The Ontario Securities Commission has ruled that HudBay Minerals
must obtain shareholder approval prior to completing its proposed
acquisition of Lundin Mining. This decision could have significant
implications for future public company transactions involving the
issuance of shares.1
TSX rules currently require shareholder approval of transactions
involving the issuance of 25% or more of a company's
outstanding shares. This requirement does not apply to a listed
company that is acquiring another public company, provided that the
transaction does not materially affect control of the listed
company. TSX also retains the discretion to require shareholder
approval, taking into account the effect that the transaction may
have on the quality of the marketplace, depending on various
TSX did not require HudBay to obtain shareholder approval for
the acquisition. TSX determined, and the OSC agreed, that the
transaction did not materially affect control of HudBay. TSX also
chose not to exercise its discretion to require a vote. In
reviewing this aspect of TSX's decision, the OSC determined
that it was entitled to give this issue fresh consideration. The
OSC ruled that, in this case, "fair treatment of shareholders
is fundamentally more important than any consideration as to
'deal certainty' in assessing the impact of the transaction
on the quality of the marketplace." Among the issues and
concerns the OSC considered, on the basis of the evidence at the
hearing, were (i) the economic impact of the transaction on
HudBay's shareholders; (ii) the high level of dilution (100%);
(iii) the proposed reconfiguration of HudBay's board of
directors; and (iv) the parties' efforts to complete the
transaction before a requisitioned meeting of HudBay shareholders
to consider the replacement of the HudBay board.
In 2007, TSX sought public comment on whether the rules should
specify a maximum dilution level above which shareholder approval
should automatically be required. Other major stock exchanges,
including the NYSE and London, have similar requirements. The OSC
has put this issue back in the spotlight by expressing its view
that public companies should be required in certain circumstances
to obtain shareholder approval before proceeding with highly
dilutive transactions involving the issuance of shares.
1.Torys LLP represented TSX at the hearing before the
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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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