A recent decision of the Ontario Superior Court of Justice may
have important implications for how corporate arrangements are done
and, in particular, for the manner in which fairness opinions for
arrangements are drafted.
In Re Champion Iron Mines Limited Justice Brown granted
a final order approving a plan of arrangement under the
Business Corporations Act (Ontario) pursuant to which
Mamba Minerals Limited acquired Champion Iron Mines Limited. In his
reasons, Justice Brown reiterated the legal test that must be met
for plan approval. The court must be satisfied that: (i) the
statutory procedures have been met; (ii) the application has been
advanced in good faith; and (iii) the arrangement is fair and
reasonable. Although the Court in Re Champion had the
benefit of ample evidence to conclude that the proposed arrangement
satisfied all three requirements, Justice Brown focused on the
evidentiary role of fairness opinions and, more generally, the role
of the courts in approving plans of arrangement.
As is commonplace in plans of arrangement, Champion's
financial advisor provided a fairness opinion to the company's
board, which was reproduced in the proxy circular distributed to
Champion's shareholders. The opinion stated that, from a
financial point of view, the consideration to be received by
Champion shareholders under the arrangement was fair. Justice Brown
noted, however, that although the opinion described the financial
advisor's engagement, its credentials, its independence, the
scope of its review, the assumptions and limitations to its
analysis and its approach to fairness, the financial advisor did
not disclose in the opinion any details of the analysis
Justice Brown held that the form of fairness opinion filed by
Champion was a "cookie cutter" form of opinion, void of
any "number crunching" and lacking sufficient substance
to inform shareholders on whether the consideration offered for
Champion's shares was, in fact, fair.
Moreover, the Court held that the opinion was not admissible to
assist the court in determining whether the arrangement was
"fair and reasonable," because it did not satisfy the
civil procedure requirement that opinion evidence adduced through a
qualified expert witness report contain the reasons for the
expert's opinion. Justice Brown cautioned that fairness
opinions lacking substantive supportive reasoning should be
generally inadmissible from an evidentiary perspective by courts
considering applications for arrangement approval.
Justice Brown also reminded corporate lawyers that courts are
not simply "rubber stamps" in the plan of arrangement
process. Justice Brown objected to the very short time frame
provided to the court to review the evidence before the final
hearing. This caution could affect the scheduling for
While Justice Brown ultimately approved the arrangement, his
cautionary language is an important reminder that courts still play
an important adjudicative role in the approval of plans of
arrangement. Lawyers and financial advisors may be well advised to
consider the substance of fairness opinions drafted in support of
plans of arrangement (along with the level of disclosure
accompanying fairness opinions) to ensure that courts will rely on
them as evidence in a fairness hearing. Careful consideration
should also be given to the court process and scheduling in light
of Justice Brown's comments.
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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