Supreme Court case shows venture capitalists viewed differently ...

The Supreme Court of Canada?s dismissal today of the leave application?in Garage Technology Ventures Canada v. L?ger reaffirms the message that directors and officers of venture capital companies cannot be expected to behave as they would in more mature and financially stable companies.

The case arose when the founder of a debt-laden company secured financing from a venture capital fund whose representatives also acted as directors of the company. When the company closed after only a few months of operations, the founder sought an oppression remedy, arguing, among other things, that the investors should have put up more money.

But the Quebec Court of Appeal ruled that the obligations of directors and officers of start-ups had to be analyzed in the context of venture capital investments. Venture capitalists could not be judged in the same light as traditional financial institutions which are accustomed to committing to longer term investments. In this case, the speculative nature of the investment had to be taken into account in determining the reasonableness of the directors? actions.

?According to the [Quebec Court of Appeal], to conclude otherwise would amount to imposing disproportionate obligations on the shoulders of directors and officers of start-up companies, and would run against the principles of equity that must govern oppression remedies under the CBCA, by creating a new injustice,? write Sylvain Lussier and Elizabeth Meloche, the team from Osler, Hoskin & Harcourt who represented the successful venture capitalists throughout. Lussier and Meloche have more online.

Source: http://business.financialpost.com/2013/04/25/venture-capitalists-held-to-different-standards-than-directors-of-mature-companies/

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