Mosquito Cons AGM results overturned in court
Ticker Symbol: C:MSQ
Mosquito Cons AGM results overturned in court
Mosquito Consolidated Gold Mines Ltd (C:MSQ)
Shares Issued 82,262,446
Last Close 8/9/2012
.275
Friday August 10 2012 - Street Wire
by Mike Caswell
A judge in the Supreme Court of British Columbia has ordered Mosquito Consolidated Gold Mines Ltd. to hold a new annual general meeting, ruling there were irregularities in a telephone voting system the company employed ahead of a contested AGM on Dec. 16, 2011. The judge found that defects in the voting process "had an oppressive and unfairly prejudicial effect" on the right to a fair meeting. She has overturned the results of the meeting and given the company 60 days to hold a new one.
The ruling is a victory for a dissident group that includes former Mosquito Consolidated chairman Hongzue Fu. The group had sought a new five-member board at Mosquito Consolidated's AGM, claiming that management had not done enough to develop the company's flagship CuMo project. The dissidents contended that the project was valued at $16-billion, but the company only had a $50-million market cap.
At the AGM, the dissidents nearly formed the board, only falling short by a few million votes. One of the contentious issues before and during the meeting was a voting system the company employed called Televote. The system involved a representative of the company phoning shareholders to solicit a vote on management's behalf. Shareholders had the option to vote for management or the dissidents, but had to state their choice to the representative rather than enter it privately into a computer-controlled system. Although the phone entries only comprised a relatively small number of votes, excluding them would have changed the outcome of the meeting, the dissidents complained.
After the meeting, Mr. Fu asked the courts to overturn the vote results. Through a private company he controls called International Energy and Mineral Resources Investment (Hong Kong) Company Ltd., he filed a petition at the Vancouver courthouse complaining that the Televote system had no safeguards to ensure its accuracy or integrity. Among other things, there was no independent verification of the votes, he argued.
In Thursday's decision, Supreme Court Justice Barbara Fisher has agreed, finding a number of problems in the way the phone voting was done. Among them was the fact that shareholders voted orally, without much scrutiny of their identification. If the person who answered the phone said he was the person entitled to vote, call centre operators accepted that information as truthful.
Another problem Justice Fisher found with the Televote system was the lack of prior disclosure. The Televote system is fairly new in Canada, having only been used in 20 AGMs so far. The company did not mention the new vote-gathering procedure in its information circular (which it issued before the AGM was contested) or in subsequent news releases.
This resulted in some confusion among shareholders, the judge found. Two shareholders who voted through Televote presented evidence that they did not realize their vote had been taken during the call. In one case, a shareholder wished to vote for the dissidents, but ended up voting for management. The judge said there was no evidence to show there was a large number of incorrectly recorded votes, but she found indications that voters were confused.
Although the company began using the Televote system before the AGM was contested, once the dissident circular went out "there was an obvious imbalance in the way votes were taken between management and the dissident group," the judgement states. Shareholders who wanted to vote for the dissidents were limited to traditional processes. Using the Televote system gave the company an unfair advantage, Justice Fisher ruled.
The company had argued that Televote shareholders received confirmation letters in the mail, but the judge found the letters were of little help. She said confirming the vote by a letter is a "negative option" process. There was nothing to indicate that all shareholders received confirmation letters on time.
Justice Fisher ordered a new meeting to be held within 60 days, and specifically instructed that the company not use the Televote system. She declined a request by International Energy to appoint an independent chairman, finding that the chairman of the original AGM, Merrill McPeak, conducted the meeting in an appropriate manner.
The company has not yet set a date for the new meeting. It issued a news release Thursday acknowledging the decision, and pointing out that the judge found there was no evidence of bad faith on its part. It says it is reviewing the ruling and may consider an appeal.
© 2012 Canjex Publishing Ltd.