CHAPTER 06 Directors’ Duties and Defensive Mechanisms
– Rights plans continue to be relevant, though for more limited purposes: in particular, to regulate the ability of shareholders to accumulate a holding of 20% or more in a company through limited private transactions that are exempt from the takeover bid rules (so-called creeping bids); or, potentially, to restrict a bidder’s ability to enter into swaps, even if cash settled, or to use the 5% exemption to effect market purchases during a bid. – If a company does not have a shareholder rights plan in place, the board could consider refraining from introducing a rights plan until an unsolicited proposal arises and then introducing a U.S.-style “tactical” rights plan with no permitted bid. Tactical plans typically have a duration that is less than the six-month shareholder approval period mandated by the TSX and are not typically put forward for shareholder approval. CHARTER AND BYLAW PROVISIONS – Structural defences commonly contained in the constating documents or bylaws of U.S. companies are rare in Canada because some of the most popular U.S. charter document structural defences are not required or are ineffective under Canadian law. Supermajority Voting Provisions – Supermajority voting provisions can be used to require higher levels of shareholder approval or majority-of-the minority approval of certain corporate transactions involving significant shareholders. – These provisions require an amendment of the company’s articles passed by a special resolution of shareholders. – These provisions do not deter a bidder that is prepared to make an offer to acquire the entire company, although they may increase the minimum tender condition in the bid of an acquiring party whose financing sources require it ultimately to acquire 100% of the company, thereby weakening the strength of the offer. Increased Quorum and Notice Provisions – Bylaws may be amended to impose increased quorum and advance notice provisions in respect of any meeting called to remove directors, elect or appoint new directors not nominated by the continuing directors or vary the qualifications of directors. – Although these bylaw amendments require shareholder ratification at the next meeting, they are valid in the interim. – These provisions are most useful as a structural defence in the context of a proxy contest. Staggered Board Provisions – These provisions are ineffective because under nearly all Canadian corporate statutes, an acquirer that acquires more than 50% in a bid can proceed to replace the existing board.
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Davies | dwpv.com
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