Canada: Securities Regulators Evaluate Private Placements As Defensive Tactics Under The New Take-Over Bid Regime

Last Updated: December 20 2016
Article by Daniel Everall and Liam Tracey-Raymont

On October 24, 2016 the British Columbia Securities Commission ("BCSC") and the Ontario Securities Commission (the "OSC") (together, the "Commissions") released their joint reasons for the July 22, 2016 orders in Re Hecla Mining.1

Re Hecla Mining2 is the first decision to assess the use of private placements as a defensive tactic since new takeover bid rules affecting National Instrument 62-1033 ("NI 62-103") and National Instrument 62-1044 ("NI 62-104")5 have come into force. Its significance is heightened due to speculation that the new take-over bid regime makes previous defensive tactics, such as shareholder rights plans or poison pills, ostensibly redundant in deterring hostile take-over bids. This redundancy is primarily a result of the following mandatory requirements, which, unless subject to an exemption, cannot be waived:

  • bids must remain open for a minimum period of 105 days (subject to certain exceptions);
  • more than 50% of the total number of outstanding shares held by persons other than the bidder and its joint actions must be tendered under a bid before any such shares may be taken up by the bidder (the "minimum tender condition"); and
  • once the minimum tender condition is satisfied, a mandatory extension of the bid must be provided for at least 10 days.


Re Hecla Mining involved two applications by Hecla Mining Company ("Hecla") in July 2016 with the BCSC and the OSC to cease trade a private placement (the "Private Placement") contemplated by Dolly Varden Silver Corporation ("Dolly Varden"). In both applications, Hecla claimed that Dolly Varden's Private Placement – which was announced three days before Hecla commenced an unsolicited take-over bid for all of Dolly Varden's common shares (the "Hecla Offer") – was an abusive defensive tactic under National Policy 62-2026 ("NP 62-202"). At the time of Hecla's applications, Dolly Varden had yet to receive TSX-V approval for the Private Placement and undertook to the BCSC not to close the Private Placement until a decision was rendered.

Hecla was an insider of Dolly Varden and held roughly 19.9% of Dolly Varden's common shares when the Hecla offer was announced. Prior to the Hecla Offer, Dolly Varden's management expressed concerns regarding the company's ability to meet certain requirements of a loan agreement between Dolly Varden, Hecla and another of Dolly Varden's shareholders (the "Hecla Loan"). By early 2016, Dolly Varden was pursuing ways to eliminate the Hecla Loan by offering to exchange debt for equity. After a series of communications, Dolly Varden's management concluded that Hecla would not cooperate. As the price of silver rose in April 2016, Dolly Varden was left to seek alternative avenues to reduce its debt and raise capital in order to kick-start its silver operations.

On June 13, 2016, Dolly Varden entered into a loan agreement with a new lender, which provided Dolly Varden with flexibility to repay the Hecla Loan and proceed with a new equity financing in order to expand its operations. At the same time, Dolly Varden provided Hecla with formal notice of its intention to repay the outstanding balance of the Hecla Loan with funds from Dolly Varden's new lender. Dolly Varden refused Hecla's subsequent offer to amend the terms of the Hecla Loan. In response, Hecla announced its intention to proceed with the Hecla Offer on June 27, 2016, which was formally launched on July 8, 2016.

On July 5, Dolly Varden informed its shareholders that it would be proceeding with the Private Placement, with the intention of raising gross proceeds of up to $6 million.

Framework for Assessing Private Placements as a Defensive Tactic

NP 62-202 provides that a securities issuance can, in certain circumstances, constitute a defensive tactic attracting regulatory scrutiny. However, in Re Hecla Mining, the Commissions expressly stated that even in the face of a take-over bid, private placements can serve multiple bona fide corporate objectives. As a result, the Commissions acknowledged that reviewing private placements in the context of a hostile bid will be more challenging than cases involving other defensive strategies, like poison pills. In order to balance the deference corporate law gives to boards of directors and the securities law principle of facilitating shareholder choice, the Commissions presented a two-step framework to evaluate whether a private placement constitutes an improper defensive tactic.

Is the private placement clearly not a defensive tactic?

The first step requires that the evidence in question clearly establish that the private placement is not a defensive tactic designed to alter the dynamics of a bid environment. A non-exhaustive list of considerations under this first step includes:

  • whether the target has a serious and immediate need for the financing;
  • whether there is evidence of a bona fide, non-defensive business strategy adopted by the target; and
  • whether the private placement has been planned or modified in response to, or in anticipation of, a bid.

With regard to evidentiary onus, the Commissions explained that where an applicant is able to establish that the impact of the private placement on an existing bid environment is material, the target will have the onus of proving that the private placement was not used as a defensive tactic. In Re Hecla Mining, the Commissions determined that the Private Placement was material to the bid environment on account of its potential 43% dilution of Dolly Varden's common shares.

Nonetheless, after considering the evidence regarding the timing of decisions related to the Private Placement and Dolly Varden's objectives for proceeding with it, the Commissions deferred to the company's board and concluded that the Private Placement had been instituted for non-defensive purposes. The Commissions acknowledged that this finding was "relatively straight forward" due to the extensive evidentiary basis supporting the non-defensive purpose.

Does or may the private placement constitute a defensive tactic?

Though the Commissions determined pursuant to the first step that the Private Placement was clearly not a defensive tactic, the Commissions went on to articulate the second step of the framework, which may require a securities regulator to intervene where an offering does not satisfy the first test of clearly not being a defensive tactic. The second step contains a non-exhaustive list of considerations that a securities regulator may look to in determining whether to intervene an offering, including:

  • would the private placement otherwise be to the benefit of the shareholders by, for example, allowing the target to continue its operations through the term of the bid or in allowing the board to engage in an auction process without unduly impairing the bid?
  • to what extent does the private placement alter the pre-existing bid dynamics, for example by depriving shareholders of the ability to tender to the bid?
  • are the investors in the private placement related parties to the target or is there other evidence that some or all of them will act in such a way as to enable the target's board to "just say no" to the bid or a competing bid?
  • is there any information available that indicates the views of the target shareholders with respect to the take-over bid and/or the private placement?
  • where a bid is underway as the private placement is being implemented, did the target's board appropriately consider the interplay between the private placement and the bid, including the effect of the resulting dilution on the bid and the need for financing?

The Commissions also noted their residual power to evaluate private placements in view of the public interest and policy considerations affecting capital markets. An emphasis was placed on the importance of the factual matrix with respect to any transactions reviewed by the Commissions.


The Commissions found that, pursuant to the first step of the framework, the Private Placement was commenced for non-defensive business purposes. The basis for this decision included: (i) Dolly Varden's precarious financial position; (ii) the implementation of a bona fide strategy, which has been contemplated by the Board well before receiving the Hecla Offer; (iii) the fact that there had been no modifications to the mechanics of the contemplated Private Placement following the commencement of the Hecla Offer; (iv) Hecla knew or ought to have known that Dolly Varden was planning to raise equity on account of numerous communications between the companies to that effect; and (v) there was evidence that Dolly Varden contemplated a larger, more dilutive, private placement, but instead opted for one that was reasonable in regards to the company's needs going forward. The Commissions also saw no public interest reason to interfere with its decision.

The decision of Re Hecla Mining was also consistent with the recent outcome in Re Red Eagle7, a case referenced by the Commissions, where the BCSC held that a private placement is not a defensive tactic if the issuer requires "some form of financing to maintain itself as a going concern."8 Although Re Red Eagle was decided prior to the new take-over bid rules taking force, the BCSC was still reluctant to interfere with a private placement unless it would have resulted in a clear abuse of capital markets9.


Re Hecla Mining provides that private placements can be conducted by target boards in the face of a non-solicited take-over bid. However, the Commissions, through the twostep framework, have clarified the scope in which such offerings will be permitted.

Boards of directors should consider the factors contained in the two-step framework outlined by the Commissions before deciding to proceed with a private placement in the context of an unsolicited take-over bid. However, the complexity and open-endedness of the considerations in the two-stage test indicate that securities regulators will retain significant discretion in evaluating any particular offering, and will take a nuanced, fact-specific approach when considering whether a private placement is being adopted for an improper purpose.


1 Re Hecla Mining Company (2016), OSC Order, online: OSC ; Re Hecla Mining, 2016 BCSECCOM 250.

2 Re Hecla Mining, 2016 BCSECCOM 359; Re Hecla Mining Company (2016), OSCB 8927.

3 National Instrument 62-103 – The Early Warning System and Related Take- Over Bid and Insider Reporting Issues.

4 National Instrument 62-104 – Take-Over Bids and Issuer Bids.

5 Amendments to NI 62-103 and NI 62-104 came into effect on May 9, 2016. In Ontario, the previous take-over bid regime was codified in Part XX of the Securities Act (Ontario) and OSC Rule 62-504 – Take-Over Bids and Issuer Bids, while the rest of Canada came under the purview of Multilateral Instrument 62-104. Now that Ontario has adopted what was previously a multilateral instrument, NI 62-104 has become nationally recognized.

6 National Policy 62-202 - Take-Over Bids – Defensive.

7 Re Red Eagle, 2015 BCSECCOM 401.

8 Ibid at para 92.

9 Ibid at para 89.

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.

Daniel Everall
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
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 you may opt out by clicking here

    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.

    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.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    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.

    By clicking Register you state you have read and agree to our Terms and Conditions