Proxy contests spill over into court for many reasons, but there
are certain flashpoints of which both activists and issuers should
be mindful. For activists, these are pitfalls to avoid, while
for issuers they may represent opportunities to push back on sharp
tactics and maintain a level playing field in the struggle for
Some common reasons for which parties may find themselves before
a judge include:
Securities disclosure requirements: Securities
laws require disclosure of positions at specific thresholds, and
these requirements can vary from one jurisdiction to the next. An
activist wants to focus on its message for shareholders, not be
dragged into the distraction of defending itself from allegations
it is offside securities laws. From an issuer's
perspective, these statutory filings may be the first evidence that
an activist wants to make a move on the company.
Inadvertently acting in concert: Seeking
support from fellow shareholders is integral to an activist
campaign, but in doing so would-be dissidents should be careful to
avoid communications or agreements that could result in them being
considered by a securities regulator to be acting in concert, which
could cause the activist to accidentally pass disclosure or even
takeover bid thresholds.
Don't get carried away: Securities laws
prohibit false or misleading statements, and the defamation suit
has a prominent place in the special situations litigator's
toolkit. For both activists and issuers, the solution is a simple
one: speak with the facts, and avoid making up new ones.
Be careful with social media: Just because an
appeal to shareholders is made in a tweet doesn't mean there
aren't applicable securities laws. Be mindful of, for example,
shareholder solicitations made on social media which could trigger
regulatory filing requirements.
The bylaws set the rules: Issuers are
increasingly adding disclosure requirements and other rules to
control the parameters for of the proxy playing field long before
an activist investor emerges onto the scene. Activists need to do
their research and, if an activist wants to challenge a provision
in the issuer's bylaws, the activist should be prepared to go
Standstill agreements: Parties who agree to a
standstill should choose their language carefully, or else an
issuer could find itself confronted by an activist challenger much
sooner than they believed they had bargained for. Conversely, an
activist that believes it is outside a standstill could have its
campaign stopped in its tracks if a court disagrees with its
interpretation of the contract.
It's not over until it's over: Winning
a campaign is not necessarily the end of the threat of litigation
for the activist. Where there is a sale of the company closely
following a successful campaign, the activist can face a claim,
which could come in the form of a class action, alleging that the
newly elected directors breached their duties to the issuer.
For all of these, the best and most important precaution that an
activist or issuer can take is to hire counsel experienced in proxy
disputes and securities laws. Indeed, lawsuits are infrequent
precisely because it is uncommon for activists to launch proxy
contests without hiring external consultants to help them navigate
the legal waters, and issuers are well-advised to take the benefit
of similar expertise.
Unintentionally landing in court is expensive, distracting, and
usually unpleasant. It should never happen by surprise.
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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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