Canada: Managing Conflicts Of Interest In Soliciting Dealer Arrangements

The Investment Industry Regulatory Organization of Canada ("IIROC") recently released a guidance note (the "Guidance Note") addressing conflicts of interest arising from the use of soliciting dealer arrangements in various circumstances, including take-over bids, plans of arrangement and proxy contests.[1] 

Soliciting Dealer Arrangements in Canada

"Soliciting dealer arrangements" are entered into between issuers or bidders and one or more registered investment dealers under which an issuer or bidder agrees to pay to certain dealers a fee for each security successfully solicited from shareholders to: (i) vote in connection with a transaction requiring shareholder approval; (ii) tender securities in connection with a take-over bid; (iii) participate in a rights offering or exercise rights to redeem or convert securities; or (iv)  attain the requisite approval for amendments to documents affecting shareholder rights in connection with corporate transactions.[2]  

Soliciting dealer arrangements are common in Canada in the context of take-over bids and plans of arrangement, where dealers are retained to solicit shareholders to tender to a bid or to vote in favour of a transaction, respectively. Such arrangements also exist, but are significantly less common, in the context of proxy contests.

Risk for Conflicts of Interest

The Guidance Note identifies that soliciting dealer arrangements may give rise to conflicts of interest that may or may not be manageable depending on the circumstances and emphasizes dealers' obligations to comply with conflict of interest rules. Specifically, in addition to IIROC's rules of general application addressing conflicts of interest, IIROC's Dealer Member Rule 42 ("Rule 42") requires that material conflicts of interest that cannot be managed in a fair, equitable, and transparent manner must be avoided altogether.

Soliciting Dealer Arrangements in Proxy Contests

As we have previously discussed, the use of soliciting dealer arrangements by incumbent boards in proxy contests has been criticized by some as "vote buying" and thus being contrary to the public interest. Such arrangements were used by the board of Agrium Inc. in the context of a proxy contest initiated by JANA Partners LLC in 2013 and the board of Liquor Stores N.S. Ltd. ("Liquor Stores") in the context of a proxy contest initiated by PointNorth Capital Inc. in 2017. The Liquor Stores arrangement was unsuccessfully challenged at the Alberta Securities Commission which held that the arrangement was not "clearly abusive" and therefore not contrary to the public interest.  

In contrast, the Guidance Note acknowledges the significant conflict of interest inherent in the use of such soliciting dealer arrangements when fees are paid: (i) only for votes in favour of one-side; or (ii) only if a particular side is successful. The Guidance Note classifies such conflicts as generally unmanageable and to be avoided. As a result, it is unlikely that such soliciting dealer arrangements will be used in any further proxy contests in Canada.

Soliciting Dealer Arrangements in Other Contexts

With respect to the use of soliciting dealer arrangements in other contexts, the Guidance Note states that dealers should consider on a case-by-case basis whether they can adequately address material conflicts of interest in accordance with Rule 42.

As a result, dealers should have in place appropriate policies and procedures to perform such assessments to ensure compliance with Rule 42.

Addressing Conflicts in a Fair, Equitable and Transparent Manner

Where it is appropriate for dealers to address conflicts of interests arising from soliciting dealer arrangements, the Guidance Note proposes that such dealers must: (i) disclose the conflict; and (ii) identify how they have addressed the conflict in the best interest of shareholders. To enable shareholders to make informed decisions, the Guidance Note provides that at a minimum, disclosure should be:

  1. in writing, and provided in a timely manner so the shareholder has sufficient time to make a fully informed decision;
  2. specific to the arrangement and the conflicts it raises, including: (i) who is paying the fee; (ii) who is receiving the fee; (iii) whether the fee is contingent on the shareholder voting in a certain manner and/or a specific outcome occurring; and (iv) whether the fee is subject to any minimum or maximum payments and any other conditions;
  3. understandable to the shareholder; and
  4. prominent, complete, in one place and in plain language.[3]

In addition, the Guidance Note recommends that shareholder-facing representatives of the dealer explain the nature of the conflict to shareholders and, if relevant, confirm that the shareholders have read the disclosure. 

Ultimately, IIROC's Guidance Note is significant as it will: (i) eliminate the use of one-sided soliciting dealer arrangements in proxy contests; (ii) require dealers to engage in a transaction-by-transaction analysis to assess conflicts of interest arising from soliciting dealer arrangements; and (iii) impose higher standards for disclosure by dealers to clients to address conflicts of interest arising from the use of soliciting dealer arrangements.

Footnote

1 IIROC Notice 19-0092 Managing Conflicts of Interest arising from Soliciting Dealer Arrangements, available at https://www.iiroc.ca/documents/2019/8655bc0b-d4fc-4aab-90eb-ebc5291f4bf9_en.pdf (the "Guidance Note").

2 The Guidance Note; CSA Staff Notice 61-303 and Request for Comment – Soliciting Dealer Arrangements available at https://www.osc.gov.on.ca/documents/en/Securities-Category6/csa_20180412_61-303_sn-rfc-soliciting-dealer-arrangements.pdf ("CSA Staff Notice").

3 The Guidance Note.

To view the original article click here

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 Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please 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

Mondaq.com (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 www.mondaq.com

To Use Mondaq.com 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.

Disclaimer

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.

General

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