Related Party Transactions
See Chinese version below [中文版参阅下文].
Certain rules in the Provinces of Alberta, Manitoba, New Brunswick, Ontario, Québec (the “related party rules”) impose additional requirements on some acquisitions of public companies where the acquirer is a significant shareholder or other insider. Such transactions are seen to potentially give rise to significant conflicts of interest or the risk of opportunism on the part of insiders. A common example occurs where a significant (greater than 10%) shareholder of a public company offers to purchase the securities held by the other shareholders (the so-called “minority” shareholders). The related party rules assume that the insider has better information about the target company than the minority shareholders, as well as the potential ability to influence the decision of the board of the target company to recommend or reject the transaction.
To protect minority shareholders in these circumstances, the related party rules require that an independent valuation of the target company securities be prepared under the supervision of a committee of independent directors. This valuation is then provided to the minority shareholders with the take-over bid circular or management information circular for the transaction so that they have an independent assessment of the value of the target company.
In certain cases, where a shareholder vote is required for a significant transaction between a public company and an insider, the related party rules require that, in addition to any vote otherwise required by corporate law (usually two-thirds of the votes cast at a meeting), it will also be necessary for the transaction to be approved by a majority of the minority shareholders.
There are a number of exemptions available from these rules, generally premised on some aspect of the proposed transaction providing assurance that the insider has been treated as an arm’s length party for the purposes of the transaction.