Dissident Ambush of a Shareholders' Meeting - Tactics to Consider

A common technique by dissidents seeking to replace a board of directors is to nominate a rival slate of directors from the floor at the company’s annual meeting. The dissident group might succeed because the target company has not had time to round up support from friendly shareholders who did not bother to vote.

The key to any good ambush, of course, is the element of surprise. This certainly holds true for an ambush by dissident shareholders.

If the target company catches wind of the dissidents’ plan in advance of the meeting, the target’s board might be able to adjourn the company’s meeting to ensure that shareholders have sufficient information to form a reasoned judgment before they vote. In a recent case, a dissident group filed blank proxies representing 27% of the company’s shares one day prior to the proxy cut-off. The court held that the company’s board was entitled to adjourn the meeting for 23 days. So much for any tactical advantage of surprise.

Of course, it may be impossible for the dissident group to avoid tipping its hand prior to the meeting. If proxies of other shareholders are being solicited, a dissident proxy circular will need to be mailed to shareholders unless an exemption is available. For instance, a dissident group recently filed a circular shortly before the meeting of Midlands Minerals Corporation, which alerted Midland to the dissident group’s intentions (although the dissident group still went on to successfully negotiate a compromise with Midland).

Even if an exemption from the requirement to file a dissident circular is available (e.g. because the dissident group comprises fewer than 15 shareholders), the dissidents may still be required to submit proxies in advance of the meeting.

Dissidents should consider whether there is a way to avoid raising a red flag by the submission of proxies. If the company has adopted a confidential voting policy, management might not become aware of any details of the proxies submitted (other than the results). If there is no confidential voting policy, the dissidents may be entitled to submit their proxies during the meeting (but prior to the vote) if the company’s articles and by-laws do not require advance deposit of proxies. Alternatively, if the dissident group is composed of registered shareholders, the dissidents could potentially submit their management proxies in the ordinary course and then revoke their proxies in favour of the dissidents at the meeting prior to the vote.

board of directors dissidents proxy battle

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