Canada: Harmonized Take-Over Bid And Minority Protection Regimes In Effect

Effective February 1, 2008, Canadian securities regulators have adopted similar rules and policies in an effort to harmonize the fragmented regulatory regime governing take-over and issuer bids in Canada. Rather than constituting a complete overhaul of the current rules, the changes are better viewed as a re-codification of the existing requirements to improve user-friendliness and regulatory integration. The new regime is rooted in a 2006 proposal by all members of the Canadian Securities Administrators, though since that time there has been a divergence. Indeed, while the bulk of the 2006 proposal will be implemented by Canadian securities regulators in the form of Multilateral Instrument 62-104, the Ontario Securities Commission (the "OSC") has chosen its own path. The OSC has opted to move towards harmonization through an amendment to its Securities Act and the adoption of OSC Rule 62-504. In spite of the different platforms, both bid regimes are fundamentally equivalent and are to be applied in accordance with the same instrument: National Policy 62-203. This National Policy is being created to provide a common framework for interpreting and applying the new bid provisions across the country.

Concurrently with the new rules coming into force, Québec's Autorité des marchés financiers (the "AMF") and the OSC will adopt Multilateral Instrument 61-101. The purpose of the Instrument is to harmonize the rules in those two provinces relating to minority security holder protections (such as formal valuation requirements) in special transactions, such as insider bids, related party transactions and business combinations. Many of the changes under the Multilateral Instrument can be seen as responses to the new rules governing take-over and issuer bids in Ontario and the rest of Canada, although the instrument will introduce some original requirements not now found in OSC Rule 61-501 and Regulation Q-27 of the AMF. For example, independent directors serving on special committees in Ontario and Quebec will now be prohibited from receiving compensation which is contingent upon the successful completion of a transaction.

In this article, we will review some of the more significant developments under the new rules. Little has changed in terms of the mechanics (and time periods) of take-over bids and issuer bids. It is worth noting that bids underway before February 1, 2008 will still be subject to the old rules in each jurisdiction.

Deemed Beneficial Ownership

The determination of a bidder's beneficial ownership of securities is central to the application of the takeover bid rules. While the new rules adopt the language that is found in the existing rules whereby the holder of a right to acquire beneficial ownership of the subject securities within 60 days is considered to be their beneficial owner, the new rules also provide that the mere fact that there is an agreement in place to the effect that a securityholder will tender the securities if a formal bid is made by the bidder does not make the bidder the beneficial holder of these securities.

New definitions Of Issuer Bid And Take-Over Bids

The definition of "issuer bid" has been modified to exempt acquisitions (including offers to acquire) or redemptions (including offers to redeem) made by an issuer of its own securities, where no valuable consideration is offered or paid by the issuer. The definition for both "issuer bids" and "take-over bids" exclude acquisitions (including offers to acquire) or redemptions (including offers to redeem) which are a step in a multi-step amalgamation, reorganization or arrangement that requires security holder approval. In this case, compliance with bid rules is viewed as unnecessary given that the issuer will be required to prepare a detailed information circular in connection with the shareholder meeting.

Collateral Benefits

Historically, take-over bid rules prevented bidders from entering into agreements which provided some security holders with greater consideration than that being offered to other holders of the same class of securities. As a result, in an effort to retain key personnel upon completion of a successful bid, for example, bidders often had to obtain discretionary relief from the so-called collateral benefits rule or structure their transactions around the rule. The new rules provide for exceptions to the general prohibition, allowing directors and other employees to receive employment or severance benefits from the bidder under prescribed circumstances. For instance, compensation arrangements are permitted if they involve a group plan which provides benefits to employees holding similar positions subject to each recipient of the collateral benefit owning, together with his or her associates, less than 1 percent of the securities subject to the bid or, if the target issuer has set up an independent committee of directors, such committee determining that the benefit does not exceed 5 percent of the value given by the recipient of the benefit. The exceptions are based on the so-called "safe harbour" provisions created by the U.S. Securities Exchange & Commission to address similar post-bid employment arrangements.

The new rules clarify that the requirement to provide identical consideration does not preclude a bidder from offering to all holders of the target securities an identical choice of consideration.

Increased Transparency

In an effort to improve the transparency of the bid process, bidders and target issuers must now file any agreements that could affect the control of the target issuer. These agreements include lockup agreements, agreements between the bidder and the directors and officers of the target, as well as other agreements relating to control of the target that were not filed under continuous disclosure rules. The new rules allow portions of filed documents to be redacted to protect sensitive and confidential information. A final point to note regarding disclosure is that the new rules require more press releases than is now the case to be issued in various circumstances throughout the bidding process, such as where the bidder knows, following the expiry of its bid, that it will not take up all securities deposited under the bid.

Acting Jointly Or In Concert

Under the previous Ontario rules, certain persons were presumed to be acting jointly or in concert, subject to rebuttal. The new rules are more strict and draw a distinction between those who have essentially agreed with the bidder or with any person acting jointly or in concert with the bidder to acquire or offer to acquire the target securities and the affiliates of the bidder (all of whom are deemed to be acting jointly or in concert with the bidder) and those who have agreed with the bidder or with any person acting jointly or in concert with the bidder to vote their securities in favour of the offer as well as associates of the bidder, who are merely presumed, subject to rebuttal, to be acting jointly or in concert with the bidder.

In Multilateral Instrument 61-101, securities commission staff have clarified their position regarding situations where a related party of an issuer (such as a director, officer or controlling shareholder) is presented with an opportunity to maintain or acquire an equity interest in an issuer (or successor to the issuer) upon completion of an arm's length take-over bid or business combination (such as a plan of arrangement). In these circumstances, securities commission staff reserves the right to re-characterize a related party as a "joint actor" with the arm's length purchaser of the issuer if, upon completion of the transaction, a related party continues to hold an equity interest in the issuer (or successor issuer). A "joint actor" characterization may cause a transaction to be regarded as an "insider bid" or a "business combination". As a result, an otherwise arm's length transaction could require a formal valuation to be prepared.

Foreign Take-Over Bids

The new rules will provide for the creation of new foreign take-over and issuer bid exemptions, providing bidders with a much broader exemption than under the pre-existing de minimus exemptions under provincial and territorial securities acts. Among the conditions for the foreign take-over bid exemption, the bidder must reasonably believe that less than 10 percent of the securities forming the subject of the bid are owned by Canadian residents. Moreover, the published market on which the greatest trading volume of the subject securities occurred cannot have been within Canada in the 12 months prior to the bid. Lastly, securityholders within a province must be entitled to participate in the bid on terms at least as favourable as those generally available to security holders of the same class.

Variations Of Terms

Should a bidder vary the terms of its formal bid after the bid has commenced, securities regulators may exercise discretion, in the public interest, to ensure that security holders of the target are not prejudiced by the variations. Examples of variations that could trigger an intervention include lowering the bid price, changing the form of consideration or adding new conditions. In any of these cases, securities regulators could intervene to cease-trade the bid, or require that the deposit period be extended or that a bidder commence a new bid with different conditions.

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.

In association with
Related Topics
Related Articles
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

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