Section 611(c) of the Toronto Stock Exchange Manual (the
"TSX Manual") generally requires shareholder approval for
acquisitions involving dilution in excess of 25%. Section 611(d) of
the TSX Manual provides an exemption from this requirement for
acquisitions of public companies. This exemption is subject to the
right of the TSX to require shareholder approval under Section 603
or 604 of the TSX Manual.
Section 603 of the TSX Manual establishes broad discretion
pursuant to which the TSX may impose shareholder approval and
Section 604 provides that the TSX will generally require
shareholder approval of a transaction if, in the opinion of the
TSX, the transaction would materially affect control of the listed
Initial Proposal for Bright Line Test
On January 23, 2009, the Ontario Securities Commission set aside
the TSX's approval of the listing of additional common shares
of HudBay Minerals Inc. ("HudBay") to be issued in
connection with its acquisition of Lundin Mining Corporation
without requiring that the transaction be approved by HudBay
shareholders. The acquisition would have resulted in just over 100%
dilution of the shareholders of HudBay. Following that decision,
there was considerable uncertainty as to the level of dilution at
which shareholder approval would be required in future
On April 3, 2009, the TSX proposed amendments to the TSX Manual
that would have established a bright line test for shareholder
approval of acquisitions of public companies resulting in dilution
in excess of 50%.
Rules as Adopted by TSX
On September 25, 2009, the TSX announced that after an extensive
public consultation process and an analysis of global trends and
best practices, it had decided to amend its rules by deleting the
exemption from the shareholder approval requirement in Section
611(d) of the TSX Manual. Unlike the proposed rules that would have
permitted a higher level of dilution (50%) for acquisitions of
public companies without shareholder approval, the amendment will
require TSX listed issuers to obtain shareholder approval when the
number of securities issued in payment for an acquisition exceeds
25% of the number of outstanding securities (on a non-diluted
basis) of the issuer, regardless of whether the target being
acquired is a private or public company.
The amendment will be effective as of November 24, 2009. The
amendment will not have any retroactive effect, so any transaction
of which the TSX has been notified in writing prior to November 24,
2009, whether or not the TSX has already granted conditional
approval, will be unaffected by the amendment.
The TSX has indicated that it will monitor the effect of the
amendment on issuers and the marketplace and will seek to monitor
the costs and benefits of the amendment, for its smaller issuers in
Effect of the Amendment
This amendment will be well received by those advocating a
greater role for shareholders in approving acquisition transactions
that are material to a listed issuer. The amendment is likely to
have a dampening effect on Canadian M&A activity, as some
buyers and target companies may be reluctant to assume the risks
associated with seeking buyer shareholder approval. Transactions
also may now be structured with larger cash components to avoid
triggering the 25% dilution bright line test. Larger, more liquid
issuers are less likely to be affected by the amendment.
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.
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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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