Copyright 2011, Blake, Cassels & Graydon LLP
Originally published in Blakes Bulletin on Mergers & Acquisitions, September 2011
- In connection with a merger of equals structured as a plan of arrangement between ECU Silver Mining Inc. and Golden Minerals Company, the Québec Superior Court granted the first ever final order under the new Business Corporations Act (Quebec)
- While case law established under the CBCA and other corporate law statutes provides guidance for a plan of arrangement under the new Quebec statute, practitioners should be aware that courts in Quebec may exercise greater flexibility in certain respects than courts under other corporate law statutes, as evidenced by the treatment of dissent rights under such arrangement
The new Quebec Business Corporations Act, R.S.Q. c. S-31.1 (the QBCA), which came into force on February 14, 2011, provides for an arrangement mechanism (s. 414 ff) that is modelled on s. 192 of the Canada Business Corporations Act (the CBCA), but features improvements inspired notably from the Ontario Business Corporations Act and the British Columbia Business Corporations Act, as well as from the recent ruling of the Supreme Court of Canada in the BCE Inc. v. 1976 Debentureholders case (BCE).
On September 2, 2011, this arrangement mechanism was successfully used for the first time by a Quebec corporation, ECU Silver Mining Inc. (ECU), represented by a legal team from Blakes.
The arrangement represented a "merger of equals" between ECU, a mineral exploration company listed on the Toronto Stock Exchange (TSX), and Golden Minerals Company (Golden), a Delaware mineral exploration company listed on the NYSE Amex Stock Exchange and the TSX, with a view to creating a new leading junior silver mining company having a diversified portfolio of assets in Mexico and South America.
Under the plan of arrangement agreed upon by the two corporations pursuant to an arrangement agreement entered into on June 24, 2011, holders of common shares, options and warrants of ECU exchanged their respective ECU securities for similar securities of Golden, with holders of common shares also receiving C$0.000394 in cash for each ECU share. In addition, under the plan of arrangement, holders of convertible notes of ECU received replacement notes issued by ECU. Upon completion of the arrangement, former holders of ECU securities held, on a fully diluted basis, approximately 55% of the outstanding Golden stock, assuming that all outstanding options and warrants of ECU would have been exercised prior to the closing of the arrangement, and ECU became the wholly owned subsidiary of Golden.
The Interim Order
On July 14, 2011, ECU obtained an ex parte interim order from Justice Jean-François Émond of the Québec Superior Court (Commercial Division) under s. 416 of the QBCA (the Interim Order).
As is usual for such orders, the Interim Order provided directions for the calling, holding and conduct of the special meeting of ECU security holders to be called to consider the arrangement. It was ordered that the special meeting be held on August 30, 2011, and that the requisite level of approval of the arrangement be at least 66-2/3% of the votes cast by the ECU shareholders, 66-2/3% of the votes cast by the shareholders, optionholders, warrantholders and convertible noteholders of ECU voting together as a single class, and a simple majority of the ECU shareholders excluding certain interested and related parties, as required by Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (MI 61-101 ).
The court granted dissent rights (called "the right to demand the repurchase of shares" under the QBCA) to the ECU shareholders. As expressly permitted by s. 416(5) of the QBCA, the Interim Order modified the method for exercising rights otherwise provided under the dissent right regime of s. 372 ff of the QBCA as follows: notice of the exercise of the right had to be received by ECU at least four days before the date of the meeting or two days before its adjournment (the QBCA allows such notice to be delivered at any time until the meeting) and it was provided that Golden would be the transferee of the shares of the dissenting shareholders and pay the repurchase price in lieu of ECU (the QBCA requires the issuing corporation to repurchase and pay the shares). Moreover, and this is a first in arrangements, the order specified that "the fair value payable by Golden to a Dissenting Shareholder may, at the option of Golden, be paid by way of issuance of shares of Golden stock".
This part of the Interim Order demonstrates the flexibility of a QBCA arrangement.
At the meeting of ECU security holders held on August 30, 2011, the requisite approval of the arrangement was far exceeded by the following majorities: 98.08% of ECU shareholders, 98.41% of ECU security holders voting as a single class and 98.03% of ECU shareholders pursuant to MI 61-101.
The Final Order
On August 31, 2011, the court issued a final order approving the arrangement.
In applying the criteria established in BCE, the following factors were invoked by the court in support of its conclusion that the arrangement was fair and reasonable: the fair process followed by ECU in negotiating and executing the arrangement agreement, the fairness opinion delivered by one of ECU's financial advisers, the fact that the ECU option holders and warrant holders were treated in a manner consistent with the ECU shareholders, the unanimous and informed decision of the Board of Directors of ECU, the full disclosure provided in ECU's management information circular, the approval by the requisite majorities, and the absence of any notice of appearance or contestation. Other factors also mentioned by the court were the overwhelming approval by the security holders, the confirmation by the Autorité des marchés financiers, duly notified of the application in accordance with s. 414 of the QBCA, that it would not attend the hearing, and the non-exercise of dissent rights by any shareholders.
It is also noteworthy that the court stated the following in its Interim Order:
The ECU experience demonstrates that practitioners may be reassured that an arrangement under the QBCA can be realized as effectively and expeditiously as under any other Canadian jurisdiction and that case law established under the CBCA and similar provincial corporate statutes may be relied upon when it comes to interpreting the QBCA arrangement mechanism. Further, the ECU experience also demonstrates that provisions of the QBCA offer flexibility to a court which go beyond other corporate law jurisdictions, as evidenced by the modified dissent rights granted by the court pursuant to the Interim Order.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.