Early Warning Disclosure in Proxy Contests
In a recent ruling in Genesis Land Development Corp. v. Smoothwater Capital Corporation, the Court of Queen’s Bench of Alberta found that a dissident shareholder breached its obligations under securities law when it failed to properly disclose, in an early warning report, that it was acting “jointly or in concert” with other dissident shareholders to gain control of the Genesis board of directors. In its finding, the Court confirmed that, for purposes of disclosure under the early warning reporting system, the concept of acting “jointly or in concert” is relevant not only to take-over bids, but it is also relevant to proxy contests.
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. This 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 (“MI 62-104”), 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 Canadian Securities Administrators on the rationale for the early warning system: “the objective of early warning disclosure is not only to predict possible take-over bids but also to anticipate proxy-related matters”.
In addition to deciding that the concept of acting “jointly or in concert” is relevant in the context of proxy contests, Genesis also sheds some light on what factors may be relevant to determining whether shareholders have acted “jointly or in concert” in this context. In particular, the Court took the following factors into consideration in reaching its decision:
- the dissidents participated on a conference call during which they discussed the company’s intended board nominees for the upcoming AGM 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;
- 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
- some of the dissidents entered into a formal voting support agreement.
disclosure obligations Dissident shareholder Early Warning Report Genesis Land Development jointly or in concert proxy contests