TIME FOR CHANGE ? Proxy battles: Canada’s shareholder friendly legislation
Market participants, having found a new way to effect change at Canadian companies, are unlikely to turn back.
Disgruntled shareholders in the U.S., looking to launch a proxy fight, can be forgiven for envying their Canadian counterparts.
That’s due to Canada’s shareholder friendly legislation which provides a unique tactic by which shareholders can launch a proxy battle. In Canada, shareholders have the power to requisition a shareholder meeting in between the annual general meeting of the company, says Walied Soliman, a partner in Ogilvy Renault LLP’s business law group.
“In Canada, a 5% shareholder can requisition a shareholders meeting—basically by sending a note to the board of directors—requiring the board to hold the meeting on whatever matter to which the shareholder is objecting,” says David Toswell, a partner in the M&A / securities group at Blakes. “For example, to replace the board, amend the corporation bylaws, to seek to require the board to replace the CEO, or [to address] executive compensation matters.”
Secondly, “in July 2008, the Canadian Securities Administrators conformed one of our National Instruments with the corporate statutes which were intended to make shareholder activism more shareholder friendly by allowing shareholders to solicit proxies without the need for a dissident proxy circular,” says Toswell.
“Under the new rules, there is a provision that allows a shareholder to solicit proxies by way of public broadcast or speech, or by way of a press release, without incurring the cost of preparing and mailing a dissident proxy circular to all shareholders.”
To Toswell’s knowledge, “No one has actually used this method to date, except on a recently completed fight involving Canadian Superior Energy Inc. In that instance, the dissident shareholder, a private equity fund in California, basically issued a press release and started soliciting proxies for the replacement of the board of directors, in advance of the record date for the shareholders’ meeting,” he says.
“That action brought pressure on the board of Canadian Superior, ultimately leading to a negotiated solution that saw the private equity firm nominate a majority of the directors elected at the Canadian Superior AGM.”
“There is another exemption to the general rule requiring a dissident information circular. Under corporate and securities legislation, dissident shareholders can solicit proxies from up to 15 shareholders without distributing a dissident information circular,” says Dan Chitiz, a partner in the litigation department of ChitizPathak.
This can be a very effective exemption to rely on if there are several large share block holders whose proxies can be procured, says Chitiz. Moreover, he says, “For shareholders who want to put a toe into the water, this legislation provides a method that doesn’t break the bank.”