CHAPTER 01 10 Regulatory and Judicial Developments That GCs and Boards Need to Know
7 | Fair Play: Fairness Opinions and Plans of Arrangement
Plans of arrangement are court-supervised processes that allow issuers to undertake a variety of transactions ranging from restructuring debt to privatizations. Procedurally, issuers first seek an interim order to “set the wheels in motion” and obtain conditional approval for the arrangement and related procedures, such as the securityholders’ meeting, voting thresholds and dissent rights. Once securityholder approval is obtained, the issuer will seek a final order when the court will make its final determination as to whether or not the arrangement is “fair and reasonable.” Two recent decisions regarding plans of arrangement – both by Justice Koehnen of the Ontario Superior Court of Justice (Court) – have cast doubt on two widely held views: first, that a fairness opinion is always useful in demonstrating that a plan of arrangement is fair and reasonable and, second, that the interim fairness hearing is little more than a perfunctory step in advancing a plan of arrangement.
treated like an all-powerful talisman that should resolve any questions about fairness,” but that “[t]he power of a talisman, however, lies more in the faith of the believer than the substance of the object.” The Court emphasized that the utility of a fairness opinion will be contingent on various factors, including the following: – The expertise of the author. If the fairness opinion speaks to liquidation values and the author’s primary area of expertise is M&A, the opinion may be devalued. – The author’s independence from the issuer. If the opinion is being provided by a bank with which the issuer has a close relationship, a court may be skeptical of the bank’s conclusion with respect to the fairness of the transaction. – The extent to which the fairness opinion evidences the author’s analysis and methodology. Fairness opinions that show little or none of the author’s methodology may be given little or even no weight by a court. – Whether the fairness opinion contemplates the appropriate stakeholders. Corporations Canada’s guidance provides that a fairness opinion should state that the arrangement is fair to each class of securityholders affected by the arrangement. If the opinion is only provided for the benefit of the issuer or a subset of its securityholders, a court may have concerns.
RE SHERRITT INTERNATIONAL CORPORATION
In Re Sherritt International Corporation (Sherritt) , the issuer applied for final approval of a plan of arrangement to restructure its debt. The arrangement was opposed by two unsecured creditors. Although the Court ultimately concluded that the arrangement was fair and reasonable, it identified issues with the fairness opinion that the issuer had obtained in support of the arrangement. The Court observed that fairness opinions are “often referred to with almost religious reverence as if they were the definitive answer to questions about fairness” and “are often invoked with veneration and
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