Proxy contests are a common feature of the Canadian corporate landscape, as shareholders seek to influence the direction and governance of public companies. However, proxy contests also raise complex legal issues, especially in relation to the disclosure obligations of the parties involved.
A recent ruling by the British Columbia Securities Commission (BCSC) in NorthWest Copper Corp., 2023 BCSECCOM 602, provides useful guidance on how the joint actor early warning disclosure rules apply in the context of a proxy contest.
The decision arose from a proxy contest initiated by a dissident shareholder of NorthWest Copper Corp., a mineral exploration company listed on the TSX Venture Exchange. The dissident shareholder sought to replace the incumbent board of NorthWest at the shareholders’ annual general meeting.
NorthWest alleged that the shareholder was acting jointly or in concert with two other shareholders, in soliciting proxies for the dissident nominees, and that they failed to comply with the early warning disclosure requirements under National Instruments 62-104 – Take-Over Bids and Issuer Bids and 62-103 – The Early Warning System and Related Take-Over Bid and Insider Reporting Issues. NorthWest sought various orders from the BCSC, including cease trade orders, disclosure orders and orders preventing the three shareholders from exercising their voting rights.
Three determinations
In its decision, the BCSC made three important determinations, providing guidance and clarification on the interpretation of certain provisions of NI 62-104 and NI 62-103.
First, the BCSC applied a large and liberal interpretation to the concept of acting jointly or in concert, finding that it does apply in the context of proxy solicitations for the purpose of voting on an alternate slate of directors. The BCSC determined that, contrary to the position of the respondent shareholders, the concept of acting jointly and in concert is not restricted to situations involving a take-over bid or issuer bid.
Second, the BCSC determined that, contrary to NorthWest’s position, the early warning disclosure requirements contained in section 5.2 of NI 62-104 are triggered only after an acquisition of, or offer to acquire, securities, where the collective holdings of the persons who are acting jointly or in concert are 10% or more of the outstanding securities, post-acquisition and not when such persons initially began acting jointly or in concert. NorthWest had argued that this strict interpretation – requiring an acquisition to trigger disclosure requirements – would have “absurd consequences” and allow a group of securityholders, none of whom holds more than 10% of an issuer’s securities, to be exempt from the disclosure requirements as long as none of them acquired or offered to acquire any additional securities. The BCSC acknowledged that its interpretation “may mean that some conduct falls outside the scope of the early warning requirements” but maintained that this “is not an absurd consequence or a sufficient basis to reject the plain meaning of the words used in the provision.”
Third, the BCSC found that there was not sufficient evidence to find the three shareholders were working jointly or in concert, but rather they were simply aligned in interest. One of the shareholders was in separate, concurrent negotiations with NorthWest to appoint their chosen directors in exchange for voting with NorthWest during the annual general meeting. The BCSC did not find sufficient evidence of an agreement, commitment or understanding between the shareholders to vote their shares jointly or in concert, with the BCSC further noting that the shareholders in question neither offered, nor solicited, any assurance or indication of how the relevant shareholder would vote their shares.
Key takeaways
The decision provides some clarity on the factors the BCSC will consider in determining whether persons are acting jointly or in concert in a proxy contest. The decision confirms that having a common goal or purpose is insufficient to establish a joint actor relationship, and that there must be evidence of an agreement, commitment, or understanding to vote securities jointly or in concert. The decision also suggests that the Commission will apply a high standard before making a joint actor finding, and that it will not infer such a finding based on circumstantial evidence.
If you are interested in learning more about proxy contests or any other corporate governance matters, please contact MLT Aikins Corporate Finance & Securities practice group.
Note: This article is of a general nature only and is not exhaustive of all possible regulatory requirements, legal rights, or remedies. Laws and regulatory requirements may change over time and should be interpreted only in the context of particular circumstances. These materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.