to conduct an independent analysis and make recommendations with respect to any outcomes from such early negotiations. > In the Catalyst case, The Catalyst Capital Group Inc. complained to the OSC of abusive or coercive conduct and disclosure deficiencies in response to a going-private transaction led by an insider of HBC. The OSC stressed the importance of a special committee’s timely formation; in that case, the special committee was not given authority over the transaction until a proposal had already been presented and decisions had already been made to share certain information and waive a standstill restriction with certain members of the bidder group. In the plan of arrangement fairness hearing, the court also questioned the delay, noting that the lack of a special committee invited the possibility of a compromised transaction. > Boards should also be aware of the OSC’s decision in Magna International Inc. (Re) 6 in which case Magna’s management led the negotiation of the transaction without involvement or oversight from the special committee even though management was in a conflict of interest position. The special committee was only struck late in the process, effectively constraining the committee members with a “take it or leave it” decision. – Give it broad authority. The board should establish and approve a mandate for the special committee that is sufficiently broad to give the committee robust authority, allowing it to exercise judgment, make decisions and provide meaningful recommendations. Courts and regulators will not look favourably upon a committee mandate that restricts the committee to reviewing only the proposal on the table without considering other reasonable alternatives, including the status quo .
> If a special committee’s mandate is too narrow or constrained, it is likely to face criticism for lacking the discretion and authority needed to provide the precise safeguards a committee is intended to create. > In Magna , the OSC criticized the process, noting that the mandate of the committee was too narrow. In that case, the special committee was only charged with reviewing and considering the one proposal on the table, and the sole key decision left for the committee was whether it should be submitted to shareholders for approval. The committee did not have the authority to consider whether the proposal was fair and reasonable or in the best interests of the corporation, or whether alternatives were more desirable. The board should establish and approve a mandate for the special committee that is sufficiently broad to give the committee robust authority, allowing it to exercise judgment, make decisions and provide meaningful recommendations.
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Governance Insights 2020
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