In a contest for shareholder support, control of the narrative
is crucial, and the difference in perception between a board acting
decisively to protect shareholders' investments, and a board
willing to do or say anything to hold onto control, can be one of
timing. A board that acts proactively, supported by expert
advice and a cogent rationale, invites the conclusion that it has
exercised its judgment in the best interests of the company, but a
board that acts defensively in reaction to a dissident risks the
inference that its decisions are influenced by the directors'
desire to keep their jobs.
This dichotomy is evident in two Ontario decisions in the last
year, which have confirmed that directors have wide latitude to
manage corporate affairs, but the courts will intervene where
directors have manipulated dates or transactions to block a
In Wells v. Bioniche Life Sciences Inc.,
after receiving a defective requisition, the directors acted
promptly to fix a date for the company's Annual General
Meeting. The Court upheld the date chosen, which was some
seven months away, as a reasonable exercise of business judgment by
the board, and did not require the company to hold the second,
earlier meeting sought by the dissident.
The confirmation of the directors' power to manage the
affairs of the corporation in the face of a proxy dispute is
welcome. A dissident's leverage should come from
proposing a superior vision and plan for the company, not from its
ability to impose costs on the company by disrupting management and
corporate processes. The protection of the board's
business judgment supports this objective.
The second decision demonstrates that the Court will not defer
to the directors business judgment when they have manipulated
corporate processes specifically to defeat a dissident. In
Concept Capital Management Ltd. v. Oremex Silver
Inc. the directors' scheduling and rescheduling of the
meeting were upheld; however, the company closed a major private
placement on the record date. While accepting that the
transaction was in the best interests of the corporation, the Court
found that the closing arrangements were unusual and concluded that
the timing had been arranged in order to place a large number of
shares into friendly hands, and the Court amended the record date
to prevent the newly issued shares from being voted at the
meeting. On the ensuing vote, the management slate was
These decisions demonstrate that the early stages of the
campaign are crucial for both sides. Directors who anticipate
a proxy contest should be proactive in setting a meeting date to
address shareholder concerns and/or pursuing transactions to
improve the corporation's position, as once a dissident
emerges, the directors' room to maneuver may be reduced.
Conversely, for the dissident, early decisive action is critical to
set the terrain and force the company to engage with
shareholders' concerns on the dissident's terms and
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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.
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