Canadian M&A Perspectives

Private and Public Mergers & Acquisitions | Private Equity

Ontario’s Bulk Sales Act has been repealed

Posted in Contractual Matters, Private Equity, Private Transactions, Strategy
Ian MakJake IrwinHeidi GordonVanessa Chung

On March 22, 2017, Ontario’s Bulk Sales Act (BSA) was repealed, bringing to an end bulk sales legislation in Canada.1 The BSA was enacted in 1917, and was intended to protect unpaid trade creditors (i.e. the people a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

Canadian Securities Administrators Publish Report and Guidelines on Social Media Use by Reporting Issuers

Posted in Continuous Disclosure
David E. WoollcombeClaire Gowdy

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.

New 2017 Competition Act Merger Notification Threshold

Posted in Uncategorized
Donald HoustonMichele Siu

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.

Corporate Democracy vs. Directors’ Powers: lessons from Marquee/Smoothwater

Posted in Private Equity, Private Transactions, Public M&A, Shareholders, Strategy
Robert HansenShane C. D'SouzaVanessa Chung

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.

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Sandbagging in Good Faith: How Bhasin v Hrynew Can Impact Indemnification for Known Breaches

Posted in Contractual Matters, Strategy
Geoff R. HallMatthew HarrisJeremy Busch-HowellBenjamin Layton

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.

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Dolly Varden Reasons Deliver Highly Anticipated Guidance for Assessing Tactical Private Placements under the New Take-Over Bid Regime

Posted in Public M&A, Shareholders, Strategy
David E. WoollcombeShane C. D'SouzaHeidi Gordon

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.

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“Placeholder candidates”: an untested response to advance notice provisions

Posted in Canadian Market Entry, Public M&A, Shareholders, Strategy
Shane C. D'SouzaDeandra L. SchubertVanessa Chung

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.

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Doing Business in Canada 2016: Read the latest updates to our popular guide

Posted in Canadian Market Entry

McT_DBiC_Cover_3D_SEPT2016

McCarthy Tétrault’s Doing Business in Canada provides a user-friendly overview of central aspects of the Canadian political and legal systems that are most likely to affect new and established business in Canada. The newest edition reflects legislative changes including:

  • Changes to the Competition Act and Investment Act Canada;
  • and an updated Mergers and Acquisitions chapter including new rules on takeover bids in Canada.

General guidance is included throughout the publication on a broad range of discussions. We also recommend that you seek the advice of one of our lawyers for any specific legal aspects of your proposed investment or activity.

Download the updated guide 

Is the Death of Ontario’s Bulk Sales Act upon us? It looks like it may be.

Posted in Contractual Matters, Private Equity, Private Transactions, Strategy
Ian MakHeidi GordonMatthew Griffin

On June 8, 2016 Bill 218 (the Burden Reduction Act, 2016) passed first reading. The Bill is part of a provincial government initiative to, in part, reduce the regulatory burden on Ontario businesses. Schedule 3 of the Bill repeals Ontario’s Bulk Sales Act (BSA). The BSA was enacted in 1917, and is 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 consequences of not complying with the BSA can be significant, and can include a non-compliant transaction being set aside by a court upon the application of a trade creditor of the seller. As such, the BSA is an important consideration for both the buyer and the seller in an Ontario M&A transaction that is structured as an asset deal.

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Canadian Securities Commissions Consider First Tactical Private Placement Under Canada’s New Take-Over Bid Regime

Earlier today, the Ontario Securities Commission and the British Colombia Securities Commission released their decisions regarding Hecla Mining Co.’s claim that Dolly Varden Silver Corp. had planned to utilize a private placement as an inappropriate defensive tactic.

Posted in Public M&A, Shareholders, Strategy
David E. WoollcombeShane C. D'SouzaHeidi Gordon

Since Canada’s new harmonized take-over bid regime (New Bid Regime) came into effect earlier this year, there’s been a lot of talk about whether tactical private placements will become the new poison pills. For more information on the New Bid Regime see our previous article, Canada’s New Take-Over Bid Rules Seek to Level the Playing Field.

A “tactical private placement” occurs when a target company issues securities to a friendly party in response to an unsolicited take-over bid in order to make it more difficult and/or more expensive for the hostile bidder to complete a take-over of the target company. This outcome is particularly important to target companies under the New Bid Regime for two key reasons. First, as a consequence of the New Bid Regime, shareholders rights plans are largely irrelevant in deterring hostile bids because such offers must remain open for at least 105 days (rather than 35 days under the old rules). Second, the New Bid Regime contains a mandatory condition that a minimum of more than 50% of all outstanding target securities owned or held by persons other than the bidder and its joint actors be tendered and not withdrawn before the bidder can take up any securities under the take-over bid.

While the Canadian securities regulators had considered the use of private placements several times in the context of a take-over bid, regulators had not, until the Dolly Varden hearing, had the opportunity to respond to a claim by a bidder operating under the New Bid Regime that a target company had used a private placement as an inappropriate defensive tactic.[1]

On June 27 Idaho-based Hecla Mining Co. announced its intention to acquire an additional 50% of the shares of Dolly Varden Silver Corp., with the formal offer being launched on July 8. A few days later, Dolly Varden communicated to its shareholders that they should take no action with respect to the hostile bid, and that Dolly Varden would be proceeding with a private placement it had previously announced on July 5. According to Dolly Varden, the proceeds of the private placement are to be used to pay off debt and for working capital purposes.

On July 8, Hecla filed an application with the British Columbia Securities Commission (BCSC) seeking a permanent order cease trading the private placement and any securities issued, in connection with the private placement, or in the alternative, an order cease trading the private placement unless and until Dolly Varden obtains shareholder approval of the private placement. On July 11, Hecla filed an application with the Ontario Securities Commission (OSC) seeking substantially the same relief.

About a week after Hecla’s application to the BCSC, Dolly Varden signed an undertaking to the BCSC that it would not conduct a distribution of any securities, under the private placement or otherwise, until the BCSC rendered its decision in the application. This undertaking was presumably intended to preserve the remedies available to the securities commissions if they were to decide in favour of Hecla.

Earlier today, the OSC and the BCSC released their decisions dismissing Hecla’s application, thus allowing Dolly Varden to proceed with the private placement.

We will provide a further update once the commissions release the reasons for their decisions in the Dolly Varden dispute. The reasons will likely provide capital markets participants with important guidance on the future use of private placements as a defensive tactic under the New Bid Regime.

[1]    Before the New Bid Regime, Canadian regulators have considered allegations that the issuance of securities in the context of an ongoing take-over bid was an improper defensive tactic. For instance, see AbitibiBowater inc. (Produits forestiers Résolu) c. Fibrek inc., 2012 QCBDR 17 aff’d 2012 QCCA 569; ARC Equity Management (Fund 4) Ltd. (Re), 2009 LNABASC 315; Inmet Mining Corporation (Re), 2012 BCSECCOM. 409 and Re Red Eagle, 2015 BCSECCOM 401.