During a proxy contest, strategic consideration should be given
to strictly abiding by proxy solicitation rules and hawkishly
assessing whether your opponent is doing the same. A recent
decision provides guidance on factors that a court will consider in
determining a seldom litigated issue – when is
communicationby the companyduring a proxy
contest an illegal proxy solicitation?
Generally speaking, corporate statutes in Canada prohibit the
solicitation of proxies unless the sender (board or dissident)
provides shareholders with a proxy circular containing prescribed
information. Under the Canada Business Corporations Act,
"solicitation" is broadly defined to include
communication with shareholders "under circumstances
reasonably calculated to result in the procurement, withholding or
revocation of a proxy".
In Smoothwater Capital Partners LP I v. Equity Financial
Holdings Inc., 2014 ONSC 324, the board of Equity–
following the requisition of a shareholder meeting and proxy
solicitation by a dissident shareholder — issued a press
release defending the board's historical actions and responding
to criticisms by the dissident Smoothwater. Smoothwater alleged
that Equity's press release was calculated to result in the
procurement or withholding of proxies. At the time, Equity had not
sent a management information circular.
The Court determined that Equity's press release
"stopped short of requesting proxies", explaining
The mere fact that Smoothwater had commenced the solicitation
process did not mean that Equity's press release constituted a
proxy solicitation. Equity's press release had to be analyzed
on its own merits;
The "principal purpose" of Equity's press release
was to provide shareholders with certain explanations (for
instance, why Equity combined a special and annual shareholder
meeting) and to defend its historical position, not to solicit
proxies. Equity had argued that its press release was intended to
address Smoothwater's inaccurate statements and keep its
shareholders informed at a critical time;
Equity's press release did not encourage shareholders to
provide Equity with proxies, but rather, advised them that a
management information circular would be forthcoming; and
In the circumstances, Equity was entitled to respond to
Smoothwater in a single press release. The Court cautioned
that in the same circumstances, "a series of press
releases" could constitute a solicitation.
The key takeaway from Equity is that special
consideration should be given to all communication with
shareholders before issuing a proxy circular. Whether or not a
communication crosses the line into illegal proxy solicitation is a
fact-specific determination of the "principal purpose" of
that communication and the circumstances surrounding its
transmission. Ongoing legal advice is critical because each
communication will be assessed on its own merits, and in the
context of other communications already made.
Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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