In its recent decision, Re Red Eagle, 2015 BCSECCOM 401
(Re Red Eagle), the British Columbia
Securities Commission (BCSC) addresses the tension
that arises between corporate law and securities regulatory goals
when private placements are undertaken in the M&A context.
Red Eagle Mining Corporation (Red Eagle) sought
to complete a hostile take-over of CB Gold Inc.
(CB Gold). The bid was initially subject to a 50%
minimum tender condition that was later waived. Red Eagle and CB
Gold had initially engaged in friendly transaction discussions
during the course of which CB Gold disclosed that it required
financing of approximately US$550,000 in order to meet its ongoing
obligations and remain a going concern. After the break-down of
negotiations and the implementation of other defensive tactics, CB
Gold entered into a support agreement with Batero Gold Corp.
(Batero) pursuant to which Batero would make an
offer to acquire all of the outstanding shares of CB Gold.
Concurrent with the announcement of the Batero bid, CB Gold
announced that Batero would provide it with $575,000 in financing
by way of a private placement. Red Eagle took issue with, among
other things, the private placement.
In its decision, the BCSC noted that private placements made in
the M&A context involve a number of different legal and
regulatory issues that often "scramble" together; they
raise "corporate law questions regarding the issuing
board's fiduciary duties (and associated deference to a board
under the business judgment rule) and securities regulators'
views on defensive tactics under [National Policy 62-202
–Takeover Bids – Defensive Tactics]."
The BCSC declined to exercise its public interest jurisdiction
to cease trade the securities issued pursuant to the Batero private
placement but made it clear that securities regulators could
"override the business judgement rule and cease trade a
private placement that inappropriately alters the basic dynamics of
an M&A transaction". The BCSC noted that the public
interest jurisdiction afforded to securities regulators in the
private placement context should only be used where there is a
clear abuse of target shareholders and/or the capital markets.
The purpose of the private placement was of upmost importance in
the BCSC's decision. CB Gold's demonstrable need for
financing held sway with the BCSC and they found that there was no
clear evidence that the private placement was done primarily as a
defensive tactic. As was the case in Re Red Eagle, past
decisions have shown that regulators are less likely to interfere
with a private placement in the M&A context if there is a
legitimate need for financing.
Also of importance in Re Red Eagle was Red Eagle's
waiver of its minimum tender condition. Past regulatory decisions
have shown that regulators take issue with private placements that
limit shareholder choice. The BCSC stated that, had Red Eagle not
waived the minimum tender condition, its decision on the matter
would have been more difficult as the shares issued under the
private placement would effectively bar Red Eagle from meeting a
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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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