In a recent ruling by the Court of Queen’s Bench of Alberta in Genesis Land Development Corp. v. Smoothwater Capital Corporation, the Court provided guidance on when shareholders may be considered to be acting “jointly or in concert”, and thus potentially triggering disclosure obligations. Under the current early warning regime (“EWR”), persons are generally required to disclose when they acquire beneficial ownership of, or the power to exercise control or direction over, 10% or more of a class of voting or equity securities of a public company, as well as subsequent 2% increases. A proposed amendment by the Canadian Securities Administrators (“CSA”), not yet scheduled for implementation, would reduce the initial disclosure threshold from 10% to 5%, and also require disclosure of 2% decreases. In calculating the number of securities owned or controlled, the acquiring person must include any securities owned or controlled by others with whom it is acting jointly or in concert, and such joint actors must be identified in the disclosure. In its finding, the Court noted that an activist shareholder had failed to comply with the EWR system and disclose that it had been acting jointly or in concert with certain other shareholders as it sought to gain control of the Genesis board of directors. The Court confirmed that, for purposes of disclosure under the EWR, the concept of acting “jointly or in concert” is applicable not only to take-over bids, but also to proxy contests.

NOTE: This publication is intended to provide information to clients on recent developments in provincial and national law. Articles in this newsletter are not legal opinions and readers should not act on the basis of these articles without first consulting a lawyer who will provide analysis and advice on a specific matter.

Acting Jointly or in Concert in a Proxy Contest
The dissident shareholders in question argued that the concept of acting “jointly or in concert” only gives rise to disclosure obligations in the context of a take-over bid. That argument was rejected by the Court which held that, despite the ambiguity arising from the use of the term “offeror” in section 1.9 of Multilateral Instrument 62-104 – Take-Over Bids and Issuer Bids, the early warning requirements must be interpreted to require disclosure of persons acting jointly or in concert if there is any “agreement, commitment or understanding” to exercise voting rights, including in the context of a proxy contest. The Court cited a recent notice of the CSA on the rationale for the early warning system, stating “the objective of early warning disclosure is not only to predict possible take-over bids but also to anticipate proxy-related matters”.

Factors to Determine When Persons are Acting “Jointly or in Concert”
In addition to deciding that the concept of acting “jointly or in concert” is relevant in the context of proxy contests, Genesis also highlights what factors may be relevant in determining whether shareholders have acted “jointly or in concert” in this circumstance. The Court considered the following specific factors in reaching its decision:

  1. the dissidents participated on a conference call during which they discussed the company’s intended board nominees for the upcoming annual meeting and considered pressuring the board to nominate an alternate slate (and, as conceded by some of the dissidents, there may have been discussion of launching a proxy contest). A proxy solicitation firm was present on the call. The call was followed by several others that included some or all of the dissidents and the proxy solicitation firm;
  2. although the dissident circular was in the name of only one of the dissidents, an earlier version of that document had been prepared by another member of the dissident group; and
  3. some of the dissidents entered into a formal voting support agreement.

Remedy
Genesis had sought an order disentitling the respondents from voting their shares at its annual general meeting. The Court declined, stating that while securities legislation provided it with wide discretion in fashioning an appropriate remedy, “the surgery should be done with a scalpel, and not a battle axe”. The Court instead postponed the Genesis meeting for one month to allow the respondents to correct their disclosure so shareholders would be fully informed during the proxy solicitation process. The Court agreed with a submission by Genesis that the length of the meeting postponement should be consistent with the time period that the joint actor disclosure had been delayed.

NOTE: This publication is intended to provide information to clients on recent developments in provincial and national law. Articles in this newsletter are not legal opinions and readers should not act on the basis of these articles without first consulting a lawyer who will provide analysis and advice on a specific matter.