Freeport has announced that it has reached an agreement to
settle its Delaware shareholder litigation. The mining and oil and
gas exploration and production company faced a derivative action in
connection with the 2012 transactions by which Freeport—then
a copper, gold and molybdenum producer—acquired oil and gas
companies, Plains Exploration & Production Co. and McMoRan
Exploration Co. The settlement, if approved by the Delaware court,
will result in a payment of US$137.5 million, one of the largest
settlements of a U.S. derivative action, and also the adoption by
Freeport of corporate governance enhancements.
In the action, the shareholders allege that Freeport overpaid
for Plains and McMoRan and that this was the result of conflicts of
interest that included an overlap of boards and management and a
chairman of Freeport being the largest individual shareholder of
In a derivative action, the alleged harm is suffered by the
company. In this case, however, the settlement proceeds of US$137.5
million, less legal fees, will be paid to the current shareholders
of Freeport by means of a special dividend. In effect, this payment
turns a derivative action into a direct action by shareholders,
akin to an oppression action by shareholders under Canadian
The corporate governance enhancements negotiated as part of the
settlement address the conflicts of interest that gave rise to the
litigation. The enhancements include the establishment of a lead
independent director, an executive committee of independent
directors, the adoption of a policy for approval of related-party
transactions, restrictions on setting executive compensation and
restrictions on the payment of equity-based compensation on a
change of control. These enhancements are to be kept in place for
The Freeport shareholder litigation draws attention to the
potentially significant risks associated with related-party and
other transactions where conflicts may arise, and to the need to
ensure that such conflicts are addressed through an appropriate
process intended to protect the interests of all shareholders.
Although some of the broader governance matters stipulated in the
settlement go beyond Canadian law or practice, the corporate
governance enhancements included in the settlement include similar
standards used by Canadian public companies in considering
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Pursuant to several recent legislative amendments and enactments, Ontario corporations holding a legal or beneficial interest in real property in Ontario are now subject to more onerous record-keeping requirements.
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