Shareholder activism in Canada continued on the rise in 2013.
Canadian corporate and securities laws are in several respects
favorable to activists. For instance, there is a higher
threshold of 10% for early warning disclosure, a 5% shareholder can
requisition at any time a shareholder meeting, staggered or
classified boards are not permitted, slate voting is prohibited and
certain proxy solicitation activities can be conducted without the
requirement to prepare a dissident's proxy circular.
About half of the proxy battles waged were won to some extent by
the activists. Given the underperformance of the mining
sector, it is no surprise that it was subject to the most
The most talked about issues arose from the Agrium/Jana Partners
proxy battle. These were the appropriateness of payments by
an issuer to soliciting dealers and of payments by an activist to
Jana Partners proposed to compensate its board nominees by
reference to the profit earned on its investment in Agrium over
three years. Labelled a "golden leash" by Agrium, this
may have impacted its loss at the ballot box.
On the other hand, Agrium offered soliciting brokers a fee for
proxies collected in favor of management's nominees, payable
only upon successful election of management's slate. This
tactic attracted significant criticism both with respect to the
board's conduct and the impact the compensation has on brokers
exercising their fiduciary duties. Though not challenged in
court, Canadian courts have broad equitable jurisdiction to grant
an oppression remedy where an issuer's actions have been
oppressive or unfairly prejudicial to shareholders.
Activists, more frequently than issuers, commenced litigation in
2013. Legal proceedings by dissidents included demands for
issuers to convene requisitioned meetings more quickly, for
reimbursement of their expenses when management failed to call the
meeting, and for the oppression remedy when their votes were
declared invalid. Of particular interest was the courts'
consideration of the appropriate period of time between a
shareholder requisition and the meeting. They found that a
delay of five to six months was reasonable, deferring to the
board's business judgment. In reaching their decisions,
the courts considered whether the AGM had already been called, the
cost of calling an additional meeting, the additional demands on
management, voter fatigue and whether the activist would be
materially prejudiced by the delay. Canadian courts are
particularly deferential to the business judgment rule where the
board of directors has followed an appropriate process.
In an action brought by an issuer to disqualify activists from
voting their shares, the court found that certain cooperation
among the activists, including a group discussion with a proxy
solicitation firm and the sharing of a draft dissident proxy
circular, demonstrated that the activists were acting jointly and
in concert. Activists need to be careful to avoid creating an
unintended joint actor relationship. Being considered joint actors
has implications for the threshold for early warning reporting, as
well as the threshold for triggering a formal takeover bid.
Expect to see continued activism in Canada in 2014. As
well, a number of changes to securities laws are under
consideration though their final formulation and timing are
uncertain. This includes proposed changes to reduce the
threshold for early warning reporting from 10% to 5% and to capture
certain derivative positions, and changes to give shareholders the
ultimate decision as to whether a shareholders rights plan should
remain in place. The securities regulators are also
considering a policy-based approach to the oversight of proxy
advisory firms, and reviewing how best to address proxy voting
issues, like under-voting and over-voting. Empty voting is
also a concern though not yet the subject of reform. Lastly,
The Toronto Stock Exchange is considering requiring mandatory
voting policies that address the consequences of a director
achieving less than a majority of shareholder votes.
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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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