24. Empty Voting The issue of empty voting (exercising voting power without a corresponding equity interest) garnered significant attention as a result of the 2012 proxy contest between TELUS and Mason. In February 2012, TELUS proposed an arrangement to collapse its dual-class share structure by converting all non-voting shares to voting shares (which, aside from voting rights, were essentially identical) on a one-to-one basis, which required a two-thirds majority vote of each share class. Following the announcement of the proposal, the historical 4%–5% spread between the trading prices of the two classes of shares narrowed. In response, Mason, a New York-based hedge fund, acquired almost 19% of the voting shares, but hedged that position by selling short a similar number of voting and non-voting shares. This resulted in Mason’s economic exposure amounting to a mere 0.21% of TELUS’s outstanding shares. It was this discrepancy between Mason’s right to vote almost 19% of the TELUS voting shares and Mason’s relatively insignificant economic interest in the company that led to Mason being labelled an “empty voter.” Mason’s strategy was to defeat the share collapse proposal and profit when the spread between the trading prices of the voting and non-voting shares was restored. Ultimately, TELUS was successful in accomplishing the share collapse. During the contest between TELUS and Mason, the courts of British Columbia had several occasions to comment on the concept of empty voting. The first occasion arose in the context of a TELUS application to the B.C. Supreme Court to invalidate on technical grounds a requisition for a shareholders’ meeting made by Mason. 31 Although the Court did not rule on the empty voting issue, it issued a strong statement against empty voting, stating in obiter that a court might use its power to deny an empty voter the right to requisition a meeting. On appeal, the B.C. Court of Appeal reinstated Mason’s requisition and disagreed with the lower Court’s statement that the courts have the authority to intervene in cases of empty voting, even on broad equitable grounds. 32 The appeal Court stated that any remedy must lie in legislative or regulatory change. The third occasion arose in the final court proceeding (to approve the plan of arrangement under which the collapse was effected). In that proceeding, the B.C. Supreme Court was again critical of Mason’s tactics and considered Mason’s lack of economic interest, despite its voting interest, to be relevant to the Court’s consideration of Mason’s objections to the fairness of the collapse. However, Mason’s right to vote its shares, despite its lack of a commensurate economic interest, was never in doubt. Canadian corporate and securities regulators have continued to grapple with the question of what, if any, legal changes might be appropriate in light of commenters’ expressed concerns over empty voting. In 2016, the CSA amended the early warning reporting regime to require that a person that borrows securities under a “securities lending arrangement” include those securities in that person’s ownership calculation for purposes of the early warning reporting rules, unless the borrowing is for purposes of short selling activities for commercial/investment purposes and not with a view to influencing voting or intending to vote the borrowed
31 2012 BCSC 1582. 32 2012 BCCA 403.
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