Canada: B.C. Securities Commission Provides Guidance On Defensive Tactics In Re Red Eagle

On November 3, 2015, the British Columbia Securities Commission (BCSC) released its reasons in Re Red Eagle​, cease-trading a rights plan in the face of a hostile bid. In doing so, the BCSC rejected the target's submissions that the rights plan should be maintained because the bid did not comply with the policy rationale behind the amended bid regime contemplated by amendments to Multilateral Instrument 62-104 – Take-Over Bids and Issuer Bids proposed by the Canadian Securities Administrators in March 2015 (Proposed Amendments). The BCSC also considered whether or not to unwind a private placement of common shares by the target to a white knight in the face of the hostile take-over bid, requiring the BCSC to weigh the fiduciary duties of the target's directors and the BCSC's public interest mandate.

On June 16, 2015, Red Eagle Mining Corporation (Red Eagle) announced that it intended to commence a hostile take-over bid to acquire CB Gold Inc. (CB Gold). Red Eagle's take-over bid initially contained a 51 per cent minimum tender condition, which was later waived by Red Eagle. In early July, CB Gold and Red Eagle resumed discussions regarding a possible friendly transaction, during which CB Gold indicated that it would require financing of approximately US$550,000 in order to continue as a going concern until a friendly transaction could be completed. These discussions were unsuccessful and the board of directors of CB Gold announced on July 14, 2015 that the Red Eagle bid failed to provide adequate value for the CB Gold shares.

On July 24, 2015, CB Gold and Batero Gold Corp. (Batero) announced that they had entered into a support agreement, pursuant to which Batero would commence a take-over bid to acquire CB Gold's outstanding common shares and that Batero would acquire common shares of CB Gold for aggregate consideration of C$575,000 (approximately 6.9 per cent of CB Gold's outstanding share capital at the time) pursuant to a private placement (Private Placement). Later that same day, CB Gold announced that the Private Placement had closed. 

Red Eagle applied to the BCSC to, among other things, cease-trade CB Gold's shareholder rights plan, which had been approved by CB Gold shareholders on January 28, 2015, and to unwind the Private Placement. As of September 10, 2015, the date of the BCSC hearing, 48 per cent of the CB Gold shares had tendered to Red Eagle's bid. Excluding the CB Gold shares issued to Batero under the Private Placement, 52 per cent of CB Gold shares would have been tendered to Red Eagle's bid. In connection with its application to the BCSC, Red Eagle indicated that it had waived the 51 per cent minimum tender condition as a result of the Private Placement. 


Policy Rationale Behind Proposed Amendments

In arguing that CB Gold's shareholder rights plan should not be cease-traded, CB Gold noted, among other things, that the absence of a 50 per cent minimum tender condition in Red Eagle's bid was coercive. CB Gold relied, in part, on the policy rationale described in the Proposed Amendments which, if enacted, would require all take-over bids in Canada to contain a minimum tender condition of more than 50 per cent of the outstanding securities of the class that is subject to the bid, excluding target securities that are owned or controlled by the bidder or by any person acting jointly or in concert with the bidder. The Proposed Amendments note that the purpose of a 50 per cent minimum tender condition is to prevent a bidder from obtaining a significant interest in a target without the support of a majority of the independent securityholders of the target.

The BCSC declined to infer from the Proposed Amendments that the absence of such a minimum tender condition is coercive in all instances. The BCSC noted that the Proposed Amendments were not yet in effect and that the BCSC was consequently not bound by them, holding that whether or not the absence of such a minimum tender condition is coercive is a factual analysis. Citing the Private Placement and certain non-arm's length relationships among CB Gold and Batero as potential obstacles to Red Eagle's bid, the BCSC held that the absence of such a minimum tender condition was not coercive and cease-traded the shareholder rights plan. 

Consistent with the approach taken in the Proposed Amendments, the BCSC did require Red Eagle to extend its bid for 10 days upon taking up any shares, which would permit shareholders to tender to Red Eagle's bid if it was clear that Red Eagle was going to obtain a significant interest in CB Gold.

Private Placement

In deciding whether or not to unwind the Private Placement, the BCSC noted the difficulty of considering the competing legal and regulatory issues at play. The Private Placement raised corporate law questions regarding the fiduciary duties of CB Gold's directors to act in the best interests of the company (and the associated deference of courts and administrative bodies to those actions under the business judgment rule), as well as the views of securities regulators on defensive tactics during a hostile bid. 

The BCSC also indicated that a high threshold must be met in order for it to issue an enforcement order in the public interest. While the BCSC concluded that it does have the authority to override the business judgment rule where a private placement "alters the basic dynamics of an M&A transaction", it also stated that "securities regulators should tread warily in this area and that a private placement should only be blocked by securities regulators where there is clear abuse of the target shareholders and/or the capital markets." Upon reviewing the facts, the BCSC concluded that the Private Placement did not constitute a clear abuse of CB Gold's shareholders or capital markets and consequently the BCSC declined to unwind it.

In reaching this conclusion, the BCSC considered whether or not the Private Placement could be characterized as clearly a defensive tactic, in which case enforcement action may be warranted, or alternatively had legitimate business purposes, in which case deference to the CB Gold board of directors was warranted. Citing evidence that CB Gold required financing at the time of the Private Placement to continue as a going concern and that CB Gold had specifically requested a similar financing from Red Eagle, the BCSC determined that the Private Placement was undertaken for legitimate business purposes. This was consistent with prior decisions in which securities regulators have held that the presence of legitimate business purposes is a strong indication that the private placement is not abusive, even if it is potentially prejudicial to the hostile bidder.

The BCSC also noted that the Private Placement did not prevent CB Gold shareholders from having their shares acquired under the Red Eagle bid because Red Eagle had waived the initial 51 per cent minimum tender condition and was consequently prepared to acquire any percentage of shares tendered. This was consistent with prior decisions in which securities regulators have held that actions that do not directly prevent target shareholders from tendering to a hostile bid are less likely to be considered abusive. The BCSC did indicate that if the minimum tender condition was still in place, then its decision would have been "considerably more difficult" because the Private Placement may have acted as a bar to meeting such bid condition, in which case the policy objectives of ensuring target shareholders have an opportunity to tender to bids would have become more directly engaged. This demonstrates the balancing act that securities regulators must engage in when weighing the fiduciary duties of target directors and the public interest.   


The BCSC's approach in Re Red Eagle of not applying the Proposed Amendments is consistent with past decisions of Canadian securities regulators, which generally have resisted applying rules during a comment or review period in order to avoid inconsistencies if changes are subsequently made to the draft rules. That said, presumably if a policy rationale is compelling enough to form the basis for proposed amendments, it should be informative when determining how a discretionary authority should be exercised. The BCSC did consider the policy rationale underlying the 50 per cent minimum tender condition contained in the Proposed Amendments and this appears, to some extent, to have guided its analysis. It remains to be seen if securities regulators in other jurisdictions or considering different aspects of the Proposed Amendments will follow this approach prior to their enactment. 

With respect to the Private Placement, while the BCSC was required to interpret what it referred to as a "scramble" of legal and regulatory issues, the BCSC reiterated that the threshold for exercising its public interest jurisdiction in the context of a hostile bid is a high one — the conduct must amount to a clear abuse of target shareholders or capital markets generally. Any target considering issuing securities to a white knight in the face of a hostile bid should, in order to put its best foot forward in relation to any possible future scrutiny by securities regulators, ensure that it can demonstrate a legitimate business purpose for the issuance or risk that the issuance will be viewed solely as a defensive tactic. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
27 Oct 2016, Seminar, Toronto, Canada

Please join members of the Blakes Commercial Real Estate group as they discuss five key provisions of a commercial real estate purchase agreement that are often the subject of much negotiation but are sometimes misunderstood.

1 Nov 2016, Seminar, Toronto, Canada

What is the emotional culture of your organization?

Every organization and workplace has an emotional culture that can have an impact on everything from employee performance to customer or client satisfaction.

3 Nov 2016, Seminar, Toronto, Canada

Join leading lawyers from the Blakes Pensions, Benefits & Executive Compensation group as they discuss recent updates and legal developments in pension and employee benefits law as well as strategies to identify and minimize common risks.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.