Lexpert US Guides

26 | LEXPERT • June 2014 | www.lexpert.ca rate law," says Waitzer. "" at's what the Delaware court is all about." He says the contrast can be seen by comparing decisions in Air Products and Chemicals, Inc. v. Airgas, Inc. and In re Southern Peru Copper Corporation Shareholder Derivative Litigation with simi- lar Canadian cases. He points to the British Columbia Securities Commission decision in Lions Gate Entertainment Corp., the OSC ruling in Baffi nland Iron Mines Corp., the Québec securi- ties regulator and courts in AbitibiBowater Inc. v. Fibrek Inc. and Ontario's regulator and courts in Re Magna International Inc. " e way Delaware law has evolved, he says, highlights the shaky status of Canadian boards caught between two forces. "On the one hand, you're saying to directors, 'You've got statu- tory duties to act in the best interests of the corporation. We're going to hold you to those duties and have broad remedial powers to enforce that.' "" en securities regulators step in and say, 'We're going to de- cide what your duties are, not you. We're going to decide how long a pill should be outstanding. We're going to decide whether you've conducted yourself properly on a related-party transaction. And we're going to make those decisions not based on a court proceeding, where you have evidentiary disci- pline and a rigorous process. We're going to make it on the basis of a casual one-day or half-day hearing where there's no formal evidence. Oh, and we're bringing the pro- ceeding, not shareholders.' "You end up undermining the responsibility of directors, who just say, 'Ok, we'll do whatever the com- mission tells us to do.' Somebody needs to step back and redefi ne the boundaries because they're getting very blurred." IF ONE CASE illustrates what's going on in Canada, it may well be Magna (a case Waitzer acted on). " e auto-parts company decided to collapse its dual-share structure into a single class of shares. Like so many other Canadian deals these days it was done as a plan of ar- rangement, which requires the purchaser to go to court for a fair- ness hearing a er shareholders vote. A number of Canadian pension funds opposed the proposal, which would pay company founder Frank Stronach an 1,800 per- cent premium for his multiple-voting shares. Two weeks a er the circular was mailed, the Ontario Securities Commission called a hearing, alleging the plan was contrary to the public interest. Ultimately, the OSC rejected arguments that Magna's board had failed to comply with its fi duciary duties, and found there was no rea- son to conclude the transaction was abusive of common shareholders. It simply ordered Magna to provide additional disclosure. " e come down hard for shareholder choice. Problem. TO STEP BACK for a moment, securities law in Canada tradi- tionally focused on the world outside the corporation. Regulators governed market integrity and effi ciency, protecting investors from unscrupu- lous brokers and promoters. Corporate law ruled over most everything that hap- pened inside, from direc- tors' duties to shareholder rights, and the distinction between the two seemed, in retrospect, fairly clear to all. " e borders started to crumble when regulators assumed responsibility for protecting minority shareholders in related-party transactions. " at initial responsibility expanded to take-over defenses and, over time, reg- ulators have used their public-interest jurisdiction to extend fur- ther still, says Edward Waitzer, who leads the governance group at Stikeman Elliott LLP in Toronto — adding that the defi nition of public interest "remains somewhat amorphous." Waitzer, a former Ontario Securities Commission chair, says the encroachment is putting boards of Canada's publicly traded corporations on shaky ground with regulators regularly doing things like cease trading take-over defenses because they violate shareholders' right to sell the company. "In the US, most of these areas like poison pills are purely corpo- « SECURITIES "It would be a big step for the court to say, 'We think the disclosure's inadequate. We think the shareholders have been misled. Go back and hold the meeting again.' That's a tough thing for a court to do. So if the issuer elects to go that route, there's a real disincentive for the court to fi x this thing other than in a really egregious situation." John Smith > Lawson Lundell LLP

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