Canada: CSA Staff Publish Commentary On MI 61-101 Including The Use Of Special Committees And Fairness Opinions

Staff of the securities regulatory authorities in each of Ontario, Quebec, Alberta, Manitoba, and New Brunswick have published commentary on Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (MI 61-101) which advises of a "real time" review program of transactions to which MI 61-101 applies and puts forward Staff's views with regard to the use of special committees and fairness opinions. Issuers are reminded that MI 61-101 should be interpreted with a view to its underlying policy purpose.

Special Committees

The Staff Notice recognizes the importance of the formation of a special committee of independent directors in the context of what Staff have called "material conflict of interest transactions", which include insider bids, issuer bids, business combinations and related party transactions (each as defined in MI 61-101) that give rise to substantive concerns as to the protection of minority security holders. Notably, the Staff Notice states that while special committees are only mandated by MI 61-101 in the case of insider bids, Staff are of the view that a special committee with a broad mandate is advisable for all material conflict of interest transactions as an active independent special committee can:

  • Assist in compliance with MI 61-101;
  • Mitigate potential public interest concerns;
  • Reduce the risk of a transaction being the subject of a complaint to securities regulatory authorities; and
  • Minimize the likelihood that Staff will raise procedural issues when reviewing the transaction.

Despite this, the Staff Notice indicates that there may be circumstances where, in the absence of a special committee, a board can both address Staff's concerns and protect minority security holders, the prime example being where the board of directors is entirely independent.

These benefits are predicated to an extent, however, on the actual mandate and operations of the committee. In this respect, Staff note the following circumstances which may result in a special committee being ineffective:

  • Formation after a proposed transaction was substantially negotiated.
  • Passive involvement in the transaction.
  • Failure to conduct a robust review of the circumstances leading to the transaction and available alternatives.
  • Inclusion of non-independent persons in decision making deliberations.

Staff note that the special committee's mandate should therefore be robust and provide the ability to negotiate or supervise the negotiation of a transaction, consider other available alternatives, make recommendations regarding the proposed transaction and hire its own independent legal and financial advisers. Staff do not believe that the board of directors or special committee should be bound by preliminary negotiations that were conducted without the committee's involvement.

Fairness Opinions

While MI 61-101 does not require that fairness opinions be obtained in connection with material transactions, Staff comment that it is a board's and special committee's responsibility to determine whether a fairness opinion is necessary to assist in making a recommendation to security holders on a proposed transaction. Of note, Staff do not believe that a special committee can substitute a fairness opinion for its own judgment as to whether a transaction is in the best interests of the issuer and its minority security holders given that the transaction should be considered from more than a financial point of view. In addition, it is Staff's view that the board and special committee are generally responsible for determining the terms and financial arrangements for the engagement of the financial advisor providing the fairness opinion.

Where a fairness opinion is obtained, Staff note that the disclosure document provided to shareholders about the material conflict of interest transaction should, among other things:

  • Disclose the compensation arrangement, including whether the financial advisor is being paid a flat fee, a fee contingent on delivery of the final opinion or a fee contingent on the successful completion of the transaction.
  • Explain how the board or special committee took into account the compensation arrangement with the financial advisor when considering the advice provided.
  • Clearly summarize the methodology, information and analysis underlying the fairness opinion so as to enable a reader to understand the basis for the opinion. This should include, as applicable, financial metrics and not merely a narrative description.

CSA Staff note that they will consider whether an issuer has included a summary or the entirety of a formal valuation in its disclosure document. Staff also note their concern that special committees have "failed to consider previous financial work product, including whether such workproduct constituted a prior valuation or material information that needed to be disclosed, and to what extent such work product was relevant to the committee's recommendation with respect to the transaction." In light of recent case law, the Canadian M&A community has questioned whether Canadian practice will move toward the inclusion of U.S. style fairness opinions containing more fulsome details. It will be interesting to see how such debate may be impacted by this latest commentary.

Review of Special Transactions

When reviewing a transaction, the determination as to whether a material conflict of interest transaction raises potential public interest concerns and complies with the requirements of MI 61-101 is made by Staff in "real-time", with the goal of resolving any issues in advance of security holder approval and the closing of the transaction. In undertaking their review, Staff will review disclosure documents, including press releases and material change reports filed in connection with transactions that are exempt from the minority approval requirements of MI 61-101, and consider, among other things, whether any required formal valuation complies with MI 61-101 and whether the appropriate security holders were excluded from minority approval. In reviewing an issuer's disclosure document, Staff will consider whether the document provides a reasonable basis for relying on an exemption from formal valuation and/or minority approval, where one is being relied upon. Staff may also contact the issuer or its legal counsel as part of the review, and may request supporting information, including work product associated with a formal valuation.

Non-compliance with MI 61-101 may be addressed in any of the following ways:

  • Timely corrective disclosure or other actions by the issuer.
  • Appropriate orders under securities legislation in relation to the transaction.
  • Enforcement action.

Enhanced Disclosure

As a fundamental component of MI 61-101, enhanced disclosure requirements should provide security holders with sufficient information to enable the making of an informed decision on how to vote or tender in connection with a material conflict of interest transaction. Staff believe that disclosure should include a thorough discussion of:

  • The review and approval process.
  • The board and/or special committee's reasoning and analysis.
  • The board and/or special committee's views as to the fairness of the transaction.
  • Any reasonably available alternatives to the transaction (including the status quo).
  • Pros and cons of the transaction.

Staff note that issuers have often fallen short when disclosing the background to and approval process for the transaction, as well as disclosure regarding a board and/or special committee's analysis as to the desirability and fairness of the transaction. Staff have also found inadequate disclosure about fairness opinions and outline a list of matters that should be disclosed.

Other Items of Interest from the Staff Notice

In addition to the topics discussed above, the Staff Notice states that:

  • A "material conflict of interest transaction" would generally not include a transaction that incidentally falls within the scope of MI 61-101 (for example, transactions considered to be a "business combination" only as a result of employment-related collateral benefits).
  • When used in the Staff Notice, a "minority security holder" is an equity security holder of an issuer that is not an "interested party" (as defined in MI 61-101).
  • If the board is of the opinion that there is a conflict between the best interests of the issuer and the best interests of its minority security holders, Staff expect such conflict to be explained in the disclosure document, including how it was addressed by the board in deciding to put the transaction to shareholder approval.
  • Market participants are referred to IIROC rules and the standards of The Canadian Institute of Chartered Business Valuators, which may apply to parties providing fairness opinions, for guidance on an approach to meeting the appropriate standard for fairness opinions.


Designed to provide fair treatment to all security holders, MI 61-101 regulates business combinations and take-over bids involving certain insiders or related parties and requires enhanced disclosure, independent valuations and majority of minority security holder approvals for prescribed transactions. MI 61-101 has been in effect in Ontario and Quebec since February 1, 2008, and, on June 20, 2017, MI 61-101 was adopted by the securities regulatory authorities in each of Alberta, Manitoba and New Brunswick to be effective July 31, 2017.

For further information, please see Multilateral CSA Staff Notice 61-302 Staff Review and Commentary on Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (July 27, 2017).

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 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