(This text borrowed from a poster sending it from Hot Copper)
The Fairness Hearing for the Titan Minerals / Core Gold Arrangement merger petition took place June 24 and 25, 2019, and the resulting judgement was read July 4, 2019 at the BC Supreme Court in Vancouver, Canada.
Justice Grove presiding, session in court began 9:08 a.m. Introduced were counsel for Core Gold -David Brown and Angela Cremini of Stikeman Elliott, for Titan Minerals - Brook Greenberg of Fasken, and for Keith Piggott & dissidents - Teresa Tomchak and Erica Miller. Judgement was rendered orally, with written notes to follow, running 22 minutes. Transcript of the proceedings will likely be available, so apologies are made in advance for any differences from the quick notes below.
Jumping briefly to the end, the judgement concluded by dismissing the petition by Core/Titan to proceed with their Arrangement. The judgement provided substantial reasoning based on fact and Iaw, with particular reference to the BCE and Inter Oil cases. Justice Grove, worked on many plans of arrangement, but has never seen one so contentious. To employ his word, he had found it disingenuous of Core/Titan counsel to have failed to inform on the level of disagreement, when they first applied with their petition to Master Cameron.
Abstracting here for a moment from the Grove judgement, in essence, the board of Titan had failed to perform their duties, by promoting misleading representations and a seriously misvalued offer. The board of Core had seriously failed their shareholders by promoting a deeply flawed merger deal favourable to themselves, to the exclusion of other offers, and to the exclusion of shareholder interests.
A courtroom artist was in attendance, Ms. Wolsak, and her drawing was made available. In the drawing, Ms. Tomchak for Keith Piggott and dissidents addresses the bench, and counsel for Core/Titan are on the left.
The function for putting an image into a post on Stockhouse seems to be no longer working - nobody has achieved putting an image in, in some time. Something to do with http changing to https, likely enough. You can see the image at:
https://pasteboard.co/ImFuo3F.jpg
Returning to the judgement - Justice Grove spoke of his frustration at the need for a time sensitive ruling - Core and Titan have low finances - notwithstanding the 2 feet of documents submitted, a heavy load for the 2-day hearing June 24 and 25. Core claimed cash on hand of $7500, nonetheless splashing out heavily for lawyers in the court, news releases and circulars primarily attacking Keith Piggott, avoiding other than a shallow address of the issues, as it was put later by the judge.
He laid the limited time available firmly at the feet of Core/Titan, who not only misled the court as to the seriousness of the disagreement, but also started off with only a request for 15 minutes time, whereas the judge said it would normally have taken a week of court time.
The judge was not pleased as well that the timing selected by Core/Titan was such that they did not reveal until they were in court the final day of the hearing, June 25, that a June 21 deadline had already passed with Canaccord in Australia, after which date investors in the Cdn$1 8 million Titan share raise could unilaterally strike their names off the list, as no money had actually been transferred to Titan nor put in escrow.
A general overview of the law relied upon and conclusions made is as follows. The case BCE 2008 SCC 69 sets three criteria for approval of a Plan of Arrangement:
1) Statutory procedure
2) Good Faith
3) Fairness and Reasonableness
With some complex misgivings, the judge would accept the terms for 1) and 2), but made it clear he had concerns with 3), Fairness and Reasonableness. That criterion 3) has two sub-parts, i) valid business purpose, and ii) legal rights being resolved in a fair way.
Further, he relied upon Inter Oil vs. M., which further describes the requirements for approving a Plan, shareholder rights vs. positive value to corporation, and the burden on securityholders. On those bases, the Arrangement was found to be unacceptable.
Justice Grove found that Keith Piggott had been fired, on the balance of probability, for having opposed the Titan plan, with his options taken away as well, notwithstanding Mr. Piggott’s normal rights as a director to accept or oppose. Justice Grove found doubt in the claim of misappropriated funds by Piggott, pointing out the legitimate need for those funds disbursed and that the directors knew about those transfers well beforehand.
Reviewing the application of BCE, the judge felt that the 3rd term was where the greatest problem laid - Fairness and Reasonableness. He found that already on first application to Master Cameron, counsel for Core/Titan was disingenuous when not speaking up when the Master asked whether that was anything else he should be informed of, before making a standard order, whereas clearly the Arrangement petition was in fact highly embattled.
Both sides were found to have used considerable resources in terms of proxy, PR, legal and similar services in the most contentious Arrangement / merger battle the judge had see in 20 years. Core/Titan had complained considerably about the energy and expense put into Mr. Piggott’s counterclaims, but it was found that Core/Titan had equally invested heavily in promoting their claims.
The CBC article on Titan’s tailings pollution and criminality problems in Peru was noted, and found to be sympathetic to Piggott. Note was made of the legitimacy of those concerns as well as Titan’s potentially criminal conduct and shaky history as a mining company. The materials before the judge indicated negatives about Core/Titan’s level of morality and true intent w.r.t. the Arrangement, as well as indications of defamatory conduct against Mr. Piggott.
The first test of BCE was found to be met, in terms of vote count, but Grove took issue with the early declaration by Core/Titan of 30% voting in favour, as projecting an air of inevitability, and so unfairly influencing the vote. The second test, it was acknowledged that Core needs cash.
It was the 3rd test outlined in BCE that drew the greatest concern of the judge - Fairness and Reasonableness. Concern was expressed about the unfairness of Titan counsel only admitting on June 25, the after-the-fact June 21 deadline beyond which date Titan buyers of their raise at Canaccord could opt out. Concern was expressed with the large volume of materials presented in a short hearing; Core-Titan / Piggott counsels submitted 81 / 87 pages of submissions.
Core/Titan took for themselves most of the time, and the “clock was ticking” for Piggott’s counsel. This was firmly set at the feet of Core/Titan, who should have been more honestly forthcoming about the matter, especially with the civil and criminal exposure of Titan, and given that Core shareholders would only receive shares in Titan.
With regard to the allegations against Titan, Grove found that counsels for Core/Titan had conceded those as at least partially true, excluding admissions on the firearms battle(s). The affidavits were described as simply not allowing for the reasonableness of the proposal.
An answer had been demanded by Core/Titan quickly, and that was given - that Justice Grove was not satisfied that the Arrangement was fair and reasonable, and was not satisfied that the legal rights are being arranged in a fair and reasonable way.
The submissions and materials were reviewed since court. There is a reasonable suspicion of Titan. One cannot help but conclude that Titan and its staff have operated in a questionable if not unlawful way. Not good enough to say that part of the conduct took place before Titan took Andina in - as the conduct of the Andina staff (at e.g. Tulin) were listed substantially as part of the value of Titan.
As Titan essentially admitted unlawful conduct, there could not be avoided a level of uncertainty in the merger, as shareholders would only receive shares in Titan, and those were considered to be of limited worth, further undermined by a lack of liquidity in those shares.
Importantly, cf. Inter Oil, it had been agreed by the parties at the hearing that there was no independent Fairness Opinion. If there is any commercial reality, it is the necessity of an independent opinion in a contentious arrangement.
The two opinions before the court were the PI and the Evans & Evans. Within a narrow margin of voting - the non-independent PI opinion gave Titan assets a value of $33.3 million, versus the Evans opinion $16.5 million, less than half.
But rather than provide the provide the resources for an independent opinion, Core/Titan instead spent their limited funds to go after Keith Piggott, and no rational explanation was provided for that - either it was an oversight, or an independent opinion was too much of a risk or would be self-defeating.
Further to the lack of fairness were the 0 shallow responses of Core/Titan to dissenting shareholder complaints, and the plainly declared intention of Core/Titan against setting aside any security for the rights of dissenters who had submitted their dissent letters.
The lack of Titan liquidity, the arguable overhauling of assets by PI, where remuneration is tied to Titan success, and protestations against providing shareholder security, argued against fairness, in that dissenters may not get the rights set out in the Arrangement.
For all of the above reasons, the Arrangement was found to be not fair and reasonable. The petition was dismissed.