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The "going private" transaction : a genre of minority shareholder squeezeout Kroft , Edwin Grant 1980

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THE "GOING PRIVATE" TRANSACTION A GENRE OF MINORITY SHAREHOLDER SQUEEZEOUT by EDWIN GRANT KROFT LL.B., YORK UNIVERSITY, 1978 THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF LAWS IN THE FACULTY OF GRADUATE STUDIES FACULTY OF LAW  We accept t h i s t h e s i s as conforming to the r e q u i r e d standard  THE UNIVERSITY OF BRITISH COLUMBIA OCTOBER, 1980 (c)  EDWIN GRANT KROFT, 1980  In p r e s e n t i n g t h i s  thesis  in p a r t i a l  fulfilment of  the requirements f o r  an advanced degree at the U n i v e r s i t y of B r i t i s h Columbia, the L i b r a r y s h a l l I  f u r t h e r agree  for  freely available  that permission  for  r e f e r e n c e and  f o r e x t e n s i v e copying o f  this  that  study. thesis  s c h o l a r l y purposes may be granted by the Head of my Department or  by h i s of  make i t  I agree  representatives.  this  thesis  It  is understood that copying or p u b l i c a t i o n  f o r f i n a n c i a l gain s h a l l  written permission.  Department of  L.^.^  The U n i v e r s i t y o f B r i t i s h  2075 Wesbrook Place Vancouver, Canada V6T 1WS  Date  OCToegft  \  /go  Columbia  not be allowed without my  ABSTRACT  The phrase  "going p r i v a t e " r e f e r s to a  t r a n s a c t i o n i n which the c o n t r o l l i n g s h a r e h o l d e r s  who  are i n s t r u m e n t a l i n the management of a " p u b l i c " company seek t o terminate p u b l i c p a r t i c i p a t i o n and t r a n s f o r m the f i r m i n t o a p r i v a t e or c l o s e l y - h e l d e n t i t y .  Minority  s h a r e h o l d e r s o f such companies l o c a t e d i n Canada and U n i t e d S t a t e s have d e s c r i b e d t h i s process as  the  unfair,  d i s g r a c e f u l and a p e r v e r s i o n of the whole f i n a n c i n g process because of the a b i l i t y of the i n s i d e r s to time t h e i r departure, t o d i c t a t e the amount o f compensation they are to r e c e i v e and to r e g u l a t e the amount o f d i s c l o s u r e which would otherwise enable them t o  judge  the adequacy of the c o n s i d e r a t i o n o f f e r e d .  Consequently,  they have sought  t o e n j o i n going  p r i v a t e t r a n s a c t i o n s on one o f two grounds.  On  one  hand, they have o b j e c t e d t o being f o r c e d t o give up t h e i r investment  even a t the f a i r e s t p r i c e , c l a i m i n g , i n  e f f e c t , a vested r i g h t to remain as shareholders of the  issuer.  A l t e r n a t i v e l y , when the a p p l i c a b l e c o r p o r a t e  s t a t u t e o r c o n s t a t i n g documents o f the Company e x p r e s s l y permit  shareholder squeezeouts,  they have complained  of  being d e p r i v e d o f the i n t r i n s i c o r f a i r value o f t h e i r shares and denied the p r o c e d u r a l safeguards which would b e t t e r enable them t o make informed  investment  decisions.  This t h e s i s i s d i r e c t e d t o a study o f these criticisms. techniques  F o l l o w i n g a review o f the a s s o r t e d used i n squeezeout t r a n s a c t i o n s and the  e x i s t i n g p r o c e d u r a l safeguards  a v a i l a b l e t o the  m i n o r i t y , the c l a i m by m i n o r i t y shareholders t h a t they have a vested r i g h t t o remain as shareholders o f a p u b l i c company i s analyzed and r e j e c t e d .  Instead, i t i s  argued t h a t Canadian c o u r t s should o n l y e n j o i n squeezeout t r a n s a c t i o n s i n j u r i s d i c t i o n s which have not enacted  l e g a l r u l e s designed  t o a s s i s t shareholders i n  commanding the i n t r i n s i c v a l u e o f t h e i r  shares.  Assuming t h a t an a c q u i r o r o f m i n o r i t y shares has complied  s t r i c t l y with a l l corporate and s e c u r i t i e s  p r o c e d u r a l requirements,  but the p r i c e o f f e r e d f o r  m i n o r i t y shares i s l e s s than t h e i r i n t r i n s i c value, an  - iv -  injunction  should be i s s u e d only on the grounds t h a t the  o p p o r t u n i t y t o vote as a separate c l a s s , o r the c o n t r o l l i n g shareholders o r d i r e c t o r s have committed a breach o f a f i d u c i a r y duty owed t o the Company.  - v TABLE OF CONTENTS Page I.  INTRODUCTION  1  II.  THE DYNAMICS OF A GOING PRIVATE TRANSACTION  3  I I I . THE REGULATION OF A GOING PRIVATE TRANSACTION A.  THE PROCEDURAL FORMALITIES AFFECTING AN ACQUIROR 1.  B.  6  AS AN OFFEROR IN TAKEOVER BID, ISSUER BID OR COMPULSORY ACQUISITION PROCEEDINGS  6  2.  AS A CONTROLLING SHAREHOLDING OF THE ISSUER  9  3.  AS A DIRECTOR OF THE ISSUER  10  PROHIBITION IN THE FACE OF FULL PROCEDURAL COMPLIANCE  11  1.  2.  C.  6  EXPROPRIATION IN THE ABSENCE OF EXPRESS STATUTORY AUTHORITY  11  THE PAYMENT OF LESS THAN INTRINSIC VALUE FOR MINORITY SHARES  19  THE PATH TO INTRINSIC VALUE: THE ENACTMENT OF RULES CREATING ARTIFICIAL MARKET CONDITIONS  22  1.  23  STATUTORY REQUIREMENTS  - vi(a) (b) 2. D.  THE PROBLEMS INHERENT IN JUDICIAL EVALUATION  25  THE RESPONSE OF THE COURTS TO DATE  30  THE ONTARIO PROPOSALS  34  ENJOINING A GOING PRIVATE TRANSACTION IN THE ABSENCE OF RULES CREATING ARTIFICIAL MARKET CONDITIONS  42  1.  42  JUDICIAL RELIEF (a)  MAJORITY OF THE MINORITY TEST  43  (b)  PROPER CORPORATE PURPOSE TEST  45  (c)  FIDUCIARY DUTIES  53  ( i ) DIRECTORS' DUTIES  53  ( i i ) THE MAJORITYMINORITY DUTY IV.  53  CONCLUSION: TOWARDS A RATIONAL SCHEME OF REGULATING GOING PRIVATE TRANSACTIONS A.  THE REGULATORY FRAMEWORK PROPOSED FOR CANADA  65  B.  A SIMILAR ALTERNATIVE: THE BRUDNEY-CHIRELSTEIN ANALYSIS  67  THE PROSPECT OF SUCCESSFUL REGULATION  71  C. FOOTNOTES  73  BIBLIOGRAPHY  197  APPENDIX:  232  TABLE 1 TABLE 2  233 234  - vii -  ACKNOWLEDGMENT  The author wishes t o acknowledge  the h e l p f u l  c r i t i c i s m s and comments o f Messrs. L. Getz, R.K. Paterson and A.F. Sheppard, and t o thank t h e U n i v e r s i t y o f B r i t i s h Columbia, F a c u l t y o f Law, and t h e law f i r m o f Russell  & DuMoulin f o r the use o f t h e i r  d u r i n g the p r e p a r a t i o n o f t h i s work.  I  facilities  - 1 -  I.  Introduction Over the past four years many s h a r e h o l d e r s  have been compelled  t o s e l l t h e i r shares i n Canadian  p u b l i c or r e p o r t i n g companies a t l e s s than adjusted book or going concern value when these companies have "gone p r i v a t e " . (1)  Going p r i v a t e has consequently been  d e s c r i b e d as " u n f a i r , d i s g r a c e f u l and a p e r v e r s i o n o f the whole f i n a n c i n g  process".(2)  The phrase,  "going p r i v a t e " , i s a r e c e n t  a d d i t i o n t o the vocabulary o f the c o r p o r a t e practitioner.  I t r e f e r s to a t r a n s a c t i o n i n which the  c o n t r o l l i n g s h a r e h o l d e r s ( ) ("the 3  i n s i d e r s " ) who  are  i n s t r u m e n t a l i n the management of a " p u b l i c " company ("the  i s s u e r " ) seek t o terminate p u b l i c  participation  and r e t u r n the f i r m to the s t a t u s of a c l o s e l y h e l d e n t i t y ) by p r o v i d i n g the m i n o r i t y s h a r e h o l d e r s with cash or redeemable s e c u r i t i e s i n exchange f o r t h e i r existing  shares.  E v i d e n c i n g t h e i r d i s p l e a s u r e a t the a b i l i t y of the i n s i d e r s t o time t h e i r departure, t o d i c t a t e amount of compensation they are to r e c e i v e and  to  the  -  2  -  r e g u l a t e the amount o f d i s c l o s u r e which would  otherwise  enable them to judge the adequacy of the p r i c e a t which each share i s t o be surrendered, Canada(5) and  shareholders i n  the U n i t e d S t a t e s ^ ) have sought  to e n j o i n going p r i v a t e t r a n s a c t i o n s on one grounds.  of  two  On one hand, they have o b j e c t e d to being  forced to give up t h e i r investment  even a t the  fairest  p r i c e , c l a i m i n g i n e f f e c t a vested r i g h t to remain as shareholders o f the i s s u e r . ^ )  A l t e r n a t i v e l y , when  the a p p l i c a b l e corporate s t a t u t e ( ) or c o n s t a t i n g 8  documents o f the Company^) e x p r e s s l y permit squeezeouts,  m i n o r i t y shareholders have complained  of  being deprived o f the i n t r i n s i c or f a i r value o f t h e i r shares and denied the p r o c e d u r a l safeguards which would b e t t e r enable them to make an informed  investment  decision.  This paper analyzes both these v o i c e d by m i n o r i t y s h a r e h o l d e r s . complaint  i s r e j e c t e d as untenable  criticisms  Although  the  i n law and  first unsound  from the p o i n t o f view of commercial expediency,  i t is  argued t h a t m i n o r i t y shareholders must be given the o p p o r t u n i t y t o dispose o f t h e i r shares f o r an amount  - 3 -  a t l e a s t equal to t h e i r i n t r i n s i c v a l u e . of l e g a l r u l e s designed  In the absence  to a s s i s t shareholders i n  commanding i n t r i n s i c value, Canadian Courts  should  e n j o i n squeezeout t r a n s a c t i o n s only on the grounds t h a t the m i n o r i t y has  f a i l e d to vote as a separate c l a s s ,  the c o n t r o l l i n g shareholders or d i r e c t o r s of the  or  issuer  have committed a breach o f a f i d u c i a r y duty owed to the Company or to the other  II.  shareholders.  The Dynamics o f a Going P r i v a t e T r a n s a c t i o n C o n t r o l l i n g shareholders of the  i n i t i a t e going p r i v a t e t r a n s a c t i o n s .  issuer  Tax(10) o r  n o n - t a x ( H ) c o n s i d e r a t i o n s , however, may  prompt  i n s i d e r s t o use a corporate a s s o c i a t e d ) o r 2  affiliate(13)  #  i n c l u d i n g the issuer(14)#  as a  v e h i c l e through which to e x p r o p r i a t e s u f f i c i e n t m i n o r i t y shares t o e f f e c t the c o n v e r s i o n i n t o a " p r i v a t e company" as d e f i n e d i n c o r p o r a t e ( 1 5 ) , s e c u r i t i e s ( 1 6 ) and tax(1*7) l e g i s l a t i o n .  Assuming t h a t the c o n t r o l l i n g shareholders u n s u c c e s s f u l i n purchasing the d e s i r e d number o f o u t s t a n d i n g m i n o r i t y shares on a takeover bid(18)  o  r  are  4 -  i n the open m a r k e t ^ ) , they may be able t o a c q u i r e 19  the remainder by passing (1)  a resolution  authorizing  a s t a t u t o r y amalgamation( 0) as a r e s u l t 2  of which m i n o r i t y  shareholders o f the i s s u e r  r e c e i v e cash o r redeemable p r e f e r e n c e shares of the amalgamated company;  (2)  the r e c l a s s i f i c a t i o n o f the m i n o r i t y the  i s s u e r as redeemable a t the o p t i o n o f the  Company(21)  (3)  shares o f  ;  the c o n s o l i d a t i o n o f the common shares o f the issuer(2 2)  #  l e a v i n g the m i n o r i t y  with  f r a c t i o n a l shares which the Company may subsequently r e p u r c h a s e r s ) .  (4)  o  r  the s a l e o f a l l the a s s e t s ( )  to a  2 4  corporate a f f i l i a t e and the subsequent winding up o f the i s s u e r ( 2 5 )  #  In c e r t a i n j u r i s d i c t i o n s , ( 2 6 )  a  n  a c q u i r o r ( ) which owns 9/10 o f the i s s u e d shares o f 2 7  one  c l a s s o f the i s s u e r f o l l o w i n g a takeover b i d , (28)  - 5 -  may  compel the m i n o r i t y to s e l l the remainder i n pro-  ceedings r e f e r r e d t o as  "compulsory a c q u i s i t i o n " . ( 2 9 )  Once s u c c e s s f u l i n t a k i n g the company p r i v a t e , the i n s i d e r s may  enjoy s i g n i f i c a n t b e n e f i t s o n l y  able to shareholders companies.  of non-reporting  They alone w i l l  r e t a i n e d earnings  or c l o s e l y h e l d  share i n the  of the Company due  avail-  increased  to the lower r a t e s  o f tax imposed on c e r t a i n types o f income(30) earned by a p r i v a t e c o r p o r a t i o n , decreased shareholder  serv-  i c i n g c o s t s i n c u r r e d o n l y by r e p o r t i n g companies which must comply with  extensive  disclosure require-  ments (31), enhanced economies o f scale(32) i n c r e a s e d corporate  The  flexibility.(  )  absence of p u b l i c s c r u t i n y w i l l  enable c o n t r o l l i n g shareholders advantages i n v o l v i n g the use freezing.(34)  3 3  ~}  an(  t o partake o f  income s p l i t t i n g  also tax or  I n s i d e r s might a l s o choose t o use  estate the  p r i v a t e company as a h o l d i n g company f o r s e c u r i t i e s purchased with t h e i r own  funds and  as a conduit  through  which to flow investment income when t h e i r p e r s o n a l r a t e i s g r e a t e r than the corporate  r a t e . ( 3 5)  This  tax  - 6 -  w i l l r e s u l t i n a tax d e f e r r a l w h i l e earnings remain i n the company and an eventual small tax savings once the money i s p a i d t o s h a r e h o l d e r s . )  I I I . The R e g u l a t i o n o f a Going P r i v a t e T r a n s a c t i o n  A.  The P r o c e d u r a l F o r m a l i t i e s A f f e c t i n g An Acquiror An a c q u i r o r which chooses t o take an i s s u e r  p r i v a t e must observe  v a r i o u s requirements  in different  circumstances.  1.  As an O f f e r o r i n Takeover B i d , I s s u e r B i d or Compulsory A c q u i s i t i o n Proceedings An a c q u i r o r must p r o v i d e o f f e r e e s w i t h  e x t e n s i v e d i s c l o s u r e t o enable them t o make an informed investment  d e c i s i o n about the f a i r n e s s o f the o f f e r .  Unless a b i d i s c l a s s i f i e d as "exempt"(^7)  f  a  takeover b i d c i r c u l a r which accompanies the o f f e r must d i s c l o s e , f o r example, the number o f s e c u r i t i e s h e l d by the o f f e r o r or r e l a t e d p a r t i e s ; the market p r i c e of the t a r g e t company shares over t h e p r e c e d i n g 6 months; t h e terms of the o f f e r ; the p a r t i c u l a r s of the method and time o f payment f o r shares o f the t a r g e t company; and  -  7 -  the p a r t i c u l a r s o f any arrangement o r agreements made o r proposed t o be made between the o f f e r o r and any o f t h e d i r e c t o r s o r s e n i o r o f f i c e r s o f the t a r g e t company(3 8 )  m  To p r o p e r l y evaluate t h i s i n f o r m a t i o n pressure  from the o f f e r o r t o tender  shareholders  their  without  shares,  must a l s o r e c e i v e the b e n e f i t o f a c e r t a i n  p e r i o d o f time w i t h i n which t o a c t .  In a takeover or  i s s u e r b i d , s u b j e c t t o a v a r i a t i o n o f extension o f t h e o f f e r , any shares  deposited may be withdrawn by o r on  b e h a l f o f an o f f e r e e a t any time u n t i l the e x p i r a t i o n o f seven days from the date o f the o f f e r ( 3 9 ) . t h a t p e r i o d has elapsed, and p a i d  Until  the shares may not be taken up  for.( °) 4  In compulsory a c q u i s i t i o n proceedings,  an  o f f e r o r i s o n l y e n t i t l e d t o purchase the shares o f d i s s e n t i n g o f f e r e e s once i t has a c q u i r e d 9/10 o f the shares  i t o r any r e l a t e d p a r t y ( ) d i d not a l r e a d y 4 1  own, w i t h i n 4 months o f the date o f the b i d . ( ) 4 2  The o f f e r o r must then m a i l the d i s s e n t i n g o f f e r e e s a  - 8 -  n o t i c e o f compulsory a c q u i s i t i o n w i t h i n two the t e r m i n a t i o n o f the bid.(43) o f f e r e e i s not  months a f t e r  If a dissenting  s a t i s f i e d with the terms of the o f f e r ,  he  must seek j u d i c i a l redress w i t h i n a short p e r i o d o f time t h e r e a f t e r or accept  the c o n s i d e r a t i o n o f f e r e d on  the  b i d . (44)  There are a l s o a number of s t a t u t o r y p r o v i s i o n s r e l a t i n g t o the payment o f c o n s i d e r a t i o n which an o f f e r o r must observe. must pay  For example, an o f f e r o r  f o r shares which have been tendered w i t h i n 3 5  days of the date of the b i d or a v a r i a t i o n or thereof.(45). before  extension  i f the terms of the o f f e r are v a r i e d  the t e r m i n a t i o n of the b i d , a l l shareholders  have deposited  who  t h e i r shares p r i o r t o the date o f  v a r i a t i o n must be permitted the same terms.(46)  to tender t h e i r shares on  Moreover, i n c e r t a i n  j u r i s d i c t i o n s , an o f f e r o r i s r e q u i r e d to make a " f o l l o w up o f f e r " ( 4 7 ) t o a l l shareholders  o f the  company when i t has  the h o l d e r s  agreed to pay  target  c o n t r o l block o f shares a premium f o r t h e i r investment(48).  of a  -  2.  9 -  As a C o n t r o l l i n g Shareholder Shareholders  o f the I s s u e r  o f the i s s u e r may only approve an  amalgamation,( ^) an arrangement(50) r e s u l t i n g 4  i n a r e d u c t i o n o f c a p i t a l ( 5 1 ) , a share r e c l a s s i f ication(^2) s a l e o f a s s e t s (54)  a  n  o  (  r  consolidation^3 )  a  n  (  j  a  j winding up o f the  Company(55) by s p e c i a l r e s o l u t i o n ( 5 6 ) . though c o n t r o l l i n g shareholders  Even  are s u b j e c t t o e q u i t a b l e  r e s t r a i n t s ( ^ 7 ) when v o t i n g t h e i r shares t r a n s a c t i o n s , shareholders  i n these  o f each l e g a l l y c r e a t e d c l a s s  are a l s o e n t i t l e d t o b l o c k the passage o f a s p e c i a l r e s o l u t i o n by separate  c l a s s vote(58)  o  r  by c o u r t  a p p l i c a t i o n ^ ? - ) i f the c o n t r o l l i n g group uses i t s v o t i n g powers i n a d i s c r i m i n a t o r y  In c e r t a i n j u r i s d i c t i o n s , shareholders  fashion.(60)  controlling  are r e q u i r e d t o f i l e r e p o r t s  indicating  i n c r e a s e d ownership i n the e q u i t y o f the i s s u e r , ( 6 1 ) though the a c q u i s i t i o n o f m i n o r i t y shares of material i n f o r m a t i o n ^ ) 2  with the a i d  t o which the other  party  t o the t r a n s a c t i o n i s not p r i v y , i s p r o h i b i t e d . ( 6 3 )  - 10  3.  As a D i r e c t o r of the Acquirors(64)  o f the  w  n  Issuer o  i s s u e r are s u b j e c t  must not a u t h o r i z e  -  a  i  s  serve as d i r e c t o r s  o  to v a r i o u s  a purchase of the  obligations.  They  i s s u e r ' s shares  which would contravene s t a t u t o r y r e s t r i c t i o n s or provisions  i n the c o n s t a t i n g  documents.(65)  f a i l u r e to d i s s e n t to such an a c t i o n w i l l render  the  d i r e c t o r l i a b l e to the extent o f the amount p a i d  to  repurchase the  shares.(66)  In a d d i t i o n to approving squeezeout transactions(67)  a n  d  providing  shareholders w i t h a  c i r c u l a r i n takeover b i d s i t u a t i o n s ( 6 8 ) must prevent t h e i r s e l f - i n t e r e s t  f  directors  from c o n f l i c t i n g  t h e i r f i d u c i a r y d u t i e s t o the company.(69) are t h e r e f o r e authorizing  not p e r m i t t e d to vote on  transactions  interest.(70)  Directors  resolutions  i n which they have a  They must a l s o not use  with  material  t h e i r powers  f o r an improper purpose(71) by r e a c q u i r i n g shares i n order to strengthen t h e i r p o s i t i o n as c o n t r o l l i n g shareholders.  - 11 -  B.  P r o h i b i t i o n i n the Face o f F u l l Compliance  Procedural  M i n o r i t y shareholders have been s u c c e s s f u l i n e n j o i n i n g t r a n s a c t i o n s i n which they have not been a f f o r d e d the b e n e f i t o f these  safeguards^ ), 7 2  because c o u r t s have always i n s i s t e d on s t r i c t  compliance  with p r o c e d u r a l f o r m a l i t i e s when p r i v a t e p r o p e r t y i s being  expropriated.( ) 7 3  However, they have sought i n j u n c t i v e r e l i e f on two  a d d i t i o n a l grounds, even when the a c q u i r o r has  complied  1.  s t r i c t l y with a l l s t a t u t o r y  requirements.  E x p r o p r i a t i o n i n the Absence o f Express S t a t u t o r y Authority M i n o r i t y shareholders have argued t h a t  i n s i d e r s should not be p e r m i t t e d t o use amalgamations o r arrangements as squeezeout mechanisms i n the absence o f express  s t a t u t o r y language p e r m i t t i n g the c o r p o r a t e  repurchase  o f shares o r compulsory  acquisition.( ) 7 4  Unfortunately, courts i n d i f f e r e n t t i o n s have reached  jurisdic-  a p p a r e n t l y o p p o s i t e c o n c l u s i o n s on  t h i s i s s u e , l e a v i n g companies hoping  t o go p r i v a t e  - 12  -  u n c e r t a i n o f the chances o f a s u c c e s s f u l s u i t d i s g r u n t l e d m i n o r i t y shareholders,  and t h e i r  by solicitors  unable t o p r o v i d e an u n q u a l i f i e d o p i n i o n on the s t a t e of the law  i n t h i s area.  On one hand, the c o u r t s have  l a b e l l e d the work o f the L e g i s l a t u r e as "redundant" (75) f o r e n a c t i n g more than one  statutory  p r o v i s i o n which f a c i l i t a t e s a m i n o r i t y squeezeout  and  have suggested t h a t the p r i n c i p l e s o f s t a t u t o r y c o n s t r u c t i o n ( 7 6 ) render  compulsory a c q u i s i t i o n  the e x c l u s i v e technique  for expropriating minority  shares.(77)  as  on the other hand, they have endorsed  a m a l g a m a t i o n s ( ) and 78  arrangements(79) as  l e g i t i m a t e f o r c e o u t mechanisms whether or not companies l e g i s l a t i o n o f the  the  j u r i s d i c t i o n contains a  compulsory a c q u i s i t i o n p r o v i s i o n . For example, i n Ontario, the High Court prepared  was  t o s a n c t i o n the arrangement i n Re R i p l e y I n t e r -  n a t i o n a l (80), p r o v i d e d were given a l a r g e r sum shares.(81)  the m i n o r i t y of cash  shareholders  for their  consolidated  However, i n C a r l t o n R e a l t y et a l v.  Maple L e a f M i l l s et a l ( 8 2 )  /  Steele, J. issued  an  i n j u n c t i o n r e s t r a i n i n g the c o n t r o l l i n g shareholders  of  - 13 -  Maple Leaf M i l l s from proceeding w i t h a meeting the amalgamation f o r c e o u t was t o be In response  a t which  approved.( ) 83  t o the c l a i m by the p l a i n t i f f s t h a t a  t r a n s a c t i o n which r e s u l t e d i n t h e i r r e c e i v i n g redeemable p r e f e r e n c e shares r a t h e r than common shares o f the amalgamated c o r p o r a t i o n was unlawful and c o n t r a r y t o the O n t a r i o Business C o r p o r a t i o n s Act, the Court commented that: "The e f f e c t o f the amalgamation would be t o d e p r i v e the A p p l i c a n t s o f t h e i r common shares i n a company and r e p l a c e them with p r e f e r e n c e shares t h a t c o u l d be redeemed a t the w i l l o f the c o r p o r a t i o n . There i s no power f o r t h i s C o r p o r a t i o n t o redeem i t s common shares d i r e c t l y and there i s no s e c t i o n o f t h e Business C o r p o r a t i o n s A c t (Ont.) t h a t s p e c i f i c a l l y p r o v i d e s f o r the squeezing-out o f m i n o r i t y s h a r e h o l d e r s . There i s a power i n c e r t a i n circumstances f o r a c o r p o r a t i o n t o buy i t s own shares i n the open market, but t h i s denotes a v o l u n t a r i n e s s on the p a r t o f the shareholder t o be w i l l i n g t o s e l l . A person i s e n t i t l e d t o r e t a i n h i s p r o p e r t y i f he so wishes, except where t h e r e i s a r i g h t h e l d by another t o f o r c i b l y take i t . I t matters not f o r t h i s purpose what p r i c e the t a k e r i s w i l l i n g t o pay. I see no c l e a r r i g h t under the A c t t o permit the t a k i n g o f the a p p l i c a n t s ' common shares by the means proposed. I t may be t h a t there i s such a r i g h t by i m p l i c a t i o n under other sections...."( ) 8 4  - 14 -  The p o s i t i o n s adopted by Courts  interpreting  the Canada Business C o r p o r a t i o n s Act are no confusing.  less  For example, i n Neonex I n t e r n a t i o n a l L t d . v.  Kolasa et al.(85) and Jepson et a l . v . The S a l t Company(86)  #  the Courts expressed  approval of amalgamation sqeezeouts.  Canadian  their To quote Bouck, J .  i n Neonex; "Parliament decided to grant a c o n t r o l l i n g shareholder an e a s i e r way to f o r c e out the m i n o r i t y than was p e r v i o u s l y the case.... The l e g a l i t y o f the amalgamation i s not i n question. I t s m o r a l i t y i s f o r others to assess."( ) 8 7  In c o n t r a s t , i n Alexander  e t a l . v . Westeel-Rosco L t d . et  a l . ( 8 8 ) ) Montgomery, J . enjoined an amalgamation designed  to e l i m i n a t e p a r t i c i p a t i o n by the m i n o r i t y i n  the amalgamated company.(89)  He concluded  that:  " I f the L e g i s l a t u r e intended t h i s s e c t i o n to encompass e x p r o p r i a t o r y powers, they should have s a i d so i n c l e a r , unambiguous words. In my view, the s e c t i o n should not be construed to import such powers. They p u r p o r t to do i n d i r e c t l y what they f a i l e d t o accomplish d i r e c t l y on the takeover bid."( °) 9  This too was  the d e c i s i o n of the E n g l i s h Court  i n Re H e l l e n i c and General T r u s t Ltd.(9!) Templeman,  - 15  -  J . h e l d t h a t an arrangement under s e c t i o n 206 U.K.  Companies Act could not be used to  minority  expropriate  unavailable  t h i s conclusion,  to the acquiror.(92)  the Court r e j e c t e d the  d e c i s i o n o f Plowman, J . i n Re N a t i o n a l Bank and  the  shares when compulsory a c q u i s i t i o n pursuant to  s e c t i o n 209 was reaching  of  implicitly  j  n  earlier  Ltd.( ) 9 3  i n d i c a t e d t h a t compulsory a c q u i s i t i o n i s  the e x c l u s i v e s t a t u t o r y technique f o r e x p r o p r i a t i n g minority  shares.(94)  The  ambivalence of the courts i s  understandable.  On the one  shareholders  not deserve p r o t e c t i o n because they  may  an u n i n t e r e s t e d  and  hand, most p u b l i c  d i s t a n t l o t o f i n v e s t o r s who  the g r e a t e s t r e t u r n on t h e i r c a p i t a l and about the e f f e c t i v e management o f the  care  All  freezeout  company.(95) create  prohibition.(96)  techniques are c o e r c i v e .  amalgamation, a s a l e o f a s s e t s or an amendment of c o n s t a t i n g documents, m i n o r i t y "majority  desire  little  On the other hand, going p r i v a t e t r a n s a c t i o n s may problems warranting t h e i r  are  shareholders  On  an  the  are bound by  r u l e " t o accept cash or debt i n exchange f o r  - 16 -  t h e i r common shares.  Although  i t appears  t h a t share-  h o l d e r s have the a b i l i t y t o make a r a t i o n a l  decision  whether they wish t o s e l l t h e i r shares v o l u n t a r i l y when shares are purchased  pursuant  t o a tender o f f e r or by  way o f the open market, the t h r e a t o f an impending amalgamation or the p o s s i b i l i t y o f m a t e r i a l d i m i n u t i o n i n market l i q u i d i t y may prompt them t o surrender the shares without proper c o n s i d e r a t i o n of the f a i r n e s s o f an o f f e r . ( 9 7 )  Moreover, c o n t r o l l i n g shareholders can d i c t a t e the terms o f t h e f r e e z e o u t .  They can d e c i d e t h e time a t  which the t r a n s a c t i o n should take p l a c e , the amount o f compensation and d i s c l o s u r e m i n o r i t y s h a r e h o l d e r s a r e t o r e c e i v e upon s u r r e n d e r i n g t h e i r shares and the manner i n which the t r a n s a c t i o n i s t o be financed.(98) e f f e c t , the investment  e x p e c t a t i o n s of p u b l i c  j  n  share-  h o l d e r s a r e defeated by a c t i o n s taken by the i n s i d e r s r a t h e r than by t h e i r own judgments or the general  oper-  a t i o n o f the market p l a c e .  However, i n seeking t o e n j o i n a going p r i v a t e t r a n s a c t i o n , m a j o r i t y shareholders must accept t h e p r i n c i p l e o f " m a j o r i t y r u l e " as t h e r e c o g n i z e d manner o f governance i n corporate a f f a i r s . ( 9 9 )  They have no  vested r i g h t t o remain as shareholders o f the issuer.(100)  T h i s p r i n c i p l e i s e x p r e s s l y acknow-  ledged i n new corporate l e g i s l a t i o n modelled  on the  Canada Business C o r p o r a t i o n s Act(-*-0-*-) which favours greater f l e x i b i l i t y  and s i m p l i c i t y i n i n s t i t u t i n g  mental corporate changes over democracy.(102)  p  o r  funda-  corporate  example, these s t a t u t e s c o n t a i n  provisions authorizing: (a)  the compulsory a c q u i s i t i o n o f shares(-*-03 ) .  (b)  the corporate repurchase  o f shares a t the  behest o f e i t h e r the company(104)  o  r  a  shareholder who o b j e c t s to p a r t i c u l a r changes i n the a f f a i r s o r s t r u c t u r e o f the Company ("the d i s s e n t r i g h t " ) ( 1 0 5 )  (c)  ; a  nd  an amalgamation o f companies r e s u l t i n g i n m i n o r i t y shareholders of the Amalgamating Companies r e c e i v i n g cash r a t h e r than shares^  1 0 6  ).  They i n d i c a t e t h a t a shareholder has a r i g h t only i n the value o f h i s investment  and not i t s form.(107)  - 18 -  C o n t r a r y t o the suggestions by the Courts i n Maple L e a f Miils_(108)  a  n  d  WesteejJ  1 0 9  ),  i t i s irrelevant  t h a t the forms of c o n s i d e r a t i o n given to shareholders o f an amalgamated company are d i f f e r e n t p r o v i d e d t h a t , the redeemable shares or cash r e c e i v e d by  e.g.  one  shareholder are equal i n value t o the common shares given to  another.(110)  In a d d i t i o n , m i n o r i t y shareholders may the p r o s p e c t o f a squeezeout.  welcome  I t w i l l p r o v i d e them with  e i t h e r cash or redeemable s e c u r i t i e s of the i s s u e r r a t h e r than shares which may  be no longer  marketable  because of l i t t l e or no demand by b r o k e r - d e a l e r s or i n s t i t u t i o n a l investors. use a squeezeout  Moreover, the a c q u i r o r might  technique which f u r n i s h e s m i n o r i t y  shareholders with tax treatment more f a v o u r a b l y s u i t e d to t h e i r marginal r a t e s than they would have r e c e i v e d had they disposed of t h e i r shares without c o e r c i o n . (1 H )  - 19 -  2.  The Payment o f Less Than I n t r i n s i c Value f o r M i n o r i t y Shares What may  damage i n v e s t o r  confidence i n the  o p e r a t i o n o f the s e c u r i t i e s markets and impair the a b i l i t y o f companies t o r a i s e c a p i t a l ( 1 I ) 2  temptation  ±  s  the  f o r i n s i d e r s t o force m i n o r i t y shareholders  to surrender t h e i r s e c u r i t i e s f o r an amount l e s s their intrinsic  than  value.(113)  I f s e c u r i t i e s markets operated p e r f e c t l y ( l 14)  a  n  (  j  a  n  investor  were able t o make  f u l l y informed and r a t i o n a l investment  decisions,  then  the p r i c e a w i l l i n g buyer would pay would i n a l l l i k e l i h o o d r e p r e s e n t the i n t r i n s i c value of h i s shares.(115)  Any purchaser wanting t o pay l e s s  t h i s amount would not l i k e l y succeed  i n acquiring  shares because o f c o m p e t i t i o n from other buyers  than the who  might choose t o o f f e r more.(116)  Imperfections i n Canadian p u b l i c  securities  markets, however, do not enable shareholders of many reporting  companies t o command the a p p r o p r i a t e p r i c e f o r  t h e i r shares.  Market p r i c e s  are not always  indicative  -  20 -  o f i n t r i n s i c value and i n r e c e n t years have o f t e n lagged behind.(117)  T h i s may be caused by f a i l u r e o f the  company t o pay d i v i d e n d s because o f a s u b s t a n t i a l r e d u c t i o n i n r e t a i n e d earnings f o r the f i s c a l  year;  i n e f f i c i e n t use o f the a s s e t s o f the company; unawareness o f the i n t r i n s i c value o f the company's a s s e t s by the d i r e c t o r s ; an i n e f f i c i e n t  corporate  c a p i t a l s t r u c t u r e ; the e x i s t e n c e o f s u b s t a n t i a l tax l o s s e s ; or l i t t l e o r no demand by i n s t i t u t i o n a l i n v e s t o r s o r b r o k e r - d e a l e r s f o r s e c u r i t i e s o f the company d i s t r i b u t e d t o the p u b l i c . ( 1 1 8 )  A purchaser  i n an a c t i v e and e f f i c i e n t market  may r e c o g n i z e t h a t the shares o f a p u b l i c company are undervalued  r e l a t i v e t o t h e i r i n t r i n s i c value and decide  t o a c q u i r e them a t a premium i n excess o f market p r i c e . Consequently, m i n o r i t y shareholders who choose t o tender t h e i r shares i n a takeover b i d w i l l r e c e i v e compensation more c l o s e l y r e f l e c t i n g the i n t r i n s i c value o f t h e i r shares.  The s i z e o f the premium p a i d w i l l depend i n  p a r t on the number of r i v a l b i d d e r s i n the market p l a c e ; the i n t e n t i o n o f the a c q u i r o r t o l i q u i d a t e the t a r g e t company o r maintain i t as a going concern; the manner i n which he w i l l put the a s s e t s o f the company t o use i f run as a going concern; and the b e n e f i t s the a c q u i r o r ex-  - 21 -  p e c t s t o r e c e i v e as a r e s u l t o f the t r a n s a c t i o n . ( 1 1 9 )  P u b l i c shareholders faced with the prospect o f a squeezeout, however, are r a r e l y a b l e to r e l y on the o p e r a t i o n of the market p l a c e f o r a s s i s t a n c e . companies d e c i d i n g t o go p r i v a t e (120) ^  0  no  Many  -(- have a  l a r g e enough f l o a t o f s e c u r i t i e s i n the hands of a s u f f i c i e n t number o f p u b l i c shareholders t o support a t r u e market.  In f a c t , they o f t e n i s s u e d shares to the  p u b l i c even though i t was u n l i k e l y t h a t a reasonable a c t i v e market would ever  exist.(121)  In these circumstances, unable t o perform  the market p l a c e i s  i t s f u n c t i o n and s e t an a p p r o p r i a t e  p r i c e f o r m i n o r i t y shares.  Moreover, the c o n t r o l l i n g  shareholders w i l l not pay a premium  i n excess o f market  p r i c e i n the absence o f c o m p e t i t i v e b i d d i n g ; the l e s s money spent on the e x p r o p r i a t i o n o f m i n o r i t y shares, the more t h a t w i l l be a v a i l a b l e f o r p e r s o n a l use once the i s s u e r has gone p r i v a t e .  - 22 -  The  i n e f f i c i e n t o p e r a t i o n o f Canadian  s e c u r i t i e s markets should not enable  i n s i d e r s to  use  c o e r c i o n to a c q u i r e the p r o p e r t y o f the m i n o r i t y f o r l e s s than t h e i r i n t r i n s i c value, i . e . what a h y p o t h e t i c a l purchaser and  would pay  l i q u i d market with adequate  in a fully  efficient  information.(122)  Where m i n o r i t y shareholders must submit to the w i l l  of  the m a j o r i t y i n corporate a f f a i r s , they a l s o must be given the o p p o r t u n i t y to c o n t e s t the u n f a i r n e s s of the terms o f the squeezeout and the f a c t t h a t o n l y may  have access to v i t a l  i n t r i n s i c value o f t h e i r  C.  insiders  i n f o r m a t i o n r e l a t i n g to the shares.  The Path t o I n t r i n s i c Value: The Enactment o f Rules C r e a t i n g A r t i f i c i a l Market C o n d i t i o n s Lawmakers have been c o n t i n u o u s l y concerned  w i t h p r e v e n t i n g the p e r p e t r a t i o n o f f r a u d o n ^ 2 3 ) m i n o r i t y shareholders.  Companies l e g i s l a t i o n  contains  r u l e s which ensure t h a t the s e l f - i n t e r e s t o f corporate management w i l l not dominate concerns f o r the w e l f a r e the company and  i t s remaining  shareholders.(124)  T r a n s a c t i o n s are only p r o h i b i t e d i f  of  - 23 -  (1)  m i n o r i t y shareholders are unable  to look to  the o p e r a t i o n of Canadian s e c u r i t i e s or e x i s t i n g  markets  legal rules for effective  from the p r e j u d i c i a l conduct  relief  of management;  and  (2)  the consequent abuse t o the m i n o r i t y shareholders i s b e l i e v e d to be g r e a t e r than the r e s u l t i n g they  socio-economic  b e n e f i t s i n which  share.  Going p r i v a t e t r a n s a c t i o n s , t h e r e f o r e , should be p e r m i t t e d i n j u r i s d i c t i o n s which have enacted  rules  c r e a t i n g a r t i f i c i a l market c o n d i t i o n s f o r m i n o r i t y shareholders, thereby e n a b l i n g them to command payment of an amount at l e a s t approximating of t h e i r e x p r o p r i a t e d shares. are two  1.  different  the i n t r i n s i c  value  C u r r e n t l y i n Canada t h e r e  approaches to a c h i e v i n g t h i s  end.  S t a t u t o r y Remedies Companies l e g i s l a t i o n o f c e r t a i n  jurisdictions  gives shareholders the o p p o r t u n i t y to s e l l t h e i r f o r " f a i r v a l u e " i n v a r i o u s circumstances. or a p p r a i s a l r i g h t permits a shareholder who  shares  The d i s s e n t r e f u s e s to  - 24 -  p a r t i c i p a t e i n a venture beyond i t s i n i t i a l c o n t e m p l a t i o n ^ 2 5 ) t o dispose o f h i s shares to the i s s u e r f o r " f a i r value", even though there i s l i t t l e  or  no t r a d i n g done i n the company's s e c u r i t i e s or where the market p r i c e of the shares has dropped i n r e a c t i o n to the t r a n s a c t i o n which the shareholder  finds  o b j e c t i o n a b l e b e f o r e he has a chance to s e l l . ( 1 2 6 )  Shareholders(127)  m  a  v  a l s o use  the  o p p r e s s i o n remedy(128) to o b t a i n a c o u r t order(129)  d i r e c t i n g the purchase of t h e i r shares  by  the i s s u e r or i t s c o n t r o l l i n g shareholders(13°) when they b e l i e v e themselves t o be s u f f e r i n g from an actual(131) course o f conduct oppressive(132)  o  by management which i s  unfairly prejudical.d33)  r  In c e r t a i n j u r i s d i c t i o n s , c o u r t s may  be  r e q u i r e d t o approve an amalgamation,(134) r e d u c t i o n of  capital,(135)  o  r  a  n  arrangement(136) t o  ensure t h a t m i n o r i t y shareholders are being e x p r o p r i a t e d on f a i r  terms.  -  Lastly,  25  -  shareholders who r e f u s e t o tender  t h e i r shares i n compulsory  a c q u i s i t i o n proceedings f o r  the amount o f c o n s i d e r a t i o n o f f e r e d on the p r e c e d i n g takeover b i d may p e t i t i o n the c o u r t t o "order otherwise"  3 7  )  o r f i x the " f a i r v a l u e " o f t h e i r  shares.d ) 3 8  (a)  The Problems Inherent i n J u d i c i a l E v a l u a t i o n Shareholders may not always r e c e i v e optimum p r o t e c t i o n i n proceedings which  charge  the c o u r t s with the r e s p o n s i b i l i t y o f a s s e s s i n g the f a i r n e s s o f a t r a n s a c t i o n . Courts have s c a r c e l y gained the r e p u t a t i o n as defenders o f d i s s e n t i e n t s . ^ )  TOO often  they have tended t o rubber stamp the d e c i s i o n s of  the m a j o r i t y without f i r s t a s s e s s i n g the  f a i r n e s s o f the t r a n s a c t i o n . ( 1 4 0 )  TO  quote Lord Cooper: "Nothing c o u l d be c l e a r e r and more r e a s s u r i n g than these f o r m u l a t i o n s o f the d u t i e s o f the Court. Nothing could be more d i s a p p o i n t i n g than the r e p o r t e d i n s t a n c e s o f t h e i r subsequent e x e r c i s e . Examples abound o f the r e f u s a l o f the Courts t o e n t e r t a i n the p l e a t h a t a scheme was not f a i r o r e q u i t a b l e , but i t i s very hard t o f i n d i n r e c e n t times any  - 26 c l e a r and i n s t r u c t i v e i n s t a n c e o f the acceptance o f such an o b j e c t i o n . " (141)  The most c o u r t s u s u a l l y have done i s ensure t h a t the p r e s c r i b e d f o r m a l i t i e s have been s t r i c t l y  observed and t h a t d e c i s i o n s have  been reached a f t e r f u l l and f a i r d i s c l o s u r e . (142) While paying homage t o the "business  judgment" r u l e ( 1 ^ 3 )  a  n  (  j acknow-  l e d g i n g t h a t the i n t e r n a l a f f a i r s  of the  c o r p o r a t i o n a r e w i t h i n the purview o f the m a j o r i t y and o u t s i d e t h e i r  juris-  d i c t i o n , (144) c o u r t s have g e n e r a l l y r e f r a i n e d from a s s e s s i n g the f a i r n e s s of a scheme.  They have concluded t h a t  procedures are i l l - s u i t e d  judicial  t o assess  properly  the economic m e r i t s o f a t r a n s a c t i o n , t o make accounting  i n v e s t i g a t i o n s and t o take  v a l u a t i o n s necessary f o r reaching  a sound  judgment.(145)  It i s therefore d i f f i c u l t a court w i l l intrinsic  t o imagine how  reach any p r e c i s e c a l c u l a t i o n o f  value.  With r e s p e c t ,  i t is  - 27 -  submitted t h a t judges have n e i t h e r the e x p e r t i s e nor the s t a f f t o make t h i s complex determination properly.(146) c o n v e n t i o n a l v a l u a t i o n model of s e c u r i t i e s a n a l y s t s , both p r a c t i c a l and operates on the assumption  academic(147), t h a t the  e n t e r p r i s e w i l l continue as a going concern(-*• 48) and i d e n t i f i e s i t s "value" as the present value of i t s expected earnings.(!49)  How  might the c o u r t reach  any accurate c o n c l u s i o n s about  i n t r i n s i c value,  when t h e r e i s argument among f i n a n c e experts about how  to d e f i n e the "earnings" t o be  c a p i t a l i z e d , (1-50) earnings(151)  a  a  n  (  j -how t o compute those  s w e l l as how  growth and r i s k i n t o account  t o take in translating  expected earnings i n t o p r e s e n t value? Furthermore,  the c a l c u l a t i o n of any premium  above market value may  prove even more complex  i f the c o u r t s must take i n t o a d d i t i o n a l imponderables  account  such as:  any  unfavourable tax consequences s u f f e r e d  by  m i n o r i t y shareholders as a r e s u l t o f the  - 28 -  a b i l i t y o f c o n t r o l l i n g shareholders t o d i c t a t e the manner i n and time a t which the squeezeout w i l l occur(152).  a  n  b e n e f i t s r e c e i v e d by  v  c o n t r o l l i n g shareholders i n c i d e n t a l to the ownership o f shares i n a p r i v a t e company (1 53 ) .  a  n  d  a  n  v  savings a c c r u i n g t o  the c o n t r o l l i n g shareholders  from the purchase  of m i n o r i t y shares out o f the funds o f the company i n which they r e p r e s e n t  equity.d54)  Assuming t h a t the c o u r t w i l l be able t o perform  the a n a l y s i s r e q u i r e d and compute one  t r u e f i g u r e f o r the i n t r i n s i c value o f m i n o r i t y shares, i t may not r e c e i v e the b e n e f i t o f a l l the i n f o r m a t i o n i t may need. What compounds problems i s the adversary process where " t r u t h " i s not the f o c a l p o i n t of put  the p a r t i e s . forward  Whereas the i s s u e r w i l l  only  i n f o r m a t i o n which j u s t i f i e s i t s  v a l u a t i o n and t o which i t alone has access, i t i s u n l i k e l y t h a t m i n o r i t y shareholders w i l l be a b l e t o a f f o r d o r even be s u c c e s s f u l i n o b t a i n i n g m a t e r i a l about such i n t a n g i b l e s as  -  29  -  s a l e s f i g u r e s , r e s e a r c h and r e s u l t s and  development  c o s t r e d u c t i o n s , which are  e s s e n t i a l components o f the f i r m ' s f u t u r e earnings.(155)  Even i f the p a r t i e s r e v e a l  a l l the i n f o r m a t i o n a v a i l a b l e to t h e m , ( 1 ) 56  it will  indeed be d i f f i c u l t f o r the  Court  to conclude which v a l u a t i o n i s c o r r e c t because two  or more s e t s o f statements about the  and  f u t u r e worth of the company w i l l  presented who  past  be  by experts of the l i t i g a t i n g p a r t i e s  will differ  about the q u a n t i t y  d i r e c t i o n o f i n f o r m a t i o n and w i l l d e s t r o y each other's  and seek.to  credibility.^  5 7  )  F i n a l l y , r e s o r t to the courts f o r c a l c u l a t i o n o f the i n t r i n s i c  value o f  shares  w i l l only be worthwhile f o r wealthy shareholders  or those with a l a r g e sum  money at r i s k . fees and  Mounting l e g a l and  of  accounting  the lengthy delay i n the r e c e i p t of  funds(!58)  w  shareholders  m  not o f t e n  justify  c h a l l e n g i n g the f a i r n e s s of the  compensation o f f e r e d i n a squeezeout, i n s p i t e of s t a t u t o r y p r o v i s i o n s designed  to encourage  - 30 -  access t o the c o u r t s i n these circumstances.d59)  I n  a d d i t i o n , the  mechanics of the processes  intended  to  f a c i l i t a t e claims f o r " f a i r v a l u e " by shareholders are complex and t e c h n i c a l .  For  example, shareholders must f i l e p r o p e r l y drawn n o t i c e s o f dissent(160) i t h i n w  short  l i m i t a t i o n s p e r i o d s or l o s e the o p p o r t u n i t y to d i s p u t e the adequacy o f any amount o f f e r e d by the issuer.(161)  Moreover, the onus o f  p r o v i n g the u n f a i r n e s s of the o f f e r i s g e n e r a l l y t h r u s t on m i n o r i t y shareholders i n these proceedings.(162)  (b)  The Response of the Courts t o date In s p i t e of these problems, c o u r t s over the l a s t f i v e years have demonstrated  their  w i l l i n g n e s s to a s s i s t shareholders i n c h a l l e n g i n g the inadequacy o f any o f f e r e d i n a squeezeout(163) n d a  compensation  obtaining  payment of an amount a t l e a s t equal to the i n t r i n s i c value o f t h e i r shares.  For example,  shareholders i n v o l v e d i n d i s s e n t ( 1 6 4 )  f  - 31 -  oppression5), (166)  compulsory a c q u i s i t i o n  and c o u r t approval(167)  pro-  ceedings have been s u c c e s s f u l r e c e n t l y i n arguing t h a t the market p r i c e o f p u b l i c l y listed  shares i s not always an accurate d e t e r -  minant o f value because o f t h i n t r a d i n g and a r e l a t i v e l y low p u b l i c f l o a t .  Courts have a l s o  recognized t h a t i n t r i n s i c value should any  reflect  i n c r e a s e d tax burden f o r the m i n o r i t y  because m i n o r i t y shareholders are o f t e n d e p r i v e d of the o p p o r t u n i t y to dispose of t h e i r shares i n the manner or a t a time which would best s u i t t h e i r tax p o s i t i o n . ( 1 6 8 )  One  case s p e c i f i c a l l y worthy of mention  i s Re Whitehorse Copper Mines L t d . : Hudson Bay Mining and Smelting Co. L i m i t e d v. Lueck and Weinstein.(!69)  A f t e r a c q u i r i n g 90.97% of  the Whitehorse shares not a l r e a d y h e l d by i t or a f f i l i a t e d  companies, Hudson Bay chose t o  e x e r c i s e i t s r i g h t to e x p r o p r i a t e the o u t s t a n d i n g shares by compulsory a c q u i s i t i o n pursuant  to the p r o v i s i o n s of the Canada  Business C o r p o r a t i o n s A c t . accepting  Rather  than  the takeover b i d p r i c e of  -  32  -  $4.00,59 shareholders a p p l i e d t o c o u r t , seeking a d e t e r m i n a t i o n of the f a i r value o f t h e i r  shares.  A f t e r c o n s i d e r i n g complex evidence  relating to  w i l d l y f l u c t u a t i n g market p r i c e s o f copper and molybdenum and reviewing c o n f l i c t i n g v a l u a t i o n s o f the m i n o r i t y shares presented by the l i t i g a t i n g  parties,  McEachern C.J. c h a l l e n g e d the accuracy o f the a p p r a i s a l s put forward by two r e p u t a b l e investment  houses and  concluded  t h a t $6.50 more a c c u r a t e l y r e f l e c t e d t h e  intrinsic  value o f each o f the shares.(170)  Nonetheless,  some c o u r t s may have been t o o  zealous i n t h e i r c a l c u l a t i o n o f " f a i r v a l u e " .  For  example, i n Re R i p l e y I n t e r n a t i o n a l ( 7 1 ) southey, J . 1  r e f u s e d t o approve an arrangement r e s u l t i n g i n the e x p r o p r i a t i o n o f m i n o r i t y shares because i t s terms were unfair.  He s t a t e d t h a t : "The small shareholders who would not be p e r m i t t e d t o continue under the proposed arrangement were i n v i t e d o r i g i n a l l y t o i n v e s t in a public organization. If their shareholdings are now t o be e l i m i n a t e d a g a i n s t t h e i r wishes i n order t o permit the a p p l i c a n t - and t h a t means the few c o n t i n u i n g shareholders and the a p p l i c a n t - t o enjoy tax savings as a p r i v a t e c o r p o r a t i o n , then the  -  33 -  p r i c e t o be p a i d f o r t h e i r shareholdings would not be f a i r and reasonable, i n my judgment, unless i t r e f l e c t e d a pro rata p a r t i c i p a t i o n i n the a n t i c i p a t e d tax savings. In other words, t h e i r shareholdings should be valued as i f they would have been able t o remain as shareholders i n the newly c o n s t i t u t e d p r i v a t e corporation."(172)  With r e s p e c t , i t i s submitted  that a  d e t e r m i n a t i o n o f the i n t r i n s i c value o f m i n o r i t y  shares  should not i n c l u d e an amount e q u a l i n g any p o r t i o n o f the b e n e f i t s i n c i d e n t a l t o the ownership o f shares i n p r i v a t e company of which c o n t r o l l i n g shareholders partake  f o l l o w i n g a going p r i v a t e t r a n s a c t i o n .  may  The  problems caused by the i m p e r f e c t i o n s o f the market p l a c e are i r r e l e v a n t i n t h i s context.  The c o n t r o l l i n g  shareholders or the a c q u i r i n g company which they are " s p e c i a l p u r c h a s e r s " ^  1 7 3  '  who are w i l l i n g t o pay  a h i g h e r p r i c e f o r m i n o r i t y shares than other would be.  Purchasers  control  purchasers  i n the market p l a c e would not  b e n e f i t from the ownership o f any outstanding shares o f a r e p o r t i n g company i n the same f a s h i o n as a c o n t r o l l i n g shareholder who h e l d a l l the remaining the w i l l i n g purchaser premium i n excess  shares.  While  i n the market p l a c e might pay a  of market value f o r m i n o r i t y  because he has concluded  shares  t h a t the shares a r e a sound  - 34 -  investment  g i v e n t h e i r i n t r i n s i c v a l u e , i t i s o n l y the  c o n t r o l l i n g shareholders who would c o n s i d e r paying the m i n o r i t y any amount f o r p r i v a t e company b e n e f i t s such as tax  advantages.(1 ) 74  I t t h e r e f o r e seems unreasonable  to force  i n s i d e r s t o pay the m i n o r i t y shareholders an a d d i t i o n a l amount f o r t h e i r shares which they would not otherwise command i n a f u l l y e f f i c i e n t market. p r i n c i p l e s suggest purchaser  In f a c t , v a l u a t i o n  t h a t i f t h e r e i s only one s p e c i a l  f o r a p a r t i c u l a r a s s e t , i t i s assumed t h a t he  w i l l pay o n l y s l i g h t l y more than o r d i n a r y  purchasers  would pay t o ensure t h a t he i s the s u c c e s s f u l b i d d e r . The  f a c t t h a t a s p e c i a l purchaser  may be w i l l i n g t o pay  a s u b s t a n t i a l amount more i s i r r e l e v a n t i n the determination of i n t r i n s i c  2.  The O n t a r i o  value.(175)  Proposals(1 ) 7 6  O n t a r i o P o l i c y #3-37, s e c t i o n 163 o f t h e O n t a r i o S e c u r i t i e s A c t Regulations and s e c t i o n 188 o f the D r a f t O n t a r i o Business C o r p o r a t i o n s A c t (collectively,  "the O n t a r i o P r o p o s a l s " ) n e i t h e r c a s t the  r e s p o n s i b i l i t y o f c a l c u l a t i n g the i n t r i n s i c value o f  -  35 -  m i n o r i t y shares on the c o u r t s nor s e t some g e n e r a l i z e d proxy  t o be added as a premium t o the market p r i c e o f  these s h a r e s . ( I ) 7 7  They p r o t e c t the m i n o r i t y by  r e q u i r i n g the i s s u e r t o provide shareholders  with  e x t e n s i v e i n f o r m a t i o n r e l a t i n g t o the i n t r i n s i c value o f t h e i r sharesd78) (including a valuation)(179) and any b e n e f i t s a c c r u i n g o r p o t e n t i a l l y a c c r u i n g to the controlling group.d ) 8 0  Consequently,  minority  shareholders may o b t a i n equal access t o m a t e r i a l i n f o r m a t i o n about the a f f a i r s o f the i s s u e r and the conduct  o f i t s management, without having t o i n i t i a t e  expensive proceedings  to acquire t h i s p r o t e c t i o n .  Furthermore, the O n t a r i o Proposals  enable  shareholders t o make t h e i r own investment d e c i s i o n s . They r e q u i r e approval o f every t r a n s a c t i o n by a t l e a s t a majorityd  8 1  )  o f the m i n o r i t y t o negative the  element o f c o e r c i o n which almost  invariably forces a  great m a j o r i t y o f shareholders and even d i s s e n t i e n t s d ) t o accept an o f f e r made a t a 8 2  premium above market value.  The O n t a r i o  Securities  Commission i s t h e r e f o r e not charged with the r e s p o n s i b i l i t y o f a s s e s s i n g the f a i r n e s s o f every  - 36 -  t r a n s a c t i o n , even though i t i s possessed w i t h f a r greater the  e x p e r t i s e and a d m i n i s t r a t i v e c a p a b i l i t i e s than  courts.(183)  I t i s not the i n t e n t i o n o f these p r o v i s i o n s t o c r e a t e e f f i c i e n t market c o n d i t i o n s where  information  flows f r e e l y , there are many p a r t i c i p a n t s and no i n s t i t u t i o n a l imperfections exist.  o r c o r r u p t market p r a c t i c e s  They merely attempt t o ensure t h a t the  imperfections  o f Canadian s e c u r i t i e s markets o f t e n  r e s u l t i n g i n the l a c k of an a c t i v e market f o r shares do not prevent shareholders  from making an informed  d e c i s i o n about the s u f f i c i e n c y of the c o n s i d e r a t i o n  they  are o f f e r e d .  D r a f t e r s of t h e O n t a r i o  Proposals,  however,  were a l s o s e n s i t i v e t o the f a c t t h a t the a p p l i c a t i o n o f these r u l e s would not be a p p r o p r i a t e circumstances.  The O n t a r i o  prepared t o grant 1.  in a l l  S e c u r i t i e s Commission i s  exemptions, s p e c i f i c a l l y where:  the c o s t s o f v a l u a t i o n would be onerous t o the i s s u e r when there are minimal shareholdings  Ontario  o r a minimal m i n o r i t y p o s i t i o n  e x i s t s and a s t a t u t o r y o r c o n t r a c t u a l a p p r a i s a l r i g h t i s a v a i l a b l e to the minority(184).  minority  shareholders  a r e persons who are  g e n e r a l l y contemplated by s e c u r i t i e s l e g i s l a t o r s t o have " c l o s e bonds o f a s s o c i a t i o n " with the i s s u e r or who have little  "need t o know" f u r t h e r  information  about the a f f a i r s o f the i s s u e r i n order t o make a r a t i o n a l investment d e c i s i o n a l 8 5 ) .  the d i s c l o s u r e o f the r e q u i r e d s e c u r i t y holders the  information to  would cause a detriment t o  i s s u e r t h a t would outweigh the b e n e f i t o f  information  to prospective recipients (186);  where the market p r i c e o f m i n o r i t y be considered  shares may  a s u b s t a n t i a l r e f l e c t i o n o f the  i n t r i n s i c value because i t was a r r i v e d a t i n a genuine arms length t r a n s a c t i o n  ( f o r example,  i n a takeover b i d r e s u l t i n g i n c o n t r o l o f t h e corporation  changing hands)(187).  -  5.  38  -  the i s s u e r has been f o r c e d t o comply i n other j u r i s d i c t i o n with more s t r i n g e n t d i s c l o s u r e requirements than the O n t a r i o P r o p o s a l s . (188)  In s p i t e of t h e i r p r o v i d i n g shareholders  with  the p o t e n t i a l t o command the i n t r i n s i c value o f t h e i r shares at no cost, the O n t a r i o Proposals have not escaped c r i t i c i s m .  The problems have a r i s e n c h i e f l y i n  connection with c a l c u l a t i o n of the "majority" and " m i n o r i t y " groups.(189)  For example, m i n o r i t y shareholders may a tender o f f e r even though they may  accept  consider i t unfair  because they f e a r the l i k e l y success of the  offer,  adverse tax consequences and the p o s s i b i l i t y o f being l e f t h o l d i n g an i l l i q u i d s e c u r i t y .  I t has  a l s o been  argued t h a t the m a j o r i t y o f the m i n o r i t y t e s t ought not to be a p p l i e d where one  l a r g e m i n o r i t y shareholder  c o n t r o l the vote o f the m i n o r i t y f o r i t s own interest(190)  o  r  where t h e r e are so few m i n o r i t y  shareholders t h a t approval by a m a j o r i t y may d i f f i c u l t to o b t a i n .  prove  can  - 39  -  In answer to these c r i t i c i s m s , the S e c u r i t i e s Commission has r e q u i r e approval  stated that i t w i l l  not  by a m a j o r i t y o f the m i n o r i t y where the  c o n t r o l l i n g shareholder n i n e t y percent  Ontario  a l r e a d y holds i n excess of  o f the outstanding  and  i s s u e d shares  and  a s t a t u t o r y or c o n t r a c t u a l a p p r a i s a l r i g h t i s a v a i l a b l e to the  minority.d ) 9 1  The  Commission has  g u i d e l i n e s to c l a r i f y who t h i r d s of the 1.  a l s o set out the  following  c o n s t i t u t e s a m a j o r i t y or  two-  minority:  In a two-stage t r a n s a c t i o n i n which an o f f e r t o purchase i s followed by a going p r i v a t e reorganization, stage one  may  be  of the m a j o r i t y  those who  accept the o f f e r a t  i n c l u d e d i n the c a l c u l a t i o n t e s t , i f the  i n t e n t i o n to  e f f e c t the going p r i v a t e t r a n s a c t i o n  was  c l e a r l y d i s c l o s e d at the time of the  stage  t r a n s a c t i o n and  also  provided  a f u l l v a l u a t i o n was  at the time of the stage  transaction.(192)  one  one  - 40 -  I f , however, i n a two-stage t r a n s a c t i o n , the income tax consequences to the  shareholder  d i f f e r s i g n i f i c a n t l y between the acceptance  of  the stage one o f f e r and p a r t i c i p a t i o n i n the stage two  going p r i v a t e t r a n s a c t i o n , those  accept the o f f e r a t stage one  should  who  be  i n c l u d e d i n the c a l c u l a t i o n o f the m i n o r i t y only i f the stage one o f f e r i s kept open u n t i l a t l e a s t 7 days a f t e r the vote on the  stage  two  transaction.(193)  The  s h a r e h o l d i n g s o f d i r e c t o r s and s e n i o r  o f f i c e r s of the c o r p o r a t i o n w i l l g e n e r a l l y be aggregated  with those o f the  controlling  shareholder on the assumption t h a t t h e i r r e s p e c t i v e i n t e r e s t s are common. where evidence  However,  i n d i c a t e s t h a t the d i r e c t o r s or  s e n i o r o f f i c e r s are independent o f the c o n t r o l l i n g shareholder and the t r a n s a c t i o n has the same consequences f o r them as f o r the p u b l i c shareholders, they w i l l be t o be m i n o r i t y shareholders of t h i s test  A  1 9 4  )  considered  f o r the purposes  - 41 -  4.  A m a j o r i t y o r two-thirds  o f the m i n o r i t y  r e f e r s t o a m a j o r i t y or two-thirds m i n o r i t y h e l d shares represented by proxy a t the general  5.  o f the  i n person o r  meeting,(195)  Separate m a j o r i t y o f the m i n o r i t y  t e s t s may be  r e q u i r e d i n the same t r a n s a c t i o n where t h e minority  i s seen t o i n c l u d e two d i s t i n c t  i n t e r e s t groups.(196)  The  D r a f t OBCA s t a t e s t h a t a determination  the t o t a l number o f votes c a s t i n favour  o f or a g a i n s t  the t r a n s a c t i o n , f o r the purposes o f the m a j o r i t y minority  t e s t , should  of  o f the  disregard:  "i.  s e c u r i t i e s h e l d by a f f i l i a t e s corporation;  ii  s e c u r i t i e s , the b e n e f i c i a l owners o f which w i l l r e c e i v e , consequent upon the going p r i v a t e t r a n s a c t i o n , a per s e c u r i t y c o n s i d e r a t i o n g r e a t e r than t h a t a v a i l a b l e t o other h o l d e r s o f a f f e c t e d s e c u r i t i e s o f the same c l a s s ;  iii  o f the  s e c u r i t i e s the b e n e f i c i a l owners o f which, along or i n combination with others, a f f e c t m a t e r i a l l y the c o n t r o l o f the c o r p o r a t i o n and who, p r i o r t o d i s t r i b u t i o n o f the i n f o r m a t i o n c i r c u l a r , entered i n t o an understanding t h a t they would support the going p r i v a t e t r a n s a c t i o n . " ( 1 9 7 ;  - 42  D.  -  E n j o i n i n g a Going P r i v a t e T r a n s a c t i o n i n the Absence of Rules C r e a t i n g A r t i f i c i a l Market Conditions Provided  an a c q u i r o r has  with a l l statutory procedural transactions  should  complied  requirements, squeezeout  only be p r o h i b i t e d i n j u r i s d i c t i o n s  where the preceding  rules creating a r t i f i c i a l  c o n d i t i o n s are u n a v a i l a b l e  to m i n o r i t y  should  be  market  shareholders.  i s o n l y i n the Maritimes or Quebec(198)^ where shareholders  strictly  It  therefore,  successful in obtaining  the  a s s i s t a n c e o f a j u d i c i a l or a d m i n i s t r a t i v e body t o e n j o i n a t r a n s a c t i o n i f the terms are u n f a i r .  1.  Judicial  Relief  A c o u r t may  order the issuance  of  an  i n j u n c t i o n r a t h e r than the payment o f damages  0/9  )  when: (a)  the m i n o r i t y  shareholders  the o p p o r t u n i t y  have not been  given  to vote on a t r a n s a c t i o n as a  separate c l a s s ("Majority  o f the  Minority  Test");  (b)  the t r a n s a c t i o n l a c k s a proper purpose ("the  corporate  Proper Corporate Purpose T e s t " ) ;  -  43  -  e i t h e r the c o n t r o l l i n g shareholders  or  d i r e c t o r s of the i s s u e r have committed a breach o f a f i d u c i a r y duty owed t o the company and  to the m i n o r i t y s h a r e h o l d e r s .  ("Fiduciary  Duties").  M a j o r i t y of the M i n o r i t y T e s t The  "majority of the m i n o r i t y " t e s t  first  a t t r a c t e d a t t e n t i o n when the d e c i s i o n of Tempieman, J . i n Re H e l l e n i c &  General  Trust(200) e x p r e s s l y recognized  that a l l  companies are no longer operated p a r t n e r s h i p s and  as q u a s i -  that c o n t r o l l i n g  do not always have a community of with the m i n o r i t y . p r i n c i p l e s the Court  shareholders interest  Based on these  commercial  r e f u s e d to s a n c t i o n a  scheme o f arrangement i n v o l v i n g the e x p r o p r i a t i o n of m i n o r i t y shares because a m a j o r i t y o f the independent(201) m i n o r i t y shareholders  had  not approved the t r a n s a c t i o n  - even though the company had c l a s s o f common shares.(202)  only issued  one  - 44 -  The H e l l e n i c t e s t has not been adopted byCanadian c o u r t s ( 0 3 ) even though t h e r e has 2  been o p p o r t u n i t y f o r i t s a p p l i c a t i o n . example, i n Re Simco L t e e ( 2 0 4 )  f  For  Dugas J .  approved an arrangement i n v o l v i n g t h e e l i m i n a t i o n o f cumulative  d i v i d e n d s on the  p r e f e r r e d shares of the company provided t h a t the s o l e d i s s e n t i n g shareholder h i s shares  surrendered  f o r an amount equal t o t h e i r p a r  value and the accumulated d i v i d e n d s thereon.(205)  The  c o u r t chose not t o e n j o i n t h e  t r a n s a c t i o n on the grounds t h a t the s o l e d i s s e n t i n g shareholder had no o p p o r t u n i t y t o vote a t the g e n e r a l meeting as a member o f a separate c l a s s ,  even though he was the o n l y  p r e f e r e n c e shareholder who was not a l s o a common shareholder and who thereby stood t o r e c e i v e a s u b s t a n t i a l amount more on l i q u i d a t i o n following e l i m i n a t i o n of the d i v i d e n d s i n arrears.(206)  - 45 -  The Proper Corporate Purpose Test(207) The  "proper c o r p o r a t e purpose" t e s t  formulated by American  was  c o u r t s t o prevent  i n s i d e r s from engaging i n a naked grab f o r power without f u r t h e r j u r i s d i c t i o n .  It  i m p l i c i t l y accepts the p r o p o s i t i o n t h a t a shareholder has a r i g h t t o continued e q u i t y p a r t i c i p a t i o n which may be abrogated only when t h e r e i s a proper c o r p o r a t e purpose f o r a squeezeout  transaction.  U n f o r t u n a t e l y , there i s no  judicial  consensus as t o what c o n s t i t u t e s a "proper c o r p o r a t e purpose".  The views o f American  s t a t e ( 0 8 ) c o u r t judges have d i f f e r e d 2  c o n s i d e r a b l y , r e s u l t i n g i n the f o l l o w i n g of l e g i t i m a t e business reasons f o r a squeezeout: s u b s t a n t i a l savings i n housekeeping and shareholder s e r v i c i n g costs(209)  f  t  he  d g e r of f i n a n c i a l a n  c o l l a p s e ( 2 1 0 ) . e l i m i n a t i o n o f former employees(211);  elimination of c o n f l i c t s  of interest(212). operating e f f i c i e n c i e s ( 2 1 3 ) . tax savings(214).  list  -  46  -  and the f a c i l i t a t i o n o f long term debt financing.(215) decided  Some c o u r t s however, have  t h a t the e l i m i n a t i o n o f the minority-  i s not a proper corporate  purpose.(216)  There i s some i n d i c a t i o n t h a t c o u r t s may  Canadian  r e q u i r e the demonstration o f a  proper corporate transactions.  purpose i n squeezeout  In Westeel, Montgomery, J .  r e j e c t e d the argument o f the defendants t h a t an a f f i l i a t e o f the a c q u i r o r took p a r t i n the t r a n s a c t i o n i n order  t o reduce the tax impact  o f the t r a n s a c t i o n on the m i n o r i t y shareholders  and concluded t h a t the  e l i m i n a t i o n o f p u b l i c l y h e l d shares was s o l e reason f o r the  the  amalgamation.(217)  In reaching h i s d e c i s i o n , to e n j o i n the t r a n s a c t i o n Montgomery, J .  r e l i e d on  two  e a r l i e r d e c i s i o n s i n which c o u r t s refused  to  permit the compulsory a c q u i s i t i o n o f m i n o r i t y shares.  In Re Bugle P r e s s ( 2 l 8 ) ,  shareholders  two  of a p u b l i s h i n g company, who  owned 45% o f the i s s u e d c a p i t a l ,  each  incorporated  - 47 -  a new company i n which they each h e l d 50% o f the i s s u e d shares.  The new company  subsequently made a takeover b i d f o r a l l outstanding  and i s s u e d shares o f the  p u b l i s h i n g company a t L 10 p e r share, a f i g u r e based on an independent v a l u a t i o n of the share capital.  U n l i k e the two c o n t r o l l i n g  shareholders,  the person who h e l d the remaining 10% o f the i s s u e d c a p i t a l o f the o f f e r e e company d e c l i n e d the o f f e r and sought a d e c l a r a t i o n t o prevent the new company from a c q u i r i n g h i s shares pursuant t o the compulsory a c q u i s i t i o n p r o v i s i o n s contained U.K.  i n s e c t i o n 209 o f the  Companies A c t .  At T r i a l ,  Buckley, J . h e l d t h a t the  o f f e r o r had f a i l e d t o discharge proving  the onus o f  t h a t the p r i c e a t L 10 per share was  f a i r and ordered t h a t the m i n o r i t y shareholder sought.(  2 1 9  was e n t i t l e d t o the r e l i e f he )  - 48 -  On appeal, Lord Evershed  s t a t e d t h a t the  m i n o r i t y shareholder had demonstrated t h a t the c o u r t should "order otherwise"  and not permit  the e x p r o p r i a t i o n o f h i s shares.  He viewed  the t r a n s a c t i o n as a sham intended s o l e l y t o e l i m i n a t e the m i n o r i t y shareholder because there was s u b s t a n t i a l i d e n t i t y o f i n t e r e s t between the c o n t r o l l i n g shareholders and the offeror.(220)  The c o n t r o l l i n g  shareholders had only proposed t h a t t h e i r w h o l l y owned a s s o c i a t e company e x p r o p r i a t e the m i n o r i t y shares o f the p u b l i s h i n g company because s e c t i o n 209 c o u l d not be used by i n d i v i d u a l s t o a c q u i r e the oustanding  10% o f  the shares.(221)  Similarly, v.  J.W.  i n Esso Standard  Enterprises Inc.(222)  f  (Inter-Amer) the  Supreme Court of Canada upheld the d e c i s i o n o f the O n t a r i o Court o f Appeal otherwise" proceedings  i n compulsory  t o "order  acquisition  under s e c t i o n 136 o f the Canada  C o r p o r a t i o n s Act.(223)  - 49 -  The  f a c t s o f the d e c i s i o n resemble those  i n Bugle P r e s s .  Esso, a wholly owned  s u b s i d i a r y o f Standard O i l ("Standard") made a takeover b i d f o r a l l the o u t s t a n d i n g shares o f I n t e r n a t i o n a l Petroleum  Corporation Limited  ( I n t e r n a t i o n a l ) which was i n c o r p o r a t e d under the Canada C o r p o r a t i o n s A c t .  Esso expected t o  c o m p u l s o r i l y a c q u i r e any o u t s t a n d i n g m i n o r i t y shares o f I n t e r n a t i o n a l f o l l o w i n g the takeover b i d because Standard,  which was a l s o the owner  of 90 p e r cent o f the i s s u e d share c a p i t a l o f I n t e r n a t i o n a l , i n d i c a t e d i t s i n t e n t i o n t o the accept the o f f e r .  A number o f d i s s e n t i n g sought  shareholders  a d e c l a r a t i o n t h a t Esso was not  e n t i t l e d t o a c q u i r e the remaining  shares  because h o l d e r s o f l e s s than 90 p e r cent o f the shares, otherwise h e l d by Standard, had accepted the o f f e r .  Judson, J . h e l d t h a t the whole proceeding was a sham intended s o l e l y f o r the purpose o f  - 50 -  e x p r o p r i a t i n g m i n o r i t y shares on terms s e t by the m a j o r i t y because of the  substantial  i d e n t i t y o f i n t e r e s t between Standard  and  Esso. (224)  With r e s p e c t , i t i s submitted  that  Canadian c o u r t s should not adopt the  "proper  corporate purpose" t e s t f o r a number of reasons:  1.  The motives f o r a squeezeout are i r r e l e v a n t so long as shareholders adequately  compensated f o r t h e i r  are  shares.  Contrary t o the d e c i s i o n i n S i n g e r v.Magnavox( 5), a shareholder's 22  right  i s e x c l u s i v e l y i n the value of h i s investment  2.  The  and not i t s form.  investing public i s rarely  concerned  with the economic j u s t i f i c a t i o n s of going private transactions. sounding  At the r i s k o f  c y n i c a l , i t i s submitted  that  most p u b l i c shareholders are merely i n t e r e s t e d i n the g r e a t e s t r e t u r n on  their  - 51 -  investment  and do not care whether they  have obtained t h e i r y i e l d  from t h e  ownership o f shares i n one company r a t h e r than another.(2 26)  3.  Commonwealth c o u r t s have a l r e a d y imposed e q u i t a b l e r e s t r a i n t s on the v o t i n g powers of  c o n t r o l l i n g shareholders.  F o r example,  amendments t o the corporate c o n s t i t u t i o n must be made "bona f i d e i n the b e s t i n t e r e s t s o f the company".( 27) 2  TO  r e q u i r e c o n t r o l l i n g shareholders t o demonstrate a proper c o r p o r a t e purpose i s redundant.  4.  M i n o r i t y shareholders have  criticized  going p r i v a t e t r a n s a c t i o n s because the a c t i o n s taken by c o n t r o l l i n g  shareholders  deprive them o f t h e i r a b i l i t y t o make investment  decisions.  I t i s no l e s s  o b j e c t i o n a b l e t h a t c o u r t s w i l l be able t o make investment  d e c i s i o n s on b e h a l f o f the  m i n o r i t y i n determining whether a t r a n s a c t i o n has a proper c o r p o r a t e  - 52 -  purpose.  M i n o r i t y s h a r e h o l d e r s may  welcome the purchase o f t h e i r shares when t h e r e i s l i t t l e o r no market f o r them.  5.  The adoption o f a "proper c o r p o r a t e purpose"  test w i l l  lead t o the c r e a t i o n o f  a l a r g e body o f case law d e f i n i n g t h a t phrase and w i l l  f o r c e Canadian  courts to  make a case by case d e t e r m i n a t i o n o f the economic m e r i t s o f many transactions.  squeezeout  In the p a s t ,  Canadian  c o u r t s have tended not t o s c r u t i n i z e t h e v a l i d i t y o f d e c i s i o n s made by d i r e c t o r s o f the company because  they have assumed t h a t  management can b e t t e r assess what t r a n s a c t i o n s are i n the best i n t e r e s t s o f the company.(228)  6.  The Bugle Press and Esso Standard d e c i s i o n s do not stand f o r the l e g a l p r i n c i p l e t h a t squeezeouts may not take p l a c e i n the absence purpose.  o f a proper c o r p o r a t e  In r e a c h i n g h i s c o n c l u s i o n i n  - 53 -  Esso Standard  t o "order otherwise",  Judson, J . s t a t e d t h a t the t r a n s a c t i o n was not a "true takeover(229)  because Esso  had not a c q u i r e d 90 per cent o f the independently h e l d shares and not because the t r a n s a c t i o n lacked a business  purpose.  Many s t a t u t e s which c o n t a i n compulsory a c q u i s i t i o n p r o v i s i o n s now e x p r e s s l y s t a t e t h a t 90% o f the shares must be h e l d by persons other than the o f f e r o r or p a r t i e s d e a l i n g a t non-arm's l e n g t h with the o f f e r o r . (230)  (c)  Fiduciary Duties  (i)  Directors' Duties D i r e c t o r s owe f i d u c i a r y d u t i e s to t h e company alone and not t o the i n d i v i d u a l members or t o a person who has not y e t become a member, such as a p o t e n t i a l purchaser o f shares.(2 31)  The breach  of such a duty e n t i t l e s the shareholders or, i n c e r t a i n j u r i s d i c t i o n s , a wider  - 54  -  c l a s s of persons,( 32) to  sue  2  derivatively(233) company.  o  n  behalf of  Access to court  for  p a r t i e s i s f a r e a s i e r and thanks to the the  the aggrieved  less costly  statutory s i m p l i f i c a t i o n  "procedural  now of  thicket"( 34) 2  surrounding the r u l e i n Foss v. H a r b o t t l e ( 2 35)  a  n  (  j the  equitable  j u r i s d i c t i o n of the Court to indemnify a p l a i n t i f f a g a i n s t the c o s t s o f a d e r i v a t i v e action.(236)  M i n o r i t y shareholders t o surrender  who  are  forced  t h e i r shares f o r l e s s than  i n t r i n s i c value without the b e n e f i t o f s u f f i c i e n t d i s c l o s u r e may  attempt to  e n j o i n a going p r i v a t e t r a n s a c t i o n because the c o n t r o l l i n g shareholders,  in their  c a p a c i t y as d i r e c t o r s , have v i o l a t e d a number o f s t a t u t o r y and  common law  rules  designed to prevent management from d i v e r t i n g corporate themselves.  opportunities  to  -  (A)  55 -  Duty t o A c t Honestly and In Good F a i t h A number o f j u r i s d i c t i o n s  contain  statutory provisions  which  r e q u i r e d i r e c t o r s t o a c t h o n e s t l y and i n good f a i t h with a view to the b e s t i n t e r e s t s o f the company.(2 37) Even though the e s t a b l i s h e d  case law  focuses on p r o f i t maximization as what c o n s t i t u t e s the "best  interests  of the company", (2 38 ) d i r e c t o r s are a l s o r e q u i r e d  t o c o n s i d e r the  i n t e r e s t s o f a l l the shareholders who have e l e c t e d them.  Consequently,  w h i l e the d i r e c t o r s may a u t h o r i z e  a  going p r i v a t e t r a n s a c t i o n t o eliminate  shreholder  s e r v i c i n g costs,  they must a l s o endeavour t o f i x a " f a i r p r i c e " f o r any m i n o r i t y which w i l l be  expropriated.  shares  -  (B)  56  -  Duty t o E x e r c i s e Power f o r a Proper Purpose (239 ) A common law i n c i d e n t of a  d i r e c t o r ' s f i d u c i a r y duty i s the requirement t h a t he must e x e r c i s e h i s powers o n l y f o r those purposes f o r which they were conferred.(240) D i r e c t o r s , t h e r e f o r e , must not authorize  a reduction of c a p i t a l or  an amalgamation p r i m a r i l y to i n c r e a s e t h e i r e q u i t y p a r t i c i p a t i o n i n the issuer,  even though they b e l i e v e  that  such t r a n s a c t i o n s a r e i n the best i n t e r e s t s o f the company.(241)  Unfortunately, shareholders  minority  w i l l be hard pressed  to  prove t h a t the motives of the d i r e c t o r s were improper.  The case  law i l l u s t r a t e s t h a t the a c t i o n s o f the d i r e c t o r s w i l l not be impugned, notwithstanding  t h a t the court  may  -  57  -  suspect t h a t the d i r e c t o r s have abused t h e i r powers, unless i t can  be  shown t h a t the d i r e c t o r s have i n f a c t acted f o r an  improper  purpose.(242)  (C)  Duty of  Loyalty  Directors  must not  put  themselves i n a p o s i t i o n where t h e i r personal i n t e r e s t s c o n f l i c t with a duty of l o y a l t y to company.(243)  the  Moreover, they  must not p r o f i t  from t h e i r p o s i t i o n  as f i d u c i a r i e s . ( 2 4 4 ) of the  Directors  issuer, therefore,  r e f r a i n from a u t h o r i z i n g  must an  amalgamation squeezeout between i s s u e r and  a company of which they  are a l s o the  directors.  f i d u c i a r i e s of the the  i s s u e r , the  As  shareholders  d i r e c t o r s must  endeavour t o secure the most profitable  the  share-cash/debt  of  -  58  -  exchange r a t i o f o r the  minority.  However, these same d i r e c t o r s must a l s o maximize the p r o f i t o f the amalgamating company and  other  o f f e r as  l i t t l e as p o s s i b l e t o those persons whose shares of the i s s u e r w i l l expropriated.(245) there  i s recent  j  n  be  fact,  case law which  suggests t h a t d i r e c t o r s must not s i t on the boards of i n t e r l o c k i n g companies, l e t alone e x e r c i s e  their  v o t i n g powers i n these circumstances.(246)  ( i i ) The  Majority-Minority I t has  Duty  long been recognized  e q u i t a b l e p r i n c i p l e i n American  as  corporate  law t h a t c o n t r o l l i n g shareholders the p o s i t i o n o f absolute the  stand  dominance over  i n t e r e s t s of the m i n o r i t y  and  are  r e q u i r e d t o demonstrate good f a i t h f a i r n e s s when e x e r c i s e t h e i r rights.(2 ) 4 7  an  voting  While Commonwealth  and  in  - 59 -  c o u r t s permit m i n o r i t y shareholders t o sue the i n s i d e r s or the d i r e c t o r s o f the i s s u e r p e r s o n a l l y f o r the infringement o f t h e i r r i g h t s as members(248) have never accepted  t  they  the n o t i o n t h a t the  c o n t r o l l i n g shareholders owe a f i d u c i a r y duty t o the Company. (  2 4 9  )  Although  they have imposed e q u i t a b l e r e s t r a i n t s on the r i g h t o f i n s i d e r s t o vote t h e i r  shares  with abandon a t the g e n e r a l meeting,(250) the Courts have i n s i s t e d t h a t a share i s an item of property which shareholders may use t o maximize t h e i r own i n t e r e s t s . ( 2 51)  Recent d e c i s i o n s , however,  indicate  t h a t c o u r t s are b e g i n n i n g t o acknowledge the absence o f any community of i n t e r e s t among shareholders o f a p u b l i c company and the need t o r e s t r i c t  insiders  from  a u t h o r i z i n g t r a n s a c t i o n s from which they w i l l b e n e f i t p e r s o n a l l y t o the detriment of the Company o r the m i n o r i t y shareholders.  For example, i n Goldex  -  60  -  Mines L t d . v. R e v i l l ^  2 5 2  ),  the  Ontario  Court of Appeal h e l d t h a t d i r e c t o r s owe f i d u c i a r y duty t o shareholders  a  of a  company not to f u r n i s h f a l s e  information  i n a d i s c l o s u r e document and  stated that  " i t has  long been the law t h a t  m i n o r i t y may  the  sue p e r s o n a l l y i n r e s p e c t  an oppressive  and  power".( ^3)  j  F i n g o l d ( 54)  the p l a i n t i f f sued f o r  2  2  f  n  unjust  exercise  of  of  Farnham v.  damages a l l e g i n g t h a t he  should  share i n  the premium p a i d t o the defendants on s a l e of t h e i r c o n t r o l block  of  shares.-  Morand, J . s t a t e d t h a t the a c t i o n premised on the e x i s t e n c e  the  was  of a f i d u c i a r y  o b l i g a t i o n i n the c o n t r o l group towards the m i n o r i t y ,  and  dismissed  a motion  brought by the defendants who the p l a i n t i f f had action.(  2  argued t h a t  no cause of  55)  Recognition  of a f i d u c i a r y duty owed  by c o n t r o l l i n g shareholders  to  minority  - 61  shareholders  -  i s potentially ripe for  development i n squeezeout because the l a c k o f any  transactions  community o f  i n t e r e s t between shareholders apparent.  I n s i d e r s can use  power to determine the minority  shareholders  i s quite their  voting  length of time may  i n v e s t o r s i n the i s s u e r ' s  remain as securities.  They can d i c t a t e the amount o f c o n s i d e r a t i o n o f f e r e d to the m i n o r i t y o f t e n use  corporate  funds t o  and  indirectly  i n c r e a s e t h e i r ownership i n the i s s u e r . It i s therefore hardly s u r p r i s i n g that c o u r t s i n both Maple L e a f and  the  Mills(256)  Westeel  majority  {257) q u e r i e d whether "the shareholders i n promoting and  approving the scheme "were committing a breach of a f i d u c i a r y duty owed to  the  minority 58) 2  2.  Administrative  Relief  M i n o r i t y shareholders  may  p e t i t i o n an  a d m i n i s t r a t i v e body r a t h e r than the c o u r t s t o e n j o i n a  - 62 -  squeezeout t r a n s a c t i o n because t h e i r a p p l i c a t i o n w i l l be processed with greater l e s s expense.  e f f i c i e n c y and e x p e r t i s e  and a t  In a d d i t i o n , t o t h e i r other enforcement  powers,(259) p  r o v  incial  s e c u r i t i e s regulatory  agencies have the a u t h o r i t y t o i s s u e a cease t r a d i n g order(260)  o  r  d  e n v  a  n  i s s u e r exemptions from  r e g i s t r a t i o n o r prospectus requirements(261)  f  w  hile  a Stock Exchange may suspend the t r a d i n g i n l i s t e d s e c u r i t i e s through i t s f a c i l i t i e s . ( 2 6 2 )  (a)  The Cease T r a d i n g The  Order(263)  cease t r a d i n g order i s a "blunt  instrument" which may i n f l i c t harm.(264) the  great  I t may damage the r e p u t a t i o n o f  i s s u e r and depress the p r i c e o f i t s  s e c u r i t i e s even though the reason f o r the c e s s a t i o n of t r a d i n g has no connection with any  event, which o b j e c t i v e l y considered,  would  reduce the p r i c e o f the stock.(265) Moreover, the cease t r a d i n g order prevents many i n v e s t o r s who h o l d i s s u e r from d i s p o s i n g  s e c u r i t i e s o f the  o f them, even though the  - 63 -  order i s intended t o r e s t r a i n the a c t i v i t i e s of a few.  Recognizing the s e r i o u s n e s s of t h i s remedy( 66), the O n t a r i o S e c u r i t i e s 2  Commission has i n d i c a t e d i n a p o l i c y statement(267) and two recent d e c i s i o n s ( 6 8 ) t h a t i t w i l l o n l y order the 2  s e c u r i t i e s of an i s s u e r going p r i v a t e t o cease t r a d i n g when the terms o f a squeezeout t r a n s a c t i o n which i n v o l v e s s i g n i f i c a n t v i o l a t i o n s o f s e c u r i t i e s l e g i s l a t i o n are m a n i f e s t l y u n f a i r and there i s no other s u f f i c i e n t remedy a v a i l a b l e t o p r o t e c t shareholders.(269)  (b)  The D e n i a l o f  Exemptions(  2 7 0  '  An i s s u e r which d i s t r i b u t e s i t s redeema b l e s e c u r i t i e s t o m i n o r i t y shareholders i n exchange f o r t h e i r common shares on a takeover b i d ( "71), an amalgamation ( 2  reclassification^ tion^  7 4  '  7 3  2 7  2  ),  share  ' or c o n s o l i d a -  squeezeout i s not r e q u i r e d t o  - 64 -  comply w i t h r e g i s t r a t i o n ^ 7 5 ) 2  a n c  j  p r o s p e c t u s ( 7 6 ) p r o v i s i o n s contained i n 2  provincial securities  legislation.  S e c u r i t i e s r e g u l a t o r y bodies, however, may  deny such exemptions t o any person or  company i f , i n i t s o p i n i o n , such a c t i o n i s i n the p u b l i c i n t e r e s t ( 7 7 ) ,  thereby  2  p r o h i b i t i n g these p a r t i e s from t r a d i n g s e c u r i t i e s anywhere i n the P r o v i n c e .  their For  example, the O n t a r i o S e c u r i t i e s Commission has e x e r c i s e d i t s d i s c r e t i o n t o deny prospectus, takeover b i d or i s s u e r b i d exemptions( 78) 2  in  circumstances where they concluded  that  there has been an abuse o f exemptions( 79) 2  #  contravention of  securities legislation,  r e g u l a t i o n s or p o l i c y -  statements ( -*), c o n t r a v e n t i o n o f an 28 <  Exchange's r e q u i r e m e n t s ( ^ ) , or the 2 8  commission of a breach of other statutes.(  2 8 2  )  Although there are no r e p o r t e d d e c i s i o n s of  any d e n i a l o f the exemptions otherwise  - 65 -  a v a i l a b l e t o an i s s u e r i n any t r a n s a c t i o n , the broad and i n the L o e b e x J casting^  8 4  constitutes  IV.  )  a  n  (  sweeping language  j Cable-  ) d e c i s i o n , r e g a r d i n g what " p r e j u d i c i a l to the p u b l i c  i n t e r e s t " may agencies  2 8 3  squeezeout  s i g n a l a movement by  securities  i n this direction.(285)  Conclusion; Towards a R a t i o n a l Scheme o f R e g u l a t i n g Going P r i v a t e T r a n s a c t i o n s  A.  The  Regulatory  Framework Proposed f o r  Canada  (286)  I n s i d e r s should be p e r m i t t e d t o e x p r o p r i a t e m i n o r i t y shares u s i n g any  squeezeout  technique  r e g a r d l e s s o f whether a s t a t u t o r y compulsory a c q u i s i t i o n r i g h t e x i s t s , provided t h a t the m i n o r i t y  shareholders  are g i v e n the o p p o r t u n i t y t o command payment o f an amount at l e a s t equal to the i n t r i n s i c value of t h e i r shares.  Residents  of O n t a r i o who  "offering corporations'^  2 8 7  are shareholders  ) i n c o r p o r a t e d i n the  p r o v i n c e are p r o t e c t e d i n two w a y s . ( 2 ) 88  They  may  of  - 66 -  e i t h e r make t h e i r own d e c i s i o n s about the f a i r n e s s o f an o f f e r a f t e r f i r s t reviewing e x t e n s i v e i n f o r m a t i o n p r o v i d e d by the a c q u i r o r about the a f f a i r s o f the Company or they may  obtain a j u d i c i a l determination of  the i n t r i n s i c value o f t h e i r shares i n d i s s e n t , o p p r e s s i o n or compulsory a c q u i s i t i o n proceedings, shareholders o f f e d e r a l <  2 8 9  )>  or B r i t i s h Columbia companies. A l b e r t a companies may  as do  Manitoba, Saskatchewan M i n o r i t y shareholders o f  seek the p r o t e c t i o n o f the Court  f o l l o w i n g arrangement, amalgamation, r e d u c t i o n o f c a p i t a l o r compulsory a c q u i s i t i o n  proceedings.  I t i s only i n the Maritimes  o r Quebec t h a t  shareholders should be s u c c e s s f u l i n e n j o i n i n g a going p r i v a t e t r a n s a c t i o n when they c o n s i d e r the c o n s i d e r a t i o n o f f e r e d t o be u n f a i r ^ ^ ) 2 9  value.  Courts i n these  i . e . l e s s than  intrinsic  j u r i s d i c t i o n s should then o n l y  order the issuance o f an i n j u n c t i o n assuming  strict  compliance with s t a t u t o r y p r o c e d u r a l f o r m a l i t i e s on the grounds t h a t the d i r e c t o r s or c o n t r o l l i n g  shareholders  of the i s s u e r have committed a breach o f f i d u c i a r y o b l i g a t i o n s t o the company or the m i n o r i t y has f a i l e d t o vote as a separate c l a s s ,  even though the company has  -  67  -  a u t h o r i z e d and i s s u e d o n l y one c l a s s o f shares.  B.  A S i m i l a r A l t e r n a t i v e : The BrudneyChirelstein Analysis The  foregoing a n a l y s i s d i f f e r s  slightly  from  the c l a s s i f i c a t i o n o f f r e e z e o u t s suggested by P r o f e s s o r s Brudney and C h i r e l s t e i n . ( 9 1 ) 2  They argue t h a t a l l  freezeouts are not a l i k e and t h a t shareholders  require  v a r y i n g degrees o f p r o t e c t i o n i n (1) the two-step merger;  (2) the pure going p r i v a t e t r a n s a c t i o n ; and  (3) the merger o f long h e l d  The  affiliates.  "two step merger" i n v o l v e s an i n t e g r a t e d  squeezeout p l a n c a r r i e d out by an arm's l e n g t h a c q u i r o r . F o l l o w i n g a tender  o f f e r f o r a l l the m i n o r i t y shares, an  amalgamation i s used t o e l i m i n a t e any o u t s t a n d i n g  shares  of those persons who f a i l e d t o accept the terms of the takeover  bid.  Brudney and C h i r e l s t e i n have  concluded  t h a t the e x t e n s i v e n e g o t i a t i o n s which take p l a c e i n an arm's l e n g t h t r a n s a c t i o n and the o p e r a t i o n o f the market place w i l l  ensure t h a t the takeover  bid price w i l l  r e f l e c t the i n t r i n s i c value o f m i n o r i t y shares  and t h a t  -  68  -  shareholders i n t h i s t r a n s a c t i o n o n l y r e q u i r e p r o t e c t i o n from " w h i p s a w " . 9 2 )  TO prevent  shareholders  r u s h i n g to accept a tender o f f e r because they f e a r b e i n g f r o z e n out a t a lower p r i c e on the amalgamation i f the b i d f o r c o n t r o l succeeds, tender o f f e r o r s who  the authors propose t h a t  contemplate a second s t e p merger be  r e q u i r e d to announce t h e i r f u t u r e i n t e n t i o n s at the  time  the takeover b i d i s made and o f f e r to pay a p r i c e f o r shares equal to the amount o f f e r e d on the  initial  tender.(293)  Brudney and C h i r e l s t e i n , however, argue f o r the p r o h i b i t i o n o f the pure going p r i v a t e t r a n s a c t i o n i n which c o n t r o l l i n g shareholders use an a s s o c i a t e or a f f i l i a t e to e x p r o p r i a t e m i n o r i t y shares o f t e n a t l e s s than t h e i r i n t r i n s i c value, i n order to partake of those b e n e f i t s o n l y a v a i l a b l e t o shareholders o f a p r i v a t e company.(2 ) 94  "The  absence o f s o c i a l b e n e f i t , the  s t r e n g t h of f i d u c i a r y o b l i g a t i o n [owed by  the  c o n t r o l l i n g shareholders t o the m i n o r i t y ] and the danger o f u n p o l i c e a b l e abuse"(2 95) i  n  the b a s i s of t h e i r c o n c l u s i o n s .  the t r a n s a c t i o n form  -  69 -  A proposed merger between a parent and s u b s i d i a r y i t has c o n t r o l l e d f o r an extended p e r i o d o f time i s t o be d i s t i n g u i s h e d  from a "pure going p r i v a t e  t r a n s a c t i o n " because o f the " p r i v a t e and s o c i a l benefits" i t offers.  Quite o f t e n , the f a c t t h a t an  amalgamation o f two companies can r e s u l t i n a l a r g e r o v e r a l l value f o r the two f i r m s than the sum o f t h e i r value as separate e n t i t l e s makes i t d i f f i c u l t  t o deny  t h a t a b u s i n e s s purpose f o r the t r a n s a c t i o n does e x i s t . ( 2 96)  T  0  f o r e s t a l l s e l f - d e a l i n g by  c o n t r o l l i n g shareholders,  however, the authors propose  t h a t t h i s t r a n s a c t i o n should  be s u b j e c t  to a rigorous  " f a i r n e s s " t e s t which d i c t a t e s t h a t the r e c i p i e n t s o f r e c e i v e common stock o f the parent o r s u f f i c i e n t l y valuable  consideration  same p r o p o r t i o n a t e  t o enable them t o r e a c q u i r e the  i n t e r e s t i n the parent t h a t they  would have possessed had the c o n s i d e r a t i o n  received  been  common stock alone.(2 97)  There i s c o n s i d e r a b l e Chirelstein analysis. the  merit  t o the Brudney-  I t seeks t o i s o l a t e and weight  socio-economic b e n e f i t s present i n each type o f  transaction against  the c o s t s o f r e g u l a t i o n and  -  70 -  acknowledges t h a t motive i s g e n e r a l l y an i r r e l e v a n t c o n s i d e r a t i o n i n the d e t e r m i n a t i o n o f the degree o f regulation required.  Moreover, i t r e c o g n i z e s t h a t  squeezeout t r a n s a c t i o n s should not be p r o h i b i t e d when m i n o r i t y shareholders a r e given the o p p o r t u n i t y t o command payment o f a t l e a s t an amount approximating t h e i n t r i n s i c value o f t h e i r  shares.  However, i n s p i t e o f i t s m e r i t s ,  this  a n a l y t i c a l framework should not be adopted i n Canada. Brudney & C h i r e l s t e i n base t h e i r argument f o r p r o h i b i t i o n o f pure going p r i v a t e t r a n s a c t i o n s on the i n a b i l i t y o f c o n t r o l l i n g shareholders t o determine the i n t r i n s i c value o f m i n o r i t y shares and the consequent i n a b i l i t y t o compensate the m i n o r i t y f a i r l y  for i t s  investments: " I f t a k i n g the f i r m p r i v a t e i n c r e a s e s i t s value by reducing accounting and l e g a l fees and the cost o f r e l a t i n g t o p u b l i c s h a r e h o l d e r s , determining the d i s p l a c e d shareholders' f a i r share o f the increment thus expected to r e s u l t from t h e i r displacement p r e s e n t s i n t r a c t a b l e problems. To q u a n t i f y the b e n e f i t s embodied i n the e x p l i c i t j u s t i f i c a t i o n s o f f e r e d f o r going p r i v a t e would be d i f f i c u l t enought. But i f account must a l s o be taken o f the unspoken b e n e f i t s , such as tax advantages and other p e r q u i s i t e s t h a t would accrue t o t h e c o n t r o l l i n g shareholders as a r e s u l t o f b e i n g  - 71 f r e e d o f p u b l i c a c c o u n t a b i l i t y , the problem o f implementing a f a i r n e s s standard becomes c l o s e to being insurmountable."(298)  With r e s p e c t , i n s p i t e o f the v a l u a t i o n problems reviewed  e a r l i e r i n t h i s paper, i t i s submitted  t h a t the  complex c a l c u l a t i o n o f i n t r i n s i c value w i l l not be as difficult "fair  f o r the c o u r t s as the authors  suggest  because  value" should not i n c l u d e any v a l u a t i o n o f the  "unspoken b e n e f i t s " a v a i l a b l e t o i n s i d e r s f o l l o w i n g a going p r i v a t e t r a n s a c t i o n . ( 2 9 9 ) to  More i m p o r t a n t l y ,  p r o h i b i t pure going p r i v a t e t r a n s a c t i o n s would deny  many m i n o r i t y shareholders the chance t o g l a d l y surrender t h e i r shares i n an otherwise  illiquid  and t o r e i n v e s t the proceeds i n an investment a greater y i e l d .  market  promising  At l e a s t the two Canadian a l t e r n a t i v e s  which c r e a t e a r t i f i c i a l market c o n d i t i o n s p r o v i d e the shareholders with t h i s o p p o r t u n i t y .  C.  The Prospect o f S u c c e s s f u l R e g u l a t i o n Once i t i s apparent  to c o n t r o l l i n g  shareholders t h a t the m i n o r i t y i s e f f e c t i v e l y p r o t e c t e d , going p r i v a t e t r a n s a c t i o n s on u n f a i r terms should  abate.  I n s i d e r s w i l l then be quick t o ensure t h a t m i n o r i t y shareholders r e c e i v e c o n s i d e r a t i o n a t l e a s t equal i n  -  72  -  v a l u e t o the i n t r i n s i c worth o f t h e i r shares o r sufficient  i n f o r m a t i o n to make an informed  investment  decision.(300)  A going p r i v a t e t r a n s a c t i o n , however, c o n s t i t u t e s o n l y one example o f techniques  e n a b l i n g the  m a j o r i t y to a c t c o n t r a r y to the best i n t e r e s t of the minority.  As the community o f i n t e r e s t s between  shareholders has decreased, the i n g e n u i t y of c o n t r o l l i n g shareholders i n using t h e i r v o t i n g s t r e n g t h t o t h e i r advantage has grown.  Unfortunately,  own  judicial,  l e g i s l a t i v e and a d m i n i s t r a t i v e bodies have not responded very q u i c k l y to the c a l l s by m i n o r i t y shareholders f o r assistance.(301)  i t i s hoped t h a t the abuses  s u f f e r e d by the m i n o r i t y i n going p r i v a t e t r a n s a c t i o n s w i l l prompt lawmakers t o be more v i g i l a n t o f m i n o r i t y r i g h t s i n f u t u r e and t o l e g i s l a t e a g a i n s t p o t e n t i a l c o n f l i c t s o f i n t e r e s t b e f o r e any f u r t h e r problems a r i s e .  FOOTNOTES  A l b o i n i , O n t a r i o S e c u r i t i e s Law 1980)  a t 631-646; K r o f t ,  (Toronto: R i c h a r d DeBoo,  "The Going P r i v a t e T r a n s a c t i o n :  Some Corporate and Income Tax Consequences o f a P u b l i c Company Becoming P r i v a t e " , 12 Ottawa L. Rev. 49 Alain,  (1980);  "Le d r o i t des v a l e u r s m o b i l i e r e s e t l e r e t o u r des  compagnies p u b l i q u e s au s t a t u t de compagnie p r i v e e , " 20 Les C a h i e r s de D r o i t 539  (1979);  Hansen & I a c o b u c c i ,  " A c q u i s i t i o n of M i n o r i t y Shares Under the CBCA", 4 Can. Bus. L . J . (1980) [ f o r t h c o m i n g ] ; Taves, Backs",  "Corporate  i n P r a i r i e P r o v i n c e s Tax Conference 93  Buy-  (1979);  Lange, "Freeze Out Amalgamations: The F e d e r a l and O n t a r i o Positions", Schwartz,  27 C h i t t y ' s Law J o u r n a l 217  "Going P r i v a t e i n Canada", 3 Can. Bus. L . J . 3  (1978); Glover & Schwartz,  "Going P r i v a t e " Fever Cools  O f f , " F i n a n c i a l Post, November 11, 1978, Pitch,  (1979); Glover &  a t 40, c o l .  "Going P r i v a t e : The S i l e n t M i n o r i t y i s No  S i l e n t , " 3 Can. Lawyer 1 (February, 1979) Steele,  "What P r i c e M i n o r i t y Shares?," I l l  Oct. 1978  a t 28;  Shares Through Papers  (1977);  1;  Longer  a t 12; Campbell CA  Magazine,  P o t t e r , " A c q u i s i t i o n o f M i n o r i t y Held  Arrangements,"  L.E.S.A. Banff Conference  Hansen, " M i n o r i t y Squeeze-outs",  i n Report  &  - 74 -  of the T h i r t i e t h Tax Conference 408 (1980) [ h e r e i n a f t e r c i t e d as [year] Conference Report];  Dey, " P r o t e c t i n g  M i n o r i t y Shareholders i n P u b l i c C o r p o r a t i o n s , " Can. B. Assoc. Update '79, 1 (1979);  Palmer,  "Amalgamations -  Winding Up," 1978 Conference Report 469; Magnet, "Shareholders' A p p r a i s a l  Rights i n Canada", 11 Ottawa L.  Rev. 98 (1979); Coleman, " S e c u r i t i e s L e g i s l a t i o n —  Where  We have Been and Where We a r e Going", i n New S e c u r i t i e s L e g i s l a t i o n 237 (1979);  Scace; "Going P r i v a t e and  Deconglomeration", 1977 Conference Report 569 (1978); Ward, "Arm's Length A c q u i s i t i o n s R e l a t i n g t o Shares i n a P u b l i c C o r p o r a t i o n " , i n 1978 Corporate Management Tax Conference 108 (C. F r o s t ed. 1978); B a i l l i e ,  "Developments i n  S e c u r i t i e s R e g u l a t i o n A f f e c t i n g Corporate A c q u i s i t i o n s " , i n 1978 Corporate Management Tax Conference 1978 a t 177 (C. F r o s t ed. 1978).  2.  A. Sommer, "Going P r i v a t e :  A Lesson i n Corporate  R e s p o n s i b i l i t y " Law A d v i s o r y C o u n c i l L e c t u r e , Notre Dame Law School, November 14, 1974; Sommer, "Further Thoughts on "Going P r i v a t e " , "Second Annual S e c u r i t i e s Seminar,  Detroit  I n s t i t u t e f o r C o n t i n u i n g L e g a l E d u c a t i o n , March 14, 1975; Baillie,  supra note 1; S e c u r i t i e s and Exchange Commission  - 75 -  [ h e r e i n a f t e r c i t e d as SEC], Matter o f B e n e f i c i a l Ownership, Takeovers and A c q u i s i t i o n s by Foreign  and Domestic Persons,  39 Fed. Reg. 33,385 (1974) as amended by 39 Fed. Reg. 41,223 (1974). See a l s o S a l t e r , "Going P r i v a t e " Issuer — 17,  I n s i d e r B i d s —Squeeze-Outs 1978) and "Notice:  (memorandum  'Going P r i v a t e '  i n c l u d i n g Comments as t o Other Issuer  Bids  t o 0.S.C. May  Transactions, Bids and I n s i d e r  B i d s " B u l l O.S.C. 149 ( J u l y , 1978).  3.  Shareholders who c o n t r o l the company may h o l d greater  either  than 50% o f the v o t i n g e q u i t y o r have de f a c t o  c o n t r o l through c o n t r o l o f the proxy machinery o f the Company.  The D r a f t O n t a r i o  Business C o r p o r a t i o n s A c t , s.  188 [ h e r e i n a f t e r c i t e d as D r a f t OBCA], s. 163 o f t h e R e g u l a t i o n s under The S e c u r i t i e s A c t , 1978, S.O. 1978, c. 47 as amended [ h e r e i n a f t e r c i t e d as OSA], and SEC, "Going P r i v a t e " Rule 13e-3 (42 Fed. Reg. 60,090 (1977) (now adopted by Release 33-6100, August 6, 1979) a l l c o n t a i n d e f i n i t i o n s o f a "going p r i v a t e t r a n s a c t i o n " . o f the OSA R e g u l a t i o n s s t a t e s  S e c t i o n 163  that:  "going p r i v a t e t r a n s a c t i o n " means an amalgamation, arrangement, c o n s o l i d a t i o n o r other t r a n s a c t i o n proposed t o be c a r r i e d out by an i n s i d e r of an i s s u e r as a consequence o f which the i n t e r e s t o f the h o l d e r of a p a r t i c i p a t i n g s e c u r i t y o f the i s s u e r i n t h a t  -  76 -  s e c u r i t y may be terminated without the consent o f t h a t h o l d e r and without the s u b s t i t u t i o n t h e r e f o r of an i n t e r e s t o f e q u i v a l e n t value i n a p a r t i c i p a t i n g s e c u r i t y of the i s s u e r o r o f a successor t o t h e b u s i n e s s o f t h a t i s s u e r o r o f another i s s u e r t h a t c o n t r o l s the i s s u e r but does not i n c l u d e the purchase of p a r t i c i p a t i n g s e c u r i t i e s pursuant t o a s t a t u t o r y right of acquisition;"  Section 188(l)(b) "(b)  o f t h e D r a f t OBCA s t a t e s t h a t a  'going p r i v a t e t r a n s a c t i o n ' means an amalgamation, arrangement, c o n s o l i d a t i o n o r other t r a n s a c t i o n c a r r i e d out under t h i s A c t by a c o r p o r a t i o n t h a t would cause any p a r t i c i p a t i n g s e c u r i t y o f t h e c o r p o r a t i o n t o be an a f f e c t e d s e c u r i t y , but does not i n c l u d e a redemption, o r other compulsory t e r m i n a t i o n o f the i n t e r e s t o f the h o l d e r i n a s e c u r i t y , i f t h e s e c u r i t y i s redeemed o r otherwise acquired, (i) (ii)  i n accordance with the terms and c o n d i t i o n s attaching thereto, or under a requirement o f the a r t i c l e s r e l a t i n g to the c l a s s o f s e c u r i t i e s or o f t h i s Act; "  S e c t i o n 188(1)(c) o f t h e D r a f t OBCA s t a t e s t h a t a "(c)  ' p a r t i c i p a t i n g s e c u r i t y ' means a s e c u r i t y i s s u e d by a c o r p o r a t i o n other than a s e c u r i t y t h a t i s , i n a l l circumstances, l i m i t e d i n the extent o f i t s p a r t i c i p a t i o n i n earnings and i n c l u d e s , (i) (ii)  a s e c u r i t y c u r r e n t l y c o n v e r t i b l e i n t o such a s e c u r i t y , and c u r r e n t l y e x e r c i s a b l e options and r i g h t s i s s u e d by the c o r p o r a t i o n and e n t i t l i n g t h e h o l d e r t o a c q u i r e such a s e c u r i t y o r such a convertible security."  -  An  "affected "(a)  security"  -  i s d e f i n e d i n s. 188(1)(a)  a p a r t i c i p a t i n g s e c u r i t y and has no r e s t r i c t i o n s on i t s p a r t i c i p a t i o n r i g h t s , and  (ii)  i s s u e d by the c o r p o r t i o n , an a f f i l i a t e the c o r p o r a t i o n or a successor corporation;"  Rule, s. 13e-3(a)(4) terms the  action"  as a "Rule 13e-3  transaction  "going p r i v a t e which has  l i k e l i h o o d or a purpose of producing, e i t h e r i n d i r e c t l y , such e f f e c t s as the  issuer...".  any  The  For  a l i s t of the  affiliate  of such i s s u e r ;  to R e g u l a t i o n 14A  d i r e c t l y or  s.  the  13e-3(a)(4)  (a) a purchase of  (b) a tender o f f e r or request e q u i t y s e c u r i t y made by  i s s u e r of such c l a s s of s e c u r i t i e s or by or  a reasonable  i s s u e r of such s e c u r i t y or by  i n v i t a t i o n f o r tenders of any  such i s s u e r ;  trans-  r e g i s t r a t i o n of  e f f e c t s , see  s p e c i f i e d t r a n s a c t i o n s are:  e q u i t y s e c u r i t y by the  of  d e l i s t i n g of shares from a  N a t i o n a l Exchange or t e r m i n a t i o n of the  (ii).  as  a p a r t i c i p a t i n g s e c u r i t y of a c o r p o r a t i o n i n which the i n t e r e s t of the h o l d e r would be terminated by reason of a proposed t r a n s a c t i o n without the consent of the h o l d e r other than an a c q u i s i t i o n under s e c t i o n 186, and without the s u b s t i t u t i o n t h e r e f o r o f an i n t e r e s t of e q u i v a l e n t value i n a s e c u r i t y that i s , (i)  SEC  77  an a f f i l i a t e  (c) a s o l i c i t a t i o n or d i s t r i b u t i o n [ s s . 240.14a-l t o 240.14a-103] or  an or  the of  subject  - 78 -  R e g u l a t i o n 14C [ s s . 240.14c-l  t o 14c-101] i n connection  with c e r t a i n c o r p o r a t e events.  The c o r p o r a t e  i n c l u d e a merger, c o n s o l i d a t i o n , recapitalization,  events  reclassification,  r e o r g a n i z a t i o n or s i m i l a r c o r p o r a t e  t r a n s a c t i o n by an i s s u e r o r between an i s s u e r  (or i t s  s u b s i d i a r i e s ) and i t s a f f i l i a t e s ; a s a l e by t h e i s s u e r o f s u b s t a n t i a l l y a l l of i t s assets t o i t s a f f i l i a t e ;  or a  r e v e r s e stock s p l i t of any c l a s s of e q u i t y s e c u r i t i e s o f the i s s u e r i n v o l v i n g the purchase  5.  of fractional  interests.  See C a r l t o n R e a l t y L t d . v. Maple L e a f M i l l s , 22 O.R. (2d) 198, 4 Bus. L.R. 300 (H.C. 1978); Alexander v. WesteelRosco L t d . , 22 O.R. (2d) 211, 4 Bus. L.R. 313 (H.C. 1978); Neonex I n t ' l L t d . v . K o l a s a , 3 Bus. L.R. 1, 84 D.L.R. (3d) 446  (B.C.S.C. 1978); In the Matter o f C a b l e c a s t i n g L t d . ,  [Feb., 1978] B u l l , O.S.C. 37; In Re The A c q u i s i t i o n o f Quegroup Inv. L t d . o f a l l the common shares o f Queenswear (Canada) L t d . ; Quegroup Inv. L t d . and Robert S. Vineberg, [1976] C.S. 1458; Gregory  v. Canadian A l l i e d P r o p e r t y 11  B.C.L.R. 253, [1979] 3 W.W.R. 612; N a s g o v i t z v . Canadian M e r r i l L t d . (unreported, Que. S.C., Dec. 1979); Jepson v. The Canadian S a l t Co., 17 A.R. 460, [1979] 4 W.W.R. 35 (S.C.); Re Canadian Hidrogas Resources L t d . ; [1979] 6  - 79 -  W.W.R. 705  (B.C.S.C.);  Ruskin v. A l l Canada News Radio, 7  Bus. L.R.  142  (Ont. H.C.  Bus. L.R.  269  (H.C.  1979);  1977);  Re R i p l e y I n t ' l L t d . , 1  In Re The Matter of the  A p p l i c a t i o n o f Domglas Inc. Pursuant t o S e c t i o n 184(15) of the Canada Business C o r p o r a t i o n s A c t (Que. S.C.  July  18,  1980) .  6.  S p e c i f i c a l l y , see S i n g e r v. Magnavox 380 A.2d 1977).  (Del  For a review of the case law on the s u b j e c t , see  Borden and Messmar, "Going P r i v a t e : C o n s i d e r a t i o n s " i n E l e v e n t h Annual Regulation  7.  969  ( P r a c t i c i n g Law  A Review o f Relevant I n s t i t u t e on  I n s t i t u t e , 1979)  Securities  a t 427 - 550.  In Maple L e a f M i l l s , supra, note 5, a t 205 S t e e l e , J . suggested t h a t shareholders are e n t i t l e d to r e t a i n  their  p r o p e r t y , i f they so wish except where t h e r e i s a r i g h t h e l d by another to f o r c a b l y take i t :  " I t matters not f o r  t h i s purpose what p r i c e the t a k e r i s w i l l i n g t o pay". "vested r i g h t s " theory i s not now  The  r e c o g n i z e d , i n Canadian  corporate law as evidenced f o r example, by the need f o r approval of c o r p o r a t e t r a n s a c t i o n s by s p e c i a l  resolution  and not by unanimity.  See i n f r a , t e x t a t 16-17  and the  comments o f Greenberg,  J . i n Domglas, supra, Note 5 a t 26.  - 80 -  For f u r t h e r d i s c u s s i o n , see Gibson, Shareholder  Rights?"  "How F i x e d a r e C l a s s  23 Law & Contemp. Prob. 283 (1958)  and Johnson, "Delaware Reverses i t s Trend  i n Going P r i v a t e  T r a n s a c t i o n s : The Forgotten M a j o r i t y " , 11 L o y o l a o f Los Angeles L. Rev. 567 a t 601  8.  (1978).  Companies l e g i s l a t i o n may c o n t a i n a p r o v i s i o n a u t h o r i z i n g compulsory a c q u i s i t i o n of l e s s than 10% of the shares of a c l a s s o u t s t a n d i n g f o l l o w i n g a takeover b i d i n order t o prevent  "oppression of the m a j o r i t y by the m i n o r i t y " .  i n f r a , t e x t , a t 5 and 25.  See  Note t h a t the d e f i n i t i o n s o f  "going p r i v a t e t r a n s a c t i o n " , supra, note 4 do not i n c l u d e "the purchase o f p a r t i c i p a t i n g s e c u r i t i e s pursuant  to a  s t a t u t o r y r i g h t of a c q u i s i t i o n . "  9.  The c o n s t a t i n g documents may e x p r e s s l y p r o v i d e f o r the e x p r o p r i a t i o n o f m i n o r i t y shares. Manufacturers  See P h i l l i p s v.  Sec. 116 L.T. 290 (1917).  I f so, the  shareholders should not be permitted t o complain  about  e x p r o p r i a t i o n because i t i s assumed t h a t they have accepted all  terms o f the share  shares.  " c o n t r a c t " when purchasing  their  To quote Middleton, J.A. i n Re J u r y Gold Mine  Development Co., [1928] 4 D.L.R. 735 a t 736:  - 81 "He i s a m i n o r i t y shareholder and must endure the unpleasantness i n c i d e n t t o t h a t s i t u a t i o n . I f he chooses t o r i s k h i s money by s u b s c r i b i n g f o r shares, i t i s p a r t o f h i s b a r g a i n t h a t he w i l l submit to the w i l l o f the m a j o r i t y . "  The  definitions  o f "going p r i v a t e t r a n s a c t i o n " , supra, note  4 do not t h e r e f o r e  i n c l u d e "purchases, redemptions o r  a c q u i s i t i o n s r e q u i r e d by the instrument c r e a t i n g o r governing the c l a s s o f s e c u r i t i e s " .  10.  For example:  1.  A corporate  a s s o c i a t e / a f f i l i a t e may s t r i p the i s s u e r  of i t s r e t a i n e d earnings without tax l i a b i l i t y .  These  funds may then be used t o pay o f f loans t o i n s t i t u t i o n s which financed  2.  A corporate  the squeezeout.  a s s o c i a t e / a f f i l i a t e may be able t o make  b e t t e r use of the i n t e r e s t  expense i n c u r r e d when  borrowing funds t o f i n a n c e the t r a n s a c t i o n than the controlling  3.  A corporate provide  shareholders.  a s s o c i a t e / a f f i l i a t e may be b e t t e r able t o  a l t e r n a t e and more favourable  tax treatment t o  - 82  -  m i n o r i t y shareholders who c o n t r o l l i n g shareholders.  are squeezed out  than  Assuming the i n s i d e r s  i n d i v i d u a l s , o n l y a c o r p o r a t e a s s o c i a t e may  are  issue  shares with a h i g h or low p a i d up c a p i t a l to the m i n o r i t y s h a r e h o l d e r s , whose proceeds o f d i s p o s i t i o n w i l l be t r e a t e d as a c a p i t a l gain or d i v i d e n d upon redemption.  For f u r t h e r d e t a i l s ,  11.  see K r o f t , supra, Note 1 a t 111-114.  For example:  1.  C e r t a i n j u r i s d i c t i o n s o n l y permit an " a c q u i r i n g company" to p a r t i c i p a t e i n compulsory proceedings.  2.  I n f r a , Notes 27 and  acquisition  221.  A corporate a s s o c i a t e w i l l have a g r e a t e r number o f a c q u i s i t i o n techniques  such as amalgamation or  r e c l a s s i f i c a t i o n a t i t s d i s p o s a l than shareholders who  are  individuals.  share  controlling  I n s i d e r s who are i n d i v i d u a l s may not have s u f f i c i e n t funds or the s e c u r i t y r e q u i r e d t o borrow money i n order t o purchase m i n o r i t y shares.  An i s s u e r i s p r o h i b i t e d direct  from p r o v i d i n g i n d i r e c t o r  f i n a n c i a l assistance to i t s shareholders.  See  The Business C o r p o r a t i o n s A c t R.S.O. 1970 c. 53, s. 17 [ h e r e i n a f t e r c i t e d as OBCA]; The Companies Act R.S.A. 1970, c.60, s.14 [ h e r e i n a f t e r c i t e d as ACA]; The Company Act, R.S.B.C. 1979 c.59, s.127 [ h e r e i n a f t e r c i t e d as t h e BCCA]; The Canada Business  Corporations  Act S.C. 1974-75, c.33, s.42 [ h e r e i n a f t e r c i t e d as CBCA]; The Business C o r p o r a t i o n s A c t , 1977, R.S.S. 1978, c. C-23, s.42 [ h e r e i n a f t e r c i t e d as the SBCA]; The C o r p o r a t i o n s A c t , S.M. 1976, c.40, s.42 [ h e r e i n a f t e r c i t e d as the MCA]; The Companies A c t , R.S.N.B. 1973, c. 13, s.38 [ h e r e i n a f t e r c i t e d as NBCA]; D r a f t OBCA s.20; The Companies Act, R.S.P.E.I. 1974, c. C-15, s.69 [ h e r e i n a f t e r c i t e d as the PEICA]; L o i Sur l e s compagnies, R.S.Q. 1964 c.C-38, s.110 [ h e r e i n a f t e r c i t e d as QCA]; The Companies A c t R.S.N. 1970 c.54 s.16 [ h e r e i n a f t e r c i t e d as NCA]  - 84 -  However, f i n a n c i a l a s s i s t a n c e may be g i v e n t o o r f o r the b e n e f i t of a wholly-owned s u b s i d i a r y by i t s h o l d i n g company.  " a s s o c i a t e " i s g e n e r a l l y d e f i n e d as:  any company i n which a person b e n e f i c i a l l y owns, d i r e c t l y or i n d i r e c t l y shares c a r r y i n g more than 10% of the v o t i n g r i g h t s a t t a c h e d t o a l l o u t s t a n d i n g and e x e r c i s a b l e v o t i n g shares o f the Company;  a p a r t n e r o f t h a t person;  a t r u s t o r e s t a t e i n which t h a t person has a s u b s t a n t i a l b e n e f i c i a l i n t e r e s t or f o r which t h a t person serves as a t r u s t e e o r i n a s i m i l a r c a p a c i t y ;  a spouse, son o r daughter o f t h a t person; o r  a r e l a t i v e o f t h a t person o r o f h i s spouse, other than a r e l a t i v e r e f e r r e d t o i n paragraph same home as t h a t person.  (d) who has the  -  85 -  See CBCA s . 2 ( l ) ; BCCA s . l ( l ) ; s.l(l)(d); Act,  SBCA s . 2 ( l ) ( d ) ; MCA  D r a f t OBCA s . l ( l ) ( 4 ) ;  R.S.B.C. 1979 c.380 s . l ( l )  ACA s . 8 1 ( 1 ) ( b ) ; S e c u r i t i e s [ h e r e i n a f t e r c i t e d as  BCSA]; S e c u r i t i e s A c t R.S.A. 1970 c.333 s.2(1)(1)1 [ h e r e i n a f t e r c i t e d as ASA]; S e c u r i t i e s A c t , 1978 ( A l b e r t a , Bill  76, November 1, 1978 1st reading)  [ h e r e i n a f t e r c i t e d as B i l l  s.l(l)(a.l)  76]; S e c u r i t i e s A c t , 1967,  R.S.S. 1978 c. S-42, s . 2 ( l ) ( a )  [ h e r e i n a f t e r c i t e d as SSA];  S e c u r i t i e s A c t . R.S.M. 1970, c.250 s.1(1)1 c i t e d as MSA];  The S e c u r i t i e s Act, 1979 (Manitoba B i l l 72,  1st r e a d i n g May 29, 1980) s.1(1)2 Bill  72];  [hereinafter  [ h e r e i n a f t e r c i t e d as  S e c u r i t i e s Act, S.O. 1978 c.47 s. 1(1)2  [ h e r e i n a f t e r c i t e d as OSA].  D e f i n i t i o n s o f " A f f i l i a t e " are drafted  i n a complex manner  to catch t r a n s a c t i o n s which would otherwise circumvent p r o v i s i o n s o f companies and s e c u r i t i e s l e g i s l a t i o n the  use of a network o f companies.  through  One company i s deemed  to be a f f i l i a t e d with another i f one o f them i s the subsidiary  o f the other, both are s u b s i d i a r i e s of the same  company o r i f each i s c o n t r o l l e d by the same person.  See  - 86 -  CBCA s s . 2(1) - 2(5); BCCA s s . 1(1) - 1(4); ACA s s . 2(4) 2(5); SBCA s s . 2 ( l ) ( b ) , 2(2) - 2(5); MCA s s . l ( l ) ( b ) , 1(2) -  (5); OBCA s s . 1(2) - (5); D r a f t OBCA s s . 1(4) - 1 ( 5 ) ;  BCSA s . l ( l ) - 1(4); ASA s.2(2) - 2(4); MSA s s . l ( 2 ) - 1 ( 4 ) ; Bill  72 s s . 1(2) - 1(4); B i l l 76 s s . 1(2) - 1(4); OSA s s . l  (1)2,  1(2) - (4); S e c u r i t i e s A c t L.R.Q. 1964 c.V-1 as  amended [ h e r e i n a f t e r c i t e d as QSA] s s . 2.2, 2.3, 2.6.  The  i s s u e r might conduct a "domestic going p r i v a t e  transaction"  1.  when":  Most o f i t s shareholders are r e s i d e n t i n a  province  whose s e c u r i t i e s l e g i s l a t i o n does not c o n t a i n p r o v i s i o n s r e g u l a t i n g the conduct o f o f f e r o r s i n an issuer bid.  2.  I n f r a , notes 38-41 and t e x t a t 7.  Most o f i t s shareholders are earning approximately $59,000 o f taxable  l e s s than  income and p r e f e r the  proceeds o f d i s p o s i t i o n which they w i l l r e c e i v e f o r t h e i r expropriated income. a t 80.  shares t o be t r e a t e d as d i v i d e n d  See i n f r a , Note 111 and K r o f t , supra, Note 1  - 87 -  Very few s t a t u t e s company.  use the terms " p u b l i c " o r " p r i v a t e "  See ACA s.2(1)(26),  s.38(2); NCA s.265(h). include 76,  a "reporting  (28);  OSA s.1(1)38; BCSA s . l ( l ) ) ;  corporation" s.l(l));  ( f ) ; NBCA  Other terms f o r a " p u b l i c " company  company"  shares t o the p u b l i c "  PEICA s . l ( e ) ,  (BCCA s . l ( l ) ;  B i l l 72, B i l l  "corporation  offering i t s  (OBCA s . l ( 9 ) ) ; " d i s t r i b u t i n g  (CBCA s . l 2 1 ( l ) ) ;  " s e c u r i t y i s s u e r " (QSA  S e c u r i t i e s A c t RSPEI 1974, c.S-4 s . l ( j ) ,  [ h e r e i n a f t e r c i t e d as PEISA]; S e c u r i t y Frauds P r e v e n t i o n Act RSNB 1973 c.S-6 s . l [ h e r e i n a f t e r c i t e d as NBSPFPA]); "offering corporation"  ( D r a f t OBCA s. 1 ( 1 ) ( 2 6 ) ) .  No matter  what term i s used, a company ceases t o be " p u b l i c " when i t s s e c u r i t i e s a r e no longer h e l d by shareholders who have no " c l o s e bonds of a s s o c i a t i o n " with the i s s u e r or who have so l i t t l e knowledge o f t h e o p e r a t i n g  a f f a i r s o f the i s s u e r  t h a t they are unable t o make an informed  investment  d e c i s i o n about the s e c u r i t i e s o f the i s s u e r . discussion  For a  o f who c o n s t i t u t e s the " p u b l i c " , see R. v.  P i e p g r a s s (1959), 29 W.W.R. 218; Nash v. Lynde [1929] A.C. 158;  98 L.J.K.B.  127 (H.L. 1928).  See a l s o L. Loss  S e c u r i t i e s R e g u l a t i o n 655-56 (2d ed.1961, Supp. 1969); Alboini,  supra, Note 1 a t 285-301;  Johnston, Canadian  - 88 -  S e c u r i t i e s Regulation 148-55.  I t may  (Toronto: Canada Law  a l s o be necessary  Book, 1977)  f o r a company to o b t a i n  approval of an a d m i n i s t r a t i v e body or o f f i c i a l "going p r i v a t e " .  at  For example, under ACA  before  s s . 46, 47,  the  c o n v e r s i o n o f a company from " p u b l i c " or " p r i v a t e " occurs when the R e g i s t r a r i s s u e s the a p p r o p r i a t e c e r t i f i c a t e not upon the f i l i n g o f the c o n v e r s i o n r e s o l u t i o n . BCCA s . l ( l ) the R e g i s t r a r of Companies may  and  Under  designate  a  company as a " r e p o r t i n g company" a c c o r d i n g t o the g u i d e l i n e s set out i n B.C. a l s o QSA  An o f f e r o r w i l l not be r e q u i r e d t o comply with i f i t makes an i s s u e r or  f o r shares o f a " p r i v a t e company".  d e f i n e d as a company, with and  See  Commission.  d i s c l o s u r e requirements bid  583.  s.20(i) r e g a r d i n g the d i s c r e t i o n a r y powers o f the  Quebec S e c u r i t i e s  Id.  Corp. L. Guide (CCH)  various  takeover  T h i s term i s  (1) fewer than 50  shareholders,  (2) share t r a n s f e r r e s t r i c t i o n s i n i t s c o n s t a t i n g  documents, which does not i n v i t e the p u b l i c to s u b s c r i b e for  i t s securities.  s.1(1)17; B i l l s.l;  See OSA  s.l(l)  31,  SSA  s.2(l)(p);  MSA  72 s.1(1)34; B i l l 76 s.1(1) (0.1); NBSFPA,  S e c u r i t i e s A c t RSNS 1967  c.280,  s.l(l)i.  -  17.  The  Income Tax A c t S.C.  89  -  1970-71-72, c.63,  (g) [ h e r e i n a f t e r c i t e d as ITA] and  s s . 8 9 ( l ) ( f ) and  P a r t XLVIII of  the  R e g u l a t i o n s t h e r e t o d e f i n e the terms " p r i v a t e c o r p o r a t i o n " and  "public corporation".  A " p u b l i c c o r p o r a t i o n " must be  r e s i d e n t i n Canada and have a c l a s s or c l a s s e s o f shares l i s t e d on a p r e s c r i b e d stock  exchange i n Canada.  A  c o r p o r a t i o n continues t o be a p u b l i c c o r p o r a t i o n u n t i l i t e l e c t s to be otherwise by complying with p r o v i s i o n s of Regulations.  The  M i n i s t e r o f N a t i o n a l Revenue may  designate a c o r p o r a t i o n  "not to be p u b l i c " i f he  g i v e s a t l e a s t 30 days w r i t t e n n o t i c e t o the and the  the  also first  corporation  the c o r p o r a t i o n meets those c o n d i t i o n s p r e s c r i b e d  by  Regulations.  A " p r i v a t e c o r p o r a t i o n " i s a Canadian r e s i d e n t which i s not a p u b l i c c o r p o r a t i o n .  corporation  I t cannot a l s o be  c o n t r o l l e d d i r e c t l y or i n d i r e c t l y by a p u b l i c c o r p o r a t i o n .  18.  On  the takeover b i d , the o f f e r o r f o r m a l l y requests  shareholders to tender t h e i r shares f o r c o n s i d e r a t i o n i n form o f cash or redeemable s e c u r i t i e s .  Whereas the term  "takeover b i d " i m p l i e s t h a t the a c q u i s i t i o n of shares  will  p r o v i d e an o f f e r o r w i t h c o n t r o l o f the t a r g e t company, i t  - 90 -  g e n e r a l l y r e f e r s t o an o f f e r made by an o f f e r o r t o shareholders a t approximately the same time to a c q u i r e v o t i n g shares, t h a t , i f combined with the v o t i n g shares a l r e a d y b e n e f i c i a l l y owned o r c o n t r o l l e d , d i r e c t l y o r i n d i r e c t l y , by the o f f e r o r o r an a f f i l i a t e  or associate of  the o f f e r o r , on the date o f the takeover b i d , would  exceed  20% o f the i s s u e d v o t i n g shares o f the t a r g e t company. BCSA s.79; ASA s.80(g); B i l l s.80(g); B i l l  See  76 s.86; SSA s.87(g); MSA  72 s.89; OSA s . 8 8 ( l ) ( k ) .  The CBCA s.187  s t a t e s t h a t o n l y g r e a t e r than 10% i s r e q u i r e d .  Provided t h a t the i s s u e r has the power pursuant t o s t a t u t e and i t s c o n s t a t i n g documents t o repurchase i t s own shares, i t may make an " i s s u e r b i d " .  See CBCA s.187, 37(1), ( 5 ) ;  BCCA s s . 259-261; ACA s.41.1; SBCA s.37(5), 187; MCA s s . 37(5) 187; OBCA s.39(2); D r a f t OBCA s.30; QCA ss.48, 58; NBCA s s . 59(2)-(3); 6 0 ( l ) - ( 2 ) ; NSCA s s . 4 7 ( l ) ( f ) , 47(4) and 48; NCA s.101. Bill  19.  The a c t u a l term  72, s.89; B i l l  " i s s u e r b i d " i s used i n  76, s.87 and OSA s . 8 8 ( l ) ( d ) .  An a s s o c i a t e o r a f f i l i a t e may a c q u i r e m i n o r i t y shares i n the manner they would normally be purchased by any member of  the p u b l i c i n s t e a d o f by tender o f f e r .  While the most  - 91 -  common forum f o r the open market purchase i s the stock exchange, i t may a l s o be t r a n s a c t e d i n the over the counter market p r o v i d e d t h e r e i s an independent middleman who a c t s between two p a r t i e s unknown t o each o t h e r .  20.  CBCA ss.175-180; BCCA ss.271-275; ACA s.156; SBCA ss.175180; MCA ss.175-180; OBCA ss.196-197; D r a f t OBCA ss.172177; QCA s.18; NBCA s.31; PEICA s. 77; NCA s.30; Companies Act R.S.N.S. 1967 c.42 s.120 [ h e r e i n a f t e r c i t e d as NSCA]. The PEICA, NBCA and NCA o n l y permit the amalgamation o f companies with the same or- s i m i l a r  objects.  Examples o f amalgamation squeezeouts i n c l u d e Maple L e a f M i l l s , supra, Note 5; Westeel, supra, Note 5; Jepson v. Canadian S a l t ,  supra, Note 5; Ruskin v. A l l - C a n a d a News  Radio, supra, Note 5; Canadian M e r r i l l ,  Neonex I n t e r n a t i o n a l , supra, Note 5;  supra, Note 5; and Domglas, supra, Note  5.  21.  Share r e c l a s s i f i c a t i o n r e q u i r e s the a l t e r a t i o n o f the a t t r i b u t e s o f the i s s u e r ' s shares.  See CBCA ss.37(4), ( 7 ) ,  1 6 7 ( l ) ( f ) ; BCCA ss.249, 255; ACA s . 3 8 ( l ) ( a ) ; SBCA s s . 1 6 7 ( 1 ) ( f ) , D r a f t OBCA s . l 6 6 ( l ) ( f ) ; QCA s s . 4 8 ( 5 ) - ( 8 ) ;  - 92 -  NBCA ss.62(3), 65; PEICA ss.34(6), 86; NCA ss.39-40, 131(2),  NSCA s s . 4 7 ( l ) ( c ) ,  (g),  (j).  To ensure t h a t a l l m i n o r i t y shares are a c q u i r e d , c o n t r o l l i n g shareholders sometimes employ schemes more e l a b o r a t e than simply p a s s i n g a r e s o l u t i o n which appends the a t t r i b u t e o f r e d e e m a b i l i t y t o the shares. Company X has an e x i s t i n g c l a s s of shares  F o r example,  (Class A ) .  The  shareholders o f the Company f i r s t a u t h o r i z e the c r e a t i o n o f a new c l a s s of shares  (Class B) and then pass a r e s o l u t i o n  p r o v i d i n g f o r the r e d e e m a b i l i t y o f the e x i s t i n g c l a s s by the i s s u e r a t any time.  Afterwards,  the c o n t r o l l i n g  shareholders e x e r c i s e the c o n v e r s i o n r i g h t w h i l e most o f the m i n o r i t y shareholders do not.  Subsequently,  redeems the C l a s s A m i n o r i t y shares.  the i s s u e r  I f any o f the  m i n o r i t y convert t o C l a s s B t o escape redemption, the i n s i d e r s convert back t o C l a s s A and r e c l a s s i f y the shares of the new c l a s s as redeemable.  Before the m i n o r i t y can  convert back t o C l a s s A, i t s shares a r e redeemed by the issuer.  For example, see Re C a b l e c a s t i n g L t d . , supra, Note  5; Re Canadian Hidrogas  Resources L t d . , supra, Note 5; and  Ferguson v. Imax Systems C o r p o r a t i o n S . C. ) .  ( J u l y 28, 1980 Ont.  -  22.  93 -  Shares a r e s a i d t o be c o n s o l i d a t e d when they a r e r e p l a c e d by a l e s s e r number of shares i n the same c l a s s i n the same proportion f o r a l l shareholders.  F o r example, an i s s u e r  may c o n s o l i d a t e i t s shares i n the r a t i o o f 1 t o 5,000.  A  shareholder i s then e n t i t l e d t o 1/500 o f a share i f he owns j u s t one share.  See CBCA s , 1 6 7 ( l ) ( g ) ; MCA s . l 6 7 ( l ) ( f ) ;  SBCA s . l 6 7 ( l ) ( g ) ;  OBCA S . 1 8 9 ( l ) ( f ) ; QCA s.55(2); NBCA s . 6 2 ( l ) ; PEICA s.34; NCA s.131(2); NSCA s . 4 2 ( l ) ( b ) ; ACA s . 3 8 ( 1 ) ( a ) ( i ) ; BCCA s.255(l)(d).  Note t h a t QCA s.55(2) and NBCA s . 6 2 ( l ) permit  c o n s o l i d a t i o n o n l y when the par value o f the e x i s t i n g shares i s l e s s than $100 each and no share i s c o n s o l i d a t e d over a par value o f $100.  For f u r t h e r d i s c u s s i o n o f the c o n s o l i d a t i o n or " r e v e r s e stock s p l i t " p r o c e s s , see D y k s t r a , "The Reserve  Stock  S p l i t - T h a t Other Means o f Going P r i v a t e " 53 Chicago-Kent L. Rev.  1 (1976); Lawson, "Reverse Stock S p l i t s : The  F i d u c i a r y ' s O b l i g a t i o n Under S t a t e Law" 63 C a l i f . L. Rev. 1226  (1975); Magnet, supra, Note 1 a t 157.  - 94 -  Examples o f a c o n s o l i d a t i o n International Ltd., Mfg.  23.  squeezeout i n c l u d e Re R i p l e y  supra, Note 5 and Re P.L. Robertson  Co., 7 O.R. (2d) 98, 54 D.L.R. (3d) 354 (H.C. 1974)  CBCA 3 3 ( l ) ( b ) ; MCA s . 3 3 ( l ) ( b ) ; SBCA s . 3 3 ( l ) ( b ) ; BCCA s.265(2); OBCA s . 3 9 ( l ) ; D r a f t OBCA s . 3 1 ( l ) ( b ) ; QCA s.52(3); NBCA s.62(2) .  24.  CBCA s.183; BCCA s.150; SBCA s.183(2)-(9); MCA S.183(2)(7); OBCA S S . 1 5 ( 2 ) , s.l31(4).  17; D r a f t OBCA 182(7)-(8); NCA  Generally,  the s a l e o f a s s e t s  i s made t o a  r e l a t e d p a r t y which i s u s u a l l y a wholly owned c o r p o r a t e a f f i l i a t e or associate  25.  o f the i n s i d e r s .  CBCA s.204(3); BCCA S.291, ACA S.237; SBCA s.204(3); MCA s.204(3); OBCA s.203(1); D r a f t OBCA s.191(1); Winding Up A c t R.S.Q. 1964 c.281 s.3; Winding-up A c t RSNB 1973 c.W-10 s.3(a);  Winding Up A c t RSPEI 1974 c.W-7 s . 4 ( l ) ( b ) ; NCA  s.244(b); Winding Up A c t RSNS 1967 s s . 3 ( b ) , 1 ( e ) .  - 95 -  Examples o f the s a l e o f the a s s e t s - w i n d i n g up  squeezeout  i n c l u d e C o s t e l l o v. London General Omnibus Co. L t d . (1912), 107 L.T.  575 (C.A.); R i t c h i e v. V e r m i l l i o n Mining Co.  (1902), 4 O.L.R. 588 (C.A.); and Re U n i t e d F u e l  Investments  L t d . [1962] O.R. 162 (Ont. C.A.).  26.  CBCA s.199(2);  BCCA s.279(1);  SBCA s.188; ACA s.153; QCA  s.48; NSCA s.119; D r a f t OBCA s s . 185-187.  27.  In c e r t a i n j u r i s d i c t i o n s an " o f f e r o r " i n c l u d e s two o r more persons who, d i r e c t l y , make takeover b i d s j o i n t l y or i n concert, or intend t o exercise j o i n t l y or i n concert voting r i g h t s attached t o shares f o r which a takeover b i d i s made".  See CBCA s.187; OSA s . 8 8 ( l ) ( h ) ; B i l l  72 s . 8 8 ( l ) ( h ) ;  B i l l 76 s . 8 6 ( l ) ( h ) ; ASA s.80(e); SSA s.88(e); MSA 80(e); QSA s.113(e); BCSA s.79. C f . Blue Metal I n d u s t r i e s v. Dilley,  [1969] 3 W.L.R. 357.  See a l s o note 221, i n f r a which d i s c u s s e s whether an o f f e r o r may be an i n d i v i d u a l as w e l l as an " a c q u i r i n g company".  28.  The BCCA, f o r example, r e f e r s t o a "scheme o r c o n t r a c t " and not a "takeover b i d " .  For a d e f i n i t i o n o f t h i s phrase, see  - 96 -  Gregory v. Canadian A l l i e d P r o p e r t y , supra, Note 5 and Rathie v. Montreal T r u s t , [1953] 2 S.C.R. 204.  29.  An a c q u i r i n g company may  compel the remaining m i n o r i t y  shareholders to surrender t h e i r shares w i t h i n 5 months a f t e r the date o f takeover b i d f o r the same c o n s i d e r a t i o n . For  d e t a i l s of the d i s s e n t process a v a i l a b l e to the  m i n o r i t y s h a r e h o l d e r s see t e x t and notes 47-49, 139-140 infra;  See a l s o H a l p e r i n , "The  Statutory Elimination of  M i n o r i t y Shareholders i n Canada" i n Advanced Corporate Studies  (forthcoming) (L. Sarna, ed.,)  Law  (Toronto: C a r s w e l l  Co. L t d . , 1980); McNamara, "Note on Compulsory A c q u i s i t i o n of  Shares" 10 U.W.O.L. Rev.  141  (1971);  Flisfeder,  "Compulsory A c q u i s i t i o n o f the I n t e r e s t o f a D i s s e n t i n g M i n o r i t y Shareholder" 11 A l t a . L. Rev. 87  (1973);  English,  "Corporate A c q u i s i t i o n s - General C o n s i d e r a t i o n s " , i n S t u d i e s i n Canadian Company Law,  603  ( J . Z i e g e l ed.  1967);  Hansen, supra, Note 1; Anisman, Takeover B i d L e g i s l a t i o n i n Canada (Toronto: CCH  Canadian L t d . , 1974)  Note  108;  Weinberg and Blank, Takeovers and Mergers (4th ed.) (London:  Sweet and Maxwell,  1979)  Chapter  14.  - 97 -  30.  Whereas p u b l i c c o r p o r a t i o n s  may be taxed a t a combined  f e d e r a l - p r o v i n c i a l r a t e of up t o 51% on a l l types o f income earned, the " a c t i v e b u s i n e s s income" and investment income o f a "Canadian c o n t r o l l e d p r i v a t e c o r p o r a t i o n " be  taxed a t a s u b s t a n t i a l l y lower r a t e , assuming the  qualifications  f o r c e r t a i n tax c r e d i t s are met.  further discussion,  31.  prospective audited  For  see K r o f t , supra, Note 1 a t 62-63.  The requirements i n c l u d e the p r o v i s i o n s investors; information  o f a prospectus t o  c i r c u l a r s , proxies  and  f i n a n c i a l statements t o s h a r e h o l d e r s ; and i n s i d e r  trading reports  An  will  to s e c u r i t i e s regulatory  i s s u e r may be s t i l l  required  i f i t has gone p r i v a t e . corporations  authorities.  t o make p u b l i c  filings  F o r example, CBCA s.154  even  requires  whose gross revenues exceed t e n m i l l i o n  d o l l a r s o r whose a s s e t s  exceed f i v e m i l l i o n d o l l a r s t o send  copies o f t h e i r f i n a n c i a l statements t o t h e D i r e c t o r .  In  a d d i t i o n , the amalgamation o f a " p r i v a t e " company with a " p u b l i c " company does not enable the l a t t e r t o s h i r k i t s statutory obligations to disclose material BCCA s . l ( l ) ,  BCSA s . l ( l ) ,  41(v), and B i l l  information.  OSA s . l ( l ) 3 8 ( v ) , B i l l  76 s . 1 ( 1 ) ( t ) ( i v ) s t a t e t h a t a  72, s . l ( l ) "reporting  - 98 -  i s s u e r " i n c l u d e s companies c o n t i n u i n g amalgamation, provided has  from a s t a t u t o r y  one o f the amalgamating companies  been a " r e p o r t i n g i s s u e r " f o r a t l e a s t 12 months.  Companies may, however, o b t a i n exemptions from these d i s c l o s u r e requirements. 50;  OSA s.79; B i l l  34,  i n f r a , concerning  See CBCA s.154(2) and R e g u l a t i o n  72 s.79; B i l l  76 s.77.  See a l s o Note  exemptions from takeover b i d o r  i s s u e r b i d requirements.  Economies o f s c a l e could r e s u l t from the a d m i n i s t r a t i v e savings  a s s o c i a t e d with shareholder  servicing costs.  See  Weinberg - Blank, supra, Note 29 a t 35-37.  The  private corporation  i s able t o make b u s i n e s s d e c i s i o n s  on the b a s i s of long range o b j e c t i v e s and o p p o r t u n i t i e s without concern f o r the p o s s i b l e adverse e f f e c t on the t r a d i n g p r i c e of i t s shares.  I t s o f f i c e r s and d i r e c t o r s  are able t o manage without f e a r o f s a n c t i o n s instance of minority interest.  shareholders  C e r t a i n corporate  imposed a t the  over c o n f l i c t s o f  f o r m a l i t i e s such as the  appointment of a u d i t o r s , the e l e c t i o n of a minimum number  - 99 -  of d i r e c t o r s and  the use o f a t r u s t indenture  are  not  required.  34.  For example, i n an income s p l i t , s a l a r y or d i v i d e n d s but w i l l  a spouse may  choose remuneration i n the  form of dividends because he/she may approximately  receive  r e c e i v e up  to  $33,000 o f d i v i d e n d s tax f r e e ( i f e a r n i n g  other income) as a r e s u l t of the o p e r a t i o n of the tax c r e d i t . Income and 114.  See Eddy, "The the 1977  I n c o r p o r a t i o n of  Budget Changes, 1977  In an e s t a t e f r e e z e , any  the shares  no  dividend  Business  Conference Report  f u t u r e growth i n the value  of  of the company might be passed on to f a m i l y  members by means of a r e o r g a n i z a t i o n of c a p i t a l .  35.  T h i s i s due  to the i m p e r f e c t i o n s  i n the present  tax system  r e s u l t i n g p r i m a r i l y from the a p p l i c a t i o n of p r o v i n c i a l r a t e s t o the o p e r a t i o n of the d i v i d e n d tax c r e d i t . Fenwick, " I n c o r p o r a t i o n of Investment Income", Conference Report  141.  1977  See  tax  - 100 -  See Levine & Graham, " I n c o r p o r a t i o n and T a x a t i o n o f a P r i v a t e C o r p o r a t i o n " 1980 B r i t i s h Columbia Tax Conference Report  (Canadian Tax Foundation,  forthcoming).  A takeover b i d i s c l a s s i f i e d as an "exempt b i d " when (a)  an o f f e r i s made through  the f a c i l i t i e s o f the stock  exchange or i n the over the counter market. CBCA s.187(b);  BCSA s.79(b);  Bill  72, s.88(2)(a);  s.86(2)(a); OSA s.88(2)(a); ASA s . 8 0 ( b ) ( i i ) ;  B i l l 76 MSA  s.80(b)(ii).  (b)  an o f f e r i s made t o purchase shares i n " p r i v a t e company".  OSA s.88(2)(b); BCSA s.79(c); MSA s.  80(1)(b)(iii); 87(b)(iii); Bill  (c)  QSA s . 1 1 3 ( 1 ) ( f ) ( i i i ) ;  ASA s. 8 0 ( b ) ( i i i ) ;  Bill  SSA s. 76 s. 8 8 ( 2 ) ( b ) ;  72 s. 8 8 ( 2 ) ( b ) .  an o f f e r i s made t o purchase shares by p r i v a t e agreement with i n d i v i d u a l shareholders and i s not made to  shareholders g e n e r a l l y .  CBCA s.187(a);  BCSA  s.79(a); ASA s . 8 0 ( b ) ( i ) ; SSA s . 8 8 ( b ) ( i ) ; MSA s.80(l)(i); B i l l  72 s . 8 8 ( 2 ) ( c ) ; B i l l  OSA s . 8 8 ( 2 ) ( c ) ; QSA s . H 3 ( l ) ( f ) .  76 s . 8 6 ( 2 ) ( c ) ;  - 101  (d)  -  i t i n v o l v e s the a c q u i s i t i o n  of not more than 5 percent  of the v o t i n g shares of the t a r g e t company w i t h i n any p e r i o d o f 12 c o n s e c u t i v e months; OSA 72 s.88(2)(d), B i l l  (e)  76  s.88(2)(d);  Bill  s.86(2)(d).  an o f f e r i s made by the h o l d e r of a c o n t r o l b l o c k o f shares.  OSA  s.88(2)(e); B i l l  76 s.86(2)(e); B i l l  72  s.88(2)(e).  (f)  an exemption order i s made by a c o u r t or a s e c u r i t i e s r e g u l a t o r y agency. ( c o u r t ) ; ASA  s.89  CBCA s.187  (court);  BCSA  ( s e c u r i t i e s commission); B i l l  s.97  ( s e c u r i t i e s commission); SSA  s. 96  s.89  ( s e c u r i t i e s commission) B i l l  72 s.99  commission); OSA  s.88  s.99  (commission);  QSA  (court);  76 MSA  (securities s.136  (Commission).  An i s s u e r b i d w i l l be c l a s s i f i e d as an "exempt b i d " under OSA (a)  s.88(3) B i l l  76 s.86(3), B i l l  the s e c u r i t i e s are purchased, acquired i n accordance  72 s.88(3) when: redeemed or  otherwise  with the terms and c o n d i t i o n s  agreed  t o a t the time they were i s s u e d or  subsequently  varied  by amendment of the documents s e t t i n g out  those  - 102 -  terms and c o n d i t i o n s ,  o r are acquired  t o meet s i n k i n g  fund requirements or from an employee o f the i s s u e r or an employee o f an a f f i l i a t e ;  the purchases, redemptions o r other a c q u i s i t i o n s are required  by the instrument c r e a t i n g or governing the  c l a s s o f s e c u r i t i e s or by the s t a t u t e under which the i s s u e r was i n c o r p o r a t e d  the  or organized;  i s s u e r b i d i s made through the f a c i l i t i e s o f a  stock exchange recognized by the Commission f o r the purpose o f t h i s P a r t a c c o r d i n g t o the by-laws, regulations  following the  or p o l i c i e s o f the stock exchange;  the p u b l i c a t i o n o f a n o t i c e o f i n t e n t i o n i n  form and i n the manner p r e s c r i b e d  regulations,  by the  the i s s u e r purchases s e c u r i t i e s o f the  i s s u e r , but the aggregate number, or i n the case o f c o n v e r t i b l e debt s e c u r i t i e s , the aggregate p r i n c i p a l amount, o f s e c u r i t i e s purchased by the i s s u e r i n r e l i a n c e on the exemption p r o v i d e d by t h i s during  any p e r i o d  clause  o f twelve consecutive months s h a l l  - 103 -  not exceed 5 p e r cent o f the s e c u r i t i e s o f the c l a s s sought outstanding a t the commencement  of the p e r i o d ;  or  (e)  the i s s u e r i s made by a p r i v a t e company.  CBCA s.187-189 and P a r t V I I I o f the Regulations; OSA s.94 and Regs. Form 31; BCSA s.89; ASA s.90; B i l l 76 s.92; MSA s.85(4),  s.90; B i l l  35-36 o f Regulations  72, s. 94; SSA s. 97; QSA s.125 and ss (Division V).  When a Stock Exchange takeover b i d i s being made, the c i r c u l a r must d i s c l o s e s i g n i f i c a n t i n f o r m a t i o n concerning the a f f a i r s o f the company whose s e c u r i t i e s are b e i n g o f f e r e d i n exchange f o r the shares o f the t a r g e t company.  See a l s o O n t a r i o P o l i c y 3-37, O.S.C. Weekly Summary, Week Ending December 2, 1977 a t 1, which r e g u l a t e s i s s u e r and i n s i d e r b i d s , as w e l l as the d i s c l o s u r e requirements p r e s c r i b e d by the Exchanges when a stock market bid  i s made:  takeover  - 104 -  See Toronto Stock Exchange By-laws, P a r t XXIII i n Can. Sec. L. Rep. 17,181-27 (CCH); Vancouver Stock Exchange Rule 975, i n Can. Sec. L. Rep. 17,737 (CCH); Montreal Stock Exchange Rule V I I I , i n Can. Sec. L. Rep. 16,825(CCH). Current Procedure  See a l s o "Re:  f o r Take-Over B i d s , I s s u e r B i d s and  I n s i d e r Bids through the F a c i l i t i e s o f the Toronto  Stock  Exchange", TSE N o t i c e t o Members No. 1999, November 7, 1979,  39.  i n Can. Sec. L. Rep. 70,123(CCH).  BCSA s.80(c); ASA s.81(c); MSA s.81(4); SSA s.88(c); QSA s.116. and B i l l  40.  In OSA s.89(1)4, 76 s.87(1)4,  CBCA s.190(a); B i l l  72 s.89(1)4  the r e c i s s i o n p e r i o d i s t e n days.  BCSA s.80(b); ASA s.81(b); MSA s.81(3); SSA s.88(b); QSA s.115.  In OSA s.89(1)3; B i l l  76 s.87(1)3,  and B i l l 72  s.89(1)3, the p e r i o d i s 10 days. CBCA s.190(b) a l l o w s 14 days.  41.  The shares o f an a s s o c i a t e o r a f f i l i a t e o f the o f f e r o r must not be i n c l u d e d i n the computation  o f the 90%.  The BCCA  s.279 makes no r e f e r e n c e t o the term " a s s o c i a t e " but uses the word "nominee".  For a d i s c u s s i o n o f the term, see  Sammel v. P r e s i d e n t Brand Gold Mining Co. [1969] 3 S.A.  - 105  629;  Gregory v. Canadian A l l i e d P r o p e r t y Inv.,  5 and  J e f f e r s o n v. Omnitron Inv.  1979).  42.  -  See  a l s o , i n f r a , Note  BCCA s.279(1); ACA  supra, Note  18 B.C.L.R. 188  (S.C.  230.  s.153(1); QCA  s . 4 8 ( l ) ; CBCA s.199(2);  SBCA s.188; NSCA s.119(1); D r a f t OBCA s.186(1). D r a f t OBCA and  SBCA use  the phrase "120  The  CBCA,  days" r a t h e r than 4  months.  43.  BCCA s.2 79(2); ACA  s . l 5 3 ( l ) ; QCA  s.48(2); CBCA S.199(3);  SBCA s.189; NSCA s.119(1); D r a f t OBCA s . l 8 6 ( 2 ) . D r a f t OBCA and w i t h i n 180 the B.C.  The  SBCA s t a t e t h a t the n o t i c e must be  days a f t e r the day  immediately f o l l o w i n g the  mailed  of the takeover b i d .  l e g i s l a t i o n , n o t i c e must be given  during  CBCA,  Under the month  e x p i r y of the o f f e r ("within 5  months o f the making o f the o f f e r " ) , w h i l e i n Nova S c o t i a , the n o t i c e may  be given  the e x p i r y of the  44.  during  the  four months f o l l o w i n g  four months a f t e r the  offer.  BCCA s.279(3) (the c o u r t must make an order otherwise w i t h i n 2 months from the day  of the N o t i c e ) ; QCA  months from the making o f the O f f e r ) ; ACA  s.48(2) (6  s.153(1) (1 month  from the date of the N o t i c e ) ; NSCA s . H 9 ( 2 )  (1 month from  - 106 -  the date o f the N o t i c e ) ;  CBCA s.199(9)-(10) ( w i t h i n 20 days  a f t e r r e c e i p t o f the N o t i c e ) ;  SBCA s s . 1 8 9 ( c ) ( i i ) and 195  ( w i t h i n 20 days a f t e r r e c e i p t o f the N o t i c e ) ;  D r a f t OBCA  s.186(4)-(5) ( w i t h i n 20 days a f t e r r e c e i p t of the N o t i c e ) .  Under the l a t t e r 3 s t a t u t e s , the o f f e r o r i s o b l i g e d t o pay or g i v e the o f f e r e e c o r p o r a t i o n , or other c o n s i d e r a t i o n  w i t h i n the 20 days, money  s u f f i c i e n t t o d i s c h a r g e the claims  of a l l d i s s e n t i n g o f f e r e e s had they e l e c t e d t o t r a n s f e r t h e i r shares on the terms contained If  i n the takeover b i d .  a d i s s e n t i n g o f f e r e e has e l e c t e d t o demand the f a i r  value o f h i s shares, an a p p l i c a t i o n t o Court t o f i x the f a i r value may be made by the o f f e r o r w i t h i n 20 days a f t e r t h i s date.  F a i l i n g t h i s , the d i s s e n t i n g o f f e r e e has a  f u r t h e r 20 days t o seek j u d i c i a l  For f u r t h e r d e t a i l s ,  45.  supra, Note 29.  CBCA s.188(a)(60 days); BCSA; ASA; B i l l Bill  46.  see H a l p e r i n ,  redress.  76 s.86(1)13;  72 s.89(1)13; MSA s.81(3); OSA s . 8 9 ( l )  CBCA s.190(d); BCSA s.82; ASA s.83; B i l l MSA s.83; B i l l  SSA;  13; QSA s.117.  76 s.88; SSA s.90;  72 s.90; OSA s.90; QSA s.121.  - 107  47.  OSA  s.91;  Bill  see A l b o i n i ,  48.  49 s.91;  Bill  -  76 s.89.  O n t a r i o P o l i c y 3-41 1979,  issued guidelines i n  O.S.C. Weekly Summary, Week Ending  Supplement C,  indicating that i t " w i l l  f a v o u r a b l y disposed t o g r a n t i n g an exemption from  49.  details,  supra, Note 1 715-732.  The O n t a r i o S e c u r i t i e s Commission has  August 17,  For f u r t h e r  "follow-up" o b l i g a t i o n i n c e r t a i n  circumstances.  CBCA S.177(5);  s,177(5);  SBCA s . l 7 7 ( 5 ) ; MCA  D r a f t OBCA S.174(4);  QCA  s.31(3); NSCA s.120(4);  S.18(4); ACA  be  the  OBCA s . l 9 6 ( 4 ) ;  S.156(4); NBCA  PEICA s.77(3); NCA  S.30(3); BCCA  s.271.  50.  An arrangement i s a scheme through which the r i g h t s o f shareholders may  be a d j u s t e d or m o d i f i e d .  I t i s used  p r i m a r i l y under e x t r a o r d i n a r y circumstances;  e.g.,  i t may  be used e i t h e r where the c a p i t a l s t r u c t u r e of the c o r p o r a t i o n i s i n c o n v e n i e n t , or where new r e q u i r e d and  capital i s  i s only o b t a i n a b l e on c o n d i t i o n t h a t the  e x i s t i n g r i g h t s o f the shareholders are m o d i f i e d or t h e i r interest  i n the c o r p o r a t i o n reduced.  The procedure  for  a f f e c t i n g an arrangement i n v o l v e s the submission o f a  - 108 -  scheme a t the meeting o f the s h a r e h o l d e r s , o r , where the h o l d e r s o f more than one c l a s s are a f f e c t e d ,  a t separate  meetings o f the c l a s s e s o f s h a r e h o l d e r s concerned. shareholder approval i s obtained, the court whether the scheme was f a i r and e q u i t a b l e  Once  must determine  t o the  shareholders and whether the p o s i t i o n o f the c r e d i t o r s has been adequately c o n s i d e r e d . scheme, the c o r p o r a t i o n  When the c o u r t has approved a  must d e l i v e r documents e v i d e n c i n g  amendments t o the c o n s t a t i n g regulatory  documents t o a governmental  agency which i s s u e s  a certificate,  which i s t o amend the c o n s t a t i n g with the p r o v i s i o n s  documents i n accordance  o f the arrangement.  s.185.1; BCCA, s s . 276-78;  ACA,  See; CBCA,  S.154; SBCA, s.186;  s.185.1; D r a f t OBCA, s s . 180-81; QCA, NSCA, s s . 117-18; NCA,  the e f f e c t o f  MCA,  s s . 49-50; NBCA s.48;  s s . 131-33.  The companies l e g i s l a t i o n o f most j u r i s d i c t i o n s i n Canada permits the r e d u c t i o n  of a company's  issued  c a p i t a l by  s p e c i a l r e s o l u t i o n , CBCA s . 3 6 ( l ) ; BCCA s.2 57; s.38(l)(b);  SBCA s . 3 6 ( l ) ;  MCA  ACA  s . 3 6 ( l ) ; OBCA, s s . 189(1)  (d), 189(2); D r a f t OBCA s . 3 4 ( l ) ; QCA s.63; NCA s.86; NBCA s.65;  NSCA s . 5 2 ( l ) ; PEICA s . 3 4 ( l ) .  - 109 -  One example o f a r e d u c t i o n o f c a p i t a l  squeezeout i s In t h e  Matter o f Campeau C o r p o r a t i o n L i m i t e d , O n t a r i o C o r p o r a t i o n s Law Guide CCH Reporter Para 50-014 (H.C. 1972).  See a l s o  B r i t i s h & American T r u s t e e Corp. v. Couper, [1894] A.C. 399, 63 L . J . Ch. 425 (H.L.); Re F r a s e r , [1951] S.C. (Ct.  394  Sess.); Ex p a r t e Westburn Sugar R e f i n e r i e s L t d . ,  [1951] S.C. 190, rev'd [1951] A.C.  625; In r e S a l t d e a n  E s t a t e Co., [1968] 3 A l l E.R. 829, [1968] 1 W.L.R. 1844 (Ch. (S.C.  D.); In r e Fowlers V a c o l a Mfg. Co., [1966] V.R. 97 1965); C f . In r e Holders Inv. T r u s t L t d . , [1971] 2  A l l E.R. 289, [1971] 1 W.L.R. 583 (Ch. D. 1970).  52.  Supra, Note 21.  53.  Supra, Note 22.  54.  Supra, Note 24.  55.  Supra, Note 25.  56.  The requirements f o r the passage o f a s p e c i a l  resolution  vary from j u r i s d i c t i o n t o j u r i s d i c t i o n . CBCA s . 2 ( l ) ,  SBCA  s . 2 ( l ) ( f f ) , MCA s . l ( l ) ( g g ) , OBCA s . l ( l ) 27; and D r a f t OBCA  - 110  -  s.1(1)42 r e q u i r e the f a v o u r a b l e vote o f not l e s s than t h i r d s m a j o r i t y of shareholders who  Other  voted i n r e s p e c t of the  S S . 1 8 ( 4 ) , 60 r e q u i r e 2/3  r e s o l u t i o n . QCA  j u r i s d i c t i o n r e q u i r e 3/4  31(3); 48(3); NSCA s.75;  two-  i n value.  of the votes c a s t : NBCA s s .  PEICA s.77(3); NCA  s.lll;  BCCA  s.l(l).  57.  See: 390,  Brown v. B r i t i s h A b r a s i v e Wheel Co., [1918-19] A l l E.R.  Rep.  309  Arderne Cinemas L t d . , [1951] Ch. 1120  [1919] 1 Ch.  (Ch. D.); Greenhalgh 286,  v.  [1950] 2 A l l E.R.  (C.A.); A l l e n v. Gold Reefs o f West A f r i c a L t d . ,  [1900] 1 Ch. 656,  [1900-03] A l l E.R.  S h u t t l e s w o r t h v. Cox E.R.  Rep.  498  Co.,  [1920] 2 Ch.  Bros.,  Rep.  [1927] 2 K.B.  746 9,  (C.A.); [1926] A l l  (C.A.); Dafen T i n p l a t e Co. v. L l a n e l l y 124,  89 L . J . Ch.  113  Steel  (C.A.); P e t e r ' s  American D e l i c a c y Co. L t d . v. Heath (1938-39), 61 C.L.R. 457  (Aust. H.C.)  and Rights and  S t y l o Shoes, [1964] 3 A l l E.R. discussion, (4th ed. 112-114.  Issues Investment T r u s t v. 628  (Ch. D.).  For  further  see Gower, The P r i n c i p l e s o f Modern Company  1979)  a t 620-630; Weinberg, supra, Note 29 a t  Law  - Ill-  58.  Amalgamation  CBCA s. 177(4); BCCA s.273(4); ACA; SBCA S.177(4); MCA 8.177(4); OBCA s . l 9 6 ( 5 ) ; QCA; NBCA; NCA; NBCA; PEICA; D r a f t OBCA s. 174(3).  Amendment o f the Corporate C o n s t i t u t i o n  CBCA s.170; BCCA s.250; ACA s s . 38, 69; SBCA s.170; MCA s.170; OBCA s.189(4); D r a f t OBCA s.168; QCA; NBCA s.48(3); NCA s.131; PEICA; NSCA.  Sale of Assets  CBCA s.183(6); SBCA s.183(6); MCA s.183(6); D r a f t OBCA s.183(7).  Winding Up  CBCA s.204(3); MCA s.204(3); SBCA s.204(3).  - 112 -  59.  F o r example, see s e c t i o n 251 o f the BCCA.  60.  F o r example, see Re Trend Management, 3 B.C.L.R. 186 (H.C. 1977); See g e n e r a l l y concerning the v a r i a t i o n or of c l a s s r i g h t s ,  Rice,  abrogation  "Class R i g h t s and T h e i r V a r i a t i o n  i n Company" J . Bus. L. 39 (1960); Baxt, "The V a r i a t i o n o f C l a s s Rights",  41 Aust. L . J . 290 (1968); T r e b i l c o c k , "The  E f f e c t of A l t e r a t i o n s to A r t i c l e s of Association", 95  61.  31 Conv.  (1967).  CBCA s.122-122.1; BCSA S.108; ASA s.82; SSA s.117; MSA ss.109-109.1; OSA ss.102-103; B i l l  76 ss.100-101; B i l l 72  ss.102-103; QSA s.141.  An  i s s u e r may a l s o be an i n s i d e r o f i t s e l f .  For a  d e f i n i t i o n o f " i n s i d e r " , see CBCA, s.121(1); BCSA, s.107(1); ACA, s.41.31; SBCA, s.121(1)(b); MSA, s.l08(l)(c);  Bill  72, s . l ( l ) l 8 ( v ) ;  OBCA, 8 . 1 3 7 ( 1 ) ( b ) ( i ) ; B i l l s . H 6 ( l ) ( c ) ; ASA s.81.  OSA, l ( l ) 1 7 ( i v ) ;  Draft  76, s . 1 ( 1 ) ( h . 1 ) ( i v ) ; SSA  There i s no requirement f o r f i l i n g  under the BCCA, MCA, SBCA o r D r a f t OBCA.  Under these  an i s s u e r , who i s deemed t o be an i n s i d e r o f i t s e l f ,  acts will  be l i a b l e f o r damages o n l y i f i t misuses  inside  information.  The term used i n many s t a t u t e s i s " s p e c i f i c information".  confidential  For d i s c u s s i o n o f the phrase, see Green v.  Charterhouse Group Canada L t d . , 12 O.R. (3d) 592 (C.A. 1976);  (2d) 280, 68 D.L.R.  In the Matter o f Harold P. Connor,  [June 1976] B u l l O.S.C. 149.  Note t h a t OSA, s. 131, B i l l  72, s. 131, and B i l l 76, s.129, use the phrase of  "knowledge  a m a t e r i a l f a c t . . . t h a t has not been g e n e r a l l y  disclosed".  See Buckley, "How t o do Things with I n s i d e  Information", 2 Can. Bus. L . J . 343 (1977). See a l s o Anisman, " I n s i d e r T r a d i n g Under the Canadian Business C o r p o r a t i o n s A c t " , i n Meredith Memorial L e c t u r e s 151 (1975); I a c o b u c c i , P i l k i n g t o n & P r i c h a r d , Canadian Business C o r p o r a t i o n s (Toronto: Canada Law Book, 1977), a t 341 e t seq.,  Yontef, " I n s i d e r T r a d i n g " , i n P r o p o s a l s f o r a  S e c u r i t i e s Law f o r Canada V o l .  3, 625 (1979); A l b o i n i ,  supra, Note 1 a t Chapter XX.  CBCA, s.125(5); BCCA, s.153; ACA, s.85; SBCA, s.124; MCA, s.125(5); D r a f t OBCA, s.139(5); BCSA, s.112; SSA, s.120; MSA, s . I l l ;  ASA, s.112; QSA, s.169.  - 114 -  64.  T h i s assumes t h a t the a c q u i r o r i s an i n d i v i d u a l and may w e l l i n c l u d e the i n d i v i d u a l c o n t r o l l i n g shareholders o f a corporate acquiror.  For example, the purchase  o r redemption  render the i s s u e r i n s o l v e n t .  o f shares must not  See CBCA ss.32(2), 33(3),  34(2), 36(3); BCCA s.260; MCA ss.32(2), 33(3), 36(3); OBCA s.39(3); D r a f t OBCA s.30(2), 31(3), 34(4); QCA; NBCA; PEICA;  66.  CBCA, s . H 3 ( 2 ) ( a ) ;  34(2), 32(2),  NCA; NSCA;  BCCA, s . l 5 1 ( l ) ( a ) ; ACA,  SBCA, s.113(2) (a); MCA, s . H 3 ( 2 ) ( a ) ;  s.41.21(1);  OBCA, s.135(1);  Draft  OBCA, s.129(2)(a).  67.  Amalgamations  CBCA s.177(1);  SBCA s. 177(1);  D r a f t OBCA s.174(1); BCCA  s.140; OBCA; QCA s.88; ACA Table A; MCA S . 1 7 7 ( l ) ; NBCA s.96;  PEICA s.28; NSCA Table A s.128; NCA Table A para.55.  - 115 -  Amendment o f the Corporate  Constitution  CBCA s.169; SBCA S.169; D r a f t OBCA s.170; BCCA s.140; OBCA s.189(3); QCA s.88 ss.52-4; ACA Table A;  MCA s.169; NBCA  ss.58; 62-64; PEICA ss.32-33; NSCA Table A ss.56, 128; NCA T a b l e A, p a r a . 26, 55.  Sale o f Assets  CBCA; SBCA; D r a f t OBCA; BCCA s.140; OBCA; QCA s.88; ACA T a b l e A; MCA; NBCA s.96; PEICA s.28; NSCA Table A s.28; NCA Table A p a r a . 55  Winding Up  CBCA s.204; SBCA s.204; D r a f t OBCA; BCCA s.289; OBCA;  Que  Winding Up A c t s s . 2-3; ACA; MCA s.204; N.B. Winding Up Act;  PEI Winding Up A c t ; NSCA Table A s.128; NCA Table A  para 5.  68.  BCSA ss.85 and 94; ASA s s . 86(4), 88(2), 95; SSA s s . 93 and 102; MSA s s . 86 and 95; B i l l  76 s.94; B i l l  72, s.96;  OSA  s.96 and Form 32 i n the R e g u l a t i o n s ; QSA s.132 and Regs.  - 116 -  s.38; CBCA ss.194, 196 and Regs. s.68.  For d i s c u s s i o n , see  A l b o i n i , supra, Note 1 a t 743-747.  69.  See I a c o b u c c i , P i l k i n g t o n and P r i c h a r d ,  supra. Note 62 a t  286-318 and i n f r a t e x t , a t 54-58.  70.  CBCA, s.115; BCCA, s.144; ACA, s.78; SBCA, s.115; MCA, s.115; OBCA, s.134; D r a f t OBCA, s.131; QCA (no p r o v i s i o n ) ; NBCA (no p r o v i s i o n ) ; NSCA (no p r o v i s i o n ) ; NCA, Table A, s.57.  Even i f the d i r e c t o r s do commit a breach o f a  f i d u c i a r y duty, they are p e r m i t t e d t o r a t i f y the wrong i n t h e i r capacity conduct.  as shareholders absent fraud and o p p r e s s i v e  See North W. Trans. Co. v. Beatty, 12 App. Cas.  589, 56 L.J.P.C. 102 (P.C. 1887). For f u r t h e r see  discussion,  t e x t , i n f r a a t 55-58.  71.  See i n f r a , t e x t a t 56-57.  72.  Amalgamations  Norcan O i l s L t d . and G r i d o i l F r e e h o l d Leases v . F o g l e r [1965] S.C.R. 36; Westeel, supra, Note 5. C f . Re Ardiem  - 117 -  H o l d i n g s , 67 D.L.R. (3d) 253 (S.C.C.) Rev'g  (1976), 61  D.L.R. (3d) 725.  Arrangements  Re Dorman Long & Co. [1934] Ch. 635, 103 L . J . Ch. 316 (Ch.); Re Upper Canada Resources, 20 O.R. (2d) 100 (H.C. 1978); Re N. S l a y e r Co. [1947] 2 D.L.R. 311 (Ont. H.C.).  Compulsory A c q u i s i t i o n  Re John L a b a t t L t d . v. Lucky Lager Breweries L t d . (1959), 20 D.L.R. (2d) 159 (BCSC); Rathie v. Montreal T r u s t supra, Note 28.  c f . Mofmac Investments L t d . v.' Andres Wines L t d .  et a l . (N.S.S.C. May 30, 1980) G e n e r a l l y , see H a l p e r i n , supra, Note 29.  73.  A shareholder may enforce h i s r i g h t s as a member and o b t a i n i n j u n c t i v e r e l i e f by means o f  a personal action  Note 248) o r a d e r i v a t i v e a c t i o n  (infra,  ( i n f r a , Note 233) when  d i r e c t o r s have committed a breach o f a duty owed t o the company, and the company has chosen not t o sue f o r r e l i e f . The companies and s e c u r i t i e s l e g i s l a t i o n  of c e r t a i n  -  118 -  j u r i s d i c t i o n s a l s o permit a shareholder or a wider c l a s s o f persons ( i n f r a , Note 231) t o seek compliance by the c o r p o r a t i o n or a d i r e c t o r or o f f i c e r o f the c o r p o r a t i o n with s t a t u t o r y p r o v i s i o n s or the c o n s t a t i n g documents o f the  Company.  See CBCA ss.198, 240; ASA s.147; B i l l  s.120; SBCA s.240; SSA s.150; MCA  s.240; MSA  s.122; OBCA s.261; D r a f t OBCA s.251; OSA  76,  s.147; B i l l  72  s.122;  For  d i s c u s s i o n of the l i m i t a t i o n s o f the compliance  see  Re Goldhar and Quebec Manitou Mines, 9 O.R.  remedy,  (2d) 740,61  D.L.R. (3d) 612, (H.C. 1976), i n which Reid, J . h e l d t h a t the  o b l i g a t i o n s e n f o r c e a b l e under OBCA s.261 must be owed  d i r e c t l y t o the shareholders, and consequently, cannot be used as a v e h i c l e f o r e n f o r c i n g rights. of  For commentary,  Directors' Duties:  Ltd."  s.261  derivative  see Campbell, "Summary Enforcement  Re Goldhar and Quebec Manitou Mines  2 Can. Bus. L . J . 92  (1977).  Shareholders a l s o have recourse t o sue f o r damages pursuant to  the c i v i l  l i a b i l i t y p r o v i s i o n s i n the s e c u r i t i e s  l e g i s l a t i o n of c e r t a i n j u r i s d i c t i o n s i f they can prove t h a t they have been m i s l e d by m i s r e p r e s e n t a t i o n s i n takeover b i d or  proxy m a t e r i a l s .  See ASA s.140.1; B i l l  76 s.125;  SSA;  - 119  MSA  s.141.1; B i l l 72 s.127;  a l s o Paterson,  -  QSA  s.137; OSA  s.127.  See  "A Role f o r C i v i l L i a b i l i t y i n Canadian  S e c u r i t i e s Regulation? - Remedies f o r Breach o f The Takeover B i d D i s c l o s u r e Requirements of the S e c u r i t i e s Act 1967"  12 U.B.C. L. Rev.  32  (1978) and L e i g h , S e c u r i t i e s  R e g u l a t i o n Problems i n R e l a t i o n t o S a n c t i o n s " Volume 3 P r o p o s a l s f o r a S e c u r i t i e s Market Law  f o r Canada  510  (1978).  74.  Maple L e a f M i l l s ,  supra, Note 5.  75.  See the comments o f Bouck J . i n Neonex I n t e r n a t i o n a l , supra, Note 5 and L a y c r a f t , J . i n Jepson v. Canadian S a l t , supra, Note 5 a t 42  (W.W.R. c i t e f o l l o w e d ) :  "the use of the Amalgamation p r o v i s i o n s of the Canada Business C o r p o r a t i o n s A c t as a " f o r c e o u t " mechanism a g a i n s t m i n o r i t y shareholders has made v i r t u a l l y redundant the s e c t i o n s of the A c t designed t o cover the " f o r c e o u t " s i t u a t i o n . S e c t i o n 199 of the Act p r o v i d e s a much more e l a b o r a t e procedure t o safeguard the m i n o r i t y than does s e c t i o n 184 governing amalgamation, f o r example, the " f o r c e o u t " procedure i n s.199 r e q u i r e s t h a t the takeover o f f e r be accepted by h o l d e r s o f 90 per cent of the shares apart from those owned by the o f f e r o r , while an amalgamation may be achieved by a t w o - t h i r d s m a j o r i t y without any requirement t h a t the m a j o r i t y comes from independently h e l d shares."  - 120 -  "Expressions Unius E s t I n c l u s i o A l t e r i u s " i s the canon o f statutory construction referred to.  See Driedger, The  C o n s t r u c t i o n o f S t a t u t e s (Toronto: Butterworths, 1974) a t 95.  See Re H e l l e n i c and General T r u s t L t d [1975] 3 A l l E.R. 382,  [1976] 1 W.L.R. 123 (Ch. D) (per.Templeman, J . ) ;  Westeel,  supra, Note 5.  The c a t c h phrase which the c o u r t s  use i s "you cannot do something  i n d i r e c t l y which you f a i l e d  t o accomplish d i r e c t l y . " See a l s o Gower, supra, Note 57 a t 622-623 and P i t c h , t h a t compulsory  supra, Note 1 a t 13.  Gower suggests  a c q u i s i t i o n i s now the a p p r o p r i a t e means o f  e x p r o p r i a t i n g m i n o r i t y shares, and t h a t U.K. Courts  will  f o l l o w the d e c i s i o n o f the E n g l i s h Court o f Appeal i n Sidebottom  v. Kershaw Lease & Co. [1920] 1 Ch. 154 and  permit the use o f the a l t e r a t i o n o f the c o n s t a t i n g documents as a squeezeout which a r e prima  technique o n l y i n circumstances  f a c i e b e n e f i c i a l t o the Company as a  whole.  In J u r i s d i c t i o n s with a Compulsory A c q u i s i t i o n P r o v i s i o n : CBCA: Neonex I n t e r n a t i o n a l , supra, Note 5; Canadian  Salt,  - 121 -  supra, Note 5; Ruskin v. A l l - C a n a d a News Radio, 5 and Domglas,  supra, Note  supra, Note 5.  In J u r i s d i c t i o n s Without Compulsory A c q u i s i t i o n P r o v i s i o n s : OBCA: Wingold v. The M i n i s t e r o f Consumer and Commercial R e l a t i o n s (Ontario) (Ont. H.C. J u l y 9, 1979)  MCA:  T r i a d O i l Holdings L t d . v . The P r o v i n c i a l S e c r e t a r y  f o r Manitoba, 59 W.W.R. 1 (Man C.A. 1967).  For Commentary, see Lange, supra, Note 1.  79.  In J u r i s i d c t i o n s w i t h a Compulsory A c q u i s i t i o n P r o v i s i o n U.K. Companies A c t : Re N a t i o n a l Bank L t d . [1960] 1 A l l E.R. 1006;  [1960] 1 W.L.R. 819 (Ch.).  In J u r i s d i c t i o n s without a Compulsory A c q u i s i t i o n P r o v i s i o n OBCA: Re P.L. Robertson Mfg. Co., supra, Note 19.  Some j u r i s d i c t i o n s o u t s i d e Canada are faced with e l i m i n a t i n g the problem o f having c o r p o r a t i o n s circumvent take-over b i d r u l e s by means o f c a p i t a l r e o r g a n i z a t i o n techniques i n order t o e l i m i n a t e s h a r e h o l d e r s . F o r  - 122 -  d i s c u s s i o n o f the s i t u a t i o n i n A u s t r a l i a and South A f r i c a r e s p e c t i v e l y , see Macgregor,  "Take-overs R e v i s i t e d " , 95 S.  A f . L . J . 329  "Arranging a Take-over —  (1978); P l i n e r ,  Scheme Around the Code?" 7 Aust. Bus. L . J . 51  A  (1979).  80.  Supra, Note 5.  81.  Id. a t 273-274.  82.  Supra, Note 5 (The O n t a r i o Reports c i t a t i o n w i l l  be  followed).  83.  Id. a t 207.  84.  Id. a t 204-205.  85.  Supra, Note 5.  86.  Supra, Note  87.  Neonex I n t e r n a t i o n a l , supra, Note 5 a t 451 too was  5.  (D.L.R.).  This  the c o n c l u s i o n o f Greenberg, J . i n Domglas a t 70.  - 123 -  88.  Supra, Note 5.  89.  Id a t 223. failing to  In s h o r t , the f a c t s are as f o l l o w s :  After  t o o b t a i n the r e q u i s i t e 90% to e x e r c i s e i t s r i g h t  compulsory a c q u i s i t i o n f o l l o w i n g a takeover b i d f o r  Westeel shares, Jannock caused Westeel t o propose an amalgamation among i t s e l f and two Jannock wholly-owned subsidiaries. to  As a r e s u l t of the amalgamation Jannock  r e c e i v e common shares o f the amalgamated  was  corporation,  whereas the m i n o r i t y shareholders of Westeel were t o be g i v e n non-voting p r e f e r e n c e shares which the amalgamated c o r p o r a t i o n would redeem f o r cash immediately f o l l o w i n g the transaction.  90.  Id a t 218.  91.  Supra, Note 77.  92.  Id at 387.  93.  Supra, Note 79.  (The A l l E.R.  c i t a t i o n w i l l be f o l l o w e d ) .  - 124 -  94.  Id a t 829: "...I cannot accede t o t h a t p r o p o s i t i o n . In the f i r s t p l a c e i t seems t o me t o i n v o l v e imposing a l i m i t a t i o n or q u a l i f i c a t i o n e i t h e r on the g e n e r a l i t y o f the word "arrangement" i n s.206 o r e l s e on the d i s c r e t i o n o f the court under t h a t s e c t i o n . The l e g i s l a t u r e has not seen f i t t o impose any such l i m i t a t i o n i n terms and I see no reason f o r implying any. Moreover, the two s e c t i o n s , s.206 and s.209, i n v o l v e q u i t e d i f f e r e n t c o n s i d e r a t i o n s and d i f f e r e n t approaches. Under s.206 an arrangement can o n l y be sanctioned i f t h e q u e s t i o n of i t s f a i r n e s s has f i r s t o f a l l been submitted t o t h e court. Under s.209, on the other hand, t h e matter may never come t o the c o u r t a t a l l . I f i t does come t o the c o u r t then the onus i s c a s t on the d i s s e n t i n g m i n o r i t y t o demonstrate the f a i r n e s s o f the scheme. There are, t h e r e f o r e , good reasons f o r r e q u i r i n g a smaller m a j o r i t y i n favour o f a scheme under s. 206 than the m a j o r i t y which i s r e q u i r e d under s.209 i f the m i n o r i t y i s t o be e x p r o p r i a t e d . "  95.  For a d i s c u s s i o n o f the c h a r a c t e r i s t i c s o f the " t y p i c a l shareholder", Perogatives  see Joseph, "Management's Labour  Relations  and the Unproductive Debate: S t i l l the  C l a s s i c a l Economics and the Entrepreneur's L o t " 14 U.B.C. L. Rev. 75 (1980).  The author r e f e r s t o a New Zealand  study on investments and s t a t e s t h a t :  (footnotes  omitted) "Although n o n - f i n a n c i a l motives such as sheer i n t e r e s t i n business a f f a i r s may be o f some importance i n e x p l a i n i n g the widespread i n t e r e s t i n the share market, i t remains t r u e t h a t the b a s i c motive i s t h e d e s i r e t o make a monetary r e t u r n on accumulated funds.  - 125  -  T h i s motive a l t e r n a t e d between the e x p e c t a t i o n t o r e c e i v e d i v i d e n d s on the shares and a c a p i t a l gain on share a p p r e c i a t i o n , seventy-three per cent of the sample i n d i c a t i n g the l a t t e r to be more imporant. On t h i s survey then, the " t y p i c a l s h a r e h o l d e r " has a small p o r t f o l i o , i s a member of the group c o n t r i b u t i n g the g r e a t e s t p o r t i o n o f c a p i t a l , and " n e i t h e r expects nor has an i n c e n t i v e t o p a r t i c i p a t e i n the management of the f i r m . " His membership i n the company i s p u r e l y financial. His l e g a l s t a t u s as s t o c k h o l d e r , c o r r e l a t e d by the duty i n management to conduct the e n t e r p r i s e i n the best i n t e r e s t s of the owners as a group, i s an i n d e f i n i t e one. I f h i s expectations a r i s i n g from membership i n the company are f r u s t r a t e d , whether as a r e s u l t o f economic c y c l e s , the s t a t e o f the i n d u s t r y or the m a l p r a c t i c e of management, i t i s not t o any l e g a l mechanism t h a t the shareholder l o o k s . I t i s to the p u b l i c market t h a t he looks both f o r an a p p r a i s a l o f h i s ownership i n t e r e s t and the chance to r e a l i z e that i n t e r e s t . "  See a l s o Peterson, Canadian D i r e c t o r a t e P r a c t i c e s : A C r i t i c a l Self-Examination  (1977) at 116;  Modern C o r p o r a t i o n and P r i v a t e P r o p e r t y "The  L e g a l Roles o f Shareholders  Corporate  B e r l e & Means, The (1932);  and Management i n Modern  D e c i s i o n Making", 57 C a l i f . L. Rev  Manning, Rubner, The Enshared Shareholder Shareholder  A p p r a i s a l Remedy, An Essay  Y a l e L . J . 223  96.  1 [1969]  (1965);  The  f o r Frank Coker" 72  (1962).  For a review o f the c r i t i c a l  f e a t u r e s o f a going p r i v a t e  t r a n s a c t i o n , see Brudney & C h i r e l s t e i n , Corporate  Eisenberg,  Freezeouts",  87 Y a l e L . J . 1354  "A Restatement of (1978);  Brudney,  - 126 -  "A Note on Going P r i v a t e , " 61 Va. L. Rev. 1019 (1975); Note, "Going P r i v a t e " , 84 Y a l e L . J . 703 (1975);  Borden,  "Going P r i v a t e - O l d T o r t , New T o r t o r No T o r t " , 49 N.Y.U. L. Rev. 987 (1974);  97.  Salter,  supra, note 2.  To quote former SEC Commissioner Sommer i n Notre Dame, supra, Note 2: "Faced with the p r o s p e c t o f a merger o r a market reduced t o " g l a c i a l a c t i v i t y and the l i q u i d i t y o f the Mojave Desert, how r e a l i s the c h o i c e o f the shareholder c o n f r o n t i n g the o f f e r o f Management t o acquire h i s shares? " 1  98.  M i n o r i t y shareholders have argued t h a t the c o n t r o l l i n g shareholders should not be p e r m i t t e d t o a c q u i r e t h e i r shares u s i n g the l i q u i d resources o f the company i n which t h e i r shares represent e q u i t y .  The i s s u e r may p r o v i d e  i n s i d e r s with d i r e c t o r i n d i r e c t f i n a n c i a l a s s i s t a n c e by 1.  Loaning  funds;  2.  Guaranteeing  a loan o r p r o v i d i n g s e c u r i t y t o a l e n d i n g  i n s t i t u t i o n f o r funds borrowed;  3.  Passing on r e t a i n e d earnings i n the form o f t a x - f r e e or t a x a b l e d i v i d e n d s .  - 127  -  The mode o f f i n a n c i n g w i l l depend on a number o f f a c t o r s : 1.  Whether the method o f f i n a n c i n g a s s i s t a n c e w i l l v i o l a t e any  2.  statutory provisions.  Whether the i s s u e r or the c o n t r o l l i n g shareholders b e t t e r able to deduct any  3.  Supra, Note 11.  are  i n t e r e s t expense i n c u r r e d .  Whether the payment of d i v i d e n d s would v i o l a t e  any  s t a t u t o r y solvency p r o v i s i o n s .  4.  Whether the c o n t r o l l i n g shareholders are e a r n i n g l i t t l e or no income and t h e r e f o r e are i n a  low  marginal tax b r a c k e t or are companies, each o f which holds g r e a t e r than 10% i n value and 10% of the v o t i n g r i g h t s o f the shares of the i s s u e r .  See K r o f t , supra,  Note 1 a t 111-114.  For a d i s c u s s i o n of what i s known as a "leveraged buyout", see Lederman, "Leveraged  Buyouts" i n E l e v e n t h Annual  I n s t i t u t e on S e c u r i t i e s Regulation, supra, Note 6 a t See  a l s o Coleman v. Myers. [1977] 2 N.Z.L.R. 298  rev'g [1977] 2 N.Z.L.R. 225 on the t r i a l  (S.C.  1976).  405.  (C.A.),  For commentary  judgment, see R i d e r , " P e r c i v a l v.  Wright-per  - 128  Incuriam",  40 Mod.  L. Rev.  -  471  (1977);  Hetherington,  "Financing an I n s i d e r Take-over", 4 A u s t . Bus. L. Rev. (1976); Hansen, "Corporations Law" 671  99.  11 Ottawa L. Rev.  220  617  at  (1978).  For a s u c c i n c t d i s c u s s i o n o f " m a j o r i t y r u l e " , see Beck,  "An  A n a l y s i s of Foss v. H a r b o t t l e " S t u d i e s i n Canadian Company Law  ( J . Z i e g e l , ed.) Chapter XVIII a t 548-552.  100.  Supra, Note 7.  101.  The MCA,  102.  For example, the CBCA s.185.1 now  SBCA and D r a f t OBCA.  without automatic  permits an arrangement  shareholder c o n s i d e r a t i o n of a scheme  p r i o r t o c o u r t approval and S e c t i o n 170 o f the CBCA has been amended to permit c l a s s v o t i n g r i g h t s i n s p e c i f i c s i t u a t i o n s o n l y when "the a r t i c l e s do not p r o v i d e otherwise".  103.  Supra, Note 29 and t e x t , i n f r a a t 25.  104.  Supra, Note 23.  See a l s o P h i l l i p s ,  "The Concept o f a  - 129  C o r p o r a t i o n ' s Purchase 324  (1977); Getz,  Repurchases",  -  o f I t s Own  Shares",  "Some Aspects of Corporate  9 U.B.C.L. Rev 9  105. CBCA, s.184; BCCA, s.231; ACA,  see t e x t , i n f r a a t 24.  Note 1; Manning, "The  For  MCA,  further  See a l s o Magnet, supra,  Shareholders' A p p r a i s a l 72 Y a l e L . J .  Lansky,  Remedy f o r D i s s e n t i n g  i n Canada:  Share  s.249; SBCA, s.184;  Essay f o r Frank Coker" "The A p p r a i s a l  Rev.  (1974).  s.184; OBCA, s.100; D r a f t OBCA, s.183. details,  15 A l t a . L.  Is I t E f f e c t i v e ? " , 8 Man.  233  Remedy:  (1962-63);  An  Bruun &  Shareholders  L . J . 583  (1978).  106. Whereas i n most j u r i s d i c t i o n s p a r t i e s t o an amalgamation agreement must d e t a i l the manner i n which the i s s u e d unissued shares o f each amalgamating company w i l l  and  be  exchanged f o r shares i n the amalgamated company, CBCA s.176(1), MCA  S.176(1); SBCA s . l 7 6 ( l ) and D r a f t OBCA  s. 173(1) permit the use o f cash o r redeemable p r e f e r e n c e shares i n the exchange.  107.  For example, see the comments o f the Courts i n Singer v. Magnavox, supra, Note 6; i n Gregory v. Canadian  Allied  - 130 -  P r o p e r t y , supra, Note 5 a t 620 (W.W.R.) and i n Jepson v. Canadian S a l t ,  108.  supra, Note 5 a t 43-44 (W.W.R.).  Supra, Note 7.  109. Westeel,  supra, Note 5 a t 218 (O.R.):  " I f t h e L e g i s l a t u r e intended t h i s s e c t i o n t o encompass e x p r o p r i a t o r y powers, they should have s a i d so i n c l e a r , unambiguous words. In my view the s e c t i o n should not be construed t o import such powers. They now p u r p o r t t o do i n d i r e c t l y what they f a i l e d t o accomplish d i r e c t l y on a takeover b i d . A t common law the m a j o r i t y c o u l d not e x p r o p r i a t e the m i n o r i t y . "  110.  To quote Evershed  M.R. i n Greenhalgh v. Arderne Cinemas  L t d . supra, Note 57 a t 291 (Ch. c i t a t i o n ) : "A s p e c i a l r e s o l u t i o n . . . w o u l d be l i a b l e t o be impeached i f the e f f e c t o f i t were t o d i s c r i m i n a t e between the m a j o r i t y shareholders and the m i n o r i t y s h a r e h o l d e r s , so as t o g i v e the former an advantage o f which the l a t t e r were deprived." See a l s o Lange, supra, Note 1 f o r a d i s c u s s i o n o f t h i s aspect o f the case law.  111.  C a p i t a l gains treatment  i s p r e f e r a b l e o n l y t o i n v e s t o r s who  earn t a x a b l e income i n excess o f approximately  $59,000  because they w i l l pay a combined f e d e r a l and p r o v i n c i a l t a x of o n l y 30% on c a p i t a l gains as compared t o 39% on  - 131  d i v i d e n d s they r e c e i v e .  -  An i s s u e r may  therefore structure  a t r a n s a c t i o n so t h a t shareholders have a choice of the form t h a t the proceeds  of d i s p o s i t i o n w i l l assume.  See  K r o f t , supra, Note 1.  112.  There i s no e m p i r i c a l data which suggests t h a t have dampened i n v e s t o r c o n f i d e n c e . shareholders may  squeezeouts  However, many  f e e l the same as Mr.  Kolasa whose comments  were quoted by Bouck, J . i n Neonex I n t e r n a t i o n a l , Note 5 a t  supra,  451:  "The l e a d e r s of t h i s country have asked us a l l t o i n v e s t i n Canada as good c i t i z e n s . My w i f e and I took our savings and bought shares i n Neonex f o r over $5.00 each. Now we are t o l d we must s e l l them f o r $3.00. We seem t o have l i t t l e c h o i c e . Why i s t h i s so?"  113. What a l s o angers m i n o r i t y shareholders i s the f a c t t h a t the p r i c e which they p a i d f o r t h e i r shares was squeezeout  price.  Many companies now  "going p r i v a t e "  a t t r a c t e d c a p i t a l i n the l a t e S i x t i e s by i n vogue. how  "going p u b l i c "  was  For s t a t i s t i c a l d e t a i l s and p r a c t i c a l t i p s about  t o "go p u b l i c " ,  see Berman, Going P u b l i c : A P r a c t i c a l  Handbook o f Procedures Going P u b l i c Public  h i g h e r than the  (1971);  (1979);  and Forms (1974); Robinson & E p p l e r ,  I s r a e l s & Duff, When C o r p o r a t i o n s  Going P u b l i c -- Advanced  Techniques  Go  - 132 -  (Sargent  ed. 1979);  Going P u b l i c Workshop (Sommer &  Friedman eds. 1970); Shaw, The Costs o f Going P u b l i c i n Canada, U.W.O. 1974;  School o f Business  Address by D.H.  McQuillan,  A d m i n i s t r a t i o n , June 6,  Brown, Going P u b l i c , OICA, 1970;  Going P u b l i c i n Canada: The F a c t s and Fads  (1971).  114.  In such a market, i n f o r m a t i o n flows  f r e e l y , there are many  p a r t i c i p a n t s and there are no i n s t i t u t i o n a l or c o r r u p t , m a n i p u l a t i v e  influences.  imperfections  See Brudney,  " E f f i c i e n t Markets and F a i r Values i n Parent  Subsidiary  Mergers", 4 J o u r n a l o f C o r p o r a t i o n Law" 63 (1978).  115.  To quote Brudney, supra, Note 114 a t 64: "Competition among the many eager p a r t i c i p a n t s i n t h e market f e r r e t s out a l l r e l e v a n t i n f o r m a t i o n about the prospects o f an e n t e r p r i s e and t h e r e f o r e the value o f i t s s e c u r i t i e s and causes t h a t i n f o r m a t i o n t o be r e f l e c t e d i n the p r i c e o f the s e c u r i t y 'instantaneously*. Each stock i s thus ' p r i c e d f a i r l y w i t h r e s p e c t t o i t s value'."  116.  See Manne, "Mergers and The Market f o r Corporate  Control"  73 J . P o l . Eco 110 (1965); Manne, "Cash Tender O f f e r s - A Reply t o Chairman Cohen" (1967) Duke Law J o u r n a l 231.  - 133 -  117. See Campbell & S t e e l e , f o r examples.  supra, Note 1; S a l t e r , supra, Note 2  In Re Quegroup Investments,  the o f f e r i n g p r i c e f o r m i n o r i t y was  supra, Note 5,  shares on the i s s u e r b i d  l e s s than one h a l f o f the p r i c e at which they had been  d i s t r i b u t e d t o the p u b l i c .  118. Weinberg & Blank, supra, Note 29, Chapter 3; S a l t e r ,  supra,  Note 2; N o t i c e , supra, Note 2; Brudney, supra, Note 114 a t 66.  See a l s o the d e t a i l e d a n a l y s i s o f the Court i n Domglas  supra, Not 5 r e g a r d i n g these  119. For a d i s c u s s i o n Campbell,  factors.  o f the c a l c u l a t i o n o f the premium, see  Canada V a l u a t i o n  Service  (Toronto: Richard De  Boo), Chapter 5; and Chazen, " A c q u i s i t i o n Premiums and L i q u i d a t i o n Values:  How  Do they A f f e c t the F a i r n e s s  F i n a n c i a l Terms o f an A c q u i s i t i o n ? "  of the  E l e v e n t h Annual I n s t ,  o f Sec. Reg., supra, Note 6 a t 377.  120. For example, Neonex, Hidrogas, Maple Leaf M i l l s , the Keg (B.C. Business Week, p.38 May 9/79); Reed Paper L t d . (Vancouver  Sun, J u l y 10, 1980, p.D7).  supra, Note 2 and Campbell & S t e e l e , further  examples.  See a l s o  Salter,  supra, Note 1 f o r  - 134 -  121. N o t i c e , supra, Note 2.  122. Cf. the comments o f Greenberg, J . i n Domglas, a t 119-120 r e g a r d i n g the d i f f e r e n c e s between and  supra, Note 5 ' f a i r value'  ' f a i r market value' and the f a c t t h a t ' i n t r i n s i c  value'  means o n l y ' f a i r market v a l u e .  Brudney, supra, Note 114 a t 79 s t a t e s t h a t the t e s t f o r i n t r i n s i c value might be "what a b i d d e r would pay f o r a c o n t r o l l i n g block o f stock", thereby e l i m i n a t i n g the need to d i s c o u n t the value o f shares because they are h e l d by the m i n o r i t y .  I t seems proper t o d i s c o u n t the value of  m i n o r i t y shares, though, because an arm's l e n g t h  purchaser  may have a d i s t a s t e f o r h o l d i n g them and w i l l t h e r e f o r e pay less.  No d i s c o u n t f a c t o r should be a p p l i e d , however, t o  r e f l e c t the i n f r e q u e n t t r a d i n g or lack o f m a r k e t a b i l i t y o f shares, because i n t r i n s i c purchaser  value should r e f l e c t the p r i c e a  would pay i n a p e r f e c t market.  Cf. the a n a l y s i s  of the Court i n Domglas supra, Note 5 at 43-45 as t o the appropriateness of applying a minority discount.  123. To quote Gower, supra, Note 57 a t 616: "There need not be any a c t u a l d e c e i t . . . ' F r a u d ' here  - 135  -  connotes an abuse of power analogous t o i t s meaning i n a c o u r t o f e q u i t y t o d e s c r i b e a misuse o f a f i d u c i a r y position. Nor i s i t necessary t h a t those who are i n j u r e d should be a m i n o r i t y , indeed, the i n j u r e d p a r t y w i l l normally be the company i t s e l f , though sometimes those who have r e a l l y s u f f e r e d w i l l be a c l a s s or s e c t i o n o f members, not n e c e s s a r i l y a numerical m i n o r i t y who are outvoted by the controllers. I t covers c e r t a i n "acts of a f r a u d u l e n t c h a r a c t e r " . . . o f which " f a m i l i a r examples are when the m a j o r i t y are endeavouring d i r e c t l y or i n d i r e c t l y to a p p r o p r i a t e to themselves money, p r o p e r t y or advantages which belong t o the company o r i n which the other shareholders are e n t i t l e d to p a r t i c i p a t e . "  124.  For example, i n s i d e r s may provided  trade t h e i r shares  they do not p r o f i t  to material information.  i n a company  f i n a n c i a l l y from t h e i r  access  Supra, Note 63; D i r e c t o r s must  d e c l a r e t h e i r i n t e r e s t i n a t r a n s a c t i o n to which the company i s a p a r t y and  r e f r a i n from v o t i n g at a meeting  during which the m e r i t s of the t r a n s a c t i o n are to be considered.  125.  Supra, Note  Changes which may  70.  trigger a dissent a p p l i c a t i o n include  s a l e of a l l or s u b s t a n t i a l l y a l l the a s s e t s of the Company, amalgamation, a l t e r a t i o n of any business  which may  r e s t r i c t i o n upon the  be c a r r i e d on,  continuance  by a company  i n t o or out o f the j u r i s d i c t i o n , a l t e r a t i o n or removal o f any  r e s t r i c t i o n or c o n s t r a i n t on the i s s u e or t r a n s f e r of  shares,  amendment of the c o n s t a t i n g documents to convert  a  - 136  -  company with share c a p i t a l i n t o one and  vice versa;  a going p r i v a t e t r a n s a c t i o n and  p r o v i s i o n of f i n a n c i a l assistance. transactions" one  L.R.  are not the  180  See  of  r e s u l t i n "the  amendment of the a r t i c l e s  change or remove any p r o v i s i o n s r e s t r i c t i n g i s s u e or t r a n s f e r of shares". therefore  a p p l i c a t i o n under s.184  The  not e n t i t l e d to b r i n g a d i s s e n t  of the CBCA.  & Lansky, supra, Note 105 supra, Note 5 at 11-15.  s h a r e h o l d e r s may  to  or  mechanics o f the a p p r a i s a l r i g h t are d i s c u s s e d  share c e r t i f i c a t e s and  so  supra,  (1980), Esson J . h e l d t h a t a c o n s o l i d a t i o n  shareholder was  The  legislation.  Bus.  c o n s t r a i n i n g the  126.  "triggering  In McConnell v. Newco F i n a n c i a l Corp. 8  shares d i d not add,  The  the  same i n every j u r i s d i c t i o n s ,  must examine the p e r t i n e n t  Note 105.  without share c a p i t a l  and  i n Bruun  i n the Domglas d e c i s i o n ,  Briefly,  f o l l o w i n g d e l i v e r y of  a n o t i c e of d i s s e n t to the  apply t o court  company,  f o r a determination of  the  f a i r value of t h e i r shares, at which p r i c e the Company must purchase them.  127.  Under the CBCA, SBCA, MCA may  and  D r a f t OBCA, a  make an a p p l i c a t i o n f o r r e l i e f .  "complainant"  "Complainant" i s  - 137 -  defined  i n CBCA s.2 31;  MCA  s.2 31;  SBCA s.2 31 and D r a f t OBCA  s.243 a s : "(a)  a r e g i s t e r e d h o l d e r or b e n e f i c i a l owner, and a former r e g i s t e r e d h o l d e r or b e n e f i c i a l owner, o f a s e c u r i t y o f the c o r p o r a t i o n or any o f i t s affiliates;  (b)  a d i r e c t o r or an o f f i c e r or a former d i r e c t o r or o f f i c e r of a c o r p o r a t i o n or any o f i t s affiliates;  (c)  the D i r e c t o r ; o r  (d)  any other person who i n the d i s c r e t i o n o f the court, i s , a proper person t o make an a p p l i c a t i o n under t h i s P a r t . "  I t has been suggested t h a t the O n t a r i o  Securities  Commission may be considered a "proper person". See V i e t s , "Interaction  of the New O n t a r i o S e c u r i t i e s Act with the  Canada Business C o r p o r a t i o n s A c t " 3 CCH S e c u r i t i e s  Law  Reporter 12699-3.  128. CBCA s.234; SBCA s.234; MCA  s.234; BCCA s.224; D r a f t OBCA  s.246; and s.13.11 of the D r a f t  F e d e r a l S e c u r i t i e s Act  (Proposals f o r a S e c u r i t i e s Market Law f o r Canada, 1979). For commentary on the s e c t i o n s , and  Prichard,  supra, Note 62.  see I a c o b u c c i ,  Pilkington  - 138  129.  An  interim  or f i n a l  130.  Other orders a c o u r t may  -  order.  make  include:  1.  r e s t r a i n i n g improper conduct;  2.  appointing a receiver  3.  amending the  constating  4.  d i r e c t i n g an  i s s u e or exchange of s e c u r i t i e s ;  5.  d i r e c t i n g changes i n d i r e c t o r s ;  6.  v a r y i n g or s e t t i n g a s i d e a t r a n s a c t i o n  manager;  documents;  c o r p o r a t i o n i s a p a r t y and  t o which  compensating any  the  other  parties;  7.  d i r e c t i n g payment to a  8.  d i r e c t i n g p r o d u c t i o n of any accounting;  securityholder;  f i n a n c i a l statement or  - 139 -  9.  compensating any aggrieved person;  10.  d i r e c t i n g r e c t i f i c a t i o n o f the c o r p o r a t e records or registry;  131.  11.  l i q u i d a t i n g o r d i s s o l v i n g the c o r p o r a t i o n ;  12.  d i r e c t i n g an i n v e s t i g a t i o n ; o r  13.  r e q u i r i n g any t r i a l o f the matter.  The BCCA s.2 24 i s broader than the o t h e r s t a t u t e s i n t h a t i t may be used t o prevent threatened and not j u s t a c t u a l oppressive  132.  o r u n f a i r l y p r e j u d i c i a l conduct.  The term "oppressive  conduct" has been d e f i n e d as:  "burdensome, harsh and wrongful" ( S c o t t i s h Cooperative Wholesale S o c i e t y L t d . v. Meyer e t a l [1959] A.C. 324); "A lack o f p r o b i t y and f a i r d e a l i n g company t o the p r e j u d i c e  i n the a f f a i r s o f the  o f some p o r t i o n o f i t s members"  ( E l d e r v. E l d e r and Watson [1952] S.C. 49 a t 60).  See a l s o  Re B.C. A i r c r a f t P r o p e l l e r and Engine Co. L t d , 66 D.L.R. (2d)  628 (B.C.S.C.  1968); Re N a t i o n a l  B u i l d i n g Maintenance  - 140 -  L t d . [1971] 1 W.W.R. 8; Re Van-Tel T.V. L t d . 44 D.L.R. (3d) B.C.S.C. 1974) 146, Re Sabex I n t e r n a t i o n a l L t e e 6 Bus. L.R. 65 (Que. S.C. 1979); Re B r i t i s h Columbia E l e c t r i c Company L t d . 47 D.L.R. (2d) 754 (B.C.S.C. 1964); O ' N e i l l v. Dunsmuir Holdings February  133.  (New Westminster) L t d . e t a l . (B.C.S.C.  30, 1980).  In D i l i g e n t i v. RWMD Operations, Kelowna e t a l , 1 B.C.L.R. 36  (B.C.S.C. 1976 per F u l t o n , J . ) , the Court s t a t e d t h a t  t h e r e i s u n f a i r p r e j u d i c e i f c o n s i d e r a t i o n s "make i t u n j u s t or i n e q u i t a b l e , t o i n s i s t on l e g a l r i g h t s or t o e x e r c i s e them i n a p a r t i c u l a r way".  See a l s o Jackman v.  Jackets  E n t e r p r i s e s L t d . 4 B.C.L.R. 358 (B.C.S.C. 1977) and Redekop v. Robco C o n s t r u c t i o n 5 Bus. L.R. 58 (B.C.S.C. 1979) .  U n l i k e i t s /American counterpart, Rule 10b-5 o f the S e c u r i t i e s Exchange A c t o f 1934, the o p p r e s s i o n remedy w i l l a l s o be a v a i l a b l e to shareholders where fraud o r m a n i p u l a t i v e conduct  do not e x i s t .  For r e c e n t a p p l i c a t i o n s  of the o p p r e s s i o n remedy, see Ruskin v. A l l Canada News Radio,  supra, Note 5; Westeel,  L i m i t e d v. Canadian Hidrogas  supra, Note 5; N.I.R. O i l  Resources L t d .  (unreported,  - 141  Feb.  22,  1979  B.C.S.C. per Legg, J . A790417);  d i s c u s s i o n of Rule 10b-5 may  be  -  and  i t s l i m i t e d use  found i n Roberts, "Rule 10b-5  and  Extensive i n squeezeouts  Corporate  Mismanagement Problems with Shareholders' Oppression" 8 Memphis S t a t e U.L.  Rev  501  (1979), Jacobs, "How  a f f e c t s lOb-5's P r o s c r i p t i o n s Against Mismanagement" 6 Sec.  134.  BCCA s.2 70;  ACA  s.30(4)) and  Reg.  companies may  Corporate  L . J . 3 (1978).  s,156(6), ( 7 ) .  Nova S c o t i a  In Newfoundland  (NSCA s . l 2 0 ( 5 ) ) , the  apply f o r a court order.  when the c o n s t a t i n g are f i l e d .  (NCA  amalgamating  In some a c t s  as OBCA ss. 196-197, a government o f f i c i a l may d i s c r e t i o n t o refuse  Santa Fe  have  such the  to i s s u e a c e r t i f i c a t e o f amalgamation documents of the  amalgamated company  However, see Wingold, supra, Note 78 which  i n d i c a t e s t h a t the c e r t i f i c a t e w i l l i s s u e i f a l l documents are i n order and  t h a t no assessment o f the m o r a l i t y o f  t r a n s a c t i o n w i l l be made. which s t a t e s t h a t the  Compare section^179 of the CBCA  "Director s h a l l issue a  of amalgamation" upon r e c e i p t of the a r t i c l e s amalgamation and not p r e j u d i c e  any  certificate of  once s a t i s f i e d t h a t the t r a n s a c t i o n w i l l  the r i g h t s of  creditors.  - 142 -  For a d i s c u s s i o n o f the g u i d e l i n e s used by the Court, see Triad O i l ,  supra, Note 78 and Norcan v. F o g l e r , supra, Note  72.  135. BCCA s.257; OBCA s.190(3); ACA s . 3 8 ( l ) ; NCA ss.52-53.  s.89; NSCA  See supra, Note 51 f o r a l i s t o f cases o u t l i n i n g  the p r i n c i p l e s f o l l o w e d by the c o u r t s .  136. Supra, Note 50.  NCA  s.39 r e q u i r e s every company t h a t has  c o n s o l i d a t e d i t s shares t o g i v e n o t i c e t h e r e o f to the R e g i s t r a r o f Companies. squeezeout  I f an amalgamation o r arrangement  e l i m i n a t e s u f f i c i e n t p u b l i c l y h e l d shares t o  warrant the d e l i s t i n g o f the i s s u e r , any Exchange upon which the shares are t r a d e d must a l s o be n o t i f i e d .  See  Toronto Stock Exchange Bylaws, s.19.16; r.912 o f the Vancouver Stock Exchange;  A l b e r t a Stock Exchange Bylaws,  s.19.16; Montreal Stock Exchange Rules, s.9155.  137. I f a shareholder i s a member o f a Nova S c o t i a , A l b e r t a , Quebec or B.C. Company, he may p e t i t i o n the c o u r t to "order otherwise" and not permit the a c q u i r i n g company t o purchase h i s shares on the same terms as the takeover b i d was made. He may be s u c c e s s f u l i f the c o u r t agrees  that:  - 143 -  The company has f a i l e d t o comply s t r i c t l y w i t h a l l s t a t u t o r y p r o c e d u r a l requirements.  See supra, Note  72.  The 90% r e q u i r e d c o n s i s t e d o f shares h e l d by p a r t i e s r e l a t e d t o the o f f e r o r .  Esso Standard (Inter-Am) v. J.W. E n t e r p r i s e s , S.C.R. 144.  [1963]  Re Bugle P r e s s , [1960] 1 A l l E.R. 766.  Supra, Note 41.  There has been i n s u f f i c i e n t of m a t e r i a l  or inaccurate d i s c l o s u r e  facts.  See Re Hoare & Co., [1933] 1 A l l E.R. Rep. 105, 150 L.T. 374 (Ch. D.); Re E v e r t i t e Locknuts L t d . , [1945] Ch. 220, [1945] 1.A11 E.R. 40 (Ch. D.); Re P r e s s Caps Ltd., v.  [1949] Ch. 434, [1949] 1 A l l E.R. 1013; Rathie  Montreal T r u s t Company, supra, Note 28; Re John  L a b a t t L t d . and Lucky Lager Breweries, supra, Note 72, Gregory v. Canadian A l l i e d P r o p e r t y Investments L t d . , supra, Note 5.  - 144  The Canadian  -  cases i n d i c a t e t h a t an "order otherwise"  i n these circumstances i s o n l y a p p r o p r i a t e where the m i n o r i t y can demonstrate attempts  t h a t i n s p i t e o f reasonable  to o b t a i n i n f o r m a t i o n , i t was  unable t o do  so.  4.  The p r i c e o f f e r e d was E v e r t i t e Locknuts,  u n f a i r . See Re Hoare, supra,  supra; Re Press Caps, supra;  Western Mfg.  (Reading) L t d . , [1956] Ch. 436,  A l l E.R.  (Ch. D.); Re Sussex B r i c k Co.,  289,  733  [1960] 1 A l l E.R.  772  138.  see i n f r a ,  Note  [1955] 3 [1961] Ch.  [1967] 1 A l l E.R.  Re Quegroup, supra, Note 5. For the  position,  B.C.  138.  Shareholders o f a f e d e r a l ; Saskatchewan, Manitoba, Columbia  Re  (Ch. D.); Re G r i e r s o n ,  Oldham & Adams L t d . , [1968] Ch. 17, 192;  "Re  British  or O n t a r i o c o r p o r a t i o n w i l l not be p e r m i t t e d t o  e n j o i n compulsory inadequacy  a c q u i s i t i o n proceedings because of the  of the c o n s i d e r a t i o n o f f e r e d .  BCCA s.279 allows  a c o u r t to f i x the p r i c e and terms o f payment, make c o n s e q u e n t i a l orders or give d i r e c t i o n s IN ADDITION TO power t o "order otherwise".  the  The other s t a t u t e s permit  e i t h e r the c o r p o r a t i o n or the d i s s e n t i n g o f f e r e e t o apply  - 145  -  t o c o u r t t o f i x the f a i r value o f the shares o f t h a t recusant shareholder, once he has  e l e c t e d not to t r a n s f e r  h i s shares t o the c o r p o r a t i o n on the terms pursuant which the takeover b i d o f f e r was  to  made.  U n l i k e any other e x i s t i n g Canadian s t a t u t e , the BCCA (s.279(9)) a l s o enables shareholders t o " r e q u i r e the a c q u i r i n g company to a c q u i r e h i s shares" i f they have not been g i v e n a n o t i c e of compulsory a c q u i s i t i o n w i t h i n one month a f t e r the company became e n t i t l e d t o do so. D r a f t OBCA s.187  139.  and U.K.  Companies A c t  See  also  s.209(2).  See Gower, supra, Note 57 a t 708-218; Beck, supra. Note 99; MacKinnon, "The  P r o t e c t i o n of D i s s e n t i n g Shareholders"  S t u d i e s i n Canadian Company Law Gold,  "Preference Shareholders  ( Z i e g e l , ed.)  (1967) 507;  i n the R e c o n s t r u c t i o n of  E n g l i s h Companies" 5 U.T.L.J. (1943-44).  140.  Id.  141.  S c o t t i s h Insurance Corpn. v. Wilsons [1948] S.C.  360 a t 375;  Aff'd  & Clydes C o a l  [1949] A.C.  462.  Co.  - 146  supra, Note  -  142.  Supra, Note 72.  139.  143.  To quote Huberman, i n "Winding Up Business S t u d i e s i n Canadian Company Law,  Corporations"  in  Volume 2 ( Z i e g e l ed.,  1973) : "This r e l u c t a n c e to i n t e r f e r e i s based on s e v e r a l w e l l known " r u l e s " , v a r i o u s l y c a l l e d the " i n t e r n a l management" r u l e , the "business judgment" r u l e and the p r i n c i p l e of "majority r u l e " . Simply put, these r u l e s come down to nothing more than t h i s - the c o u r t s b e l i e v e s t r o n g l y t h a t the m a j o r i t y of the c o r p o r a t i o n i s e n t i t l e d to govern the c o r p o r a t i o n as i t , and not the c o u r t , sees f i t and the m a j o r i t y w i l l not be allowed to do so f r e e from c o u r t i n t e r f e r e n c e , unless i t s conduct i s so gross as t o shock the conscience o f the Court."  144.  Beck, supra, Note 99 d i s c u s s e s  "non-interference  in  i n t e r n a l a f f a i r s " a t 556-560.  G e n e r a l l y speaking,  the  c o u r t s have r e f u s e d t o i n t e r f e r e i n such i n t r a - c o r p o r a t e matters as the proper managing d i r e c t o r s and shareholder  appointment and employers and  removal of d i r e c t o r r , i n such i n t e r -  a f f a i r s as the making of c a l l s , the payment of  d i v i d e n d s , the r e d u c t i o n o f c a p i t a l or the c r e a t i o n o f c l a s s e s of  shares.  new  - 147  -  145.  Gower, supra, Note 57 a t  146.  For example, see D i l i g e n t i v. RWMD Kelowna (No.2) 4 BCLR 134  (B.C.S.C. 1978).  717.  See a l s o "The  Problem of  Determining  the F a i r Value o f GCOS Shares" F i n a n c i a l Times (Aug. 1979); "A Slow Grind f o r M i n o r i t y Shareholders" Post  (March 22,  1980)  p.32  and  Financial  "Shareholders' Hunt f o r  Value Teaches a Lot About A p p r a i s a l " . Globe & M a i l 4/80)  In  27,  (Feb.  p.B2.  d i s s e n t proceedings, the Court does have the power t o  a p p o i n t an a p p r a i s e r t o a s s i s t i t i n determining v a l u e " . CBCA s.184(21); D r a f t OBCA s.183(23).  MCA  S.184(21);  SBCA s . l 8 4 ( 2 1 ) ;  See a l s o In the Matter of  Holdings L t d . e t a l [1978] 5 W.W.R. 659  "fair  VCS  (B.C.S.C.) f o r a  d e c i s i o n i n which the c o u r t accepted a r e f e r e e ' s determination of " f a i r  value".  Query whether a s p e c i a l i z e d  "Companies Court"  be  e s t a b l i s h e d t o d e a l with s i m i l a r l y complex c o r p o r a t e problems.  See Gower, supra, Note 57 a t 718;  supra, Note 130 Law  a t 543;  MacKinnon,  O n t a r i o S e l e c t Committee on Company  (The Lawrence Report,  1967)  a t 115-116.  - 148 -  147.  Brudney, supra, Note 114 a t fn.56.  148. An e n t e r p r i s e may be worth more i n l i q u i d a t i o n than as a going concern and any v a l u a t i o n p r o v i d e d t o shareholders should express the value o f shares on t h i s b a s i s , i f i t i s the i n t e n t i o n o f the a c q u i r o r t o l i q u i d a t e .  149.  Brudney, supra, Note 114 a t 75.  150.  Id.  151.  There i s c o n s i d e r a b l e d i s p u t e among accountants  a t 75 f n . 58.  items t o be taken i n t o account  as t o the  i n computing the earnings  which c o r p o r a t i o n s r e p o r t i n accordance w i t h G e n e r a l l y Accepted  Accounting P r i n c i p l e s .  Chartered Accountants  See Canadian I n s t i t u t e o f  Handbook s e c t i o n 3500 "Earnings Per  Share".  152.  The a b i l i t y o f the c o n t r o l l i n g shareholders t o s e t the terms o f a squeezeout  d e p r i v e s m i n o r i t y shareholders o f the  o p p o r t u n i t y t o dispose o f t h e i r shares i n the manner or a t a time which would best s u i t t h e i r tax p o s i t i o n .  For  example, persons who are taxed a t h i g h marginal r a t e s would  - 149  -  p r e f e r t o r e c e i v e the proceeds from the d i s p o s i t i o n o f t h e i r shares as c a p i t a l gains r a t h e r than as d i v i d e n d s . Supra, Note 118. they may  On an amalgamation squeezeout, however,  be given p r e f e r r e d shares of the amalgamated  company which would immediately  e x e r c i s e the redemption  p r i v i l e g e attached to the shares, r e s u l t i n g i n d i v i d e n d treatment has earned  for shareholders.  S i m i l a r l y , a shareholder  an e x t r a o r d i n a r y amount of income i n 1980,  example, may  shares  Had he the c h o i c e , and assuming the market  p r i c e remained constant, he probably would p r e f e r to his  for  not wish the i n c l u s i o n of any f u r t h e r amounts  i n h i s income as a r e s u l t of the redemption of the i n t h a t year.  who  shares i n a year i n which h i s t a x a b l e income  sell  was  lower.  C a l c u l a t i o n of " f a i r  value" should take i n t o account  i n c r e a s e d tax burden o f m i n o r i t y s h a r e h o l d e r s from a squeezeout. shaes,  Had  the  resulting  they not been f o r c e d to s e l l  their  the m i n o r i t y shareholders would have been b e t t e r  able to dispose of t h e i r shares whenever and however i t s u i t e d them.  I f , as a r e s u l t o f the d i s p o s i t i o n ,  p e r c e i v e d t h a t they would s u f f e r i n c r e a s e d tax  they  liability,  - 150 -  they c o u l d then have demanded a h i g h e r p r i c e f o r t h e i r shares i n the market p l a c e t o o f f s e t any taxes  payable.  To avoid having a c o u r t make a d e t e r m i n a t i o n o f the amount of  tax l i a b i l i t y  f o r which a shareholder should be  compensated when c a l c u l a t i n g  " f a i r value", Companies,  such  as I n t e r n a t i o n a l Land C o r p o r a t i o n (Oct. 5, 1978 c i r c u l a r ) enabled  shareholders t o choose the time a t which t h e  e x p r o p r i a t i o n o f shares w i l l treatment  take p l a c e and the tax  the proceeds o f d i s p o s i t i o n w i l l  assume.  For  example, the squeezeout might be s t r u c t u r e d so t h a t each step o f the t r a n s a c t i o n c o n s i s t i n g o f a takeover b i d f o l l o w e d by an amalgamation occurs i n a d i f f e r e n t t a x a t i o n year.  The amalgamation company might then i s s u e two  c l a s s e s o f redeemable shares, from which a m i n o r i t y shareholder c o u l d e l e c t t o r e c e i v e those p r o v i d i n g him with c a p i t a l gains o r d i v i d e n d treatment.  For f u r t h e r d e t a i l s ,  see K r o f t , supra, Note 1 a t 91.  153.  The wording i n the d i s s e n t p r o v i s i o n s appears broad to  enable a c o u r t charged  account  with f i x i n g  enough  " f a i r value" t o take  o f the " p r i v a t e company b e n e f i t s " enjoyed by  i n s i d e r s o f the i s s u e r .  The B r i t i s h Columbia Companies A c t  - 151 -  s.231  r e q u i r e s c o n s i d e r a t i o n o f any a p p r e c i a t i o n o r  d e p r e c i a t i o n i n a n t i c i p a t i o n o f the vote upon the resolution".  U n t i l March 1979, the a p p r a i s a l p r o v i s i o n s i n  the CBCA s.184, MCA s.184 and SBCA s.184 s t i p u l a t e d t h a t "any  change i n value  reasonably a t t r i b u t a b l e t o the  a n t i c i p a t e d adoption o f the r e s o l u t i o n must be excluded". T h i s phrase has s i n c e been removed and a d i s s e n t i e n t i s e n t i t l e d t o be p a i d the " f a i r value o f the shares h e l d by him...determined as o f the c l o s e o f b u s i n e s s on the day before  The  the r e s o l u t i o n was adopted."  D i l i g e n t i case (No. 1))# supra, Note 133 r a i s e s t h e  question  whether a m i n o r i t y  shareholder  may o b t a i n any  payment r e f l e c t i n g p r i v a t e company b e n e f i t s i n oppression proceedings. occasioned  F u l t o n , J . s t a t e d t h a t "changes i n value  by or as a consequence o f oppressive  p r e j u d i c i a l conduct are t o be excluded."  or u n f a i r l y  For f u r t h e r  d i s c u s s i o n , see t e x t i n f r a a t 32; See, a l s o Brudney & Chirelstein,  " F a i r Shares i n Corporate Takeovers and  Mergers", 88 Harv. L. Rev. 297 (1974); Contra, see Lome, "A R e a p p r a i s a l  o f F a i r Shares i n C o n t r o l l e d Mergers" 126  Penn L. Rev. 955 (1978);  Toms, "Compensating Shareholders  Frozen Out i n Two Step Mergers" 78 C o l . L. Rev. 546 (1978);  - 152 -  C h i r e l s t e i n , Sargeant  and L i p t o n , " ' F a i r n e s s ' In Mergers  Between Parents and Party-Owned S u b s i d i a r i e s " E i g h t h Annual S e c u r i t i e s R e g u l a t i o n Conference  (New York: PLI, 1977)  273.  154. Supra, Note 98.  M i n o r i t y shareholders have argued  " f a i r v a l u e " p a i d by the c o n t r o l l i n g  shareholders  t h a t the should  r e f l e c t a p o r t i o n o f the savings obtained by i n s i d e r s  who  have not spent any o f t h e i r own a f t e r - t a x d o l l a r s t o enhance the value o f t h e i r own  shareholdings.  See  infra,  t e x t accompanying Note 174 f o r f u r t h e r d i s c u s s i o n .  155. Brudney, supra, Note 114 a t 76.  156. An important  statutory provision for assisting  shareholders  to a c q u i r e r e l e v a n t background i n f o r m a t i o n i s a c o u r t ordered  i n v e s t i g a t i o n o f the company's a f f a i r s which i s  a v a i l a b l e where the a p p l i c a n t can s a t i s f y the c o u r t t h a t there are circumstances S.222; BCCA s.233; ACA  suggesting wrong doing. s.100; SBCA s.222; MCA  s.186; D r a f t OBCA s.159; QCA 107-109; NCA  116-119;  PEICA.  See CBCA  s.222; OBCA  s.107; NSCA s.101;  NBCA s s .  The c o u r t has the broad  d i s c r e t i o n t o r e f u s e an order t o i n v e s t i g a t e i n the absence  - 153  o f "bona f i d e s " .  -  T h i s i s t o prevent the use o f an  i n v e s t i g a t i o n as a t o o l t o b l a c k m a i l management because the process i s c e r t a i n t o be time-consuming and i n c o n v e n i e n t and may  generate bad p u b l i c i t y f o r the company.  U n f o r t u n a t e l y , access to and use of the i n v e s t i g a t i o n are hampered by a requirement costs.  For f u r t h e r d e t a i l s ,  right  f o r percentage ownership  and  see I a c o b u c c i , P i l k i n g t o n &  P r i c h a r d , supra, Note 62 a t 214-26.  S e c u r i t i e s r e g u l a t o r y bodies may  also a s s i s t shareholders  i n g a t h e r i n g i n f o r m a t i o n about an i s s u e r . ASA  s.21;  NBSFPA s.21;  Bill  72 s.10;  MSA  82A;  PEISA s.16.  B i l l 76 s . l l ;  s.21; NSSA s.22; See a l s o A l b o i n i ,  SSA  OSA  See BCSA s.27;  s.ll;  NSA  QSA  s.21; s.23;  ss.36,  supra, Note 1,  Chapter  VI.  157. For example, see Re Whitehorse  Copper Mines; Hudson Bay  Mining and Smelting Co. L i m i t e d v. Lueck and (unreported, J u l y 3, 1980  Weinstein  B.C.S.C. per McEachern,  C.J.)  i n f r a , t e x t a t 31 and Domglas, supra, Note 5 a t 111-115.  - 154  158.  -  The p r o t r a c t e d d e t e r m i n a t i o n o f " f a i r v a l u e " and p o s s i b i l i t y of i n s o l v e n c y (CBCA s.184(26); MCA  the  s.184(26);  SBCA s.184(26); D r a f t OBCA s.183(28); BCCA s.257) may a payment to recusant shareholders time.  delay  f o r a lengthy p e r i o d of  Moreover, there i s no guarantee t h a t the c o u r t w i l l  e x e r c i s e i t s d i s c r e t i o n to allow a reasonable i n t e r e s t on an amount payable date the a c t i o n was  r a t e of  to each d i s s e n t i e n t from the  approved by the r e s o l u t i o n u n t i l  the  date o f payment.  Even i f d i s s e n t i e n t s choose to e x e r c i s e t h e i r r i g h t s i n s p i t e o f the delay, unfavourable c o n s i d e r a b l e expense may  tax consequences and  prompt them to e l e c t  See K r o f t , supra, Note 1 a t 116  and V i v i a n ,  otherwise.  "Monetary  R e s t r a i n t s on the E x e r c i s e of Rights of D i s s e n t i n g Shareholders"  159.  9 U.W.O.L. Rev.  101  (1970).  For example, i n o p p r e s s i o n proceedings,  (1) the a p p l i c a n t  i s not r e q u i r e d to give s e c u r i t y f o r c o s t s ; (2) c o u r t approval i s r e q u i r e d f o r any stay, d i s c o n t i n u a n c e or d i s m i s s a l of oppression proceedings; order a company t o pay  (3) the c o u r t  may  i n t e r i m c o s t s of an a p p l i c a n t ,  although the a p p l i c a n t may  be accountable  f o r these c o s t s  - 155  upon the  -  f i n a l d i s p o s i t i o n o f the a p p l i c a t i o n ; (4)  of a t r a n s a c t i o n by a m a j o r i t y f a c t o r courts w i l l consider  approval  of shareholders i s but  when asked to dismiss  one  an  application.  160.  See  CBCA s.235; SBCA s.235; MCA  See  Jepson v. Canadian S a l t , supra, Note 5,  c o n s t i t u t e s a proper d i s s e n t  161.  s.235; D r a f t OBCA s.246.  notice.  In Jepson v. Canadian S a l t , supra, Note 5, s t a t e d at 42,  as to what  Laycraft J.  43:  " S e c t i o n 184 of the Canada Business C o r p o r a t i o n s Act p r e s c r i b e s a remarkably r i g i d procedure which, moreover, seems to be s l a n t e d i n favour of the amalgamated c o r p o r a t i o n and a g a i n s t a d i s s e n t i n g s h a r e h o l d e r . In s e v e r a l places i n s.184 there i s a requirement t h a t s p e c i f i e d n o t i c e s , c o n t a i n i n g s p e c i f i e d i n f o r m a t i o n , be sent w i t h i n s p e c i f i c a l l y l i m i t e d times. On the face of the s e c t i o n s , f a i l u r e by the c o r p o r a t i o n t o meet the requirements of the s e c t i o n has no p a r t i c u l a r p e n a l t y . On the other hand, f a i l u r e by the shareholder to observe some p r o v i s i o n of the s e c t i o n can r e s u l t i n the draconian p e n a l t y o f complete l o s s of h i s investment i n the corporation. Indeed, i n t h i s case, i t i s urged by the c o r p o r a t i o n t h a t t h a t i s the r e s u l t I am l e f t to wonder at the l e g i s l a t i v e p o l i c y which produced t h i s p r o c e d u r a l morass..."  - 156 -  See The Manitoba Sec. Comm'n v. V e r s a t i l e Cornat Corp., [1979] 2 W.W.R. 714, 97 D.L.R. (3d) 45 (Man. Q.B.), where Hewak, J . h e l d t h a t "shareholder" shareholder  d i d not mean a  who owned shares as o f the date o f the  t r i g g e r i n g t r a n s a c t i o n but who s o l d them b e f o r e he r e c e i v e d n o t i c e o f the r e s o l u t i o n a d v i s i n g him o f h i s d i s s e n t right.  See a l s o Domglas, supra, Note 5 a t 18 where  Greenberg, J . s t a t e d t h a t the s t r i c t procedural  compliance with  requirements i s e s s e n t i a l t o enable a  dissatisfied  shareholder  t o q u a l i f y as a d i s s e n t i e n t .  Query whether the d i s s e n t r i g h t should be an e x c l u s i v e remedy f o r shareholders  i n view o f these problems.  Vorenberg, " E x c l u s i v e Ness o f t h e D i s s e n t i n g Appraisal Rights"  162.  77 Harv. L.  See  Shareholder's  Rev. 1189 (1964).  I t i s as y e t u n s e t t l e d whether the company should  bear the  burden o f proof  to t h i s  i n d i s s e n t proceedings.  Contrary  view h e l d by Bouck, J . i n Neonex I n t e r n a t i o n a l , supra, Note 5, the Court i n Robertson v. Canadian Canners L t d . 4 Buss. L.R.  290 (Ont. H.C. 1978) h e l d t h a t n e i t h e r p a r t y i s  r e q u i r e d t o prove t h a t an o f f e r represents  "fair  value".  - 157  -  T h i s view has r e c e n t l y been supported by the Court i n Domglas, supra, Note 5.  To quote Greenberg,  J . a t 17:  " I f I were to decide otherwise and impose the burden of p r o o f on the c o r p o r a t i o n , s o l e l y because i n t h i s i n s t a n c e i t i s the P e t i t i o n e r , then a l l a c o r p o r a t i o n need do i s t o r e f r a i n from a p p l y i n g s u b s e c t i o n 15 [CBCA s.184(15)]. This would impose upon the d i s s e n t i n g shareholders the O b l i g a t i o n t o apply pursuant t o Subsection 16 t h e r e o f , thus s h i f t i n g the burden o f p r o o f t o them."  In compulsory  a c q u i s i t i o n proceedings, the d i s s e n t i n g  o f f e n c e must demonstrate  the u n f a i r n e s s of a takeover  scheme i n s p i t e of management's s u p e r i o r access t o m a t e r i a l information.  See Canadian A l l i e d P r o p e r t y , supra, Note 5  and Re Whitehorse  163.  Copper, supra, Note 15 7.  For example, i n Re Canadian Hidrogas Resources L t d . , supra, Note 5, the a p p l i c a n t company had approximately s h a r e h o l d e r s h o l d i n g 3 m i l l i o n common shares. proposed  The  to convert these shares i n t o C l a s s "A"  redeemable shares i n the r a t i o o f 5 t o 1.  735  non-voting  The new  could then be converted w i t h i n 30 days o f the  company  shares  first  c o n v e r s i o n , t o C l a s s "B" v o t i n g shares i n the r a t i o of 1 C l a s s "A" meeting,  share t o 5 C l a s s "B" shares. o n l y two  At the g e n e r a l  shareholders, representing a majority of  - 158  the shares were present  and  -  approved the  reorganization.  Hutcheon, J . h e l d t h a t there were 73 3 persons who knowledge o f the p r o p o s a l information  and would r e c e i v e no  beyond the terms of conversion  the arrangement was  approved.  He  because i t was  no  further  proposed once  concluded t h a t  "lurked the danger of the u n f a i r n e s s  had  i n the  there  arrangement"  "obvious t h a t those shareholders  who  fail  take advantage promptly of the arrangement w i l l  see  their  investment d e c l i n e i n value  s i g n i f i c a n t l y w i t h the  r e f l e c t e d as an enhancement i n the value of the  to  decline  shares  which are a l t e r e d i n accord with the arrangement." Id., at 709.  See  164.  a l s o Re R i p l e y I n t e r n a t i o n a l , supra, Note 5.  Re W a l l and  Redekop [1975] 1 W.W.R. 621,  50 D.L.R. (3d)  ( B . C . S . C ) ; Neonex I n t e r n a t i o n a l , supra, Note 5 and  733  See  a l s o " V a l u a t i o n o f D i s s e n t e r s " Stock Under A p p r a i s a l S t a t u t e s " 79 Harv. L. Rev.  1453  (1966) Contra,  see  Montgomery et a l v. S h e l l Canada L t d . ( A p r i l 25,  1980,  Sask. Q.B.  unreported) where Estey,  "fair  value" was  not net asset value  J. held that  so long as the  corporation  - 159 -  continued t o be a going concern, but was market value (which he concluded was not depressed).  165. D i l i g e n t i , supra, Note 146; Stewart  v Cowan O f f i c e S u p p l i e r  (Nov. 26, 1979 B.C.S.C, unreported); O ' N e i l l ,  supra, Note  132.  166. Quegroup, supra, Note 5; Re Whitehorse Copper, supra, Note 157.  J e f f e r s o n v. Omnitron Investments,  supra, Note 41; In  the Matter o f P a c i f i c E n t e r p r i s e s 18 B.C.L.R. 14  (B.C.S.C.  1979) ; Redekop v. RobCo. (No. 2) (unreported, B.C.S.C, 1980) .  167. See Re Simco L t e e 3 Bus. L.R. 318 (Que. S . C ,  1978) and  t e x t , i n f r a , a t 44; Re R i p l e y I n t e r n a t i o n a l , supra, Note 5.  168. Re H e l l e n i c , supra, Note 77; D i l i g e n t i , and 146;  Westeel,  supra, notes  supra, Note 5.  169. Supra, Note 157.  170. As the date on which " f a i r v a l u e " i s t o be f i x e d  was  133  - 160 -  n e i t h e r s e t out by l e g i s l a t i o n nor p r e v i o u s l y determined  by  the Court, the C h i e f J u s t i c e s e t i t as the l a s t date on which the d i s s e n t i e n t s c o u l d e l e c t t o have the Court determine f a i r v a l u e .  See supra, Note 44.  171. Supra, Note 5.  172. J_d at 273-274.  In Neonex, supra, Note 5, a t 452 Bouck, J .  was a l s o o f the o p i n i o n t h a t " f a i r v a l u e " should  reflect  the b e n e f i t s a v a i l a b l e t o shareholders o f a p r i v a t e company" "... I t i s at l e a s t arguable the f a i r value should r e f l e c t any b e n e f i t the m a j o r i t y might r e c e i v e by reason o f the takeover. However, where a Court i s c a l l e d upon t o assess the f a i r value o f a d i s s e n t e r ' s shares on an amalgamation such as t h i s , the c a l c u l a t i o n must be determined at the c l o s e o f b u s i n e s s on the day b e f o r e the amalgamation r e s o l u t i o n was adopted ( s . 184(3)). Any change i n value reasonably a t t r i b u t a b l e t o the a n t i c i p a t e d adoption o f the r e s o l u t i o n must be excluded. T h i s seems t o mean t h a t any b e n e f i t s P a t t i s o n gained by the amalgamation cannot be taken i n t o c o n s i d e r a t i o n when v a l u i n g the d i s s e n t e r ' s shares."  173. Canada V a l u a t i o n S e r v i c e , supra, Note 119, Chapter  V.  174. The same argument h o l d s t r u e f o r the r e l a t i o n s h i p between " f a i r value" and the use of corporate funds t o repurchase  - 161  -  m i n o r i t y shares, supra, Notes 98 and 154.  Whereas  i n t r i n s i c value should r e f l e c t the worth of the Company based on the s i z e o f tax f r e e accounts  or the amount o f  r e t a i n e d earnings, i t i s only the c o n t r o l l i n g who  shareholders  would pay a premium f o r m i n o r i t y shares i n order to  make use of corporate funds without  f e a r of a d e r i v a t i v e  action.  175.  For a r e c e n t a p p l i c a t i o n o f t h i s p r i n c i p l e i n a squeezeout t r a n s a c t i o n , see N a t i o n a l System o f Baking o f A l b e r t a L t d . v. The Queen [1980] CTC  237,  80 D.T.C. 6178  c o u r t h e l d t h a t market p r i c e was market v a l u e " and  i t was  (FCA).  The  the b e s t evidence o f  "fair  i r r e l e v a n t that a substantial  number of shareholders h e l d the view t h a t the m a j o r i t y shareholder would seek to a c q u i r e m i n o r i t y shares a t a p r i c e s u b s t a n t i a l l y i n excess of the quoted p r i c e on the exchange.  G e n e r a l l y , see Wise, "The V-Day Value  P u b l i c l y Traded  176.  Shares" 28 Can Tax J . 253  Whereas P o l i c y 3-37  and OSA  Regs, s.163  (1980).  protect only  shareholders r e s i d e n t i n Ontario, D r a f t OBCA safeguards  of  s.188  shareholders o f a l l " o f f e r i n g c o r p o r a t i o n s "  incorporated i n Ontario.  OSA  Regs s.163  a p p l i e s only where  - 162 -  a "going p r i v a t e t r a n s a c t i o n " as d e f i n e d ,  supra, Note 4 i s  a n t i c i p a t e d to f o l l o w a takeover b i d or i s s u e r b i d .  The  OSC takes the view t h a t c e r t a i n t r a n s a c t i o n s t h a t are not "going p r i v a t e t r a n s a c t i o n s " are nonetheless s u b j e c t to Ontario (1)  P o l i c y 3-37:  An i s s u e r o r i n s i d e r takeover b i d not followed by a going p r i v a t e t r a n s a c t i o n ;  (2)  a t r a n s a c t i o n t h a t i s designed t o e l i m i n a t e the interest of minority  shareholders  such as a cash  amalgamation squeezeout, but i s not preceded by an i s s u e r or takeover b i d .  See A l b o i n i , supra, Note 1, 633-639.  There has been some d i s p u t e whether the r u l e s contained P o l i c y 3-37 and OSA  s.163  "smack of company law" and  be imposed through c o r p o r a t i o n s S a l t e r , supra, Note 2; N o t i c e , Cablecasting,  Acts.  in  should  For d i s c u s s i o n , see  supra, Note 2; In Re  supra, Note 5; In the Matter o f the  S e c u r i t i e s A c t and In the Matter o f Loeb and Loebex [Dec. 1978] B u l l OSC 333.  I t does not seem important t h a t the  " d i s t i n c t i o n between corporate  law and s e c u r i t i e s law  - 163  -  . . ."has become i n c r e a s i n g l y b l u r r e d i n Canada d u r i n g past two  decades", because, u n l i k e the U.S.,  the  Canada does  not have a c o n s t i t u t i o n a l s t r u c t u r e which o n l y gives the F e d e r a l Government the power to c r e a t e laws i n t e r s t a t e t r a d e and  The  governing  commerce.  c o n s t i t u t i o n a l framework i n the United States has l e d  t o the c r e a t i o n o f r u l e s by the S e c u r i t i e s and Exchange Commission which r e q u i r e extensive d i s c l o s u r e by i s s u e r s i n going p r i v a t e t r a n s a c t i o n s . and  Stumpf, "SEC  Corp. L. 184  177.  Proposed  supra, Note 4  (Rule 13e-3)  'Going P r i v a t e ' Rule" 4 D e l . J .  (1978).  In " M i n o r i t y Freezeouts 1501  See  Under Wisconsin  a t 1503-4, B a r t e l l suggests  Law"  32 Bus.  the payment o f a  Law  "going  p r i v a t e " premium over market p r i c e equal to the average or median premium p a i d i n contested takeover b i d s d u r i n g p r i o r year.  Whereas the use of such a g e n e r a l i z e d f i g u r e  avoids the d i f f i c u l t i e s intrinsic problems.  the  i n h e r e n t i n the c a l c u l a t i o n of  value, t h i s c a l c u l a t i o n i n v o l v e s d i f f e r e n t For example, a premium d e r i v e d by averaging  range o f l a s t year's premiums may  the  be a gross d i s t o r t i o n f o r  - 164  -  any p a r t i c u l a r case t h i s year. Brudney, supra, Note 114  1.  see  80.  A summary of the volume o f t r a d i n g and p r i c e range o f the  shares on any  preceding  2.  at  For f u r t h e r d i s c u s s i o n ,  Any  stock  exchange w i t h i n twelve months  the date o f a squeezeout.  plans or proposals  i s s u e r , i n c l u d i n g any  f o r m a t e r i a l changes i n the c o n t r a c t or agreement under  n e g o t i a t i o n which i f s u c c e s s f u l l y completed would m a t e r i a l ; and sell,  any p r o p o s a l  be  to l i q u i d a t e the i s s u e r , to  l e a s e o r exchange a l l or s u b s t a n t i a l p a r t o f i t s  assets,  to amalgamate i t with any  other  business  o r g a n i z a t i o n or t o make any m a t e r i a l changes i n i t s business,  corporate  management or  3.  The  number and  structure  (debt or e q u i t y ) ,  personnel.  designation  o f any  s e c u r i t i e s of  i s s u e r purchased or s o l d by the i s s u e r / a c q u i r o r the 12 months preceding  the date o f the  i n c l u d i n g the purchase or s a l e p r i c e .  the during  squeezeout  - 165  4.  -  F i n a n c i a l statements of the  i s s u e r prepared subsequent  to the date of i t s most r e c e n t l y statements not p r e v i o u s l y  filed  released  financial  or sent t o  security  holders.  5.  The  o f f e r i n g p r i c e per  proceeds r e c e i v e d  share and  by the  the  i s s u e r when s e c u r i t i e s have  been o f f e r e d to the p u b l i c during preceding the  6.  income tax  o f the squeezeout t r a n s a c t i o n  179.  the 5 years  squeezeout.  A g e n e r a l d e s c r i p t i o n o f the  security  aggregate  consequences  t o the i s s u e r and  to  holders.  A v a l u a t i o n o f the  shares o f the  i s s u e r must be  prepared  and  submitted to the O n t a r i o S e c u r i t i e s Commission at l e a s t  120  days p r i o r t o the announcement of any  transaction  and  valuation  private  at l e a s t 40 days p r i o r to the date of  meeting a t which the t r a n s a c t i o n w i l l be approved, the  going  considered.  i s s u e r must forward a summary of  to i t s shareholders and  of the v a l u a t i o n w i l l be  any Once  the  inform them t h a t a copy  sent upon request f o r a nominal  charge s u f f i c i e n t to cover p r i n t i n g and  postage.  The  - 166  summary should  -  i n c l u d e the b a s i s of computation, the  of review, the r e l e v a n t f a c t o r s and  t h e i r values  scope  and  key  assumptions on which the v a l u a t i o n i s based.  The  v a l u a t i o n i t s e l f must f o l l o w techniques t h a t  appropriate  are  i n the circumstances, g i v i n g c o n s i d e r a t i o n  to  going concern or l i q u i d a t i o n assumptions, or both, and  to  other values  r e l e v a n t f a c t o r s t o a r r i v e at a value r e s u l t i n g i n a per u n i t value  the i s s u e r being  eliminated  or range of  f o r the  or modified.  s e c u r i t i e s of  I t must not  c o n t a i n a downward adjustment to r e f l e c t the  fact that  the  a f f e c t e d s e c u r i t i e s do not form p a r t o f a c o n t r o l l i n g i n t e r e s t , but must i n c l u d e an estimate of the equivalent  o f the s e c u r i t i e s o f f e r e d to  shareholders  cash  minority  which the i s s u e r does not p l a n to redeem  immediately f o l l o w i n g the going p r i v a t e t r a n s a c t i o n .  The  v a l u a t i o n must a l s o be prepared by an  party. the  independent  There i s some debate, however, whether a u d i t o r s  or  i s s u e r or investment d e a l e r s t r u l y q u a l i f y as  "independent" because o f the apparent c o n f l i c t s o f i n t e r e s t a r i s i n g from a d e s i r e f o r continued company.  employment with  the  See Campbell & S t e e l e , supra, Note 1; S a l t e r ,  supra, Note 2 ; and N o t i c e ,  supra, Note 2 f o r d i s c u s s i o n o f  this  issue.  1.  The d i r e c t o r i n d i r e c t b e n e f i t s t o every s e n i o r o f f i c e r , d i r e c t o r , i n s i d e r , a s s o c i a t e o f an i n s i d e r or a s s o c i a t e o r a f f i l i a t e o f the i s s u e r as a r e s u l t o f the  2.  transaction;  the d e t a i l s o f any c o n t r a c t , arrangement or understanding, formal  or i n f o r m a l , between the i s s u e r  and any s e c u r i t y h o l d e r ;  3.  the source o f cash t o be used f o r payment, and i f funds are t o be borrowed, the terms o f the loan, the circumstances under which i t must be r e p a i d and the proposed method of repaying i t ;  4.  the frequency and amount o f d i v i d e n d s the  w i t h r e s p e c t to  shares o f the i s s u e r during the two years  preceding  the date o f the squeezeout t r a n s a c t i o n , any  r e s t r i c t i o n s on the a b i l i t y dividends  o f the i s s u e r to pay  and any p l a n or i n t e n t i o n t o d e c l a r e a  - 168 -  dividend  o r t o a l t e r the d i v i d e n d p o l i c y o f the  issuer.  181.  I f the c o n s i d e r a t i o n o f f e r e d i s other  than cash or a  s e c u r i t y p r o v i d i n g an immediate r i g h t t o cash or i s l e s s i n amount than the per share p r i c e i n d i c a t e d by the v a l u a t i o n , P o l i c y 3-37 and S e c t i o n 188 o f the D r a f t OBCA r e q u i r e a t l e a s t 2/3 approval  182.  Supra, Note 97.  by the independent  See a l s o N o t i c e ,  minority.  supra, Note 2 i n which  the OSC s t a t e d the reason f o r adopting the m a j o r i t y  o f the  minority t e s t : "But v a l u a t i o n s alone are not enough. They might s u f f i c e i f the m i n o r i t y shareholder had t r u e freedom of choice, but i n these t r a n s a c t i o n s t h a t l u x u r y i s unavailable. By d e f i n i t i o n , a going p r i v a t e t r a n s a c t i o n i s so designed as t o b i n d even t h e dissentient. Even i f t h i s were not t r u e , the p r a c t i c a l i t i e s o f the s i t u a t i o n o f t e n leave t h e m i n o r i t y shareholder with no r e a l i s t i c a l t e r n a t i v e t o acceptance. Almost i n v a r i a b l y , t h e o f f e r i s a t a p r i c e s i g n i f i c a n t l y i n excess o f p r i o r market p r i c e , and w i l l be accepted by the great m a j o r i t y o f the o f f e r e e s . A c c o r d i n g l y , t h e d i s s e n t i e n t would face the l i k l i h o o d o f an i l l i q u i d market a f t e r completion o f the t r a n s a c t i o n , w i t h small o p p o r t u n i t y t o r e a l i z e as much i n the f u t u r e . I t i s f o r t h i s reason t h a t t h e m a j o r i t y o f the m i n o r i t y t e s t was i n t r o d u c e d as a common f e a t u r e o f these t r a n s a c t i o n s . "  - 169  -  183. Supra, note 146; and Brudney, supra, note 114 a t 81.  See  a l s o supra, note 156 f o r r e f e r e n c e t o the broad i n v e s t i g a t o r y powers which the OSC p o s s e s s e s .  184. P o l i c y 3-37,  185.  Id.  supra, note 38 " I n t e r p r e t a t i o n s - E x e m p t i o n s . "  For example, employees or former  186. _Id. Appendix  I; Supplement t o OSC  employees.  P o l i c y 3-37;  See  also  D r a f t OBCA s,188(6).  187. I_d.  I t i s suggested t h a t management c e r t i f y t h a t no  i n t e r v e n i n g event nor any p r i o r event u n d i s c l o s e d at the time o f the i n i t i a l t r a n s a c t i o n could reasonably be expected m a t e r i a l l y to i n c r e a s e the value o f the corporation.  188.  Id.  189.  See S a l t e r ,  supra, note 2; N o t i c e , supra, note 2.  - 170  Loebex, supra,  note  -  190.  See  176.  191.  P o l i c y 3-37,  192.  Id.  193.  Id.  194.  Id.  195.  Id.  196.  Id.  197.  D r a f t OBCA S.188(4)  198.  While Quebec companies l e g i s l a t i o n c o n t a i n s a compulsory  supra, note  a c q u i s i t i o n r i g h t i t has a s s i s t i n g shareholders  38.  no other s t a t u t o r y p r o v i s i o n s  to claim f a i r value.  d e c i s i o n i n Re Simco L t e e . , s.46  supra,  note 167  which r e q u i r e s j u d i c i a l approval  However, the indicates that  o f an arrangement  p r o v i d e the c o u r t with g r e a t e r powers than a n t i c i p a t e d . See  t e x t i n f r a , a t 44.  I f so, p r o h i b i t i o n may  only  be  may  - 171 -  r e q u i r e d i n amalgamation squeezeouts c o n s o l i d a t i o n f r e e z e o u t s by s p e c i a l  or c l a s s i f i c a t i o n resolution.  199. The c o u r t s i n Maple L e a f M i l l s and Westeel,  supra, note 5  d i d not award damages because they were o f the o p i n i o n t h a t the a c t i o n s o f the defendant were l i k e l y t o cause i r r e p a r a b l e harm, not compensible itself,  through damages.  This i n  suggests t h a t they were o f the o p i n i o n t h a t  shareholders had a r i g h t i n the form and not the value o f their  200.  investments.  Supra, note 77.  See a l s o P r e n t i c e ,  Arrangements-Protecting  "Corporate  M i n o r i t y Shareholders" 92 LQR 13  (1977) .  201. The f a c t s i n H e l l e n i c were as f o l l o w s :  The  scheme i n v o l v e d c a n c e l l a t i o n o f the common shares  o f H e l l e n i c and the issuance o f new shares t o a bank (Hambros), f o l l o w i n g which the e x i s t i n g  shareholder  would be compensated i n cash f o r the l o s s o f t h e i r shares.  The a c t u a l e f f e c t o f the scheme was t o enable  Hambros t o purchase  a l l the i s s u e d common shares o f  - 172 -  Hellenic.  MIT, a wholly owned s u b s i d i a r y o f Hambros,  owned approximately 53%, w h i l e the o b j e c t o r , the N a t i o n a l Bank o f Greece ("NBG") h e l d 14%.  At a meeting  o f a l l the common shareholders c a l l e d t o  approve the scheme, the r e q u i s i t e s p e c i a l  resolution  was passed with the a s s i s t a n c e o f a f a v o u r a b l e vote by MIT.  202.  Supra, note 77 a t 388 ( A l l E.R.  citation).  203.  See the comments o f the Court i n Maple L e a f M i l l s , note 5 a t 201(O.R.) and i n Westeel,  204.  supra,  supra, 5 a t 216(O.R.).  Supra, note 167.  205. Query why the Court d i d not i n q u i r e i n t o the market value of the shares and use i t as a r e f e r e n c e f o r determining a " f a i r " buy-out  figure.  206. The d e c i s i o n not t o impose a m a j o r i t y o f the m i n o r i t y t e s t would appear t o be c o r r e c t i f s e c t i o n 46 o f the QCA does g i v e the Court the power t o order a m i n o r i t y buy-out when  - 173  it  -  i s charged with the r e s p o n s i b i l i t y o f approving an  arrangement. 207.  See S c o t t , "Going P r i v a t e :  An Examination  o f Going  T r a n s a c t i o n s Using the Business Purpose Standard" S.W.L.J. 64  208.  (1978) and Borden & Messmar, supra, note  In s p i t e o f the d e c i s i o n i n Marshel v. AFW F. 2d 1977  Private 32 6.  F a b r i c Corp.  (2d C i r . ) , vacated and remanded f o r a  d e t e r m i n a t i o n o f mootness, 429 U.S.  881  (1976), the  U.S.  Supreme Court i n Green v. Santa Fe I n d u s t r i e s Inc. 533 2d 1283  533  (2d C i r . , 1976), rev'd, 430 U.S.  462  (1977) h e l d  t h a t the c r e a t i o n of a proper c o r p o r a t e purpose matter o f s t a t e and not F e d e r a l law.  F.  test i s a  Following t h i s  d e c i s i o n , Rule 13e-3, supra, note 4, was  amended and  the  requirement o f a proper c o r p o r a t e purpose was d e l e t e d .  209.  See f o r example:  J u t k o w i t z v. Bourns, Inc. No.  ( C a l . Super. C t . LA Co. Nov. 386 F. Supp. 12  19,  CA-000268  1975); Kaufman v. Lawrence  (SDNY 1974); Tanzer Economic A s s o c i a t e s  P r o f i t S h a r i n g P l a n v. U n i v e r s a l Food S p e c i a l t i e s Inc., 87 Misc. 2d 167,  383 NYS  2d 472  (Sup. Ct.  1976)  - 174 -  210. Matteson v. Z i e b a r t h 40 Wash. 2d 286, (1952);  242 P. 2d  P o l i n v. Conductron 552 F. 2d 797  C e r t . Denied, 98 S.Ct. 178,  C e r t , denied 419 U.S. & Recognition Ct.  844  (8th C i r . ) ,  54 L. Ed. 2d 129  211. Bryan v. Brock & B l e v i n s Co. 490 F. 2d 563  1025  (1977).  (5th C i r . ) ,  (1974); C l a r k v. P a t t e r n A n a l y s i s  Corp. 87 Misc. 2d 385,  384 NYS  2d 660  (Sup.  1976).  212. Schulwolf v. C e r r o Corp. 86 Misc. 2d 292;  380 NYS  2d  957  (Sup. Ct. 1976); Tanzer Economic A s s o c i a t e s , supra, note 209; Young v. V a l h i 382  (Del. Ch. Feb. 22, 1978).  See  also  Singer v. Magnavox Co. supra, note 6.  213. Grimes v. Donaldson L u f k i n & J e n r e t t e Inc. 392 F. Supp. 1393  (ND F l a . ) a f f d, 521 F. 2d 812  Teschner v. Chicago T i t l e  (5th C i r . 1975);  & T r u s t Co. 322 N.E.  2d 54  (1975); Cole v. Schenley I n d u s t r i e s Inc. [1975-1976 T r a n s f e r Binder] Fed. Sec L. Rep. (Sony 1976), remanded 563 F. 2d 35  (CCH) S e c t i o n 95,765 (2d C i r . 1911)-,  Schulwolf v. C e r r o Corp., supra, note 212; A s s o c i a t e s , supra, note  209.  Tanzer Economic  - 175 -  214. Young v. V a l h i , supra, note 212; Kemp v. A n g e l , 381 A. 2d 241  (Del. 1977) C f . Schulwolf v . Cerro Corp.,  supra, note  212.  215. Tanzer v. I n t e r n a t i o n a l General I n d u s t r i e s 379 A. 2d 1121 (Del.  216.  1977); Tanzer Economic Assoc., supra, note 209.  In Singer v. Magnavox, supra, note 6, the Delaware Supreme Court overturned a d e c i s i o n o f the Court o f Chancery and r e j e c t e d the c o n t e n t i o n o f the defendants t h a t a merger was " l e g a l l y u n a s s a i l a b l e " because o f f u l l procedure. 709  compliance with  See a l s o N a j j a r v. Roland I n t ' l Corp. 387 A. 2d  (Del. Ch. 1978); Bryan v . Brock & B l e v i n s Co., supra,  note 213; Gabhart v. Gabhart 390 N.E. 2d 346 (Ind. 1977); Berkowitz v. Power Mate Corp. 342 A. 2d 566 (N.J. Ch. 1975); Tanzer Eco. Assocs., supra, note 209;  In r e Jones &  L a u g h l i n S t e e l Corp. 398 A. 2d. 186 (S.C. Penn., Note the a n a l y s i s o f the B r i t i s h  Columbia  1979).  Court o f Appeal  i n Canadian A l l i e d P r o p e r t y , supra, Note 7.  C a r r o t h e r s J.A.  s t a t e d a t 620 (W.W.R.): "We are not t o be concerned with the m o t i v a t i o n behind the d e s i r e t o a c q u i r e the m i n o r i t y shareholder u n l e s s i t i s abusive o f or u n f a i r t o the m i n o r i t y . C e r t a i n l y t h e r e i s no presumption o f abuse t o be d e r i v e d merely from the m a j o r i t y p o s i t i o n o f the  - 176 a c q u i r i n g company. We must assume, u n t i l the c o n t r a r y be shown, t h a t the o b j e c t i v e o r m o t i v a t i o n o f t h e a c q u i r i n g company i s proper. There a r e many l e g i t i m a t e reasons f o r e l i m i n a t i n g a m i n o r i t y s h a r e h o l d i n g and i f we a r e t o s p e c u l a t e about t h a t m o t i v a t i o n I would p r e f e r t o contempate these. A c o n t r o l l i n g shareholder can then make business d e c i s i o n s , p a r t i c u l a r l y long-term ones, without concern f o r c o n f l i c t s o f i n t e r e s t w i t h the m i n o r i t y shareholders and without having t o worry about adverse e f f e c t s on the t r a d i n g p r i c e o f shares on the market. To o b t a i n f u l l share c o n t r o l would e l i m i n a t e t h e a d m i n i s t r a t i v e burden and expense o f m a i n t a i n i n g s t a t u s as a r e p o r t i n g company with shares l i s t e d on stock exchanges. Future f i n a n c i n g obtained through the c o n t r o l l i n g shareholder's resources would be f a c i l i t a t e d by t h a t c o n t r o l l i n g shareholder having a l l the v o t i n g and p a r t i c i p a t i n g shares i n the s u b j e c t company. O r i g i n a l l y the small p u b l i c s h a r e h o l d i n g here served as a b a l a n c i n g and l e a v e n i n g i n f l u e n c e on the two equal c o n t r o l l i n g shareholders (who were both w e l l e s t a b l i s h e d and renowned as long-term i n v e s t o r s but were s t r a n g e r s t o t h i s business community) and i n t r o d u c e d a l o c a l short-term i n t e r e s t t o be considered and served by the s u b j e c t company's directors. That equal c o n t r o l has gone and so perhaps have the other reasons f o r the m i n o r i t y shareholdings."  217. Westeel,  supra, note 5 a t 216  218.  Supra, note 137.  219.  I d . a t 278.  220.  I d . a t 283.  (O.R.)  - 177 -  221.  U n l i k e the CBCA, SBCA and D r a f t OBCA, the U.K A c t r e q u i r e s an o f f e r o r t o be an " a c q u i r i n g company" and not an individual.  To quote the P r i v y C o u n c i l  Indus. I n c . v.  Dilley,  i n Blue Metal  supra, note 27:  " I t i s p a r t i c u l a r l y s i g n i f i c a n t t h a t the power cannot be e x e r c i s e d by an i n d i v i d u a l o r , even on the h y p o t h e s i s that p l u r a l a c q u i s i t i o n i s p o s s i b l e by a company o r companies and an i n d i v i d u a l o r i n d i v i d u a l s together. This seems s t r o n g l y t o support the i n d i c a t i o n t h a t the s e c t i o n i s a company s t r u c t u r e s e c t i o n and not one o f c o n c e n t r a t i o n o f p r o p e r t y interests. "  222.  Supra, note 137.  223.  Canada C o r p o r a t i o n s  A c t R.S.C. 1970 c. C-32 as amended.  "136. (1) Notice t o d i s s e n t i n g shareholder. - Where any c o n t r a c t i n v o l v i n g the t r a n s f e r o f shares or any c l a s s o f shares i n a company ( i n t h i s s e c t i o n r e f e r r e d t o as "the t r a n s f e r o r company") t o any other company ( i n t h i s s e c t i o n r e f e r r e d t o as "the t r a n s f e r e e company") has, w i t h i n four months a f t e r the making o f the o f f e r i n t h a t b e h a l f by the t r a n s f e r e e company, been approved by the h o l d e r s o f not l e s s than ninetenths o f the shares a f f e c t e d , or not l e s s than n i n e tenths o f each c l a s s o f shares a f f e c t e d , i f more than one c l a s s o f shares i s a f f e c t e d , the t r a n s f e r e e company may, a t any time w i t h i n two months a f t e r the e x p i r a t i o n o f the s a i d four months, give n o t i c e , i n such manner as may be p r e s c r i b e d by the c o u r t i n the province i n which the head o f f i c e o f the t r a n s f e r o r company i s s i t u a t e d , t o any d i s s e n t i n g shareholder t h a t i t d e s i r e s t o a c q u i r e h i s shares, and where such n o t i c e i s given the t r a n s f e r e e company i s , unless on an a p p l i c a t i o n made by the d i s s e n t i n g shareholder w i t h i n one month from the date on which the n o t i c e was  - 178 g i v e n the c o u r t t h i n k s f i t t o order otherwise, e n t i t l e d and bound t o a c q u i r e those shares on t h e terms on which, under the c o n t r a c t , the shares o f the approving shareholders are t o be t r a n s f e r r e d t o t h e t r a n s f e r e e company."  224.  Supra, note 137 a t 151.  225. Supra, note 6.  226.  Supra, note 95.  227.  Supra, note 57.  228.  Supra, notes 139-144.  229. Supra, note 137 a t 149.  230. The CBCA, SBCA and D r a f t OBCA permit the a c q u i s i t i o n o f shares i f a takeover i s accepted by h o l d e r s o f not l e s s "than 90 p e r c e n t o f the shares o f any c l a s s  . . . other  THAN SHARES HELD AT THE DATE OF THE TAKEOVER BID BY OR ON B BEHALF OF THE OFFEROR OR AN AFFILIATE OFFEROR."  OR ASSOCIATE OF THE  The BCCA r e f e r s t o "not l e s s than 9/10 o f those  shares o r o f the shares o f t h a t c l a s s other than shares  - 179 -  a l r e a d y h e l d a t the date o f the o f f e r by, or by a nominee for,  the a c q u i r i n g company or i t s a f f i l i a t e . "  d i s c u s s i o n o f the term "Nominee", Investments,  supra, note 41;  For a  see J e f f e r s o n v. Omnition  Sammell v. P r e s i d e n t Brand  Gold Mining Co. supra, note 41;  and Gregory v. Canadian  A l l i e d Property, supra, note 5.  231. P e r c i v a l v. Wright  [1902] 2 Ch. 421.  For d i s c u s s i o n s o f  d i r e c t o r s ' d u t i e s , see I a c o b u c c i , P i l k i n g t o n & P r i c h a r d supra, note 62 a t 286-318; Anisman, supra note 62 a t 158 f f ; Gower, supra, note 57 a t 571 f f ; Palmer,  "Directors'  Powers and D u t i e s " S t u d i e s i n Canadian Company Law, ( J . Z i e g e l ed.) Ch. 12.  In the r e c e n t d e c i s i o n o f the New  Zealand Court o f Appeal, Coleman v. Myers, supra, note 105, d i r e c t o r s engaging  i n the a c q u i s i t i o n o f shares were h e l d  to be s u b j e c t t o a g e n e r a l duty o f d i s c l o s u r e when d e a l i n g with p r o s p e c t i v e purchasers or s e l l e r s .  The Court s t a t e d  t h a t Shareholders who surrender t h e i r shares on a takeover must be t o l d o f a l l m a t e r i a l f a c t s , f i n a n c i n g the t r a n s a c t i o n .  i n c l u d i n g the method o f  C f . A l l a n v. Hyatt  (1914), 17  D.L.R. 7 (P.C.) and Anisman, supra, note 62 a t 159.  - 180  The  "Complainant."  See  -  supra,  note  127.  CBCA  s.232-233,235; BCCA  s.225;  MCA  s.232-233,235; OBCA  s.99;  SBCA  s.232-233,235; D r a f t OBCA ss.244-245;  A d e r i v a t i v e a c t i o n i s a s u i t brought by a person i n the name o f and  on b e h a l f o f the c o r p o r a t i o n to remedy a wrong  done to the c o r p o r a t i o n .  I t i s a v a i l a b l e only f o r the  enforcement o f d u t i e s owed to the c o r p o r a t i o n and u n a v a i l a b l e to enforce of shareholders.  the r i g h t s of an i n d i v i d u a l or group  However, i t may  r e p r e s e n t a t i v e form.  See  D e r i v a t i v e A c t i o n " 52 Can. supra,  note  is  be brought i n a  Beck, "The Bar Rev.  Shareholders' 159  (1974) and  Beck,  99.  In j u r i s d i c t i o n s which have not enacted a s t a t u t o r y d e r i v a t i v e a c t i o n , shreholders a c t i o n , but  i t s scope w i l l be  i n Foss v. H a r b o t t l e  may  bring a derivative  s e v e r e l y l i m i t e d by the r u l e  (1843) 2 Hare 46;  d i s c u s s i o n , see Beck, supra,  note  99.  67 E.R.  189.  For  - 181 -  234. Beck, supra, note 99.  Note t h a t the d i r e c t o r s i n t h e i r  c a p a c i t y as c o n t r o l l i n g shareholders are not permitted t o ratify 554  fraudulent actions.  (P.C.); Cf.  1 A l l E.R.  378  235. Supra, note  Regal  See Cook v. Peeks [1916] 1 A.C.  (Hastings) L t d . v. G u l l i v e r ,  [1942]  (H.L.).  233.  236. W a l l e r s t e i n e r v. Moir  (No. 2 ) , [1975] 1 A l l E.R.  849  (C.A.).  237. Whereas BCCA s.142 and OBCA s.144 r e q u i r e t h a t a d i r e c t o r "act h o n e s t l y , i n good f a i t h and i n the best i n t e r e s t s o f the company", CBCA s.117; MCA  s.117, SBCA s.117 and D r a f t  OBCA s.13 3 are more f l e x i b l e and use the phrase  "with a  view t o the best i n t e r e s t s o f the company."  238. Teck C o r p o r a t i o n L t d . v. M i l l a r 33 D.L.R. (3d) 288  (BCSC,  1972); Parke v. D a i l y News L t d . , [1962] Ch. 927; Re Smith & Fawcett L t d . , [1942] Ch. 304. t h i s phrase,  For f u r t h e r d i s c u s s i o n o f  see Gower, supra, note 57 a t 576-580.  - 182 -  239. See F a r r a r , 221  "Abuse o f Powers By D i r e c t o r s " 33 Camb. L . J .  (1974); Bennun, " D i r e c t o r s ' Powers To Issue Shares:  Two C o n t r a s t i n g D e c i s i o n s " 24 I n t . and Comp L.Q. 359 (1975); B i r d s ,  "Proper Purposes As a Head o f D i r e c t o r s '  D u t i e s " 37 Mod. L. Rev. 580 (1974); Gower, supra note 57 a t 580-582; I a c o b i c c i , P i l k i n g t o n and P r i c h a r d , supra, note 62 at 297-300.  240. See F r a s e r v. Whalley  (1864), 2 H & M 10, 71 E.R. 361; Punt  v. Symons & Co. L t d . , [1903] 2 Ch. 506; P i e r c y & S. M i l l s & Co. L t d . , [1920] 1 Ch. 77; B o n i s t e e l v. C o l l i s L e a t h e r Co. L t d . 45 O.L.R. 195 (Ont. H.C.,1919); Re Smith & Fawcett, supra, note 238; Hogg v. Cramphorn L t d . [1967] Ch. 254 and Teck C o r p o r a t i o n v. M i l l a r ,  supra, note 238.  241. When D i r e c t o r s have i s s u e d themselves a d d i t i o n a l shares t o r e t a i n v o t i n g c o n t r o l o f the Company and d e f e a t a takeover b i d , t h i s has been h e l d t o be an "improper purpose." Hogg v.  See  Cramphorn, supra, note 240; Teck C o r p o r a t i o n v.  M i l l a r , supra, note 238; Winthrop Investments L t d . v. Winns L t d . , [1975] 2 N.S.W.L.R. 666 (C.A.), Bernard v. V a l e n t i n i , 18 O.R. (2d) 656 (4.c.1978).  Query whether the  d i r e c t o r s may r a t i f y t h i s a c t i o n i n t h e i r c a p a c i t y as  - 183 -  c o n t r o l l i n g shareholders.  See Bamford v. Bamford, [1970]  Ch. 212; Hogg v. Cramphorn, supra, note 240 and Teck v. M i l l a r supra, note 238 and P r e n t i c e , Bar Rev.  The  Corp.  "COMMENT" 47 Can.  648 (1969).  "proper purposes t e s t " i s somewhat s u p e r f l u o u s because  D i r e c t o r s must a c t bona f i d e i n the b e s t i n t e r e s t o f t h e company.  What i s t h e d i f f e r e n c e between a c t i n g "bona f i d e "  and f o r an "improper purpose"?  F o r a l i s t o f suggested  "proper c o r p o r a t e purposes", see t h e comments o f C a r r o t h e r s , J.A. i n Canadian A l l i e d P r o p e r t y , supra, notes 5 and 216.  242.  See Howard Smith L t d . v, Ampol Petroleum L t d . and Others [1974] 1 A l l E.R. 1126 (H.L.) C f . Teck Corp. v. M i l l a r , supra, note 238.  243. Phipps v. Boardman, [1967] 2 A.C.  46, [1966] 3 W.L.R. 1009;  Regal (Hastings) L t d . G u l l i v e r supra, note 234.  See a l s o ,  supra, note 70.  244. Keech v. Sandford (1726) S e l Cas. Ch. 61. "The Saga o f Peso S i v e r Mines:  See a l s o Beck,  Corporate Opportunity  - 184 -  R e v i s i t e d " 49 Can. Bar Rev. 80 (1971) and Anderson, " C o n f l i c t s o f I n t e r e s t , E f f i c i e n c y , F a i r n e s s and the Corporate S t r u c t u r e " 2 5 UCLA L. Rev. 738 (1978).  245. Query whether the c o n t r o l l i n g s h a r e h o l d e r s may r a t i f y an a c t i o n .  such  See Beck, supra, note 244 a t 114; Canadian  Aero  S e r v i c e s L t d . v. O'Malley, Z a r z y c k i e t a l . (1973), 40 D.L.R.  (3d) 371; [1974] S.C.R. 592; and Beck, "The  Quickening of F i d u c i a r y O b l i g a t i o n :  Canadian Aero  Services  v. O'Malley" 53 Can. Bar Rev. 771 (1975).  246. Canadian Aero S e r v i c e s , supra, note 245; S c o t t i s h Coo p e r a t i v e Wholesale S o c i e t y L t d . V. Meyer, supra, note 132. C f . B e l l v. Lever Bros. [1932] A.C. 161.  See a l s o Beck,  supra, note 245 a t 787-792.  247. Pepper v. L i t t o n , 308 U.S. 295, 60 S. C t . 238; Brown v. H a l b e r t 271 A.C.A. 307, 76 C a l . Rptr. 781; R e m i l l a r d  Brick  Co. v. R e m i l l a r d - D a n d i n i 109 C a l . App. 2d 405, 241 P. 2d 66; Jones v. H.F. Ahmanson & Company 1 C a l . 3d 93, 460 P. 2d 464.  See a l s o Gibson, "The S a l e o f C o n t r o l i n Canadian  Company Law" 10 U.B.C. L.  Rev. 1 (1976).  - 185 -  248. T h i s i s based on the assumption t h a t the c o n s t a t i n g documents c o n s t i t u t e a c o n t r a c t between the company and each member.  While t h i s f a c t i s e x p r e s s l y found i n  Companies l e g i s l a t i o n i n memorandum j u r i s d i c t i o n s BCCA s.13),  (e.g.,  i t i s not c l e a r whether the same h o l d s t r u e f o r  shareholders of l e t t e r s patent or a r t i c l e s o f i n c o r p o r a t i o n companies.  See Beck, supra, note 99.  See a l s o Gower,  supra note 57 a t 653-656; Beck, supra, note 233 at 169-179; C h a r l e b o i s e t a l . v. Bienvenu e t a l . [1967] 2 635 and A l b o i n i ,  O.R.  supra, note 1 a t 609-617.  249. Courts have been w i l l i n g t o accept the p r o p o s i t i o n t h a t a f i d u c i a r y r e l a t i o n s h i p does e x i s t i n c l o s e l y h e l d companies.  For example, i n Clemens v. Clemens Bros. L t d .  [1976] 2 A l l E.R. 268 (Ch. D.), the c o n t r o l l i n g shareholders proposed t o i n c r e a s e the a u t h o r i z e d c a p i t a l o f the company i n order to i s s u e f u r t h e r shares to themselves and t o an employee t r u s t fund.  The e f f e c t o f t h i s p l a n  would have been to reduce the p l a i n t i f f ' s h o l d i n g s from 45 percent t o s l i g h t l y below 25 p e r c e n t o f the v o t i n g shares, with the r e s u l t t h a t she c o u l d no l o n g e r b l o c k a s p e c i a l resolution.  - 186 -  F o s t e r , J . s e t a s i d e the r e s o l u t i o n on the grounds t h a t i t was passed p r i m a r i l y t o d e p r i v e the p l a i n t i f f o f h e r "negative c o n t r o l . "  In the o p i n i o n o f the Court, t h e r i g h t  to vote was "subject to e q u i t a b l e c o n s i d e r a t i o n s which may make i t u n j u s t or i n e q u i t a b l e  . . .  . . . to exercise  [ i t ] i n a p a r t i c u l a r way."  Cf. f o r example, the dictum o f Cozens-Hardy  M.R. i n  P h i l l i p s v. Manufacturers S e c u r i t i e s L t d . , supra, note 9: "Members o f a company v o t i n g a t a g e n e r a l meeting p r o p e r l y convened have no f i d u c i a r y o b l i g a t i o n e i t h e r t o the company o r t o the other s h a r e h o l d e r s . " See Gibson, supra, note 247 f o r commentary on the case law.  250. Supra, note 57.  251. N.W. T r a n s p o r t v. Beatty, supra, note 70.  252.  [1975] 54 D.L.R. (3d) 692 (Ont. C.A.). S l u t s k y , 39 Mod. L . Rev. 331 (1976).  F o r commentary, see  - 187 -  253.  I d . a t 679.  254.  [1972] 3 O.R. 688  255.  I_d. a t 695-697.  (H.C).  The O n t a r i o Court o f Appeal  r e v e r s e d the  d e c i s i o n o f Morand, J . [1973] 2 O.R. 132 on the b a s i s t h a t the a c t i o n , as pleaded, was d e r i v a t i v e and not p e r s o n a l .  256. Maple L e a f M i l l s ,  257. Westeel,  258.  supra, note 5 a t 205.  supra, note 5 a t 219-220.  I d . a t 219.  See a l s o Re Loeb and P r o v i g o Inc. 88 D.L.R.  (3d) 139 (Ont. H.C. 1979) i n which S t e e l e , J . h e l d t h a t an a p p l i c a t i o n t o r e s t r a i n Provigo, the c o n t r o l l i n g shareholder o f Loeb, from d i v e r t i n g any p r e s e n t or f u t u r e b u s i n e s s o f Loeb t o i t s e l f , bid,  259.  following a successful  should be brought by way of a d e r i v a t i v e  Investigations provision; S.16(l); MSA s.26;  takeover  action.  (supra, note 156); F r e e z i n g funds:  NSSA no  NSA no p r o v i s i o n ; NBSFPA s.24; PEISA s.19; OSA BCSA s.27; SSA s.32;  ASA s.26; B i l l Bill  76 S . 1 4 ( 1 ) ; QSA s.43;  72 S . 1 6 ( 1 ) ; A p p o i n t i n g a  - 188 -  r e c e i v e r : OSA s.17; BCSA s.28;  ASA s.27; B i l l  s.33; MSA s.27; PEISA s . l 9 ( 3 ) ;  Bill  Bill  72 s.  76 s.15; SSA  72 s.17; OSA s.132,  132; B i l l 76 s. 129 permit the S e c u r i t i e s  Commission to apply to a judge f o r p e r m i s s i o n t o begin or continue a c i v i l against  a c t i o n on b e h a l f o f a r e p o r t i n g  any i n s i d e r o r a s s o c i a t e  issuer  o r a f f i l i a t e o f the  i n s i d e r who has purchased o r s o l d s e c u r i t i e s w i t h knowledge of a m a t e r i a l material  change o r has informed another o f the  change.  260. OSA s.123; BCSA s.58; ASA s.143; B i l l 76 s.121; MSA s.143; Bill  72 s.123; SSA s.151; QSA s.63; NSSA s.23; NBSFPA s.18;  PEISA no p r o v i s i o n ; NSA s.25.  261. OSA s. 124; BCSA ss.21,55; ASA ss.20,59; B i l l ss.20,59; B i l l s.22;  76 s.122; MSA  72 s.124; SSA ss.21,20(5); QSA s.20; NBSFPA  NSSA ss.4, 20; PEISA s.2(4); NSA ss.6,21 (Attorney-  General)  262. A l b e r t a  Stock Exchange Bylaws, Part X; Montreal Stock  Exchange Rules s e c t i o n 9451; Toronto Stock Exchange Bylaws s e c t i o n 19.01; Vancouver Stock Exchange Rules 380-384; Winnipeg Stock Exchange Bylaw 5, s e c t i o n 4.  - 189  263.  Such an order may  -  be made on any terms i f the  r e g u l a t o r y a u t h o r i t y concludes interest."  i t i s i n the  securities  "public  An i s s u e r must be g i v e n the b e n e f i t o f a  h e a r i n g , though t h i s r i g h t may  be abridged f o r a temporary  p e r i o d i f the agency b e l i e v e s t h a t a d e l a y i n a c t i o n would be p r e j u d i c i a l t o the " p u b l i c i n t e r e s t " .  For d i s c u s s i o n of  what c o n s t i t u t e s the " p u b l i c i n t e r e s t " see Johnston, note 15 a t 360-362;  Alboini,  supra, note 1 a t 824-838.  264.  Johnston,  265.  Id.  266.  See L o s t R i v e r Mining C o r p o r a t i o n L i m i t e d et a l . [Oct. 1979]  supra, note 15 a t  supra,  B u l l OSC  290 a t 292;  361.  See a l s o A l b o i n i ,  supra, note 1  a t 837-838.  267. N o t i c e , supra, note  268.  2.  Re Cable C a s t i n g , supra, note 5; Loeb and Loebex, supra, note 176. Steele, J.  In Maple L e a f M i l l s , noted t h a t the OSC  supra, note 5, a t  206  d e c l i n e d to i n t e r f e r e with  the t r a d i n g of the s e c u r i t i e s o f Maple Leaf because there  - 190 -  was  no evidence o f f r a u d and e x t e n s i v e d i s c l o s u r e  had been  made.  269. For commentary, see A l b o i n i ,  2 70. Supra, note 261.  supra, note 1 a t 835-837.  See a l s o A l b o i n i ,  supra, note 1 a t 838-  850.  271. BCSA s s . 2 0 ( l ) ( i ) 55(1); ASA 32(l)(p);  s s . 1 9 ( 1 ) ( 9 ) , 58; B i l l  6 9 ( l ) ( j ) SSA s . 2 0 ( l ) ( j ) , 65; MSA  19(l)10(iii);  Bill  s . 7 1 ( l ) ( j ) ; QSA  Bill  ss.34(1)15, 7 1 ( l ) ( i ) ;  SSA, 72 s s .  QSA,  NBSFPA, s s . 7 ( h ) , 12(12); PEISA s s . 2 ( 3 ) ( f ) ,  NSSA, s s . 4 ( f ) , 1 9 ( f ) ; NSA,  f o r the exemption New  s s . 5 ( g ) , 20(g) and B i l l  13(a);  76,  (i), 69(l)(i)(i).  273. Supra, notes 271-272.  Alberta,  s.34(1)16,  ss.19(1)9, 58;  ss.19(1)10, 5 8 ( l ) ( b ) ;  7 1 ( l ) ( i ) ; OSA,  ss.32(l)(o)  ss.  s.20(e),52.  s s . 2 0 ( l ) ( j ) , 65; MSA,  ss.20,52;  ss.58(l)(b),  72 s s . 3 4 ( 1 ) ( 1 6 ) ; 7 1 ( l ) ( j ) OSA  272. See BCSA, s s . 2 0 ( l ) ( i ) , 55(1); ASA,  34(1)15,  76 s s .  In order f o r an i s s u e r  i n B r i t i s h Columbia,  Brunswick,  Nova S c o t i a ,  to q u a l i f y  Saskatchewan,  Newfoundland and  - 191 -  P r i n c e Edward considered  I s l a n d , the share r e c l a s s i f i c a t i o n must be  a " r e o r g a n i z a t i o n " which i s not d e f i n e d by the  s e c u r i t i e s l e g i s l a t i o n o f these j u r i s d i c t i o n s . s.34(l)15(l)  f  and MSA,  s.19(3)(1)(b),  In OSA,  the share  r e c l a s s i f i c a t i o n must be performed by arrangement. Quaere whether exemptions are a v a i l a b l e i n Quebec because of the wording o f QSA,  s.20(f):  "the exchange by one company o f  s e c u r i t i e s i s s u e d by i t f o r the s e c u r i t i e s o f another company . . . f o r the purpose o f r e o r g a n i z i n g one o f them."  274. Supra, notes 271-72.  U n l i k e the r e c l a s s i f i c a t i o n , the  c o n s o l i d a t i o n i s e x p r e s s l y covered by the prospectus and r e g i s t r a t i o n exemptions i n Saskatchewan, Nova S c o t i a , PEI, B r i t i s h Columbia, A l b e r t a , New  Brunswick and  Newfoundland.  In O n t a r i o and Manitoba, i t i s necessary t o use an arrangement t o o b t a i n an exemption.  In Quebec, there  s t a t u t o r y exemption.  ; ASA  s.6  SSA s.6;  B i l l 76 s.22; MSA  s.6  B i l l 72  OSA  s.16  NBSFPA s.5  275. BCSA s.6  s.24  PEISA s.2  ; QSA  ; NSSA s.3  NSA  s.4  s.24  i s no  - 192  276.  BCSA s.36 Bill OSA  ; ASA  s.35  ; SSA  s.42  MSA  s.35  ; Bill  72  76 s.50; s.52  ; QSA  PEISA s.8  s.52  ss.50,53; NBSFPA ss.13-14;  ; NSSA s.12  (registration  277.  -  (registration  statement);  NSA  s.13  statement).  For a d i s c u s s i o n o f the term, see A l b o i n i ,  supra,  note 1 a t  843-850.  278.  OSA  s.124(2); B i l l  72 s.124(2) and  give the s e c u r i t i e s  Bill  76 s.122(2) a l s o  commission the power to withdraw any  a l l o f the takeover b i d or i s s u e r b i d exemptions. supra,  279.  note  or  See  37.  Panacea Mining & E x p l o r a t i o n L i m i t e d [Oct. 1971]  Bull  OSC  156.  280.  Murray M. file  S i n c l a i r [ J u l y 1975]  insider  [Oct. 1973] reports); 60.  reports);  B u l l OSC  B u l l OSC  M e r c a n t i l e Bank and  173;  ( f a i l u r e to f i l e  Chemalloy M i n e r a l s L i m i t e d  C f . N a t i o n a l Sea,  B a i l l i e and A l b o i n i ,  187  supra,  "The  ( f a i l u r e to T r u s t Co. insider  [March, 1974]  note 62.  Ltd.  Bull  OSC  For commentary,  see  N a t i o n a l Sea D e c i s i o n - E x p l o r i n g  - 193 -  the Parameters o f A d m i n i s t r a t i v e D i s c r e t i o n " 2 Can. Bus. L . J . 454 (1978).  281. I n t e r n a t i o n a l N e g o t i a t o r s L i m i t e d e t a l . [Oct. 1965] B u l l OSC 2.  282. J . F. Simard Company L i m i t e d [Nov. 1961] B u l l OSC 1.  2 83. Supra, note 176.  284. Supra, note 5.  See t e x t accompanying  See t e x t accompanying  285. See Globe and M a i l Foods P r o p o s a l s . "  note 268.  note 268.  ( J u l y 11, 1980) "OSC To Study W e s t f a i r W e s t f a i r proposed t o i s s u e  junior  p r e f e r r e d shares and make i t s non-redeemable C l a s s A shares (held by the c o n t r o l l i n g shareholder) redeemable a continuance under the CBCA. exemptions  as p a r t o f  The OSC was asked t o deny  allowing Westfair to reorganize i t s c a p i t a l  s t r u c t u r e without a prospectus because the p l a n amounted t o a liquidation.  - 194 -  286.  See the t a b l e i n the Appendix.  287.  D r a f t OBCA ss.1(1)26  288.  But f o r the c r e a t i o n o f P o l i c y 3-37, OSA Reg. s.163 and  & 188.  D r a f t OBCA s.188, S t e e l e , J . would have been c o r r e c t i n e n j o i n i n g the t r a n s a c t i o n i n Maple L e a f M i l l s , because O n t a r i o shareholders had no o p p o r t u n i t y t o command payment o f an amount a t l e a s t equal t o the i n t r i n s i c value o f t h e i r shares.  OBCA s.100 and SBCA s.184 are only a v a i l a b l e t o  shareholders o f " n o n - d i s t r i b u t i n g " c o r p o r a t i o n s .  289.  The d e c i s i o n i s Westeel was c o r r e c t o n l y because t h e r e were procedural d e f i c i e n c i e s  (no amalgamation agreement).  However, had t h e r e been f u l l p r o c e d u r a l compliance  with a l l  s t a t u t o r y p r o v i s i o n s then i t would have been a p p r o p r i a t e f o r Montgomery, J . t o i n s t r u c t the shareholders t h a t recourse t o t h e d i s s e n t o r o p p r e s s i o n remedy was proper  i n the circumstances.  290.  Supra, note 198.  291.  Supra, note 96.  - 195  292.  Id. a t  293.  Id. a t 1361-1362.  -  1359.  The d i s c l o s u r e p r o v i s i o n s i n the O n t a r i o  Proposals r e q u i r e the i n c l u s i o n of a statement "going p r i v a t e t r a n s a c t i o n " w i l l  294.  Id. a t 1365-66.  295.  Id. a t 1368-69.  296.  Supra, note 32;  297.  Id at 1371.  Id a t  that a  f o l l o w a tender  offer.  1371.  The O n t a r i o Proposals do not r e q u i r e  d i s c l o s u r e by an a c q u i r o r when i t proposes to give m i n o r i t y shareholders  "participating securities."  See  supra,  note  4.  298.  Id. a t  1368.  299.  See t e x t , supra, a t 32-33.  300.  For example, see (December 11,  "Jannock Changes Mind" F i n a n c i a l Times  1978)  p. 32;  "Keg  Restaurants  Skewers  Buy-  - 196  Back P l a n "  B.C.  and Schwartz,  -  Business Week (May 9, 1979)  p. 38; G l o v e r  "Going P r i v a t e Fever Cools O f f " , supra, note  1; Slocum, " W e s t f a i r Foods Decides Not t o Proceed With P r o p o s a l s " Globe and M a i l  301. Supra, notes 139-146.  ( J u l y 17, 1980)  p.  B4.  - 197 -  BIBLIOGRAPHY STATUTUES  Alberta.  The Companies A c t . R.S.A. 1970, c.60 as amended.  Alberta.  The S e c u r i t i e s A c t . R.S.A. 1970 c.333 as amended.  Alberta.  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" S e c u r i t i e s R e g u l a t i o n Problems In R e l a t i o n t o S a n c t i o n s " Proposals F o r a S e c u r i t i e s Market Law F o r Canada Volume 3. Ottawa: Department of Consumer & Corporate  Affairs,  1978 a t 510.  Levine R. & Graham D. " I n c o r p o r a t i o n and T a x a t i o n of a P r i v a t e C o r p o r a t i o n " 1980 B r i t i s h Columbia Tax Conference Canadian Tax Foundation,  (Toronto:  1980)  MacGregor "Take-Overs R e v i s i t e d " 95 S. A f . L . J . 329  (1978)  - 227 -  MacKinnon, S. "The P r o t e c t i o n o f D i s s e n t i n g Shareholders" i n S t u d i e s i n Canadian Company Law J . Z i e g e l ed. Toronto: Butterworths, 1967  McNamara, D.J. "Note on Compulsory A c q u i s i t i o n o f Shares" 10 U.W.O.L. Rev. 141 (1971)  Magnet J.E. "Shareholders' A p p r a i s a l Rights In Canada" 11 Ottawa L. Rev. 98 (1979)  Manne, H. "Mergers and The Market f o r Corporate C o n t r o l " , 73 J . P o l . Eco. (1965)  . "Cash Tender O f f e r s - A Reply t o Chairman Cohen" [1967] Duke Law J o u r n a l 231  Manning B. "The Shareholder A p p r a i s a l Remedy: An Essay For Frank Coker" 72 Y a l e L . J . 223 (1963)  "OSC t o Study W e s t f a i r Food P r o p o s a l s " Globe and M a i l J u l y 11, 1980 p. B.6  Palmer J . "Amalgamation - Winding-Up" Report o f the T h i r t i e t h Tax Conference (Toronto: Canadian Tax Foundation, 1980) 469  - 228 -  . " D i r e c t o r s ' Powers and D u t i e s " i n Studies i n Canadian Company Law.  J . Z i e g e l ed. Toronto: Butterworths, 1967 Ch. 12  Paterson, R.K.  "A Role f o r C i v i l L i a b i l i t y  i n Canadian  S e c u r i t i e s L e g i s l a t i o n ? - Remedies f o r Breach o f the Takeover Bid Disclosure  Requirements o f the S e c u r i t i e s Act, 1967"  U.B.C. L. Rev. 32  P h i l l i p s R.L., Own  (1978)  "The Concept of a C o r p o r a t i o n ' s Purchase of I t s  Shares" 15 A l t a . L. Rev. 32  P i t c h , H.  12  (1977)  "Going P r i v a t e " The S i l e n t M i n o r i t y  i s No Longer  S i l e n t " 3 Can. Lawyer 12 (February 1979)  P l i n e r R.  "Arranging a Take-Over - A Scheme Around the Code?" 7  Aust. Bus. L . J . 51  Potter,  K.B.  " A c q u i s i t i o n of M i n o r i t y  Arrangements"  Prentice,  (1979)  D.D.  Held Shares  i n L.E.S.A. B a n f f Conference Papers  "Corporate Arrangements  Shareholders" 92 L.Q.R. 13  Through (1977)  - Protecting  (1977)  . "Comment" 47 Can. Bar Rev. 648  (1969)  Minority  - 229 -  Rice V., "Class Rights and T h e i r V a r i a t i o n i n Company Law", J . Bus.  L.  39 (1960)  Rider B. " P e r c i v a l v. Wright - per Incuriam", 40 Mod. L. Rev. 471  (1977)  Roberts W.M.,  "Rule 10b-5 and Corporate Mismanagement:  Problems  w i t h Shareholders' Oppression" 8 Memphis S t a t e U.L. Rev. 501 (1979)  S a l t e r , C. "Going P r i v a t e : I s s u e r B i d s - I n s i d e r B i d s - SqueezeOuts". Memorandum t o the O n t a r i o S e c u r i t i e s Commission, May 17, 1978.  Scace, A.R. "Going P r i v a t e and Deconglomeration" Report o f The Twenty-Ninth  Tax Conference  (Toronto: Canadian Tax Foundation,  1977) 569  S c o t t J . "Going P r i v a t e : An Examination o f Going P r i v a t e T r a n s a c t i o n s Using the Business Purpose Standard" 32 S.W.L.J. 64 (1978)  Slocum, D. "Westfair Foods Decides Not t o Proceed w i t h P r o p o s a l s " Globe and M a i l J u l y 17, 1980 p. B4.  -  230 -  S l u t s k y , B "Comment on Goldex Mines v. R e v i l l " , 331  39 Mod. L. Rev.  (1976)  Sommer J r . A.: "Going P r i v a t e : A Lesson i n Corporate R e s p o n s i b i l i t y " Law A d v i s o r y C o u n c i l L e c t u r e : Notre Dame Law School  (November 4, 1974).  . "Further Thoughts on Going P r i v a t e " i n Second S e c u r i t i e s Seminar  Annual  (Detroit: I n s t i t u t e f o r Continuing Legal  Education, 1975)  Stumpf, B. "SEC Proposed  'Going P r i v a t e ' Rule" 4 D e l . J . Corp.  L. 184 (1978)  Taves. F. "Corporate Buy-Backs"  i n 1979 P r a i r i e P r o v i n c e s Tax  Conference (Toronto: Canadian Tax Foundation, 1979) 93  T r e b i l c o c k , M. "The E f f e c t o f A l t e r a t i o n s To A r t i c l e s o f A s s o c i a t i o n " , 32 Conv. 95 (1967)  " V a l u a t i o n o f D i s s e n t e r s " Stock Under A p p r a i s a l S t a t u t e s " 79 Harv. L. Rev. 1453 (1966)  - 231  V i e t s , D.  " I n t e r a c t i o n of the New  -  O n t a r i o S e c u r i t i e s Act with  the Canada Business Corporations A c t " Volume 3 Can.  Sec. L.  Rep.  Toronto: CCH  Canadian L t d . a t 12699-3  V i v i a n , P.E.  "Monetary R e s t r a i n t s on the E x e r c i s e of Rights of  D i s s e n t i n g Shareholders" 9 U.W.O.L. Rev.  Vorenberg,  (1970)  J . " E x c l u s i v e n e s s of the D i s s e n t i n g Shareholders'  A p p r a i s a l R i g h t s " 77 Harv. L. Rev.  Ward, D.  101  1189  (1964)  "Arm's Length A c q u i s i t i o n s R e l a t i n g t o Shares  P u b l i c C o r p o r a t i o n " i n 1978  Corporate Management Tax  (Toronto: Canadian Tax Foundation,  1978)  in a Conference  108  Yontef, M.  "Insider Trading" i n Proposals f o r a S e c u r i t i e s  Market Law  f o r Canada. Volume 3. Ottawa: Department of Consumer  & Corporate A f f a i r s ,  1979  -  232 -  APPENDIX  THE EXISTING FRAMEWORK FOR REGULATING MINORITY SQUEEZEOUTS IN CANADA  The  f o l l o w i n g two c h a r t s i l l u s t r a t e the degree o f  f l e x i b i l i t y a v a i l a b l e t o management and the amount o f p r o t e c t i o n a v a i l a b l e t o m i n o r i t y shareholders under the laws o f each i n c o r p o r a t i n g j u r i s d i c t i o n i n Canada.  It  i s suggested  s u c c e s s f u l i n persuading  t h a t m i n o r i t y shareholders should be a c o u r t t o order an i n j u n c t i o n , i n  s p i t e o f f u l l p r o c e d u r a l compliance by an a c q u i r o r o f shares, when t h e r e a r e l i t t l e o r no means a v a i l a b l e t o them t o c h a l l e n g e the payment o f an amount l e s s than the i n t r i n s i c value o f t h e i r shares.  -  CHART 1:  233 -  THE JURISDICTIONS WHERE NO INJUNCTION SHOULD BE GRANTED ONT. w i t h D r a f t OBCA  MAN.  Dissent f o r P u b l i c CompanyShareholders  Yes  Yes  Compulsory Acquisition  Yes  Oppression  Yes  ONT. WITH OBCA  SASK.  Yes Yes  Yes  Yes  C o u r t Approved Amalgamation Court Approved Arrangement  ALTA.  Yes Yes  Yes  Yes  Yes  C o u r t Approved Reduction o f Capital  Yes  B.C.  CBCA  Yes  Yes  Yes  Yes  Yes  Yes  Yes Yes  Yes  Yes  Yes  Securities Legislation  Yes  Yes  Yes  Yes  Yes  Yes  *  Class Voting  Yes  Yes  Yes  Yes  Yes  Yes  Yes  Stat. Derivative Action  Yes  Yes  Yes  Yes  Yes  Yes  Directors Duties  Yes  Yes  Yes  Yes  Yes  Yes  Yes  Yes  Yes  Yes  Yes  Yes  Yes  Yes  Yes  Yes  Yes  Ma j o r i t y M i n o r i t y Test Corp. Repurchase o f Shares Express Cashout Amalgamation  Limited  Regulates takeover b i d s  and i n s i d e r b i d s .  Yes  234 -  -  CHART 2:  THE JURISDICTIONS WHERE AN INJUNCTION SHOULD BE GRANTED' NFLD.  N.B.  N.S.  P.E.I.  QUE.  Dissent for Public Company Shareholders Compulsory Acquisition  Yes  ____  Yes  Oppression  •  C o u r t Approved Amalgamation  **  C o u r t Approved Arrangement  Yes  C o u r t Approved Reduction o f C a p i t a l  Yes  Securities Legislation  Yes*  ' Yes*  Yes*  Yes*  Yes  Yes  Yes  Yes  ** Yes  Yes  Yes*  .  _ _ Yes  Class Voting Stat. Derivative Action Directors Majority Minority  Duties  _____ Test  Corporate Repurchase o f Shares Express Cashout Amalgamation *  No r e g u l a t i o n o f takeover or i s s u e r  **  Optional  ***  bids.  The Re Sinco d e c i s i o n , supra, t e x t a t 44 s t a t e s t h a t the c o u r t may o r d e r the buyout o f s h a r e s on an arrangement. I f that d e c i s i o n i s c o r r e c t , then i t i s o n l y an amalgamation, c o n s o l i d a t i o n o r r e c l a s s i f i c a t i o n squeezeout by s p e c i a l r e s o l u t i o n t h a t s h a r e h o l d e r s r e q u i r e p r o t e c t i o n from the e x p r o p r i a t i o n o f t h e i r shares a t l e s s than i n t r i n s i c v a l u e .  

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