Canada: Regulators Shine Spotlight On Material Conflict Of Interest Transactions

On July 27, 2017, the Canadian Securities Administrators (CSA) published Multilateral Staff Notice 61-302 Staff Review and Commentary on Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions, which reported on the review of material conflict of interest transactions by staff of the applicable CSA members (Staff) and discussed Staff's views on the role of boards of directors and/or special committees, as well as disclosure obligations, in the context of material conflict of interest transactions.

Issuers party to material conflict of interest transactions must now be informed by the additional guidance provided by Staff, and their conduct will undoubtedly be measured against Staff's expectations, as expressed in the notice.

The term "material conflict of interest transaction" includes insider bids, issuer bids, business combinations and related party transactions, but not transactions that are incidentally captured by Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (MI 61-101), such as transactions that are business combinations only as a result of employment-related collateral benefits.


Staff reviews material conflict of interest transactions on a real-time basis to assess compliance with MI 61-101. The reviews are initiated upon the filing of the disclosure document relating to the transaction (such as an information circular, bid circular, press release or material change report). Staff will consider the following in a review of disclosure documents relating to a material conflict of interest transaction:

a. Whether disclosure requirements that enable security holders to make informed decisions have been complied with, including whether the enhanced disclosure required by MI 61-101 has been provided

b. If a formal valuation is required, whether it complies with MI 61-101 and the issuer included either a summary or the entirety of the valuation in its disclosure document

c. If minority security holder approval is required, whether or not the issuer has excluded all parties that are not properly part of the minority

d. If an issuer states that it is relying on an exemption from the formal valuation and/or minority approval requirement in MI 61-101, whether the disclosure document provides a reasonable basis on which to conclude that the exemption is available

e. Whether the process employed by the issuer's board of directors in negotiating and reviewing a proposed transaction (including whether a special committee of independent directors exists) raises concerns that the interests of minority security holders have not been adequately protected and whether that process is adequately disclosed.

Upon identification of non-compliance, Staff may seek one or more of the following remedies: timely corrective disclosure or other actions on the part of the issuer; appropriate orders under securities legislation in relation to the transaction (such as a cease trade order); or enforcement action in certain circumstances.


A special committee is not required to be constituted under securities law, except in connection with insider bids subject to MI 61-101. However, Staff recommends that a special committee be constituted for all material conflict of interest transactions (subject to limited exceptions).

Staff discussed the following key components to a special committee's effectiveness:

a. Timely Formation and Level of Involvement: The special committee should be formed prior to a proposed transaction being substantially negotiated. It should not be passive and should conduct a robust review of the circumstances leading to the transaction, alternatives to the transaction and the transaction itself.

b. Composition: The special committee should be comprised entirely of independent directors. While Staff acknowledges that non-independent directors or other persons possessing specialized knowledge may be invited to meet with, provide information to, or carry out the committee's instructions, such persons should not be present at, or participate in, any decision-making deliberations of the committee.

c. Role and Process: The role and process of special committees in the context of a material conflict of interest transaction should generally include a robust mandate, the engagement of independent advisors, involvement in, or supervision over, negotiations, accurate record keeping and non-coercive conduct by interested parties.

d. Mandates: Staff generally expects a special committee mandate to include the ability to:

i. Negotiate or supervise the negotiations (rather than simply review and consider a transaction)

ii. Consider alternatives

iii. Make recommendations

iv. Engage its legal and financial advisors.

A mandate should not limit a special committee to considering only a proposal developed by executive management in conjunction with a related party or whether a transaction should be put to security holders for a vote.

e. Negotiations: Staff recognizes that the special committee may or may not be directly involved in negotiations. Where the committee is not involved in negotiations, it is important that the board of directors and special committee not be bound by any such negotiations and that other aspects of the role of the committee be robust, such as its mandate to review, negotiate further and consider any available alternatives.

f. Fairness Opinions: Staff noted that it is the responsibility of the board of directors and special committee to determine if an opinion as to whether a proposed transaction is fair from a financial point of view is necessary to assist in making a recommendation to security holders. If an opinion is to be obtained, it is the responsibility of the board and committee to determine the terms of the financial compensation of the fairness opinion provider (flat fee, a fee contingent on the delivery of the final opinion or a fee contingent on the success of the transaction). However, Staff cautioned that the special committee should consider the fairness of a proposed transaction from a broader perspective than just from a financial point of view, as provided in the fairness opinion, and that the special committee cannot substitute a fairness opinion for its own judgment as to whether a transaction is in the best interests of the issuer.


The disclosure document provided to security holders in connection with a material conflict of interest transaction should contain sufficient detail to enable them to make an informed decision in respect of the transaction. Staff noted that any tactical or self-serving disclosure intended primarily to further the interests of a related party in the transaction is inappropriate.

Staff expects that the disclosure in the context of a material conflict of interest transaction should contain a thorough discussion of:

a. The review and approval process

b. The reasoning and analysis of the board of directors and/or special committee

c. The views of the board of directors and/or special committee as to the desirability or fairness of the transaction

d. Reasonably available alternatives to the transaction, including the status quo

e. The pros and cons of the transaction.

Staff advised that the disclosure document should contain a meaningful discussion of the analysis provided by advisors and how such advice was considered by the board and the committee. Notably, Staff also advised that where a board or committee discloses its reasonable beliefs as to the desirability or fairness of a transaction, such disclosure should address the interests of minority security holders and not be limited to whether the transaction is in the best interests of the issuer.

Finally, where a fairness opinion is obtained for a material conflict of interest transaction, Staff believes that the disclosure document should:

a. 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

b. Explain how the board or special committee took into account the compensation arrangement with the financial advisor when considering the advice provided

c. Disclose any other relationship or arrangement between the financial advisor and the issuer or an interested party that may be relevant to a perception of lack of independence in respect of the advice received or opinion provided

d. Provide a clear summary of the methodology, information and analysis (including, as applicable, financial metrics and not merely a narrative description) underlying the opinion sufficient to enable a reader to understand the basis for the opinion, without overwhelming security holders with too much information

e. Explain the relevance of the fairness opinion to the board of directors and special committee in coming to the determination to recommend the transaction.

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.

Events from this Firm
12 Sep 2017, Seminar, Toronto, Canada

Please join us as we take an in-depth look at the legislation and the impact on the industry.

14 Sep 2017, Seminar, Toronto, Canada

Change, stress and uncertainty are ever]present factors in todayfs legal environment, and specific aspects about the practice of law make it difficult to thrive in the profession long term. Luckily, there are specific research]based strategies that have been shown to help lawyers thrive and lead to more effective ways to manage stress and pressure.

5 Oct 2017, Seminar, Toronto, Canada

Blakes is proud to host our New to In-House Series, designed to bring together junior and mid-level in-house counsel for a candid exchange of insights to highlight and address some of the challenges and opportunities facing in-house lawyers in their roles today.

In association with
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
Check to state you have read and
agree to our Terms and Conditions

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.

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 by clicking here .

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.


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.