In TELUS Corporation v. Mason Capital Management LLC,
2012 BCCA 403, the Court of Appeal for British Columbia
held that a shareholder does not have to be the beneficial owner of
the shares held in order to requisition a shareholders' meeting
pursuant to the British Columbia Business Corporations Act
(the "BCBCA"), and that the right to
requisition is not limited by the small size of a beneficial
owner's net financial stake in the company.
For historical reasons, TELUS Corporation
("TELUS") had two classes of shares:
common shares and non-voting shares. The non-voting shares traded
at a slight discount relative to the common shares. TELUS proposed
an arrangement to convert all non-voting shares to common shares on
a one-to-one basis, which required a two-thirds majority vote in
each share class. Following the announcement, the price
differential between the common shares and the non-voting shares
Mason Capital Management LLC
("Mason"), a New York-based hedge fund,
realized that this presented an arbitrage opportunity. Mason
purchased approximately 18.7% of TELUS' common shares but sold
short a similar number of common and non-voting shares, which
resulted in Mason's net investment being a mere 0.21% of
TELUS' capital. Due to this hedging, Mason would essentially
break even if TELUS' shares either rose or fell, but would
profit if the historic price differential between the two classes
of shares re-emerged. Mason thus intended to thwart TELUS'
arrangement to profit from this arbitrage plan.
In the face of Mason's opposition, TELUS withdrew its
proposal but indicated it would still try to implement a
one-for-one share exchange. In response, CDS & Co.
("CDS"), the registered holder of
Mason's shares, requisitioned a shareholders' meeting to
prevent the share exchange. TELUS declined to schedule this meeting
and obtained an order from the B.C. Supreme Court allowing it to
hold its own shareholders' meeting to approve the new share
exchange plan (this time without requiring a two-thirds majority
vote of the common shares). CDS called a meeting on the same day as
After the B.C. Supreme Court quashed Mason's meeting, both
CDS and Mason appealed.
Section 167 of the BCBCA provides that a registered holder of
more than 1/20 of a company's shares may requisition a
shareholder's meeting. The Court of Appeal rejected TELUS'
argument that section 167 should be construed so as to allow only a
person who is both the registered and beneficial holder of
the requisite shares to requisition a shareholders' meeting.
The definition of "shareholder" in the BCBCA refers only
to registered shareholders; there is no additional requirement for
beneficial ownership. Nor does the BCBCA's clear and
unequivocal language require that the beneficial owner of the
shares be identified in the requisition. Although there may be
"rare cases" where such an identification "may be
critical" in rejecting inappropriate requisitions, courts are
not entitled to expand the requirements the BCBCA clearly sets
Likewise, Mason should not be prevented from requisitioning a
shareholder's meeting because of its very limited net financial
interest in TELUS. While the Court of Appeal repeatedly
acknowledged that it was concerned about this so-called "empty
voting", it concluded that as the wording of the BCBCA was
clear, the solution to "empty voting" must come from the
legislature and regulators, not the courts.
While Mason may have won the battle, TELUS may have won the war
– its second arrangement passed at the shareholders'
meeting (albeit without a two-thirds majority). Both parties have
returned to the courts to continue the fight.
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