On September 11, 2014, the Canadian Securities Administrators (CSA) published CSA Notice 62-306 – Update on Proposed National Instrument 62-105 Security Holder Rights Plans (Notice) and the Autorité des marchés financiers (AMF) Consultation Paper An Alternative Approach to Securities Regulators’ Intervention in Defensive Tactics. The notice indicates that the CSA intend to publish for comment a new harmonized proposal based on amendments to the takeover bid regime which will aim to facilitate the ability of shareholders to make voluntary, informed and coordinated tender decisions and provide target boards with additional time to respond to hostile bids, with the objective of rebalancing the current dynamics between hostile bidders and target boards.
It appears that the new proposal will draw on elements of the earlier CSA and AMF proposals and can be seen as settling on a middle ground between the two (the earlier CSA and AMF proposals are discussed, respectively, in our publications Shareholder Rights Plans – The CSA Proposal and Defensive Tactics – The AMF Alternative Approach). The new proposal will retain a key premise of the earlier CSA proposal (and the current regime), namely that shareholders should ultimately have the opportunity to determine the outcome of an unsolicited takeover bid (and, as a corollary, that target boards do not have the ability to “just say no”).
Over the summer, the British Columbia Securities Commission (BCSC) issued reasons for its previous decision that allowed Augusta Resource Corporation (Augusta) to maintain its shareholder rights plan after a hostile bid was made by HudBay Minerals Inc. (HudBay). The BCSC permitted Augusta’s rights plan to stay in place for an unusually long period of 155 days after HudBay initiated its bid.
HudBay had brought an application to the BCSC asking for the shareholder rights plan to be cease traded under the public interest power of the Securities Act. HudBay argued that the shareholder rights plan was no longer serving any defensible purpose, and that Augusta’s board was “just saying no” to the bid. Augusta’s position, on the other hand, was that the best interests of the shareholders would be served if the board was given more time to complete the permitting process on a mine.
A duty to negotiate in good faith appears to run counter to the adversarial nature of bargaining. However, parties may have a duty to negotiate in good faith according to the recent decision in SCM Insurance Services Inc. v. Medisys Corporate Health LP, 2014 ONSC 2632, where the Ontario Superior Court held that the parties had intended to create “an enforceable obligation” to negotiate in good faith despite no express covenant to do so.
Summary of Facts
In 2011, Medisys sold its independent medical examinations (IME) business to the Plaintiffs and agreed to a five year non-compete and non-solicit covenant. Subsequently, Medisys sought to acquire Plexo’s integrated business which included an IME business. Medisys obtained a waiver of the restrictive covenant on the basis that the Plaintiffs would have the first opportunity to negotiate the purchase of Plexo’s IME business, failing which, Medisys was required to sell or close that business.
Last fall, we featured a blog post that offered a Canadian perspective on the interpretation and use of benchmarking in efforts clauses. Some of the commentary that ensued suggests that Canadian courts were “doomed to incoherence” by distinguishing between best efforts and reasonable efforts.[i]
Yet this distinction between efforts clauses has existed for some time in Canadian jurisprudence[ii] and Canadian courts have continued to render coherent decisions with very little difficulty in applying the standards of performance to efforts clauses.[iii] This leads to the reasonable conclusion that, in fact, there is no crisis and no reason to be overly concerned.
We all agree that in order for parties to understand their contractual obligations, contracts must clearly identify the standard that must be met by the party discharging its duties. Vaguely drafted standards of performance are undoubtedly a source of confusion for the parties and the courts tasked with interpretation. To facilitate this, Canadian case law has established three distinct standards of performance: Continue Reading
The following post on the Canadian Appeals Monitor blog may be of interest to readers of this blog: Pay Me Now: Court of Appeal Delivers Lessons on fiduciary duties, the business judgment rule, and executive compensation
The business judgment of directors setting executive compensation was front and centre in the Ontario Court of Appeal’s recent decision in Unique Broadband Systems, Inc. (Re), 2014 ONCA 538 (UBS). Although the decision is based on unique underlying facts, it offers several important lessons on corporate governance.
Summary of Facts
In UBS, the Court of Appeal considered a trial decision in which Mesbur J. had found that Gerald McGoey, the former CEO and a director of UBS, had breached his fiduciary duties to the corporation and therefore deprived Mr. McGoey of certain compensation, indemnification for his legal and other professional services expenses, and severance payments. Read More.
As we described in a previous blog post, the Ontario Court released a decision in March (Champion Iron Mines Limited) in which it held that a fairness opinion that does not disclose the analysis underlying the opinion was inadmissible as evidence before the Court on an application to approve a plan of arrangement. The decision of Justice David M. Brown suggested that companies might need to bolster their disclosure of fairness opinions in order for an Ontario Court to take the opinion into account in a fairness hearing for a plan of arrangement.
The debate about so-called “golden leash” arrangements has picked up again. The Council of Institutional Investors (“CII”), an influential association of institutional investors, recently wrote a letter to the U.S. Securities and Exchange Commission (“SEC”) expressing its concerns regarding the transparency of compensation paid in “golden leash” arrangements.
As discussed in our previous post, “golden leash” arrangements arise when a shareholder activist privately offers to compensate its nominee directors in connection with such nominees’ service as a director of a target corporation. In January, 2014, Institutional Shareholder Services Inc. provided its views on by-laws designed to prohibit “golden leash” arrangements but did not specifically express any concerns about the appropriateness of such compensation for nominee directors provided the arrangements are disclosed (see our post).
The recent outcome of the Augusta/HudBay poison pill hearing provides some insight into how a shareholder rights plan may withstand scrutiny from a Canadian securities regulator for an extended period of time in the right circumstances. Though perhaps the result of somewhat unique facts, including insufficient initial support for the price being offered by the bidder and an active process being conducted by the target company, the British Columbia Securities Commission’s decision in Augusta/HudBay is also of interest in the context of the ongoing debates sparked by the proposed National Instrument 62-105 on Security Holder Rights Plans.
The following article by Graham P.C. Gow, Jonathan Grant, Andrew Parker and Matthew Cumming may be of interest to readers of this blog:
Fairness Opinions – Important Ontario Court Comment
In almost every Canadian M&A transaction, the board of directors of the target company, and often also the acquiring company, will expect their financial advisors to provide a fairness opinion to the effect that the price in the proposed transaction is fair to the company and its shareholders from a financial perspective. These opinions are not legally required, but they are commonly used by boards as evidence that the directors have met their duties in approving the transaction. Read more.
If your organization is currently thinking about establishing or acquiring a business in Canada, the newest edition of Doing Business in Canada, written by McCarthy Tétrault, will prove to be a valuable resource. The guide provides a broad overview of the legal considerations that non-residents should take into account to help ensure their success as they enter into a business venture in Canada. Each section offers timely information and insightful commentary on different areas of law.
The book includes a chapter on corporate finance and mergers & acquisitions, with sections on:
After downloading the interactive PDF or eBook, we encourage you to consult one of our lawyers for a more comprehensive analysis of the legal implications of your proposed venture.
- public offerings and private placements
- take-over bids
- business combinations
- related-party transactions