the taxpayer (Ms Grimes) also held voting preferred shares of Holdco in her personal capacity that represented 69% of the total voting rights. After concluding (at para. 173) that “it is reasonable to apply a minority discount in the determination of the fair market value of the Class A Common Share of Holdco held by the Trust at a rate of 12.5% and a marketability discount at a rate of 15%,” Lafleur J stated (at paras. 178, 182, 187-188):

The Court cannot assume that Ms. Grimes would be compelled to sell her controlling shares of Holdco. I am of the view that the determination of fair market value has to be done, instead, on the assumption that only the Trust is disposing of its shares… .

The case law dealing with the determination of fair market value… has often applied a minority discount in the valuation of minority shares of a family‑controlled corporation… .

The marketability discount has been described as the ability to convert the property to cash quickly, with minimal transaction costs, with a high degree of certainty of realising the expected amount of net proceeds… .

[T]he absence of any put arrangements, the limited market for the share, the absence of a redemption policy, the absence of distributions prior to the Valuation Date or any assurance of future distributions and the potential for capital appreciation during the holding period…are all relevant in the determination… of the marketability discount… .

The taxpayers were management employees of a software company (“Cybectec”), which was a wholly-owned subsidiary of a holding company (“9135-8184”). They were granted option in 2001 to acquire Class A common shares of Cybectec at an exercise price of $0.20 per share. In January 2007, they exercised their options immediately upon the closing of a sale of substantially all the assets of Cybectec to a third-party purchaser, and sold their shares on exercise to 9135-8184 for a price of $1.2583 per share.

After having found that the taxpayers were not entitled to the s. 110(1)(d) deduction on the ground that their shares were not prescribed shares, D'Auray J went on to find that the exercise price of $0.20 per share was equal to the fair market value of the Cybectec shares at the time of the grant of the options. Among her specific findings:

• revenues should not have been adjusted (by the taxpayers' experts) by excluding rents from a subtenant in the Montreal office space as there were also expenses which related to this space;
• it was inappropriate for the Crown expert to include the value of work-in-progress in revenue for the most recent (2001) year in the three-year review period as Hydro Quebec (the source of most of the revenues) had obtained Cybectec’s agreement not to be billed until it had granted its approval, and similar adjustments would be required to back out revenue for prior years’ WIP under this alternative methodology;
• it was inappropriate for the Crown's expert to capitalize R&D expenditures (mostly payroll) given inter alia that rights to the resulting intellectual property usually accrued to the clients (and the value of IP of Cybectec relating to a project still in progress for Hydro One was quite speculative), consistent with the R&D expenditures not having been capitalized in Cybectec’s financial statements;
• a Crown expert proposal to limit R&D expenses to 5% of revenues was "not grounded in reality" (para. 151);
• an adjustment by the taxpayers' expert for 1999 and 2000 payroll being abnormally low was rejected;
• a small reduction was accepted for imputed interest on Cybectec's additional borrowing capacity;
• capitalizing the normalized cash flows at 4.6 to 4.8 times was accepted in light of the risks associated with the business; and
• the valuation was increased for excess (mostly liquid) assets plus some additional borrowing capacity

Lord Reed found that a scheme to avoid income tax on bankers’ bonuses, which entailed awarding the employees redeemable shares in an offshore company (“ESIP”) which were subject to a commercially remote risk of forfeiture of a portion of their value. The contingency was a rise in the FTSE 100 within the next three weeks of greater than 6.5%, thereby triggering a requirement for the shares of ESIP to be sold for 90% of their market value to a UBS employee benefit trust (but with such an increase being hedged against through the purchase by ESIP of call options so as to increase its NAV by 10% in such event - so that the employee would suffer less than a 1% loss). After finding that the employees were taxable on the value of the ESIP shares awarded to them, Lord Reed stated (at para. 94):

The Revenue argued that the shares should be valued for income tax purposes without regard to the restrictive conditions, since those conditions were not intended to be commercially relevant. I am unable to agree. The shares were subject to conditions which, as the First-tier Tribunal found, had the effect of reducing their value on the date of acquisition by a small amount... . Applying ordinary taxation principles, as laid down in Abbott v Philbin, the value of the shares has to be assessed as at the date of their acquisition, taking account of those conditions. … It is however also necessary to take account of the call options purchased by ESIP out of the sum paid by UBS for its subscription for the shares. Since the options offset the risk to shareholders arising from the conditions, they presumably enhanced the value of the shares and are therefore relevant to the valuation of the perquisite received by the employees.

Kruger Inc. was the 51% shareholder of the taxpayer. The taxpayer was associated with Kruger under s. 256(1.2)(c) as the Kruger bloc had more that 50% of the fair market value of all the shares. The 49% bloc might have had a greater value to its current shareholder than that of the 51% bloc to Kruger because of a contingent put right accorded to the minority shareholder under the USA. However, since this put could not be assigned to any third-party purchaser, it did not affect the shares' FMV.

See summary under s. 256(1.2)(c).

The taxpayer's common law husband transferred significant blocks of shares of a TSXV-listed public company, of which he was CEO, to the taxpayer at times at which he owed over $1.4 million in income taxes. D'Arcy J. accepted the Minister's valuation of the transferred shares, so that the taxpayer's appeal of the Minister's assessment under s. 160 was dismissed.

The report of the taxpayer's purported expert witness, that a substantial "blockage discount" should be applied to the share valuation, was rejected, as the witness was a friend and de facto advocate and was experienced in investor relations rather than valuation. Conversely, the report of the Minister's expert was accepted.

In such report:

• The fair market value of a share block on a particular day was based on the five-day VWAP immediately preceding that day (para. 100).
• To that value discounts in the range of 1.3% to 3.6% were applied to reflect that it would take between 16 and 44 days to sell each block (para 101).

At the time of the death of the taxpayer, she was the sole shareholder of a holding company ("701") that, in turn, held a 50% interest in a Canadian subsidiary operating company ("890") and a 1/3 interest in an American operating company ("123"). In valuing the shares of 701 at the time of the taxpayer's death, Campbell, J. found that:

1. the determination of the maintainable earnings of the operating companies should not be adjusted for the 10% interest rate charged on loans made by 701 to them;
2. the risk-free rate component of the discount rate should be the yield on ten-year government bonds in the case of 890, and the yield on long-term U.S. bonds in the case of 123;
3. there should be a size premium added on to the risk-free rate of 5%;
4. there should be a further increase in the discount rate of 10% to reflect company-specific rate (along with an adjustment for growth rates);
5. a 15% discount for lack of control should be applied to the block held in 123 and a discount of 10% for the block held in 890; and
6. the fair market value of the shares of 701 should be adjusted to take into account capital gains that would be realized on a distribution by it of its assets net of refundable tax.

A start-up company ("AVL") of which the taxpayer was the president issued shares to him in recognition of past services. Although at the time of the issue of the shares, there was an expectation that he would exchange those shares for shares of a corporation ("USX") that would be acquiring all the shares of AVL, with such shares of USX to be held in escrow, this did not represent a contractual restriction on his right to deal with AVL shares that affected their value.

In the context of estate freeze transactions, a trust that the taxpayer had established for the benefit of his children transferred a portion of the Class A shares of a corporation that was controlled by him ("335") to his son's holding company ("2165") in consideration for shares of 2165. Although the taxpayer held Class D shares of 335 with only a nominal redemption value, they were convertible (before his death) into a very large number of Class A shares. The position of the Minister was that the Class A shares had substantially lower fair market value than that attributed to it by the terms of the sale to 2165 given the potential dilutive effect of a conversion by the taxpayer of the Class D shares, so that an s. 56(2) benefit was assessable on the taxpayer. In rejecting this position, Lamarre, J. stated (at para. 37) that:

"If the intent in the instant case had been to sell the Class A shares to a third party, the Appellant, who controlled 332 Canada, would have had no problem waiving the conversion right attached to his Class D shares so that the Class A shares could be given their full value. Common sense would dictate this."

Rip T.C.J. accepted the position of the Minister that the fair market value of shares of a Canadian-controlled private corporation three months before it did an initial public offering should be valued at a discount of 25% to the public offering price (to reflect a marketability discount).

Non-voting Class B common shares of a private company that generally were non-voting and not entitled to dividends (although the directors could choose to pay dividend on the Class B common shares in addition to the Class A voting and fully participating common shares) and that had an equal entitlement with the Class A common shares on a liquidation or winding-up were found nonetheless to have an equal fair market value on a per-share basis with the Class A common shares given that at the valuation date, there was an offer from a third-party arm's length purchaser to purchase the company.

Bell TCJ. rejected the view of the Crown's expert valuator that the taxpayer was a special purchaser and, therefore, the fair market value of shares of a Canadian corporation that it had purchased did not reflect the special value of that corporation to the taxpayer. First, an insider group had also been prepared to pay a relatively high price for the shares. Furthermore, the taxpayer had earned a handsome return on the high price paid by it for the shares.

In finding that the taxpayer had paid the fair market value of shares acquired by it in an arm's length loss utilization transaction, where the amount indirectly paid for the losses was significantly less than the taxes ultimately saved, Kempo TCJ. stated (at p. 326):

"It is inappropriate to apply subsequently gained knowledge in the determination of value, especially if it differs from the information known and the value established by the parties in arm's length negotiation."

The executors were unsuccessful in establishing that the fair market value of shares of the deceased should be discounted for the requirement under British Columbia securities law that the shares be held pursuant to an escrow agreement given that, in fact, none of the shares issued to the deceased were ever deposited in escrow.

The taxpayer acquired the personal residence of a related individual in consideration for issuing non-voting preference shares which were redeemable by the taxpayer but not retractable by the individual. In finding that the shares had no fair market value for purposes of s. 160, Dussault TCCJ. stated (p. 1541):

"The restrictions encumbering the preferred shares and the absence of control thus prevented anyone, including anyone who were to seize all of the shares held by Mr. Pierre Savoie [the individual], from recovering any value whatever in respect of the property transferred to [the taxpayer], since the redeeming of class G shares received in consideration could not have been obtained by a holder who did not have legal control, whether direct or indirect."

Shares of a private consumer electronics company with a 20:1 debt to equity ratio which was "propped up" through shareholder loans, were found to have a nil fair market value rather than the $500,000 amount originally reported for income tax purposes by the shareholders given that a purchaser of the shares would need to inject additional capital in order to normalize the debt to equity ratio. The Crown expert's theory "that a notional vendor would not give away its shares but rather would reorganize the companies to convert their non-interest-bearing loans into equity so as to be able to attract some value to shares and to obviate a notional purchaser's difficulty in obtaining long-term borrowing to normalize the debt" was rejected because "the sole matter for valuation was that which had been disposed of (i.e., the shares) and not the Appellants' entire interests, direct and indirect, in [the corporation]" (p. 1096). Although the loans might be treated like equity for financing purposes, the vendors' "creditor position at all times ranked superior to their position as shareholders" (p. 1096).

The appellant owned the only Class A share of a cattle and sheep farming company having a net asset value of not less than $800,000. 999 Class B shares were held by a trust for the benefit of his children. The Class A share was entitled to 10,000 votes and the Class B shares were entitled to one vote per share. The Class A and Class B shares ranked pari passu in the distribution of dividends and on liquidation. (The reasons for judgment assume - apparently, incorrectly - that the Class A share was therefore entitled to 1/2 rather than 1/1,000 of such distributions.)

In connection with matrimonial litigation, the Class A share of the appellant was found to have a fair value of $150,000 rather than the $10,000 figure advanced by the appellant, in light of its entitlement to 1/2 the net property on a winding-up and in light of the entitlement of a holder of that share to hire himself as a manager of the farm and pay himself reasonable remuneration for its services, without fear of being dismissed and without the obligation to consult or take instructions from anyone.

"In preparing a valuation to be used as evidence in court, a valuer may not accept figures that he did not check or take facts for granted over the correctness of which he had no control. Expert testimony must be the product of the expert's personal opinion based on established facts the existence of which is proved, and not on conjectures or information he receives from third persons" (p. 1784).

The taxpayer's voting and non-voting common shares were found to have the same per-share V-Day value given that, in light of the shareholdings in the company, the share provisions and the governing corporate law, the entitlements attached to the non-voting shares could not be prejudicially affected.

In finding that the non-voting shares of a private company held by the decedent were worth as much per share as his voting shares (which gave him control of the company), the court noted that for U.S. estate tax purposes what was to be valued was the interest which ceased by reason of death rather than the interest which the legatees acquired, that to adopt an alternative rule would invite "an executor to invent elaborate scenarios of disaggregated disposition in order to minimize total value" and furthermore:

"It is well established that the willing buyer-willing seller rule presumes that the potential transaction is to be analyzed from the viewpoint of a hypothetical buyer whose only goal is to maximize its advantage ... And it does not comport with common sense that a willing buyer would be likely to purchase non-voting shares in a small, family-held business, without concommitantly purchasing a controlling voting interest."

Furthermore, a provision in the company's articles of incorporation which gave minority shareholders a right of first refusal to purchase at the book value of the shares had a depreciatory effect even though the book value of the shares at the time of death exceeded their fair market value otherwise determined.

Finally, a government submission that the minimum value of the shares is equal to their liquidation value was rejected, because this argument assumed that the controlling shareholder "could automatically liquidate the company to realize its asset value, unconstrained by the rigorous fiduciary duties which attach to possession of a controlling equity interest".

At the time of his death, the decedent held an income interest in approximately 10% of the non-voting common shares of a holding company ("HFA") and held a controlling interest in the voting common shares of HFA through a revocable inter vivos trust. HFA, in turn, owned 81% of the shares of a savings and loan company. The Court held that "it was not clear error for the district judge to find that the ownership of control shares in HFA, under all the circumstances, would provide no economic benefit beyond that of ownership of an equal number of non-voting shares", after referring to legal restraints that the holder of a control block would face in exploiting such control to his advantage.

At the time of his death, the deceased owned ten voting common shares of a B.C. personal corporation and his adult daughter owned 975 non-voting common shares. Mr. Fordham accepted the estate's submission that the value of the decedent's voting common shares for purposes of the Estate Tax Act was 10/985 of the fair market value of the corporation, given that the decedent could not have affected his daughter's entitlement to a pro rata portion of dividends and liquidation distributions without taking proceedings under the Companies Act (B.C.), and given that there was "nothing to suggest that litigation would not have ensued if anything leading to interference with the daughter's right to dividends had been attempted" (pp. 1119-1120).

At the date of death of the deceased, he owned 4,497 Class B shares of a private investment company and his wife owned the only other issued share, namely, 1 Class A share. The Class A share was entitled to one vote, had a fixed dividend entitlement and was entitled to all the net assets of the company on a liquidation after payment of the fixed liquidation entitlement of the Class B shares. The Class B shares were entitled to one vote per share, were fully participating as to dividends and had a fixed liquidation entitlement. Mr. Fordham held that because the deceased, by virtue of his voting control, was free to change at will the amount which he might receive from the company, the value of his Class B shares for purposes of the Estate Tax Act was equal to the fair market value of the company net of the par value of the Class A shares.