LEXPERT MAGAZINE
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JULY/AUGUST 2016 17
Copper & Gold Corp., a private company
with mining interests in Turkey. Once
negotiations began, an AER director dis-
closed that he was a shareholder in Black
Sea and its CFO. AER's board responded
by striking a committee of non-interested
directors to consider the transaction.
In October 2015, AER signed a letter of
intent to acquire Black Sea. e deal con-
templated a reconstitution of AER's board
to consist of two directors from the exist-
ing AER and two from Black Sea. Most of
the consideration for the acquisition would
come in the form of AER shares, thereby
diluting the stake of existing shareholders.
Jaguar objected to the transaction and
initiated oppression proceedings under
the BC Business Corporations Act for the
failure of AER's directors to disclose their
interest as represented by the new posi-
tions they would assume. Jaguar also main-
tained that the transaction was essentially
a reverse takeover that prejudiced its inter-
ests, and asked the
court to restrain the
deal's closing unless
approved by a prior
special resolution of
AER's shareholders.
e motions judge
sided with Jaguar, but
AER appealed and
the British Colum-
bia Court of Appeal
overturned the decision. As the court saw it,
the fact that AER's directors would stay on
did not make their interest disclosable, par-
ticularly since the proposed remuneration
High Bar for Minority Voters
Perceived conflict not enough for minority shareholders to demand statutory protection BY JULIUS MELNITZER
was commercially reasonable. "e court
made a contextual analysis," Good says. "If
it had appeared from the terms of the agree-
ment that the benefits were outlandish or
not in keeping with
existing benefits or
with the nature of
the company's busi-
ness, the court might
have interfered."
Andrews believes
that the decision re-
assesses the balance
between minority
rights and a board's
rights to govern a company the way it sees
fit. "It's a pragmatic decision that says mi-
nority shareholder need to have a very sub-
stantial case that meets a high threshold if
they want to get the protection of statutory
provisions," he says. "ey can't walk in
armed only with innuendo and suspicion
and lay waste to what the board is doing."
Other appellate courts will take heed,
Andrews says: "Although the decision is to
some degree based on BC statutes, there is
quite good cross-fertilization between Ca-
nadian appellate courts, especially between
Ontario and British Columbia. Jaguar is
consistent with Ontario law and will cer-
tainly be picked up in Ontario and maybe
in other jurisdictions."
Ironically, however, Jaguar may invite
more litigation on the subject of directors
who stay on aer an acquisition. "e ar-
gument that the AER directors were in
conflict was surprising to some extent,
because what they did is not at all uncom-
mon and there are already general rules in
existence to prevent breaches of fiduciary
duty," Good says. "But Jaguar could result
in more scrutiny from the simple fact of
directors staying on, which could become a
more common avenue from which transac-
tions can be challenged."
THE RECENT decision from the BC
Court of Appeal in Jaguar Financial v.
Alternative Earth Resources has upped the
ante for litigants attacking the conduct of
boards during takeover proceedings.
"e case is an authoritative and detailed
reminder that minority shareholders seek-
ing the protection of statutory provisions
must meet significant requirements so as to
preserve a pragmatic balance between their
rights and respect for the democratic rights
of boards elected by a majority of share-
holders to run the affairs of a company,"
says Mark Andrews of Fasken Martineau
Dumoulin LLP in Vancouver.
Jaguar also directly addresses the issue
of conflicts when directors of a target com-
pany are poised to take on positions with
the acquirer following a combination. "e
case clarifies that the intention of taking on
a position with an acquirer is not inherently
fatal to being involved with the transaction
on behalf of the target," says Mathew Good
of Blake, Cassels & Graydon LLP in Van-
couver. "However, if an individual's prima-
ry motivating purpose is to accrue benefits
from a position with the target, then that is
cause for intervention by the courts."
e ruling arose in the context of a dis-
pute over the future of TSX-V listed Alter-
nate Earth Resources Inc. Jaguar Financial
Corp., an investment bank, held almost
20 per cent of AER's shares and was the
company's largest shareholder. In 2014, the
company sold its assets, leaving it with cash
but no operations.
AER identified a potential acquisition
in the purchase of the shares of Black Sea
MARK ANDREWS
>
FASKEN MARTINEAU
DUMOULIN LLP
MATTHEW GOOD
>
BLAKE, CASSELS
& GRAYDON LLP
ON THE CASE
"The intention of taking on a position with an acquirer is
not inherently fatal to being involved on behalf of the target.
However, if an individual's primary motivation is to benefit from
a position with the target, then that is cause for intervention."
> MATTHEW GOOD, BLAKE, CASSELS & GRAYDON LLP
