The Toronto Stock Exchange ("TSX")
has announced that, effective November 24, 2009, a listed issuer
will be required to obtain the approval of its securityholders when
the securities proposed to be issued as consideration for the
acquisition of a target would increase the number of the listed
issuer's outstanding securities by 25% or more (on a
non-diluted basis), regardless of whether the target is closely or
widely-held. This requirement represents a significant departure
from historical practice pursuant to which acquisitions of
widely-held targets were exempt from the TSX's shareholder
approval requirements (subject to the TSX's general discretion
to impose conditions on issuances).
The TSX's requirements in this regard are of particular
significance as neither securities nor corporate law in Canada
requires approval by an issuer's securityholders in arm's
length acquisition transactions.
The amendment to the TSX rules follows the decision of the
Ontario Securities Commission (the
"OSC") in connection with the proposed
(and since abandoned) acquisition by HudBay Minerals Inc.
("Hudbay") of Lundin Mining Corp., in
which the OSC overturned a determination by the TSX not to require
approval of the HudBay shareholders for the transaction, which
would have resulted in HudBay issuing more than 100% of its then
outstanding shares. In that decision, the OSC concluded that the
"quality of the marketplace... would be significantly
undermined" if shareholder approval were not required. The
OSC's decision, and the background to the issue of acquiror
shareholder approval which has been the focus of much attention and
comment, are outlined in our update entitled "The HudBay
Minerals Proceedings and the Return of Acquiror- Side Shareholder
Approval Rights" dated January 26, 2009.
There has been much debate about acquiror-side securityholder
approval requirements. The imposition of a requirement for
securityholder approval reflects the perspective, publicly
expressed by some institutional shareholders, that shareholders
should "have a say" in dilutive transactions and that
there is no reason to distinguish between acquisitions of public
and private targets for this purpose. The securityholder approval
requirement also is consistent with the approach utilized by many
international stock exchanges (U.S. exchanges typically require
securityholder approval at 20% dilution and other foreign exchanges
at 25%). Concerns about the requirement of securityholder approval
tend to focus on the fact that this requirement can be expected (as
the TSX acknowledges) to result in increased execution risk and
cost (both directly and as a result of the higher execution risk)
for acquisitive Canadian issuers.
The TSX had earlier this year proposed to require securityholder
approval in connection with acquisitions of widely-held targets
only where the securities to be issued in payment for the
acquisition would result in greater than 50% dilution. The details
of the TSX's original proposal are outlined in our update
entitled "TSX Rule Change Proposed to Require Acquiror
Shareholder Approval in Certain Public M&A
Transactions" dated April 13, 2009.
In its notice the TSX observed that it had retained discretion,
in extraordinary circumstances, to exempt issuers from the
securityholder approval requirement in appropriate
The new requirement will not have any retroactive effect, so
that any transaction for which the TSX has been notified in writing
prior to November 24, 2009 will not be subject to this change in
the TSX rules. It remains to be seen how parties to transactions
that are agreed to in the interim will approach the question of
whether approval by the acquiror's shareholders should be
obtained, and who should bear the risk of such approval not being
obtained, in transactions that are agreed to that would result in
an increase in the number of outstanding shares of the acquiror by
25% or more. It also remains to be seen what approach the TSX will
take (under its general discretionary powers) in connection with
The content of this article does not constitute legal advice
and should not be relied on in that way. Specific 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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