There is little doubt that shareholder activism remains alive
and well in Canada and that boards of directors will increasingly
face critical decisions on how to respond to maneuvers by dissident
shareholders. The recent decision of the Ontario Superior Court of
Justice in Smoothwater Capital Partners LP I v. Equity
Financial Holdings Inc., 2014 ONSC 324 is a practical one and
should provide comfort to boards of directors seeking to respond to
allegations raised by dissident shareholders in the face of a
requisitioned shareholders meeting, without tripping over proxy
On December 10, 2013, Equity Financial Holdings Inc.
("Equity"), a TSX-listed company, issued a press release
titled "Equity Financial Inc. Sets the Record Straight"
(the "Press Release"). The Press Release followed the
announcement of the date for a meeting of the company's
shareholders requisitioned by dissident shareholder, Smoothwater
Capital LP I ("Smoothwater"). The Press Release can be
Smoothwater argued that the Press Release constituted an
improper solicitation of proxies contrary to the provisions of the
Canada Business Corporations Act ("CBCA"), since
Equity had not yet delivered a management proxy circular. Equity
took the position that the Press Release did not constitute a proxy
solicitation, but rather served as a public disclosure intended to
correct inaccurate statements made by Smoothwater in its own press
The Court agreed with Equity and concluded that the Press
Release did not constitute a proxy solicitation. In its proper
context, the Press Release defended Equity's history,
leadership and explained the company's rationale for choosing a
particular date for the requisitioned shareholders meeting. The
Court distinguished prior cases on the basis that the Press Release
stopped short of requesting proxies from shareholders and merely
advised shareholders that a management information circular would
be forthcoming. The Press Release was also distinguished on the
basis that it was issued by Equity in defence of its corporate
position rather than having been issued by shareholders.
The Smoothwater case indicates that notwithstanding the
broad definition of "solicitation" under the CBCA, courts
will fully consider the content and purpose of a press release or
other communication when deciding whether it constitutes a
solicitation of proxies. Where a communication to shareholders does
not encourage shareholders to provide proxies to the incumbent
board of directors but serves some other purpose, including
responding to a dissident press release, then it may be onside the
CBCA proxy solicitation rules even where management has not yet
delivered a proxy circular.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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