Decision goes in favour of the target in latest regulatory challenge to a private placement as an alleged take-over defence
On July 22, 2016, following a joint hearing of the British
Columbia and Ontario securities commissions, the regulators decided
not to block a proposed private placement of common shares of Dolly
Varden Silver Corporation (Dolly Varden). Hecla Mining Company
(Hecla) had challenged the private placement as an alleged
defensive tactic against Hecla's take-over bid for Dolly Varden
and had applied for regulatory orders cease trading the private
placement either outright or unless approval of the private
placement by the Dolly Varden shareholders would be obtained.
Hecla's take-over bid circular disclosed that the number of
shares potentially issuable in the private placement, combined with
the shares that could be issued as finder's fees, represented
43 percent of the number of Dolly Varden common shares that were
outstanding on a fully diluted basis before giving effect to the
transaction. The Ontario Securities Commission also ordered that
Hecla must obtain a formal valuation in order to continue with its
take-over bid, pursuant to Multilateral Instrument 61-101
Protection of Minority Security Holders in Special
Transactions. The announcements of the regulators'
decisions were not accompanied by reasons, which will be released
at a later date.
Private placements were the most common alleged take-over
defence in Canada until the mid-1980s. Over the following 25 years,
adversarial proceedings around take-over bids were largely focused
on shareholder rights plans, or poison pills, but private
placements have recently begun to re-emerge as an issue in the
mergers and acquisitions context. It is possible that private
placements will become more of a factor in the area of hostile bids
in light of last May's change to the take-over bid rules. Under
National Instrument 62-104 Take-over Bids and Issuer Bids,
take-over bids that are made to the general body of shareholders
and not supported by the target's board of directors must now
be open for a minimum of 105 days (with exceptions), up from the
previous minimum of 35 days. This change may reduce the prominence
of the shareholder rights plan as a defensive tactic (although its
use was already restricted by the securities regulators'
bidder-friendly application of National Policy 62-202 Take-over
Bids – Defensive Tactics). This, in turn, could cause
bid targets to give greater consideration to alternative defensive
measures, such as a private placement.
Below are links to articles that provide background to the
subject of private placements by acquisition targets, and how they
have been addressed by Canadian regulators and courts in recent
years. As can be seen, there are areas of inconsistency in the
approaches taken by the decision-makers. The formal reasons in the
Dolly Varden/Hecla case may provide some helpful degree of clarity,
at least with respect to the two regulators involved.
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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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