“Oppression Remedy” 248. (1),(2), CBCA/OBCA
Again, by no means I do have sufficient legal expertise to precisely and completely explain all aspects of HRG’s take over situation. I can only provide my own personal thoughts, opinion and comments.
Recap of my understanding:
1) Severstal has launched a “take-over bid” – my understanding (based on 188.1 of the CBCA/OBCA act) is that Severstal will need 90% of total minority shares (not just votes casted) to succeed.
2) If Severstal falls short then they will likely need to put together a Plan of Arrangement through the courts. See below for my thoughts on voting thresholds.
I’m starting to come to the following conclusions:
1) If the 50% minority rule (see below) for Plan of Arrangements still exist in Ontario then Severstal does not believe they have the votes, hence the reason they have chosen to start with the “take-over bid” option. They should know they are not going to get anywhere near the 90% of total minority shares in this “take-over bid” approach. Also, I don’t think they will go to the Plan of Arrangement stage until they get 50% of minority votes cast in the “take-over bid” voting process (if the 50% Plan of Arrangement rule still exist of course). They might keep trying with the “take-over bid” option until they get close to 50%.
2) Severstal likely wants to somehow get 90% in the “take-over bid” in order to avoid the courts. I don’t think they want to take their changes in the courts because minority shareholders may get a chance to voice concerns (see Oppression Remedy below).
As mentioned in a previous post, my understanding is that Instrument 61-501 included a requirement that the approval threshold for a Plan of Arrangement type proceeding be 66 2/3 for total votes cast, in addition to 50% of minority votes cast. This 50% of minority vote component is important, in my view. It is specific to only Ontario and Quebec, and did not apply to other provinces, historically. If it still exists then it means that when Severstal eventually launches their Plan of Arrangement efforts (through the courts) they still will not succeed unless they get 50% of the minority votes cast (a $.22 offer will not cut it), even if they get 66 2/3 of total votes (including their own votes). This is why I am trying to figure out if this is currently still built into the official securities documentations.
As also mentioned, 61-501 was revoked in February 2008, with the launch of the new Instruments. It sounds like the 50% requirement has been carried forward into the new documents, but I haven’t seen it as yet. However, I haven’t looked entirely as yet either. Though, I will not assume it’s there until I actually see it.
I have seen a number of company transactions and articles (issued after the February 2008 revocation date) that uses the 50% requirement (which leads me to believe that it still exists somewhere). Here are 2 examples:
1) On December 5, 2008, Parrish & Heimbecker Ltd. announced a definitive arrangement agreement to acquire all of the outstanding common shares of Dover Industries that it does not already own. This was in the arrangement announcement:
“The completion of this transaction is subject to the approval of Dover’s shareholders at a special meeting which is expected to be held in late January. The transaction must be approved by at least 66 2/3% of the votes cast on the relevant resolution by shareholders present in person or by proxy at the meeting, and by the holders of more than 50% of the votes cast by Dover’s “minority” shareholders. The completion of the transaction is also subject to other customary conditions, including the receipt of the required approval of the Ontario Superior Court of Justice and necessary regulatory approval.”
2) Also, in February 2009, an article on M&A Developments in Canada in 2008, written by Robert McDermott and Sean Farrel:
“Corporate Laws. Canadian corporations may be incorporated under the federal Canada Business Corporations Act (CBCA) or one of the similar provincial or territorial business corporations acts. These statutes regulate a variety of ordinary and extraordinary (eg, statutory amalgamations and plans of arrangement) corporate transactions. Extraordinary corporate transactions must be approved by a special resolution of shareholders (typically two-thirds of the votes cast). Shareholders generally have the right to dissent from extraordinary corporate transactions and demand payment of the ‘fair value’ of their shares (as determined by a court if necessary). Canadian courts have broad remedial powers to intervene in respect of transactions that are oppressive or unfairly prejudicial to, or that unfairly disregard the interests of, shareholders.”
“Securities Laws. Securities regulation in Canada is the responsibility of the provinces and territories. Each province and territory has its own legislation and securities regulatory authority that regulate, among other things, take-over bids. The Provinces of Ontario and Quebec have additional rules (including approval by a majority of the minority shareholders and independent valuation of the subject matter of the transaction) designed to ensure fair treatment of minority shareholders in connection with certain types of transactions involving a corporation and its “related parties” (which include shareholders owning 10% or more of the voting securities of the corporation).”
Oppression Remedy
Once Severstal is rejected with their “take-over bid” and moves their efforts to the Plan of Arrangement stage (to the courts) we may have an opportunity to state our case for Oppression Remedy. I think we can state a good case focused on this:
“that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder”
Once we have the lawyer in place, I think the lawyer should be able to build a strong case for this, as I think there is a lot of evidence (if this is what the lawyer recommends).
Of course, Severstal will make their own case with the usual bs (IMO), such as the company is at risk as a going concern, “independent” committee was used, “independent” BOD recommended the $.22 offer, “independent” valuation was done, “independent” valuator was used, HRG’s BOD acted in the best interest of all shareholders (that’s a good one)……………………………………………………………….........
Here is what is says in the CBCA/OBCA:
“Oppression remedy
248. (1) A complainant and, in the case of an offering corporation, the Commission may apply to the court for an order under this section. 1994, c. 27, s. 71 (33).
Idem
(2) Where, upon an application under subsection (1), the court is satisfied that in respect of a corporation or any of its affiliates,
(a) any act or omission of the corporation or any of its affiliates effects or threatens to effect a result;
(b) the business or affairs of the corporation or any of its affiliates are, have been or are threatened to be carried on or conducted in a manner; or
(c) the powers of the directors of the corporation or any of its affiliates are, have been or are threatened to be exercised in a manner,
that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer of the corporation, the court may make an order to rectify the matters complained of. R.S.O. 1990, c. B.16, s. 248 (2).”
https://www.canadalegal.com/gosite.asp?s=1773