A decision of the Ontario Superior Court in Goodwood Inc. v.
Cathay Forest Products Corp. may have important implications
for dissident shareholders, specifically concerning the extent to
which such shareholders can have their expenses reimbursed by the
corporations that are the focus of the dissident activity.
The court had earlier ordered the holding of a meeting of the
shareholders of Cathay Forest, when the company's board of
directors had breached its duty to call an annual meeting and then
failed to take steps to convene a meeting requisitioned by
shareholders. The meeting was held, and a new board of directors
was elected. The principal requisitioning shareholder then went
back to court seeking an order requiring Cathay Forest to reimburse
it for certain expenses.
The court based its analysis on the provisions of the Canada
Business Corporations Act ("CBCA"),
the corporate statute governing Cathay Forest. The CBCA does not
state whether a requisitioning shareholder is entitled to
reimbursement of its expenses in the case of a court-ordered
meeting. The court concluded that, in such circumstances, the
requisitioning shareholder should be reimbursed for those expenses
that it would have been entitled to recover under the CBCA had the
shareholder called the meeting. (A shareholder can requisition a
meeting where the board does not call a meeting within 21 days of
receiving a valid requisition. In this case the court found that it
was impracticable for the shareholder to do so, given the inaction
of the Cathay Forest board). Under the CBCA, a corporation is
required to reimburse requisitioning shareholders (where the
shareholders call the meeting, not under court order) for those
expenses "reasonably incurred by them in requisitioning,
calling and holding the meeting."
The court reviewed the expenses incurred, which consisted of
printing costs, the costs of the court-appointed independent chair
of the meeting and the fees of the shareholder's proxy advisory
firm and legal counsel. The analysis focused on the fees of the
proxy advisory firm, which had provided a broad range of services.
The court ordered reimbursement for the expenses it considered to
relate to the "requisitioning, calling and holding" of
the meeting, such as expenses relating to the (i) making of the
requisition, (ii) engagement of service providers to facilitate the
meeting, (iii) retention of the independent chair, and (iv)
mechanics of calling the meeting. The court did not order
reimbursement for expenses relating to other matters, including:
(i) strategic advice to the requisitioning shareholder before the
requisition was made, (ii) strategic advice to the proposed slate
of directors about the future conduct of the business of the
corporation, and (iii) the production of evidence for the
shareholder in support of the court order calling the meeting.
The core conclusion of the court is that the CBCA does not
mandate recovery by a dissident shareholder of all costs incurred
to bring about the desired corporate result, and instead speaks of
reimbursement for a much narrower range of expenses. What is not
clear from the Cathay Forest decision is the scope, and how it will
be interpreted. The decision clearly suggests limits on the extent
to which a court will order reimbursement. However, if no
application is made to the court, can a board comfortably determine
that a broader range of expenses should be reimbursed? If it does
so, might it be subject to challenge? Given the complexity of
contemporary proxy contests, the expenses of a dissident process
can be significant. Going forward, the Cathay Forest case may
affect how parties involved in a dissident process think about
The content of this article does not constitute legal advice
and should not be relied on in that way. Specific advice should be
sought about your specific circumstances.
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