Guide to Shareholder Activism and Proxy Contests in Canada

Although this statutory right is clearly enshrined, the Bioniche case casts some uncertainty over whether this right would be supported by the courts if challenged. Following their first failed attempt to requisition a meeting, the dissident shareholders of Bioniche Life Sciences Inc. (Bioniche) submitted a second, fully compliant requisition. Before the requisition was submitted, the Bioniche board of directors announced that it had set a date for the company’s annual shareholders’ meeting and established a record date for the meeting. The announcement was made six months prior to the meeting date, much earlier than the date the meeting would normally be announced. The board then relied on a provision in the corporate statute that relieves a board from having to call a shareholders’ meeting in response to a requisition if a record date for a meeting has already been set. Although the Court concluded that the right of a shareholder to call a meeting applies when a board declines to do so, even if a board has already fixed a record date, the Court added that “a court would be unlikely to uphold a meeting called by a shareholder” in circumstances in which one of the statutory exceptions applies to the board’s obligation to call a meeting. The Bioniche case is another example of the courts’ propensity to limit shareholders’ access to statutory rights. Bioniche also illustrates how Canadian courts have allowed boards to use technicalities to defeat requisition rights. The Court agreed with the dissident Bioniche shareholders that the board’s early announcement of the record date for the annual meeting was clearly calculated to allow the board to reject a valid requisition. However, the Court declined to find fault with the board’s actions, applying the deferential business judgment rule standard of review to the board’s actions and concluding that the effect of delaying the dissidents’ ability to challenge management by six months was reasonable in order to allow the board to pursue the business plan that it believed was in the company’s best interests. STANDARD OF REVIEW OF BOARD ACTION Bioniche is only one of many judicial decisions illustrating the propensity of Canadian courts to apply a deferential standard of review to board decisions in proxy contests. Although the business judgment rule has been imported by Canadian courts from the United States, Canadian courts have applied the rule more liberally and with less focus on the prerequisites for its application. Canadian law has not adopted anything akin to the standard developed by Delaware courts in Blasius Industries, Inc. v Atlas Corp ., 5 which places the burden on the board to demonstrate a “compelling justification” for actions that have the primary purpose of impeding the exercise of shareholder voting power. However, it is possible that the recent Sandpiper decision may signal an emerging judicial willingness to apply the business judgment rule with more skepticism in the context of the exercise of shareholder rights.

564 A.2d 651 (Del. Ch. 1988).