Governance Insights 2026 A Preview of 2026: 10 Legal Updates GCs, Boards and Investors Need to Know
10. The Evergreen Shareholder Rights Plan The amendments to Canadian take-over bid rules in 2016, which granted issuers considerably more time to respond to unsolicited take-over bids (from 35 days to 105 days) and imposed a majority minimum- tender condition, enshrined in legislation the main benefits of adopting a rights plan in Canada. That said, rights plans continue to serve several purposes, including restricting shareholders from building ownership positions of 20% or more of an issuer’s outstanding shares through exempt take- over purchases (such as the private agreement exemption). These so-called “creeping bids” can result in shareholders accumulating a negative blocking position that can restrict an issuer’s strategic options, including limiting a board’s ability to run an auction. The recent case of Re Greenfire Resources Ltd . illustrates how an issuer can be caught on its back foot without an evergreen rights plan. Certain directors of the target company entered into purchase agreements with a soliciting purchaser, pursuant to which the directors agreed to sell their shares in the issuer in reliance on the private agreement exemption. On closing of these exempt transactions, which was conditional on the receipt of Competition Act approval, the purchaser expected to own about 43% of the issuer’s outstanding shares. The target’s board (excluding the selling directors) adopted a rights plan seeking to prevent the closing of the transactions, in part because the target intended to run a sales process and suspected that the 43% shareholder would utilize its blocking position to frustrate the sale and gradually acquire greater control. The Alberta Securities Commission cease-traded the rights plan for its retroactive effect of blocking transactions that had already been agreed. As issuers prepare for the 2026 proxy season, those who do not maintain an evergreen rights plan should consider the risks of maintaining the status quo. The adoption of a shareholder-approved rights plan on a “clear day” (particularly a plan that complies with proxy advisors’ guidelines) would generally not be expected to attract controversy, particularly given that one of the fundamental purposes of a plan is to ensure any control premium is shared equally with all shareholders. Of course, such considerations will ultimately be issuer-specific. The adoption of a plan could send an unwanted signal to the market that a bid is imminent, or it could discourage institutional shareholders that may dislike the effect of the plan on the liquidity of their position.
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Davies | dwpv.com
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