A recent lawsuit has again highlighted the importance of the
terms of confidentiality agreements entered into between potential
targets and acquirers in advance of an M&A transaction.
It is usual practice in both the public and private M&A
context that bidders who are looking at acquiring either the assets
or shares of a target company in a consensual deal will first be
expected to negotiate and enter into a form of non-disclosure
agreement (NDA) or confidentiality agreement (CA). The CA will
often provide standard protections for the non-public or
confidential information that the target entity may share with the
potential acquirer as part of the due diligence process that may be
undertaken in advance of a potential M&A transaction.
Depending on the nature of the transaction and appetite of the
parties, these NDAs can either be heavily negotiated, or entered
into very quickly without in-depth legal review, often using one of
the parties' standard form of agreement.
The NDA addresses permitted uses of the information that may be
shared pursuant to the terms of the agreement for a fixed time
period. The agreement may go further to not only restrict the use
of such information in the future, but to include standstill
provisions for a set period of time restricting the launch of a
hostile transaction without the consent of the target.
On July 7, 2015, IOU Financial Inc. announced that it had
commenced legal proceedings against Qwave Capital LLC and its
manager before the Québec Superior Court in the face of
Qwave's unsolicited partial offer for the shares of IOU
Financial commenced in June 2015. IOU alleged that Qwave had
misused confidential information and acted in a manner not
permitted by the confidentiality agreement entered into by the
parties in November 2014, and sought an order suspending
Qwave's hostile offer.
On July 17, 2015, the parties announced that they had settled
the matter, with Qwave agreeing not to take up and pay for shares
tendered to its offer prior to September 2015 and IOU agreeing to
waive the application of its rights plan until such date. Given the
settled outcome, IOU terminated its proceedings with the Quebec
Superior Court against Qwave. IOU also announced that it is
continuing to pursue alternative transactions in the best interests
of IOU and its shareholders.
The provisions of a CA are meant to safeguard the confidential
information of the party providing such information, but their use
may also be extended by a target to attempt to thwart future
non-friendly overtures by a bidder. The case law regarding the
ability of a bidder to initiate a hostile transaction after having
entered into a CA with the potential target is mixed and highly
fact-specific. In this case, the settlement with Qwave has provided
IOU's board with a longer time frame to complete its strategic
This again reiterates that parties to an NDA or CA should think
carefully about their current and future intentions with respect to
the relationship when entering into such an agreement. It is
prudent for all parties to exercise caution and carefully review
the wording of CAs at the time they are being entered into in order
to mitigate the risk of litigation based on future actions.
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general guide to the subject matter. Specialist advice should be
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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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