CPD Bootcamp - Corporate and Litigation Nov 2014

Shareholder Meeting

Emily Yuen

CPD BootcampNovember 26, 2014

Shareholder Meeting

2

Types of shareholder meetings

Who can call a shareholder meeting?

Deadline to call an annual meeting

Sending notice

Annual meeting matters

Notice of meeting – contents, delivery and waiver

Preparing for a shareholder meeting

Who can attend a shareholder meeting?

Conducting a shareholder meeting – common questions

Types of shareholder meetings

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1. Annual meetings – required by corporate statute

2. Special meetings – for transacting special business

3. Class or series meetings – restricted to holders of a class or

series of shares

Who can call a shareholder meeting?

4

1. Directors

2. Shareholders (Business Corporations Act Section 167)

Shareholders must hold at least 5% of issued shares of the

company that carry the right to vote at general meetings

3. Court (Business Corporations Act Section 186)

Deadline to call an annual meeting

5

Companies are required to hold shareholder meeting annually,

and not more than 15 months after the preceding annual meeting.

TSX issuer: Within 6 months from fiscal year end (TSX Company

Manual Section 464).

Extension of deadline:

Submit letter request to Corporate Registry;

TSX issuers should also submit TSX Form 9.

Private companies have the option to transact the required

businesses by unanimous written shareholder resolutions.

Sending notice

6

PRIVATE COMPANY PUBLIC COMPANY

Company’s articles

(standard form: no less than 10 days

before the meeting date)

No fewer than 30 days and no more

than 60 days before the meeting date

(National Instrument 54-101)

– can be abridged

No more than 2 months before the

meeting date (Business Corporations

Act Section 169)

Annual meeting matters

7

1. Present the minutes of the preceding meeting;

2. Present the company’s annual financial statements and auditor’s

report;

3. Elect directors;

4. Appoint auditors and fix their remuneration or authorize the

Board to set their remuneration;

5. Transact any other special matters as required.

Notice of meeting

8

CONTENTS: Date, time, location of the meeting and description of

businesses in sufficient detail to permit shareholder to form a

reasoned judgement

DELIVERY: to latest addresses of shareholders on the register

PUBLIC COMPANIES: can opt to use NOTICE-AND-ACCESS

ATTENDANCE of a person at a meeting of shareholders is a

waiver of entitlement to notice of the meeting

Preparing for a shareholder meeting

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Obtain meeting agenda from Board

Draft notice of meeting

Draft meeting circular

Draft and send related directors’ and officers’ questionnaires

Prepare proxy forms

Compile list of shareholders entitled to vote at the meeting

Prepare chair’s script

Make available for viewing at the annual meeting venue:

annual comparative financial statements

minutes of previous shareholder meeting

Who can attend a shareholder meeting?

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Entitled to attend:

1. Registered shareholders and proxyholders

2. Directors and nominees

3. Auditors (Business Corporations Act Section 219)

Allowed to attend in most cases:

1. Officers

2. Legal counsel

Conducting a meeting – common questions

11

Q: Can a shareholder dial into a meeting?

A: Refer to company’s articles. No general restrictions in the BCA.

Company must provide dial-in information to all shareholders in advance of

the meeting.

Q: Do motions need to be seconded?

A: No, unless required by the company’s articles.

Q: What if shareholder meeting material included a resolution that will not

be motioned at the meeting?

A: The meeting chairperson can announce that the business will not be dealt

with or that the Board has withdrawn the proposal.

Q: Can a shareholder make a motion from the floor?

A: Yes – any person entitled to vote can make a motion.

Questions?

Contact:

Jessica Yee

[email protected]

T: (604) 443-7136

Emily Yuen

[email protected]

T: (604) 648-6556

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New Trends in Corporate Bylaws

Gary SollisDaniel Katzin


Introductions - Bylaws

14

• In the US, companies are using bylaws in respect of shareholder

disputes and litigation to save time and money.

• Advance notice bylaws are one example of a recent Delaware bylaw

development which has been adopted in Canada.

• Additional areas where bylaws are developing include forum selection for

litigation, fee shifting bylaws for litigation costs and mandatory arbitration.

Agenda

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1. Bylaws, Articles and Board Policies

2. Advance Notice Bylaws

3. US Developments

Forum selection, fee shifting and arbitration bylaws

Bylaws, Articles and Board Policies

What’s the Difference?

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Generally in Canada, two types of corporate statutes (and corporations).

1. Canada Business Corporations Act (CBCA)

• Provides a complete code which divides powers between directors and

shareholders.

• Known as statutory division of powers model. Origin in the United States.

Status and remedy oriented.

• Business Corporations Act in Alberta and in Ontario based on CBCA model.

2. British Columbia Business Corporations Act (BC Act)

• Contractarian model, but adopts useful CBCA features. Based on old English

company legislation. Contract and rights oriented. More flexibility.

Constating Documents

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BC Act Notice of Articles Articles

CBCA Articles Bylaws

• BC Notice of Articles are filed with the BC Registrar of Companies and

sets out certain prescribed information such as corporate name,

registered and records offices, director information, and authorized share

capital.

• CBCA Articles are filed with Corporations Canada and set out certain

information such as corporate name, registered office, restrictions on

business (if any), restrictions on share transfers (if any), and rights and

restrictions that apply to shares classes

• Generally, Articles may be amended with a special shareholders’ resolution

(typically 2/3 vote).

Articles under the BC Act

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• The BC Act permits flexibility under a company’s constating documents.

• Articles of the company are binding upon and form a contract between

the company and its shareholders and so can be modified extensively.

• Typically addresses rules for conduct of the company, restrictions (if any) on

the businesses that may be carried on, the powers that the company may

exercise, and the special rights or restrictions attached to shares.

• Amended as specified by the act or articles. Otherwise, amended with a

special shareholders’ resolution - typically 2/3 vote, but can be up to 3/4 vote.

CBCA Bylaws

What are they and how are they adopted/amended?

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• By-laws contain the internal governance rules and provide a guide for the

conduct and affairs of the corporation. Bylaws must be in line with the

act and articles to be valid.

• Directors may pass bylaws by a resolution (CBCA Section 103).

• Bylaw is valid when passed by directors until the next general meeting (AGM).

• Bylaws must be put to shareholders at the next AGM, where shareholders by

ordinary resolution may confirm, amend or reject the bylaw.

• Bylaws may be created by shareholders through a shareholder proposal.

CBCA - Articles and Bylaws

What is their impact on shareholders?

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• Shareholders can go to court to enforce articles and bylaws.

• Articles and bylaws may bind shareholders in a contractual manner.

• Bylaws only bind a shareholder acting in the capacity of a shareholder.

• Shareholders may unanimously agree to ignore the application of a bylaw.

• Unanimous shareholder agreements allow shareholders to create

contractual rights or obligations among the shareholders.

Board Policy

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• Directors can use board policies to set out internal governance rules,

provided such policies are not contrary to the articles or the act.

• Most useful for matters impacting the company, as opposed to the

shareholders generally.

• Particularly useful in British Columbia, since articles are not effective until

they receive shareholder approval by a special resolution.

• Board policies have been used:

• To address TSX requirements that each director be elected by a majority of the

votes cast.

• To implement advance notice bylaws.

Advance Notice Bylaws

What are they?

22

• Wide spread use in Canada following increase in proxy fights in 2012.

• Advance Notice Bylaws require shareholders to provide the corporation

with prior notice of their intent to nominate directors.

• Purpose is to prevent a dissident shareholder from lying in the weeds

and nominating directors at or immediately prior to a meeting, when all

shareholders would not have a chance to consider such nomination.

• Advantages: Facilitates shareholder democracy by allowing

shareholders to have notice of nominations and facilitating an orderly

meeting.

• Disadvantages: May be used as a tool to entrench management and

restricts shareholders from their fundamental right to nominate directors.


How do they work?

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• Generally require certain prescribed information, such as:

• the name, age, address, occupation and share ownership of the proposed

director; and

• information about the proposed director and nominating shareholder that would

be required to be disclosed in a dissident’s proxy circular.

• Set time lines generally as follows:

• Notice required 30 to 65 days or longer in advance of the annual general

meeting (AGM).

• For an AGM to be held within 50 days of its first announcement, then notice

required within 10 days of the first announcement of the AGM.

• For a special meeting (that is not an AGM), notice required 15 days from its

announcement.


Corporate Law Considerations

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• Adoption

• Adopted as a bylaw for CBCA, OBCA or ABCA corporations.

• Adopted as a board policy, or as an amendment to articles, for a BC Act

corporation.

• Treatment by the Courts

• Courts have upheld advance notice bylaws when implemented for the benefit of

shareholders. For example, the company delayed a meeting so shareholders

would have time to consider all nominations. (Mundoro Capital case)

• Courts have interpreted the bylaws purposively to allow nominations, rather

than restrictively to prevent nominations. (Orange Capital case)

“Advance notice policies are intended to be a shield to protect shareholders... as

well as management, from ambush; they are not intended to be a sword in the

hands of management to exclude nominations given on ample notice ....”


Responses to Advance Notice Bylaws

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• Proxy firms: Glass Lewis/Institutional Shareholder Services

• Recommend shareholders withhold votes for directors who unilaterally adopt

advance notice bylaws without a shareholder vote. (ISS)

• Adopt a case by case approach to such policies (ISS).

• ISS - No maximum notice period. Glass Lewis – maximum of 70 days.

• Challenges to advance notice bylaws proposed by commentators.

• These bylaws could be oppressive and challenged with the oppression remedy.

• Securities regulators could address advance policies through their public

interest power, like shareholder rights plans.

US Developments on Bylaws

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• Delaware is the preeminent jurisdiction for corporate law in the US

• US companies may be subject to frivolous and opportunistic lawsuits,

particularly in conjunction with a merger and acquisition. These can be

expensive or distracting.

• In response, US companies have sought ways to prevent or limit the risk

of such suits by adopting the following types of bylaws

• Forum Selection

• Fee shifting

• Arbitration

Forum Selection Bylaws

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• Bylaw setting a jurisdiction as the exclusive forum for shareholder suits.

• Validity of exclusive forum bylaws upheld in 2013 by the Delaware Court

of Chancery in Boilermakers Local 154 Retirement Fund v. Chevron

Corp.

• Since this case, exclusive forum bylaws continue to gain traction to

prevent multi-forum litigation.

• Several courts in the US outside of Delaware have enforced exclusive

forum bylaws and dismissed litigation brought in contravention of them.

• Benefits of an exclusive forum bylaw are they prevent corporate waste

and opportunistic forum-shopping associated with multi-forum litigation.

• More corporations expected to adopt exclusive forum bylaws.

Forum Selection Bylaws

Continued

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• In a recent case, First Citizens, the Delaware Court of Chancery upheld

an exclusive forum bylaw of a Delaware corporation that required

stockholder litigation to be brought in North Carolina courts.

• Majority of the Delaware corporations’ operations were in North Carolina.

• First Citizens also rejected the plaintiff’s claim that the exclusive forum

bylaw was improper because it was adopted in connection with the

announcement of a merger agreement.

• “That the Board adopted [the exclusive forum bylaw] on an allegedly ‘cloudy’

day … rather than on a ‘clear’ day is immaterial given the lack of any well-pled

allegations … demonstrating any impropriety in this timing.”

Potential Application in Canada

• Prevent jurisdiction shopping, and relevant to companies with US

operations and US shareholders

Fee Shifting Bylaws

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• A May 2014 Delaware Supreme Court decision (ATP Tour) upheld bylaws

that would require a shareholder plaintiff who sues the company

unsuccessfully to pay the defendant company's litigation expenses.

• Delaware legislature expected to enact legislation limiting the

applicability of the Supreme Court's decision.

• Several publicly traded Delaware corporations have already adopted fee-

shifting bylaws by way of a board resolution.

Potential Application in Canada

• May have limited applicability in British Columbia for class actions

because of no cost system under the Class Proceedings Act.

• May be useful in other contexts in BC or in other jurisdictions in Canada.

Arbitration Bylaws

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• Other types of bylaws impacting litigation rights have been discussed,

including provisions which would mandate arbitration instead of litigation.

• Arbitration clauses have been upheld as a matter of contract.

• To the extent bylaws and articles create a contact, they may be able to adopt

arbitration provisions.

• Certain US REITS have adopted arbitration bylaws.

• Including Commonwealth REIT, whose bylaws were upheld by a US court.

• Commentators have proposed suggestions for drafting such bylaws:

• Fixing time periods, limiting or prohibiting discovery, specifying arbitrator

qualifications, setting applicable laws etc.

• Include a carve out for higher amounts so that the company legislation is still

handled by the courts where there is a right to appeal.

• Providing an exclusive forum in the event the bylaw is unenforceable.

Response from Proxy Advisory Firms

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Glass Lewis

• Recommends a vote against forum selection and fee shifting bylaws.

• Limits on choice of legal venue is not in shareholders’ best interests.

• Fee shifting bylaws can have a chilling effect on even meritorious suits.

ISS

• Vote case-by-case on bylaws which impact shareholders' litigation rights,

taking into account factors such as:

• rationale for adopting such a provision;

• disclosure of past harm from shareholder lawsuits;

• the breadth of application of the bylaw; and

• governance features such as shareholders' ability to repeal the provision and to

hold directors accountable through annual elections and a majority vote policy.

• Recommend a vote against fee-shifting bylaws where plaintiffs pay costs

evens if the plaintiffs are partially successful.

Conclusion

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• US companies continue to get creative with mechanisms to address the

increase in shareholder litigation and disputes.

• Adopting some of these bylaws may help Canadian companies address

shareholder disputes when they arise in Canada, as we saw with

advanced notice bylaws.

• Canadian companies should continue to monitor these developments.

Questions?

Contact:

Gary R. Sollis

[email protected]

T: (604) 443-7130

Daniel Katzin

[email protected]

T: (604) 691-6450




When things go wrong at a

shareholder meeting

Catherine Wade

CPD Bootcamp

November 26, 2014

Who is in charge?

November 2014 Dentons Canada LLP 35

Chair

Sets the agenda

Typically will conduct the formal meeting before opening the floor to questions or

providing the management presentation – Ensures the required business is conducted

Can adjourn the meeting to deal with issues that arise

Can control the process of questions – limiting time or number of questions that a

shareholder can ask to allow others to speak

Motions from the floor


When is a motion inappropriate?

Relates to the business at the meeting

With sufficient votes can put directors forward for election

How to address the issue

Levels of reaction

Disruptive shareholder/guest


Anticipating a potential disruption

Types of disruptions

Protests

Taking over the agenda during question period

Noise

Avoiding a potential disruption

Scrutiny on attendance

Social media watch

Security

Police

Dealing with a disruption

Levels of response

Letter from shareholder prior to meeting


DEMANDS

Independent Chair – to be agreed by the proponent

Review of proxies – prior to the meeting

Review of shareholder lists – prior to the meeting

Scrutineer – to be agreed

Proxy tabulator – to be agreed

Adjouring the meeting


How long?

Additional notice to reconstitute

Impact on business already conducted

Questions?

Contact:

Catherine Wade

[email protected]

T: (604) 691-6431




Case Law Update:

Recent cases from the Supreme Court of Canada on contractual duties, interpretation and arbitration appeals

Craig Dennis



• Bhasin v Hrynew, 2014 SCC 71

• Sattva Capital Corp. v Creston Moly Corp., 2014 SCC 53

Bhasin v Hrynew, 2014 SCC


• Bhasin worked in sales as “enrolment director” with Can-Am

• Bhasin and Can-Am had 3 year agreement that would renew unless

notice to contrary given

• Hrynew also “enrolment director” and wanted a merger with Bhasin

• Hrynew encouraged Can-Am to pressure Bhasin into merger

• Can-Am considered restructuring of company that would have Bhasin

working for Hrynew’s agency, outlined plans to Alberta Securities

Commission

Bhasin v Hrynew, 2014 SCC


• Can-Am did not disclose extent of restructuring plan to Bhasin and

repeatedly misled and lied to him

• Can-Am appointed Hyrnew to monitor compliance of enrolment

directors with securities laws, required access to Bhasin’s books;

Bhasin refused.

• Can-Am lied to Bhasin about whether Hyrnew had duty to keep

information confidential

• Can-Am gave notice of non-renewal of the Agreement to Bhasin

• Bhasin lost the value of his business and took less remunerative work

with another company

Trial History


• Alberta Court of Queen’s Bench – Can-Am breached implied duty of good faith

in the contract, Hrynew induced a breach of contract

• Alberta Court of Appeal – allowed appeal and dismissed lawsuit

• Supreme Court of Canada – accepts trial court’s conclusion and establishes

duty of honesty

Significance of Bhasin


• Good faith contractual performance is a general organizing

principle in the common law of contract

• At a minimum, there is a common law duty which applies to all

contracts to act honestly in the performance


• Law in relation to good faith performance of contracts formerly

unsettled and unclear – applied piecemeal in specific contexts

(employment, landlord-lessee, insurance, tendering)

• Court articulated a new organizing principle of good faith: parties must

perform their contractual duties honestly and reasonably and not

arbitrarily or capriciously

• Exemplifies the notion that a contracting party should have appropriate

regard to the legitimate contractual interests of contracting party

• “Appropriate regard” depends on the context of the contractual

relationship

(1) Organizing principle of good faith


• Generally the principle is applied by resorting to law that gives effect to

aspects of the principle in situations and relationships – honest, candid,

forthright or reasonable contractual performance

• Must be applied consistently with freedom of contract and to pursue

individual self-interest – not intended to be a form of judicial activism

(1) Organizing principle of good faith


• The duty to act honestly as expressed by the Court means

• “…simply that parties must not lie or otherwise knowingly mislead each other about

matters directly linked to the performance of the contract. This does not impose a duty

of loyalty or of disclosure or require a party to forego advantages flowing from the

contract; it is a simple requirement not to lie or mislead the other party about one’s

contractual performance.”

• Operates as a minimum standard of honest contractual performance –

operates irrespective of intentions of the parties (meaning, parties are

not free to exclude the duty)

• Court provides for possibility of contracting parties modifying the

content of the duty to act honestly through express terms in the

contract, so long as its “core requirements” respected

(2) Common law duty to act honestly

Remaining Questions


• Does the duty extend to negotiation phase? Arguably, the case speaks

only about performance of the contract

• Is this a contractual obligation, or something broader, such as a new

tort of contractual performance?

• To what extend can you contract out of the duty? What is the “core

requirement” that cannot be excluded by contract?

Implications of the Decision


1. Parties must not lie or knowingly mislead the other party on matters

linked to the performance of a contract

2. When drafting a contract consider including a provision that

establishes the standard of good faith performance that will govern

the agreement

3. Consider documenting how you have come to a decision concerning

contractual performance as that issue may be the subject of litigation

Sattva Capital Corp. v Creston Moly Corp., 2014 SCC


• Parties entered into agreement to pay a finder’s fee for acquisition of

mining property

• Dispute over manner of payment of the finder’s fee – which date to

price the shares

• Dispute subject to arbitration clause in agreement

Arbitration Act, RSBC 1996


Appeal to the court

31 (1) A party to an arbitration …. may appeal to the court on any

question of law arising out of the award if

(a) all of the parties to the arbitration consent, or

(b) the court grants leave to appeal.

(2) In an application for leave under subsection (1) (b), the court may

grant leave if it determines that

(a) the importance of the result of the arbitration to the parties justifies

the intervention of the court and the determination of the point of law

may prevent a miscarriage of justice,

…..

History of Appeals


1. BCSC – no question of law, denied leave

2. BCCA – there is a question of law, granted leave (remitted to BCSC)

3. BCSC – dismissed appeal, decision of arbitrator correct

4. BCCA – reversed decision

5. SCC – reinstated arbitral award in full

Significance of Creston Moly Corp.


1. A higher test for seeking leave to appeal an arbitration decision

1. A) what (and what is not) a question of law?

2. B) what is a miscarriage of justice?

3. C) what discretionary factors will the court consider?

2. Clarity on principles of contractual interpretation, in both arbitration

setting and more generally


• Formerly, contractual interpretation considered question of law

• That approach to be abandoned:• “Contractual interpretation involves issues of mixed fact and law as it is an exercise in which the

principles of contractual interpretation are applied to the words of the written contract, considered

in light of the factual matrix”

• Some interpretation issues remain a question of law:

• - incorrect principle / legal test

• - failure to consider a relevant factor

• - formation of the contract

• - capacity of parties

• - requirements of certain contracts (in writing, etc.)

1A) Appealing an Arbitration Decision: Question of Law


• However, court should be cautious in identifying inextricable questions

of law in what is in essence a dispute interpreting terms of a contract

• In the context of commercial arbitration, standard of review will typically

be reasonableness unless the question is one that would attract the

correctness standard, such as constitutional questions or questions of

law of central importance to the legal system as a whole and outside

the adjudicator’s expertise

1A) Appealing an Arbitration Decision: Question of Law


• For a court to grant leave, the applicant must also demonstrate a

miscarriage of justice

• Miscarriage of justice = (1) alleged legal error pertains to material

issue, and (2) if decided differently would affect result of the case

1B) Appealing an Arbitration Decision: Miscarriage of

Justice


• A non-exhaustive list of discretionary factors to consider in a leave

application

• Conduct of the parties;

• Existence of alternative remedies;

• Undue delay; and

• The urgent need for a final answer.

1C) Appealing an Arbitration Decision: Discretionary

Factors


• Law on interpreting contracts has evolved towards a practical, common

sense approach not dominated by technical rules of construction

• The overriding concern is to determine “the intent of the parties and the

scope of their understanding”

• Must read the contract as a whole, consistent with surrounding

circumstances or factual matrix

• background facts at the time the contract was executed that were known (or

reasonably ought to have been known) by the contracting parties

• Admissible as evidence because relevant to the way the language used in

the contract is to be understood.

2. Contractual Interpretation Principles

Implications of the decision


1. Choose your arbitrator carefully – you will unlikely be able to appeal

an award

2. Get it right the first time – ensure you have all the evidence you need,

both regarding the contract and surrounding circumstances, to

support your interpretation of the agreement

3. High threshold for appeal – arbitrator must not only be incorrect but

must be unreasonable

Questions?

Contact:

Craig Dennis

[email protected]

T: (604) 648-6507




CPD Bootcamp - Corporate and Litigation Nov 2014

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Transcript of CPD Bootcamp - Corporate and Litigation Nov 2014