On July 27, 2017, staff of the securities regulatory authorities in each of Ontario, Québec, Alberta, Manitoba and New Brunswick (CSA Staff) published Multilateral CSA Staff Notice 61-302 Staff Review and Commentary on Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (Notice) setting out CSA Staff’s views on material conflict of interest transactions regulated by Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (MI 61-101). The Notice provides a helpful consolidation of the current thinking of CSA Staff on a number of issues that arise frequently in these transactions, including the effective use of a special committee of independent directors, compliance with the enhanced disclosure requirements of MI 61-101 and matters concerning fairness opinions. The Notice also formally alerts capital markets participants to the fact that CSA Staff is conducting real-time reviews of continuous disclosure documents filed in connection with material conflict of interest transactions to assess compliance with MI 61-101 and identify potential public interest concerns.
The Notice, which is the first time the CSA has released a detailed publication on conflict of interest transactions since MI 61-101 and its companion policy were adopted in 2008, will be of interest to public company boards and their advisors given the frequency with which MI 61-101 issues arise in Canada and the complexity of those issues.
On June 22, 2017, the pre-closing review threshold that applies to most direct acquisitions of Canadian businesses by non-Canadian1, non-state owned investors from WTO member states increased to C$1 billion from $C800 million2. In an effort to encourage foreign investment that is beneficial to Canada, the Canadian Government increased this threshold to C$1 billion two years ahead of schedule3.
Today the pre-closing review threshold that applies to most direct acquisitions of Canadian businesses by non-Canadian, non-state owned investors from WTO member states has risen from C$600 million to C$800 million. A further increase is set to occur later this year. The Canadian government has announced that in 2017 (two years ahead of schedule) the Investment Canada Act will be amended to increase this threshold to C$1 billion.
The C$379 million (2017) pre-closing review threshold for direct acquisitions of Canadian businesses by non-Canadian, state-owned investors continues to apply. Also continuing to apply is the C$5 million pre-closing threshold for direct transactions that relate to cultural businesses or where the buyer is from a non-WTO member state and the seller is either from a non-WTO member state or from Canada.
It is worthwhile to remember that the Canadian government can review any investment (including minority investments) by non-Canadians on the basis of “national security” concerns. No financial threshold applies. The government has 45 day after the certified date of a notification or application for review to provide notice of a potential national security review. Therefore, if a proposed transaction that is not otherwise subject to approval raises national security concerns, parties should consider filing a notification as early as possible in order to obtain pre-merger clearance (or at least trigger the review period prior to closing) in respect of any acquisition of control of a Canadian business by a non-Canadian (that is not otherwise subject to review and approval).
 A non-Canadian includes a Canadian-incorporated entity that is ultimately controlled outside of Canada.
 This threshold applies to the enterprise value of the target.
 This threshold applies to the asset book value of the target.
On March 22, 2017, Ontario’s Bulk Sales Act (BSA) was repealed, bringing to an end bulk sales legislation in Canada.1 The BSA was enacted in 1917, and was intended to protect unpaid trade creditors (i.e. the people a seller is indebted to for goods, money or services furnished for the purpose of enabling the seller to carry on his or her business) from “bulk sales” by a seller of all or substantially all of its assets over a short period of time.
The BSA was an important consideration for both the buyer and the seller in an Ontario M&A transaction that was structured as an asset deal as the consequences of not complying with the BSA could be significant, including that a non-compliant transaction could be set aside by a court upon the application of a trade creditor of the seller. Prior to its repeal, the parties to an asset transaction would deal with the BSA by following the procedure for compliance with the BSA, getting a court order or, most commonly, waiving compliance with the BSA. Continue Reading
We recently wrote an article for The Canadian Securities Regulatory Monitor, McCarthy Tétrault’s blog covering securities regulatory developments, that we believe is of interest to readers of this blog. The article looks at a new report by the Canadian Securities Administrators around social media use by reporting issuers and provides guidance for public companies in this area. You can read the full post here and as always, we encourage you to contact us if you wish to discuss the potential impacts on your business activities.
The pre-merger notification transaction-size threshold for 2017 has increased to $88 million from the 2016 threshold of $87 million. As per the indexing mechanism set out in the Competition Act (Act), the pre-merger notification threshold is reviewed annually.
The transaction-size threshold is based on the book value of assets in Canada of the target (or in the case of an asset purchase, of the assets in Canada being acquired), or the gross revenues from sales “in or from” Canada generated by those assets, calculated in accordance with the Notifiable Transactions Regulations under the Act. The Competition Bureau must generally be given advance notice of proposed transactions when the acquired assets in Canada or revenues generated in or from Canada from such assets exceed $88 million (transaction-size threshold), and when the combined Canadian assets or revenues in, from or into Canada of the parties together with their respective affiliates exceed $400 million (size of parties threshold). The size of parties threshold has not been reviewed and remains the same.
Alberta’s Court of Appeal recently overturned a controversial interlocutory decision involving a proposed acquisition by Alberta Oil Sands Inc. (“AOS”) of Marquee Energy Ltd. (“Marquee”) pursuant to a plan of arrangement under s. 193 of Alberta’s Business Corporations Act (“ABCA”). Even though only Marquee was being arranged, thus necessitating a vote by its shareholders, the underlying decision of the Court of Queen’s Bench required that AOS also seek the approval of its shareholders to implement the transaction. The Court of Appeal set aside the lower Court’s order requiring AOS shareholders to vote on the Marquee arrangement.
In the context of a merger or acquisition, a vendor may unknowingly make untrue representations about the target business. “Sandbagging” occurs when a buyer discovers such misrepresentations prior to closing and seeks to enforce indemnity provisions after closing. The success of such claims will depend on the following:
- The Terms of the M&A Agreement. If the parties expressly agree that the buyer’s knowledge will (or will not) bar post-closing indemnification, Canadian courts will consider, and likely respect, the parties’ intentions.
- The Common Law. In Bhasin v Hrynew (“Bhasin”), the Supreme Court of Canada articulated a general duty of good faith that applies to the performance of all legal contracts.1 If the M&A agreement is silent on sandbagging, Canadian courts will be asked to consider whether the buyer’s indemnity claim is compatible with the general duty of good faith expressed in Bhasin.
Canadian courts have not yet offered specific guidance on whether it is possible to sandbag in good faith. Pending further judicial instruction, the discussion below offers tips on how to minimize uncertainty by including clear and comprehensive pro- or anti-sandbagging provisions in M&A agreements.
The Ontario Securities Commission (OSC) and the British Columbia Securities Commission (BCSC) have released joint reasons for their decisions in the Dolly Varden dispute. As expected, these reasons provide capital markets participants with guidance (including a framework) for assessing the future use of private placements as a defensive tactic (i.e. so-called “tactical” private placements) under Canada’s new harmonized take-over bid regime (New Bid Regime) that came into effect on May 9, 2016.
For more information about the New Bid Regime, see our previous article, Canada’s New Take-Over Bid Rules Seek to Level the Playing Field.
Many US and Canadian public companies have implemented so-called advance notice provisions (“ANPs”), bylaws and policies requiring shareholders to provide a company with notice by a specified deadline should they wish to propose an alternative slate of directors at a shareholder meeting. Recently, a shareholder of a US company listed on the New York Stock Exchange ran out of time to provide the usual form of notice and instead nominated “placeholder candidates”. This article examines the novel and previously untested tactic of nominating “placeholder candidates” in proxy contests.