The Yukon Supreme Court recently determined that based on exceptional circumstances, certain Norwegian shareholders of Crew Gold Corporation should not be prohibited from accessing the dissent remedy under section 193 of the Yukon Business Corporations Act; this despite the Norwegian shareholders non-conformity with a technicality in the dissent procedure.
The right of dissent is a remedy available to shareholders who disagree with the value offered for their shares in various types of transactions. Dissent rights and dissent procedures are prescribed by corporate statute and include a process by which shareholders may apply to court for a valuation of their shares. Only shareholders who give notice of dissent in accordance with applicable dissent procedures are permitted to access the valuation remedy.
In the Crew Gold case, the Norwegian shareholders were beneficial shareholders of Crew Gold. In an effort to exercise their dissent rights in connection with a plan of arrangement proposed by Crew Gold, they sent their dissent notices directly to Crew in the manner, time and at the place required. As beneficial holders of their shares, the Norwegian shareholders were technically required to give notice of dissent through their registered intermediary or after having taken steps to become registered shareholders themselves.
Crew Gold took the position that each of the forty four dissent notices received was invalid on the basis that when the Norwegian shareholders gave notice, they were not registered shareholders of Crew Gold.
In rejecting Crew Gold's position that the dissent notices were invalid, the Yukon Supreme Court applied the principle that "form should not trump substance" when a beneficial shareholder is making an honest effort to become a dissenting shareholder.
There is a substantial body of case law across Canadian jurisdictions where the courts have interpreted company legislation as providing dissent rights only to registered shareholders of a corporation. Shareholders of publically traded companies often hold their shares beneficially through an intermediary. That intermediary is recorded as the registered shareholder in the share register of the corporation. In order for a beneficial shareholder to obtain the benefit of the dissent remedy, notice of dissent must be given in accordance with applicable dissent procedures, which are prescribed for registered shareholders.
In finding that the Norwegian shareholders should not be prohibited from dissenting on a technicality, the Court noted the following facts.
The Crew Gold shares were listed both on the TSX and the Oslo Stock Exchange and the rules for listing on the Oslo Stock Exchange required that all shares be registered in the Norwegian central securities depository (called VPS). The information circular sent by Crew Gold to its shareholders instructed that "persons who are Non-Registered Shareholders who wish to dissent with respect to their CG [Crew Gold] shares should be aware that only Registered Shareholders are entitled to dissent with respect to them". However, none of the information provided to the shareholders outlined how a beneficial shareholder would go about exercising their right of dissent.
In the plan of arrangement, Crew Gold claimed an exemption from obtaining an independent valuation of the Crew Gold shares. The dissent procedure was the only mechanism available to the Norwegian shareholders to have any say in the arrangement and the price offered for their shares.
The Court noted that the Norwegian shareholders had the impression that they were registered shareholders of Crew Gold and therefore understood that they could directly given notice of dissent to Crew Gold. The Court found that the following factors had given the shareholders the impression they were registered:
- their inclusion on the list of shareholders provided by Crew Gold on its website, which included beneficial shareholders who held a certain threshold of shares;
- the instruction letter from the Norwegian intermediary, which
indicated in arguably confusing language, that the Norwegian
shareholders were "registered" in the VPS (although
beneficial shareholders) and contained instructions on how to
exercise voting rights only;
the lack of any meaningful instruction in the information circular (even though the Court found that information circular was not materially misleading) or in the material from the Norwegian intermediary on how they could exercise their rights of dissent; and
- the fact that Jostein Matre (a representative of the group of Norwegian shareholders trying to exercise dissent rights) attempted to contact counsel for Crew Gold directly to ensure that his notices of dissent were properly filed and was not advised that their was a deficiency in the notices due to the shareholders not being registered.
Finally, the Court found that the Norwegian shareholders had provided full and clear particulars of their dissent to Crew Gold in the manner and time required, including their identity and which shares they each held. The Court said that "the purpose of requiring registered shareholders to file dissent notices is for the benefit of the corporation in knowing the number of dissenters for voting purposes." In the circumstances, Crew Gold could claim no prejudice in that regard.
The Crew Gold decision is currently under appeal. Subject to the determination on appeal, the Norwegian shareholders will be permitted to proceed with a fair and independent valuation of their shares. There are two previous cases where dissent rights were granted in exceptional circumstances to overcome technicalities, one out of the Alberta Court of Appeal and one out of the Alberta Court of Queen's Bench. Both cases were referred to by the Yukon Supreme Court in its decision.
For the time being, the decision demonstrates the court's willingness, in exceptional circumstances, to protect shareholders from technicalities that would deprive them of their rights. Exceptional circumstances can be founded not only on the history of the relationship between the parties and the efforts of shareholders to comply with requirements based on the information provided to them, but also on the absence of any real prejudice to the corporation.
The foregoing provides only an overview. Readers are cautioned against making any decisions based on this material alone. Rather, a qualified lawyer should be consulted.
© Copyright 2012 McMillan LLP