Canadian public companies. In 2023 and 2024, Riot submitted several confidential proposals to Bitfarms regarding a potential business combination of the two companies, but its overtures were unsuccessful. In the first half of 2024, Riot acquired a toehold position representing just under 15% of the outstanding common shares of Bitfarms and requisitioned a special meeting of Bitfarms’ shareholders to nominate new directors for election to the Bitfarms board. In response, Bitfarms adopted the Rights Plan on the basis that the 15% trigger was necessary to protect the integrity of its ongoing strategic review process. Under Canadian securities laws, a shareholder is able to acquire up to 19.9% of a public company’s shares without triggering the take-over bid rules. A formal requirement to make an offer to all shareholders, together with the associated regulatory protections, is only mandated where a shareholder reaches or exceeds the 20% threshold. The 20% benchmark has been a cornerstone of Canada’s take-over bid regime for approximately 60 years, enduring numerous changes to other aspects of the rules, including an overhaul in 2016. THE TEST FOR A PUBLIC INTEREST ORDER IN THE CONTEXT OF A SHAREHOLDER RIGHTS PLAN Although Canadian securities laws do not regulate shareholder rights plans per se, securities regulators are often called upon to invoke their public interest powers to prohibit plans that are impugned by shareholders or would-be acquirors for undermining the Canadian bid regime, even when the issuer has not violated any laws. Until Riot Platforms , it was uncertain exactly when and why the regulators would step in to consider the propriety of a rights plan, leaving issuers, acquirors and their advisors with important questions unanswered. Significantly, then, in Riot Platforms the Tribunal articulated the standard by which its public interest inquiry should be carried out, reasoning that it is in the public interest to cease trade a shareholder rights plan
It will be interesting to see whether the Tribunal’s decision in Riot Platforms invites more litigation concerning novel and tactical shareholder rights plans in the future, including in the activist space where plans could be used to frustrate stake building and grouping by activists.
that does not otherwise contravene Ontario securities law where (i) the applicant demonstrates that the plan undermines, in a “real and substantial way,” and with “public effect,” one or more clearly discernible animating principles underlying Ontario securities law, and (ii) the respondent does not demonstrate exceptional circumstances that would justify the continuation of the plan. Although the Tribunal concluded that, on the facts, the Rights Plan should be cease traded, it also left open the possibility that a shareholder rights plan with a trigger below 20% could be permitted in exceptional circumstances. Notably, the Tribunal suggested such exceptional circumstances could include the conduct of the bidder, whether the bidder had achieved a “blocking” position, or where the issuer adduces credible evidence of a real and ongoing strategic review process or forthcoming value-enhancing transaction. It will be interesting to see whether these features of the Tribunal’s decision invite more litigation concerning novel and tactical shareholder rights plans in the future, including in the activist space where plans could be used to frustrate stake building and grouping by activists. For more details regarding the Tribunal’s decision, refer to our bulletin: “ Capital Markets Tribunal Establishes New Framework in Evaluating Poison Pills ”.
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Governance Insights 2024
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