In Canada, it has been difficult to hold a virtual-only contested meeting as the meeting scrutineers, which are generally the transfer agents for the issuer, have been unwilling to act unless the issuer and dissident sign a meeting protocol to settle procedural matters prior to the meeting. More recently, scrutineers have relaxed their opposition to acting as scrutineers at virtual contested meetings without a meeting protocol being in place, provided that they are able to proceed with protocols established by STAC and to operate in the normal course. In a recent virtual contested meeting, the issuer Magnet Forensics, Inc. publicly filed a protocol for its contested meeting of shareholders which it had adopted unilaterally without the approval of the dissident. This approach could provide further comfort to scrutineers that are reluctant to act at virtual contested meetings. 23. Private Placements During Proxy Contests The private placement of shares into the hands of a friendly shareholder as a defence to a proxy contest has never been a common tactic in Canada. Among other things, the issuance of shares as a means of defeating a dissident’s bid to oust incumbent directors could give rise to claims of breach of fiduciary duty and oppression of minority shareholders. However, this tactic was employed in a 2017 Canadian proxy contest involving Eco Oro Minerals Corp. (Eco Oro), prompting the OSC to reverse a private placement before a contested shareholders’ meeting that threatened to tip the scales in favour of management. 29 For companies listed on the TSX, any private placement of shares must first be reviewed and accepted by the TSX. The TSX’s rules generally require that a private placement be submitted for shareholder approval if it will have a material impact on control, or if it will result in the issuance of more than 25% of the outstanding shares at a discount to the current market price. Shareholder approval is also required if the placement will result in an issuance of more than 10% to insiders of the company. Failure to comply with these requirements can result in the company being delisted. In 2017, the TSX approved (without requiring shareholder approval) the issuance of common shares by Eco Oro upon conversion of notes eight days prior to the record date for a contested shareholders’ meeting. The notes that were converted were held by certain insiders of the company and shareholders who were friendly to management. The notes had only recently been issued in connection with a financing that shareholders had vigorously opposed. The TSX’s approval was based on its determination that the private placement did not “materially affect control of Eco Oro” because the issuance of the shares would not result in a single shareholder, or a combination of shareholders acting together, holding more than 20% of the outstanding voting securities. The dissident shareholders appealed the decision of the TSX to the OSC.
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