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Some aspects of the legal control of takeover bids : a comparative study of English and British Columbia… Bennett, James Harry 1970

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SOME ASPECTS OF THE LEGAL CONTROL OF TAKE-OVER BIDS: A COMPARATIVE STUDY OF ENGLISH AND BRITISH COLUMBIA LAW by James H a r r y B e n n e t t L L . B . , Queen ' s U n i v e r s i t y , B e l f a s t A T h e s i s S u b m i t t e d i n P a r t i a l F u l f i l m e n t o f t h e Requ i r ement s f o r t he Degree o f M a s t e r o f Laws i n t h e Depar tment o f LAW We a c c e p t t h i s t h e s i s as c o n f o r m i n g t o t h e r e q u i r e d s t a n d a r d : The U n i v e r s i t y o f B r i t i s h C o l u m b i a , May, 1970 In presenting th i s thes i s in pa r t i a l f u l f i lment of the requirements fo r an advanced degree at the Un ivers i ty of B r i t i s h Columbia, I agree that the L ibrary sha l l make i t f r ee l y ava i l ab le for reference and study. I fur ther agree tha permission for extensive copying of th i s thes i s fo r scho lar ly purposes may be granted by the Head of my Department or by his representat ives. It is understood that copying or pub l i ca t ion of th i s thes i s fo r f i nanc ia l gain sha l l not be allowed without my wr i t ten permission. Depa rtment The Univers i ty of B r i t i s h Columbia Vancouver 8, Canada i . ABSTRACT The r e c e n t up su rge i n t he number o f t a k e - o v e r b i d s i n B r i t i s h C o l u m b i a and i n E n g l a n d has r e v e a l e d s e v e r a l p r ob l ems o f c o n t r o l . These r e s u l t e d i n l e g i s l a t i o n i n B r i t i s h Co l umb i a and a s y s t e m o f v o l u n t a r y s e l f - c o n t r o l by t h e i n s t i t u t i o n s i n v o l v e d i n E n g l a n d . The o b j e c t o f t h i s p a p e r i s t o examine t he adequacy o f c o n t r o l i n some i m p o r t a n t a s p e c t s o f t a k e - o v e r b i d s . As a b a c k g r o u n d t o d i s c u s s i o n , two b i d s w h i c h d i s t u r b e d t he f i n a n c i a l and l e g a l c ommun i t i e s i n E n g l a n d a r e d e s c r i b e d . Some o f t h e p rob l ems w h i c h were i l l u s t r a t e d d u r i n g t he c o u r s e o f t h e s e b i d s a r e i s o l a t e d and exam ined . These i n c l u d e t h e d i r e c t o r s ' powers when r e a c t i n g t o a t a k e - o v e r o f f e r , d i s -c l o s u r e o f i n f o r m a t i o n , e q u a l i t y o f t r e a t m e n t f o r s h a r e h o l d e r s , t h e r o l e o f f i n a n c i a l a d v i s e r s , and t he p o s i t i o n o f m i n o r i t y s h a r e h o l d e r s a f t e r the com-p l e t i o n o f a b i d . I t w i l l be seen t h a t two d i f f e r e n t methods o f c o n t r o l o p e r a t e i n B r i t i s h C o l u m b i a and i n E n g l a n d . In B r i t i s h C o l u m b i a , t h e S e c u r i t i e s A c t 1967 c o n -t a i n s p r o v i s i o n s r e l e v a n t t o t a k e - o v e r s , and i s a d m i n i s t e r e d by t he S e c u r i t i e s Commi s s i on . In E n g l a n d t he s i t u a t i o n i s more c omp l ex . L e g i s l a t i v e p r o v i s i o n s a r e c o n t a i n e d i n t he L i c e n s e d D e a l e r s ( Conduc t o f B u s i n e s s ) R u l e s , b u t more s i g n i f i c a n t c o n t r o l i s e x e r c i s e d by t h e T a k e - o v e r Pane l who a d m i n i s t e r t h e C i t y Code on T a k e - o v e r s and M e r g e r s , 1969, a v o l u n t a r y s y s t e m o f s e l f - c o n t r o l . In b o t h j u r i s d i c t i o n s t h e common l aw p l a y s an i m p o r t a n t r o l e . The s t r e n g t h s and weaknes se s o f t he two sy s tems and t h e i r e f f e c t on the p rob lems unde r d i s c u s s i o n a r e n o t e d . The S e c u r i t i e s Commis s ion has w i d e i n v e s -t i g a t o r y and l e g a l p o w e r s , b u t t h e r u l e s a r e somewhat i n f l e x i b l e and as the Commis s ion i s u n d e r s t a f f e d i t c anno t g i v e t he a t t e n t i o n n e c e s s a r y t o p rob lems w h i c h may a r i s e . The T a k e - o v e r Code c o n t a i n s e x c e l l e n t r u l e s , w h i c h may be e a s i l y a d j u s t e d t o t a k e a c c o u n t o f changes i n c ommerc i a l c i r c u m s t a n c e s , b u t t h e Pane l s u f f e r s f r om a l a c k o f l e g a l p owe r s . I t i s d i s c o v e r e d t h a t 1 i • s h a r e h o l d e r s i n each j u r i s d i c t i o n have common p rob lems o f a c c e s s t o i n f o r m a -t i o n and e n f o r c e m e n t o f t he r u l e s . In t h o s e a r e a s i n w h i c h t h e common law i s t h e c o n t r o l l i n g i n f l u e n c e , t h e r e i s u n c e r t a i n t y as t o t h e r i g h t s o f s h a r e -h o l d e r s and t h e e x t e n t t o w h i c h t h e y may be a f f e c t e d by a r e s o l u t i o n o f t he company i n g e n e r a l m e e t i n g . I t i s s u g g e s t e d t h a t t h e p r o b l e m s w h i c h a r e r e v e a l e d by an e x a m i n a t i o n o f r e c e n t b i d s can b e s t be app roached t h r o u g h a p r o c e d u r e w h i c h combines t h e b e s t and e l i m i n a t e s t he w o r s t f a c e t s o f t he p r e s e n t s y s tems i n B r i t i s h C o l u m b i a and i n E n g l a n d . I t i s t h e r e f o r e recommended t h a t a T a k e - o v e r Commis s ion be e s t a b l i s h e d i n each j u r i s d i c t i o n under t h e S e c u r i t i e s A c t and t h e Companies A c t r e s p e c t i v e l y , h a v i n g s u p e r v i s o r y , i n v e s t i g a t o r y and l e g a l power s . F l e x i -b i l i t y i s m a i n t a i n e d by e n a b l i n g a c ommi t t ee o f e x p e r t s t o draw up and c o n t i n u -a l l y r e v i s e t he r u l e s p e r t a i n i n g t o t a k e - o v e r s . TABLE OF CONTENTS Page P a r t 1 THE TAKE-OVER BID I n t r o d u c t i o n 1 Two Examples o f t h e T a k e - o v e r B i d A. News o f t he W o r l d L t d . - P e r g a m o n P r e s s L t d . B i d 2 B. Pergamon P r e s s L t d . - L e a s c o Wor ld T rade Company (U .K . ) L t d . B i d 5 P a r t 2 PROBLEMS WHICH MAY ARISE IN A TAKE-OVER SITUATION S e c t i o n A D i r e c t o r s ' D e f e n s i v e T e c h n i q u e s 9 S e c t i o n B D i s c l o s u r e 11 S e c t i o n C A c c o u n t i n g 12 S e c t i o n D E q u a l i t y o f T r e a t m e n t o f S h a r e h o l d e r s 12 S e c t i o n E F i n a n c i a l A d v i s e r s 13 S e c t i o n F A f t e r t he B i d — M i n o r i t y S h a r e h o l d e r s 15 P a r t 3 CONTROL OF TAKE-OVERS I n t r o d u c t i o n 16 S e c t i o n A D i r e c t o r s ' Powers 18 S e c t i o n B D i s c l o s u r e 30 S e c t i o n C E q u a l i t y f o r S h a r e h o l d e r s 42 S e c t i o n D F i n a n c i a l A d v i s e r s 51 S e c t i o n E A f t e r t h e B i d — T h e Rema in i ng S h a r e h o l d e r s 56 TABLE OF CONTENTS ( c o n t i n u e d ) Page P a r t 4 SOME RECOMMENDATIONS I n t r o d u c t i o n 64 S e c t i o n A D i r e c t o r s ' Powers 65 S e c t i o n B D i s c l o s u r e 72 S e c t i o n C E q u a l i t y o f T r e a t m e n t o f S h a r e h o l d e r s 78 S e c t i o n D F i n a n c i a l A d v i s e r s 82 S e c t i o n E A f t e r t h e B i d — T h e Rema in i ng M i n o r i t y S h a r e h o l d e r s 85 FOOTNOTES 89 BIBLIOGRAPHY APPENDIX 1 P a r t 1 THE TAKE-OVER BID I n t r o d u c t i o n The t a k e - o v e r b i d i s a method by w h i c h a company, o r an i n d i v i d u a l , a t t e m p t s t o a c q u i r e e i t h e r a l l o r t h e m a j o r i t y o f t h e s h a r e s o r t he a s s e t s o f a n o t h e r company. I t has been d e s c r i b e d a s : " a t e c h n i q u e f o r e f f e c t i n g e i t h e r a t a k e - o v e r o r an a m a l g a m a t i o n : i n t h e ca se o f a t a k e - o v e r , t h e b i d i s f r e q u e n t l y a g a i n s t t h e w i s h e s o f t he management o f t h e o f f e r e e company; i n t h e ca se o f an a m a l g a -m a t i o n , t he b i d i s g e n e r a l l y by c o n s e n t o f t h e management o f b o t h c o m p a n i e s . I t may be d e f i n e d as an o f f e r t o a c q u i r e s h a r e s o f a company, whose s h a r e s a r e n o t c l o s e l y h e l d , a d d r e s s e d t o t he g e n e r a l body o f s h a r e h o l d e r s , w i t h a v i e w t o o b t a i n i n g a t l e a s t s u f f i c i e n t s h a r e s t o g i v e t h e o f f e r o r l e g a l c o n t r o l o f t he company; t h e p h r a s e w i l l , howeve r , somet imes be used as mean ing o r i n c l u d i n g an o f f e r w h i c h f a l l s s h o r t o f s a t i s f y i n g t h i s d e f i n i t i o n i n some o r o t h e r p a r t i c u l a r , i n w h i c h e v e n t t he c o n t e x t w i l l i n d i c a t e t h e l a x e r usage. "1 In r e c e n t y e a r s t h e use o f t h e t a k e - o v e r b i d as a t e c h n i q u e o f b u s i n e s s 2 r e o r g a n i z a t i o n has been i n c r e a s i n g r a p i d l y i n bo th Eng l and and B r i t i s h C o l u m b i a . In E n g l and t h i s i s l a r g e l y due t o t he e f f e c t s o f t he economic s i t u a t i o n w h i c h t e n d e d t o d e p r e s s t h e ma r ke t v a l u e o f company s h a r e s t o an u n n a t u r a l l y low l e v e l , t hu s p r o v i d i n g a t t r a c t i v e t a k e - o v e r p r o p o s i t i o n s . In B r i t i s h C o l u m b i a , t h e i n f l u x o f A m e r i c a n i n t e r e s t s has been a m a j o r f a c t o r i n t h e i n c r e a s e i n t a k e -o v e r b i d s . The r e a s on s f o r a t a k e - o v e r b i d u s u a l l y a r e t h a t t h e b i d d e r t h i n k s he can make more p r o f i t a b l e use o f t he o f f e r e e company ' s a s s e t s , o r o f i t s management and work f o r c e . O t h e r r e a s on s i n c l u d e t h e d e s i r e t o p u r c h a s e a c o m p e t i t o r ' s b u s i n e s s ; t o i n c r e a s e t h e s i z e and t h e r e b y r e d u c e t h e o p e r a t i n g c o s t s p e r u n i t o f t he combined c o m p a n i e s ; t o a c q u i r e a company v i t a l t o t h e b i d d e r ' s o p e r a t i o n s , e . g . a s u p p l y company; t o d i v e r s i f y i n t o a n o t h e r f i e l d o f o p e r a t i o n . In s t a t i n g t h e need f o r a government agency t o encou rage t a k e - o v e r b i d s , •A 3 i t was s a i d : 2 " change s i n t h e s t r u c t u r e and o r g a n i s a t i o n o f i n d u s t r y a r e r e q u i r e d t o e n a b l e B r i t i s h i n d u s t r y t o meet more e f f e c t i v e l y t h e g r o w i n g com-p e t i t i o n i t w i l l f a c e i n w o r l d m a r k e t s . The need f o r more c o n c e n -t r a t i o n and r a t i o n a l i s a t i o n t o p romote t he g r e a t e r e f f i c i e n c y and i n t e r n a t i o n a l c o m p e t i t i v e n e s s o f B r i t i s h i n d u s t r y i s now w i d e l y r e c o g n i s e d . " 4 A l t h o u g h t h e r e a r e sound economic r e a s o n s f o r t a k e - o v e r b i d s , i t w i l l be seen t h a t t h e y c r e a t e many l e g a l p r o b l e m s . As a backg round t o some o f t h e s e p r o b l e m s , two r e c e n t b i d s w i l l be d e s c r i b e d . Two Examples o f t h e T a k e - o v e r B i d 5 A. News o f t h e Wo r l d L t d . - P e r g a m o n P r e s s L t d . B i d c 1968 - O c t o b e r 17 - Pergamon P r e s s L t d . announced an o f f e r t o a c q u i r e t he s h a r e s o f t h e News o f t h e Wo r l d L t d . 7 The terms were on a s h a r e - f o r - s h a r e exchange b a s i s w i t h a c a s h a l t e r n a t i v e . The v a l u e o f t h e o f f e r was e s t i m a t e d o t o be 50s . p e r v o t i n g s h a r e , 37s . p e r ' A ' c l a s s n o n - v o t i n g s h a r e . Maxwe l l a l r e a d y had a c o n t r a c t t o buy t w e n t y - f i v e p e r c e n t o f t h e e q u i t y f r om an i n d i -v i d u a l , s u b j e c t t o no h i g h e r o f f e r b e i n g r e c e i v e d . O c t o b e r 24 - Hambro ' s L t d . , merchan t banke r s and a d v i s e r s t o News o f t he W o r l d , announced t h a t d i s c u s s i o n s a r e t a k i n g p l a c e between t h e News o f t h e W o r l d and News L t d . , an A u s t r a l i a n company. Maxwe l l i n c r e a s e d h i s b i d by $. 8 m i l l i o n . S i n c e t h e b i d was made t h e r e had been c o n s i d e r a b l e s t o c k m a r k e t a c t i v i t y i n News o f t h e Wor l d s h a r e s . Hambro ' s L t d . bought 346,000 s h a r e s i n one day w h i l e H i l l , Samuel L t d . , Pe rgamon ' s f i n a n c i a l a d v i s e r s , bought 5 0 , 000 . O c t o b e r 25 - The S t o c k Exchange su spended d e a l i n g s i n News o f t h e W o r l d s h a r e s . I t was r e p o r t e d t h a t News L t d . and t he C a r r f a m i l y c o n t r o l f i f t y - o n e p e r c e n t o f t h e v o t i n g s h a r e s . g The T a k e - o v e r P a n e l had been k e p t i n t o u c h w i t h d e v e l o p m e n t s , b u t had n o t made any o b j e c t i o n s . Mu rdoch , c h a i r m a n o f News L t d . , w i t h whom News o f t h e W o r l d L t d . had been n e g o t i a t i n g , announced t h a t he d i d no t i n t e n d t o o f f e r t o buy t he n o n - v o t i n g s h a r e s i n News o f t h e Wo r l d L t d . 3 November 2 - Due t o c o n f u s i o n a r i s i n g f r om the s u s p e n s i o n o f d e a l i n g i n News o f t h e Wo r l d s h a r e s , i t was d e c i d e d t h a t t h e r e s h o u l d be an e x t r a o r d i n a r y g e n e r a l m e e t i n g o f News o f t he Wo r l d L t d . s h a r e h o l d e r s t o c l a r i f y t h e p o s i t i o n . The m e e t i n g was s c h e d u l e d f o r J a n u a r y 2 , 1969. The T a k e - o v e r Pane l d e c i d e d t h a t n e i t h e r Hambro ' s LtdJ^ 1 n o r Morgan G r e n f e l l L t d . ^ may v o t e any News o f t h e Wor l d s h a r e s t h e y h o l d i n t h e g e n e r a l m e e t i n g . These s h a r e s were s a i d t o a c c o u n t f o r f i f t e e n p e r c e n t o f t he i s s u e d s h a r e h o l d i n g s . 12 November 15 - H i l l , Samuel L t d . c ommi s s i oned a G a l l u p P o l l t o a s s e s s p u b l i c o p i n i o n on t a k e - o v e r b i d s , u s i n g t he News o f t h e Wor l d b i d f a c t s i t u a -t i o n as a b a s i s f o r q u e s t i o n s . T h i s p o l l was i n t e n d e d t o s u p p o r t H i l l S a m u e l ' s a d v i c e t o Pergamon. November 29 - Pergamon made m i n o r r e v i s i o n s o f i t s b i d i n an a t t e m p t t o compel News o f t h e Wo r l d t o p r oduce d e t a i l s o f i t s n e g o t i a t i o n s w i t h News L t d . December 3 - Pergamon made a f o r m a l o f f e r t o t h e News o f t he W o r l d s h a r e -h o l d e r s . December 4 - The News o f t h e Wor l d Board o f d i r e c t o r s recommended r e j e c -t i o n o f t h e Pergamon o f f e r and wou l d g i v e r e a s on s l a t e r . December 10 - News o f t h e W o r l d announced a f o r e c a s t o f a s i x t y - t w o p e r c e n t p r o f i t s jump f o r the f o l l o w i n g y e a r . The f o r m a l r e j e c t i o n documents were p u b l i s h e d . A ma jo r r e a s o n f o r r e c o m -mending r e j e c t i o n was c i t e d as the " g r e a t a p p r e h e n s i o n among News o f t h e Wo r l d t r a d e s u n i o n i s t s t o a Pergamon t a k e - o v e r . " S i r W i l l i a m C a r r , News o f t he Wo r l d c h a i r m a n , " w o u l d v i e w w i t h g r a v e c o n c e r n t h e f u t u r e o f e x i s t i n g c l o s e u n i o n -management r e l a t i o n s h i p s under Pergamon c o n t r o l . " December 12 - I t was announced t h a t News o f t h e Wor l d and News L t d . had s i g n e d a p a c t , t he terms o f w h i c h w i l l be d i s c l o s e d a t a l a t e r d a t e . 4 December 17 - The terms o f t h e p a c t gave News L t d . f o r t y p e r c e n t o f t h e News o f t h e Wo r l d s h a r e s i n exchange f o r a v a r i e t y o f m a g a z i n e , newspaper and p u b l i s h i n g i n t e r e s t s i n A u s t r a l i a , t h e n u n s p e c i f i e d . News L t d . were t o buy 13 t h e News o f t h e W o r l d s h a r e s h e l d by Hambro ' s L t d . , i . e . add 403 ,000 t o t h e i r own 337,000 s h a r e s . December 19 - The S t o c k Exchange l i f t e d t he s u s p e n s i o n on d e a l i n g i n News o f t h e Wo r l d s h a r e s . A w r i t was t a k e n o u t by some a c c e p t o r s o f t he Pergamon b i d a g a i n s t Hambro ' s L t d . , News o f t h e Wor l d L t d . , News o f t h e W o r l d ' s Boa rd o f d i r e c t o r s , and News L t d . , s e e k i n g a s e r i e s o f i n j u n c t i o n s ( i n c l u d i n g one r e s t r a i n i n g t h e i m p l e m e n t a t i o n o f t h e ag reement between News L t d . and News o f t he W o r l d ) . Damages were a l s o s o u g h t a g a i n s t t h e d i r e c t o r s o f News o f t he Wor l d L t d . f o r b r e a c h o f f i d u c i a r y d u t y , and a g a i n s t Hambro ' s L t d . f o r b r e a c h o f f i d u c i a r y o b l i g a t i o n s . December 31 - M a x w e l l , c h a i r m a n o f Pergamon, H i l l , Samuel L t d . and R o b e r t 14 F l e m i n g & Co. conceded t h a t t h e y had bought o n e - q u a r t e r m i l l i o n Pergamon s h a r e s , b u t s t a t e t h a t t h e y were bought f o r i n v e s t m e n t pu rpo se s r a t h e r t h a n t o s u p p o r t t h e s h a r e p r i c e . 15 B e n e f i c i a r i e s o f a News o f t he W o r l d p e n s i o n f u n d b r o u g h t an a c t i o n t o p r e v e n t t h e f u n d ' s t r u s t e e s , o f whom S i r W i l l i a m C a r r i s o n e , f r o m v o t i n g t h e f u n d ' s s h a r e s i n f a v o u r o f t h e ag reement w i t h News L t d . 1969 - J a n u a r y 1 - The H igh C o u r t a c t i o n t o f r e e z e t h e p e n s i o n f u n d v o t e s f a i l e d . The j u d g e s t a t e d t h a t t h e t h r e e members s u i n g had been used as pawns by b o t h s i d e s i n a t a k e - o v e r b a t t l e . The re was a ' l a c k o f s i n c e r i t y ' i n t he a c t i o n . J a n u a r y 2 - The e x t r a o r d i n a r y g e n e r a l m e e t i n g o f t he News o f t he W o r l d s h a r e h o l d e r s c o n f i r m e d t h e News L t d . v i c t o r y by p a s s i n g a r e s o l u t i o n a p p r o v i n g t h e ag reement between News L t d . and News o f t he W o r l d . 5 J a n u a r y 3 - News o f t h e W o r l d s h a r e s f e l l 1 m i l l i o n on t he S t o c k Exchange t o 37s . p e r sha re . , M a x w e l l ' s 1 7 o f f e r was e s t i m a t e d as b e i n g w o r t h 50 s . p e r s h a r e . 1970 - March - The v a l u e o f t h e News o f t he Wor l d s h a r e s on t h e S t o c k Exchange f e l l a t one t i m e t o 23s . b u t has s i n c e r a l l i e d and has r e m a i n e d a t a p p r o x i m a t e l y 28 s . p e r s h a r e . •j o B. Pergamon P r e s s L t d . - L e a s c o Wo r l d T rade Company ( U . K . ) L i m i t e d T a k e - o v e r B i d 1969-70 1969 - June 18 - L e a s c o announced an o f f e r w o r t h 37 s . p e r s h a r e f o r t h e s h a r e s o f Pergamon. June 19 - M a x w e l l , c h a r i m a n o f Pergamon, announced t h a t he i n t e n d s t o a c c e p t t h e o f f e r . E a r l y J u l y - I t was l a t e r d i s c l o s e d t h a t d u r i n g e a r l y J u l y R o b e r t F l e m i n g & C o . , me r chan t banke r s and a d v i s e r s t o Pergamon, s o l d t o L e a s c o 2.1 m i l l i o n s o f Pergamon s h a r e s , owned m a i n l y by i n v e s t m e n t t r u s t s r un by F l e m i n g & Co. a t 36s . 3d . p e r s h a r e , a t o t a l o f Jl3.8 m i l l i o n . The o f f e r p r i c e was 37s . Augu s t 20 - The T a k e - o v e r P ane l announced t h a t between J u l y 20 and Augu s t 10 a t r u s t e e o f t h e Maxwe l l f a m i l y t r u s t s d i s p o s e d o f 600 ,000 Pergamon s h a r e s a t an a v e r a g e p r i c e o f 35s . 9d . p e r s h a r e . R o t h s c h i l d s & Son s , mer -c h a n t b a n k e r s and f i n a n c i a l a d v i s e r s t o L e a s c o , had bought 200,000 s h a r e s a t t he same t i m e . Augu s t 21 - I t was announced t h a t Lea s co had w i t h d r a w n t h e i r b i d f o r Pergamon. The r ea son s g i v e n were (1 ) t he p o s i t i o n o f I n t e r n a t i o n a l L e a r n i n g 19 Systems C o r p o r a t i o n (a c r u c i a l s u b s i d i a r y o f Pe r g amon ) , (2 ) t he t r a d i n g r e l a t i o n s h i p w i t h Maxwe l l S c i e n t i f i c I n t e r n a t i o n a l I n c o r p o r a t e d , a p r i v a t e company c o n t r o l l e d by Maxwe l l f a m i l y i n t e r e s t s , ( 3 ) t h e c o m p o s i t i o n o f t h e 20 p u b l i s h e d f o r e c a s t e a r n i n g s f o r Pergamon i n 1969. Augu s t 22 - The T a k e - o v e r P ane l demanded e x p l a n a t i o n s and a s ked t h e S t o c k Exchange t o c o n s i d e r s u s p e n d i n g d e a l i n g i n Pergamon s h a r e s . D e a l i n g i n Pergamon s h a r e s was s u spended . Augu s t 24 - R o b e r t F l e m i n g & C o . , f i n a n c i a l a d v i s e r s t o Pergamon, w i t h -drew f r o m t h a t p o s i t i o n , f o r t he r ea son t h a t t h e y d i d n o t want t o be i n v o l v e d i n a p o s s i b l e l e g a l b a t t l e between Lea s co and Pergamon. The a c c o u n t s f o r I . L . S .C . f o r 1968 were no t y e t p r e p a r e d . Augu s t 25 - Maxwe l l s a i d he had r e d u c e d h i s g r o u p ' s p r o f i t f o r e c a s t f o r 1969 f r o m i 2 .5 m i l l i o n 2 0 t o j£ 2 , 0 5 0 , 0 0 0 , and d i s c l o s e d t h a t I . L . S .C . made a t r a d i n g p r o f i t o f o n l y £ 40 ,000 a f t e r a d j u s t m e n t s o f JE 1 m i l l i o n . Maxwe l l r e q u e s t e d t h e T r e a s u r y and Bank o f E n g l a n d t o e n s u r e t h a t n e i t h e r L ea s co n o r any o f i t s a s s o c i a t e s buy any more Pergamon s h a r e s , o r a t t e m p t t o g a i n c o n t r o l o f Pergamon a t a p r i c e l o w e r t h a n t he o r i g i n a l 37s . p e r s h a r e b i d Augu s t 27 - Lea s co made a s econd o f f e r a f t e r t a l k s w i t h t h e T a k e - o v e r P ane l and Pergamon. The terms o f t he new o f f e r w e r e : f o r t he p u b l i c l y - h e l d s h a r e s , a c a s h sum e q u i v a l e n t t o t w e n t y - f i v e t i m e s t he annua l a v e r a g e o f t h e a t t r i b u t a b l e e a r n i n g s o f Pergamon f o r 1968 and 1969 ; f o r t h e s h a r e s owned by Maxwe l l and t h e Maxwe l l f a m i l y i n t e r e s t s , a ca sh sum e q u i v a l e n t t o n i n e t e e n t i m e s t h e same a ve r a ge a t t r i b u t a b l e e a r n i n g s . Augu s t 28 - The T a k e - o v e r Pane l i s s u e d i t s m a j o r s t a t e m e n t on t h e a f f a i r . I t r e q u e s t e d t h e Boa rd o f T r a d e t o c o n s i d e r an i n v e s t i g a t i o n , p r o b a b l y unde r s e c t i o n 1 6 5 ( b ) ( 3 ) o f t h e Companies A c t , 1948. The Pane l a p p o i n t e d i n d e p e n d e n t a u d i t o r s t o c o n s i d e r Pe r gamon ' s a c c o u n t s . Comment was a l s o made on some o f t h e d i s c l o s u r e a s p e c t s o f t h e s i t u a t i o n . Maxwe l l s a i d he wou ld appea l t h e P a n e l ' s d e c i s i o n on a t e c h n i c a l p o i n t o f j u r i s d i c t i o n . September 9 - The Boa rd o f T rade o r d e r e d an i n q u i r y i n t o t he a f f a i r s o f Pergamon and I . L . S .C . under s e c t i o n 1 6 5 ( b ) ( 3 ) . 7 September 11 - The T a k e - o v e r P ane l a g a i n i n t e r v e n e d t o s ave t he second L e a s c o d e a l . A d i s p u t e had a r i s e n as t o who was t o be t h e c h i e f e x e c u t i v e o f t h e new o r g a n i z a t i o n . Maxwe l l c l a i m e d t h a t one o f t h e terms o f t h e a g r e e -ment was t h a t he s h o u l d h o l d t h e p o s i t i o n . The Pane l d e c i d e d t h a t , on an i n t e r p r e t a t i o n o f t h e a g r eemen t , L e a s c o were e n t i t l e d t o nom ina te t h e c h i e f e x e c u t i v e . Maxwe l l r e f u s e d t o a c c e p t the d e c i s i o n , and because L e a s c o c a n n o t g a i n c o n t r o l o f Pergamon w i t h o u t h i s s h a r e s , the second agreement b r oke down. September 16 - The Boa rd o f T r ade e n q u i r y , headed by a Q.C. and a c h a r -t e r e d a c c o u n t a n t , began . A g e n e r a l m e e t i n g o f t he Pergamon s h a r e h o l d e r s was t o be h e l d t o d e t e r m i n e a new Boa rd o f d i r e c t o r s f o r t he company. O c t o b e r 2 - R o t h s c h i l d s , a d v i s e r s t o L e a s c o , i s s u e d a s t a t e m e n t o u t l i n i n g a new o r g a n i z a t i o n f o r t h e company. One o f t h e terms was t h e remova l o f Maxwe l l f r o m t h e B o a r d , b u t h i s r e t e n t i o n as a c o n s u l t i n g a d v i s e r . The re were t o be an i n d e p e n d e n t c h a i r m a n , an i n d e p e n d e n t d i r e c t o r , t h r e e L e a s c o d i r e c t o r s and t h r e e Pergamon d i r e c t o r s . O c t o b e r 6 - Me rchan t banke r s r e p r e s e n t i n g t h o s e s h a r e h o l d e r s who own more t h a n f i f t e e n p e r c e n t o f Pergamon s h a r e s ( m a i n l y i n s t i t u t i o n a l i n v e s t o r s ) a d v i s e d a c c e p t a n c e o f t h e scheme p r o p o s e d by R o t h s c h i l d s . O c t o b e r 7 - B r a n d t s , m e r c h a n t b a n k e r s now a d v i s i n g Pergamon, i s s u e d a c i r -c u l a r a d v i s i n g s h a r e h o l d e r s t o v o t e a g a i n s t t he scheme. Maxwe l l gave 100 Pergamon s h a r e h o l d e r - e m p l o y e e s an o p p o r t u n i t y t o a t t e n d t he g e n e r a l m e e t i n g . 22 O c t o b e r 10 - R o t h s c h i l d s o b t a i n e d an i n j u n c t i o n i n t h e H i gh C o u r t p r e -v e n t i n g M a x w e l l , as c h a i r m a n o f t h e g e n e r a l m e e t i n g , f r o m a d j o u r n i n g t he m e e t -i n g a t an advan tageou s p o i n t . M a x w e l l ' s a d v i s e r s a p p e a l e d a g a i n s t t h e i n j u n c -t i o n , s u c c e s s f u l l y , d u r i n g t h e m e e t i n g . A t t he g e n e r a l m e e t i n g , Maxwe l l was v o t e d o f f t h e Boa rd and t he scheme p r o p o s e d by R o t h s c h i l d s was a c c e p t e d . L ea s co s u c c e e d e d a t t h i s m e e t i n g , b u t t h e y d i d n o t have enough s h a r e s i n t h e i r own hand t o be s u r e o f c o n t r o l o f t h e company. 8 November 5 - I t was r e p o r t e d t h a t t h e L e a s c o c o r p o r a t i o n i n t h e U n i t e d S t a t e s had b r o u g h t an a c t i o n a g a i n s t M a x w e l l . The o b j e c t i v e was t o remove Maxwe l l f r om the p o s i t i o n o f c h a i r m a n o f Pergamon P r e s s I n c o r p o r a t e d , t h e U n i t e d S t a t e s s u b s i d i a r y o f t h e B r i t i s h company. In E n g l a n d , Lea s co i n i t i -a t e d an a c t i o n a g a i n s t Maxwe l l and h i s l e g a l a d v i s e r i n c o n n e c t i o n w i t h t h e i r d e a l i n g s i n Pergamon s h a r e s . 1970 - J a n u a r y 20 - S t e i n b e r g , P r e s i d e n t o f L e a s c o , i s s u e d a s t a t e m e n t s a y i n g t h a t t h e a c c o u n t s p r e p a r e d f o r Pe rgamon ' s t r a d i n g i n 1969 w o u l d n o t be c o m p l e t e " f o r some month s . " He s a i d t h a t he was c o m m i t t e d t o mak ing a t h i r d o f f e r f o r t h e Pergamon s h a r e s , b u t i s n o t c o m m i t t e d t o any p r i c e . F e b r u a r y - t he Boa rd o f T r ade i n v e s t i g a t o r s began an a c t i o n i n t he H i gh C o u r t t o compel one o f t he Pergamon d i r e c t o r s t o c o - o p e r a t e and p r o v i d e r e q u e s t e d i n f o r m a t i o n . The Boa rd o f T r ade o r d e r e d an i n v e s t i g a t i o n under s e c -t i o n 165 (b ) i n t o t h e a f f a i r s o f R o b e r t Maxwe l l & C o . , a M a x w e l l - c o n t r o l l e d company w h i c h p l a y e d an i m p o r t a n t r o l e i n Pe r gamon ' s o p e r a t i o n s as an o u t l e t 23 f o r t h e i r p u b l i c a t i o n s . March 5 - The p r o f i t s f o r Pergamon i n 1968 were p u b l i s h e d . They a r e " n o t more t h a n £ 1 , 094 ,000 " as compared w i t h a f o r e c a s t f i g u r e o f . £ 2 , 104 , 000 . A p r i l - D e a l i n g i n Pergamon s h a r e s r ema in s su spended by t h e S t o c k Exchange . 9 P a r t 2 PROBLEMS WHICH MAY ARISE IN A TAKE-OVER SITUATION The o u t l i n e s , drawn a b o v e , o f two n o t o r i o u s E n g l i s h t a k e - o v e r b i d s i n d i -c a t e some o f t h e p rob l ems w h i c h f r e q u e n t l y o c c u r d u r i n g t he c o u r s e o f s uch b i d s , i n w h a t e v e r j u r i s d i c t i o n t h e y may t a k e p l a c e . The re were some s i m i l a -r i t i e s between t h e two o f f e r e e compan i e s . Each was a m e d i u m - s i z e p u b l i s h i n g company, c o n t r o l l e d by s h a r e h o l d i n g s b e l o n g i n g t o f a m i l y g r o u p i n g s ; i n t h e ca se o f Pergamon, R o b e r t Maxwe l l and t he Maxwe l l f a m i l y t r u s t s had t h e l a r g e s t 1 ? s h a r e h o l d i n g , w h i l e S i r W i l l i a m C a r r and h i s f a m i l y c o n t r o l l e d News o f t h e W o r l d L t d . A. D i r e c t o r s ' D e f e n s i v e T e c h n i q u e s The a c t i v i t i e s o f t h e s e p r i n c i p a l f i g u r e s i l l u m i n a t e a m a j o r a r e a o f c o n c e r n — t h e f a r - r a n g i n g s cope w h i c h d i r e c t o r s have i n r e s p o n d i n g t o a t a k e -o v e r b i d . In t h e t y p i c a l p u b l i c company, where management i s u s u a l l y s e p a -r a t e d f r o m o w n e r s h i p , t he Boa rd o f d i r e c t o r s ( o r t h e e x p e r t managers who a d v i s e them) a r e t h e pe r s on s who have t he i n f o r m a t i o n n e c e s s a r y f o r an i n t e l l i g e n t r e s p o n s e t o an o f f e r . A l t h o u g h t h e o f f e r i s made t o t h e s h a r e h o l d e r s , n o t t o t h e company, t h e Boa rd i s a u s e f u l body w i t h w h i c h t he o f f e r o r can n e g o t i a t e , as i t i s more c o m p a c t , more e a s i l y r e a c h e d and b e t t e r i n f o r m e d as t o t he c u r -r e n t p o s i t i o n o f t h e company. In many i n s t a n c e s , t h e r e f o r e , t h e o f f e r o r w i l l have d i s c u s s i o n s w i t h the o f f e r e e Boa rd o f d i r e c t o r s , even though the o f f e r i s made t o t h e s h a r e h o l d e r s . The d i r e c t o r s have a n o t h e r i m p o r t a n t r o l e i n t he t a k e - o v e r s i t u a t i o n . F o r s i m i l a r r e a s o n s , n a m e l y , h a v i n g more d e t a i l e d i n f o r m a t i o n abou t t he com-pany t h a n t h e s h a r e h o l d e r s , the d i r e c t o r s w i l l o f t e n a d v i s e t h e s h a r e h o l d e r s w h e t h e r o r n o t t o r e f u s e t he o f f e r . T h i s recommendat ion i s v e r y i m p o r t a n t b e c a u s e , as w i l l be s e e n , a t a k e - o v e r may be c o m p l e t e d w i t h i n a c o m p a r a t i v e l y s h o r t t i m e , and t h e s h a r e h o l d e r s may n o t have the o p p o r t u n i t y t o o b t a i n a l l 10 t h e r e l e v a n t i n f o r m a t i o n , d i g e s t i t and come t o an i n d e p e n d e n t , f u l l y - i n f o r m e d 3 o p i n i o n . The d i r e c t o r s have a v e r y r e a l power i n such c i r c u m s t a n c e s . Some examples o f t h e r e a c t i o n s o f d i r e c t o r s t o t h e Pergamon and Lea s co o f f e r s s e r v e t o i l l u s t r a t e the range o f p o s s i b l e a c t i o n . F o r e x a m p l e , v e r y s h o r t l y a f t e r Pergamon made i t s b i d f o r t he News o f t h e Wo r l d s h a r e s , t h e d i r e c t o r s o f t h e l a t t e r company began n e g o t i a t i o n s w i t h a t h i r d company, News L t d . , whose c h a i r m a n i s R u p e r t Murdoch. S i r W i l l i a m C a r r and Murdoch r e a c h e d an ag reement unde r w h i c h Murdoch wou l d r e c e i v e f o r t y p e r c e n t o f t h e News o f 4 t h e Wo r l d s h a r e s , i n r e t u r n f o r t he t r a n s f e r o f some News L t d . m a g a z i n e s , newspaper and o t h e r a s s o r t e d p u b l i s h i n g i n t e r e s t s . When t h i s agreement was announced t h e s e i n t e r e s t s had n o t been s p e c i f i e d , and t h e i r v a l u e was t h e r e f o r e n o t known. N e v e r t h e l e s s , t h e d i r e c t o r s o f News o f t h e W o r l d t h o u g h t t h e m s e l v e s a b l e t o recommend t o t h e i r s h a r e h o l d e r s r e f u s a l o f M a x w e l l ' s o f f e r , and a c c e p -t a n c e o f t h e d e a l w i t h Murdoch. I t i s i n t e r e s t i n g t o r e c a l l t h a t t h e r e were a s u b s t a n t i a l number o f News o f t h e W o r l d n o n - v o t i n g s h a r e s , f o r w h i c h Maxwe l l had o f f e r e d 37s., b u t Murdoch made i t c l e a r t h a t he c o u l d n o t a f f o r d t o make an o f f e r f o r them. F u r t h e r , he s a i d t h a t he had " n o t t h o u g h t a b o u t " p l a n s f o r t h e company. 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 s h a r e h o l d e r s , may a c c e p t o r r e f u s e any o f f e r . But as d i r e c t o r s g i v i n g a d v i c e t o t he g e n e r a l body o f s h a r e h o l d e r s , s h o u l d t h e y n o t b e a r r e s p o n s i b i l i t y o f some n a t u r e f o r t h a t a d v i c e ? What t y p e o f f a c t o r s h o u l d be c o n s i d e r e d by t h e d i r e c t o r s , and what c r i t e r i a s h o u l d t h e y a p p l y i n d e c i d i n g what a d v i c e t o g i v e t o t h e s h a r e h o l d e r s ? The n o n - v o t i n g s h a r e h o l d e r s were i n a p a r t i c u l a r l y weak p o s i t i o n when t h e News o f t he Wo r l d Boa rd recommended a c c e p t a n c e o f News L t d . ' s o f f e r . Was any d u t y owed by t h e Boa rd t o t h e s e s h a r e h o l d e r s ? I t i s common now f o r m a j o r compan ies t o have an e m p l o y e e ' s p e n s i o n f u n d w h i c h f r e q u e n t l y owns a s u b s t a n t i a l number o f t h e company ' s s h a r e s . G e n e r a l l y 11 a t l e a s t one o f t h e company ' s d i r e c t o r s w i l l be a t r u s t e e o f t h e f u n d , and i n some r e c e n t d e f e n c e s t o b i d s , d i r e c t o r - t r u s t e e s have v o t e d t he p e n s i o n 5 f u n d ' s s h a r e s i n f a v o u r o f a r e s o l u t i o n p r o p o s e d by t h e d i r e c t o r s . T h i s r a i s e s t h e q u e s t i o n w h e t h e r , i n t he e x e r c i s e o f such d e f e n s i v e p o w e r s , t h e d i r e c t o r s owe some d u t y t o t h e i r e m p l o y e e s , and b e n e f i c i a r i e s o f t he p e n s i o n f u n d s . D u r i n g t h e News o f t h e W o r l d b a t t l e , b o t h Pergamon and News o f t h e Wo r l d made p r o f i t s f o r e c a s t s w h i c h must have i n f l u e n c e d s h a r e h o l d e r s ' a t t i t u d e s t o t h e o f f e r . Y e t b o t h f o r e c a s t s have p r o v e d u n d u l y o p t i m i s t i c . Pergamon f o r e -c a s t a£ 2 .5 m i l l i o n p r o f i t f o r 1969 d u r i n g t he b i d i n December, 1968. In A u g u s t , 1969 , d u r i n g t h e Pe rgamon-Leasco b i d , Maxwe l l c onceded t h a t t h i s f i g u r e must be r e v i s e d t o £ 2 , 0 5 0 , 0 0 0 . ^ Lea s co m a i n t a i n t h i s r e d u c e d f i g u r e i s a l s o t o o h i g h . 7 On t he same day as t h e y p u b l i s h e d t h e f o r m a l documents recommending r e j e c t i o n o f t he Pergamon b i d , the Boa rd o f News o f t h e Wor l d announced a f o r e -c a s t o f a s i x t y - t w o p e r c e n t p r o f i t s j u m p , w h i c h a l s o t u r n e d ou t t o be u n r e a l i s t i c , l o n g a f t e r t h e b i d had been w i t h d r a w n . Such f o r e c a s t s seem t o be a t r a d i t i o n a l d e f e n c e t o a t a k e - o v e r b i d , y e t i t i s u n c e r t a i n what l e g a l c o n t r o l o v e r them e x i s t s . B. D i s c l o s u r e D u r i n g t h e Pe rgamon-Lea sco a f f a i r , t h e p r ob l em w h i c h has g i v e n r i s e t o t h e g r e a t e s t c o n c e r n has been d i s c l o s u r e . "When t h e i n t e n t i o n t o make an o f f e r i s p u b l i c l y a n n o u n c e d , s h a r e p r i c e s a r e l i k e l y t o be s i g n i f i c a n t l y a f f e c t e d , and d i r e c t o r s o f compan ies s h o u l d r e a l i z e t h a t i n o r d e r t h a t s h a r e h o l d e r s may p r o t e c t t h e i r i n t e r e s t s i n t he i n t e r i m and be a b l e t o f o rm a r e a s o n a b l e a s s e s smen t o f t he v a l u e o f t h e i r h o l d -i n g s i n t h e e v e n t o f an o f f e r b e i n g made, o r on t he c o n t r a r y o f an e x p e c t e d o f f e r n o t m a t e r i a l i s i n g , t h e y s h o u l d be k e p t c o n t i n u o u s l y i n f o r m e d abou t t h e o a f f a i r s o f t h e i r company. " 12 The p o i n t s i n d i s p u t e c o n c e r n i n g d i s c l o s u r e i n t he Pe rgamon-Leasco b i d w e r e : (a ) t h e r e l a t i o n s h i p between t he I n t e r n a t i o n a l L e a r n i n g Systems C o r -p o r a t i o n L t d . ( j o i n t l y owned by Pergamon and t he B r i t i s h P u b l i s h i n g C o r p o r a -t i o n ) and Pergamon, and i n p a r t i c u l a r t he a c c o u n t s f o r I . L . S .C . f o r i t s f i r s t g e i g h t e e n months o f t r a d i n g , t o December 3 1 , 1968 , b u t n o t y e t p u b l i s h e d ; and (b) c e r t a i n t r a n s a c t i o n s between Pergamon and companies c o n t r o l l e d by Maxwe l l f a m i l y i n t e r e s t s , Maxwe l l S c i e n t i f i c I n t e r n a t i o n a l I n c o r p o r a t e d ^ 0 and R o b e r t Maxwe l l & Co. L t d . In e ach ca se t h e r e was some doub t w h e t h e r t h e r e had been adequa te d i s -c l o s u r e t o Pergamon s h a r e h o l d e r s o f t he complex d e a l i n g s between Pergamon and t h e v a r i o u s c o m p a n i e s , w h i c h a r e o u t l e t s f o r Pe r gamon ' s p u b l i c a t i o n s i n B r i t a i n and t h e U n i t e d S t a t e s . The re was a q u e s t i o n r a i s e d as t o t he l e g i t i m a c y o f some o f t h e a c c o u n t i n g t e c h n i q u e s used i n d e s c r i b i n g t he p o s i t i o n between t h e compan i e s . C. A c c o u n t i n g A n o t h e r a c c o u n t i n g p r o b l e m was d e m o n s t r a t e d d u r i n g t h e Pe rgamon-Lea sco a f f a i r . T h i s i s t h e u n d e n i a b l y w i d e v a r i e t y o f ' g e n e r a l l y a c c e p t e d a c c o u n t i n g p r i n c i p l e s ' w h i c h may be used i n d e s c r i b i n g a company ' s f i n a n c i a l a f f a i r s f o r a y e a r . Two h i g h l y - r e s p e c t e d a c c o u n t i n g f i r m s , one B r i t i s h , t h e o t h e r A m e r i c a n , s t u d i e d t h e a c c o u n t i n g f i g u r e s f o r Pe rgamon ' s t r a d i n g i n 1968 and 1969 , and c o u l d n o t a g r e e on the i n t e r p r e t a t i o n o f t h o s e f i g u r e s . The d i s a g r e e m e n t was so w i d e t h a t t h e Lea s co b i d was w i t h d r a w n . The q u e s t i o n n a t u r a l l y a r i s e s , i f two e x p e r t a c c o u n t i n g f i r m s c anno t a g r e e on t h e meaning o f a s e t o f f i g u r e s , how can t he o r d i n a r y s h a r e h o l d e r be e x p e c t e d t o base any d e c i s i o n on h i s ' u n d e r -s t a n d i n g ' o f t h e same f i g u r e s ? D. E q u a l i t y o f T r e a t m e n t o f S h a r e h o l d e r s D u r i n g t h e c o u r s e o f t h e o u t l i n e d b i d s , a s e cond o f f e r was made i n each c a s e . What was t he p o s i t i o n o f t h o s e s h a r e h o l d e r s who a c c e p t e d t he f i r s t o f f e r ? 13 Pe r gamon ' s s e cond o f f e r was £ 8 m i l l i o n h i g h e r t h a n t h e f i r s t , so anyone who had a c c e p t e d t h e f i r s t o f f e r , and c o m p l e t e d t he t r a n s a c t i o n ^ m i g h t have l o s t a c o n s i d e r a b l e sum. L e a s c o ' s s e cond o f f e r f o r Pergamon was l i k e l y t o have been w o r t h l e s s t h a n t h e f i r s t , d epend i n g on t he r e v i s e d a u d i t on Pe rgamon ' s 12 a c c o u n t s . In v i e w o f S t e i n b e r g s s t a t e m e n t s i t w o u l d a p p e a r t h a t t he t h i r d o f f e r , a l s o depend i n g on t h e new a u d i t , w i l l be c o n s i d e r a b l y l o w e r t h a n t he o r i g i n a l b i d . T h e r e f o r e anyone who had c o m p l e t e d a t r a n s a c t i o n ba sed on t h e terms o f t h e f i r s t o f f e r m i g h t have o b t a i n e d a b e t t e r b a r g a i n t h a n t h o s e who w i l l r e c e i v e t h e t h i r d , and one h o p e s , f i n a l b i d . I t s h o u l d be n o t e d t h a t t h e terms o f t he s econd o f f e r made a d i s t i n c t i o n between two c a t e g o r i e s o f s h a r e -13 h o l d e r s , t h o s e i n t h e Maxwe l l f a m i l y , and o t h e r s . T h e r e were s e v e r a l t r a n s a c t i o n s d u r i n g t h e c o u r s e o f t h e b i d wh i ch had t h e . e f f e c t o f g i v i n g c e r t a i n p e r s o n s , who m i gh t be s a i d t o have been i n an advan tageou s p o s i t i o n by v i r t u e o f t h e i r r e l a t i o n s h i p s w i t h Pergamon, a h i g h e r p r i c e than w i l l p r o b a b l y be p a i d t o t h o s e i n d e p e n d e n t s h a r e h o l d e r s who do e v e n -t u a l l y s e l l t o L e a s c o . The c o n c e p t o f e q u a l i t y o f t r e a t m e n t o f s h a r e h o l d e r s w o u l d seem t o have s u f f e r e d a heavy d e f e a t d u r i n g t he Pe rgamon -Lea sco a f f a i r , and i t may be doub ted w h e t h e r t he c o n c e p t c o n t i n u e s t o have any p r a c t i c a l mean i ng . E. F i n a n c i a l A d v i s e r s A r e m a r k a b l e f e a t u r e o f r e c e n t b i d s has been t he p a r t p l a y e d by t h e mer -c h a n t bank s . T h e i r u s u a l t i t l e , i n t he t a k e - o v e r c o n t e x t , i s ' f i n a n c i a l a d v i s e r s ' b u t i t i s e v i d e n t t h a t t h e i r r o l e has n o t been l i m i t e d t o g i v i n g mere f i n a n c i a l g u i d a n c e t o t h e p a r t i e s . P o s s i b l y t h e g r e a t e s t c o n c e r n e x p r e s s e d abou t t h e a c t i v i t i e s o f t h e mer -c h a n t banks c e n t e r e d on t h e l a r g e s h a r e h o l d i n g s , i n t he o f f e r e e c o m p a n i e s , by w h i c h t h e y a c q u i r e d i n t he c o u r s e o f t he n e g o t i a t i o n s i n c o n n e c t i o n w i t h t h e b i d s . I t may be r e c a l l e d t h a t d i r e c t o r s o f t he compan ies i n v o l v e d a l s o bought 14 h e a v i l y i n t h e m a r k e t . Bo th t h e banks and t he d i r e c t o r s s t a t e d t h a t t h e y were b u y i n g on t h e i r own b e h a l f , m a i n l y f o r i n v e s t m e n t p u r p o s e s , and n o t on b e h a l f o f t he o f f e r e e compan i e s . I t was n o t an a t t e m p t t o f o r c e t h e s h a r e p r i c e u p , o r , i n t h e ca se o f t h e a d v i s e r s t o t h e o f f e r o r company, t o a c q u i r e s h a r e s f o r i t a t a p r i c e l o w e r t han t h e o f f e r . Whateve r may have been t h e i n t e n t , t h e e f f e c t was t o i n c r e a s e s u b s t a n t i a l l y t h e s h a r e p r i c e , t h e r e b y d e c r e a s i n g t h e chances t h a t t he b i d w o u l d be s u c c e s s f u l , 14 p o s s i b l y t o t h e d e t r i m e n t o f t h e m i n o r i t y s h a r e h o l d e r s . A t t he t i m e o f t he 15 g e n e r a l m e e t i n g o f News o f t he Wor l d s h a r e h o l d e r s , Hambro ' s L t d . h e l d 11 .8 p e r 1 fi c e n t o f t he s h a r e s , Morgan G r e n f e l l h e l d 3.2 p e r c e n t — a t o t a l o f f i f t e e n p e r c e n t h e l d by a d v i s e r s t o compan ies opposed t o t h e Pergamon b i d . H i l l S a m u e l 1 7 had a l s o a c q u i r e d s u b s t a n t i a l s h a r e h o l d i n g s . I t may f a i r l y be a s k e d why mer -c h a n t banks s h o u l d p u r c h a s e , f o r i n v e s t m e n t p u r p o s e s , s h a r e s i n a company whose f u t u r e was so u n c e r t a i n . I t may a l s o be n o t e d t h a t Hambro ' s L t d . l a t e r s o l d t h e i r s h a r e s t o News L t d . , t he o p p o s i t i o n , t o g i v e t h e l a t t e r l e g a l c o n t r o l o f News o f the W o r l d . A r a t h e r d i f f e r e n t p r o b l e m c o n c e r n i n g the banks was a l s o d e m o n s t r a t e d . 18 R o b e r t F l e m i n g & Sons s o l d 2.1 m i l l i o n Pergamon s h a r e s t o L e a s c o , a t a p r i c e 1 g o f 36s . 3d . I t was a c c e p t e d t h a t none o f t h e s e d e a l i n g s were i n b r e a c h o f t h e l a w , y e t i t must be n o t e d t h a t t h e s e d e a l i n g s were made by p e r s o n s who were i n an advan tageous p o s i t i o n t o a s s e s s t h e p o s s i b i l i t i e s o f t h e s i t u a t i o n , b e i n g a c t i v e l y engaged i n t h e n e g o t i a t i o n s w i t h L e a s c o . In t h e ca se o f t he s a l e by F l e m i n g s (and a n o t h e r s a l e o f Pergamon s h a r e s by Maxwe l l f a m i l y t r u s t e e s ) t h e p r i c e s o b t a i n e d f o r t h o s e s h a r e s a r e l i k e l y t o be s u b s t a n t i a l l y h i g h e r t h a n t h e p r i c e s t o be r e c e i v e d by t he i n d e p e n d e n t s h a r e h o l d e r s who had n o t s o l d when t h e Lea s co b i d was w i t h d r a w n . A n o t h e r c r i t i c i s m made d u r i n g t he Pe rgamon-Leasco a f f a i r a r o s e o u t o f t h e r e s i g n a t i o n by R o b e r t F l e m i n g s & Sons f r o m t h e i r p o s i t i o n as f i n a n c i a l a d v i s e r s 15 t o Pergamon. T h i s o c c u r r e d on Augu s t 24 , a f t e r t he o r i g i n a l Lea sco o f f e r had been w i t h d r a w n , b u t d u r i n g t he n e g o t i a t i o n s w h i c h l e d up t o t he s e cond o f f e r . T h i s a c t i o n n o t o n l y l e f t t h e Boa rd o f d i r e c t o r s w i t h o u t e x p e r t f i n a n c i a l a d v i c e , b u t , pe rhaps o f more i m p o r t a n c e , i t d e p r i v e d t he Pergamon s h a r e h o l d e r s o f e x p e r t g u i d a n c e a t a c r u c i a l s t a g e . The r e a s o n s t a t e d , t h a t t he bank d i d n o t w i s h t o become i n v o l v e d i n a p o s s i b l e l e g a l b a t t l e between Pergamon and L e a s c o , i s n o t w o r t h y o f a r e s p e c t e d bank. F. A f t e r t h e B i d — T h e M i n o r i t y S h a r e h o l d e r s A f t e r a l l t h e m a n o e u v r i n g , b u y i n g and s e l l i n g o f s h a r e s , and agreements made and b r o k e n , i t i s v e r y p o s s i b l e t h a t a few p e o p l e may be l e f t w i t h m i n o r s h a r e h o l d i n g s w h i c h t h e y no l o n g e r w i s h t o r e t a i n , e i t h e r because t h e y do n o t l i k e t h e new c o n t r o l l e r , o r s i m p l y because t h e y do n o t r e l i s h b e i n g i s o l a t e d i n a v e r y weak v o t i n g p o s i t i o n . I t may be d i f f i c u l t , i n a p o s t - b i d s i t u a t i o n , f o r s uch s h a r e h o l d e r s t o s e l l a t a r e a s o n a b l e p r i c e . Is t h e r e , o r s h o u l d t h e r e be some f o rm o f p r o t e c t i o n f o r s u ch p e r s o n s ? The c o n t r a r y s i t u a t i o n may a l s o a r i s e , as when t h e new c o n t r o l l e r w i s h e s t o o b t a i n 100 p e r c e n t o f t h e s h a r e s by c o m p e l l i n g m i n o r i t y s h a r e h o l d e r s t o s e l l o u t t o h im . How f a r i s t h i s d e s i r a b l e , and under what c o n d i t i o n s s h o u l d t he c o n t r o l l e r be e n a b l e d t o c o m p u l s o r i l y a c q u i r e a m i n o r i t y s h a r e h o l d i n g ? I t may be r e c a l l e d t h a t , a t t h e g e n e r a l m e e t i n g o f Pergamon s h a r e h o l d e r s , Maxwe l l and S t e i n b e r g were shown t o have l a r g e s h a r e h o l d i n g s , w i t h a v e r y s m a l l m i n o r i t y h o l d i n g t h e b a l a n c e between them. When one o f t h e s e l a r g e s h a r e h o l d e r s s e l l s o u t t o t h e o t h e r , some p e o p l e w i l l be l e f t i n a r a t h e r weak p o s i t i o n . 16 P a r t 3 CONTROL OF TAKE-OVERS I n t r o d u c t i o n In E n g l and t h e two most i m p o r t a n t i n s t r u m e n t s o f c o n t r o l o v e r t a k e - o v e r b i d s a r e t h e Code on T a k e - o v e r s and M e r g e r s 1 and t h e L i c e n s e d D e a l e r s ( C o n -d u c t o f B u s i n e s s ) R u l e s , 1960. The Code i s t h e r e s u l t o f an agreement between 2 t h e m a j o r i n s t i t u t i o n s i n v o l v e d i n t a k e - o v e r s and r e p r e s e n t s an a t t e m p t a t v o l u n t a r y s e l f - d i s c i p l i n e . I t has no l e g a l a u t h o r i t y . A p a n e l , r e f e r r e d t o as t he T a k e - o v e r P a n e l , on w h i c h each o f t h e i n s t i t u t i o n s i s r e p r e s e n t e d , i n t e r p r e t s t h e p r i n c i p l e s and r u l e s o f t h e Code , and w i l l i n t e r v e n e i f t h e s e p r i n c i p l e s o r r u l e s a r e no t c o m p l i e d w i t h d u r i n g t h e c o u r s e o f a b i d . The 3 Pane l work s i n c o - o p e r a t i o n w i t h t h e Boa rd o f T r ade a n d , i n d e e d , t h e c h i e f s a n c t i o n w h i c h t h e Pane l has i s t o recommend t o t h e Boa rd o f T r ade t h a t t h e y 4 i n i t i a t e an a c t i o n w i t h i n t h e i r powers under the Companies A c t . The L i c e n s e d D e a l e r s R u l e s a r e s t a t u t o r y r u l e s made by t h e Board o f T r ade p u r s u a n t t o s e c t i o n 7 ( 3 ) o f t he P r e v e n t i o n o f F r aud ( I n v e s t m e n t s ) A c t , 1958. L e g a l l y , t h e R u l e s a p p l y o n l y t o l i c e n s e d d e a l e r s , w h i c h means t h a t t h e y have a r a t h e r l i m i t e d l e g a l s i g n i f i c a n c e becau se t a k e - o v e r s a r e now g e n e r a l l y c o n -d u c t e d by i s s u i n g h o u s e s , who a r e exempted f r o m the p r o v i s i o n s . However t he R u l e s r ema in i m p o r t a n t as g u i d e - l i n e s , and i t wou ld appea r t h a t , i n p r a c t i c e , t h e y a r e f o l l o w e d by t h o s e i n v o l v e d i n t a k e - o v e r b i d s . In Canada , t h e c h i e f s o u r c e o f c o n t r o l i s t h e t a k e - o v e r p r o v i s i o n s o f t he 5 P r o v i n c i a l S e c u r i t i e s A c t s , w h i c h a r e ba sed on t h e recommendat ions o f t h e A t t o r n e y - G e n e r a l ' s Commit tee on S e c u r i t i e s L e g i s l a t i o n i n O n t a r i o , 1965. Immediate c o n t r o l o f t a k e - o v e r s , as o f any s e c u r i t i e s m a t t e r , i s t he r e s p o n -s i b i l i t y o f t h e S e c u r i t i e s Commiss ion o f each P r o v i n c e , s e t up under t h e A c t s . The Commis s ion has l e g a l a u t h o r i t y and i s g i v e n s p e c i f i c p o w e r s , such as t h e power t o "make w h a t e v e r i n v e s t i g a t i o n s i t deems e x p e d i e n t f o r t h e due 17 a d m i n i s t r a t i o n o f t h i s A c t , " 7 t o summon w i t n e s s e s and r e q u i r e p r o d u c t i o n o f 8 9 documen t s , t o make a r e p o r t t o t h e A t t o r n e y - G e n e r a l , t o make an o r d e r t h a t a p e r s o n o r company s h a l l h o l d o r r e f r a i n f r o m d e a l i n g w i t h f u n d s , ^ 0 t o a p p l y f o r t h e a p p o i n t m e n t o f a r e c e i v e r , a r e c e i v e r and manager , o r a t r u s t e e . ^ In b o t h j u r i s d i c t i o n s , t h e S t o c k Exchanges p l a y an i m p o r t a n t p a r t i n c o n -t r o l l i n g b i d s i n v o l v i n g compan ies l i s t e d on t he Exchange s . In many i n s t a n c e s t h e r u l e s o f t h e S t o c k Exchanges a r e more advanced t han t he l e g i s l a t e d p r o v i -s i o n . In some c a s e s t h e S t o c k Exchanges may impose f i n e s , b u t t h e s e a r e m i n o r and b e a r no r e l a t i o n t o t h e g r a v i t y o f t h e o f f e n c e s . The r e a l s a n c t i o n i s t h a t t h e S t o c k Exchange may su spend d e a l i n g s i n an o f f e n d i n g company ' s s h a r e s , b u t t h i s can r a r e l y be used t o a d v a n t a g e , as i t g e n e r a l l y damages t h o s e whom 1 ? i t i s i n t e n d e d t o p r o t e c t , the s h a r e h o l d e r s . T h e r e a r e i m p o r t a n t d i f f e r e n c e s i n t h e d e f i n i t i o n s o f a t a k e - o v e r i n t h e two j u r i s d i c t i o n s . The E n g l i s h d e f i n i t i o n i s c o n t a i n e d i n Ru l e 18 (1 ) o f t h e L i c e n s e d D e a l e r s R u l e s : " ' t a k e - o v e r o f f e r ' means an o f f e r t o a c q u i r e s e c u r i -t i e s o f a c o r p o r a t i o n made t o more t h a n one h o l d e r o f t h o s e s e c u r i t i e s , c a l c u -l a t e d t o r e s u l t i n any p e r s o n a c q u i r i n g , o r becoming e n t i t l e d t o a c q u i r e , c o n t r o l o f t h a t c o r p o r a t i o n . " C o n t r o l i s d e f i n e d a s : " c o n t r o l d i r e c t o r i n d i r e c t , o r by means o f any r i g h t , o v e r t h e e x e r c i s e o f a m a j o r i t y o f t he v o t i n g power a t a m e e t i n g o f t h e c o r p o r a t i o n , e x c l u d i n g t h e v o t i n g power o f h o l d e r s o f c l a s s e s o f s e c u r i -t i e s e x e r c i s a b l e o n l y on t h e happen i n g o f s p e c i f i e d c o n t i n g e n c i e s o r upon s p e c i f i c b u s i n e s s . " The B r i t i s h C o l u m b i a d e f i n i t i o n i s c o n t a i n e d i n s e c t i o n 78 o f t h e S e c u -r i t i e s A c t : " T a k e - o v e r b i d means an o f f e r o t h e r w i s e t han an exempt o f f e r , made t o s h a r e h o l d e r s . . . t o p u r c h a s e t h e number o f e q u i t y s h a r e s o f a com-pany t h a t , t o g e t h e r w i t h t h e o f f e r o r ' s p r e s e n t l y - o w n e d s h a r e s , w i l l i n a g g r e -g a t e e x c e e d t w e n t y p e r centum o f t h e o u t s t a n d i n g e q u i t y s h a r e s o f t h e company. " 18 The "exempt o f f e r " c a t e g o r y i s a c o n s i d e r a b l e l i m i t a t i o n on t he s cope o f t h e above d e f i n i t i o n . An "exempt o f f e r " i s d e f i n e d i n s e c t i o n 78b a s : " ( i ) an o f f e r t o p u r c h a s e s h a r e s by way o f p r i v a t e agreement w i t h i n d i v i d u a l s h a r e h o l d e r s and n o t made t o s h a r e h o l d e r s g e n e r a l l y ; ( i i ) an o f f e r t o p u r c h a s e s h a r e s t o be e f f e c t e d t h r o u g h t h e f a c i l i t i e s o f a s t o c k exchange o r i n an o v e r -t h e - c o u n t e r m a r k e t ; ( i i i ) an o f f e r t o p u r c h a s e s h a r e s i n a p r i v a t e company o r a p u b l i c company t h a t has f e w e r t h a n f i f t e e n s h a r e h o l d e r s . . . ; o r ( i v ) an o f f e r exempted by o r d e r o f a Judge o f t h e Supreme C o u r t d e s i g n a t e d by the C h i e f J u s t i c e o f t he Supreme C o u r t . " The E n g l i s h d e f i n i t i o n l i m i t s t h e a p p l i c a t i o n o f t he L i c e n s e d D e a l e r s Ru l e s t o b i d s f o r more t han f i f t y p e r c e n t o f t h e s h a r e s , b u t i n c l u d e s b i d s f o r p r i v a t e c o m p a n i e s , and ag reements w i t h more t han one s h a r e h o l d e r . The B r i t i s h C o l u m b i a d e f i n i t i o n r e c o g n i s e s t h e i m p o r t a n c e o f de f a c t o c o n t r o l , b u t s e v e r e l y r e s t r i c t s t h e a p p l i c a t i o n o f t h e t a k e - o v e r p r o v i s i o n s t o p u b l i c compan ies w i t h more t h a n f i f t e e n s h a r e h o l d e r s , w h i c h i s a c o n s i d e r a b l e l i m i -t a t i o n , as p u b l i c compan ies a c c o u n t f o r o n l y t e n p e r c e n t o f B r i t i s h C o l u m b i a c ompan i e s . T h i s may be a r e s t r i c t i o n w h i c h i s a p r a c t i c a l n e c e s s i t y i f t he S e c u r i t i e s Commis s ion i s t o e x e r c i s e adequa te s u p e r v i s i o n t h r o u g h t he s t a t u -t o r y c o n t r o l s . Many o f t h e s t a t u t o r y c o n t r o l s imposed r e l a t e t o p r o c e d u r e r a t h e r t h a n t o m a t t e r s o f s u b s t a n c e , so t h e common l aw i s i m p o r t a n t . T h i s i s i l l u s t r a t e d when c o n s i d e r i n g t he r e s t r i c t i o n s on t h e powers o f d i r e c t o r s i n a t a k e - o v e r s i t u a t i o n . S e c t i o n A D i r e c t o r s ' Powers The powers o f management o f a company a r e u s u a l l y v e s t e d i n t h e d i r e c t o r s 13 14 by t h e a r t i c l e s o f a s s o c i a t i o n . A s t r o n g l i n e o f c a se s makes i t c l e a r t h a t s u c h powers as a r e v e s t e d i n t h e Boa rd by t h e a r t i c l e s may be e x e r c i s e d by t h e 19 d i r e c t o r s o n l y , and t h e i r e x e r c i s e o f t h e powers may n o t be i n t e r f e r e d w i t h by t h e company i n g e n e r a l m e e t i n g . Some o f t h e powers w h i c h may be e x e r c i s e d by d i r e c t o r s i n r e s p o n s e t o a t a k e - o v e r o f f e r w i l l be v e s t e d i n them by t he 15 a r t i c l e s , f o r example t h e power t o i s s u e s h a r e s . Even though a t a k e - o v e r o f f e r i s u s u a l l y made t o t h e s h a r e h o l d e r s o f a company, t he d i r e c t o r s , by v i r t u e o f t h e i r powers o f management, have a w i d e d i s c r e t i o n when r e a c t i n g t o an o f f e r . In some c a s e s , because t h e t a k e - o v e r t r a n s a c t i o n can be com-16 p l e t e d so q u i c k l y t h e d i r e c t o r s w i l l t a k e a c t i o n w i t h o u t b e i n g a b l e t o c o n -s u l t t h e s h a r e h o l d e r s t o whom t h e o f f e r i s made. 1. The Power t o Recommend R e f u s a l o r A c c e p t a n c e o f a B i d The d i r e c t o r s may recommend a c c e p t a n c e o r r e f u s a l o f an o f f e r , and s u ch a recommendat ion w i l l be o f c o n s i d e r a b l e i n f l u e n c e s i n c e s h a r e h o l d e r s w i l l n a t u r a l l y t e n d t o a c c e p t a d v i c e g i v e n by t h e i r d i r e c t o r s . P r e s umab l y t he s h a r e h o l d e r s have c o n f i d e n c e i n t he d i r e c t o r s , and t h e y w i l l u s u a l l y t a k e t h e v i e w t h a t d i r e c t o r s know more abou t t h e company and a r e i n a b e t t e r p o s i t i o n f r o m w h i c h t o a s s e s s i t s p r o s p e c t s . Because t h e d i r e c t o r s may a l s o be s h a r e -h o l d e r s , h a v i n g d i f f e r e n t i n t e r e s t s f r o m t h e i n d e p e n d e n t s h a r e h o l d e r s , t h i s power s h o u l d be c a r e f u l l y r e g u l a t e d . The C i t y Code , L i c e n s e d D e a l e r s R u l e s , and t he S e c u r i t i e s A c t e ach 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 t h e c o n t e n t s o f a d i r e c t o r s ' c i r c u l a r recommending a p a r t i c u l a r r e s p o n s e t o an o f f e r . The C i t y Code s a y s ? 7 " S h a r e h o l d e r s must be p u t i n t o p o s s e s s i o n o f a l l t h e f a c t s n e c e s s a r y f o r the f o r m a t i o n o f an i n f o r m e d j udgement as t o t he m e r i t s o r d e m e r i t s o f an o f f e r . " The Code does n o t c o n t a i n any more s p e c i f i c i n s t r u c t i o n s as t o t h e c o n -t e n t s o f a c i r c u l a r . The T h i r d S c h e d u l e o f t h e L i c e n s e d D e a l e r s R u l e s c o n t a i n s t he r e q u i r e m e n t s t o be s a t i s f i e d i n r e l a t i o n t o a recommendat ion o f a c c e p t a n c e . The d e t a i l s t o be i n c l u d e d a r e : the number o f s h a r e s i n t he o f f e r e e company h e l d by i t s 20 d i r e c t o r s ; t h e number o f s h a r e s i n t h e o f f e r o r company h e l d by t h e d i r e c t o r s o f t h e o f f e r e e company; w h e t h e r t he d i r e c t o r s i n t e n d t o a c c e p t t he o f f e r ; p a r -t i c u l a r s o f any m a t e r i a l change i n t h e f i n a n c i a l p o s i t i o n o r p r o s p e c t s o f t h e o f f e r e e company; p a r t i c u l a r s o f any c o n t r a c t s o f f e r e d t o t h e d i r e c t o r s ; and i n f o r m a t i o n on t h e p r e v i o u s p r i c e o f t h e company ' s s h a r e s . S e c t i o n 93 o f t h e S e c u r i t i e s A c t r e q u i r e s s i m i l a r i n f o r m a t i o n t o be g i v e n i n a d i r e c t o r s ' c i r c u l a r b u t o n l y i f t h e d i r e c t o r s recommend r e f u s a l o r a c c e p -19 t a n c e o f t h e o f f e r , and t h e y may choose t o r ema i n s i l e n t . S e c t i o n 97 o f t h e A c t s p e c i f i e s p e n a l t i e s o f a f i n e o f no t more t h a n $25,000 o r one y e a r ' s i m p r i -sonment , o r b o t h f o r b r e a c h o f t he p r o v i s i o n s . A l t h o u g h many o f t h e p a r t i c u l a r s w h i c h must be g i v e n a r e p r o c e d u r a l i n n a t u r e , t h e i n f o r m a t i o n o b t a i n e d w i l l u s u a l l y p r o v i d e s a t i s f a c t o r y g u i d a n c e on w h i c h a s h a r e h o l d e r can make h i s d e c i s i o n . The c i r c u l a r w i l l o f t e n c o n t a i n a d d i t i o n a l i n f o r m a t i o n , e s p e c i a l l y i f t he d i r e c t o r s recommend r e f u s a l o f the o f f e r , when a g l o w i n g p r o f i t s f o r e c a s t , an a t t a c k on t h e o f f e r o r , a l i s t o f f i n a n c i a l o r employee d i s a d v a n t a g e s may be e x p e c t e d . The re a r e , h oweve r , two b a s i c p r ob l ems c o n c e r n i n g t h e c o n t e n t s o f a d i r e c t o r s ' c i r c u l a r w h i c h c o n t a i n s a r e commenda t i on : (1) What remedy does a s h a r e h o l d e r have i f he a c t s on i n f o r m a t i o n w h i c h i s l a t e r r e v e a l e d t o be m i s -l e a d i n g ? ; and (2) What f a c t o r s s h o u l d t he d i r e c t o r s t a k e i n t o a c c o u n t when mak ing a recommendat ion ? 20 (a ) The C i t y Code s t a t e s : "Any document o r a d v e r t i s e m e n t a d d r e s s e d t o s h a r e h o l d e r s unde r t h e s e h e a d i n g s must be t r e a t e d w i t h t h e same s t a n d a r d s o f c a r e w i t h r e g a r d t o t he s t a t e m e n t s made t h e r e i n as i f i t were a p r o s p e c t u s w i t h i n t h e meaning o f t he Companies A c t , 1 948 . " But t h e Code has no l e g a l a u t h o r i t y , so t h e e f f e c t o f t h i s r u l e i s l i m i t e d . Even i f t he s t a n d a r d o f c a r e i s no t c o m p l i e d w i t h , no a c t i o n c o u l d be b r o u g h t unde r t h e p r o s p e c t u s p r o v i s i o n s o f t h e Companies A c t . The o n l y p o s s i b l e l e g a l 21 s a n c t i o n i s t h a t , i n a p p r o p r i a t e c i r c u m s t a n c e s , t h e T a k e - o v e r P ane l m i g h t recommend t h a t t he Boa rd o f T r a d e i n i t i a t e an a c t i o n a g a i n s t t h e d i r e c t o r s 21 unde r s e c t i o n 1 65 ( b ) 3 w h i c h p r o v i d e s f o r an i n v e s t i g a t i o n i f i t appea r s " t h a t i t s ( i . e . t h e o f f e r e e c ompany ' s ) members have n o t been g i v e n a l l t h e i n f o r m a t i o n w i t h r e s p e c t t o i t s a f f a i r s w h i c h t h e y m i g h t r e a s o n a b l y e x p e c t . " T h i s s e c t i o n w o u l d p r o b a b l y a p p l y o n l y i f some i n f o r m a t i o n were o m i t t e d , and n o t i f t h e i n f o r m a t i o n g i v e n was m i s l e a d i n g . The L i c e n s e d D e a l e r s Ru l e s and t he S e c u r i t i e s A c t do n o t p r o v i d e s t a t u -t o r y r e m e d i e s where t h e i n f o r m a t i o n g i v e n i n t he c i r c u l a r s i s m i s l e a d i n g , so t h e common l aw i s c r u c i a l i n t h i s a r e a . Where t h e d i r e c t o r s ' c i r c u l a r c o n t a i n s s t a t e m e n t s w h i c h a r e f a l s e o r m i s -l e a d i n g , t h e common l aw may p r o v i d e a remedy t o t he s h a r e h o l d e r who has a c t e d on t h e b a s i s o f t h e s t a t e m e n t s . In an e x t r e m e , r a r e , c a s e i t may be p o s s i b l e t o b r i n g an a c t i o n f o r d e c e i t , b u t t h e d i f f i c u l t y i n p r o v i n g f r a u d w i l l u s u -a l l y r e n d e r t h i s a c t i o n i n e f f e c t i v e . An a c t i o n f o r m i s r e p r e s e n t a t i o n may be m a i n t a i n e d where t h e r e has been 22 a m i s s t a t e m e n t o f f a c t w h i c h i s n e g l i g e n t . To s u c c e e d i n a n e g l i g e n t m i s -s t a t e m e n t a c t i o n t h e p l a i n t i f f s h a r e h o l d e r must p r o v e t h a t t h e d e f e n d a n t d i r e c t o r s owed him a d u t y o f c a r e . T h i s i s a n e g l i g e n c e d u t y w h i c h i s , a f t e r 23 H e d l e y By rne & Co. v . H e l l e r & P a r t n e r s L t d . , q u i t e d i f f e r e n t and i n d e p e n -24 d e n t f r o m t h e f i d u c i a r y d u t y . The H e d l e y By rne ca se i n d i c a t e d t h a t a d u t y o f c a r e i s owed whenever someone has g i v e n a d v i c e o r i n f o r m a t i o n i n c i r c u m -s t a n c e s i n w h i c h he knew o r ough t t o have known t h a t r e l i a n c e was b e i n g p l a c e d on h i s c a r e , s k i l l , and j udgmen t . I t i s s u g g e s t e d t h a t where a d i r e c t o r r e c o m -mends a r e s p o n s e t o a t a k e - o v e r o f f e r , he b r i n g s h i m s e l f w i t h i n t he H e d l e y  By rne d u t y o f c a r e . 25 The measure o f damages r e c o v e r a b l e i s g o ve r ned by McConne l l v . W r i g h t : "The h i g h e s t l i m i t o f h i s damages i s t h e w h o l e e x t e n t o f h i s l o s s , and t h a t l o s s i s measured by t h e money w h i c h was i n h i s 22 p o c k e t and i s now i n t h e p o c k e t o f t h e company. T h a t i s t h e u l t i -m a t e , f i n a l , h i g h e s t s t a n d a r d o f h i s l o s s . Bu t i n so f a r as he has g o t an e q u i v a l e n t f o r t h a t money, t h a t l o s s i s d i m i n i s h e d . " T h i s i s t h e measure o f damages b o t h f o r d e c e i t and f o r n e g l i g e n c e . F r e q u e n t l y a recommendat ion t o r e f u s e an o f f e r w i l l be accompan ied by a p r o m i s i n g p r o f i t s f o r e c a s t . The re i s some doub t w h e t h e r a s h a r e h o l d e r c o u l d r e c o v e r i f he had r e l i e d on a f o r e c a s t w h i c h p r o v e d t o be m i s l e a d i n g . A l t h o u g h the normal r u l e i s t h a t , t o s u c c e e d i n an a c t i o n f o r n e g l i g e n t m i s s t a t e m e n t , t h e s t a t e m e n t r e l i e d upon must be one o f f a c t , n o t a mere p r o m i s e , f o r e c a s t 27 o r e x p r e s s i o n o f o p i n i o n , i n H e d l e y By rne & Co. v . H e l l e r & P a r t n e r s L o r d D e v l i n s a i d : " I t c a n n o t m a t t e r w h e t h e r t h e i n f o r m a t i o n c o n s i s t s o f f a c t o r 28 o f o p i n i o n , o r i s a m i x t u r e o f b o t h . " I t i s t h e r e f o r e p o s s i b l e t h a t i n f u t u r e , d i r e c t o r s may be h e l d l i a b l e f o r m i s l e a d i n g p r o f i t s f o r e c a s t s , p r o -v i d e d i t can be e s t a b l i s h e d t h a t t h e d i r e c t o r s owed t he p l a i n t i f f a d u t y o f 29 c a r e , and were i n b r e a c h o f t h a t d u t y . (b) The s e cond p r o b l e m c o n c e r n i n g t h e d i r e c t o r s ' power t o r e c o m -mend a c o u r s e o f a c t i o n i s t o e s t a b l i s h w h i c h f a c t o r s t h e d i r e c t o r can p r o p e r l y c o n s i d e r i n d e c i d i n g what recommendat ion t h e y s h o u l d make. The s t a t u t o r y r e g u -l a t i o n s , t h e S e c u r i t i e s A c t and t he L i c e n s e d D e a l e r s R u l e s do n o t c o n t a i n any 30 p r o v i s i o n s r e l e v a n t t o t h i s q u e s t i o n , b u t the C i t y Code s t a t e s : " D i r e c t o r s must a lway s have i n mind t h a t t h e y s h o u l d a c t i n t h e i n t e r e s t s o f t h e s h a r e -31 h o l d e r s t a k e n as a w h o l e . As w i t h any o t h e r power e x e r c i s e d by t h e d i r e c t o r s , t he power o f r e c o m -mending a c o u r s e o f a c t i o n t o t h e s h a r e h o l d e r s must be e x e r c i s e d by them "bona f i d e i n what t h e y c o n s i d e i — n o t what a c o u r t may c o n s i d e r — i s i n t h e i n t e r e s t s 32 o f t h e company. 33 In G r e e n h a l g h v . A rdeme Cinemas L t d . L o r d Evershed, M.R. s a i d t h a t t h e b e n e f i t o f t h e company meant t h e b e n e f i t o f t h e s h a r e h o l d e r s as a g e n e r a l body. 23 I t may a l s o be n o t e d t h a t t h e d i r e c t o r s , i f t h e y a r e a l s o s h a r e h o l d e r s , a r e e n t i t l e d t o c o n s i d e r n o t o n l y o t h e r s h a r e h o l d e r s , b u t a l s o t h e i r own i n t e -r e s t s . They a r e " n o t r e q u i r e d by t h e l aw t o l i v e i n an u n r e a l r e g i o n o f d e t a c h e d a l t r u i s m , and t o a c t i n a vague mood o f i d e a l a b s t r a c t i o n f r o m o b v i o u s f a c t s w h i c h must be p r e s e n t t o t h e mind o f any h o n e s t and i n t e l l i g e n t man when 34 he e x e r c i s e s h i s powers as a d i r e c t o r . " In t he l i g h t o f t h e s e g e n e r a l s t a t e m e n t s o f p r i n c i p l e , one has t o c o n s i d e r the meaning and e f f e c t o f t h e p h r a s e "bona f i d e i n t he i n t e r e s t o f t he company, " and t o e s t a b l i s h t h e r e l e v a n t f a c t o r s . In p r a c t i c e , t h e c o u r t s a r e u n w i l l i n g t o q u e s t i o n t h e bona f i d e s o f d i r e c t o r s u n l e s s t h e r e i s s t r o n g e v i d e n c e t h a t t h e y have c o n s i d e r e d t h e i r own i n t e r e s t o r t he i n t e r e s t o f a t h i r d p a r t y , t o t h e e x c l u s i o n o f t h a t o f t h e company. "Bona f i d e " r a i s e s p rob lems o f m o t i v e and men ta l a t t i t u d e w h i c h a r e more d i f f i c u l t t o a s s e s s t han a l e s s a b s t r a c t 35 c o n c e p t s u ch as " t h e i n t e r e s t o f t h e company. " The q u e s t i o n w h e t h e r o r no t t he d i r e c t o r s 1 a c t i o n i s i n t h e i n t e r e s t o f t he company i s one t o w h i c h t h e c o u r t w i l l more r e a d i l y t u r n i t s m i n d . In t h e a r e a o f t a k e - o v e r s , a l e a d i n g a u t h o r i t y i s t he Savoy H o t e l c a s e , w h i c h n e v e r came b e f o r e t h e c o u r t s , b u t w h i c h was t h e s u b j e c t o f an I n s p e c t o r ' s R e p o r t . B r i e f l y t h e f a c t s were t h a t , a f t e r a p e r i o d o f c o n s i d e r a b l e b u y i n g o f s h a r e s i n t h e company on t h e s t o c k m a r k e t , t h e d i r e c t o r s became aware t h a t someone was a t t e m p t i n g t o g a i n c o n t r o l o f t h e company. T h e i r r e a c t i o n was t o e f f e c t a scheme under w h i c h t h e main a s s e t , t h e B e r k e l e y H o t e l , was s o l d t o a company f o rmed s p e c i f i c a l l y f o r t h e p u r p o s e . The r a t i o n a l e o f t h i s was t h a t w i t h o u t i t s p r i n c i p a l a s s e t t h e Savoy H o t e l Company w o u l d no l o n g e r be an a t t r a c t i v e p r o p o s i t i o n t o t h e pe r s on b u y i n g t he s h a r e s on t h e m a r k e t . The scheme, w h i c h became known as t h e W o r c e s t e r scheme, was i n t r a v i r e s the com-p a n y , and t h e I n s p e c t o r a c c e p t e d t h e bona f i d e s o f the d i r e c t o r s . The q u e s -t i o n was w h e t h e r o r n o t t he t r a n s a c t i o n was i n t h e i n t e r e s t s o f t h e company. 24 In c o n s i d e r i n g t h i s , t h e I n s p e c t o r s t a t e d : " I t i s c l e a r f r o m what has been s a i d by t he d i r e c t o r s t h a t t h e y a l s o c o n s i d e r e d t h a t t h e d i s c o n t i n u a n c e o f t he B e r k e l e y as a h o t e l and r e s t a u r a n t wou l d be i n j u r i o u s t o t he i n t e r e s t s o f t he e m p l o y e e s , s i n c e i t wou l d i n v o l v e a r e d u c t i o n o f s t a f f , and w o u l d be i n j u r i o u s i n t h e i r o p i n i o n t o t he n a t i o n a l i n t e r e s t , h a v i n g r e g a r d t o t h e d o l l a r e a r n i n g power o f t h e B e r k e l e y H o t e l . I c a n n o t d e t e r m i n e how much w e i g h t t h e s e c o n s i d e r a t i o n s c o n t r i b u t e d t o t h e d e c i s i o n t o p u t t h e W o r c e s t e r scheme i n t o e f f e c t : t h e y were c o n s i d e r a t i o n s w h i c h , however m e r i t o r i o u s , w o u l d n o t seem t o me t o f o r m p a r t o f a t r u e l e g a l d e f i n i t i o n o f t h e i n t e r e s t s o f t he company, e x c e p t t h a t i n d i -r e c t l y a s u b s t a n t i a l r e d u c t i o n o f s t a f f m i g h t have u n s e t t l e d t he s t a f f r e m a i n i n g a t t he o t h e r h o t e l s and r e s t a u r a n t s . " These d i c t a c l e a r l y e l i m i n a t e c o n s i d e r a t i o n o f t he e m p l o y e e s ' and t h e p u b l i c ' s i n t e r e s t as b e i n g i n t h e i n t e r e s t s o f t he company. J u d i c i a l s u p p o r t 38 f o r a s i m i l a r p o i n t o f v i e w can be f ound i n Pa r ke v . D a i l y News L t d . A f t e r q u o t i n g a w i t n e s s who s a i d , " B o a r d s o f d i r e c t o r s must t a k e i n t o c o n s i d e r a t i o n t h e i r d u t i e s t o emp loyees i n t h e s e d a y s , " P lowman, J . s a i d : " B u t no a u t h o r i t y t o s u p p o r t t h a t p r o p o s i t i o n as a p r o p o s i t i o n o f l aw was c i t e d t o me; I know o f none , and i n my o p i n i o n such i s . n o t t h e l a w . " N e v e r t h e l e s s , i t i s c l e a r t h a t i n f a c t d i r e c t o r s do c o n s i d e r t h e i n t e -r e s t s o f emp loyees i n a t a k e - o v e r s i t u a t i o n . One o f t h e main r ea son s why t h e News o f t h e Wo r l d b o a r d recommended r e f u s a l o f Pe rgamon ' s b i d was t h a t c l o s e management -un ion r e l a t i o n s h i p s wou l d be d e s t r o y e d . In a n o t h e r a t t e m p t by Maxwe l l t o o b t a i n c o n t r o l o f a newspape r , i n t h i s ca se t h e S un , he had t o w i t h d r a w h i s b i d because he c o u l d n o t come t o an ag reement w i t h t h e employees as t o w o r k i n g c o n d i t i o n s . 38 In P a r k e v . D a i l y News L t d . t he argument was p u t f o r w a r d t h a t t he p a y -ment t o employees was j u s t i f i e d as i t w o u l d e n a b l e t he company t o m a i n t a i n c o - o p e r a t i o n f r o m t h e t r a d e u n i o n s . T h i s a rgument was no t a c c e p t e d by t h e j u d g e . I t i s s u b m i t t e d , howeve r , t h a t , a t l e a s t where t h e i n t e r e s t o f t he employees i s m a t e r i a l t o t h e i n t e r e s t o f t h e company, t h e d i r e c t o r s a r e under a d u t y t o c o n s i d e r t h a t i n t e r e s t , on t h e b a s i s t h a t t h e company w i l l s u f f e r 39 i f good r e l a t i o n s w i t h t h e employees a r e n o t m a i n t a i n e d . 25 A p a r t f r o m the i n s t a n c e i n w h i c h t h e r e i s a c o i n c i d e n c e o f i n t e r e s t , t h e c u r r e n t l e g a l p o s i t i o n i s t h a t t he e m p l o y e e ' s i n t e r e s t i s n o t a f a c t o r w h i c h i s r e l e v a n t when t h e d i r e c t o r s a r e c o n s i d e r i n g w h e t h e r t o recommend a c c e p t a n c e o r r e f u s a l o f an o f f e r . What i s r e l e v a n t i s t h e i n t e r e s t o f t he company a l o n e , and t h i s seems t o be l i m i t e d t o t he l o n g - t e r m and s h o r t - t e r m f i n a n c i a l i n t e r e s t , and f a c t o r s i m m e d i a t e l y p e r t i n e n t t h e r e t o . The a t t i t u d e d i s p l a y e d i n t h e C i t y Code i s , t h e r e f o r e , p a r t i c u l a r l y i n t e r e s t i n g . G e n e r a l P r i n c i p l e 11 r e a d s : " I t i s t he s h a r e h o l d e r s ' i n t e r e s t s t a k e n as a w h o l e w h i c h s h o u l d be c o n s i d e r e d , t o g e t h e r w i t h t h o s e o f employees and c r e d i t o r s . " 2. D e f e n s i v e A c t i o n by D i r e c t o r s I f t h e d i r e c t o r s d e c i d e t h a t a t a k e - o v e r o f f e r i s u n d e s i r a b l e , n o t o n l y can t h e y recommend t o s h a r e h o l d e r s t h a t t h e y s h o u l d r e f u s e t h e o f f e r , b u t t h e y may a l s o t a k e more p o s i t i v e d e f e n s i v e a c t i o n t o d e c r e a s e t h e o f f e r o r ' s chances o f s u c c e s s . The range o f p o s s i b l e d e f e n s i v e t e c h n i q u e s i n c l u d e s : r emov ing t he p r i n -40 c i p a l a s s e t s f r o m t h e c o n t r o l o f t h e o f f e r e e company; f o r e c a s t a l a r g e p r o -41 f i t s i n c r e a s e f o r t h e f o l l o w i n g y e a r ; buy a l a r g e number o f s h a r e s i n t h e s t o c k m a r k e t , t h e r e b y r a i s i n g t he p r i c e o f t h e s h a r e s , and g a i n i n g g r e a t e r 42 43 c o n t r o l ; a l l o t t i n g a s i g n i f i c a n t b l o c k o f s h a r e s t o a nom inee ; r e - a r r a n -g i n g t h e c a p i t a l s t r u c t u r e so t h a t e f f e c t i v e c o n t r o l i s h e l d by a g roup h o l d -44 i n g a s m a l l p a r t o f t h e e q u i t y ; and i n d u c i n g and recommending a c c e p t a n c e o f 45 a b i d f r o m a more f a v o u r a b l e o f f e r o r . 46 Each o f t h e s e d e f e n c e s , e x c e p t one i n v o l v e t h e d i r e c t o r s e x e r c i s i n g powers on b e h a l f o f t h e company. They must t h e r e f o r e a c t bona f i d e i n t h e i n t e r e s t s o f t h e company, and many o f t h e p rob lems d i s c u s s e d i n s u b - s e c t i o n A a r e r e l e v a n t h e r e . Two f u r t h e r p rob lems a r e w o r t h y o f d i s c u s s i o n i n d e t a i l , t he p r o p e r pu rpo se d o c t r i n e , and t he e f f e c t o f r a t i f i c a t i o n on a s h a r e h o l d e r ' s r i g h t t o b r i n g an a c t i o n a g a i n s t t h e d i r e c t o r s . 26 (a ) The P r o p e r Pu rpo se D o c t r i n e 47 T h e r e i s c o n s i d e r a b l e a u t h o r i t y f o r t h e p r o p o s i t i o n t h a t d i r e c t o r s must e x e r c i s e t h e i r powers n o t o n l y bona f i d e i n t h e i n t e r e s t o f t h e company, b u t a l s o f o r t he pu rpo se f o r w h i c h t h e powers were g i v e n . 48 In P i e r c y v . Mi 11s i t was h e l d t h a t where a power t o i s s u e s h a r e s i s g i v e n t o d i r e c t o r s t o e n a b l e them t o r a i s e c a p i t a l when r e q u i r e d f o r t he p u r -49 poses o f t h e company, i t i s a f i d u c i a r y power w h i c h must be e x e r c i s e d by them bona f i d e f o r t h e g e n e r a l advan tage o f t h e company, and when t h e company i s i n no need o f f u r t h e r c a p i t a l , t h e d i r e c t o r s a r e no t e n t i t l e d t o use t h e i r 50 power o f a l l o t t i n g s h a r e s m e r e l y f o r t h e pu rpo se o f d e f e a t i n g t he w i s h e s o f t h e e x i s t i n g m a j o r i t y o f s h a r e h o l d e r s . Where t h e p r i m a r y pu rpo se f o r a l l o t t i n g new s h a r e s i s v a l i d , b u t t h e a l l o t m e n t a l s o s a t i s f i e s a s e c o n d a r y pu rpo se w h i c h may be i n v a l i d , t h e c o u r t s 51 w i l l u p h o l d t h e d i r e c t o r s ' a c t i o n . Where, however , t h e p r i m a r y pu rpo se i s i n v a l i d , t h e f a c t t h a t some s e c o n d a r y pu rpo se i s p r o p e r w i l l n o t p r e v e n t t h e 52 a l l o t m e n t f r o m b e i n g d e c l a r e d v o i d . The p r o p e r pu rpo se d o c t r i n e i s n o t l i m i t e d i n a p p l i c a t i o n t o t h e power t o a l l o t s h a r e s . I t has been a p p l i e d t o o t h e r powers s uch as t he a d d i t i o n o f 53 new d i r e c t o r s t o t h e Boa rd and i t may be t h a t t h e d o c t r i n e w o u l d t a k e e f f e c t 54 on any o f t he l i s t e d d e f e n s i v e t e c h n i q u e s . I t w o u l d a p p e a r , t h e r e f o r e , t h a t , w i d e - r a n g i n g though t h e d i r e c t o r s ' powers i n r e a c t i n g t o a t a k e - o v e r b i d may b e , t h e y a r e n e v e r t h e l e s s r e s t r i c t e d i n t h e e x e r c i s e o f t h o s e powers by t h e e q u i t a b l e d o c t r i n e t h a t t h e y must a c t bona f i d e i n t h e i n t e r e s t o f t he company, and must e x e r c i s e t h e i r powers o n l y f o r t h e pu rpo se s i n t e n d e d . T h i s r e a s o n a b l e s i t u a t i o n i s s e r i o u s l y a f f e c t e d by two r e c e n t E n g l i s h d e c i s i o n s c o n c e r n e d w i t h r a t i f i c a t i o n o f a d i r e c t o r s ' a c t i o n by t h e company i n g e n e r a l m e e t i n g . 27 (b) R a t i f i c a t i o n 55 In Hogg v . Cramphorn L t d . a t a k e - o v e r b i d was made w h i c h t h e d i r e c t o r s bona f i d e b e l i e v e d s h o u l d be p r e v e n t e d f r o m s u c c e e d i n g . A t r u s t deed f o r t h e b e n e f i t o f t he employees was e s t a b l i s h e d , and s h a r e s were i s s u e d t o t h e t r u s -56 t e e s . A s h a r e h o l d e r o b j e c t e d and sued on b e h a l f o f h i m s e l f and a l l o t h e r 57 s h a r e h o l d e r s , e x c e p t t h e t r u s t e e s , on t h e g round t h a t t h e t r u s t deed was u l t r a v i r e s t h e company. B u c k l e y , J . h e l d t h a t a l t h o u g h t h e t r a n s a c t i o n was l i a b l e t o be s e t a s i d e , t h e s h a r e h o l d e r s i n g e n e r a l m e e t i n g wou ld have t h e power t o r a t i f y t h e a l l o t m e n t o f t h e s h a r e s , and t he o p p o r t u n i t y f o r them to 58 do so was g i v e n . 59 As P r o f e s s o r Gower p o i n t s o u t , t h e s h a r e h o l d e r s were n o t p r e v e n t e d f r om b r i n g i n g t h e i r a c t i o n m e r e l y becau se t h e i m p r o p r i e t y c o u l d have been e r a d i c a t e d by a r e s o l u t i o n o f t h e g e n e r a l m e e t i n g , whereas a normal a p p l i c a t i o n o f t he r u l e i n Foss v . H a r b o t t l e w o u l d have p r e v e n t e d them f r o m s u i n g . Of g r e a t e r fil i m p o r t a n c e i n a c o n s i d e r a t i o n o f t h e t a k e - o v e r b i d i s t he f a c t t h a t i t was h e l d t h a t an a c t i o n w h i c h had been i m p r o p e r l y c a r r i e d o u t by t h e d i r e c t o r s c o u l d be r a t i f i e d and v a l i d a t e d by t h e s h a r e h o l d e r s i n g e n e r a l m e e t i n g . In Hogg v . Cramphorn i t was a c c e p t e d t h a t t he d i r e c t o r s had a c t e d bona CO f i d e . In Bamford v . B a m f o r d , howeve r , i t was assumed t h a t t he d i r e c t o r s had a c t e d i n bad f a i t h . The q u e s t i o n was w h e t h e r the a l l o t m e n t o f s h a r e s t o an ' o u t s i d e ' company who w o u l d , w i t h t h e o f f e r e e company ' s d i r e c t o r s , r e s i s t a t a k e - o v e r b i d , was c a p a b l e o f b e i n g r a t i f i e d by a g e n e r a l m e e t i n g o f t he s h a r e h o l d e r s o f t h e company. In t h i s c a s e t h e a l l o t m e n t had been r a t i f i e d by t h e s h a r e h o l d e r s a f t e r i t had been made, b u t b e f o r e t h e t r i a l . I t was h e l d t h a t even i f t h e d i r e c t o r s had a c t e d i n bad f a i t h and f r o m an i m p r o p e r m o t i v e i n mak ing t he a l l o t m e n t , any i m p r o p r i e t y on t h e i r p a r t c o u l d be and had been w a i v e d by a m a j o r i t y o f v o t e s a t a g e n e r a l m e e t i n g o f t he company, and t hu s t h e a l l o t m e n t was v a l i d . 28 CO P r o f e s s o r Gower w r i t e s : "When, however t h e d i r e c t o r s do n o t a c t bona  f i d e i n t h e i n t e r e s t s o f t he company i t seems t o be i m p o s s i b l e t o r a t i f y . " In a f o o t n o t e d i s p o s i n g o f Bamford v . B a m f o r d , P r o f e s s o r Gower c o n t i n u e s : " I n Bamford v . B a m f o r d , w h i c h may appea r t o s u g g e s t t h e c o n t r a r y , " n o t bona  f i d e i n t he i n t e r e s t s o f t h e company "was used i n t he n a r r o w e r sense o f an a c t w h i c h e x ceeded t h e d i r e c t o r s ' p o w e r s , because t h e y were no t a u t h o r i z e d t o a c t f o r t h a t p u r p o s e ; t h e d i r e c t o r s ' good f a i t h was n o t q u e s t i o n e d . " W h i l e t h i s i n t e r p r e t a t i o n p r o v i d e s as d e s i r a b l e a r e s u l t as i s p o s s i b l e , i t i s s u g g e s t e d t h a t s uch an i n t e r p r e t a t i o n i s n o t c o n s i s t e n t w i t h t he j u d g -ments i n t h e c a s e . 64 Harman, L . J . s a i d : "So i t seems t o me h e r e t h a t t h e s e d i r e c t o r s , on t he a s s u m p t i o n s w h i c h we have t o make, made t h i s a l l o t m e n t i n b r e a c h o f t h e i r d u t y — m a l a f i d e as i t i s s a i d . " The l e a r n e d j u d g e went on t o d e c i d e t h a t t h e d i r e c t o r s ' a c t i o n was r a t i -f i a b l e by t h e g e n e r a l m e e t i n g . R u s s e l l , L . J . s a i d : 6 5 " I t i s a r gued t h a t under t he a r t i c l e s a l l o t m e n t can o n l y be made (a ) by t he b o a r d (wh i ch i s t r u e ) and (b) by t h e boa rd a c t i n g i n good f a i t h , and t h a t a r e s o l u t i o n by the company w a i v i n g t he d e f e c t i n a mala f i d e , and t h e r e f o r e v o i d a b l e , a l l o t m e n t i n f r i n g e s t h e a r t i c l e s and must be a s p e c i a l r e s o l u t i o n . I do n o t a c c e p t t h i s a r gumen t , w h i c h seems t o me t o run c o u n t e r t o t he g e n e r a l s i t u a t i o n t h a t i m p r o -p r i e t y by t he d i r e c t o r s i n t h e e x e r c i s e o f t h e i r powers i s a p r o p e r m a t t e r f o r w a i v e r o r d i s a p p r o v a l by o r d i n a r y r e s o l u t i o n . " I t i s s u b m i t t e d t h a t t he r e s u l t o f t h i s d e c i s i o n and t h e d i c t a q u o t e d i s t h a t t he s h a r e h o l d e r s i n g e n e r a l m e e t i n g may r a t i f y an a c t o f the d i r e c t o r s even i f t h a t a c t i s done ma la f i d e . The d i c t a do n o t , i t wou l d seem, l e a v e any room f o r an a rgument t h a t t h e r e i s a s i g n i f i c a n t d i s t i n c t i o n between an c c a c t done " m a l a f i d e " and one done " n o t bona f i d e . " I f t h i s i n t e r p r e t a t i o n o f Bamford v . Bamford i s c o r r e c t , t he i m p l i c a t i o n s f o r a m i n o r i t y s h a r e h o l d e r a r e g r a v e . B e a r i n g i n mind t h a t t he d i r e c t o r s , when v o t i n g as s h a r e h o l d e r s , a r e e n t i t l e d t o v o t e i n t h e i r own i n t e r e s t , even i f t h e i r i n t e r e s t i s opposed t o t h e company ' s i n t e r e s t , and t h a t t h e y may be i n a c o n t r o l l i n g p o s i t i o n , t h e y c a n , as s h a r e h o l d e r s , r a t i f y t h e i r own mala  f i d e a c t i o n s . A f u r t h e r remedy w h i c h may be open t o s h a r e h o l d e r s i n such a s i t u a t i o n 68 i s an a c t i o n f o r " f r a u d on t h e m i n o r i t y . " " F r a u d " has a l e s s r e s t r i c t e d meaning f o r t h e pu rpo se o f t h i s a c t i o n t han f o r an a c t i o n i n d e c e i t . Here f r a u d means o p p r e s s i o n o f t h e m i n o r i t y , o r m i s u s e o f a f i d u c i a r y p o s i t i o n . A l t h o u g h i t m i g h t appea r a t f i r s t s i g h t t h a t m i n o r i t y s h a r e h o l d e r s i n t h e Hogg v . Cramphorn and Bamford v . Bamford t y p e s i t u a t i o n s wou l d s u c c e e d i n s u ch an a c t i o n , i t s h o u l d be r e a l i z e d t h a t t h e o n l y c a s e s i n w h i c h t h e s h a r e -h o l d e r s have s u c ceeded have been c a s e s i n v o l v i n g a change i n t he company ' s 69 c o n s t i t u t i o n , u s u a l l y one o f t he a r t i c l e s o f a s s o c i a t i o n . The re i s no r e a -son i n p r i n c i p l e why t h i s s h o u l d be s o , b u t t h e f a c t r ema in s t h a t i f t he d o c -t r i n e i s t o be r e s t r i c t e d i n o p e r a t i o n i n t h i s manner , t h e remedy w i l l be a p p l i c a b l e i n v e r y few i n s t a n c e s o f t h e t a k e - o v e r s i t u a t i o n . The d i r e c t o r s have a w i d e range o f powers w h i c h t h e y may e x e r c i s e i n r e s -ponse t o a t a k e - o v e r b i d , and e f f e c t i v e e x e r c i s e o f t h e s e powers w i l l r e s u l t i n t h e m i n o r i t y s h a r e h o l d e r s l o s i n g an o p p o r t u n i t y t o a c c e p t what m i gh t t o them be a welcome o f f e r . 7 ^ F u r t h e r , t h e o f f e r i s made t o t h e s h a r e h o l d e r s , n o t t o t he company, w h i c h i s i n v o l v e d o n l y i n d i r e c t l y . T h e r e f o r e one may a rgue t h a t some r e s t r i c t i o n s h o u l d be imposed on t h e e x t e n t t o w h i c h t h e d i r e c t o r s can c l a i m t o be a c t i n g on b e h a l f o f t h e company when d e f e n d i n g a g a i n s t t h e o f f e r . In v i e w o f t h e s e c o n s i d e r a t i o n s , t he m i n o r i t y s h a r e h o l d e r s a r e i n a v e r y weak p o s i t i o n w h i c h i s n o t w a r r a n t e d by a c o r r e s p o n d i n g need f o r t he d i r e c t o r s to have the g r e a t power w h i c h t h e y do have . 30 S e c t i o n B D i s c l o s u r e When a s h a r e h o l d e r r e c e i v e s an o f f e r f o r h i s s h a r e s as p a r t o f a t a k e -o v e r b i d , he m u s t , w i t h i n a r e l a t i v e l y s h o r t t i m e , 7 1 d e c i d e w h e t h e r t o a c c e p t o r r e f u s e t h e o f f e r . To e n a b l e him t o make an e n l i g h t e n e d r e s p o n s e , t h e s h a r e -h o l d e r s h o u l d be g i v e n s u f f i c i e n t i n f o r m a t i o n t o a s s e s s a c c u r a t e l y t h e v a l u e o f h i s own s h a r e s a n d , i f t h e o f f e r i s on a s h a r e - f o r - s h a r e b a s i s , t he v a l u e o f t h e o f f e r o r ' s s h a r e s . I f t he s h a r e s a r e q u o t e d on a S t o c k E x change , t he p r i c e a t w h i c h t h e y a r e q u o t e d w i l l be an i n d i c a t i o n o f t h e i r v a l u e . B u t , f o r a v a r i e t y o f r e a s o n s , t h e q u o t a t i o n may be m i s l e a d i n g . "The f a c t appea r s t o be t h a t t he m a r k e t p r i c e o f t h e s e c u r i t y i s i n l a r g e measure a r e f l e c t i o n o f t h e m a r k e t i n f o r m a t i o n on t h a t s e c u -r i t y ; and t h e knowledge o f t he i n d i v i d u a l has l i t t l e t o do w i t h t h e s u b j e c t . The m a r k e t as a w h o l e makes an a p p r a i s a l ; by a c c e p t i n g t h i s a p p r a i s a l t h e buye r o r s e l l e r i n s u b s t a n c e a c c e p t s t h e r e s u l t o f t h i s i n f o r m a t i o n . " ^ 2 C l e a r l y t h e m a r k e t q u o t a t i o n may be m i s l e a d i n g because t h e m a r k e t does n o t have f u l l i n f o r m a t i o n a b o u t t h e company. The q u o t a t i o n may a l s o be a f f e c t e d t e m p o r a r i l y by f a c t o r s w h i c h have no r e l a t i o n s h i p t o t he company i n v o l v e d ; f o r example t h e r e may be a m i n o r d e p r e s s i o n o f s h a r e p r i c e s g e n e r a l l y w h i l e t h e mar -k e t w a i t s f o r a p a r t i c u l a r m o n e t a r y , n a t i o n a l o r w o r l d p r o b l e m to be s o l v e d . F u r t h e r , t h e q u o t a t i o n does n o t t a k e i n t o a c c o u n t t h e p o s s i b i l i t y t h a t t h e com-pany may be more v a l u a b l e t o a c e r t a i n b i d d e r who may be i n a s p e c i a l l y a d v a n -73 t ageous p o s i t i o n t o e x p l o i t t h e company ' s a s s e t s . The s h a r e p r i c e may a l s o 74 be m a n i p u l a t e d by f a l s e rumour o r f a l s e b u y i n g . An o f f e r e e s h a r e h o l d e r s h o u l d n o t , t h e r e f o r e , r e l y s o l e l y on t h e S t o c k Exchange q u o t a t i o n f o r g u i d a n c e as t o t h e v a l u e o f h i s s h a r e s . He r e q u i r e s much more d e t a i l e d i n f o r m a t i o n . T h i s i s p r o v i d e d by a s y s t e m o f d i s c l o s u r e w h i c h has been e v o l v e d o v e r t h e y e a r s . 31 75 In c o n s i d e r i n g d i s c l o s u r e t h e P o r t e r Commis s ion s a i d : "The r o l e o f s e c u r i t i e s r e g u l a t i o n i s t o a s s i s t and encou rage t he s e c u r i t i e s i n d u s t r y t o d e v e l o p and m a i n t a i n a d e s e r v e d r e p u t a t i o n f o r s k i l l and i n t e g r i t y , t o p r o -t e c t i n v e s t o r s f r o m d e c e p t i o n by e i t h e r t h e f i n a n c i a l community o r c o r p o r a t e i n s i d e r s who s t a n d i n a f i d u c i a r y r e l a t i o n t o them, and t o e n s u r e t h a t a d e -q u a t e i n f o r m a t i o n i s made t o them t o a l l o c a t e t h e i r s a v i n g s r a t i o n a l l y . " From t h e p o i n t o f v i e w o f an o f f e r e e s h a r e h o l d e r , t h e r e a r e two main s o u r c e s o f d i s c l o s e d i n f o r m a t i o n , one b e i n g t he annua l and i n t e r i m f i n a n c i a l 7fi s t a t e m e n t s o f the company and t h e o t h e r b e i n g t he c i r c u l a r s w h i c h a r e o r may be s e n t t o s h a r e h o l d e r s i n c o n n e c t i o n w i t h t he t a k e - o v e r b i d . 7 7 The i n t e n -t i o n i s t h a t t h e s h a r e h o l d e r , when he has r e a d t h e s e document s , s h o u l d have been i n f o r m e d o f a l l t h e r e l e v a n t f a c t s and s h o u l d , t h e r e f o r e , be i n a compar -a b l e p o s i t i o n t o t h a t o f a d i r e c t o r i n c o n s i d e r i n g t h e o f f e r . " I t i s d i f f i c u l t f o r t h e o r d i n a r y i n v e s t o r , i n t h e ab sence o f adequa te 78 d i s c l o s u r e , t o a r r i v e a t an i n f o r m e d o p i n i o n on t h e v a l u e o f h i s i n v e s t m e n t . " A s t u d y o f t h e c u r r e n t l aw and r e g u l a t i o n s i s n e c e s s a r y i n o r d e r to d e t e r -mine w h e t h e r t h e y e n s u r e adequa te d i s c l o s u r e . The r u l e s r e l a t i n g t o annua l f i n a n c i a l s t a t e m e n t s s h a l l be c o n s i d e r e d f i r s t , and then t he r u l e s a p p l i c a b l e t o t a k e - o v e r c i r c u l a r s . 1. Annua l A c c o u n t s In r e c e n t y e a r s c o n s i d e r a b l e improvement s have been made i n t h e l e g i s l a -t i o n c o n c e r n i n g annua l a c c o u n t s i n E n g l and and i n B r i t i s h C o l u m b i a , as a r e s u l t 79 o f t h e R e p o r t s o f t h e J e n k i n s Commit tee and t h e K imber C o m m i t t e e , r e s p e c t i v e l y . The p r o v i s i o n s a r e , t o a l a r g e e x t e n t , s i m i l a r . In each j u r i s d i c t i o n a g e n e r a l p r i n c i p l e i s l a i d down, and then d e t a i l s as t o t h e c o n t e n t s o f t h e p r o f i t and l o s s a c c o u n t and t h e b a l a n c e s h e e t a r e p r o -80 v i d e d f o r . In B r i t i s h C o l u m b i a t he a c c o u n t s must c o n t a i n two e x t r a s t a t e m e n t s , 81 82 i . e . a s t a t e m e n t o f s u r p l u s and a s t a t e m e n t o f s o u r c e and a p p l i c a t i o n o f f u n d s . 32 The E n g l i s h l e g i s l a t i o n does n o t r e q u i r e s uch c a t e g o r i e s , though t h e i n f o r m a -t i o n w i l l be c o n t a i n e d i n e i t h e r t h e b a l a n c e s h e e t o r t h e p r o f i t and l o s s a c c o u n t . The p r o v i s i o n s i n t h e new A c t s a r e i n t e n d e d t o c r e a t e d i s c l o s u r e i n g r e a t e r d e t a i l and i n documents w h i c h a r e more i n t e l l i g i b l e . M a j o r s t e p s i n t h e r i g h t 83 d i r e c t i o n a r e t h e r e q u i r e m e n t s f o r c o m p a r a t i v e f i g u r e s whereby t h e p r e v i o u s y e a r ' s f i g u r e s a r e g i v e n w i t h t h o s e f o r t he c u r r e n t y e a r , and f o r c o n s o l i d a t e d 84 s t a t e m e n t s where a company has s u b s i d i a r i e s . In t h e 1967 E n g l i s h Companies A c t , an a t t e m p t was made t o c l a r i f y and s t a n d a r d i z e t h e methods o f p r e p a r i n g 85 some p a r t s o f t h e a c c o u n t s . In p r a c t i c e some companies were u t i l i z i n g t he 86 d i r e c t o r s ' r e p o r t t o g i v e i n f o r m a t i o n i n a n a r r a t i v e f o r m w h i c h i s much more i n t e l l i g i b l e t o t he a v e r a g e i n v e s t o r . T h i s has now been i n c o r p o r a t e d i n t he s t a t u t e . The con sequence o f t he r e f o r m s e n a c t e d i n 1967 i s t h a t t h e annua l a c c o u n t s o f p u b l i c companies now p r o v i d e f i n a n c i a l i n f o r m a t i o n i n g r e a t e r d e t a i l and w i t h more c l a r i t y t h a n p r e v i o u s l y . However i t may be a r gued t h a t t h e s e i m p r o v e -ments a r e no t s u f f i c i e n t . Today a w i d e r range o f p e o p l e a r e i n v e s t i n g t h e i r s a v i n g s i n s h a r e s , and i t i s n o t u n r e a s o n a b l e t o assume t h a t a l o w e r p e r c e n t a g e 87 o f i n v e s t o r s can u n d e r s t a n d t h e annua l a c c o u n t s , new ly c l a r i f i e d as t h e y a r e . "No d i s c l o s u r e r e q u i r e m e n t , howeve r , w i l l be e f f e c t i v e u n l e s s t h e r e s u l t i n g i n f o r m a t i o n i s p r e s e n t e d i n a c l e a r and u n d e r s t a n d a b l e manner. V a r i o u s p r o f e s s i o n s c o n t r i b u t e t o t h e i n f o r m a t i o n p r o v i d e d by c o m p a n i e s , and t h e i r t e c h n i c a l l a n g u a g e , combined w i t h t h a t o f t h o s e engaged i n t h e s e c u r i t i e s b u s i n e s s , o f t e n r e s u l t s i n i n f o r m a -t i o n w h i c h i t i s d i f f i c u l t f o r t h e p u b l i c t o i n t e r p r e t . I t s h o u l d be t he f u n c t i o n o f t h e s e c u r i t i e s l e g i s l a t i o n t o e n s u r e , so f a r as p r a c t i c a b l e , t h a t f i n a n c i a l i n f o r m a t i o n i s p r e s e n t e d i n a f o r m w h i c h i s u n d e r s t a n d a b l e t o the i n v e s t i n g p u b l i c . " ° 8 One m a j o r p r o b l e m , t h e n , i s t o p r e s e n t t h e f i n a n c i a l i n f o r m a t i o n i n a manner w h i c h i s i n t e l l i g i b l e . I t i s s u g g e s t e d t h a t t h i s o b j e c t i v e has n o t been a c h i e v e d . The re i s a n o t h e r e q u a l l y i m p o r t a n t and d i f f i c u l t p r o b l e m a r i s i n g o u t o f t he p r e p a r a t i o n o f f i n a n c i a l s t a t e m e n t s , and t h i s i s t h e m u l t i p l i c i t y o f ' a c c e p t e d a c c o u n t i n g p r i n c i p l e s . ' 33 " I t i s e v i d e n t t h a t opt imum d i s c l o s u r e w i l l n o t be a t t a i n e d u n t i l f i n a n c i a l s t a t e m e n t s o f b u s i n e s s o r g a n i s a t i o n s a r e p r e s e n t e d on a b a s i s c o n s i s t e n t w i t h one a n o t h e r . A t t he p r e s e n t t i m e two b a s i c a l l y c ompa rab l e companies may have t h e i r a c c o u n t s p r e s e n t e d u s i n g d i f f e r e n t a c c o u n t i n g p r i n c i p l e s w i t h t h e r e s u l t t h a t t h e i r f i n a n c i a l p o s i t i o n and o p e r a t i n g r e s u l t s may appea r t o be q u i t e d i f f e r e n t i n t h e i r f i n a n c i a l s t a t e m e n t s . " 8 9 The p r o b l e m was d r a m a t i c a l l y h i g h l i g h t e d by t h e Lea sco -Pe rgamon a f f a i r . A f t e r a f r i e n d l y ag reement t o a merge r had been made i n p r i n c i p l e , two h i g h l y -r e s p e c t e d a c c o u n t i n g f i r m s s t u d i e d t h e a c c o u n t s o f Pergamon P r e s s , and c o u l d n o t a g r e e on t h e i r s i g n i f i c a n c e . The d i f f e r e n c e was due t o t h e use o f d i f f e -r e n t a c c o u n t i n g p r i n c i p l e s i n two b a s i c a r e a s : (a ) When s h o u l d deve lopment e x p e n d i t u r e be w r i t t e n o f f — i n t h e f i r s t y e a r o r o v e r a p e r i o d o f y e a r s ? The p r o f i t and l o s s a c c o u n t w i l l be s e r i o u s l y a f f e c t e d by t h e a n s w e r , y e t one ' a c c e p t e d a c c o u n t i n g p r i n c i p l e ' s t i p u l a t e s a o n e - y e a r w r i t e - o f f , w h i l e a n o t h e r ' a c c e p t e d a c c o u n t i n g p r i n c i p l e ' a l l o w s t h e e x p e n d i t u r e t o be w r i t t e n o f f o v e r a p e r i o d o f y e a r s . The s econd d i s p u t e (b) c o n c e r n e d t h e s t a g e a t w h i c h t he p r o c e e d s o f a s a l e , p a r t i c u l a r l y a h i r e - p u r c h a s e s a l e , can v a l i d l y be t e rmed a p r o f i t — w h e n 90 t h e s a l e has been a g r e e d , o r when t h e money has come t o hand? These two p rob l ems a r e t y p i c a l o f t he many a c c o u n t i n g d i f f i c u l t i e s w h i c h a r i s e because t h e r e i s a w i d e v a r i e t y o f ' a c c e p t e d a c c o u n t i n g p r i n c i p l e s ' on w h i c h t o base t h e p r e p a r a t i o n o f f i n a n c i a l s t a t e m e n t s . A m a j o r i n f l u e n c e on t h e p r o f i t and l o s s s t a t e m e n t i s t h e method by w h i c h d e p r e c i a t i o n i s c a l c u l a t e d , y e t t h e r e a r e a t l e a s t t h r e e d i f f e r e n t methods o f 91 d e a l i n g w i t h d e p r e c i a t i o n . The J e n k i n s Commit tee recommended t h a t d i r e c t o r s s h o u l d rema in f r e e t o choose t h e method, o f d e p r e c i a t i o n , r e d u c i n g b a l a n c e , s t r a i g h t l i n e o r s i n k i n g f u n d , a p p r o p r i a t e t o t h e c i r c u m s t a n c e s o f t h e i r company. 92 The re a r e many o t h e r s i m i l a r p r o b l e m s , e . g . t he d e f i n i t i o n o f t u r n o v e r and t he d i f f e r e n c e between p r o f i t s c a l c u l a t e d i n a c c o r d a n c e w i t h a c c e p t e d a c c o u n -t i n g p r i n c i p l e s , and t he p r o f i t s computed f o r t he p u r p o s e o f income t a x and 93 p r o f i t s t a x . 34 " I n s p i t e o f t h e r e g u l a t i o n s . . . t he v a s t d i f f e r e n c e i n a c c o u n -t i n g methods o f t e n p r e v e n t s a m e a n i n g f u l c o m p a r i s o n between compan i e s . L a ck o f s t a n d a r d i z e d a c c o u n t i n g p r o c e d u r e s r e d u c e s t he v a l u e o f d i s -c l o s u r e i n a l l i n s t a n c e s . " 9 4 In answer t o t h e demand f o r s t a n d a r d i z e d a c c o u n t i n g p r o c e d u r e s , a c c o u n -t a n t s have c o n s i s t e n t l y and p e r s u a s i v e l y a r g u e d t h a t t h e r e a r e d i f f e r e n t a c c o u n -t i n g s y s tems p r o p e r l y a p p l i c a b l e t o v a r y i n g s i t u a t i o n s and t h e r e can be no s i n g l e c o r r e c t method. A t y p i c a l s t a t e m e n t o f t h i s a t t i t u d e i s : " T h e r e a r e , however , v a r i o u s methods o f c ompu t i n g c o s t and a l t e r -n a t i v e methods o f a r r i v i n g a t t h e amount , i f a n y , t o be w r i t t e n o f f and t h e r e a r e v a r i o u s s p e c i a l bases w h i c h a r e r e g a r d e d as a p p r o p r i a t e i n some b u s i n e s s e s . C i r c u m s t a n c e s v a r y so w i d e l y t h a t no one b a s i s i s s u i t a b l e f o r a l l t y p e s o f b u s i n e s s , no r even f o r a l l u n d e r t a k i n g s w i t h a p a r t i c u l a r t r a d e o r i n d u s t r y . I t w o u l d , t h e r e f o r e , be u n d e s i r a b l e t o a t t e m p t t o l a y down by s t a t u t e any r u l e s g o v e r n i n g t h e c o m p u t a t i o n o f t he amount t o be c a r -r i e d f o r w a r d f o r s t o c k - i n - t r a d e and w o r k - i n - p r o g r e s s . " 9 5 The d i lemma i s r e v e a l e d — t h e i n v e s t o r r e q u i r e s s t a n d a r d methods g i v i n g c o n s i s t e n t r e s u l t s so t h a t he may compare one company w i t h a n o t h e r , whereas t he a c c o u n t a n t s t a t e s t h a t he c a n n o t a c c u r a t e l y r e p r e s e n t t h e a f f a i r s o f a w i d e v a r i e t y o f compan ie s by u s i n g one s t a n d a r d method . 96 One p o s s i b l e s o l u t i o n has been s u g g e s t e d : "The o v e r r i d i n g c o n s i d e r a t i o n i s t h a t t h e a c c o u n t s s h o u l d g i v e a t r u e and f a i r v i ew and i t i s t h e r e f o r e i m p o r -t a n t t h a t t he b a s i s a d o p t e d s h o u l d be used c o n s i s t e n t l y f r om p e r i o d t o p e r i o d , and s h o u l d be a p p r o p r i a t e t o t he n a t u r e and c i r c u m s t a n c e s o f t h e b u s i n e s s , and t h a t t h e a c c o u n t s s h o u l d d i s c l o s e adequa te i n f o r m a t i o n . " 97 The J e n k i n s Commit tee a g r e e d : "We t h i n k t h e r e f o r e t h a t s h a r e h o l d e r s ought t o be c o n c i s e l y b u t a d e q u a t e l y i n f o r m e d as t o t he b a s i s u s e d . Any d e p a r t u r e f rom the b a s i s p r e v i o u s l y i n use and t h e e f f e c t o f any such change s h o u l d a l s o be b r o u g h t t o t he n o t i c e o f s h a r e h o l d e r s i f t h e e f f e c t i s m a t e r i a l . " T h i s s o l u t i o n has been a d o p t e d i n t he s t a t u t e s i n B r i t i s h C o l u m b i a and i n 98 E n g l a n d . The B r i t i s h C o l u m b i a S e c u r i t i e s A c t p r o v i d e s : "There s h a l l be s t a t e d by way o f no te t o t h e f i n a n c i a l s t a t e m e n t s p a r t i c u l a r s o f any change i n a c c o u n -t i n g p r a c t i c e o r p r i n c i p l e o r i n t h e method o f a p p l y i n g any a c c o u n t i n g p r i n c i p l e 35 or pract ice made during the period covered that af fects the comparability of any of the statements with any of those for the preceding per iod, and the e f f e c t , i f mater ia l , of any such change upon the p r o f i t or loss of the per iod. " 99 The 1967 Companies Act contains such provisions as: " I f depreciation or replacement of f i xed assets i s provided for by some method other than a depreciation charge or provision for renewals, or i s not provided f o r , the method by which i t i s provided f o r , or the fact that i t i s not provided f o r , as the case may be" sha l l be stated by way of note i f not otherwise shown. So also i t i s p rov ided:^ 0 0 "Any material respects in which any items shown in the p r o f i t and loss account are affected by any change in the basis of accounting" sha l l be shown by way of note. Two questions may be asked concerning th i s so lut ion: (1) Is the objec-t i ve of rendering one company comparable to another by the use of the i r annual accounts achieved?; and (2) Wi l l the resultant accounts be read i ly i n t e l l i g i b l e ? I t i s suggested that i f one i s considering, as surely one must, the ave-rage investor, uneducated in f i nanc ia l theory and language, the answer to both questions w i l l be 'no. 1 Even i f i t i s noted that a d i f fe rent accounting p r i n -c i p l e has been used from the one used the previous year, th i s w i l l not help the investor who i s comparing one company with another, i f yet a t h i r d accoun-t ing p r i nc ip le has been used. In f a c t , the investor w i l l probably not rea l i ze the s ign i f icance of any of the pr inc ip les and so w i l l not be able to understand one set of statements, and much less w i l l he be able to make a comparison. Therefore many shareholders when faced with the decision whether or not to accept a take-over o f f e r , w i l l not receive accurate guidance from the annual account, because they cannot understand t h e m J ^ There i s a more basic reason why the annual accounts would provide mis-leading guidance to an unaware shareholder who: 36 "may have t h e i d e a t h a t t he f u n c t i o n o f a company ' s b a l a n c e s h e e t i s t o show the d i r e c t o r s ' o p i n i o n o f t h e w o r t h o f i t s u n d e r t a k i n g o r o f i t s a s s e t s a t t h e d a t e as a t w h i c h t h e b a l a n c e s h e e t i s made up. As t h e Cohen Commit tee p o i n t e d o u t , 1 0 2 t h a t i s no t t h e f u n c t i o n o f t he b a l a n c e s h e e t , and i n d e e d a b a l a n c e s h e e t p r e p a r e d on t h a t b a s i s c o u l d be s e r i o u s l y m i s l e a d i n g e x c e p t when t he company i s abou t t o be l i q u i -d a t e d . " 103 "The p r i m a r y pu rpo se o f t h e annua l a c c o u n t s o f a b u s i n e s s i s t o p r e s e n t i n f o r m a t i o n t o t h e p r o p r i e t o r s , show ing how t h e i r funds have been u t i l i z e d and t h e p r o f i t s d e r i v e d f r o m such u se . I t has l o n g been a c c e p t e d t h a t a b a l a n c e s h e e t p r e p a r e d f o r t h i s pu rpo se i s an h i s t o r i c a l r e c o r d and n o t a s t a t e m e n t o f c u r r e n t w o r t h . S t a t e d b r i e f l y , i t s f u n c t i o n i s t o show i n mone t a r y te rms t h e c a p i t a l r e s e r v e s and l i a -b i l i t i e s o f a b u s i n e s s a t t h e d a t e as a t w h i c h i t i s p r e p a r e d and t h e manner i n w h i c h t h e t o t a l moneys r e p r e s e n t i n g them have been d i s t r i -b u t e d o v e r t h e s e v e r a l t y p e s o f a s set s . . S i m i l a r l y a p r o f i t and l o s s a c c o u n t i s an h i s t o r i c a l r e c o r d . I t shows as t he p r o f i t o r l o s s t he d i f f e r e n c e between t h e r e venue f o r t h e p e r i o d c o v e r e d by t h e a c c o u n t and t he e x p e n d i t u r e c h a r g e a b l e i n t h a t p e r i o d , i n c l u d i n g c h a r g e s f o r a m o r t i z a t i o n o f c a p i t a l e x p e n d i t u r e . Revenue and e x p e n d i t u r e a r e b r o u g h t i n t o t h e a c c o u n t a t t h e i r r e c o r d e d mone ta r y amounts . T h i s b a s i s o f a c c o u n t i n g i s f r e q u e n t l y d e s c r i b e d as t he h i s t o r i c a l c o s t b a s i s . . . . " 1 0 4 C l e a r l y t h e a v e r a g e i n d i v i d u a l s h a r e h o l d e r s h o u l d n o t r e l y s o l e l y on h i s u n d e r s t a n d i n g o f t he annua l a c c o u n t s e i t h e r o f t h e company o f w h i c h he i s a s h a r e h o l d e r , o r o f an o f f e r o r company. F i r s t he w i l l n o t , i n a l l p r o b a b i l i t y , have an a d e q u a t e u n d e r s t a n d i n g o f t he a c c o u n t s , and s e c o n d l y , t h e y a r e a r e c o r d o f t he use o f t he company ' s f und s r a t h e r t han a v a l u a t i o n o f t h e company. The s h a r e h o l d e r must t h e r e f o r e r e l y t o a c o n s i d e r a b l e e x t e n t on t he i n f o r m a t i o n g i v e n t o him i n t h e documents w h i c h he r e c e i v e s i n c o n n e c t i o n w i t h t he t a k e -o v e r o f f e r . 2. C i r c u l a r s C o n n e c t e d w i t h T a k e - o v e r B i d s The r e c i p i e n t o f an o f f e r f o r h i s s h a r e s , as p a r t o f a t a k e - o v e r b i d , must 105 r e c e i v e a c i r c u l a r f r o m the o f f e r o r . The o f f e r e e may a l s o r e c e i v e a c i r c u l a r f r o m t h e o f f e r e e d i r e c t o r s . Such a c i r c u l a r i s r e q u i r e d , i n B r i t i s h C o l u m b i a , when t h e d i r e c t o r s o f t h e o f f e r e e company recommend a c c e p t a n c e o r r e f u s a l o f t h e b i d , 1 0 6 and i n E n g l a n d where t h e d i r e c t o r s recommend a c c e p t a n c e . 1 0 7 The J e n k i n s Commit tee c o n s i d e r e d whe the r r u l e s s h o u l d be d e v i s e d t o c o n t r o l t h e 37 c o n t e n t s o f a c i r c u l a r recommending r e f u s a l , b u t d e c i d e d a g a i n s t s u ch r u l e s 108 on t h e g rounds t h a t t h e y w o u l d n o t be p r a c t i c a b l e . No r e a s o n s f o r t h i s i m p r a c t i c a b i l i t y were g i v e n . The p o s i t i o n i s u n s a t i s f a c t o r y as d i r e c t o r s may be a b l e t o recommend t o s h a r e h o l d e r s t h a t t h e y r e f u s e an o f f e r , w i t h o u t h a v i n g 109 t o g i v e r e a s on s and w i t h o u t c o n t r o l o v e r any s t a t e m e n t s t h e y may make. 3. The T a k e - o v e r B i d C i r c u l a r The p r o v i s i o n s as t o t h e c o n t e n t s o f t h e c i r c u l a r accompany ing t he o f f e r , s e t o u t i n t h e S e c u r i t i e s A c t 1 1 ^ 1 and t h e L i c e n s e d D e a l e r s R u l e s , 1 1 1 a r e s u b -s t a n t i a l l y s i m i l a r . The p r o c e d u r e g o v e r n i n g t he b i d must be e x p l a i n e d , e . g . 112 t h e l e n g t h o f t i m e t h e b i d w i l l r ema in open, and w h e t h e r t h e o f f e r o r ' s o b l i -g a t i o n t o t a k e up and pay f o r s h a r e s d e p o s i t e d i s c o n d i t i o n a l upon a minimum 113 number o f s h a r e s b e i n g d e p o s i t e d . O t h e r b a s i c i n f o r m a t i o n i s a l s o r e q u i r e d t o be d i s c l o s e d unde r each s y s t e m : d e t a i l s o f s h a r e s i n t h e o f f e r e e company 114 a l r e a d y h e l d by t h e o f f e r o r ; d e t a i l s o f p u r c h a s e s o f s h a r e s w i t h t h e l a s t 115 s i x month s , o r t h e l a s t s i x t r a n s a c t i o n s ; d e t a i l s o f a r r angemen t s w h i c h have been made t o e n s u r e t h a t t h e o f f e r o r has s u f f i c i e n t c a s h t o f u l f i l h i s 116 o b l i g a t i o n s . An i m p o r t a n t s t i p u l a t i o n i s t h a t d e t a i l s o f any c o n t r a c t s , a r r angement s o r ag reements between t h e d i r e c t o r s o f t h e o f f e r e e company and 117 t he o f f e r o r must be d i s c l o s e d . A c u r i o u s d i f f e r e n c e between t h e E n g l i s h and B r i t i s h C o l u m b i a l e g i s l a -118 t i o n i s t h a t i n E n g l a n d t h e i d e n t i t y o f t h e o f f e r o r must be d i s c l o s e d , w h i l e i n B r i t i s h C o l u m b i a t h e r e i s no such r e q u i r e m e n t . The K imber Commit tee were o f t he o p i n i o n t h a t " t h e dominant f a c t o r w h i c h i n f l u e n c e s t h e o f f e r e e s t o a c c e p t i s t h e adequacy o f t he p r i c e " and " t h a t c o m p u l s o r y d i s c l o s u r e o f t h e b i d d e r ' s i d e n t i t y c o u l d d i s c o u r a g e t he mak ing o f b i d s w h i c h m i g h t o t h e r -119 w i s e be made. W h i l e bo th p o i n t s a r e v a l i d , i t may a l s o be s a i d t h a t t he i d e n t i t y o f t h e o f f e r o r can be v e r y i m p o r t a n t . I f t h e b i d d e r i s a w e l l - k n o w n , h i g h l y e f f i c i e n t and s u c c e s s f u l b u s i n e s s m a n , some o f f e r e e s may w i s h t o r ema i n 38 s h a r e h o l d e r s under h i s c o n t r o l . The dange r f o r t h e b i d d e r i s t h a t t o o many o f f e r e e s w i l l t h i n k l i k e t h a t , and he may n o t g a i n s u f f i c i e n t s h a r e s f o r c o n t r o l . S u r e l y , howeve r , t h e o f f e r e e s have t h e r i g h t t o make t h e i r c h o i c e w h i l e i n p o s s e s s i o n o f a l l t h e r e l e v a n t f a c t s . I t i s a l s o t r u e t h a t i n some c a s e s a p a r t i c u l a r b i d d e r i s , f o r sound r e a s o n s , n o t a s u i t a b l e c o n t r o l l e r , pe rhap s because he has b u s i n e s s methods w h i c h a r e u n a c c e p t a b l e t o t he t r a d e 120 u n i o n s . Though t h i s may n o t be i m p o r t a n t f r o m the s t r i c t l y l e g a l v i e w -121 122 p o i n t , i t can be v e r y s i g n i f i c a n t i n p r a c t i c e . In each j u r i s d i c t i o n t h e r e i s a ' m a t e r i a l c hange ' s u b - s e c t i o n . In B r i t i s h 123 C o l u m b i a t h e c i r c u l a r must c o n t a i n : 'The p a r t i c u l a r s o f any i n f o r m a t i o n known t o t h e o f f e r o r t h a t i n d i c a t e s any m a t e r i a l change i n t he f i n a n c i a l p o s i -t i o n o r p r o s p e c t s o f t h e o f f e r e e company s i n c e t he d a t e o f t h e l a s t p u b l i s h e d 124 i n t e r i m o r annua l f i n a n c i a l s t a t e m e n t s o f t h e o f f e r e e company. " 125 The re i s a s i m i l a r p r o v i s i o n i n E n g l a n d . A l t h o u g h t h e o f f e r o r may n o t be i n a v e r y good p o s i t i o n t o know much abou t t h e a f f a i r s o f t h e o f f e r e e company w h i c h w o u l d no t a l r e a d y be known t o t h e s h a r e -h o l d e r s , t h e s e m a t e r i a l change p r o v i s i o n s c o u l d be u s e f u l , p a r t i c u l a r l y when t he o f f e r e e d i r e c t o r s do no t send a c i r c u l a r t o t h e i r own s h a r e h o l d e r s . In such a ca se t h e s e p r o v i s i o n s w o u l d be t he o n l y l e g i s l a t i v e r e q u i r e m e n t t o d i s c l o s e 127 i n f o r m a t i o n on s u b s t a n t i v e m a t t e r s r a t h e r t h a n on p r o c e d u r e and b a s i c p o i n t s s uch as s h a r e h o l d i n g s . However t h e s u b - s e c t i o n s a r e d i f f i c u l t t o a p p l y . What c o n s t i t u t e s a ' m a t e r i a l c hange ? ' What w o u l d be c l a s s i f i e d as ' i n f o r m a t i o n ? ' I t i s u n l i k e l y t h a t t h i s p r o v i s i o n w i l l be f r e q u e n t l y l i t i g a t e d , so t h a t one c a n n o t depend on t h e c o u r t s f o r i n t e r p r e t a t i o n . 4. D i r e c t o r s ' C i r c u l a r s The s econd document w h i c h t h e o f f e r e e s h a r e h o l d e r s a r e l i k e l y t o r e c e i v e 103 i s a d i r e c t o r s ' c i r c u l a r . The c o n t e n t s w i l l i n c l u d e such m a t t e r s a s : t h e 129 number o f s h a r e s i n t h e o f f e r e e company h e l d by t h e o f f e r e e d i r e c t o r s o r by anyone h o l d i n g more t han t e n p e r c e n t o f t h o s e s h a r e s c a r r y i n g v o t i n g 130 r i g h t s ; a s t a t e m e n t w h e t h e r t h e o f f e r e e d i r e c t o r s i n t e n d t o a c c e p t t he 131 132 o f f e r ; t he number o f s h a r e s owned by t h e o f f e r o r d i r e c t o r s ; the p a r t i -c u l a r s o f any p r o p o s e d agreement between t h e o f f e r o r and t he o f f e r e e d i r e c -133 t o r s ; w h e t h e r any d i r e c t o r o f t h e o f f e r e e company has any i n t e r e s t i n any 134 c o n t r a c t t o w h i c h t he o f f e r o r i s a p a r t y , and t he p a r t i c u l a r s t h e r e o f ; 135 d e t a i l s o f t he p r i c e o f t he o f f e r e e company ' s s h a r e s p r i o r t o t h e o f f e r . A g a i n b o t h t h e S e c u r i t i e s A c t and t he L i c e n s e d D e a l e r s Ru l e s have s u b - s e c t i o n s r e q u i r i n g d i s c l o s u r e o f i n f o r m a t i o n i n d i c a t i n g a m a t e r i a l change i n t he f i n a n -c i a l p r o s p e c t s o f t h e company. The S e c u r i t i e s A c t c o n t a i n s an a d d i t i o n a l p r o v i s i o n r e q u i r i n g t h a t " t h e p a r t i c u l a r s o f any o t h e r m a t e r i a l f a c t s no t d i s c l o s e d i n the f o r e g o i n g " be s t a t e d . 1 3 6 The l a t t e r p r o v i s i o n i s s u b j e c t t o t h e same o b j e c t i o n s as were made t o 137 t h e ' m a t e r i a l c hange ' s u b - s e c t i o n s . What i s a m a t e r i a l f a c t ? I f t h e d i r e c -t o r s d e c i d e t h a t a p a r t i c u l a r f a c t i s n o t m a t e r i a l , under what c i r c u m s t a n c e s w i l l a c o u r t i n t e r f e r e w i t h t h a t d e c i s i o n ? T h i s i s n o t such a ca se where t h e c o u r t s w i l l be i n h i b i t e d by t he ' b u s i n e s s j u d g m e n t ' r u l e , and t h e y w i l l p r o b -1 qo a b l y have no h e s i t a t i o n i n c o n s i d e r i n g t h e m a t e r i a l i t y o f a f a c t . 139 These s u b - s e c t i o n s c o u l d , i f e f f e c t i v e l y e n f o r c e d , p l a y a c r u c i a l r o l e . I f t h e y were o m i t t e d , t h e o f f e r o r and o f f e r e e d i r e c t o r s c o u l d comply w i t h t h e r e g u l a t i o n s , g i v i n g i n f o r m a t i o n as t o t h e p r e v i o u s s h a r e p r i c e s , c o n t r a c t s w i t h t h e o f f e r e e d i r e c t o r s , t h e p r o c e d u r a l d e t a i l s , w h e t h e r o f f e r e e d i r e c t o r s i n t e n d t o a c c e p t t h e o f f e r . The o f f e r e e s h a r e h o l d e r w o u l d then be aware o f t he p r o -c e d u r e , and o f t he d i r e c t o r s ' i n t e r e s t s i n and b i a s f o r t h e b i d , b u t , i f n o t h i n f u r t h e r were r e q u i r e d , he w o u l d s t i l l be w i t h o u t t he r e l e v a n t i n f o r m a t i o n w i t h w h i c h t o make h i s d e c i s i o n . The ' m a t e r i a l i t y ' p r o v i s i o n s c o u l d make t h i s impos s i b l e , b u t much depends on t h e i r e n f o r c e m e n t . 40 5. E n f o r cemen t Can a s h a r e h o l d e r who has s u f f e r e d a l o s s as a r e s u l t o f a b r e a c h o f t he d i s c l o s u r e r e g u l a t i o n s sue t h e o f f e n d e r ? The S e c u r i t i e s A c t does n o t s p e c i -f i c a l l y g i v e a r i g h t t o damages. I t p r o v i d e s 1 4 0 t h a t where an o f f e r o r f a i l s t o comply w i t h t h e a p p r o p r i a t e s e c t i o n s he i s g u i l t y o f an o f f e n c e and l i a b l e t o a f i n e o f up t o $25,000 o r i m p r i s o n m e n t f o r a t e rm o f n o t more t han one y e a r o r t o b o t h . The p e n a l t y f o r an o f f e n d i n g o f f e r e e d i r e c t o r i s a mere $ 2 , 0 0 0 : 1 4 1 Because t h e r e i s no r e f e r e n c e t o c i v i l l i a b i l i t y i n t he s t a t u t e , t h e q u e s -t i o n a r i s e s w h e t h e r a s h a r e h o l d e r who has s u f f e r e d l o s s may sue f o r b r e a c h o f s t a t u t o r y d u t y . T h i s has a lway s been a d i f f i c u l t q u e s t i o n . L o r d J u s t i c e A t k i n 142 s a i d : " I n my o p i n i o n , when an A c t imposes a d u t y o f commi s s i on o r o m i s s i o n , t he q u e s t i o n w h e t h e r a p e r s o n a g g r i e v e d by a b r e a c h o f t h e d u t y has a r i g h t o f a c t i o n depends on t h e i n t e n t i o n o f t h e A c t . " T h i s i s n o t v e r y h e l p f u l , because t he i n t e n t i o n o f t h e A c t i s d i f f i c u l t t o p e r c e i v e , b u t t h e f a c t t h a t c r i m i n a l p e n a l t i e s a r e imposed i n d i c a t e s , though n o t c o n c l u s i v e l y , t h a t t h e r e i s no i n t e n t i o n t o c r e a t e c i v i l l i a b i l i t y . C h a r l e s w o r t h w r i t e s : 143 " I t has been s a i d , 'No u n i v e r s a l r u l e can be f o r m u l a t e d w h i c h w i l l answer t h e q u e s t i o n w h e t h e r i n any g i v e n ca se an i n d i v i d u a l can sue i n r e s p e c t o f b r e a c h o f a s t a t u t o r y d u t y . ' In a d d i t i o n t o t h e g e n e r a l r u l e s s e t o u t i n t h e p r e c e d i n g s e c t i o n , howeve r , t h e most i m p o r t a n t m a t t e r s t o be t a k e n i n t o c o n s i d e r a t i o n a p p e a r t o be : a ) i s t h e a c t i o n b r o u g h t i n r e s p e c t o f t he k i n d o f harm w h i c h t h e s t a t u t e was i n t e n d e d t o p r e v e n t ? b) I s t h e p e r s o n b r i n g i n g t h e a c t i o n one o f t he c l a s s w h i c h t h e s t a t u t e d e s i r e d t o p r o t e c t ? c ) I s t he s p e c i a l remedy p r o v i d e d by t h e s t a t u t e adequa te f o r t he p r o t e c t i o n o f t he p e r s o n i n j u r e d ? I f t he f i r s t two q u e s t i o n s a r e an swered i n t he a f f i r -m a t i v e and t h e t h i r d i n t h e n e g a t i v e , t h e n i n most ca se s t he i n d i v i d u a l can s u e . " 1 4 4 The answer t o q u e s t i o n a) w i l l depend on t h e f a c t s , b u t i f a b r e a c h o f t h e p r o v i s i o n s has been commi t t ed t h e answer w i l l be ' y e s . ' I f t he p l a i n t i f f i s o r was a s h a r e h o l d e r a t t h e r e l e v a n t t i m e , t h e answer t o q u e s t i o n b) w i l l be ' y e s . ' 41 The d i f f i c u l t y i s c e n t e r e d on t h e t h i r d q u e s t i o n . I t i s s u b m i t t e d t h a t t he s e c t i o n s under c o n s i d e r a t i o n a r e c o n c e r n e d w i t h t r a n s a c t i o n s w h i c h may i n v o l v e m i l l i o n s o f d o l l a r s , and f i n e s o f $25,000 and $2,000 w i t h t h e t h r e a t , t o o f f e r o r s o n l y , o f one y e a r ' s i m p r i s o n m e n t does no t p r o v i d e a d e q u a t e p r o t e c -t i o n t o t h e s h a r e h o l d e r who may be d e a l i n g w i t h u n s c r u p u l o u s b u s i n e s s m e n . 145 However , i t i s open t o doub t w h e t h e r t he c o u r t s w i l l t a k e t h i s a t t i t u d e , and a s h a r e h o l d e r c a n n o t be c e r t a i n o f s u c c e e d i n g i n a b r e a c h o f s t a t u t o r y 146 d u t y a c t i o n . The l i a b i l i t y p o s i t i o n w i t h r e s p e c t t o t he L i c e n s e d D e a l e r s Ru l e s i s c u r i o u s . The R u l e s a r e made p u r s u a n t t o s e c t i o n 7 o f t he P r e v e n t i o n o f F r aud 147 ( I n v e s t m e n t s ) A c t . S u b - s e c t i o n (2 ) o f t h a t s e c t i o n r e a d s : "A pe r s on s h a l l n o t be g u i l t y o f an o f f e n c e by r e a s o n o n l y o f a b r e a c h o f r u l e s made under t h i s s e c t i o n . " The re i s no r e f e r e n c e i n t he A c t t o c i v i l l i a b i l i t y , t h e r e f o r e t he p o i n t s made above abou t an a c t i o n f o r b r e a c h o f s t a t u t o r y d u t y a r e p e r t i n e n t . I n d e e d , t h e argument f o r a s u c c e s s f u l a c t i o n i s s t r o n g e r becau se t h e r e i s no q u a s i -c r i m i n a l l i a b i l i t y . ^ The re i s no r e f e r e n c e t o any f o r m o f l i a b i l i t y i n t h e L i c e n s e d D e a l e r s R u l e s . The d i s c u s s i o n thus f a r has c o n c e r n e d r emed ie s a v a i l a b l e a f t e r t he damage has been done. I t w o u l d be more b e n e f i c i a l i f some a c t i o n c o u l d be t a k e n b e f o r e t he damage o c c u r s , b u t t h e r e a r e two d i f f i c u l t i e s . F i r s t , t h e a p p r o p r i a t e a c t i o n w o u l d be f o r an i n j u n c t i o n , and i t i s by no means c l e a r t h a t an i n j u n c t i o n wou l d 149 be g r a n t e d i n t h i s s i t u a t i o n . S e c o n d l y , a s h a r e h o l d e r i s n o t n o r m a l l y i n a v e r y good p o s i t i o n t o b r i n g a t i m e l y a c t i o n , becau se he r e a l i z e s t h a t he has an a c t i o n o n l y a f t e r t he damage i s done. He may n o t have the n e c e s s a r y i n f o r m a t i o n and e v i d e n c e t o p e r s u a d e a c o u r t t o g r a n t an i n j u n c t i o n b e f o r e t h e b i d i s com-p l e t e d . 42 6. C o n c l u s i o n D e s p i t e t h e c r i t i c i s m s w h i c h have been made, t h e s y s t e m o f d i s c l o s u r e by means o f annua l a c c o u n t s and t a k e - o v e r c i r c u l a r s w i l l n o r m a l l y be e f f e c -t i v e i n e n s u r i n g t h a t t h e s h a r e h o l d e r s w i l l r e c e i v e the i n f o r m a t i o n n e c e s s a r y t o make an i n f o r m e d c h o i c e , though a t p r e s e n t he may have d i f f i c u l t y i n u n d e r -s t a n d i n g i t . However , t h e s y s t em can be a b u s e d , and t h i s must be g ua rded a g a i n s t , becau se t he rewards o f a s u c c e s s f u l t a k e - o v e r a r e v e r y h i g h and a t t r a c t t he u n s c r u p u l o u s . " D i s c l o s u r e , i n i t s e l f , i s n o t t h e c o m p l e t e answer t o t h e p r o b -lems f a c e d by t h e i n v e s t o r . The e t h i c a l s t a n d a r d s o f d i r e c t o r s and management o f b u s i n e s s c o r p o r a t i o n s and o f pe r s on s engaged i n t h e s e c u r i t i e s i n d u s t r y a r e o f g r e a t i m p o r t a n c e . " ' 5 0 D i r e c t o r s , by s t r i c t i n t e r p r e t a t i o n o f the r e q u i r e m e n t s , and h i d i n g b e h i n d a mass o f f i g u r e s and t e c h n i c a l l a n g u a g e , c o u l d p r o v i d e the minimum i n f o r m a t i o n n e c e s s a r y and t h e n , by means o f e m o t i v e l a n g u a g e , a t t e m p t t o p e r s u a d e t he s h a r e -h o l d e r s t o t a k e a p a r t i c u l a r c o u r s e o f a c t i o n . The re i s no r e q u i r e m e n t f o r a f a i r v a l u a t i o n o f t h e company, s u p p o r t e d w i t h r e a s o n s , w i t h a c c o u n t i n g bases e x p l a i n e d , no r even f o r a p l a i n e v a l u a t i o n o f t he company ' s p e r f o r m a n c e and p o t e n t i a l . F i n a l l y , t he e n f o r c e m e n t p r o v i s i o n s a r e n o t s a t i s f a c t o r y . S e c t i o n C E q u a l i t y f o r S h a r e h o l d e r s The c o n c e p t o f e q u a l i t y has a lway s been d i f f i c u l t t o a p p l y i n p r a c t i c e . ' T r e a t l i k e w i t h l i k e ' i s a d e c e p t i v e l y s i m p l e i d e a , becau se a d e c i s i o n w h e t h e r A i s s u f f i c i e n t l y l i k e B i s o f t e n a r b i t r a r y and open t o a r gumen t , e s p e c i a l l y as t o w h i c h f a c t o r s a r e r e l e v a n t t o t he d e c i s i o n . Such c o n s i d e r a t i o n s undoub-t e d l y c o n t r i b u t e t o t h e p rob lems i n t h e a p p l i c a t i o n o f t he c o n c e p t o f e q u a l i t y o f t r e a t m e n t o f s h a r e h o l d e r s i n a t a k e - o v e r b i d . The e f f e c t i v e s cope o f t h e d o c t r i n e i s i l l - d e f i n e d and u n c e r t a i n , y e t i t has c o n s i d e r a b l e i n f l u e n c e on t h r e e i m p o r t a n t a s p e c t s o f t a k e - o v e r s — s a l e o f c o n t r o l , i n s i d e r t r a d i n g , and 151 e q u a l i t y o f t e r m s . 43 When one p e r s o n , h a v i n g c o n t r o l o f a company, s e l l s h i s s h a r e s , t h e m i n o r i t y s h a r e h o l d e r s w i l l o f t e n n o t have t h e o p p o r t u n i t y t o s e l l t h e i r s , and a l m o s t c e r t a i n l y n o t on t h e same t e r m s . T h i s i s t h e p r o b l e m r e f e r r e d t o as 152 s a l e o f c o n t r o l . By v i r t u e o f t h e s t a t u t o r y d e f i n i t i o n s o f a t a k e - o v e r b i d s u ch a s i t u a t i o n may n o t be g o ve r ned by t he t a k e - o v e r p r o v i s i o n s . The K imber Commit tee were c o n t e n t t o s a y : "We a r e o f t h e o p i n i o n t h a t t he e v o l u t i o n o f a l e g a l d o c t r i n e w h i c h may impose upon d i r e c t o r s o r o t h e r i n s i d e r s o f a company who c o n s t i t u t e a c o n t r o l g roup a f i d u c i a r y d u t y t owa rd o t h e r s h a r e h o l d e r s o f s u ch company i n c a se s o f change o f c o n t r o l i s , a p a r t f r om i n s i d e r t r a d i n g a s p e c t s , a m a t t e r t o be l e f t t o deve lopment by t h e j u d i -c i a l p r o c e s s . 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" I t i s s u g g e s t e d t h a t t he app roach t a k e n i n t he Code i s t h e b e t t e r method o f d e a l i n g w i t h t he p r o b l e m , even though some b i d d e r s may be d i s c o u r a g e d by 155 t h e p r o v i s i o n . 1. I n s i d e r T r a d i n g Where t h e r e i s a g e n e r a l o f f e r t o a l l s h a r e h o l d e r s , t he d i r e c t o r s , i n t h e c a p a c i t y o f s h a r e h o l d e r s , w i l l have t he o p p o r t u n i t y t o a c c e p t o r r e f u s e t h e o f f e r , and t h e more s h a r e s t h e y h o l d the g r e a t e r p r o f i t t h e y w i l l make i f t h e b i d i s a t t r a c t i v e . The p r o b l e m o f d i s t r i b u t i o n o f i n f o r m a t i o n i n t he d i r e c t o r s ' p o s s e s s i o n t o a l l t he s h a r e h o l d e r s has a l r e a d y been d e s c r i b e d , and t h i s i s a d i f f e r e n t a s p e c t o f t he same p r o b l e m . Where t h e d i r e c t o r s a r e nego -t i a t i n g w i t h t h e o f f e r o r s d u r i n g t h e c o u r s e o f t h e b i d , t he d i r e c t o r s may, on 44 t h e b a s i s o f t h e i r knowledge o f t h e n e g o t i a t i o n s , buy s h a r e s i n t h e i r own com-pany and s e l l t o t h e o f f e r o r a t an i n c r e a s e d p r i c e . Such an o p p o r t u n i t y w o u l d o c c u r when t h e o f f e r e e d i r e c t o r s r e a l i z e t h a t t he o f f e r o r w i l l make a s e c o n d , h i g h e r b i d . C l e a r l y i t i s p o s s i b l e t h a t t h e d i r e c t o r s can t r a d e w i t h t h e a d v a n -t a g e o f s p e c i a l i n f o r m a t i o n g a i n e d i n t h e i r c a p a c i t y o f d i r e c t o r s o f t h e com-pany. T h i s i s known as ' i n s i d e r t r a d i n g . ' In E n g l a n d t h e s o l u t i o n a t t e m p t e d i s mere d i s c l o s u r e . The d i r e c t o r s must 156 d e c l a r e w i t h i n f o u r t e e n days " a n y e v e n t i n con sequence o f whose o c c u r r e n c e he becomes, o r cea se s t o b e , i n t e r e s t e d i n s h a r e s i n , o r d e b e n t u r e s o f , t h e company o r any o t h e r body c o r p o r a t e , b e i n g t h e company ' s s u b s i d i a r y o r h o l d i n g 157 company, o r a s u b s i d i a r y o f t h e company ' s h o l d i n g company. " The p e n a l t i e s a r e (a ) on summary c o n v i c t i o n , i m p r i s o n m e n t f o r a t e rm n o t e x c e e d i n g t h r e e months o r a f i n e n o t e x c e e d i n g j£ 200 o r b o t h ; (b) on c o n v i c t i o n 15i on i n d i c t m e n t , i m p r i s o n m e n t f o r a t e rm no t e x c e e d i n g two y e a r s o r a f i n e o r b o t h . A d i f f e r e n t k i n d o f p e n a l t y w o u l d be e x a c t e d i f a s u f f i c i e n t number o f s h a r e -h o l d e r s a r e so i n c e n s e d by t h e d i r e c t o r s ' p r o f i t t h a t t h e y v o t e h im o f f t h e b o a r d . % The common l aw m i g h t p r o v i d e t h e company w i t h a remedy i n damages, on t he g rounds t h a t t he d i r e c t o r s a r e i n a f i d u c i a r y p o s i t i o n towards t h e company and " t h e g e n e r a l r u l e o f e q u i t y i s t h a t no one who has d u t i e s o f a f i d u c i a r y n a t u r e t o p e r f o r m i s a l l o w e d t o e n t e r i n t o engagements i n w h i c h he has o r can have a p e r s o n a l i n t e r e s t c o n f l i c t i n g w i t h t h e i n t e r e s t s o f t h o s e whom he i s bound t o p r o t e c t . " 1 6 0 F u r t h e r : " t h e knowledge w h i c h he a c q u i r e s as t r u s t e e i s o f i t s e l f s u f f i c i e n t g round o f d i s q u a l i f i c a t i o n and o f r e q u i r i n g t h a t such knowledge s h a l l n o t be c a p a b l e o f b e i n g used f o r h i s own b e n e f i t t o i n j u r e t he t r u s t . The g round o f d i s q u a l i f i c a t i o n i s n o t m e r e l y becau se such knowledge may e n a b l e h im a c t u a l l y t o o b t a i n an undue advan tage o v e r o t h e r s . " 1 6 1 Such an argument has n o t , i t w o u l d a p p e a r , s u c c e e d e d i n any ca se i n v o l v i n g i n s i d e r t r a d i n g i n t h e c o u r s e o f a t a k e - o v e r b i d . However t h e g e n e r a l p r i n c i p l e 162 i s w e l l f o u n d e d , and t he company has a s t r o n g argument i n s uch a s i t u a t i o n . 45 A d i f f e r e n t q u e s t i o n i s w h e t h e r an i n d i v i d u a l s h a r e h o l d e r can r e c o v e r damages f rom a d i r e c t o r t o whom he s o l d s h a r e s i f t h e l a t t e r had ' i n s i d e ' i n f o r m a t i o n w h i c h w o u l d a f f e c t m a t e r i a l l y t h e v a l u e o f t he s h a r e , b u t w h i c h was n o t d i s c l o s e d . A s t r a i g h t f o r w a r d a p p l i c a t i o n o f t h e r u l e e n u n c i a t e d i n i c q P e r c i v a l v . W r i g h t — t h a t a d i r e c t o r does n o t owe f i d u c i a r y d u t i e s t o an i n d i v i d u a l s h a r e h o l d e r b u t o n l y t o t h e c o m p a n y — w o u l d mean t h a t a s h a r e h o l d e r c o u l d n o t r e c o v e r on h i s own b e h a l f . However i t i s s u g g e s t e d t h a t t h e p o s i t i o n i s s i g n i f i c a n t l y d i f f e r e n t i n t he t a k e - o v e r s i t u a t i o n . The o f f e r o r makes an o f f e r t o t h e s h a r e h o l d e r s i n g e n e r a l , and t h e company as s uch i s n o t d i r e c t l y i n v o l v e d . F r e q u e n t l y , f o r t h e s a k e o f c o n v e n i e n c e t h e o f f e r o r may n e g o t i a t e w i t h t h e o f f e r e e d i r e c t o r s , and t h e q u e s t i o n i s w h e t h e r the l a t t e r a r e now a c t i n g on b e h a l f o f t he s h a r e -h o l d e r s r a t h e r t han t h e company. I t w i l l o f t e n be d i f f i c u l t t o d e t e r m i n e w h e t h e r t h e d i r e c t o r s a r e a c t i n g f o r t h e company, f o r t h e m s e l v e s , o r f o r t h e s h a r e h o l d e r s i n g e n e r a l . In some i n s t a n c e s a t l e a s t i t w i l l be open t o t he c o u r t t o d e c i d e t h a t t h e y a r e a c t i n g f o r t he s h a r e h o l d e r s , i n w h i c h ca se t he d i r e c t o r s ' f i d u c i a r y d u t i e s a r e owed t o them and t h e y , i n d i v i d u a l l y , s h o u l d be a b l e t o r e c o v e r damages where t he d i r e c t o r s have i n d u l g e d i n ' i n s i d e r t r a d i n g . ' 1 6 4 T h e r e i s no d i r e c t a u t h o r i t y t o s u p p o r t t h i s a r gumen t , and t h e r e must be 165 some doub t w h e t h e r t h e p r e s e n t E n g l i s h j u d i c i a r y w o u l d a l l o w such an a c t i o n . I ndeed t he s t r e n g t h o f t h e argument t h a t t h e company may r e c o v e r i s weakened by t he f a c t t h a t t h e m a j o r i t y o f t he s h a r e h o l d e r s may be a b l e t o r a t i f y the 166 i m p r o p e r t r a d i n g . 167 T h i s u n c e r t a i n t y e n c o u r a g e d t he K imber Commit tee t o recommend t h a t i n s i d e r t r a d i n g l e g i s l a t i o n s h o u l d be e n a c t e d . The r e s u l t i n g p r o v i s i o n i s : " E v e r y i n s i d e r 1 6 ^ o f a c o r p o r a t i o n o r a s s o c i a t e 1 6 ^ o r a f f i l i a t e 1 7 0 o f t h e i n s i d e r , who i n c o n n e c t i o n w i t h a t r a n s a c t i o n r e l a t i n g t o t he c a p i t a l s e c u r i t i e s 46 o f t h e c o r p o r a t i o n , makes use o f any s p e c i f i c c o n f i d e n t i a l i n f o r m a t i o n f o r h i s own b e n e f i t o r a d v a n t a g e , t h a t , i f g e n e r a l l y known, m i gh t r e a s o n a b l y be e x p e c t e d t o a f f e c t m a t e r i a l l y t h e v a l u e o f t he s e c u r i t i e s i s l i a b l e t o com-p e n s a t e any pe r s on o r company as a r e s u l t o f t h e t r a n s a c t i o n , u n l e s s t h e i n f o r m a t i o n was known o r ought r e a s o n a b l y t o have been known t o t h e p e r s o n o r company a t t h e t i m e o f t h e t r a n s a c t i o n , and i s a l s o a c c o u n t a b l e t o t h e c o r p o r a t i o n f o r any d i r e c t b e n e f i t o r advan tage r e c e i v e d o r r e c e i v a b l e by t he i n s i d e r , a s s o c i a t e o r a f f i l i a t e , as t he c a s e may be as a r e s u l t o f t h e 171 t r a n s a c t i o n . " The re a r e many d i f f i c u l t i e s i n e n f o r c i n g t h i s s e c t i o n . When t h e s h a r e t r a n s a c t i o n i s e f f e c t e d t h r o u g h t h e S t o c k E xchange , t h e p l a i n t i f f s h a r e h o l d e r may n o t be a b l e t o p r o v e t h a t he bought h i s s h a r e s f r o m t h e d i r e c t o r , as i t may no t be p o s s i b l e t o match h i s s a l e w i t h t h e d i r e c t o r s ' p u r c h a s e . Even i f t h i s can be p r o v e d , t he a c t i o n w i l l be ba sed on a s e c t i o n w h i c h c o n t a i n s a r e m a r k a b l e number o f words and p h r a s e s r e q u i r i n g i n t e r p r e t a t i o n . When i s i n f o r m a t i o n ' s p e c i f i c ' and ' c o n f i d e n t i a l ? 1 When m i g h t i t r e a s o n a b l y be e x p e c -t e d t o a f f e c t m a t e r i a l l y t h e v a l u e o f t h e s e c u r i t i e s ? When can t h e i n f o r m a -t i o n be s a i d t o be 'known o r ough t r e a s o n a b l y t o have been known? ' These q u e s t i o n s a r e i n a d d i t i o n t o t h e u s u a l h a z a r d o f p r o v i n g d i r e c t l o s s , and i n t h i s ca se p r o v i n g ' u s e ' o f t h e i n f o r m a t i o n . N e v e r t h e l e s s t he s e c t i o n r e p r e s e n t s a w o r t h w h i l e advance i n t h a t t h e s h a r e h o l d e r s as w e l l as t h e company have an a c t i o n . F u r t h e r , t h i s s e c t i o n , 172 combined w i t h t h e r e p o r t i n g s e c t i o n s have a marked d e t e r r e n t e f f e c t on d i r e c t o r s and o t h e r i n s i d e r s who m i gh t c o n s i d e r i m p r o p e r t r a d i n g . C l e a r l y , i f t h e d i r e c t o r s bought s h a r e s w i t h o u t d i s c l o s i n g t h a t t h e r e was a p o s s i b l e a t t r a c t i v e t a k e - o v e r o f f e r , t he s h a r e h o l d e r c o u l d sue under t h i s s e c t i o n . Bu t what a r e t he l i k e l y e f f e c t s o f s e c t i o n 111 on d i r e c t o r s ' t r a d i n g w h i l e n e g o t i a t i n g w i t h an o f f e r o r a f t e r t he o f f e r has been announced? 47 T h i s o c c u r r e d d u r i n g t h e Lea sco -Pe rgamon b i d u n t i l t h e S t o c k Exchange s u s -pended d e a l i n g s i n Pe rgamon ' s s h a r e s . Such a s i t u a t i o n i s d i f f i c u l t t o c o n t r o l . The d i r e c t o r s i n t h e i r d i s -c u s s i o n s w i t h t he o f f e r o r s may o b t a i n i n f o r m a t i o n o r some k i n d o f g u i d a n c e as t o t he f i n a l p r i c e o f f e r e d , o r as t o t h e p o s s i b i l i t y o f s u c c e s s o f t h e b i d , and t h e s h a r e h o l d e r w o u l d n o t have a c c e s s t o such i n f o r m a t i o n . Such an advan tage may be d i f f i c u l t t o e r a d i c a t e by d i s c l o s u r e , becau se t h e g u i d a n c e o b t a i n e d may be o f a n a t u r e w h i c h i s n o t r e a d i l y d i s c l o s a b l e , e . g . n o n - f a c t u a l m a t e r i a l s u ch as i n s t i n c t s o r r e a c t i o n s t o arguments w i t h the o f f e r o r , o r p e r -haps d i s c l o s u r e w o u l d be h a r m f u l t o t h e company. The i d e a l answer i s t h a t i f t h e d i r e c t o r s do n o t want t o d i s c l o s e , t h e y s h o u l d n o t buy o r s e l l t he s h a r e s . Such a d v i c e may n o t be a c c e p t e d by t h e d i r e c t o r s . A s h a r e h o l d e r who does s u f f e r a l o s s by s e l l i n g t o a d i r e c t o r , who has b e n e f i c i a l g u i d a n c e f r o m n e g o t i a t i o n s , w o u l d have d i f f i c u l t y in p r o v i n g t h a t t h e d i r e c t o r had i n f o r m a t i o n w h i c h was s p e c i f i c , c o n f i d e n t i a l , and l i k e l y t o a f f e c t m a t e r i a l l y t h e v a l u e o f t h e s h a r e s , w i t h i n t he terms o f t he s e c t i o n , w h i c h w i l l p r o b a b l y be i n e f f e c t i v e i n s u ch a s i t u a t i o n . The T a k e - o v e r P ane l has n o t been a b l e t o a d o p t t h e C a n a d i a n - s t y l e l i a -173 b i l i t y s e c t i o n . The Code t h e r e f o r e f o l l o w s t he E n g l i s h s t a t u t o r y s o l u t i o n o f mere d i s c l o s u r e : " S ave i n so f a r as i t a ppea r s f r om t h i s Code , i t i s c o n s i d e r e d u n d e s i r a b l e t o f e t t e r t he m a r k e t . A c c o r d i n g l y , a l l p a r t i e s t o a t a k e - o v e r o r merge r t r a n s a c t i o n ( o t h e r t h a n t o a p a r t i a l b i d ) and t h e i r a s s o c i a t e s a r e f r e e t o d e a l a t arms l e n g t h s u b j e c t t o d a i l y d i s c l o s u r e t o t h e S t o c k E xchange , t he Pane l and t h e P r e s s ( n o t l a t e r t han 12 noon on t h e d e a l i n g day f o l l o w i n g t he d a t e o f t h e r e l a t i v e t r a n s a c t i o n ) o f t h e t o t a l o f a l l s h a r e s o f any o f f e r o r company o r o f t h e o f f e r e e company a c q u i r e d o r s o l d by them o r t h e i r r e s p e c t i v e a s s o c i a t e s f o r t h e i r own a c c o u n t on any day d u r i n g t h e o f f e r p e r i o d i n the m a r k e t o r o t h e r w i s e and a t what a ve rage p r i c e . " 1 7 4 T h i s i s a v e r y s t r o n g d i s c l o s u r e p r o v i s i o n , b u t t h e q u e s t i o n r ema in s whe-t h e r mere d i s c l o s u r e o f t r a d i n g i s e f f e c t i v e . I f t h e r e i s no l i a b i l i t y w h i c h 48 p r o h i b i t s t h e d i r e c t o r f r o m t r a d i n g w h i l e i n p o s s e s s i o n o f r e l e v a n t i n f o r m a -t i o n n o t known t o t he s h a r e h o l d e r s , he c o u l d buy t he s h a r e s , d i s c l o s e t h e p u r c h a s e t h e f o l l o w i n g d a y , and he w o u l d have con fo rmed w i t h t he r u l e s w h i l e 175 g a i n i n g h i s p r o f i t . The e f f e c t o f t h e d i s c l o s u r e w o u l d be t h a t o t h e r s h a r e h o l d e r s w o u l d s ee t h a t a d i r e c t o r had been b u y i n g and t h e y w o u l d be encou r a ged t o buy o r a t l e a s t h o l d on t o t he s h a r e s t h e y h a v e , on t h e assump-t i o n t h a t t h e d i r e c t o r i s i n a b e t t e r p o s i t i o n t o j u d g e t he s h a r e v a l u e . A l t h o u g h t h i s i s b e n e f i c i a l , i t i s l i t t l e c o n s o l a t i o n t o t h e s h a r e h o l d e r who has a l r e a d y s o l d h i s s h a r e s , p r e s u m a b l y a t a l o w e r p r i c e , t o t he d i r e c t o r . 2. R e v i s e d and A l t e r n a t i v e B i d s An i m p o r t a n t f a c t o r i n b o t h t he News o f t h e Wor ld -Pergamon b i d and t h e Pe rgamon-Lea sco b i d i s t h a t r e v i s e d o f f e r s were made i n each c a s e . Pergamon r a i s e d t h e i r o f f e r f o r News o f t h e Wo r l d s h a r e s f i v e days a f t e r t he o r i g i n a l o f f e r . What i s t he p o s i t i o n o f t h e s h a r e h o l d e r who has d e p o s i t e d h i s s h a r e s i n r e s p o n s e t o t h e f i r s t o f f e r ? The S e c u r i t i e s A c t i s c l e a r : "Where t he terms o f a t a k e - o v e r b i d a r e v a r i e d b e f o r e t h e e x p i r a t i o n t h e r e o f by i n c r e a -s i n g t h e c o n s i d e r a t i o n o f f e r e d f o r t h e e q u i t y s h a r e s o f an o f f e r e e company, t h e o f f e r o r s h a l l pay s u ch i n c r e a s e d c o n s i d e r a t i o n t o each o f f e r e e whose s h a r e s a r e t a k e n up and p a i d f o r p u r s u a n t t o the t a k e - o v e r b i d , w h e t h e r o r n o t s u c h s h a r e s have been t a k e n up by t h e o f f e r o r b e f o r e t he v a r i a t i o n o f t h e t a k e - o v e r b i d . " 1 7 7 Under t h i s s e c t i o n i t i s e v i d e n t t h a t t h e s h a r e h o l d e r w i l l be p a i d t h e 170 h i g h e r p r i c e , p r o v i d e d t h e o f f e r has n o t e x p i r e d . I f t h e o f f e r e x p i r e s and t h e o f f e r o r makes a b i d a t a h i g h e r p r i c e f o r t he r e m a i n i n g s h a r e s , i t 179 w o u l d a p p e a r t h a t t h e s h a r e h o l d e r has no r i g h t t o t h e h i g h e r p r i c e . In E n g l and t h e r e i s no c ompa rab l e s t a t u t o r y p r o v i s i o n , e i t h e r i n t h e 1 on Companies A c t o r t h e L i c e n s e d D e a l e r s R u l e s . The Code s t a t e s : " A l l s h a r e -h o l d e r s o f t he same c l a s s o f an o f f e r e e company s h a l l be t r e a t e d s i m i l a r l y by an o f f e r o r company. " 49 I f s t r i c t l y e n f o r c e d , s u c h a p r o v i s i o n w o u l d e n s u r e t h a t a l l t h e s h a r e -h o l d e r s r e c e i v e t he h i g h e s t p r i c e . In f a c t , e q u a l i t y o f p r i c e f o r a l l s h a r e -h o l d e r s i s l i m i t e d i n e f f e c t . Many w i l l s e l l t h e i r s h a r e s on t h e marke t f o r a p r i c e l o w e r t han t he b i d p r i c e , p r e s umab l y because t h e y f e a r t h e b i d w i l l n o t s u c c e e d and t h e y want t o t a k e advan tage o f t h e h i g h e r - t h a n - n o r m a l m a r k e t p r i c e r a t h e r t han r i s k d e p o s i t i n g t h e i r s h a r e s w i t h a b i d d e r who may be u n s u c -c e s s f u l . The o f f e r o r w i l l n o t be t h e b u y e r o f a l l t h e s h a r e s s o l d on t he S t o c k E xchange , b u t o f t e n he w i l l buy a c o n s i d e r a b l e number, as i n t h e two b i d s d e s c r i b e d . However i t wou l d be i m p r a c t i c a l and u n d e s i r a b l e t o r e q u i r e t h e o f f e r o r t o pay t h e b i d p r i c e t o t h o s e who buy i n t h e m a r k e t . I O ] The Code a l s o p r o v i d e s : " I f t h e o f f e r o r company a l o n e o r i n a s s o c i a -t i o n w i t h o t h e r s p u r c h a s e s s h a r e s i n t he m a r k e t o r o t h e r w i s e d u r i n g t h e o f f e r p e r i o d a t above t he o f f e r p r i c e ( b e i n g , i n t he e v e n t o f any o r i g i n a l o f f e r b e i n g r e v i s e d , t h e f i n a l b i d p r i c e unde r t h e r e v i s e d te rms o f an o f f e r ) t h e n i t s h a l l o f f e r an i n c r e a s e d p r i c e t o a l l a c c e p t o r s , s u ch p r i c e b e i n g n o t l e s s t han t h e w e i g h t e d a v e r a g e p r i c e ( e x c l u d i n g stamp d u t y and c ommi s s i o n ) o f t he s h a r e s so a c q u i r e d d u r i n g t he o f f e r p e r i o d . " Thus t h o s e who d e p o s i t t h e i r s h a r e s a r e p r o t e c t e d f r o m t h e consequences o f l o s i n g t h e o p p o r t u n i t y t o s e l l a t a h i g h e r - t h a n - b i d p r i c e on t he m a r k e t . The Pe r gamon -Lea sco b i d had an unu sua l a n d , one w o u l d h o p e , r a r e f e a t u r e — 1 oo t h e s e cond o f f e r was w o r t h l e s s t h a n t he f i r s t . T h i s s e cond b i d has a l s o I D O I OA been w i t h d r a w n and S t e i n b e r g i s q u o t e d as s a y i n g t h a t he i s c o m m i t t e d t o mak ing a t h i r d o f f e r b u t i s no t c o m m i t t e d t o any minimum p r i c e . Fo r t h e p r e s e n t p u r p o s e s , t h e more r e l e v a n t q u e s t i o n s c o n c e r n t he r e l a t i o n s h i p between t h e f i r s t b i d and t h e s e c o n d , made s i x weeks l a t e r . S e v e r a l s h a r e h o l d e r s may have d e p o s i t e d t h e i r s h a r e s i n a c c e p t a n c e o f t h e f i r s t o f f e r , t h e r e b y l o s i n g t h e o p p o r t u n i t y t o s e l l a t t he r e l a t i v e l y h i g h S t o c k Exchange p r i c e . When t h e f i r s t o f f e r was w i t h d r a w n , L e a s c o , as 50 a m a t t e r o f b a s i c c o n t r a c t l a w , s h o u l d have r e t u r n e d t he d e p o s i t e d s h a r e s becau se t h e y c o u l d no t be h e l d on d e p o s i t f o r t he s econd o f f e r . I t i s c l e a r t h a t t h o s e s h a r e h o l d e r s who were f o r t u n a t e enough t o s e l l t h e i r s h a r e s on t h e S t o c k Exchange o r p r i v a t e l y d u r i n g the c o u r s e o f t h e f i r s t o f f e r have r e c e i v e d a h i g h e r p r i c e t h a n any who m i gh t have a c c e p t e d t he s e cond o f f e r o r who may i n t h e f u l l n e s s o f t i m e a c c e p t t h e t h i r d o f f e r , w h i c h may be even l o w e r t h a n t h e s e c o n d . T h i s i s so d e s p i t e R u l e 29 and G e n e r a l P r i n c i -p l e 9 b f t h e Code: " I f a f t e r a b i d i s r e a s o n a b l y i n c o n t e m p l a t i o n , an o f f e r has been made t o one o r more s h a r e h o l d e r s o f an o f f e r e e company, any s u b s e q u e n t g e n e r a l o f f e r made by o r on b e h a l f o f t he same o f f e r o r o r h i s a s s o c i a t e t o t h e s h a r e h o l d e r s o f t h e same c l a s s s h a l l n o t be on l e s s f a v o u r a b l e t e r m s . " D u r i n g t h e News o f t h e Wor ld -Pe rgamon a f f a i r y e t a n o t h e r b r e a c h o f t h e e q u a l i t y r u l e was c o m m i t t e d . Pergamon had made an o f f e r w o r t h 50 s . p e r s h a r e f o r t h e News o f t he W o r l d s h a r e s , b u t because t h e News o f t h e Wo r l d Boa rd d i d n o t t h i n k Maxwe l l w o u l d be a s u i t a b l e c h a i r m a n , t h e y a c c e p t e d an o f f e r f r o m News L t d . Two p o i n t s must be made. The News L t d . o f f e r was n o t a c a s h b i d . The c o n s i d e r a t i o n was a v a r i e t y o f m a g a z i n e , newspaper and p u b l i s h i n g i n t e -r e s t s i n A u s t r a l i a , w h i c h a t t he t i m e o f a c c e p t a n c e o f t h e o f f e r were u n s p e -c i f i e d , u n a s s e s s a b l e as t o v a l u e , and t h e r e f o r e c o u l d n o t be m e a n i n g f u l l y com-18fi p a r e d w i t h t h e Pergamon b i d . S e c o n d l y , M u r d o c h , c ha i rman o f News L t d . , s t a t e d t h a t he was n o t g o i n g t o b i d f o r t h e News o f t h e Wo r l d n o n - v o t i n g s h a r e s — h e c o u l d no t a f f o r d t o pay f o r them. Maxwe l l had b i d 37 s . 6 d . f o r t h e s e s h a r e s . The a c t i o n o f t h e News o f t he W o r l d Boa rd i n recommending a c c e p t a n c e o f News L t d . ' s o f f e r and a c c e p t i n g i t t h e m s e l v e s , d e p r i v e d t h e m i n o r i t y and n o n - v o t i n g s h a r e h o l d e r s o f t h e o p p o r t u n i t y o f a c c e p t i n g t h e Pergamon b i d . 187 R u l e 9 o f t he C i t y Code i s i n t e r e s t i n g i n t he l i g h t o f t he above e v e n t s : " D i r e c t o r s must a lway s have i n mind t h a t t h e y s h o u l d a c t i n t he i n t e r e s t s o f t h e s h a r e h o l d e r s as a w h o l e . S h a r e h o l d e r s i n compan ies 51 w h i c h a r e e f f e c t i v e l y c o n t r o l l e d by t h e i r d i r e c t o r s have t o a c c e p t t h a t i n r e s p e c t o f any o f f e r the a t t i t u d e o f t h e i r Boa rd i s d e c i -s i v e . E x c e p t i o n a l l y , t h e r e may be good r ea s on s f o r such a Boa rd p r e f e r r i n g a l o w e r o f f e r o r r e j e c t i n g an o f f e r . N e v e r t h e l e s s , where a Boa rd recommends a c c e p t a n c e o f t he l o w e r o f two o f f e r s , o r b e i n g a c o n t r o l l i n g B o a r d , a c c e p t s such l o w e r o f f e r o r r e j e c t s an o f f e r , t hu s i n e f f e c t f r e q u e n t l y f o r c i n g the m i n o r i t y s h a r e h o l d e r s t o a c t s i m i l a r l y , i t must v e r y c a r e f u l l y examine i t s m o t i v e f o r so d o i n g and be p r e p a r e d t o j u s t i f y i t s good f a i t h i n t he i n t e r e s t s o f t h e s h a r e h o l d e r s as a w h o l e . " T h i s r u l e was n o t i n f o r c e a t t h e t i m e o f Pe rgamon ' s b i d f o r News o f t h e W o r l d L t d . , b u t t h e T a k e - o v e r P ane l and Code were i n e x i s t e n c e , and one w o u l d t h i n k t h a t an a l e r t c o n t r o l l i n g body w o u l d have r e q u i r e d News L t d . t o be more s p e c i f i c abou t t h e i r c o n s i d e r a t i o n , and have i t v a l u e d so t h a t s h a r e h o l d e r s c o u l d a c c u r a t e l y compare t h e two o f f e r s . 3. C o n c l u s i o n 188 In t h e s e r e c e n t t a k e - o v e r b i d s t h e i d e a l t h a t t h e r e s h o u l d be e q u a l i t y o f t r e a t m e n t f o r s h a r e h o l d e r s has been b a d l y t a r n i s h e d . A t t e m p t s have been made t o p r o v i d e adequa te s a f e g u a r d s t o e n s u r e a m i n i m a l l e v e l o f e q u a l i t y , bu t t h e s e p r o v i s i o n s a r e e i t h e r d i f f i c u l t t o e n f o r c e o r s i m p l y have n o t been e n f o r c e d . The p o s i t i o n i s w e l l d e s c r i b e d t h u s : " A s i d e f r o m t h e e l e g a n c e o f t he i d e a l , w h i c h I l e a v e t o commen-t a t o r s on r e a p p o r t i o n m e n t , i t seems t h a t ' e q u a l i t y ' can o n l y be j u s -t i f i e d i f i t somehow improve s t h e f u n c t i o n i n g o f t h e s e c u r i t i e s m a r k e t . A d m i t t e d l y i t m i g h t r e s t r a i n d e t r i m e n t a l t r a n s a c t i o n s , b u t a t g r e a t c o s t . I t m i g h t on t h e o t h e r hand be c o n t e n d e d t h a t e q u a l i t y wou l d so imp rove t h e p s y c h o l o g y and f a i t h o f i n v e s t o r s , as t h e s e c u -r i t i e s a c t s a r e a l l e g e d t o d o , t h a t a l l p r e s e n t s h a r e h o l d e r s w o u l d be b e n e f i t e d by the i n f l u x o f new s h a r e h o l d e r s . But i t i s p r o p e r t o n o t e i n c l o s i n g t h a t i n c o r p o r a t i o n l aw i t i s t h e m a x i m i z a t i o n o f p r o f i t s t h a t i s t he o v e r r i d i n g p r i n c i p l e , and u n l i k e t he p o l i t i c a l a r e n a , e q u a l i t y i s n o t j u s t i f i e d f o r i t s own s a k e . " 1 8 9 S e c t i o n D F i n a n c i a l A d v i s e r s The i m p o r t a n c e o f t he r o l e p l a y e d by me r chan t banks i n r e c e n t E n g l i s h t a k e -190 o v e r s i s r e v e a l e d i n t he now s u b s t a n t i a l p r e s s comment. Known as ' f i n a n c i a l a d v i s e r s , ' t h e banks have i n f l u e n c e d the p l a n n i n g , m a c h i n e r y , s t r a t e g y and nego -191 t i a t i o n o f t a k e - o v e r b i d s f a r beyond t he r e a l m o f f i n a n c e . 52 The l e g a l p o s i t i o n o f t he merchan t banks a d v i s i n g p a r t i e s t o a t a k e - o v e r b i d i s n o t c l e a r , and t h i s has become a m a t t e r f o r c o n c e r n , m a i n l y becau se t h e r e were u n d e s i r a b l e con sequence s t o some o f t h e i r a c t i o n s d u r i n g t he News o f t h e Wor ld -Pergamon and Pe rgamon -Lea sco b i d s . D u r i n g t h e c o u r s e o f each b i d , t h e r e s p e c t i v e banks a d v i s i n g the o f f e r e e compan ies bought s i z e a b l e s h a r e h o l d i n g s on t h e m a r k e t , a f t e r t h e b i d had been 192 announced b u t d u r i n g c o n t i n u i n g n e g o t i a t i o n s between t h e p a r t i e s . In each ca se t h e bank c o n c e r n e d s t a t e d t h a t t he s h a r e s were bought f o r i t s own i n v e s t -193 ment p u r p o s e s , and were p u r c h a s e d on b e h a l f o f t h e o f f e r e e compan i e s . A c c e p t i n g t h i s e x p l a n a t i o n , t h e p o i n t may be made t h a t t h e e f f e c t o f such p u r -cha se s was t o r a i s e t h e ma r ke t p r i c e , t h e r e b y mak ing t h e s u c c e s s o f t he b i d l e s s l i k e l y , w h i c h i n t h e c i r c u m s t a n c e s was a b e n e f i t t o t he o f f e r e e c ompan i e s . Bu t i t may w e l l be a d e t r i m e n t t o t h o s e m i n o r i t y s h a r e h o l d e r s who w i s h e d t o a c c e p t t h e o f f e r . The merchant banks r e p r e s e n t i n g t h e o f f e r o r companies a l s o bought s h a r e s 194 on t h e m a r k e t and a g a i n s t a t e d t h a t the p u r c h a s e s were f o r i n v e s t m e n t p u r -195 p o s e s . N e v e r t h e l e s s , Hambro ' s L t d . l a t e r s o l d i t s 11 .8 p e r c e n t o f t he News o f t h e W o r l d s h a r e s t o one o f t h e p a r t i e s i n v o l v e d i n t h e b i d , News L t d . , w i t h t he e f f e c t t h a t t h e l a t t e r company g a i n e d c o n t r o l o f t h e News o f t h e W o r l d . Though t h i s t r a n s a c t i o n w a s , no d o u b t , w e l l i n t e n t i o n e d and i n n o c e n t , i t i n d i -c a t e s t h e p o s s i b i l i t y t h a t t he p r e s e n t s y s t e m o f r e g u l a t i o n may be abu sed . T h e r e i s c o n s i d e r a b l e a rgument w h e t h e r o r n o t s uch t r a d i n g on t h e m a r k e t i n s h a r e s o f t h e o f f e r e e company s h o u l d be p e r m i t t e d t o be c o n t i n u e d by e i t h e r t h e merchan t banks o r by t h e companies i n v o l v e d . A b a l a n c e has t o be s t r u c k between t h e advan tage o f h a v i n g a f r e e ma r ke t and t he d i s a d v a n t a g e o f a l l o w i n g p a r t i e s t o a b i d o r t h e i r a s s o c i a t e s t o t r a d e on t h e m a r k e t , and thus a l l o w t he p o s s i b i l i t y o f m a n i p u l a t i o n o f t h e s h a r e p r i c e . The L i c e n s e d D e a l e r s Ru l e s a r e s i l e n t on t h e p o i n t , and t h e r e i s no r e l e v a n t p r o v i s i o n i n t h e Canad i an l e g i s l a t i o n . 1 9 6 The C i t y Code r e l i e s on a s t r o n g d i s c l o s u r e p r o v i s i o n , b u t as has 197 been s a i d b e f o r e , d e t e r m i n e d bu s i ne s smen w i l l n o t be i n t i m i d a t e d by a mere d i s c l o s u r e s e c t i o n w i t h o u t an e f f e c t i v e remedy a t t a c h e d . In t h e l i g h t o f r e c e n t e x p e r i e n c e , i t i s s u g g e s t e d t h a t t h e app r oach t a k e n by t he Code s h o u l d be r e c o n s i d e r e d . A n o t h e r cause f o r c o n c e r n was h i g h l i g h t e d when i t was d i s c l o s e d t h a t R o b e r t F l e m i n g & S on s , f i n a n c i a l a d v i s e r s t o Pergamon P r e s s , had s o l d 2.1 m i l l i o n Pergamon s h a r e s t o t h e o f f e r o r , L e a s c o , a t a p r i c e o f 36 s . 3d . e a c h . I t was a c c e p t e d by t h e T a k e - o v e r P a n e l t h a t none o f t h e s e d e a l i n g s were c o n -t r a r y t o l a w , b u t t h e f a c t i s t h a t t h e banke r s were n e g o t i a t i n g w i t h L e a s c o , on b e h a l f o f Pergamon, and were i n an advan tageou s p o s i t i o n t o j u d g e t h e t r e n d s i n t h o s e n e g o t i a t i o n s . A l t h o u g h i n t h i s c a s e i t w o u l d a p p e a r t h a t R o b e r t F l e m i n g & Sons had no s p e c i f i c a d v a n t a g e , s i m i l a r c i r c u m s t a n c e s i n o t h e r b i d s c o u l d p r o v i d e t h e o p p o r t u n i t y f o r i n s i d e r t r a d i n g . The d e f e n c e p u t f o r w a r d by t he banks t h a t one depa r tmen t p r o v i d e s t a k e - o v e r a d v i c e w h i l e a n o t h e r c o n t r o l s i n v e s t m e n t a d v i c e and one does n o t know t he b u s i n e s s done by t he o t h e r i s n o t c o n v i n c i n g I t i s a ' r i g h t hand does n o t know what t h e l e f t hand i s d o i n g ' a r gumen t , b u t i n t h i s c a s e t h e two hands a r e t o o c l o s e l y c o n n e c t e d f o r s uch a d e f e n c e t o s u c c e e d . A t t he p r e s e n t t i m e f i n a n c i a l a d v i s e r s a r e a f f e c t e d by t he i n s i d e r t r a -d i n g p r o v i s i o n s t o a v e r y l i m i t e d e x t e n t . They a r e n o t i n c l u d e d w i t h i n t h e d e f i n i t i o n o f ' i n s i d e r ' f o r t h e pu rpo se s o f t h e S e c u r i t i e s A c t and t he Com-p a n i e s A c t p r o v i s i o n s i n B r i t i s h C o l u m b i a , and t h e y w o u l d n o t be p r e c l u d e d f r o m a d v i s i n g c l i e n t s t o s e l l o r p u r c h a s e s h a r e s i n companies t o w h i c h t h e a d v i s e r s have c o n f i d e n t i a l r e l a t i o n s h i p s . In Eng l and t h e o n l y o b l i g a t i o n i s t o d i s c l o s e d e a l i n g i n s h a r e s , and t h i s i s imposed o n l y on d i r e c t o r s . 54 R u l e 29 o f t he Code p r o v i d e s : " I n a d d i t i o n a l l p u r c h a s e s and s a l e s o f s h a r e s o f any o f f e r o r o r t h e o f f e r e e company made by a s s o c i a t e s f o r a c c o u n t  o f i n v e s t m e n t c l i e n t s must be s i m i l a r l y r e p o r t e d t o t h e S t o c k Exchange and t o t he P a n e l , b u t need no t be d i s c l o s e d t o t h e P r e s s . " T h i s , a g a i n , i s a mere d i s c l o s u r e p r o v i s i o n and i s s u b j e c t t o c r i t i c i s m s as t o e f f e c t i v e n e s s . F u r t h e r , why s h o u l d d i s c l o s u r e t o t h e p r e s s n o t be r e q u i r e d ? S u r e l y t h e s h a r e h o l d e r s s h o u l d know, t h r o u g h t h e p r e s s , o f s uch d e a l i n g s , w h i c h may be as s i g n i f i c a n t as d e a l i n g s by d i r e c t o r s . The common l aw may p r o v i d e a remedy, b u t o n l y i f t h e f i n a n c i a l a d v i s e r s 199 a r e h e l d t o be f i d u c i a r i e s e i t h e r o f t h e company o r o f t h e s h a r e h o l d e r s . The q u e s t i o n w h e t h e r one i s i n a f i d u c i a r y r e l a t i o n s h i p t o a n o t h e r i s o f t e n d i f f i c u l t . ^ 0 0 Where t h e a d v i s e r i s n e g o t i a t i n g on b e h a l f o f t he o f f e r e e com-p a n y , i t w o u l d appea r 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 . 201 T h i s t y p e o f f i d u c i a r y s i t u a t i o n a r i s e s , i n t h e words o f A s q u i t h , L . J . ' w h e n e v e r t h e p l a i n t i f f e n t r u s t s t o t h e d e f e n d a n t a j o b t o be p e r f o r m e d . ' A p e r s o n w i l l f i n d h i m s e l f i n s uch a s i t u a t i o n i f he has u n d e r t a k e n o r i s under an o b l i g a t i o n ( n o t n e c e s s a r i l y c o n t r a c t u a l ) t o a c t on a n o t h e r ' s b e h a l f o r f o r 202 a n o t h e r ' s b e n e f i t , o r i s deemed i n e q u i t y t o have done s o . " As a con sequence o f t h i s r e l a t i o n s h i p , t h e f i d u c i a r y s h o u l d n o t make use 203 o f i n f o r m a t i o n o b t a i n e d by r e a s o n o f h i s p o s i t i o n f o r h i s own b e n e f i t . " I n p a r t i c u l a r t he u n d e r t a k i n g by a f i d u c i a r y t o a c t f o r a n o t h e r c a r r i e s 204 w i t h i t t he a s s u m p t i o n t h a t he w i l l n o t a c t i n h i s own i n t e r e s t . " "He who u n d e r t a k e s t o a c t f o r a n o t h e r i n any m a t t e r s h a l l n o t i n t h e same 205 m a t t e r a c t f o r h i m s e l f . " The q u e s t i o n w h e t h e r t h e company o r the s h a r e h o l d e r s may b r i n g t he a c t i o n w i l l depend on t h e answer t o t h e q u e s t i o n , " F o r whom i s t h e bank a f i d u c i a r y ? " T h i s i s a d i f f i c u l t q u e s t i o n , becau se a l t h o u g h a t a k e - o v e r o f f e r i s made t o a l l t he s h a r e h o l d e r s , and t h e f i n a n c i a l a d v i c e g i v e n w i l l a f f e c t t he s h a r e h o l d e r s , 55 t h e a d v i s e r s a r e u s u a l l y employed by t h e company. The answer may be t h a t a d v i s e r s may owe s h a r e h o l d e r s a d u t y o f c a r e , b u t t h e y owe f i d u c i a r y d u t i e s t o t h e company, and t h e r e f o r e o n l y the company w i l l be a b l e t o sue f o r i m p r o p e r t r a d i n g . I f t h i s i s s o , t h e r e may be some doub t w h e t h e r t h e com-pany w i l l i n p r a c t i c e sue i t s a d v i s e r s , e s p e c i a l l y i f i t has b e n e f i t e d d i r e c t l y o r i n d i r e c t l y f r o m t h e a d v i s e r s ' t r a d i n g , o r i f t he company a s ked t h e i r a d v i s e r s t o e n t e r t h e m a r k e t . The t h i r d p r o b l e m i n v o l v i n g m e r c h a n t banks d u r i n g t h e o u t l i n e d b i d s was the w i t h d r a w a l by R o b e r t F l e m i n g & Sons f r o m t h e i r p o s i t i o n as f i n a n c i a l a d v i s e r s t o Pergamon P r e s s a t a v e r y c r u c i a l p o i n t i n t he n e g o t i a t i o n s w i t h L e a s c o . T h i s w i t h d r a w a l l e f t Pe rgamon ' s d i r e c t o r s w i t h o u t e x p e r t f i n a n c i a l g u i d a n c e , and t h e s h a r e h o l d e r s a l s o s u f f e r e d f r o m the l a c k o f s uch a i d . T h i s p r o b l e m i s n o t r e s t r i c t e d t o t a k e - o v e r s o r company l a w , bu t i s b a s i c a l l y a p o i n t o f c o n t r a c t l a w . The bank p r e s u m a b l y c o n t r a c t e d w i t h Pergamon P r e s s , t h e company, so s h a r e h o l d e r s as i n d i v i d u a l s c o u l d n o t sue i n c o n t r a c t , though t h e y may have had an a c t i o n i n n e g l i g e n c e . N o r m a l l y t h e main d e t e r r e n t a g a i n s t s u ch an a c t i o n by p r o f e s s i o n a l a d v i s e r s w o u l d be t h e bad p u b l i c i t y and l o s s o f r e p u t a t i o n . T h i s i n c i d e n t has been a ma jo r c o n t r i -b u t i o n t o l o s s o f c o n f i d e n c e i n me rchan t banks i n E n g l a n d . The u n c e r t a i n t y s u r r o u n d i n g t h e l e g a l p o s i t i o n o f f i n a n c i a l a d v i s e r s i s v e r y u n s a t i s f a c t o r y . Though t h e p r o b l e m has no t y e t become a c u t e i n B r i t i s h C o l u m b i a , i t may do so as p r o f e s s i o n a l a d v i s i n g becomes i n c r e a s i n g l y s p e c i a -l i z e d . R e g u l a t i o n s a r e r e q u i r e d t o c o n t r o l t h e a c t i v i t i e s o f a d v i s e r s , p a r t i -c u l a r l y d u r i n g t a k e - o v e r b i d s , and s h a r e h o l d e r s who s u f f e r l o s s because o f s u c h a c t i v i t i e s s h o u l d be g i v e n a remedy, as t h e y a r e t h e p e r s o n s most d i r e c t l y a f f e c t e d . 56 S e c t i o n E A f t e r t h e B i d — T h e Rema in ing S h a r e h o l d e r s When t he o f f e r o r has t a k e n up and p a i d f o r a l l t h e s h a r e s t e n d e r e d , and t h e t a k e - o v e r b i d i s c o m p l e t e d , i t i s o f t e n t he ca se t h a t the b i d d e r h o l d s a v e r y l a r g e p e r c e n t a g e o f t he s h a r e s and a few pe r s on s h o l d i n g a v e r y s m a l l number o f t he s h a r e s r e m a i n . T h i s s i t u a t i o n may be u n s a t i s f a c t o r y t o t he b i d d e r because he want s 100 p e r c e n t o f t h e s h a r e s so t h a t he has a w h o l l y -owned s u b s i d i a r y w h i c h may be r e a d i l y merged w i t h a n o t h e r o f h i s c o m p a n i e s , o r pe rhap s he m e r e l y f e e l s i t i s more c o n v e n i e n t t o have a w h o l l y - o w n e d com-pany. The m i n o r i t y s h a r e h o l d e r s may a l s o be unhappy as t h e y w i l l be i n a weak v o t i n g p o s i t i o n , opposed t o a m a j o r i t y whom t h e y may n o t t r u s t . 1. Where t h e M a j o r i t y C o n t r o l l e r Wishes t o Ga i n 100 P e r Cent o f t h e Sha re s A t common l a w , t he o n l y ' o c c a s i o n on w h i c h t h e b i d d e r - m a j o r i t y s h a r e h o l d e r can compel an u n w i l l i n g s h a r e h o l d e r t o s e l l h i s s h a r e s t o him i s i f t he a r t i c l e s o f a s s o c i a t i o n e n a b l e h im t o do s o . The u s u a l a r t i c l e s w o u l d n o t c o n t a i n a s u i t a b l e p r o v i s i o n , so t h e b i d d e r - c o n t r o l l e r may a t t e m p t t o use h i s v o t i n g power t o change t h e a r t i c l e s . Such an a t t e m p t i s l i k e l y t o be condemned as a f r a u d 206 on t he m i n o r i t y . In two E n g l i s h c a s e s , Brown v . B r i t i s h A b r a s i v e Wheel Co. 207 and Dafen T i n p l a t e Co. v. L l a n e l l y S t e e l C o . , r e s o l u t i o n s p a s s e d t o e f f e c t t h e a p p r o p r i a t e change were h e l d i n v a l i d . However , i n a n o t h e r E n g l i s h c a s e , 208 S i d e b o t t o m v. Ke r shaw, Lee se and C o . , t he r e s o l u t i o n i n q u e s t i o n was h e l d v a l i d , as i t was pa s s ed bona f i d e i n t h e b e s t i n t e r e s t s o f t h e company. I t was i n t e n d e d t o e n a b l e t h e m a j o r i t y t o e x p e l any s h a r e h o l d e r engaged i n b u s i -ness c o m p e t i t i v e w i t h t he company. I t i s d o u b t f u l w h e t h e r a s u i t a b l e r e s o l u t i o n pa s s ed i n c o n n e c t i o n w i t h a 209 t a k e - o v e r w o u l d be h e l d v a l i d . 57 I t was f e l t t h a t some p r o v i s i o n s h o u l d be made t o e n a b l e t h e s u c c e s s f u l b i d d e r who o b t a i n s a v e r y l a r g e p e r c e n t a g e o f t h e s h a r e s t o compel t h e m i n o -r i t y t o s e l l t h e i r s h a r e s t o h i m , and a s e c t i o n t o t h a t e f f e c t was i n c l u d e d 210 i n t h e E n g l i s h Companies A c t , 1929. T h i s was r e p r o d u c e d i n s e c t i o n 209 (1 ) o f t he 1948 Companies A c t : "Where a scheme o r 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 s h a r e s o r any c l a s s o f s h a r e s 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 t h e t r a n s f e r o r company) t o a n o t h e r company, w h e t h e r a company w i t h i n t he mean-i n g o f t h i s A c t o r no t ( i n t h i s s e c t i o n r e f e r r e d t o as t h e t r a n s f e r e e company ) , h a s , w i t h i n f o u r months a f t e r t he mak ing o f t he o f f e r i n t h a t b e h a l f by t h e t r a n s f e r e e company been app ro ved by t h e h o l d e r s o f n o t l e s s t h a n n i n e - t e n t h s i n v a l u e o f t he s h a r e s whose t r a n s f e r i s i n v o l v e d ( o t h e r t h a n s h a r e s a l r e a d y h e l d a t t he d a t e o f t h e o f f e r by o r by a nominee f o r , t he t r a n s f e r e e company may, a t any t i m e w i t h i n two months o f t h e e x p i r a t i o n o f t he s a i d f o u r mon th s , g i v e n o t i c e i n t h e p r e s c r i b e d manner t o any d i s s e n t i n g s h a r e h o l d e r 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 s h a r e s , and when such a n o t i c e i s g i v e n t h e t r a n s f e r e e company s h a l l , u n l e s s on an a p p l i c a t i o n made by t he d i s s e n t i n g s h a r e h o l d e r w i t h i n one month f r o m the d a t e on w h i c h t he n o t i c e was g i v e n t he c o u r t t h i n k s f i t t o o r d e r o t h e r w i s e , be e n t i t l e d and bound t o a c q u i r e t h o s e s h a r e s on t he terms on w h i c h , unde r t he scheme o r c o n t r a c t the s h a r e s o f t h e a p p r o v i n g s h a r e -p i i h o l d e r s a r e 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. " S u b s t a n t i a l l y t he same p r o v i s i o n i s c o n t a i n e d i n s e c t i o n 181 o f t h e B.C. Companies A c t . The re a r e some m i n o r d i f f e r e n c e s . F o r e x a m p l e , t h e E n g l i s h A c t has a p r o v i s o t h a t where t he o f f e r o r a l r e a d y h o l d s more t h a n o n e - t e n t h o f t he o f f e r e e company ' s s h a r e s , t h e s e c t i o n s h a l l n o t a p p l y u n l e s s t he o f f e r o r o b t a i n s t he s h a r e s o f t h r e e - q u a r t e r s o f t he number o f t h e s h a r e h o l d e r s as w e l l as n i n e - t e n t h s o f t he v a l u e o f t h e t o t a l i s s u e d s h a r e s . The re i s no e q u i v a -l e n t p r o v i s i o n i n B r i t i s h C o l u m b i a . 58 T h e r e have a l s o been d i f f e r e n c e s i n t h e i n t e r p r e t a t i o n o f t he s i g n i f i -212 c ance o f t h e f o u r - m o n t h p e r i o d . In Eng l and i t has been h e l d t h a t i f a c l o s i n g d a t e f o r a c c e p t a n c e i s s t i p u l a t e d l e s s t h a n f o u r months f r om t h e d a t e o f t he o f f e r , and the o f f e r o r company has o b t a i n e d n i n e - t e n t h s o f t h e s h a r e s a t t h a t d a t e , t h e o f f e r o r company may g i v e n o t i c e o f c o m p u l s o r y a c q u i s i t i o n 213 i m m e d i a t e l y . In Canada i t has been h e l d t h a t t h e o f f e r must r ema in open f o r t h e f u l l f o u r months . The g e n e r a l p r i n c i p l e on w h i c h t h e s e c t i o n i s based i s n o t c l e a r , and no g u i d a n c e i s o f f e r e d on t h e i n t e r p r e t a t i o n o f c e r t a i n key p h r a s e s , n o t a b l y ' s e e f i t t o o r d e r o t h e r w i s e . ' The j u d i c i a l a t t i t u d e t o t he s e c t i o n i s t h e r e -f o r e v e r y i m p o r t a n t . P r o f e s s o r P e n n i n g t o n w r i t e s : "The e x t e n t o f t he c o u r t ' s j u r i s d i c t i o n on an appea l by a m i n o r i t y s h a r e h o l d e r a g a i n s t t h e c o m p u l s o r y a c q u i s i t i o n o f h i s s h a r e s by a s u c c e s s f u l t a k e - o v e r b i d d e r has l o n g been s o m e t h i n g o f an e n i g m a , b u t w i t h t he i n c r e a s e i n t h e number o f t a k e - o v e r s i n r e c e n t y e a r s , t h e c o u r t ' s app roach has become more d i s t i n c t , and i t i s w i t h some h o r r o r t h a t one r e a l i z e s j u s t how l i t t l e p r o t e c t i o n i s i n f a c t g i v e n t o t h e d i s s e n t i n g s h a r e h o l d e r who wants t o keep h i s s h a r e s , o r who h o l d s o u t f o r a b e t t e r p r i c e . " Mr. P e n n i n g t o n ' s h o r r o r stems f r o m t h e j u d i c i a l i n t e r p r e t a t i o n o f t he s e c -215 216 t i o n . The l e a d i n g c a s e i s pe rhap s Re Hoare i n w h i c h Maugham, J . s a i d : "I have some h e s i t a t i o n i n e x p r e s s i n g my v iew as t o when a c o u r t s h o u l d t h i n k f i t t o o r d e r o t h e r w i s e . I t h i n k , however , t h a t t h e v i e w o f t he l e g i s l a t u r e i s t h a t where n o t l e s s t han n i n e - t e n t h s o f t he s h a r e h o l d e r s i n t h e t r a n s f e r o r company app ro ve t h e scheme o r a c c e p t the o f f e r , p r i m a f a c i e a t any r a t e , the o f f e r must be t a k e n t o be a p r o p e r o n e , and i n d e f a u l t o f an a p p l i c a t i o n by t h e d i s s e n t i n g s h a r e -h o l d e r s , w h i c h i n c l u d e s t h o s e who do n o t a s s e n t , t he s h a r e s o f t h e d i s s e n t i e n t s may be a c q u i r e d on t h e o r i g i n a l terms by t he t r a n s f e r e e company. A c c o r d i n g l y , I t h i n k i t i s m a n i f e s t t h a t t he r e a s on s f o r i n d u c i n g the c o u r t t o ' o r d e r o t h e r w i s e ' a r e r e a s on s w h i c h must be s u p -p l i e d by t h e d i s s e n t i e n t s who t a k e t h e s t e p o f mak ing an a p p l i c a t i o n t o t he c o u r t , and t h a t t he onus i s on them o f g i v i n g a r e a s o n why t h e i r s h a r e s s h o u l d n o t be a c q u i r e d by t h e t r a n s f e r o r company. "One c o n c l u s i o n w h i c h I draw f r o m t h a t f a c t i s t h a t t h e mere c i r -cumstance t h a t the s a l e o r exchange i s c o m p u l s o r y i s one w h i c h ough t 59 n o t t o i n f l u e n c e t he c o u r t . I t has been c a l l e d an e x p r o p r i a t i o n , b u t I do n o t r e g a r d t h a t as b e i n g v e r y a p t i n t h e c i r c u m s t a n c e s o f t h e c a s e . The o t h e r c o n c l u s i o n I draw i n t h i s , t h a t a g a i n p r i m a  f a c i e the c o u r t ought t o r e g a r d t h e scheme as a f a i r one inasmuch as i t seems t o me i m p o s s i b l e t o suppose t h a t t h e c o u r t , i n t h e ab sence o f v e r y s t r o n g g r o u n d s , i s t o be e n t i t l e d t o s e t up i t s own v i e w o f t he f a i r n e s s o f t h e scheme i n o p p o s i t i o n t o so v e r y l a r g e a m a j o r i t y o f t he s h a r e h o l d e r s who a r e c o n c e r n e d . " Maugham, J . ' s w o r d s , spoken i n ' some h e s i t a t i o n , ' have had a v e r y c o n -s i d e r a b l e i n f l u e n c e on l a t e r j u d i c i a l a t t i t u d e t o t he m i n o r i t y ' s p o s i t i o n , o f t e n b e i n g q u o t e d as j u s t i f i c a t i o n f o r a v e r y r e s t r i c t e d v i e w o f the m i n o r i t y ' s 217 r i g h t s under t h e s e c t i o n . 218 Such an example may be f ound i n Re Su s s ex B r i c k Co. L t d . i n w h i c h V a i s e y , J . d i s p l a y e d an even s t r o n g e r a t t i t u d e a g a i n s t the m i n o r i t y : "I a g r e e t h a t c e r t a i n c r i t i c i s m s s e t o u t i n t h e a p p l i c a n t ' s a f f i d a v i t show t h a t a good ca se c o u l d be made o u t f o r t h e f o r m u l a -t i o n o f a b e t t e r s cheme, o f a f a i r e r scheme, o f one w h i c h w o u l d have been more a t t r a c t i v e t o t h e s h a r e h o l d e r s i f t h e y c o u l d have u n d e r s t o o d t h e i m p l i c a t i o n s o f t h e c r i t i c i s m s : I have no doub t a t a l l t h a t a b e t t e r scheme m i gh t have been e v o l v e d , b u t i s t h a t enough? Is i t n e c e s s a r y t o e s t a b l i s h t h e v a l i d i t y o f s u ch an o f f e r as p u t f o r w a r d i n t h e p r e s e n t ca se ? I s t h e r e any p o i n t i n t he scheme on w h i c h a b e t t e r v i e w m i g h t have p r e v a i l e d , and a r a t h e r more generous t r e a t m e n t m i g h t have been o f f e r e d t o pe r s on s whose s h a r e s a r e s o u g h t t o be e x p r o p r i a t e d ? A b e t t e r and f a i r e r o f f e r m i g h t have been made, p o s s i b l y , b u t I do n o t t h i n k t h a t becau se a scheme i s no t 100 p e r c e n t f a i r o r r i g h t t h e r e i s t h a t k i n d o f u n f a i r n e s s w i t h w h i c h Maugham, J . was d e a l i n g ( i n Re H o a r e ) . The mere . f i n d i n g o f i t e m s o r d e t a i l s i n t h e scheme w h i c h a r e open t o v a l i d c r i t i c i s m i s n o t u n f a i r n e s s c o n s i s t e n t w i t h t h e s p i r i t o f t h a t j u d g m e n t . " 219 In Re D a d ' s C o o k i e Co. ( B . C . ) L t d . the d i s s e n t i n g s h a r e h o l d e r p r o d u c e d a f f i d a v i t s d e m o n s t r a t i n g t h a t t h e v a l u a t i o n o f t h e s h a r e s was d o u b t f u l . 220 MacDona l d , J . was c o n t e n t t o s a y : "Now Mr. Lew i s may be r i g h t i n what he s a y s about t he v a l u e o f the s h a r e s , b u t t h e m a t e r i a l , showing as i t does t h a t some t h i r t e e n s h a r e h o l d e r s h o l d i n g o v e r n i n e - t e n t h s i n v a l u e o f t he s h a r e s o f t he company have a c c e p t e d t h e o f f e r , does no t a f f i r m a t i v e l y e s t a b l i s h t h a t the p r i c e was u n f a i r . " I t s h o u l d be n o t e d t h a t i n t h e Dad ' s C o o k i e c a s e t he a p p l i c a n t s t r e s s e d t h a t he had had d i f f i c u l t y i n o b t a i n i n g the n e c e s s a r y i n f o r m a t i o n t o p r e s e n t 60 h i s e v i d e n c e . T h i s d i f f i c u l t y i s r e f l e c t e d i n o t h e r c a s e s , and f r e q u e n t l y t h e c o u r t s ' d e c i s i o n s a r e s t r o n g l y a f f e c t e d by t h e a p p l i c a n t ' s i n a b i l i t y t o p r e s e n t as s t r o n g a c a s e as he m i g h t . P e n n i n g t o n advances a p l a u s i b l e e x p l a n a t i o n f o r j u d i c i a l c o n s e r v a t i s m 221 i n i n t e r p r e t a t i o n o f t h e s e c t i o n : "The c o u r t shuns t he t a s k s o f v a l u i n g s h a r e s o r p r e d i c t i n g t h e l i k e l y f u t u r e c o u r s e o f t h e i r v a l u e s , because t he j u d i c i a l f o r m o f p r o c e d u r e i s no t w e l l s u i t e d t o r e a c h i n g some v a l u e j u d g m e n t s . I t i s t h e r e f o r e e a s i e r f o r t h e c o u r t t o r a i s e an a l m o s t i r r e b u t t a b l e p r e s u m p t i o n o f f a i r n e s s i n f a v o u r o f t h e t a k e - o v e r b i d o r o t h e r p r o p o s a l and t o i n t e r f e r e o n l y where t h e r e i s c l e a r e v i d e n c e o f f r a u d o r o v e r r e a c h i n g . " One c a s e i n w h i c h t h e c o u r t may be s a i d t o have d e m o n s t r a t e d c l e a r l y i t s 222 u n s u i t a b i l i t y f o r t he t a s k o f v a l u a t i o n i s Re G r i e r s o n , Oldham and Adams L t d . where P lowman, J . a c c e p t e d as t he f a i r v a l u e o f t he s h a r e s t h e i r q u o t e d v a l u e i m m e d i a t e l y b e f o r e t h e b i d , d e s p i t e t he f a c t t h a t t he q u o t e d v a l u e s f o r a l o n g p e r i o d o f t i m e , sworn i n a f f i d a v i t s , i n d i c a t e d a v a l u e a p p r o x i m a t e l y f i f t e e n p e r c e n t h i g h e r . T h i s was a p e c u l i a r d e c i s i o n , e s p e c i a l l y when i t i s r e c a l l e d t h a t t he L i c e n s e d D e a l e r s R u l e s r e q u i r e " a t l e a s t s i x m i d d l e ma rke t q u o t a t i o n s d u r i n g t h e p e r i o d o f s i x months i m m e d i a t e l y p r e c e d i n g t he d a t e o f t h e o f f e r „223 • • • • A l t h o u g h t h e o f f e r p r i c e , 5 s . 9d . p e r s h a r e , was 3d . above t h e q u o t e d v a l u e i m m e d i a t e l y p r i o r t o t he b i d , i t was I s . be low the p r e v i o u s l o w e s t p r i c e and a c o n s i d e r a b l e l o s s on t he s h a r e h o l d e r s ' i n v e s t m e n t , y e t i t was h e l d t h a t t he a p p l i c a n t s had " f a i l e d t o d i s c h a r g e t h e heavy onus o f p r o o f . " 224 Re Bug l e P r e s s L t d . i s t h e o n l y E n g l i s h ca se i n w h i c h t h e d i s s e n t i n g s h a r e h o l d e r has s u c c e e d e d . T h i s was an e x c e p t i o n a l c a s e i n w h i c h t h e m a j o r i t y o f a p r i v a t e company f o rmed a new company t o make a t a k e - o v e r b i d f o r B u g l e P r e s s L t d . , t he p r i v a t e company, w i t h t h e pu rpo se o f f o r c i n g t h e a p p l i c a n t t o s e l l h i s s h a r e s . The m a j o r i t y , who h e l d n i n e t y p e r c e n t o f t he s h a r e s , a c c e p -t e d t h e o f f e r a n d , t h r o u g h the medium o f t h e i r new company, s e r v e d n o t i c e o f 61 c o m p u l s o r y a c q u i s i t i o n on t h e a p p l i c a n t who h e l d t h e r e m a i n i n g t e n p e r c e n t o f t h e s h a r e s . The l a t t e r a p p l i e d t o t h e c o u r t w h i c h r e f u s e d t o a l l o w t h i s f r a u d u l e n t method o f e x p r o p r i a t i o n , and d e c l a r e d t he new company was n o t e n t i t l e d t o a c q u i r e t h e s h a r e s . 225 In Canada a p p l i c a n t s under the c ompa rab l e s e c t i o n 181 (1 ) have been s l i g h t l y more s u c c e s s f u l . In Re John L a b a t t L t d . and Lucky L a ge r B r e w e r i e s ope L t d . , t he d i s s e n t i n g s h a r e h o l d e r s were g r a n t e d an o r d e r t h a t t h e L a b a t t company was n o t e n t i t l e d and bound t o a c q u i r e t h e i r s h a r e s ; t h e c o u r t h e l d t h a t t h e s e c t i o n was c o n f i s c a t o r y i n n a t u r e and i t s p r o v i s i o n s must be 227 s t r i c t l y o b s e r v e d . 228 In Re Waterous & K o e h r i n g Waterous L t d . an o f f e r t o p u r c h a s e s h a r e s o r i g i n a l l y open f o r one month and s u b s e q u e n t l y e x t e n d e d f r o m t i m e t o t i m e f o r more t han f o u r months was h e l d n o t t o comp ly w i t h t h e s e c t i o n . These a r e examples o f t h e d i s s e n t i n g s h a r e h o l d e r s w i n n i n g on t e c h n i c a l i -t i e s . They s u c c e e d e d on a s u b s t a n t i a l p o i n t . o f l aw i n E s s o - S t a n d a r d ( I n t e r -229 A m e r i c a ) I n c . v . J.W. E n t e r p r i s e s I n c . i n w h i c h J u d s o n , J . , f o l l o w i n g Re B u g l e P r e s s L t d . , h e l d t h a t t he s e c t i o n c o n t e m p l a t e d t he a c q u i s i t i o n o f n i n e t y p e r c e n t o f t he t o t a l i s s u e d s h a r e s o f t h e c l a s s a f f e c t e d , and t h a t t h i s n i n e t y p e r c e n t must be i n d e p e n d e n t l y h e l d . The e f f e c t o f t h i s d e c i s i o n appea r s t o be t h a t t h e s e c t i o n i s n o t a v a i l a b l e t o a b i d d e r who a l r e a d y h o l d s t e n p e r c e n t o r more o f t h e company ' s s h a r e s a t t he d a t e o f t he o f f e r . An i m p o r t a n t q u e s t i o n a r i s e s o u t o f t h e p h r a s e ' t o o r d e r o t h e r w i s e . ' I t i s n o t c l e a r w h e t h e r t h e c o u r t i s , by v i r t u e o f t h i s p h r a s e , a b l e t o v a r y t he terms o f t h e a c q u i s i t i o n as t o p r i c e , o r w h e t h e r t he c o u r t i s l i m i t e d t o o r d e r i n g t h a t t he s e c t i o n a p p l i e s o r i t does n o t a p p l y . I t i s i n t e r e s t i n g t o 230 n o t e t h a t t h e J e n k i n s Commit tee t o o k t h e v i ew t h a t " u n d e r s e c t i o n 209 (1 ) t h e C o u r t may o n l y o r d e r t h a t t he s h a r e s o f a d i s s e n t i e n t s h a r e h o l d e r s h a l l o r s h a l l n o t be c o m p u l s o r i l y a c q u i r e d . " Bo th i n E n g l a n d and i n Canada t h e 62 a c t i o n s unde r t h e s e c t i o n s have been f r amed i n s uch a way t h a t t h e a p p l i c a n t s e e k s an o r d e r d e c l a r i n g t h a t t h e r e s p o n d e n t s a r e n e i t h e r e n t i t l e d n o r bound 231 t o a c q u i r e h i s s h a r e s . C l e a r l y t he c o u r t s had a v e r y w i d e d i s c r e t i o n i n g i v i n g e f f e c t t o a s e c -t i o n w h i c h was open t o d i f f e r i n g i n t e r p r e t a t i o n s . U n f o r t u n a t e l y i n E n g l and and t o a l e s s e r e x t e n t i n Canada , t he c o u r t s have cho sen t o e x e r c i s e t h i s d i s -c r e t i o n i n a v e r y c o n s e r v a t i v e manner . The i n t e n t i o n o f t h e s e c t i o n i s , a c c o r -232 d i n g t o t he J e n k i n s C o m m i t t e e , t o f a c i l i t a t e t h e merge r o f c o m p a n i e s , b u t a g a i n s t t h i s v a l u e s h o u l d be w e i g h e d o t h e r v a l u e s d e r i v e d f r o m t h e m i n o r i t y s h a r e h o l d e r s ' r i g h t s i n t h e s h a r e s . A d m i t t e d l y t he s e c t i o n i t s e l f a c c o r d s 233 g r e a t e r w e i g h t t o t h e f a c i l i t a t i o n o f merger s v a l u e , b u t t h e c o u r t s , f o l -l o w i n g Maugham, J . ' s d i c t a l i k e s h e e p , have t o o e a s i l y o v e r l o o k e d t h e f a c t t h a t t h e s e c t i o n i s c o n f i s c a t o r y i n n a t u r e and e f f e c t , and t h a t t h e a p p l i c a n t s do n o t have a c c e s s t o i n f o r m a t i o n w h i c h c o u l d p r o v i d e e v i d e n c e i n s u p p o r t o f t h e i r c a s e s . One hopes t h a t t h e c o u r t s w i l l see f i t t o o r d e r o t h e r w i s e i n l e s s e x t r eme ca se s t h a n Re B u g l e P r e s s L t d . and Re John L a b a t t L t d . and Lucky  L a g e r B r e w e r i e s . To t h e p r e s e n t t i m e m i n o r i t y s h a r e h o l d e r s have been t oo s e v e r e l y d e a l t w i t h . 2. Where the M i n o r i t y S h a r e h o l d e r s Wish To Be Bought Out I t may somet imes happen t h a t a g roup o f s h a r e h o l d e r s w i t h a v e r y s m a l l p e r c e n t a g e o f t he s h a r e s becomes i s o l a t e d and dom ina ted by an o f f e r o r m a j o r i t y -s h a r e h o l d e r a t t h e end o f t h e b i d . Under such c i r c u m s t a n c e s t he group may n o t w i s h t o r ema i n i n t h e company, y e t i t may be d i f f i c u l t i f n o t i m p o s s i b l e f o r them t o s e l l t h e i r s h a r e s t o o u t s i d e r s a t a r e a s o n a b l e p r i c e , e s p e c i a l l y i f t h e company i s p r i v a t e o r c l o s e l y h e l d . A f t e r a l l , a t e n p e r c e n t s h a r e h o l d i n g i n s u ch a company when t he m a j o r i t y c o n t r o l n i n e t y p e r c e n t o f t h e s h a r e s , i s n o t an a t t r a c t i v e p r o p o s i t i o n . M i n o r i t y s h a r e h o l d e r s i n t h i s s i t u a t i o n a r e s u s c e p t i b l e t o t h e t e c h n i q u e known as a ' s q u e e z e - o u t ' by w h i c h t h e m a j o r i t y , 63 u s i n g s uch methods as n o t d e c l a r i n g d i v i d e n d s , i n d u c e t he m i n o r i t y t o s e l l 234 t h e i r s h a r e s a t a p r i c e be low v a l u e . pqc S e c t i o n 209 (2 ) p r o v i d e s a s o l u t i o n t o t h i s p r o b l e m i n l i m i t e d c i r -c u m s t a n c e s . The s u b - s e c t i o n f o l l o w s the same p r o c e d u r e and r e q u i r e m e n t s as s e c t i o n 2 0 9 ( 1 ) . An o f f e r f o r a l l t h e s h a r e s must be by a company and a c c e p t e d by h o l d e r s o f n i n e t y pe r c e n t i n v a l u e o f t h e s h a r e s . I f t h e s e c o n -d i t i o n s a r e c o m p l i e d w i t h , t h e h o l d e r s o f t h e r e m a i n i n g s h a r e s may g i v e n o t i c e t o t h e o f f e r o r company, r e q u i r i n g i t t o a c q u i r e " t h o s e s h a r e s on t he terms on w h i c h unde r t h e scheme o r c o n t r a c t t h e s h a r e s o f t h e a p p r o v i n g s h a r e h o l d e r s were t r a n s f e r r e d t o i t , o r on such o t h e r te rms as may be a g r e e d upon o r as t h e c o u r t on t h e a p p l i c a t i o n o f e i t h e r t h e t r a n s f e r e e company o r t he s h a r e h o l d e r s t h i n k s f i t t o o r d e r . " I t w i l l be n o t e d t h a t t he c o u r t has a w i d e r d i s c r e t i o n under t h i s s u b -s e c t i o n as t o t he te rms o f the o r d e r . How t h i s d i s c r e t i o n w i l l be e x e r c i s e d i s n o t known b e c a u s e , as f a r as can be a s c e r t a i n e d , t h e r e have been ho r e p o r t e d ca se s on s e c t i o n 2 0 9 ( 2 ) . T h i s may be becau se i n many i n s t a n c e s t he m a j o r i t y w i l l be o n l y t o o g l a d t o buy o u t t he r e m a i n i n g s h a r e h o l d e r s , and a l s o t he v e r y e x i s t e n c e o f t h e s e c t i o n w i l l e ncou rage t h o s e b i d d e r s who may have any doub t s t o p u r c h a s e once n o t i c e has been s e r v e d on them. D e s p i t e t h e l a c k o f c a s e s , i t i s r e g r e t t a b l e t h a t t h e r e i s no c ompa rab l e l e g i s l a t i o n i n B r i t i s h C o l u m b i a . 64 P a r t 4 SOME RECOMMENDATIONS I n t r o d u c t i o n In c o n s i d e r i n g s o l u t i o n s t o t he v a r i o u s p rob lems r a i s e d , one s h o u l d b e a r i n mind t he c h a r a c t e r i s t i c s o f t h e d i f f e r e n t a d m i n i s t r a t i v e sy s tems g o v e r n i n g t a k e - o v e r s i n B r i t i s h C o l u m b i a and i n E n g l a n d . The S e c u r i t i e s Commiss ion has d u t i e s r a n g i n g o v e r t h e w h o l e a r e a o f s e c u -r i t i e s i s s u a n c e and t r a d i n g , and t h e e n f o r c e m e n t o f t h e t a k e - o v e r p r o v i s i o n s i s o n l y a s m a l l p a r t o f t h e i r r e s p o n s i b i l i t y . I t i s e v i d e n t t h a t t h e B r i t i s h C o l u m b i a S e c u r i t i e s Commiss ion i s u n d e r s t a f f e d and does n o t have s u f f i c i e n t w o r k e r s s p e c i a l i s i n g i n p a r t i c u l a r f i e l d s such as p r o s p e c t u s , p r o x y s t a t e m e n t s , i n s i d e r t r a d i n g and t a k e - o v e r s . The r e g u l a t i o n s a r e l a r g e l y s e t o u t i n s t a t u t e s and a r e t h e r e f o r e n o t e a s i l y changed and do n o t l e a v e t h e Commiss ion a w i d e d i s c r e t i o n i n d e a l i n g w i t h p a r t i c u l a r c a s e s . The Commiss ion d o e s , howeve r , have c o n s i d e r a b l e l e g a l p o w e r s . 1 The most a c t i v e E n g l i s h a d m i n i s t r a t i v e body i s t h e T a k e - o v e r P a n e l w h i c h c o n s i s t s o f e x p e r t s i n a l l f a c e t s o f t h e t a k e - o v e r b i d , and t h e y a r e w o r k i n g w i t h a v o l u n t a r y ag reement w h i c h can e a s i l y be amended i n t he l i g h t o f e x p e -r i e n c e . F u r t h e r t he Pane l can demand t h a t the p a r t i e s t o a b i d comply w i t h 3 t he s p i r i t as w e l l as t h e l e t t e r o f t he Code. The p e n a l t y f o r t h i s f reedom i s t h a t t h e Code and t h e Pane l i n t h e m s e l v e s have no l e g a l a u t h o r i t y , and a d e t e r m i n e d bu s i ne s sman c o u l d have h i s way a g a i n s t t he w i s h e s o f t he P a n e l . "The g e n t l e m a n l y ag reements and p r e s s u r e s o f t he S t o c k Exchanges and o t h e r 4 C i t y a u t h o r i t i e s can s a f e l y be i g n o r e d by t h e i l l - b r e d and u n s c r u p u l o u s . Where s t r o n g a c t i o n i s j u s t i f i e d t he Pane l can be l e g a l l y e f f e c t i v e t h r o u g h t h e Boa rd o f T r a d e , t o w h i c h i t may recommend t h a t an i n v e s t i g a t i o n s h o u l d be made. However , s u ch power i s u n w i e l d y and s l o w - m o v i n g , and i s n o t l i k e l y t o p r e v e n t damage b e i n g done by " t h e i l l - b r e d and u n s c r u p u l o u s . " 65 The l i m i t a t i o n s imposed by t h e d e f i n i t i o n s o f a t a k e - o v e r c a n , i n p a r t , be a t t r i b u t e d t o t he d i f f i c u l t y o f a d m i n i s t e r i n g a l a r g e number o f b i d s . The B r i t i s h C o l u m b i a p r o v i s i o n s c o u l d , i n t h e o r y , be imp roved by r emov ing t h e e x e m p t i o n g r a n t e d f o r p r i v a t e c o m p a n i e s , b u t t h i s w o u l d g r e a t l y i n c r e a s e t he 5 number o f t a k e - o v e r s t o be s c r u t i n i z e d and w o u l d p l a c e an i m p o s s i b l e bu rden on an a l r e a d y o v e r - e x t e n d e d Commi s s i on . F u r t h e r , i t i s d o u b t f u l t h e p r o v i s i o n s o f t he S e c u r i t i e s A c t w o u l d be o f much b e n e f i t t o t h e members o f a p r i v a t e com-pany , because t he d i s c l o s u r e r e q u i r e d i s d e s i g n e d f o r l a r g e p u b l i c c ompan i e s . The E n g l i s h d e f i n i t i o n i s u n r e a l i s t i c i n t h a t i t p r o v i d e s o n l y f o r t h o s e b i d s f o r more t han f i f t y p e r c e n t o f t he v o t i n g s h a r e s , a l t h o u g h e f f e c t i v e c o n -t r o l o f a company can be h e l d w i t h l e s s t h a n t w e n t y p e r c e n t o f the v o t e s , p r o -v i d e d t h e r e m a i n i n g v o t i n g s h a r e s a r e w i d e l y d i s t r i b u t e d . The B r i t i s h C o l u m b i a d e f i n i t i o n i n c l u d e s b i d s f o r t w e n t y p e r c e n t o f t he s h a r e s 7 w h i l e t h e d r a f t b i l l f o r t he new Canada C o r p o r a t i o n s A c t p ropo se s t o i n c l u d e o f f e r s f o r t e n g p e r c e n t o f t he e q u i t y w i t h i n t h e s cope o f i t s p r o v i s i o n s . The E n g l i s h d e f i -n i t i o n s h o u l d be amended t o a c c o u n t f o r b i d s f o r de f a c t o c o n t r o l , and a t e n p e r c e n t l i m i t i s recommended as b e i n g the most r e a l i s t i c . The i n c r e a s e d w o r k -l o a d can be more e a s i l y a b s o r b e d by t h e P a n e l , as i t d e a l s o n l y w i t h t a k e - o v e r s a n d , a t p r e s e n t , does n o t appea r t o be o v e r - b u r d e n e d . S e c t i o n A D i r e c t o r s ' Powers The c o n t r o l o f d i r e c t o r s i n t h e e x e r c i s e o f t h e i r powers has become a v e r y i m p o r t a n t q u e s t i o n i n company l aw as a w h o l e . In t h e t a k e - o v e r s i t u a t i o n t he p r o b l e m i s c r u c i a l . The d i r e c t o r s c l e a r l y s h o u l d be a b l e t o t a k e some a c t i o n i n d e f e n c e a g a i n s t a b i d , b u t one s h o u l d remember t h a t t he o f f e r i s made t o t he i n d i v i d u a l s h a r e h o l d e r s , n o t t o t h e company. The b a l a n c e between t he i n t e r e s t s o f t h e company and t h o s e o f i n d i v i d u a l s h a r e h o l d e r s s h o u l d be w e i g h t e d i n f a v o u r o f t h e l a t t e r . 66 A t p r e s e n t t h e d i r e c t o r s must c o n s i d e r t h e i n t e r e s t s o f t he company when t h e y a r e a c t i n g on i t s b e h a l f . But becau se t he i n t e r e s t o f t h e company has Q been i n t e r p r e t e d t o mean t h e i n t e r e s t o f a l l t h e s h a r e h o l d e r s , t h e p r a c t i c a l con sequences o f a change i n emphas i s t o t h e i n d i v i d u a l s h a r e h o l d e r may n o t be i m m e d i a t e l y a p p a r e n t . A s i g n i f i c a n t con sequence s h o u l d be t h a t i n d i v i d u a l s h a r e h o l d e r s s h o u l d be g i v e n t h e r i g h t t o sue d i r e c t o r s on t h e i r own b e h a l f f o r w r o n g f u l e x e r c i s e o f power when t h e d i r e c t o r s i m p r o p e r l y use t h e i r powers i n t he c o u r s e o f a t a k e - o v e r b i d . 1 0 Such a change c o u l d be e f f e c t e d most c o n -v e n i e n t l y by t h e c o u r t s , b u t t h i s appea r s t o be an u n l i k e l y d i r e c t i o n f o r them t o f o l l o w and l e g i s l a t i o n may be n e c e s s a r y . The re w i l l be c o n s i d e r a b l e d r a f t -i n g p rob lems becau se t h e r e may be i n s t a n c e s when t h e d i r e c t o r s have a d u t y t o r t h e company and a l s o , unde r t h e p r o p o s e d l a w , t o t h e s h a r e h o l d e r s i n d i v i d u a l l y . T h i s p r o b l e m s h o u l d be f a c e d s q u a r e l y , r a t h e r t h a n d i s p o s e d o f by t he s i m p l e b u t u n j u s t e x p e d i e n c y o f a u t o m a t i c a l l y d e c i d i n g i n f a v o u r o f one c l a i m a n t , t he company, as i s t he p r e s e n t p o s i t i o n . The d i f f i c u l t y can pe rhaps be r e s o l v e d by a s e c t i o n w h i c h p r o v i d e s t h a t t h e r e i s a p r e s u m p t i o n t h a t t he d i r e c t o r s , when a c t i n g i n a t a k e - o v e r s i t u a t i o n , a r e a c t i n g on b e h a l f o f t he s h a r e h o l d e r s , b u t t h i s p r e s u m p t i o n may be d i s p l a c e d i f t he d i r e c t o r s p r o v e t h e y owe a h i g h e r d u t y t o t h e company. The d i f f i c u l t y w i t h t h i s i s t h a t i t may no t be c l e a r a t f i r s t when a h i g h e r d u t y t o t h e company e x i s t s . T h i s d e c i s i o n w i l l depend on t h e f a c t s o f each ca se and can b e s t be made by t he c o u r t s . Pe rhaps the s e c t i o n c o u l d be worded i n s u c h a way t h a t i t i s c l e a r t h a t the p r e s u m p t i o n w i l l be d i s -p l a c e d r a r e l y , as t h e r e can be few c a s e s i n w h i c h t h e d i r e c t o r s r e a l l y owe a s i g n i f i c a n t d u t y t o t he company i n a t a k e - o v e r s i t u a t i o n . F u r t h e r , i f t h e s h a r e h o l d e r becomes aware t h a t t he d i r e c t o r s i n t e n d t o e x e r c i s e some power f o r an i m p r o p e r pu rpo se o r i n t h e i r own i n t e r e s t s , he 12 s h o u l d have t h e s t a n d i n g t o t r y t o o b t a i n an i n j u n c t i o n q u i a t i m e t , p r e v e n t -i n g t h e a c t i o n b e f o r e i t o c c u r s . However t h e chances o f a s h a r e h o l d e r 67 s u c c e e d i n g a r e r e m o t e , because he w i l l n o r m a l l y have d i f f i c u l t y i n o b t a i n i n g t h e n e c e s s a r y e v i d e n c e i n adequa te t i m e and " a mere vague a p p r e h e n s i o n i s n o t 13 s u f f i c i e n t t o s u p p o r t an immed i a te t h r e a t t o do s o m e t h i n g . " A l t h o u g h t h e s h a r e h o l d e r i s u n l i k e l y t o be s u c c e s s f u l , he s h o u l d have t he o p p o r t u n i t y , as p r e v e n t i o n i s much b e t t e r t h a n a c u r e . A d i f f e r e n t q u e s t i o n c o n c e r n i n g t h e f o r m u l a t i o n o f a p r i n c i p l e on w h i c h t he d i r e c t o r s s h o u l d a c t i n a t a k e - o v e r s i t u a t i o n i s t he r e l e v a n c e o f t he 14 e m p l o y e e s ' i n t e r e s t s . As has been s u g g e s t e d , d i r e c t o r s do c o n s i d e r i n p r a c -t i c e t h e i r e m p l o y e e s ' i n t e r e s t s , and i t has become c l e a r t h a t t h e l aw s h o u l d 15 r e c o g n i s e t h i s r e a l i t y . The T a k e - o v e r Code has done s o : I t i s t he s h a r e -h o l d e r s ' i n t e r e s t s t a k e n as a who l e w h i c h s h o u l d be c o n s i d e r e d , t o g e t h e r w i t h 1 c t h o s e o f employees and c r e d i t o r s . " I t may w e l l be t h a t t h e c o u r t s w i l l e f f e c t t h i s c hange , b u t a g a i n i t may be n e c e s s a r y t o l e g i s l a t e . T h i s w o u l d be u n f o r t u n a t e becau se n e i t h e r t h e Eng -l i s h o r t h e B r i t i s h C o l u m b i a S t a t u t e s i n c l u d e s e c t i o n s p r e s c r i b i n g s u ch s t a n d a r d s . In c o n s i d e r i n g how t o e f f e c t t h i s recommended change o f emphas i s i n p r i n -c i p l e i n f a v o u r o f t he i n d i v i d u a l s h a r e h o l d e r s , one i s c o n f r o n t e d by t h e s p e c t r e o f t h e d e c i s i o n i n Bamford v . B a m f o r d . 1 7 I t i s an a l m o s t m e a n i n g l e s s e x e r c i s e t o f o r m u l a t e s o p h i s t i c a t e d p r i n c i p l e s on w h i c h d i r e c t o r s s h o u l d a c t i f t h e l aw a l l o w s t h e i r a c t i o n s done ma la f i d e and f o r an i m p r o p e r pu rpo se t o be r a t i f i e d by a s i m p l e m a j o r i t y o f t h e company, e s p e c i a l l y where t he d i r e c t o r s a r e a l s o m a j o r i t y s h a r e h o l d e r s . T h i s wou l d appea r t o be t he c u r r e n t l e g a l p o s i t i o n , and though i t may be c l a i m e d t h a t t h e d e c i s i o n i s bad l a w , i t i s C o u r t o f Appea l a u t h o r i t y and can be r e v e r s e d o n l y i f someone t a k e s a s i m i l a r c a s e t o t h e House o f L o rd s and pe r s uade s t h e i r L o r d s h i p s t o do s o . 1 g A p o s s i b l e method o f r e d u c i n g t he e f f e c t o f t he d e c i s i o n w o u l d be t o r e q u i r e a s p e c i a l r e s o l u t i o n t o be pa s s ed i n o r d e r t o r a t i f y an i m p r o p e r a c t i o n by t h e d i r e c t o r s . However i n many i n s t a n c e s c o u r t a c t i o n w o u l d be n e c e s s a r y 68 t o d e c i d e w h e t h e r t he d i r e c t o r s had a c t e d i m p r o p e r l y . A f u r t h e r p o s s i b i l i t y w o u l d be t o p r e v e n t t h e d i r e c t o r s f r o m v o t i n g as s h a r e h o l d e r s when t h e g e n e r a l m e e t i n g i s c o n s i d e r i n g a r e s o l u t i o n c o n c e r n i n g an i m p r o p e r d i r e c t o r s ' a c t i o n . Not o n l y w o u l d t h i s be a s e v e r e r e s t r i c t i o n on t he d i r e c t o r s ' r i g h t s as s h a r e -h o l d e r s , b u t a g a i n t h e r e w o u l d be c o n f l i c t i n g o p i n i o n s as t o t he i m p r o p r i e t y o f a c t s . The most s u i t a b l e remedy w o u l d be an e x p a n s i o n o f t h e d o c t r i n e o f f r a u d on the m i n o r i t y t o i n c l u d e ma la f i d e e x e r c i s e s o f d i r e c t o r s ' power s . I f t h e c o u r t s w i l l n o t do t h i s , t h e p o s i t i o n o f t h e m i n o r i t y s h a r e h o l d e r i s so u n f a i r l y weak t h a t l e g i s l a t i v e i n t e r v e n t i o n w o u l d be m e r i t e d , d i f f i c u l t as i t w o u l d be . 1. A T a k e - o v e r Commiss ion Even i f t h e e f f e c t s o f t he d e c i s i o n i n Bamford v . Bamford a r e s u c c e s s -f u l l y e v a d e d , t he s h a r e h o l d e r s a r e s t i l l n o t i n a s a t i s f a c t o r y p o s i t i o n . I f t h e d i r e c t o r s have a c t e d ma la f i d e i n t he e x e r c i s e o f t h e i r p o w e r s , i t i s l i k e l y t h a t t h e damage has a l r e a d y been done by the t i m e t h e s h a r e h o l d e r s d i s c o v e r t h e f a c t s and b r i n g an a c t i o n . The t a k e - o v e r b i d w i l l a l r e a d y have been a v o i d e d o r a c c e p t e d as t h e c a s e may b e , and t he s h a r e h o l d e r s w i l l o n l y be a b l e t o r e c o v e r damages, w h i c h may be i n a d e q u a t e . The p r o b l e m has t h r e e a s p e c t s : ( a ) o b t a i n i n g i n f o r m a t i o n s u f f i c i e n t l y e a r l y t o p r e v e n t t he damage b e i n g done ; (b) d e c i d i n g w h e t h e r a n y o n e ' s r i g h t s a r e abou t t o b e , o r have b e e n , b r e a c h e d ; ( c ) e n f o r c i n g t h e r i g h t s o f t h e p a r t i e s i n v o l v e d . As has been s e e n , t h e s e same d i f f i c u l t i e s r e c u r i n s e v e r a l o f t h e p rob lems c o n c e r n i n g t a k e - o v e r s , n o t a b l y d i s c l o s u r e and i n s i d e r t r a d i n g . I t i s s u g g e s t e d t h a t t h e b e s t s o l u t i o n , though i t may n o t be i d e a l , i s t he e s t a b l i s h -19 ment o f a T a k e - o v e r Commis s ion w h i c h w o u l d combine t he b e s t q u a l i t i e s o f t h e a d m i n i s t r a t i v e b o d i e s i n the two j u r i s d i c t i o n s , t he S e c u r i t i e s Commiss ion and t h e T a k e - o v e r P a n e l . The Commis s ions w o u l d be s e t up under t h e r e l e v a n t a c t s , and w o u l d be empowered t o make r e g u l a t i o n s w i t h r e s p e c t t o t a k e - o v e r s . T h i s p r o v i d e s much g r e a t e r f l e x i b i l i t y t han a s y s t e m under w h i c h t h e p r o v i s i o n s a r e e n a c t e d i n t h e s t a t u t e i t s e l f . The Commiss ions w o u l d have a c ommi t t ee composed o f e x p e r t s i n t h e r e l e v a n t f a c e t s o f a b i d , and a b a s i c w o r k i n g s e c t i o n composed o f l a w y e r s 21 and a c c o u n t a n t s . The commi t tee w o u l d have two f u n c t i o n s : (a ) t o d r a f t t he r e g u l a t i o n s and r e v i s e them i n the l i g h t o f e x p e r i e n c e ; and (b) t o a c t i n an a d v i s o r y c a p a c i t y i n c a s e s o f p a r t i c u l a r d i f f i c u l t y . The w o r k i n g s e c t i o n w o u l d be r e s p o n s i b l e f o r t h e d a y - t o - d a y r u n n i n g o f a f f a i r s , s c r u t i n i z i n g c i r c u l a r s and i n v e s t i g a t i n g c o m p l a i n t s by s h a r e h o l d e r s r e l a t e d t o t a k e - o v e r s . A l l documents d i s t r i b u t e d i n c o n n e c t i o n w i t h a t a k e - o v e r b i d s h o u l d be d e l i v e r e d t o t h e Commis s ion f i v e b u s i n e s s days b e f o r e t h e y a r e due t o be pub -22 l i s h e d , . so t h a t t h e y may be s c r u t i n i z e d by t he Commis s ion and amended i f n e c e s s a r y . T h i s p r o c e d u r e d e a l s w i t h t h e f i r s t two a s p e c t s o f t h e d i r e c t o r s ' powers p r o b l e m , g e t t i n g i n f o r m a t i o n i n adequa te t i m e , and b e i n g i n a p o s i t i o n t o e n s u r e t h a t t he law and r e g u l a t i o n s a r e b e i n g c o m p l i e d w i t h . The t h i r d a s p e c t , e n f o r c e -ment , r ema in s t o be c o n s i d e r e d . The o b j e c t i v e i s t o a c h i e v e t he most e f f i c i e n t b a l a n c e o f t h e power o f e n f o r c e m e n t between t h e Commiss ion and t he s h a r e h o l d e r s , w h i l e a t t h e same t i m e e n s u r i n g t h a t t h e d i r e c t o r s a r e a b l e t o e x e r c i s e t h e i r powers t o p r o t e c t t h e l e g i t i m a t e i n t e r e s t s i n v o l v e d . I t may be r e c a l l e d t h a t t he s h a r e h o l d e r s have c e r t a i n common law r e m e d i e s , 23 though t h e r e i s some doubt as t o t h e i r e f f e c t i v e n e s s . A n o t a b l e e f f o r t has been made t o s upp l emen t t h e s e r emed ie s i n t h e d r a f t b i l l f o r t he O n t a r i o B u s i -24 ness C o r p o r a t i o n A c t : 25 " S u b j e c t t o s u b s e c t i o n 2 , a s h a r e h o l d e r o f a c o r p o r a t i o n may m a i n t a i n an a c t i o n i n a r e p r e s e n t a t i v e c a p a c i t y f o r h i m s e l f and a l l o t h e r s h a r e h o l d e r s o f t he c o r p o r a t i o n s u i n g f o r and on b e h a l f o f t he c o r p o r a t i o n t o e n f o r c e any r i g h t , d u t y o r o b l i g a t i o n owed t o t h e 70 c o r p o r a t i o n under t h i s A c t o r unde r any o t h e r s t a t u t e o r r u l e o f l aw o r e q u i t y t h a t c o u l d be e n f o r c e d by t h e c o r p o r a t i o n i t s e l f , o r t o o b t a i n damages f o r any b r e a c h o f any such r i g h t , d u t y o r o b l i g a t i o n . " The s e c t i o n i s n o t v e r y w e l l d r a f t e d , and i t i s n o t c l e a r w h e t h e r t he s h a r e h o l d e r can r e c o v e r damages on h i s own b e h a l f o r o n l y on b e h a l f o f t h e com-pany. However a p r o p e r l y d r a f t e d s e c t i o n g i v i n g t h e s t a t u t o r y r i g h t , s u b j e c t 26 t o t h e s t i p u l a t e d c o n d i t i o n s , t o a s h a r e h o l d e r t o b r i n g an a c t i o n on b e h a l f o f t he company w o u l d be o f b e n e f i t . In c o n j u n c t i o n w i t h s u ch a s e c t i o n , t h e Commiss ion s h o u l d be g i v e n c o n s i d e -r a b l e p o w e r s , s uch as t h a t o f p r e v e n t i n g t h e d i s t r i b u t i o n o f u n s a t i s f a c t o r y t a k e - o v e r document s , s u p p o r t e d by t h e s t a t u t o r y r i g h t t o sue f o r an i n j u n c t i o n i f n e c e s s a r y . I f t he l aw has n o t been c o m p l i e d w i t h , t he Commiss ion s h o u l d be empowered t o make a r e p o r t , i n s t i t u t e p r o c e e d i n g s i f n e c e s s a r y , and p l a c e t h e r e p o r t b e f o r e t h e g e n e r a l m e e t i n g o f t h e company i n v o l v e d , so t h a t t he company c o u l d s u e , o r , where a p p r o p r i a t e , a s h a r e h o l d e r c o u l d e x e r c i s e h i s power under t h e d e r i v a t i v e a c t i o n s e c t i o n . An i n d i v i d u a l s h a r e h o l d e r c o u l d use i n f o r m a t i o n p r o v i d e d by t h e Commis s ion as a b a s i s f o r e v i d e n c e i n a p e r s o n a l a c t i o n , as p r e -v i o u s l y recommended. The Commis s ion w o u l d a l s o have t h e r e s i d u a l power o f b r i n g i n g an a c t i o n on b e h a l f o f t he company i f an a c t i o n s h o u l d be b r o u g h t and 27 t h e r e was no one e l s e t o b r i n g i t . T h i s scheme o f e n f o r c e m e n t w o u l d n o t s u b s t a n t i a l l y i n c r e a s e d i r e c t o r s ' p o t e n t i a l l i a b i l i t y , b u t w o u l d imp rove t h e s h a r e h o l d e r s ' p o s i t i o n , as t h e y w o u l d have a c c e s s t o t h e i n f o r m a t i o n n e c e s s a r y t o f o u n d an a c t i o n , and t h e i r r i g h t s w o u l d be more c e r t a i n . F u r t h e r , i t may be e x p e c t e d t h a t t he C o m m i s s i o n ' s s c r u t i n y o f t a k e - o v e r c i r c u l a r s and o t h e r documents w o u l d p r e v e n t a t l e a s t some o f t h e p r o s p e c t i v e damage. 2. The Power t o A l l o t Sha re s The d i r e c t o r s ' power t o a l l o t new s h a r e s may be s p e c i a l l y m e n t i o n e d as t h e r e a r e p o s s i b l e new r e s t r i c t i o n s on i t w h i c h a r e q u i t e s e p a r a t e f r o m the 71 C o m m i s s i o n ' s c o n t r o l . One r e s t r i c t i o n w o u l d be t h a t " t h e d i r e c t o r s s h o u l d n o t have t h e power t o i s s u e any s h a r e s i n t h e o r i g i n a l o r i n c r e a s e d c a p i t a l w i t h o u t 28 t h e p r i o r a p p r o v a l o f t h e company i n g e n e r a l m e e t i n g . " T h i s r e s t r i c t i o n w o u l d n o t a d e q u a t e l y p r o t e c t a m i n o r i t y s h a r e h o l d e r i n a company i n w h i c h t h e d i r e c t o r s have m a j o r i t y c o n t r o l . A much more e f f e c t i v e r e s t r i c t i o n , r e q u i r e d by t he London S t o c k E xchange , 29 i s t h a t i s s u e s o f s h a r e s f o r c a s h ough t f i r s t t o be o f f e r e d p r o r a t a t o t h e 30 e x i s t i n g s h a r e h o l d e r s . In C a n a d i a n c a s e s some r e l i a n c e was p l a c e d on t h e p r o r a t a d i s t r i b u t i o n a r gument , b u t no common l aw p r e - e m p t i v e r i g h t has been e s t a -31 b l i s h e d . The J e n k i n s Commit tee t h o u g h t h i g h l y o f t he p r o r a t a d i s t r i b u t i o n r e s t r i c t i o n , b u t w o u l d n o t recommend a s t a t u t o r y r e q u i r e m e n t f o r i t because o f a r e s u l t i n g l o s s o f f l e x i b i l i t y . T h i s l o s s o f f l e x i b i l i t y a rgument i s n o t i m p r e s s i v e when one i s c o n s i d e r i n g a l l o t m e n t o f s h a r e s f o r c a s h , because i t s h o u l d n o t m a t t e r w h e t h e r t h e cash .comes f r om t h e company ' s own s h a r e h o l d e r s o r f r o m o u t s i d e r s , p r o v i d e d t h e c a s h comes i n . The s i t u a t i o n i n w h i c h d i f f i -c u l t y c o u l d a r i s e i s where t h e d i r e c t o r s t h i n k i t d e s i r a b l e t o b r i n g someone i n t o t h e company w i t h a s h a r e h o l d i n g , pe rhap s because he has a t a l e n t p a r t i c u -l a r l y u s e f u l t o t h e company. T h i s i s most l i k e l y t o o c c u r i n s m a l l p r i v a t e 32 compan ies i n w h i c h c a s e t h e p a r t i c i p a n t s w i l l r e q u i r e a t l e a s t a f i r s t o p t i o n 33 r e s t r i c t i o n , and p o s s i b l y a c o n s e n t c l a u s e . In l a r g e r companies a d e s i r e d a l l o t m e n t t o a p a r t i c u l a r p e r s o n can u s u a l l y be f a c i l i t a t e d by means o f a l r e a d y a l l o t t e d s h a r e s . The re w i l l n o t be t h e same d e l i c a t e c o n t r o l b a l a n c e , so t h e d i r e c t o r s may be a b l e t o g i v e o r s e l l some o f t h e i r s h a r e s t o t h e newcomer. I f t h e company i s p u b l i c t he s h a r e s can p r o b a b l y be bought on t he S t o c k Exchange . The l o s s o f f l e x i b i l i t y a rgument advanced by t he J e n k i n s Commit tee i s n o t , t h e r e f o r e , v e r y p e r s u a s i v e . Such a s t r o n g r e s t r i c t i o n as a p_ro ra ta_ d i s t r i b u -t i o n i s m e r i t e d by t h e p o t e n c y o f t he power t o a l l o t s h a r e s i n t h e d i r e c t o r s ' 34 r e l a t i v e l y u n f e t t e r e d hands . S e c t i o n B D i s c l o s u r e I t i s c o n v e n i e n t t o c o n s i d e r s e p a r a t e l y t h e two main s o u r c e s o f i n f o r m a -t i o n c o n n e c t e d w i t h t a k e - o v e r s , t h e annua l a c c o u n t s , and t h e c i r c u l a r s . Many o f t h e p rob l ems i n v o l v e d a r e s i m i l a r , b u t may r e q u i r e d i f f e r e n t t r e a t m e n t . G e n e r a l l y two q u e s t i o n s may be bo rne i n m i n d : what i s t h e a im o f the d i s c l o -s u r e , and f o r whose b e n e f i t i s i t made? 1. A c c o u n t s 35 The r e l e v a n t s t a t u t e s r e q u i r e f u l l and q u i t e d e t a i l e d f i n a n c i a l i n f o r -m a t i o n t o be d i s t r i b u t e d , b u t n o r m a l l y do n o t impose any o t h e r k i n d o f c o n t r o l I f t h e f i n a n c i a l f a c t s a r e a d e q u a t e l y d i s c l o s e d , t he s t a t u t o r y r e g u l a t i o n s a r e s a t i s f i e d . The re i s no r e q u i r e m e n t t h a t t he s i g n i f i c a n c e o f t h e a c c o u n t s be e x p l a i n e d , o r t h a t t he v a r i o u s s t r e n g t h s and weaknes ses o f t he company ' s f i n a n c i a l p o s i t i o n be p o i n t e d o u t . " T h e r e can be no q u e s t i o n t h a t , by and l a r g e , E n g l i s h company l aw has p l a c e d i t s f a i t h i n t he p r o v i s i o n o f i n f o r m a t i o n r a t h e r t han i n any s y s tem o f 36 c o n t r o l o f companies o r t h e i r a c t i v i t i e s . " 37 As has been p o i n t e d o u t the s m a l l i n d i v i d u a l i n v e s t o r may have g r e a t d i f f i c u l t y i n u n d e r s t a n d i n g t he a c c o u n t s , d e s p i t e , o r p o s s i b l y becau se o f , t he r e c e n t improvement made i n t h e i r c o n t e n t s . The mass o f f i g u r e s and comp lex t e r m i n o l o g y a r e n o t r e a d i l y u n d e r s t o o d by anyone o t h e r t han an e x p e r t . One may v a l i d l y ask t o whom d i s c l o s u r e i s i n t e n d e d t o be m a d e - - t o t h e ave rage i n d i v i d u a l i n v e s t o r , o r t o the e x p e r t . In Canada a t l e a s t g r e a t emphas i s has been p l a c e d on t h e need t o a t t r a c t l o c a l c a p i t a l i n t o i n d u s t r y . "We b e l i e v e i t i m p o r t a n t t o encou r age i n d i v i d u a l Canad i an o w n e r s h i p by p r o v i d i n g more i n f o r m a t i o n t o i n v e s t o r s , r e d u c i n g t h e c o s t o f modest s h a r e 38 p r i c e s , and t i g h t e n i n g up s e c u r i t i e s l e g i s l a t i o n . " P r o f e s s o r A t i v a n has w r i t t e n : " So l o n g as company l aw i s g e a r e d t o p u b l i c i t y r a t h e r t han c o n t r o l , and so l o n g as t h i s p u b l i c i t y i s d e s i g n e d t o p r o v i d e i n f o r m a t i o n w h i c h o n l y t h e e x p e r t can i n t e r p r e t , i t w i l l be h a r d t o b r e a k down t h e d i s t r u s t f e l t by t h e man i n t he s t r e e t f o r company s e c u r i t i e s . However , i t i s a l s o q u i t e c l e a r t h a t as t he l a r g e r compan ies expand t h e i o p e r a t i o n s and become i n c r e a s i n g l y comp lex o r g a n i z a t i o n s , i t becomes more d i f f i c u l t f o r d i r e c t o r s t o p r e s e n t f a i r l y t he o p e r a t i o n s o f t h e company i n a manner w h i c h can be u n d e r s t o o d by t he o r d i n a r y i n v e s t o r . The i n c r e a s i n g l y more d e t a i l e d i n f o r m a t i o n r e q u i r e d by s t a t u t e a l s o c o n t r i b u t e s t o t he i n v e s -t o r s ' d i f f i c u l t y . T h i s has been t h e s i t u a t i o n f o r some y e a r s now, a n d , p a r t l y as a c o n s e -q u e n c e , new methods o f i n v e s t m e n t have been d e v e l o p e d . The most i m p o r t a n t a r e t h e mutua l f und s o r u n i t t r u s t s , t o w h i c h an i n d i v i d u a l may e n t r u s t h i s money. E x p e r t i n v e s t o r s employed by t h e mutua l f u n d s , choose t he most a d v a n -tageous s e c u r i t i e s and have a s u f f i c i e n t amount o f money t o c r e a t e a b a l a n c e d p o r t f o l i o i n w h i c h some s e c u r i t i e s w i l l be i n v e s t m e n t s , w h i l e o t h e r s w i l l be s p e c u l a t i o n s . The i n d i v i d u a l i s somet imes g u a r a n t e e d a minimum r e t u r n on h i s i n v e s t m e n t i n t h e mutua l f u n d . O t h e r r e c e n t deve l opment s a r e t he p r o f e s s i o n a l i n v e s t m e n t s e r v i c e s w h i c h p r o v i d e e x p e r t a d v i c e t o w o u l d - b e s h a r e h o l d e r s . These i n v e s t m e n t b r o k e r s o r c o u n s e l l o r s have a f i n a n c i a l i n t e r e s t i n h a v i n g t h e maximum number o f s h a r e s t r a d e d , as t h e y make t h e i r l i v e l i h o o d f r om the commi s s i on on t h e s a l e s . The i a d v i c e i s t h e r e f o r e n o t u n b i a s e d , b u t t h e y do p r o v i d e u s e f u l i n t e r p r e t a t i o n s o f company a c c o u n t s , a n a l y s i s o f b u s i n e s s p o t e n t i a l , and i n f o r m e d o p i n i o n as t o l i k e l y m a r k e t p e r f o r m a n c e . U n f o r t u n a t e l y such s e r v i c e s t e n d t o be e x p e n -s i v e , and s m a l l i n v e s t o r s c anno t a f f o r d t he o u t l a y n e c e s s a r y t o buy good a d v i 40 A n o t h e r i m p o r t a n t s o u r c e o f f i n a n c i a l a d v i c e i s t he f i n a n c i a l p r e s s w h i c h , u n f o r t u n a t e l y , s t i l l t end s t o c a t e r f o r t h o s e who have some knowledge 74 o f t h e m a r k e t , and much o f t he t e r m i n o l o g y r ema in s a m y s t e r y t o t h e man i n 41 t h e s t r e e t . The t o t a l e f f e c t o f t h e s e deve l opment s i s t h a t t h e r o l e o f t h e e x p e r t as an i n t e r m e d i a r y i s b e i n g r e c o g n i s e d . The S t o c k Exchanges show s i g n s o f r e a l i z i n g t h a t much o f t he t r a d i n g w i l l be done e i t h e r by e x p e r t s o r by i n s t i -42 t u t i o n s e m p l o y i n g e x p e r t s . The t e n d e n c y now i s t h a t d i s c l o s u r e s h o u l d be made t o e x p e r t s who may i n t e r p r e t t h e i n f o r m a t i o n f o r t h e b e n e f i t o f t h e i n d i -v i d u a l , and t h i s appea r s t o i n c l u d e annua l a c c o u n t s . As a r e s u l t , when an i n d i v i d u a l s h a r e h o l d e r i s c o n f r o n t e d w i t h a t a k e -o v e r o f f e r , he w i l l n o t o b t a i n much u s e f u l g u i d a n c e f r o m t h e company a c c o u n t s u n l e s s he i s p r a c t i s e d i n c o n s t r u i n g them. C o n s i d e r i n g t h e t i m e f a c t o r , he may n o t have t h e o p p o r t u n i t y t o g e t d e t a i l e d a d v i c e f r o m h i s i n v e s t m e n t b r o k e r , i f he has o n e , and a t the p r e s e n t t i m e , t he f i n a n c i a l p r e s s make d e t a i l e d s t u d i e s o f few b i d s , and c a n n o t be e x p e c t e d t o c o v e r a l l b i d s i n s u f f i c i e n t d e t a i l . The i n d i v i d u a l w i l l have t o r e l y h e a v i l y on t h e t a k e - o v e r c i r c u l a r s . 2. A c c o u n t i n g P r i n c i p l e s Even i f one a c c e p t s t h a t i n f u t u r e most t r a d i n g o f s h a r e s w i l l be done by e x p e r t s who i n i t i a l l y w i l l have t o i n t e r p r e t f i n a n c i a l s t a t e m e n t s , t he a m b i g u i t i e s o f a c c o u n t i n g p r i n c i p l e s w i l l r ema i n a p r o b l e m . 43 As has been e x p l a i n e d t he l aw i n each j u r i s d i c t i o n has a t t e m p t e d t o d e a l w i t h t h e p r o b l e m by r e q u i r i n g t h a t any change i n a c c o u n t i n g methods i n one company ' s a c c o u n t s s h o u l d be n o t e d t h e r e i n . T h i s i s n o t t h e c o m p l e t e s o l u t i o n . The re r ema in s the d i f f i c u l t t a s k , w h i c h can o n l y be p e r f o r m e d by t he I n s t i t u t e s o f C h a r t e r e d A c c o u n t a n t s , o f d o i n g r e s e a r c h i n t o t h e v a r i o u s methods u s e d , r e d u c i n g t h e v a r i e t y o f t h e s e m e t h o d s , and e s t a b l i s h i n g a s m a l l number o f s t a n d a r d a c c o u n t i n g p r i n c i p l e s , t o be used a c c o r d i n g t o t he com-p a n y ' s c i r c u m s t a n c e s . 75 Then p e o p l e o u t s i d e t he a c c o u n t i n g p r o f e s s i o n s h o u l d be e d u c a t e d i n t h e s i g n i f i c a n c e o f t h e d i f f e r e n c e between t h e s e me thod s , so t h a t t h e y can a p p r e -c i a t e t he r e l e v a n c e o f a change . On l y when t h i s has been done w i l l r e a l p r o -g r e s s have been a c h i e v e d , and o n l y then can one company be m e a n i n g f u l l y com-p a r e d w i t h a n o t h e r on t he b a s i s o f t h e i r f i n a n c i a l s t a t e m e n t s . 3. T a k e - o v e r C i r c u l a r s I t has been s u g g e s t e d t h a t , becau se o f t r e n d s r e l a t i n g t o d i s c l o s u r e i n company a c c o u n t s , and t h e g r ow ing i m p o r t a n c e o f e x p e r t o r i n s t i t u t i o n a l i n v e s -t o r s , t h e i n d i v i d u a l s h a r e h o l d e r - o f f e r e e w i l l g a i n most o f h i s h e l p f u l i n f o r -m a t i o n f r o m t h e t a k e - o v e r c i r c u l a r . C o n s e q u e n t l y i t i s t h o u g h t t h a t t he t a k e -o v e r c i r c u l a r s p r o v i d e d by t he d i r e c t o r s o f t h e o f f e r e e company s h o u l d be expanded . One immed i a te change s h o u l d be t h a t t he o f f e r e e d i r e c t o r s s h o u l d send t h e i r s h a r e h o l d e r s a c i r c u l a r w h e t h e r o r n o t t h e y recommend any p a r t i c u l a r c o u r s e o f a c t i o n . I f t h e l aw a l l o w s d i r e c t o r s t o e x e r c i s e c o n s i d e r a b l e powers i n r e a c t i o n t o a t a k e - o v e r b i d , i t s h o u l d impose t he o b l i g a t i o n t o i n f o r m s h a r e h o l d e r s o f t h e company ' s f i n a n c i a l and economic p o s i t i o n . In P a r t 3 o f t h i s p a p e r i t was c o n c l u d e d t h a t a l t h o u g h p r e s e n t c o n t e n t s o f t a k e - o v e r c i r c u l a r s p r o v i d e d a s u b s t a n t i a l amount o f i n f o r m a t i o n , and i n f o r m e d t h e s h a r e h o l d e r s o f t he d i r e c t o r s ' p o s i t i o n i n r e s p e c t o f t he o f f e r , t h e r e was no r e q u i r e m e n t f o r a v a l u a t i o n o f t h e company i n terms o f t he o f f e r , o r an a s se s sment o f i t s c u r r e n t p e r f o r m a n c e and f u t u r e p o t e n t i a l . In p r a c t i c e , when d i r e c t o r s make a p a r t i c u l a r recommendat ion i n a t a k e -o v e r c i r c u l a r , t h e y w i l l s u p p o r t i t w i t h e i t h e r a v a l u a t i o n o r an a s se s sment o f p e r f o r m a n c e and p o t e n t i a l . However , t o r e q u i r e by s t a t u t e a v a l u a t i o n o f t h e company w o u l d be t o s p o o n - f e e d t h e s h a r e h o l d e r s , and w o u l d impose a h a r s h b u r d e n on t h e d i r e c t o r s . Some f o r m o f l i a b i l i t y f o r t he c o n t e n t s o f t h e c i r -c u l a r has t o be r e t a i n e d , so i t w o u l d be u n f a i r t o compel d i r e c t o r s t o a s s e s s t h e v a l u e o f t h e i r company, a d i f f i c u l t t a s k a t t he b e s t o f t i m e s , w i t h i n 44 t he r e l a t i v e l y s h o r t p e r i o d a l l o w e d by a t a k e - o v e r b i d . The s u g g e s t e d change i s t h a t d i r e c t o r s s h o u l d be r e q u i r e d t o send o u t a c i r c u l a r c o n t a i n i n g more d e t a i l e d i n f o r m a t i o n t h a n p r e s e n t l y r e q u i r e d , and i t s h o u l d i n c l u d e an a s s e s smen t o f t he company ' s p e r f o r m a n c e and p o t e n t i a l . T h i s w i l l i n v o l v e some a n a l y s i s o f and comment on t he company ' s a u d i t e d f i n a n c i a l s t a t e m e n t s . Any s t a t e m e n t made on t he b a s i s o f t h e s e a c c o u n t s s h o u l d be c e r t i f i e d , by t h e same a u d i t o r s , as b e i n g c o n s i s t e n t w i t h them. Such a scheme w i l l i n v o l v e a f a i r l y complex document , and one i s f a c e d w i t h t he o l d p r o b l e m t h a t t h e i n d i v i d u a l i n v e s t o r may n o t u n d e r s t a n d i t . An 45 a t t r a c t i v e s o l u t i o n i s t h a t t he c i r c u l a r s h o u l d be d i v i d e d i n t o two p a r t s : ( a ) a c o n c i s e s t a t e m e n t o f b a s i c i n f o r m a t i o n ; and (b) an a p p e n d i x c o n t a i n i n g more d e t a i l e d i n f o r m a t i o n and f i n a n c i a l s t a t e m e n t s . The f i r s t p a r t w o u l d be a p r e c i s o f t h e s e c o n d , and each s t a t e m e n t i n i t w o u l d be f o o t n o t e d by a r e f e r e n c e t o t h e page on w h i c h t he more d e t a i l e d i n f o r m a t i o n c o u l d be f ound i n t h e second p a r t . I t i s a d m i t t e d l y d i f f i c u l t t o a c c u r a t e l y summar i se a m a j o r c ommerc i a l document and comply w i t h t he n e c e s s a r y s t a n d a r d o f p r e s e n t i n g f a i r l y the com-p a n y ' s p e r f o r m a n c e . E x p e r i m e n t s c a r r i e d o u t by t h e Wheat R e p o r t S t udy Group showed t h a t a r e a s o n a b l e summary o f a l a r g e c i r c u l a r c o u l d be a c h i e v e d i n a 46 s i x t o seven page a v e r a g e l e n g t h s t a t e m e n t . The i n f o r m a t i o n c i r c u l a r w o u l d r e q u i r e some t i m e t o p r e p a r e , and speed has commonly been r e g a r d e d as c r u c i a l i n a t a k e - o v e r b i d . T h i s most o f t e n c i t e d r e a s o n f o r t h i s i s t h a t a l t e r n a t i v e b i d s c o u l d be made i f t o o much t i m e were a l l o w e d , b u t t h i s does n o t seem a bad f a u l t . I f a company i s w o r t h more t han i s b e i n g o f f e r e d , why s h o u l d t h e s h a r e h o l d e r s be d e p r i v e d o f a h i g h e r o f f e r ? A more m e a n i n g f u l r e a s o n i s t h a t where the company i s q u o t e d on a S t o c k E x change , t h e r e may be c o n s i d e r a b l e f l u c t u a t i o n s o f s h a r e p r i c e w h i l e 77 t h e b i d rema in s u n c o m p l e t e d . T h i s c r i t i c i s m has become l e s s m e r i t e d as 47 i m p r o v e d d i s c l o s u r e p r o v i s i o n s have b r o u g h t g r e a t e r p u b l i c i t y and l e s s 48 s cope f o r rumour . The dange r e x i s t s , b u t t h e remedy l i e s i n t he hands o f t h e p a r t i e s t o t h e b i d who, e n c o u r a g e d by t h e s u g g e s t e d T a k e - o v e r Commis s ion o r t he S t o c k Exchange , w o u l d m a i n t a i n a s t e a d y f l o w o f i n f o r m a t i o n t o t h e p u b l i c . I t i s t h e r e f o r e s u g g e s t e d t h a t t h e o f f e r o r may n o t t a k e up and pay f o r any s h a r e s d e p o s i t e d p u r s u a n t t o t h e b i d f o r a minimum p e r i o d o f t w e n t y - e i g h t b u s i n e s s days a f t e r t h e f o r m a l b i d has been made, and u n t i l t h a t t i m e , any s h a r e s d e p o s i t e d may be w i t h d r a w n . T h i s w o u l d g i v e t h e company t i m e t o p r e -p a r e i t s documents and a l l o w t he s h a r e h o l d e r s t o a c t on t h e b a s i s o f i n f o r m a -t i o n c o n t a i n e d i n them. The s u g g e s t e d T a k e - o v e r Commiss ion w o u l d p l a y an i m p o r t a n t r o l e i n c o n -t r o l l i n g t h e c i r c u l a r s and s u p e r v i s i n g t h e i r c o n t e n t s . One w o u l d hope t h a t adequa te s c r u t i n y by t h e Commis s ion w o u l d a l l o w amendment o f any m i s l e a d i n g o r i n c o m p l e t e c i r c u l a r s b e f o r e any harm i s done . 4. E n f o r c e m e n t The p r o p o s e d scheme p l a c e s a c o n s i d e r a b l e r e s p o n s i b i l i t y on t h e d i r e c t o r s , and w h i l e one must e n s u r e t h a t t h e y comply w i t h t h e i r d u t i e s , one s h o u l d t a k e c a r e n o t t o p e n a l i s e d i r e c t o r s so h e a v i l y as t o make t h e i r t a s k i m p o s s i b l e , o r t o u n d u l y r e s t r i c t t h e i r a b i l i t y t o a d v i s e s h a r e h o l d e r s . I t i s t h e r e f o r e recommended t h a t t h e Commiss ion s h o u l d have t h e power o f p r e v e n t i n g t h e d i s t r i b u t i o n o f an i n a d e q u a t e c i r c u l a r and o f c o m p e l l i n g i t s 49 amendment. I t s h o u l d a l s o be a b l e t o i n s t i t u t e p r o c e e d i n g s unde r w h i c h 50 d e f a u l t i n g compan ies and d i r e c t o r s w o u l d be l i a b l e t o s i z e a b l e f i n e s . The s h a r e h o l d e r w o u l d be g i v e n no r i g h t t o sue under t he s e c t i o n , and w o u l d be r e s t r i c t e d t o h i s common l aw r e m e d i e s , n o t a b l y an a c t i o n f o r n e g l i -51 g e n t m i s s t a t e m e n t . 78 S e c t i o n C E q u a l i t y o f T r e a t m e n t o f S h a r e h o l d e r s The f i r s t o b j e c t i v e i s t o r e c o g n i s e t h e e x t e n t t o w h i c h t he c o n c e p t o f e q u a l i t y has a p r a c t i c a l e f f e c t on a t a k e - o v e r b i d . A w ide v a r i e t y o f t h e r e l e v a n t s e c t i o n s and r u l e s r e f l e c t t h e b a s i c p r i n c i p l e t h a t s h a r e h o l d e r s 52 s h o u l d be t r e a t e d e q u a l l y . 1. E q u a l i t y o f P r i c e The re a r e , howeve r , s e v e r a l p r a c t i c a l l i m i t a t i o n s on t h e a p p l i c a t i o n o f t h e t h e o r y , e s p e c i a l l y when t h e terms o f a b i d a r e c o n s i d e r e d . O b v i o u s l y i t c a n n o t a p p l y t o t h o s e members who, r a t h e r t han a c c e p t t h e o f f e r , s e l l t h e i r s h a r e s on t h e m a r k e t , p r o b a b l y e x p e c t i n g t h a t the b i d w i l l f a i l . They t a k e advan tage o f an i n c r e a s e d m a r k e t p r i c e and a r e t a k i n g a gamble . I t i s n e i t h e r p r a c t i c a l no r d e s i r a b l e t o r e q u i r e e q u a l i t y o f t r e a t m e n t f o r s uch s p e c u l a t o r s . A f u r t h e r l i m i t a t i o n i s t h a t t h e c o n c e p t can o n l y a p p l y t o t he terms o f f e r e d t o t h e s h a r e h o l d e r s as s h a r e h o l d e r s . Those who a r e a l s o d i r e c t o r s may be e n t i t l e d t o c o m p e n s a t i o n f o r t h e i r l o s s o f p o s i t i o n , o r t h e y may nego -53 t i a t e new s a l a r i e s i n t h e r e - f o r m e d o r g a n i z a t i o n . In E n g l a n d t h e c o n c e p t i s f u r t h e r r e s t r i c t e d i n o p e r a t i o n because t h o s e s h a r e h o l d e r s h a v i n g c o n t r o l o f t h e company a r e e n t i t l e d t o be p a i d a premium 54 f o r t h e i r s h a r e s . I t i s n o t c e r t a i n w h e t h e r t he p o s i t i o n i s t h e same i n 55 Canada , because t he A m e r i c a n c a s e s m i g h t have some i n f l u e n c e and i t may be t h a t any premium p a i d f o r c o n t r o l l i n g s h a r e s must be d i v i d e d among a l l s h a r e h o l d e r s . 56 As a m a t t e r o f p o l i c y , t he T a k e - o v e r P ane l d e c i d e d , q u i t e r i g h t l y i n t h e c i r c u m s t a n c e s , t h a t t h e C i t y Code R u l e s c o d i f y i n g t he e q u a l i t y p r i n c i p l e s 57 c o u l d be o v e r - r i d d e n by the r e a l i t y o f t he h i g h e r p r i o r i t y o f mak ing a d e a l . The c u r r e n t p o s i t i o n appea r s t o be t h a t t h e r e i s an u n d e r l y i n g p r i n c i p l e o f e q u a l i t y o f t r e a t m e n t o f s h a r e h o l d e r s b u t t h a t i t i s l i a b l e t o be a f f e c t e d 79 by t h e b u s i n e s s r e a l i t i e s o f a p a r t i c u l a r s i t u a t i o n . The c o n c e p t r ema in s i m p o r t a n t as a b a s i c s t a n d a r d , b u t one w h i c h can be v a r i e d t o meet t he c i r c u m -s t a n c e s . T h i s i s t he o n l y f e a s i b l e a p p r o a c h . 2. E q u a l i t y o f I n f o r m a t i o n U s u a l l y t h e d i r e c t o r s w i l l have more d e t a i l e d and w i d e - r a n g i n g i n f o r m a -t i o n abou t t h e company t h a n i t s s h a r e h o l d e r s , so d i s t r i b u t i o n o f t h i s i n f o r -m a t i o n i s i m p o r t a n t i n g i v i n g a l l an equa l o p p o r t u n i t y t o r e a c t i n t e l l i g e n t l y . 58 As has been s e e n , t h i s d i s t r i b u t i o n o f i n f o r m a t i o n i s e f f e c t e d by means o f t h e f i n a n c i a l s t a t e m e n t s and t h e t a k e - o v e r c i r c u l a r s w h i c h accompany the b i d . The i n s i d e r t r a d i n g p r o v i s i o n s a r e the c o n t r o l mechanism w h i c h gove rn s t h e s i t u a t i o n where t h e r e i s no p a r i t y o f i n f o r m a t i o n between t h o s e w i t h s p e -c i a l a c c e s s t o i n f o r m a t i o n abou t t h e company ' s a f f a i r s and t he s h a r e h o l d e r s . Where p r o f i t has been g a i n e d by t he use o f i n f o r m a t i o n o b t a i n e d by an i n s i d e r , t h e t h e o r y i s t h a t a l l s h a r e h o l d e r s s h o u l d s h a r e t he p r o f i t . D e s p i t e i t s i n h e r e n t d i f f i c u l t i e s , t h e r e l e v a n t B r i t i s h Co l umb i a s e c -59 t i o n s have c l e a r l y had a d e t e r r e n t e f f e c t . E i t h e r t h e i n s i d e r must d i s c l o s e fin t h e m a t e r i a l i n f o r m a t i o n , o r he must n o t t r a d e . Some improvements can be 61 made t o r e n d e r t he s e c t i o n more e f f i c i e n t . Fo r e x a m p l e , i n s i d e r r e p o r t s s h o u l d be p u b l i s h e d m o n t h l y i n a f o r m e a s i l y a c c e s s i b l e t o anyone i n t e r e s t e d . T h i s w i l l i n c r e a s e t h e d e s i r e d e f f e c t o f t h e r e p o r t s , t h a t s h a r e h o l d e r s and p r o s p e c t i v e s h a r e h o l d e r s s h o u l d know when and how much i n s i d e r s have t r a d e d . c q The p r e s e n t scheme under w h i c h t he r e p o r t s a r e open t o p u b l i c i n s p e c t i o n does n o t e f f e c t i v e l y a c h i e v e t h i s a i m , as few a r e p r e p a r e d t o make the e f f o r t t o go t o i n s p e c t t h e R e g i s t e r . 64 As t o t h e w o r d i n g o f t h e l i a b i l i t y s e c t i o n many o f t h e d i f f i c u l t i e s a r e b e s t r e s o l v e d by the c o u r t s as c a s e s a r i s e , t hu s p r e s e r v i n g f l e x i b i l i t y . T i g h t e r d r a f t i n g w o u l d r e s u l t i n an unwelcome n a r r o w i n g o f t h e s cope o f t h e s e c t i o n . The re a r e , however , one o r two p h r a s e s w h i c h m i g h t be a l t e r e d by l e g i s l a t i o n . The most n o t a b l e example i s l i a b l e t o compensate any p e r s o n f o r any d i r e c t l o s s s u f f e r e d by t h e p e r s o n as a r e s u l t o f t h e t r a n s a c t i o n . " I t may 65 be a r gued t h a t t h i s w o r d i n g w o u l d make any i n s i d e r who t r a d e d w i t h o u t d i s c l o -s i n g r e l e v a n t i n f o r m a t i o n l i a b l e t o a l l s h a r e h o l d e r s who s o l d i n t h e m a r k e t a t a p p r o x i m a t e l y t h e same t i m e , even though t h e y d i d n o t t r a d e w i t h the i n s i d e r . T h i s imposes a v e r y heavy l i a b i l i t y on i n s i d e r s , no t n e c e s s a r i l y d i r e c t o r s , who a r e l i a b l e t o t h e company f o r any d i r e c t g a i n , and a l s o t o any s h a r e h o l d e r s f o r cc t he l o s s t h e y have s u f f e r e d . Such l i a b i l i t y seems u n n e c e s s a r i l y burdensome. To t he p r e s e n t t i m e l i a b i l i t y f o r i n s i d e r t r a d i n g has n o t been e n f o r c e d becau se t h e r e have been no c a s e s . One r ea son f o r t h i s may w e l l be t h a t s h a r e -h o l d e r s have some d i f f i c u l t y i n o b t a i n i n g t he i n f o r m a t i o n n e c e s s a r y t o f ound an a c t i o n . A n o t h e r p o i n t i s t h a t becau se t h e i n d i v i d u a l s h a r e h o l d e r s may each s u f f e r o n l y a r e l a t i v e l y s m a l l p e r s o n a l l o s s , t h e y may n o t have a s u f f i c i e n t i n t e r e s t t o s u e , e s p e c i a l l y as t h e w o r d i n g o f the s e c t i o n makes t h e r e s u l t o f an a c t i o n somewhat u n p r e d i c t a b l e a t p r e s e n t . I n d i v i d u a l s h a r e h o l d e r s , t h e r e -f o r e , a r e pe rhaps n o t t he most s u i t a b l e p l a i n t i f f s . Hav i n g r e g a r d t o t h i s f a c t and t o t he s u g g e s t i o n t h a t t he p r e s e n t l i a b i l i t y p r o v i s i o n s a r e u n s a t i s f a c t o r y , i t may be t h a t a r a t h e r d i f f e r e n t p r o c e d u r e f o r e n f o r c i n g t h e s e c t i o n i s d e s i r a b l e . Under s e c t i o n 107E t h e S e c u r i t i e s Commis-C-7 s i o n , i n s p e c i f i e d c i r c u m s t a n c e s may be r e q u i r e d " t o commence o r c o n t i n u e an a c t i o n i n t h e name and on b e h a l f o f t he company t o e n f o r c e t h e l i a b i l i t y c r e a t e d by s e c t i o n 107D. " I t i s s u g g e s t e d t h a t t h i s d u t y imposed on t h e Commis s ion s h o u l d be e x t e n d e d t o a l l c a se s where t h e r e w o u l d be an a c t i o n under s e c t i o n 107D, and t h a t o n l y t h e Commis s ion c o u l d s u e . The l i a b i l i t y imposed w o u l d be CO a f i n e , w h i c h m i g h t be heavy a c c o r d i n g t o t h e c i r c u m s t a n c e s , w i t h a f u r t h e r l i a b i l i t y on t he i n s i d e r t o a c c o u n t t o t h e company f o r h i s g a i n . The company w o u l d t h e n be under a d u t y t o d i s t r i b u t e t h e damages among i t s i n n o c e n t s h a r e -h o l d e r s , and t h o s e s h a r e h o l d e r s who, a t t h e t i m e o f t he w r o n g f u l t r a n s a c t i o n , s o l d i n t h e m a r k e t . T h i s s o l u t i o n a d m i t t e d l y d e p r i v e s t h e p e r s o n who l o s e s o f h i s r i g h t t o s u e , b u t i t i s r e a l i s t i c t o g i v e an e f f e c t i v e p l a i n t i f f t h e r i g h t and t o p r o -v i d e t h a t t h e s u f f e r e r s w i l l o b t a i n a t l e a s t some c o m p e n s a t i o n , w h i c h t h e y a r e no t g e t t i n g a t p r e s e n t . The Commiss ion i s a more e f f e c t i v e p l a i n t i f f becau se i t has b e t t e r a c c e s s t o i n f o r m a t i o n , e s p e c i a l l y w i t h i t s powers o f i n v e s t i g a t i o n , and i t w i l l n o t s u f f e r f r om a l a c k o f i n t e r e s t i n p u r s u i n g t h e a c t i o n . F u r t h e r i t i s more e q u i t a b l e t h a t t h e i n s i d e r s h o u l d be l i a b l e t o a c c o u n t o n l y f o r h i s g a i n , and t o be p e n a l i z e d by an a p p r o p r i a t e f i n e , r a t h e r t han b e i n g e xpo sed t o an a l m o s t l i m i t l e s s l i a b i l i t y . 3. The P o s i t i o n i n E n g l and The E n g l i s h s y s t e m o f mere d i s c l o s u r e o f t r a d i n g w i t h no s t a t u t o r y l i a -69 b i l i t y f o r i m p r o p e r t r a d i n g i s u n s a t i s f a c t o r y . As was p o i n t e d o u t , t h e r e i s some doub t w h e t h e r a c t i o n a t common l aw t o r e c o v e r damages f o r i n s i d e r t r a d i n g w o u l d s u c c e e d . In any e v e n t , n e i t h e r s h a r e h o l d e r s n o r company have s u c c e e d e d i n an a c t i o n a g a i n s t an i n s i d e r f o r i m p r o p e r t r a d i n g . The J e n k i n s Commit tee r e c o m m e n d e d : 7 0 "A d i r e c t o r o f a company who, i n any t r a n s a c t i o n r e l a t i n g t o the s e c u r i t i e s o f h i s company o r o f any o t h e r com-pany i n t h e same g r o u p , makes i m p r o p e r use o f a p a r t i c u l a r p i e c e o f c o n f i d e n -t i a l i n f o r m a t i o n w h i c h m i g h t be e x p e c t e d m a t e r i a l l y t o a f f e c t t he v a l u e o f t h o s e s e c u r i t i e s s h o u l d be l i a b l e t o compensate a p e r s o n who s u f f e r s f r om h i s a c t i o n i n so d o i n g , u n l e s s t h a t i n f o r m a t i o n was known t o t h a t p e r s o n . " The enac tmen t o f such a recommendat ion w o u l d r e s u l t i n a p r o v i s i o n s i m i l a r t o s e c t i o n 107D, e x c e p t t h a t ' i n s i d e r ' w o u l d be more n a r r o w l y d e f i n e d and t h e company wou ld n o t be g i v e n a r i g h t t o s u e . The re has been no such e n a c t m e n t , and one r e a s o n i s t h a t t h e r e i s , as y e t , no s t a t u t o r y body s u i t a b l e f o r t he a d m i n i s t r a t i o n o f such a scheme. The Boa rd o f T r ade i s t he g e n e r a l s u p e r v i s o r y body f o r c o m p a n i e s , b u t i t i s n o t d e s i g n e d t o t a k e such an a c t i v e r o l e i n d a y -t o - d a y c o n t r o l o f company a f f a i r s as w o u l d be e n t a i l e d by an i n s i d e r t r a d i n g s e c t i o n . 82 A l t h o u g h i n s i d e r t r a d i n g e x t e n d s w e l l beyond the t a k e - o v e r s i t u a t i o n , t h e recommended T a k e - o v e r Commiss ion c o u l d a d m i n i s t e r t h e n e c e s s a r y p r o v i s i o n s . The c o n t r o l o f s uch t r a d i n g i s s u f f i c i e n t l y i m p o r t a n t t o m e r i t an e x t e n s i o n o f t he C o m m i s s i o n ' s terms o f r e f e r e n c e w h i l e B r i t a i n c o n t i n u e s t o s u p e r v i s e company law w i t h o u t a S e c u r i t i e s C o m m i s s i o n . 7 1 I t i s t h e r e f o r e recommended t h a t t he E n g l i s h Companies A c t be amended by t he i n t r o d u c t i o n o f a s e c t i o n s i m i l a r t o s e c t i o n 107D, m o d i f i e d as s u g g e s t e d above . S e c t i o n D F i n a n c i a l A d v i s e r s Conce rn about t h e r o l e o f a d v i s e r s t o p a r t i e s t o a t a k e - o v e r b i d i s o f c o m p a r a t i v e l y r e c e n t o r i g i n , bu t a l r e a d y t h r e e q u e s t i o n s r e q u i r e u r g e n t a n swe r s . 72 S h o u l d a d v i s e r s be a l l o w e d t o t r a d e on t he s t o c k m a r k e t i n t h e c o u r s e o f a t a k e - o v e r b i d on w h i c h t h e y a r e a d v i s i n g one o f t h e p a r t i e s ? I f t h e y a r e a l l o w e d t o t r a d e , under what c o n d i t i o n s may t h e y do so? A p a r t f r o m t r a d i n g what f o r m o f c o n t r o l s h o u l d be e x e r c i s e d o v e r them? Where t h e f i n a n c i a l a d v i s e r s a r e me rchan t banks o r i n v e s t m e n t a d v i s e r s t h e r e may be s e r i o u s c o n f l i c t s o f i n t e r e s t . They w i l l have a d u t y t o t h e i r c l i e n t whom t h e y a d v i s e on s h a r e i n v e s t m e n t , and a l s o a d u t y t o t h e company i n v o l v e d i n a b i d . The c o n f l i c t i s most a c u t e where t he c l i e n t a l r e a d y has a s u b s t a n t i a l s h a r e h o l d i n g i n a company w h i c h i s a p a r t y t o t h e b i d . In such a c a s e , t h e f i n a n c i a l a d v i s e r s may have a d u t y t o i n f o r m t h e i r c l i e n t s o f any f a c t o r w h i c h w i l l m a t e r i a l l y a f f e c t t h e i r i n v e s t m e n t s , b u t i f t h e y do s o , t h e y may n o t be a c t i n g i n t he i n t e r e s t o f t he company w h i c h t h e y a r e a d v i s i n g . In some i n s t a n c e s t h e me r chan t banks do t he b u y i n g and s e l l i n g o f t h e s h a r e s . The s i t u a t i o n i s s l i g h t l y d i f f e r e n t where f i n a n c i a l a d v i s e r s p u r c h a s e s h a r e s i n a company p a r t y t o a b i d f o r f u t u r e i n v e s t m e n t p u r p o s e s . T h e r e i s l e s s c o n f l i c t o f i n t e r e s t because a c l i e n t i s n o t y e t d i r e c t l y i n v o l v e d , so 83 t h e q u e s t i o n i s s i m p l y w h e t h e r a d v i s e r s s h o u l d be a l l o w e d t o buy s h a r e s i n t h e i r c l i e n t - c o m p a n y d u r i n g a b i d . 73 Such p u r c h a s i n g o f s h a r e s has a s t r o n g s e c o n d a r y e f f e c t o f r a i s i n g t h e p r i c e o f t h e company ' s shares and t h i s may o r may n o t be o f b e n e f i t t o t h e 74 company, o r t o i t s s h a r e h o l d e r s . T h e r e i s a dange r t h a t such t r a d i n g c o u l d be abused and m a r k e t m a n i p u l a t i o n m i g h t o c c u r . 75 The T a k e - o v e r Code c o n t a i n s a r u l e g o v e r n i n g t r a d i n g d u r i n g t he p e r i o d between the b e g i n n i n g o f n e g o t i a t i o n s and p u b l i c announcement o f an o f f e r . "No d e a l i n g s o f any k i n d ( i n c l u d i n g o p t i o n b u s i n e s s ) i n t he s h a r e s o f t he o f f e r o r and o f f e r e e compan ies by any pe r s on who i s p r i v y t o t he p r e l i m i -n a r y t a k e - o v e r o r merge r d i s c u s s i o n s o r t o an i n t e n t i o n t o make an o f f e r may t a k e p l a c e between t he t i m e (a ) when t h e i n i t i a l a pp r oach i s made o r i n t i m a t e d , o r (b ) when t h e r e i s r e a s o n t o suppose t h a t an app r oach o r an o f f e r w i l l be made, and t he announcement o f t he app roach o r o f f e r o r o f t he t e r m i n a t i o n o f d i s c u s s i o n s as t h e ca se may b e . " T h i s p r o h i b i t i o n on t r a d i n g s h o u l d be e x t e n d e d i n t i m e t o p r e v e n t a d v i s e r s t r a d i n g on t h e i r own b e h a l f d u r i n g t h e c o u r s e o f a b i d . The b a l a n c e o f i n t e -r e s t s c o n c e r n s o n l y t h e a d v i s e r s and t he company. I f a p r o f e s s i o n a l a d v i s e r a c c e p t s a p o s i t i o n he must a l s o a c c e p t t he r e s p o n s i b i l i t i e s and d u t i e s i n v o l v e d , and i t i s s u g g e s t e d t h a t i n t h i s s i t u a t i o n , he s h o u l d have a d u t y no t t o t r a d e on t he m a r k e t d u r i n g a t a k e - o v e r i n w h i c h he i s i n v o l v e d . The q u e s t i o n i s more c o m p l i c a t e d where an a d v i s e r owes d u t i e s b o t h t o h i s i n v e s t m e n t c l i e n t s and t o a company. Where a me rchan t bank i s c o n c e r n e d , t he p r o b l e m i s w h e t h e r one b r anch o f a bank s h o u l d be p r e v e n t e d f r o m a d v i s i n g i t s c l i e n t s t o t r a d e i n t he s h a r e s o f a company w h i c h a n o t h e r b r a n c h i s a d v i s i n g 76 on a t a k e - o v e r . The b a l a n c e o f s uch c o n f l i c t i n g i n t e r e s t s i s d i f f i c u l t t o d e t e r m i n e , and w i l l v a r y f r o m ca se t o c a s e , and so i s n o t a s u i t a b l e s u b j e c t f o r l e g i s l a t i o n . I t i s p r e f e r a b l e t o have a more f l e x i b l e s y s t e m o f c o n t r o l , 84 mak ing use o f t h e recommended T a k e - o v e r Commi s s i on . An a d v i s e r who i s i n a c o n f l i c t p o s i t i o n s h o u l d ask t he o p i n i o n o f t h e Commis s ion b e f o r e a c t i n g , 7 7 78 and a body o f r u l e s , w h i c h s h o u l d be p u b l i s h e d , w o u l d be d e v e l o p e d . The g e n e r a l s t a n d a r d , v a r i a b l e a t the C o m m i s s i o n ' s d i s c r e t i o n , s h o u l d be t h a t a d v i s e r s s h o u l d n o t t a k e advan tage o f i n f o r m a t i o n g a i n e d as a d v i s e r s b e f o r e i t has been d i s c l o s e d t o t h e p u b l i c . 79 Where a d v i s e r s a r e a l l o w e d t o t r a d e i t i s d e s i r a b l e t h a t t h e y s h o u l d 80 be c o n t r o l l e d , and i t i s t h e r e f o r e s u g g e s t e d t h a t any a d v i s e r s h o u l d be i n c l u d e d w i t h i n t h e d e f i n i t i o n o f i n s i d e r , f o r t h e pu rpo se s o f i n s i d e r t r a -d i n g p r o v i s i o n s . 81 The K imber R e p o r t s t a t e d : " I n t he s e c u r i t i e s i n d u s t r y t h e p h r a s e ' i n s i d e r t r a d i n g ' i s g e n e r a l l y used t o deno te p u r c h a s e s o r s a l e s o f s e c u r i -t i e s o f a company e f f e c t e d by o r on b e h a l f o f a p e r s o n whose r e l a t i o n s h i p t o t h e company i s s u ch t h a t he i s l i k e l y t o have a c c e s s t o r e l e v a n t m a t e r i a l i n f o r m a t i o n c o n c e r n i n g t h e company n o t known t o t h e g e n e r a l p u b l i c . " A d v i s e r s w o u l d c l e a r l y have a c c e s s t o m a t e r i a l i n f o r m a t i o n , and t h e Corn-op m i t t e e ' s r ecommendat ion t h a t p r o f e s s i o n a l pe r s on s s h o u l d be d i s c i p l i n e d by t h e p r o f e s s i o n a l b o d i e s t o w h i c h t h e y b e l o n g i s n o t a d e q u a t e . I t p r o v i d e s no r e a l p r o t e c t i o n o r c o m p e n s a t i o n t o t h o s e who s u f f e r f r o m an i m p r o p e r d e a l i n g by a d v i s e r s . In c o n t r a s t , t he t h i r d p r o b l e m c o n c e r n i n g g e n e r a l c o n t r o l o f p r o f e s s i o n a l a d v i s e r s i s one w h i c h i s b e s t s o l v e d by a c t i o n s i n c o n t r a c t and i n e q u i t y , comb ined w i t h d i s c i p l i n e imposed by t h e r e l e v a n t p r o f e s s i o n a l b o d i e s . Such i n c i d e n t s as t h e r e s i g n a t i o n a t a c r u c i a l t i m e by R o b e r t F l e m i n g &Sons , mer -c h a n t b a n k e r s , f r o m t h e i r p o s i t i o n as a d v i s e r s t o Pe rgamon, a r e most s u i t a b l y d e a l t w i t h by t h e above means, a l t h o u g h p u b l i c and p r o f e s s i o n a l c e n s u r e i s p r o b a b l y t he most damaging consequence o f such c o n d u c t . A s t a t u t o r y a d m i n i s -t r a t i v e body s u ch as a T a k e - o v e r o r S e c u r i t i e s Commiss ion i s n o t i n a good 85 p o s i t i o n t o d i s c i p l i n e pe r s on s d e a l i n g w i t h i t , as u n n e c e s s a r y h o s t i l i t y w h i c h c o u l d a f f e c t b u s i n e s s r e l a t i o n s m i g h t be c r e a t e d . S e c t i o n E A f t e r t h e B i d — T h e Rema in i ng M i n o r i t y S h a r e h o l d e r s 1. Compu l so r y A c q u i s i t i o n 83 In c o n s i d e r i n g t h e c o m p u l s o r y a c q u i s i t i o n s e c t i o n s one s h o u l d be aware o f t h e p o l i c y on w h i c h t h e y a r e b a s e d . A c c o r d i n g t o t h e J e n k i n s Commit tee 84 t h e y a r e d e s i g n e d t o f a c i l i t a t e m e r g e r s , and t he f a c t t h a t t he s e c t i o n s may be u sed t o e n a b l e a ca sh b i d d e r t o o b t a i n 100 p e r c e n t s h a r e c o n t r o l i s i n c i -85 d e n t a l . D e s p i t e Maugham, J . ' s r e l u c t a n c e t o r e c o g n i s e i t , t h e e f f e c t i s t o a l l o w e x p r o p r i a t i o n o f m i n o r i t y s h a r e s , and t h i s p o i n t s h o u l d be bo rne i n m i n d . The most advanced r e v i s i o n o f s e c t i o n 209(1) has been recommended by P r o f e s s o r Gower i n t h e Ghana Companies Code. In v i ew o f t h e a b o v e - m e n t i o n e d f a c t o r s , t h e r e v i s e d s e c t i o n a l l o w s c o m p u l s o r y a c q u i s i t i o n o f s h a r e s o n l y when t h e b i d i s on a s h a r e - f o r - s h a r e b a s i s , o r s h a r e - f o r - s h a r e w i t h a ca sh o p t i o n . Such a b i d e f f e c t s a merge r whereas a ca sh b i d does n o t , and i n a merger t h e f o r m e r s h a r e h o l d e r s have t h e o p p o r t u n i t y t o rema in members o f t h e merged o r g a n i z a t i o n . T h i s d i s t i n c t i o n s h o u l d be r e c o g n i s e d i n t he E n g l i s h and B r i t i s h C o l u m b i a s e c t i o n s , w h i c h s h o u l d be amended so t h a t t h e y no l o n g e r a p p l y t o ca sh o n l y b i d s . The re i s l i t t l e j u s t i f i c a t i o n f o r a l l o w i n g a ca sh b i d d e r t o e x p r o p r i a t e a m i n o r i t y ' s s h a r e s m e r e l y f o r i t s own c o n v e n i e n c e . The Ghana ian s e c t i o n has o t h e r i n t e r e s t i n g f e a t u r e s . One o f t he m a j o r p r ob l ems i n s e c t i o n 209(1) i s t h a t t h e j u d i c i a r y i s i l l - e q u i p p e d f o r t he t a s k 87 o f d e c i d i n g w h e t h e r an o f f e r i s f a i r o r n o t , and i s r e l u c t a n t t o do s o . 88 The s o l u t i o n p u t f o r w a r d i n t h e Ghana Code i s : "On any a p p l i c a t i o n t o t h e C o u r t . . . t h e C o u r t b e f o r e mak ing an o r d e r may, i f i t t h i n k s f i t , r e f e r t he m a t t e r t o t he R e g i s t r a r , who s h a l l a p p o i n t one o r more competen t r e p o r t e r s t o i n v e s t i g a t e t he f a i r n e s s o f t h e o f f e r and t o r e p o r t t h e r e o n t o t h e C o u r t . " 86 T h i s i s a s e n s i b l e acknowledgment o f t h e l i m i t s o f j u d i c i a l c a p a c i t y . The a p p l i c a n t w o u l d have t o p r e s e n t some p r i m a f a c i e ca se t h a t t he o f f e r i s u n f a i r b e f o r e a j u d g e w o u l d o r d e r a r e p o r t t o be made. The E n g l i s h and B.C. s e c t i o n w o u l d be s t r e n g t h e n e d by t h e a d o p t i o n o f a s i m i l a r p r o v i s i o n . 89 The J e n k i n s Commit tee recommended t h a t t he c o u r t s h o u l d be empowered t o v a r y t he terms o f t h e o f f e r on w h i c h t he s h a r e s o f a d i s s e n t i e n t s h a r e -90 h o l d e r a r e t o be c o m p u l s o r i l y a c q u i r e d . T h i s i s j u s t i f i e d because o t h e r -w i s e t h e o n l y remedy open t o d i s s e n t i e n t s i s t o r e q u e s t t he c o u r t t o o r d e r t h a t t h e o f f e r o r was n o t e n t i t l e d t o c o m p u l s o r y a c q u i s i t i o n . The m i n o r i t y w o u l d r e m a i n i n a weak p o s i t i o n w i t h i n t h e company. I t seems t o be p r e f e -r a b l e t h a t t he c o u r t s h o u l d be a b l e t o v a r y t h e terms i n a c c o r d a n c e w i t h f a i r n e s s , so t h a t t he m i n o r i t y can be bought o u t a t a r e a s o n a b l e p r i c e , and e v e r y o n e i s s a t i s f i e d . U n f o r t u n a t e l y t h i s answer i s t o o s i m p l e , becau se t h e J e n k i n s Commit tee d i d n o t f a c e t h e p r o b l e m t h a t i f t h e c o u r t improve s t he terms o f t he o f f e r f o r t h e m i n o r i t y , t h o s e who have a l r e a d y a c c e p t e d t h e o r i g i n a l o f f e r w i l l 91 n o t o b t a i n e q u a l t e r m s . P r o f e s s o r Gower recommended: "Where t h e C o u r t makes an o r d e r . . . t h a t t he t r a n s f e r e e company s h a l l be bound t o a c q u i r e t h e s h a r e s c o n c e r n e d upon terms d i f f e r e n t f r o m t h o s e o f t h e o r i g i n a l o f f e r t h e n , u n l e s s t h e C o u r t s h a l l o t h e r w i s e o r d e r , the t r a n s f e r e e company s h a l l g i v e n o t i c e i n t h e p r e s c r i b e d f o r m o f s u ch amended te rms t o a l l o t h e r h o l d e r s o f s h a r e s o f t h e same c l a s s who a c c e p t e d t he o r i g i n a l o f f e r , and a t any t i m e w i t h i n two months o f t h e g i v i n g o f s uch n o t i c e any s h a r e h o l d e r s h a l l be e n t i t l e d t o r e q u i r e t h e t r a n s f e r e e company t o a c q u i r e h i s s h a r e s upon t h e same terms as t h o s e o r d e r e d by t he C o u r t and any such f o r m e r s h a r e h o l d e r s h a l l be e n t i t l e d t o r e q u i r e t he t r a n s f e r e e company t o pay o r t o t r a n s f e r t o h im any a d d i t i o n a l c o n s i d e r a t i o n t o w h i c h he w o u l d have been e n t i t l e d had h i s s h a r e s been a c q u i r e d on t h e te rms o r d e r e d by t h e C o u r t . " 87 The o f f e r o r mu s t , under t h i s s u b - s e c t i o n , pay t o a l l s h a r e h o l d e r s t he p r i c e w h i c h t h e c o u r t r e g a r d s as f a i r . T h i s i s a r e m a r k a b l e i n t e r f e r e n c e 92 by t h e c o u r t s w i t h a c o n t r a c t made and a c t e d upon , and t h e consequences a r e s e r i o u s f o r t h e o f f e r o r . However , by v i r t u e o f t he s e v e r i t y o f t h e c o n -s e q u e n c e s , i t may be e x p e c t e d t h a t t he c o u r t s w i l l e x e r c i s e t h e i r power t o v a r y t he terms o n l y where t he o f f e r i s c l e a r l y u n f a i r , i n w h i c h ca se one does n o t have g r e a t sympathy f o r t he o f f e r o r . The e x i s t e n c e o f such a power w o u l d u n d o u b t e d l y have t h e b e n e f i c i a l e f f e c t o f c a u s i n g o f f e r o r s t o e n s u r e t h a t t h e i r b i d s a r e r e a s o n a b l e . In s p i t e o f t h e d i f f i c u l t i e s , i t seems p r e f e r a b l e t o empower the c o u r t s t o v a r y t h e terms and t o r e q u i r e t h a t a l l s h a r e h o l d e r s r e c e i v e t h e h i g h e r t e r m s , w i t h t h e p r o v i s o t h a t , where a p p r o p r i a t e , t h e c o u r t may d i s p e n s e w i t h the l a t t e r r e q u i r e m e n t . I t i s t h e r e f o r e s u g g e s t e d t h a t t h e E n g l i s h and 93 B r i t i s h Co l umb i a s t a t u t e s be amended a c c o r d i n g l y . Some m i n o r amendments a r e d e s i r a b l e t o c l a r i f y t he s e c t i o n s . I t s h o u l d be e x p r e s s l y s t a t e d t h a t t h e s e c t i o n s a p p l y o n l y t o o f f e r s f o r a l l t he s h a r e s o f a company. An amendment t o t he e f f e c t t h a t t h e n i n e t y p e r c e n t s h a r e h o l d -i n g g a i n e d i s t o be n i n e t y p e r c e n t o f t h e i n d e p e n d e n t s h a r e s , i . e . n o t a l r e a d y 94 h e l d by t h e o f f e r o r o r i t s n o m i n e e s , s h o u l d be made. 2. Power o f t h e M i n o r i t y t o R e q u i r e O f f e r o r t o P u r c h a s e T h e i r Sha re s The pu rpo se o f s e c t i o n 209 (2 ) i s t o e n s u r e , so f a r as i s p o s s i b l e , t h a t an u n w i l l i n g m i n o r i t y does n o t have t o r ema in l o c k e d w i t h i n a company opposed 95 t o a v e r y l a r g e m a j o r i t y s h a r e h o l d e r whom t h e y do no t t r u s t . The s e c t i o n a p p l i e s o n l y where an o f f e r o r company has p u r c h a s e d o r c o n -t r o l s n i n e t y p e r c e n t o f t h e s h a r e s . B e a r i n g i n mind t h a t a m a j o r i t y who can pass a s p e c i a l r e s o l u t i o n , u s u a l l y s e v e n t y - f i v e p e r c e n t o f t h e v o t e s , has v e r y w i d e p o w e r s , i n c l u d i n g t h a t o f amending t h e a r t i c l e s o f a s s o c i a t i o n , one c o u l d s a y t h a t t h e s e c t i o n does n o t p r o t e c t a s u f f i c i e n t l y l a r g e m i n o r i t y , and 96 s h o u l d be e x t e n d e d i n s c o p e . 88 The argument a p p l i c a b l e t o s e c t i o n 209(1) t h a t as i t i s d e s i g n e d t o f a c i -l i t a t e mergers i t s h o u l d o n l y be a v a i l a b l e where t he o f f e r o r i s a company, i s n o t r e l e v a n t h e r e . I t i s as u n d e s i r a b l e t o be l o c k e d i n w i t h an i n d i v i d u a l c o n t r o l l e r as w i t h a company as m a j o r i t y s h a r e h o l d e r . I t i s t h e r e f o r e s u g g e s t e d t h a t any o f f e r o r , w h e t h e r i n d i v i d u a l o r com-pany , who makes a b i d f o r a l l t h e s h a r e s and a c q u i r e s s e v e n t y - f i v e p e r c e n t o r more , i n d e p e n d e n t l y h e l d o r n o t , may be r e q u i r e d by t he m i n o r i t y t o p u r -chase t h e i r s h a r e s . F i n a l l y , t h e r e seems t o be no s i g n i f i c a n t d i s t i n c t i o n between Eng l and and B r i t i s h C o l u m b i a i n t h i s s i t u a t i o n , and so i t i s recommended t h a t t he B r i t i s h C o l u m b i a s t a t u t e s h o u l d adop t a s e c t i o n s i m i l a r t o 209 (2 ) as m o d i f i e d . 89 FOOTNOTES P a r t 1 ^ W e i n b e r g , T a k e - o v e r s and A m a l g a m a t i o n s , 2nd e d . , p a r a . 105. p S t a t i s t i c s r e l a t e d t o t h e number o f t a k e - o v e r s i n E n g l a n d and B r i t i s h Co l umb i a a r e n o t a v a i l a b l e , b u t t h e t r e n d i s g e n e r a l l y r e c o g n i s e d . In t h e U n i t e d S t a t e s a s u r v e y c o v e r i n g t he p e r i o d 1956-66 and d i s c u s s e d i n Hayes & T a u s s i g , " T a c t i c s o f Cash T a k e - o v e r B i d s , " 45 Ha r v . B u s i n e s s R e v . , A p r i l , 1967 , 135 , shows a v e r y s h a r p i n c r e a s e i n t h e use o f t h e t a k e - o v e r b i d i n 1965 and 1966. 3 Government Wh i t e Pape r on t h e I n d u s t r i a l R e o r g a n i z a t i o n C o r p o r a t i o n , Cmnd. 2889 ( 1 9 6 6 ) . One may n o t e t h e c o u n t e r - b a l a n c i n g e f f e c t o f t he Mono-p o l i e s and Me rge r s A c t 1965 , c . 5 0 , w h i c h i s i n t e n d e d t o p r e v e n t m o n o p o l i e s w h i c h w o u l d be a g a i n s t t h e p u b l i c i n t e r e s t . 4 I n t h e R e p o r t o f t he Company Law Commit tee ( 1 9 6 2 ) , r e f e r r e d t o as t h e J e n k i n s R e p o r t , t he b e n e f i t o f t a k e - o v e r b i d s was a c k n o w l e d g e d , a t p. 209: " I t appea r s t o be g e n e r a l l y a g r e e d t h a t t a k e - o v e r b i d s have on t h e who l e s e r v e d a u s e f u l e conom ic pu rpo se and l e d t o a d e s i r a b l e r e - d e p l o y m e n t o f r e s o u r c e s , and t h a t i n most c a s e s t he new managers have p r o v e d more e f f i -c i e n t t han t h e o l d . " 5 The d e t a i l s o f b o t h t h e s e b i d s were o b t a i n e d f r om t h e Times newspaper and t h e Times B u s i n e s s News. The r e l e v a n t news s t o r i e s may be f o u n d i n t he Times f o r t he days a f t e r t he d a t e s g i v e n i n t h e t e x t . R e f e r r e d t o as " P e r g a m o n . " 7 R e f e r r e d t o as "News o f t h e W o r l d . " o R o b e r t M a x w e l l , c h a i r m a n , manag ing d i r e c t o r and l a r g e s t s h a r e h o l d e r i n Pergamon. Q The T a k e - o v e r Pane l i s t he body w h i c h c o n t r o l s t a k e - o v e r b i d s unde r t h e g u i d a n c e o f t he C i t y Code on T a k e - o v e r s and M e r g e r s . These w i l l be e x p l a i n e d i n d e t a i l i n P a r t 3, S e c t i o n A. 1 0 A d v i s e r s t o News o f t h e W o r l d . ^ M e r c h a n t b a n k e r s , a d v i s e r s t o News L t d . 12 Me rchan t b a n k e r s , a d v i s e r s t o Pergamon. 13 A d v i s e r s t o News o f t h e W o r l d L t d . The p e r c e n t a g e o f s h a r e s i n v o l v e d i s a p p r o x i m a t e l y t w e n t y p e r c e n t . ^ R o b e r t F l e m i n g & Son s , me rchan t b a n k e r s , who became f i n a n c i a l a d v i s e r s t o Pergamon when Hambro ' s L t d . w i t h d r e w f r o m t h a t p o s i t i o n . No r e a s o n f o r w i t h d r a w a l was p u b l i s h e d . 90 15 These b e n e f i c i a r i e s were e n c o u r a g e d and a i d e d by Pergamon a d v i s e r s . Cha i rman o f News o f t h e W o r l d . 1 7 C h a i r m a n o f Pergamon. I o A s u b s i d i a r y o f an A m e r i c a n company, r e f e r r e d t o as " L e a s c o . " 1 9 R e f e r r e d t o as " I . L . S . C . " 20 T h i s f o r e c a s t was made d u r i n g Pe rgamon ' s b i d f o r News o f t h e W o r l d . 21 F o r t h e f u l l s t a t e m e n t by t h e P a n e l , s ee t he Times B u s i n e s s News, Augu s t 2 9 , 1969 , p. 2 1 . 22 A d v i s e r s t o L e a s c o . 23 F o r an a n a l y s i s o f t h e Maxwe l l c o m p a n i e s , s ee t h e Sunday Times Week ly  R e v i e w , Augu s t 2 4 , 1969 , pp . 3 7 - 3 8 . P a r t 2 ^A t t h e g e n e r a l m e e t i n g o f t h e Pergamon s h a r e h o l d e r s , Maxwe l l c o n t r o l l e d t h i r t y p e r c e n t o f t h e v o t e s . However , p r i o r t o t h e m e e t i n g he had bought some s h a r e s , b u t h i s f a m i l y t r u s t s had a l s o s o l d more t han f i v e p e r c e n t . L e a s c o was a b l e t o d e f e a t Maxwe l l o n l y w i t h t h e h e l p o f i n d e p e n d e n t s h a r e h o l d e r s . 2 S i r W i l l i a m C a r r had c o n t r o l , a t t h e t i m e o f Pe rgamon ' s o f f e r , o f some t h i r t y - t w o p e r c e n t o f the t o t a l s h a r e s . P r i o r t o t h e o f f e r , C a r r c o n t r o l l e d , t h r o u g h h i s f a m i l y , f i f t y - s e v e n p e r c e n t , b u t one member o f t he f a m i l y a g r e e d t o s e l l h i s t w e n t y - f i v e p e r c e n t s h a r e h o l d i n g t o M a x w e l l . q T h i s S e c t i o n w i l l m e r e l y s t a t e some o f t he p r o b l e m s . A much more d e t a i l e d e x p l a n a t i o n w i l l be g i v e n i n P a r t 3. To a v o i d r e p e t i t i o n , a u t h o r i t i e s w i l l be c i t e d i n t h a t P a r t . 4 News L t d . i s an A u s t r a l i a n company. 5 T h i s happened i n t h e News o f the Wor ld b i d , d e s p i t e t h e e f f o r t t o f r e e z e t h e v o t e by a c t i o n i n t h e c o u r t s . c T h i s i s an e i g h t e e n p e r c e n t e r r o r ! 7 P e r g a m o n ' s p r o f i t s f o r 1968 were r e - a s s e s s e d a t " n o t more t han £ 1 , 0 94 , 000 . ' T h i s compares w i t h M a x w e l l ' s f i r s t f o r e c a s t o f a £ 2 ,500 ,000 p r o f i t , and a s e c o n d f o r e c a s t o f a j E 2 ,104 ,000 p r o f i t . P S t a t e m e n t by t he T a k e - o v e r P a n e l , made d u r i n g t h e Lea sco -Pe rgamon b r e a k -down. g March 1, 1970. T h e r e i s s t i l l d i s p u t e o v e r t h e s e a c c o u n t s . 1 0 A n A m e r i c a n company c o n n e c t e d w i t h Pe rgamon ' s o p e r a t i o n s i n t he U n i t e d S t a t e s . 91 As w i l l be e x p l a i n e d i n P a r t 3 , s u ch a s i t u a t i o n i s v e r y u n l i k e l y . 12 See J a n u a r y , 1970, e n t r y P a r t 1, t h e Pe rgamon -Lea sco b i d , where S t e i n b e r g i s n o t e d as s a y i n g t h a t he i s n o t c o m m i t t e d t o any minimum p r i c e f o r h i s t h i r d o f f e r . 13 I t w i l l be r e c a l l e d f rom P a r t 1 t h a t under t h e te rms o f t he s econd o f f e r Maxwe l l and h i s f a m i l y were t o r e c e i v e an amount a s s e s s e d by a m u l t i p l i e r o f n i n e t e e n , whereas t h e i n d e p e n d e n t s h a r e h o l d e r s ' amount was t o be a s s e s s e d by a m u l t i p l i e r o f t w e n t y - f i v e . 14 The m i n o r i t y w o u l d s u f f e r a s u b s t a n t i a l l o s s o n l y i f , once t h e b i d was r e j e c t e d , t h e p r i c e o f t h e s h a r e s f e l l c o n s i d e r a b l y . T h i s happened i n the News o f the W o r l d c a s e , and i s l i k e l y t o happen when t h e S t o c k Exchange l i f t s t he s u s p e n s i o n on d e a l i n g i n Pergamon s h a r e s . 15 A d v i s e r s t o News o f t h e W o r l d . 1 fi A d v i s e r s t o News L t d . 1 7 A d v i s e r s t o Pergamon, a t f i r s t . R o b e r t F l e m i n g & Sons became a d v i s e r s t o Pergamon when H i l l , Samuel r e s i g n e d . 19 The b i d p r i c e was 37 s . P a r t 3 R e v i s e d e d . , A p r i l 2 8 , 1969. These i n s t i t u t i o n s i n c l u d e : the I s s u i n g Houses A s s o c i a t i o n , t he A c c e p t i n g Houses C o m m i t t e e , t he A s s o c i a t i o n o f I n v e s t m e n t T r u s t Compan ie s , t he B r i t i s h I n s u r a n c e A s s o c i a t i o n , t h e Committee o f London C l e a r i n g B a n k e r s , t h e C o n f e d e r a -t i o n o f B r i t i s h I n d u s t r y , t he N a t i o n a l A s s o c i a t i o n o f P e n s i o n Funds , and t h e S t o c k E xchange , London . 3 Under t h e Companies A c t 1948 , t he Boa rd o f T r ade i s g i v e n i n v e s t i g a t o r y p o w e r s , and may i n i t i a t e l e g a l a c t i o n a g a i n s t o f f e n d i n g companies and d i r e c t o r s . The main powers w i l l be r e f e r r e d t o i n t he c o u r s e o f t h e p a p e r . 4 The more i m p o r t a n t powers a r e : s e c t i o n 4 4 2 ( 1 ) , power t o i n i t i a t e p r o c e e d -i n g s where any o f f e n c e under t he A c t has been c o m m i t t e d ; s e c t i o n 164 , i n v e s t i g a -t i o n o f a company ' s a f f a i r s on a p p l i c a t i o n o f members; s e c t i o n 165 , powers o f i n v e s t i g a t i o n when t he c o u r t so o r d e r s , o r when t h e r e a r e c i r c u m s t a n c e s s u g g e s t -i n g f r a u d , m i s f e a s a n c e , m i s c o n d u c t , o r t h a t t h e members have n o t "been g i v e n a l l t h e i n f o r m a t i o n w i t h r e s p e c t t o i t s a f f a i r s w h i c h t h e y m i g h t r e a s o n a b l y e x p e c t . " 5 T h e B r i t i s h C o l u m b i a A c t i s t h e S e c u r i t i e s A c t , R .S .B.C. 1967 , c h . 45 . Known as t h e K imber R e p o r t . ^ S e c u r i t i e s A c t , s e c t i o n 2 3 ( 1 ) . o S e c u r i t i e s A c t , s e c t i o n 2 3 ( 4 ) . 92 Q S e c u r i t i e s A c t , s e c t i o n 24. ^ S e c u r i t i e s A c t , s e c t i o n 28. ^ S e c u r i t i e s A c t , s e c t i o n 29 . 12 F o r comment on t h e power o f a S t o c k Exchange t o s u spend t r a d i n g , s ee In The M a t t e r o f t h e S e c u r i t i e s A c t 1966 , and In The M a t t e r o f B y - l a w 24 and R u l i n g 49 o f t h e T o r o n t o S t o c k E xchange , r e p o r t e d i n t he F e b r u a r y , 1970 , B u l l e t i n o f t h e O n t a r i o S e c u r i t i e s Commi s s i on . The e x e r c i s e o f t he power i s s u p p o r t e d , though t he d i f f i c u l t i e s a r e r e c o g n i s e d . 13 e . g . B.C. Companies A c t , T a b l e A , A r t i c l e 5 6 ; E n g l i s h Companies A c t 1948 , T a b l e A , A r t i c l e 80 . ^ A u t o m a t i c S e l f - C l e a n s i n g F i l t e r S y n d i c a t e Co. v. Cunninghame [ 1906 ] 2 c h . 34 ; Shaw &~Sons v . Shaw. L1935J 2 K.B. 1 1 3 ; S c o t t v . S c o t t [ 1943J W.N. 16. 15 T h i s power w i l l be c o n s i d e r e d i n d e t a i l l a t e r i n t h i s S e c t i o n . 1 g S e c u r i t i e s A c t , s e c t i o n 79 (a ) imposes a minimum d e p o s i t p e r i o d o f t w e n t y -one d a y s . The L i c e n s e d D e a l e r s R u l e s , F i r s t S c h e d u l e , P a r t I I 1 (1 ) imposes a s i m i l a r l i m i t a t i o n . However i t i s n o t i c e a b l e t h a t , e s p e c i a l l y i n E n g l a n d , t h e o f f e r i s f r e q u e n t l y announced p u b l i c l y some weeks b e f o r e t he f o r m a l o f f e r i s made. T h i s i s somet imes n e c e s s a r y becau se rumours o f a p o s s i b l e b i d cau se f l u c t u a t i o n s o f t h e s h a r e p r i c e on t he m a r k e t . In s u ch ca se s t h e S t o c k Exchange r e g u l a t i o n s r e q u i r e d i s c l o s u r e o f t h e t r u e p o s i t i o n . 1 7 R u l e 14. 18 The re a r e no s p e c i f i e d r e q u i r e m e n t s i n E n g l and f o r a c i r c u l a r w h i c h r e com-mends r e f u s a l o f an o f f e r . 19 An O n t a r i o s t u d y i s c o n s i d e r i n g t h e p o s s i b i l i t y t h a t t he d i r e c t o r s s h o u l d be r e q u i r e d t o g i v e s u ch i n f o r m a t i o n w h e t h e r o r n o t t h e y make any r e commenda t i on . 2 0 R u l e 13 . 21 T h i s g i v e s a power o f i n v e s t i g a t i o n , b u t i f t h e s u s p i c i o n s a r e c o n f i r m e d , t h e Boa rd may i n i t i a t e an a c t i o n under s e c t i o n 169 (4 ) o f t h e Companies A c t 1948. 2 2 H e d l e y By rne & Co. v. H e l l e r & P a r t n e r s L t d . [ 1 964 ] A . C . 465 . 2 3 [ 1 9 6 4 ] A . C . 465 . 2 4 T h u s P e r c i v a l v . W r i g h t [ 1902 ] 2 c h . 4 2 1 , w h i c h s t a t e d t h a t t he d i r e c t o r s do n o t n o r m a l l y owe f i d u c i a r y d u t i e s t o i n d i v i d u a l s h a r e h o l d e r s , has no a p p l i -c a t i o n . 2 5 [ 1 9 0 3 ] 1 c h . 546. 26 E n g l a n d : London County F r e e h o l d & L e a s e h o l d P r o p e r t i e s L t d . v . B e r k e l e y  P r o p e r t y and I n v e s t m e n t Co. L t d . L I 9 36J 2 A l l E.R. 1039 ; F o r d vT~Whi te [1964 ] 1 W.L.R. 885. Canada: S t e e l e v. P r i t c h a r d (1907) 7 W.L.R. 1 0 8 ; Rosen v . L i n d s a y (1907) 7 W.L.R. 115 ; H e p t i n q v . S c h a a f [ 1964 ] S .C.R. 100. See a l s o : F l e m i n g on T o r t s , 3 r d e d . , 611, and Mayne & McGregor on Damages, 12th e d . , p a r a s . 957 and 958. 93 2 7 [ 1 9 6 4 ] A . C . 465 a t 528. 28 The s t a t e m e n t i n q u e s t i o n i n H e d l e y By rne was an o p i n i o n as t o t h e f i n a n c i a l s t a n d i n g o f a company, g i v e n by a bank. 29 In t h e U n i t e d S t a t e s , t h e p r o x y r e g u l a t i o n s s p e c i f y " P r e d i c t i o n s as t o s p e c i f i c f u t u r e m a r k e t v a l u e s , e a r n i n g s , o r d i v i d e n d s " as b e i n g p o t e n t i a l l y m i s l e a d i n g , and t h e y w i l l be c a r e f u l l y c o n t r o l l e d by t h e S e c u r i t i e s and Exchange C o m m i s s i o n , P r o x y R u l e 1 4 9 - 9 , made under t h e S e c u r i t i e s A c t s Amendments o f 1964. See f u r t h e r , Aranow & E i n h o r n , P r o x y C o n t e s t s f o r C o r p o r a t e C o n t r o l , p. 146 e t s e q . 3 0 R u l e 9. 31 T h i s i s a r e s t a t e m e n t i n company l aw terms o f t h e e q u i t a b l e p r i n c i p l e a p p l y i n g t o f i d u c i a r i e s . 3 2 R e S m i t h & F a w c e t t L t d . [ 1942 ] c h . 304 a t 306. 3 3 [ 1 9 5 1 ] c h . 286. 3 4 M i l l s v . M i l l s (1938) 60 C .L .R . 150 ( A u s t . H . C . ) . 3 5 S e e , f o r e x a m p l e , L i n d g r e n v . L.& P. E s t a t e s [ 1968 ] 1 A l l E.R. 917. The Savoy H o t e l L i m i t e d and t he B e r k e l e y H o t e l Company L i m i t e d : I n v e s t i -g a t i o n under s e c t i o n 165 (b ) o f t h e Companies A c t 1948. R e p o r t o f Mr. E. M i l n e r H o l l a n d , Q.C. (H.M.S.O.) 1954. See a l s o Gower, " C o r p o r a t e C o n t r o l , The B a t t l e f o r t h e B e r k e l e y , " 1955 , 68 H.L.R. 1176. 3 7 P a r a . 1 4 ( i i i ) . 3 8 [ 1 9 6 2 ] 1 c h . 927 a t 963 . In Hogg v . Cramphorn [ 1 966 ] 3 A l l E.R. 4 20 , one o f t he main r ea son s why t h e d i r e c t o r s f o u g h t t h e t a k e - o v e r was t he e f f e c t i t w o u l d have on t h e e m p l o y e e s . The c o u r t d i d n o t comment on t h i s . Fo r d e v e -l opment o f t h e arguments i n v o l v e d , see B e r l e , " C o r p o r a t e Powers as Powers i n T r u s t , " 44 Ha r v . L. Rev. 1049 ( 1 9 3 1 ) , and Dodd, " F o r Whom A r e C o r p o r a t e Mana-ge r s T r u s t e e s ? , " 45 H a r v . L.R. 1145 ( 1 9 3 2 ) . 39 Though spoken i n a d i f f e r e n t c o n t e x t , t h e famous words i n H u l t o n v . West  C o a s t R a i l w a y Co. (1883) 23 c h . D. 673 a r e a p p r o p r i a t e : "The law does n o t s a y t h a t t h e r e a r e t o be no cake s and a l e , b u t t h a t t h e r e a r e t o be no cake s and a l e e x c e p t such as a r e r e q u i r e d f o r the b e n e f i t o f t he company. " 40 As i n t h e Savoy H o t e l c a s e . 41 As i n t h e Pe rgamon -Lea sco and News o f t he Wor ld -Pe rgamon b i d s . 42 As i n t h e Pe rgamon -Lea sco and News o f t he Wor ld -Pergamon b i d s . 43 As i n Hogg v . Cramphorn [ 1966 ] 3 A l l E.R. 420 and Bamford v . Bamford [ 1969 ] 2 W.L.R. 1107, c o n s i d e r e d i n f r a . 44 As i n t h e W o r c e s t e r Scheme i n t he Savoy H o t e l c a s e . 94 45 As i n t he News o f t he Wor ld -Pe rgamon b i d , when News L t d . was i n d u c e d t o make an o f f e r w h i c h was a c c e p t e d . F o r a d e t a i l e d s t u d y o f d e f e n s i v e t e c h -n i q u e s , see B rad shaw, " D e f e n s i v e T a c t i c s Employed by Incumbent Managements i n C o n t e s t i n g T e n d e r O f f e r s , " 21 S t a n f o r d L.R. 1104, 1969. See a l s o W e i n b e r g , T a k e - o v e r s and A m a l g a m a t i o n s , c h . 7. 46 The e x c e p t i o n i s t h e b u y i n g o f s h a r e s on t he m a r k e t . The d i r e c t o r s can do t h i s o n l y i n t h e i r p e r s o n a l c a p a c i t y becau se the company i s n o t a l l o w e d t o t r a d e i n i t s own s h a r e s — T r e v o r v. W h i t w o r t h (1887) 12 App. Ca s . 409. A r e l a t e d p r o b l e m — i n s i d e r t r a d i n g — w i l l be d i s c u s s e d i n P a r t 3, S e c t i o n C. 4 7 F r a s e r v . W h a l l e y , 2 H.& M. 10; P un t v . Symons [1903] 2 c h . 506; P i e r c y v . M i l l s LI920] 1 c h . 77; i n Canada , Sm i t h v. Hansen , 1927 (W.W.R.) 529; B o n i s t e e l v . C o l l i s L e a t h e r L t d . (1915) 45 O.L.R. 195. I t s h o u l d be n o t e d t h a t i n each c a s e t he p l a i n t i f f had o b t a i n e d a m a j o r i t y o f t he s h a r e s b e f o r e t h e d e f e n d a n t s made a new a l l o t m e n t w h i c h e n a b l e d them t o r e g a i n c o n t r o l . T h i s p o i n t was s i g n i f i c a n t i n Hogg v. Cramphorn [1966] 3 A l l E.R. 420. 48[1920] 1 c h . 77. 49 The d i r e c t o r s f i d u c i a r y d u t i e s a r e owed t o t h e company, and t he s h a r e -h o l d e r s c a n n o t sue on t h e i r own b e h a l f f o r a b r e a c h o f t h o s e d u t i e s . P e r c i v a l v . W r i g h t [ 1902 ] 2 c h . 421 . S e e , howeve r , A l l e n v . H y a t t (1914) 30 T . L . R . 444 where t h e d i r e c t o r s were h e l d t o have p u t t h e m s e l v e s i n a f i d u c i a r y r e l a t i o n -s h i p w i t h t h e s h a r e h o l d e r s . In t h e u s u a l s i t u a t i o n i n w h i c h t h e d u t i e s a r e owed t o t h e company, m i n o r i t y s h a r e h o l d e r s may be a b l e t o b r i n g a d e r i v a t i v e a c t i o n on b e h a l f o f t h e company. 50 In an A u s t r a l i a n c a s e , H a r l o w e ' s N o m i n e e ' s P r o p e r t y L t d . v . Woods ide  ( Lake s E n t r a n c e ) O i l Co . , 1968-69 42 A u s t . L . J . 1 2 3 , i t was h e l d t h a t t he d i r e c -t o r s s h o u l d e x e r c i s e t h e i r powers bona f i d e i n the i n t e r e s t o f t he company and " n o t f o r i r r e l e v a n t p u r p o s e s . " T h i s g i v e s a w i d e r s cope t h a n the E n g l i s h and Canad i an c a s e s , b u t i t i s pe rhap s o n l y an e x p r e s s i o n o f t he o p i n i o n t h a t t h e r a i s i n g o f new c a p i t a l i s n o t t he o n l y v a l i d r ea son f o r a new i s s u e o f s h a r e s . 5 1 H i r s c h e v. Sims [ 1894 ] A . C . 654. 5 2 M a d d e n v. Dimond (1905) 12 B.C.R. 80 . 5 3 L e g i o n O i l s L t d . v. B a r r o n (1956) 2 D.L.R. (2d) 337. 54 See t e x t t o f o o t n o t e s 67 t o 72. The d o c t r i n e w o u l d n o t a p p l y t o t h e b u y i n g o f s h a r e s on t he m a r k e t , because such b u y i n g i s n o t done on b e h a l f o f t he company. See f o o t n o t e 73. 5 5 [ 1 9 6 6 ] 3 A l l E.R. 420. 56 Ten v o t e s were a t t a c h e d t o each s h a r e ; t h e c o u r t h e l d t h a t t h e n i n e e x t r a v o t e s were v o i d as b e i n g c o n t r a r y t o t h e a r t i c l e s . However , t he t r u s t e e s were e n t i t l e d t o a c c e p t the s h a r e s w i t h one v o t e e a c h , and t h e c a s e c o n t i n u e d on t h a t b a s i s . 57 The d i r e c t o r s were n o t made d e f e n d a n t s t o t h e a c t i o n , though t h e company wa s . P i e r c y v . M i l l s [ 1920 ] 1 c h . 77 and Pun t v . Symons [ 1903 ] 2 c h . 506 were d i s t i n g u i s h e d on t he g round t h a t i n t h o s e ca se s c o n t r o l had a l r e a d y changed hands b e f o r e t h e d i r e c t o r s a l l o t t e d t h e s h a r e s i n an a t t e m p t t o r e g a i n c o n t r o l . 95, The s h a r e h o l d e r s i n g e n e r a l m e e t i n g r a t i f i e d t h e a l l o t m e n t . I t may be n o t e d t h a t a l t h o u g h t h e a c t i o n was b r o u g h t i n t he f o r m o f an u l t r a v i r e s a c t i o n , t he c o u r t was c o n s i d e r i n g t he q u e s t i o n w h e t h e r t he a l l o t m e n t was an i m p r o p e r use by t h e d i r e c t o r s o f t h e i r power s . 59 Gower, The P r i n c i p l e s o f Modern Company Law, 3 r d e d . , 1969 , a t p. 586. 6 0 ( 1 8 4 3 ) 2 Hare 461 . fil The p o i n t abou t Foss v . H a r b o t t l e i s o f l e s s i m p o r t a n c e i n t h e t a k e -o v e r s i t u a t i o n becau se t he s h a r e h o l d e r s w i l l a l m o s t a lway s be a b l e t o b r i n g a d e r i v a t i v e a c t i o n . In any c a s e , i t s h o u l d be r e c a l l e d t h a t i n Hogg v . Cramphorn t he a c t i o n was f r amed as an u l t r a v i r e s a c t i o n w h i c h i s an e x c e p -t i o n t o t he r u l e i n Foss v . H a r b o t t l e ; see R u s s e l l v . W a k e f i e l d Waterworks Co. (1875) L.R. 20 Eq . 474. I t i s t h e r e f o r e q u i t e p o s s i b l e t h a t t h e c o u r t d i d n o t r e a l i s e t h a t i t was i n e f f e c t c r e a t i n g a f u r t h e r e x c e p t i o n t o t h e r u l e , and had no i n t e n t i o n o f d o i n g s o . 6 2 [ 1 9 6 9 ] 2 W.L.R. 1107 ; [ 1969 ] 1 A l l E.R. 969. CO Gower, The P r i n c i p l e s o f Modern Company Law, 3 r d e d . , 1969 , a t page 567 . F o r f u r t h e r c r i t i c i s m , s ee W e d d e r b u r n ' s n o t e a t 32 M.L.R. 563 . 6 4 [ 1 9 6 9 ] 1 A l l E.R. 969 a t 972 I. 6 5 A t pages 975 I and 976 A -B . cc In any c a s e i t i s d i f f i c u l t t o t h i n k o f any example o f an a c t ' n o t bona  f i d e ' and y e t n o t ' m a l a f i d e . ' One p o s s i b i l i t y i s an a c t t o w h i c h t he d i r e c -t o r s had n o t t u r n e d t h e i r minds a t a l l . See a l s o , L i n d g r e n v . L.& P. E s t a t e s  L t d . [ 1968 ] c h . 572 . 6 7 N o r t h - W e s t T r a n s p o r t a t i o n v . B e a t t y (1887) 12 App. Ca s . 589. 6 8 S e e G r e e n h a l g h v . A r d e r n e Cinemas [1946 ] 1 A l l E.R. 512. See a l s o Gower, P r i n c i p l e s o f Modern Company Law, pages 564 -580 . Fo r a r a t h e r d i f f e r e n t v i ew see Wedde rbu rn , S h a r e h o l d e r s ' R i g h t s and t he Ru l e i n Foss v . H a r b o t t l e , 1958 C . L . J . 9 3 . 6 9 B r o w n v. B r i t i s h A b r a s i v e Wheel Co. [ 1919 ] 1 c h . 2 90 ; Dafen T i n p l a t e  Co. L t d . v. L l a n e l l y S t e e l Co. ( 1 9 0 7 ) , [ 1 920 ] 2 c h . 124 ; F i x e d T r u s t s P t y . L t d . v. C l y d e I n d u s t r i e s L t d . [ 1 959 ] S.R. (N.S.W.) 33 . See a l s o M c P h e r s o n , " L i m i t s o f F r a u d on t he M i n o r i t y , " 77 S . A . L . J . 2 97 , ( 1 9 6 0 ) . 7 0 T h e o f f e r o r w i l l u s u a l l y t a k e up and pay f o r s h a r e s d e p o s i t e d p u r s u a n t t o h i s o f f e r o n l y i f a c e r t a i n p e r c e n t a g e (above f i f t y - o n e p e r c e n t a t l e a s t ) a c c e p t h i s o f f e r . I f t he d i r e c t o r s r e f u s e the o f f e r , and t a k e d e f e n s i v e mea-s u r e s , s uch as i s s u i n g s h a r e s , t o e n s u r e t h a t a t l e a s t f i f t y p e r c e n t r e f u s e , t h e m i n o r i t y w i l l n o t be a b l e t o s e l l becau se t he o f f e r o r w i l l n o t a c c e p t t h e i r s h a r e s . 7 1 N o r m a l l y t h e t i m e l i m i t f o r d e p o s i t i n g s h a r e s i s t w e n t y - o n e d a y s : S e c u r i t i e s A c t s . 7 9 ( a ) ; C i t y Code , r u l e 2 1 ; L i c e n s e d D e a l e r s R u l e s , 1 s t S c h e d u l e 1 ( 1 ) ; i n each ca se t he t i m e may be e x t e n d e d . 96 72 B e r l e & Means, 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 , 1933 , pages 314 -15 . 73 e . g . a company whose a s s e t s a r e a s m a l l b u s i n e s s and t h e l a n d on w h i c h t h e p l a c e o f b u s i n e s s i s b u i l t , may be more v a l u a b l e t o a p r o p e r t y d e v e l o p e r t han t o someone who want s t o c o n t i n u e t he b u s i n e s s . 74 See f o r an e x a m p l e , t h e R e p o r t o f t h e Roya l Commis s ion t o I n v e s t i g a t e T r a -d i n g i n t h e Sha re s o f W i n d f a l l O i l s and M ines L i m i t e d , e s p e c i a l l y C h a p t e r XV, pages 9 1 - 9 3 . 75 Roya l Commis s ion on B a n k i n g and F i n a n c e , a t page 344. 76 In B r i t i s h C o l u m b i a : annua l s t a t e m e n t s a r e r e q u i r e d by B.C. Companies A c t 1960 , c h . 67 , s . 157 ; i n t e r i m s t a t e m e n t s by B.C. Companies A c t , s . 1 6 4 ( a ) ( 1 ) . In E n g l a n d : annua l s t a t e m e n t s by Companies A c t 1948 , s . 148. I n t e r i m s t a t e m e n t s a r e n o t r e q u i r e d under t he A c t , b u t t h e y a r e unde r S t o c k Exchange r e g u l a t i o n s f o r q u o t e d c o m p a n i e s . The J e n k i n s Commit tee welcomed i n t e r i m s t a t e -ments b u t w o u l d n o t make them o b l i g a t o r y — p a r a . 396. 7 7 B r i t i s h C o l u m b i a : a t a k e - o v e r b i d c i r c u l a r i s r e q u i r e d by S e c u r i t i e s A c t , s . 8 3 ( 1 ) ; a d i r e c t o r s ' c i r c u l a r i s r e q u i r e d o n l y when t he d i r e c t o r s recommend a c c e p t a n c e o r r e f u s a l o f an o f f e r — S e c u r i t i e s A c t , s . 8 3 ( 3 ) . E n g l a n d : t h e c o n t e n t s o f t h e documents c o n t a i n i n g t h e o f f e r a r e p r e s c r i b e d by t h e L i c e n s e d D e a l e r s R u l e s , 1 s t S c h e d u l e , P a r t I I . The c o n t e n t s o f a document c o n t a i n i n g a recommendat ion o f a c c e p t a n c e a r e p r e s c r i b e d by t h e L i c e n s e d D e a l e r s R u l e s , 3 r d S c h e d u l e . The J e n k i n s Commit tee d i d n o t t h i n k i t wou l d be p r a c t i c a b l e t o d e v i s e r u l e s f o r a c i r c u l a r recommending r e j e c t i o n . No r e a s o n s were g i v e n f o r t h i s c u r i o u s d e c i s i o n . 78 K imber R e p o r t , p a r a . 4 . 0 2 . 79 In E n g l and t h e s t a t u t o r y p r o v i s i o n s a r e t o be f o u n d i n t h e Companies A c t 1948 , s s . 1 4 7 - 1 6 3 , and i n t h e 8 t h S c h e d u l e as amended by t h e Companies A c t 1967 , s s . 3 -24 and t h e 1 s t and 2nd S c h e d u l e s . In B r i t i s h C o l u m b i a t he r e l e v a n t p r o v i -s i o n s a r e : Companies A c t , s s . 1 5 6 - 1 6 5 , w h i c h a r e s u b s t a n t i a l l y t he same as S e c u r i t i e s A c t , s s . 118 -127 . The recommendat ions were c o n t a i n e d i n t h e J e n k i n s R e p o r t , p a r a s . 3 3 0 - 4 2 3 , and t h e K imber C o m m i t t e e , p a r a s . 4.01 t o 4 . 3 5 . 80 In E n g l and t he p r i n c i p l e i s t h a t t he a c c o u n t s s h o u l d g i v e a " t r u e and f a i r v i ew o f t h e a f f a i r s o f t he company as a t t he end o f i t s f i n a n c i a l y e a r , " — Companies A c t 1948, s . 1 4 9 ( 1 ) . The d e t a i l s a r e s e t o u t i n t h e 8 t h S c h e d u l e . In B r i t i s h C o l u m b i a t h e p r i n c i p l e i s t h a t t he a c c o u n t s s h o u l d " p r e s e n t f a i r l y " t h e f i n a n c i a l p o s i t i o n o f t h e c o m p a n y — S e c u r i t i e s A c t 1967 , s s . 120 , 1 2 1 , 1 22 , and t h e s e s e c t i o n s a l s o c o n t a i n t h e d e t a i l e d r e q u i r e m e n t s . 8 1 S e c u r i t i e s A c t , s . 1 1 8 ( l ) ( d ) . ^ S e c u r i t i e s A c t , s . 118(1 ) ( e ) . 83 S e c u r i t i e s A c t , s . 118. B.C. Companies A c t , s . 1 5 7 ( l ) ( a l ) ( i i ) . Companies A c t 1948, 2nd S c h e d u l e , P a r t I, I I ( i i ) and X I V ( 5 ) . 84 S e c u r i t i e s A c t , s . 1 2 5 ( 1 ) . B.C. Companies A c t , s . 162. Companies A c t 1948 , 2nd S c h e d u l e , P a r t I I I 17. 97 85 e . g . Companies A c t 1967 , 2nd S c h e d u l e 5, where t h e method o f a r r i v i n g a t an amount t o r e p r e s e n t t h e f i x e d a s s e t s i s s e t o u t . F o r r e q u i r e m e n t s as t o minimum c o n t e n t , s ee Companies A c t 1967, s s . 1 5 - 24 . 87 One has o n l y t o s t u d y t h e a c c o u n t s o f one o f t h e m a j o r companies as pub -l i s h e d i n t h e newspapers t o a p p r e c i a t e t h e c o m p l e x i t y o f t h e s e document s , op K imber R e p o r t 4 . 0 4 — a l though t h i s comment was made b e f o r e t h e l a t e s t l e g i s l a t i o n , t h e i d e a e x p r e s s e d u n f o r t u n a t e l y r ema in s v a l i d . 89 K imber R e p o r t 4 . 0 5 . 90 The re was a s p e c i a l c o m p l i c a t i o n i n t he Lea sco -Pe rgamon i n s t a n c e . One company i n t h e Pergamon g roup ' s o l d ' e n c y c l o p a e d i a s t o a n o t h e r , A m e r i c a n , com-pany w i t h i n t h e g r o u p , and o b t a i n e d a r e c e i p t f o r an ' e x p o r t s a l e . ' The Ame-r i c a n company d i d n o t s e l l t he b o o k s , b u t m e r e l y h e l d them u n t i l t he A m e r i c a n b r a n c h o f t he f i r s t company had made t h e s a l e i n A m e r i c a ! 9 1 P a r a . 397. 92 See J e n k i n s R e p o r t , p a r a . 394. 93 See J e n k i n s R e p o r t , p a r a . 386. 94 K n a u s s , "A R e a p p r a i s a l o f t he R o l e o f D i s c l o s u r e , 62 M i c h i g a n L. Rev. 6 0 7 , 1963 -64 . 95 Memorandum by t h e I n s t i t u t e o f C h a r t e r e d A c c o u n t a n t s i n E n g l and and Wales t o t h e J e n k i n s Commi t t ee . 9 6 I b i d . 97 J e n k i n s R e p o r t , p a r a . 370. 9 8 S . 1 2 3 ( 1 ) . See a l s o 1 2 3 ( 2 ) . " s c h e d u l e 2 , 1 4 ( 2 ) . 1 0 0 C o m p a n i e s A c t 1967 , S c h e d u l e 2 1 4 ( 6 ) ( b ) . 1 0 1 In a s u r v e y c a r r i e d o u t i n 1948, i t was shown t h a t s i x t y p e r c e n t o f t h e s h a r e h o l d e r s s u r v e y e d r e l i e d on t h e annua l r e p o r t s as t h e i r p r i m a r y s o u r c e o f i n f o r m a t i o n . See Dyckman on t he I n ve s tmen t D e c i s i o n , A c c o u n t i n g R e v i e w , v o l . 39. A p r i l , 1964, pages 286 -87 . ID? Cohen R e p o r t a t page 98 . 103 J e n k i n s R e p o r t , p a r a . 333. ^ R e c o m m e n d a t i o n s on A c c o u n t i n g P r i n c i p l e s i s s u e d t o i t s Members by t h e I n s t i t u t e o f C h a r t e r e d A c c o u n t a n t s i n E n g l a n d and Wa le s . 98 B r i t i s h C o l u m b i a : S e c u r i t i e s A c t , s . 8 3 ( 1 ) : "A t a k e - o v e r b i d c i r c u l a r s h a l l f o r m p a r t o f o r accompany a t a k e - o v e r b i d . " E n g l a n d : L i c e n s e d D e a l e r s R u l e s , 1 s t S c h e d u l e , P a r t I I 1: "The terms o f t h e o f f e r s h a l l comply w i t h t h e f o l l o w i n g r e q u i r e m e n t s , and t h o s e terms s h a l l a ppea r c l e a r l y i n t h e document c o n t a i n i n g t h e o f f e r . " 1 0 6 S e c u r i t i e s A c t , s . 8 4 ( 1 ) . 1 0 \ i c e n s e d D e a l e r s Rules-, 3 r d S c h e d u l e . 1 0 8 P a r a . 273 . 109 E x c e p t t h e common l aw l i a b i l i t y d i s c u s s e d b e l o w . 1 1 0 S . 88 . 1 1 ] l s t S c h e d u l e , P a r t I I . 112 S e c u r i t i e s A c t , s . 8 8 ( d ) . L i c e n s e d D e a l e r s R u l e s , 1 s t S c h e d u l e , P a r t I I 1. 113 S e c u r i t i e s A c t , s . 8 8 ( c ) . L i c e n s e d D e a l e r s R u l e s , 1 s t S c h e d u l e , P a r t I I l ( i i ^ S e c u r i t i e s A c t , s . 8 8 ( a ) . L i c e n s e d D e a l e r s R u l e s , 1 s t S c h e d u l e , P a r t I I 2 ( i ) 115 S e c u r i t i e s A c t , s . 8 8 ( b ) . L i c e n s e d D e a l e r s R u l e s , 1 s t S c h e d u l e , P a r t I 1 (b ) and ( c ) . 11 fi S e c u r i t i e s A c t , s . 8 8 ( f ) . L i c e n s e d D e a l e r s R u l e s , 1 s t S c h e d u l e , P a r t I I 2 ( 5 ) 117 S e c u r i t i e s A c t , s . 8 8 ( h ) . L i c e n s e d D e a l e r s R u l e s , 1 s t S c h e d u l e , P a r t I I 2 ( 6 ) and ( 7 ) . I I P L i c e n s e d D e a l e r s R u l e s , Ru l e 1 a ( i i ) . 119 P a r a . 3 .18. I t was t h e l a c k o f a d i s c l o s u r e o f b i d d e r s ' i d e n t i t y r e q u i r e -ment w h i c h a l l o w e d t h e c o n f u s i o n w h i c h a r o s e i n t h e P h i l i p M o r r i s I n c . - C a n a d i a n B r e w e r i e s L t d . - R o t h m a n ' s Group a f f a i r . See F i n a n c i a l P o s t , J a n u a r y 2 4 , 1970 , page 6 , f o r comment. However , even i f t h e r e had been a b i d d e r ' s i d e n t i t y p r o v i -s i o n , i t w o u l d n o t have f o r c e d Rothman ' s t o r e v e a l i t s e l f , becau se i t bought s h a r e s on t h e m a r k e t , a f o r m o f t a k e - o v e r exempted f r om t he p r o v i s i o n s unde r S e c u r i t i e s A c t 7 8 ( b ) . 120 A l s o where t h e b i d d e r may be a ' c o r p o r a t e l o o t e r . ' See Benson v . B r a u n , 155 N.Y.S. (2d) 6 22 , and Gerdes v . Reyno ld s (1941) 28 N.Y.S. (2d) 622 . 121 The re i s some doub t abou t t h i s p o i n t . See M i l n e r - H o l l a n d R e p o r t on t h e Savoy H o t e l c a s e , H.M.S.O. 1954. Bu t n o t e a l s o , as p o i n t e d o u t i n P a r t 3 , S e c t i o n A , t h a t s uch a c o n s i d e r a t i o n may w e l l be a v a l i d one " i n t he i n t e r e s t o f t h e company. " 122 One o f t h e r ea s on s why t h e News o f t he W o r l d Boa rd recommended r e f u s a l o f M a x w e l l ' s o f f e r was t h a t he c o u l d n o t m a i n t a i n a good r e l a t i o n s h i p w i t h t he u n i o n s . T h i s was bo rne o u t i n F e b r u a r y , 1969, when Maxwe l l was c o m p e l l e d t o w i t h d r a w h i s b i d f o r t he Sun newspaper becau se he c o u l d n o t r e a c h ag reement w i t h t h e u n i o n s . 99 123 124, S e c u r i t i e s A c t , s . 8 8 ( i ) , T e c h n i c a l l y , t h e o f f e r o r s h o u l d p r o b a b l y d i v u l g e any s p e c i f i c p l a n s w h i c h he has f o r t h e company when he t a k e s i t o v e r . 1 2 5 L i c e n s e d D e a l e r s R u l e s , 1 s t S c h e d u l e , P a r t I I 2 ( 8 ) . 1 pf. In B r i t i s h C o l u m b i a , t h e y need n o t do so where t h e y make no recommenda-t i o n . In E n g l a n d t h e d i r e c t o r s a r e r e q u i r e d t o send a c i r c u l a r o n l y when t h e y recommend a c c e p t a n c e . 127 F o r e x a m p l e , i n f o r m a t i o n t h a t t he company ' s a s s e t s c o u l d be more p r o f i t -a b l y employed i n some o t h e r way. The o f f e r e e d i r e c t o r s wou l d n o t want t o d i s -c l o s e t h i s i f t h e y c o u l d n o t e x p l o i t t h e a s s e t s i n t h i s way , becau se o f l a c k o f funds o r e x p e r t i s e , b u t t h e b i d d e r c o u l d . 128 129 130 131 132 133 134 135 136 137, S e c u r i t i e s A c t , s . 9 3 ( a S e c u r i t i e s A c t , s . 9 3 ( a S e c u r i t i e s A c t , s . 93(b S e c u r i t i e s A c t , s . 9 3 ( c S e c u r i t i e s A c t , s . 9 3 (d S e c u r i t i e s A c t , s . 93 (e S e c u r i t i e s A c t , s . 9 3 ( f S e c u r i t i e s A c t , s . 9 3 ( g S e c u r i t i e s A c t , s . 93 (h L i c e n s e d D e a l e r s R u l e s , 3 r d S c h e d u l e ( 1 ) . No e q u i v a l e n t unde r t he L i c e n s e d D e a l e r s R u l e s . L i c e n s e d D e a l e r s R u l e s , 3 r d S c h e d u l e ( 2 ) . L i c e n s e d D e a l e r s R u l e s , 3 r d S c h e d u l e ( 3 ) . L i c e n s e d D e a l e r s R u l e s , 3 r d S c h e d u l e (4 ) and ( 5 ) . L i c e n s e d D e a l e r s R u l e s , 3 r d S c h e d u l e ( 6 ) . L i c e n s e d D e a l e r s R u l e s , 3 r d S c h e d u l e ( 7 ) . L i c e n s e d D e a l e r s R u l e s , 3 r d S c h e d u l e ( 8 ) . See B e n t l y & Co. v . B l a c k (1893) 9 T . L . R . 5 80 , " A n t i c i p a t i o n o f f u t u r e r e s u l t s i s n o t a s t a t e m e n t o f f a c t . " See a l s o Peek v . Gurney (1873) L.R. 6 H.L. 377 a t 4 0 3 , and A a r o n ' s Ree f s v . Tw i s s [ 18%T~A .C . 273. 138 As i n t h e p r o s p e c t u s c a se s c i t e d a b o v e , f o o t n o t e 137. 139 : Sc 140 i . e . S e c u r i t i e s A c t , s s . 8 8 ( i ) , 93 (g) and ( h ) . L i c e n s e d D e a l e r s R u l e s 1 s t S c h e d u l e , P a r t I I (8) and 3 r d S c h e d u l e ( 8 ) . S. 9 7 ( 1 ) . S e c u r i t i e s A c t , s . 9 7 ( 2 ) and ( 3 ) , 141 ' ^ P h i l l i p s v . B r i t a n n i a H y g i e n i c Laund ry Co. L t d . [ 1923 ] 2 K.B. 832 C A . a t 841 . 143 C h a r l e s w o r t h on N e g l i g e n c e , 1 4 th e d . , 1962, page 454 , p a r a . 963 . Quoted w i t h a p p r o v a l and a p p l i e d i n R e f f e l v . S u r r e y County C o u n c i l [ 1964 ] 1 A l l E.R. 743 . F o r a d i f f e r e n t , though no t o p p o s i n g , v i e w , see F l e m i n g , Law o f T o r t s , 3 r d e d . , 1965 , pages 1 26 - 136 , on t he s t a t u t o r y n e g l i g e n c e pe r se r u l e . 100 1 4 4 S o l o m o n s v . G e r t z e n s t e i n (R . ) L t d . [ 1954 ] 2 A l l E.R. 625 a t 637. 1 AC I t may be n o t e d t h a t i n s . 140 (1 ) and (2) o f t he S e c u r i t i e s A c t , c a r e i s t a k e n t o remove c i v i l l i a b i l i t y i n s p e c i f i e d c i r c u m s t a n c e s , and t o p r o -h i b i t c e r t a i n a c t i o n s i n some c i r c u m s t a n c e s . T h i s w o u l d i m p l y t h a t a c t i o n s o f damages may be b r o u g h t f o r b r e a c h o f s t a t u t o r y d u t y i n a t l e a s t some c i r -c u m s t a n c e s . 146 The s h a r e h o l d e r may be a b l e t o m a i n t a i n an a c t i o n f o r n e g l i g e n t m i s -s t a t e m e n t as i n H e d l e y By rne & Co. v . H e l l e r & P a r t n e r s [ 1 964 ] A . C . 4 6 5 , d i s -c u s s e d i n t h e p r e v i o u s s e c t i o n . The d i r e c t o r s ' a c t i n s e n d i n g o u t a c i r c u l a r t o t h e s h a r e h o l d e r i s s u f f i c i e n t t o e s t a b l i s h a d u t y o f c a r e t o them. T h i s a c t i o n , howeve r , depends n o t on t h e f o r m a l i t i e s o f c o m p l y i n g w i t h t he s t a t u -t o r y p r o v i s i o n s , b u t on t h e t r u t h o r o t h e r w i s e o f t he c o n t e n t s o f t h e c i r c u l a r . 1 4 7 1 9 5 8 S t a t u t e s , c . 45 . , 4 8 r h i s i s s u b j e c t t o t h e p o s s i b i l i t y t h a t s . 18 o f t h e P r e v e n t i o n o f F r aud ( I n v e s t m e n t s ) A c t m i g h t o p e r a t e i n some ca se s where t h e r e has been a b r e a c h o f t h e L i c e n s e d D e a l e r s R u l e s . S e c t i o n 18 r e a d s : "Any p e r s o n who, i n f u r n i s h i n g any i n f o r m a t i o n f o r any o f t h e pu rpo se s o f t h i s A c t o r r u l e s o r r e g u l a t i o n s made t h e r e u n d e r , makes any s t a t e m e n t w h i c h , t o h i s k n o w l e d g e , i s f a l s e i n a m a t e r i a l p a r t i c u l a r , s h a l l be l i a b l e , on c o n v i c t i o n on i n d i c t m e n t t o i m p r i s o n m e n t f o r a t e r m n o t e x c e e d i n g two y e a r s o r t o a f i n e n o t e x c e e d i n g j£ 2 00 , o r t o bo th such i m p r i s o n m e n t and such f i n e o r , on summary c o n v i c t i o n , t o a t e rm n o t e x c e e d i n g t h r e e months o r t o a f i n e n o t e x c e e d i n g j= 100 o r t o bo th such i m p r i s o n m e n t and s u c h f i n e . " I t s h o u l d be n o t e d s . 7 ( 2 ) r e a d s : "A p e r s o n s h a l l n o t be g u i l t y by r e a s o n  o n l y o f a b r e a c h o f s u ch r u l e s . " 149 Cases such as S t e v e n s v . Chown [ 1901 ] c h . D. 894 i n d i c a t e t h a t an i n j u n c -t i o n may be g r a n t e d , b u t t h e r e a r e a l s o ca se s t o t he c o n t r a r y , n o t a b l y I n s t i t u t e o f P a t e n t Agent s v . Lockwood [ 1894 ] A . C . 347 , a ca se i n v o l v i n g r e g u l a t i o n s made by t h e Boa rd o f T r a d e . 1 5 0 K i m b e r R e p o r t 4 . 0 2 . 151 I t i s i n t e r e s t i n g t h a t though t h e i d e a o f e q u a l i t y i s c l e a r l y e s t a b l i s h e d and much o f t h e l aw i s ba sed on i t , e x p r e s s a u t h o r i t y i s d i f f i c u l t t o f i n d . None o f t he m a j o r a r t i c l e s on s a l e o f c o n t r o l g i v e s any a u t h o r i t y f o r a d e f i n i t e p r o p o s i t i o n o f e q u a l i t y f o r s h a r e h o l d e r s . T h i s may be one r e a s o n why t he s c ope o f t h e c o n c e p t i s u n c e r t a i n . Pe rhaps t h e b e s t example o f t h e i n f l u e n c e o f t h e d o c t r i n e i s A l l e n v . G o l d Ree f s o f West A f r i c a L i m i t e d [ 1900 ] 1 c h . 656. S e c u r i t i e s A c t , s . 7 8 ( b ) ( 1 ) : an e x e m p t i o n f r o m the d e f i n i t i o n o f t a k e -o v e r i s " an o f f e r t o p u r c h a s e s h a r e s by way o f p r i v a t e agreement w i t h i n d i v i d u a l s h a r e h o l d e r s and no t made t o t he s h a r e h o l d e r s g e n e r a l l y . " L i c e n s e d D e a l e r s R u l e s , 1 8 ( 1 ) : " T a k e - o v e r o f f e r means an o f f e r t o a c q u i r e s e c u r i t i e s o f a c o r p o r a t i o n made t o more t h a n one h o l d e r o f t h o s e s e c u r i t i e s . " Under t h i s p r o v i s i o n s a l e o f c o n t r o l by a s m a l l g roup w o u l d be a t a k e - o v e r o f f e r . I t was by means o f t h e s . 7 8 ( b ) ( 1 ) e x e m p t i o n , and t h e b u y i n g on t h e S t o c k Exchange e x e m p t i o n t h a t Neon P r o d u c t s o f Canada L t d . was t a k e n o v e r . F o r a n a l -y s i s o f t h i s d i s t u r b i n g b i d , s ee C a r n e y , "Anatomy o f a C o r p o r a t e T a k e o v e r , " V a n c o u v e r Sun , F e b r u a r y 10 , 1968, page 6. 101 153 N K imber R e p o r t , p a r a . 3 . 12 . 154 1 0 T a k e - o v e r Code , R u l e 10. 155 The p rob l ems i n v o l v e d i n a s a l e o f c o n t r o l a r e so w i d e - r a n g i n g and y e t d e t a i l e d t h a t any d i s c u s s i o n w i t h i n t he s cope o f t h i s t h e s i s w o u l d be o f l i t t l e v a l u e . F o r r e c e n t d e b a t e on t he p r o b l e m , s e e : And rews , " S t o c k h o l d e r s ' Equa l O p p o r t u n i t y , " 78 Ha r v . L. Rev. 5 40 ; J a v a r a s , " E q u a l O p p o r t u n i t y i n t h e S a l e o f C o n t r o l l i n g S h a r e s — A R e p l y t o P r o f e s s o r A n d r e w s , " 32 U . C h i c . L.R. 4 2 0 ; B o y l e , " S a l e o f C o n t r o l l i n g S h a r e s , " 13 I n t . & Comp. L.Q. (1964) 185. The s o l u t i o n a d o p t e d i n t h e T a k e - o v e r Code i s s u b s t a n t i a l l y t h a t recommended by P r o f e s s o r Andrews . See a l s o Pe r lman v . F e l d m a n , 219 7 2d 173 and Benson v . B r a u n , 155 N.Y.S. 2d 622. 1 5 6 C o m p a n i e s A c t 1967 , s . : 2 7 ( 3 ) ( b ) . , . 1 5 7 C o m p a n i e s A c t 1967 , s . 2 7 ( l ) ( b ) ( i ) and ( i i ) . 1 5 8 C o m p a n i e s A c t 1967 , s . 2 7 ( 8 ) ( a ) and ( b ) . 159 T h i s i s p o s s i b l e o n l y i f t h e d i r e c t o r i s n o t i n a c o n t r o l l i n g p o s i t i o n . 1 6 0 R e g a l ( H a s t i n g s ) L t d . v . G u l l i v e r [ 1942 ] 1 A l l E.R. 378 a t 381F. 1 6 1 H a m i l t o n v. W r i g h t (1842) 9 C I . & F i n . I l l a t 124. See a l s o Keech v . S a n d f o r d (1726) S e l . Cas . c h . 6 1 . S i m i l a r a u t h o r i t y f o r Canada can be f ound i n Z u r i c k e r v. S t a n b u r y [ 1953 ] 2 S.C.R. 438. 1 6 2 T h e d e c i s i o n s i n Rega l ( H a s t i n g s ) L t d . v . G u l l i v e r [ 1942 ] 1 A l l E.R. 378 and Boardman v . P h i p p s [ 1967 ] 2 A . C . 46 , a r e p a r t i c u l a r l y s i g n i f i c a n t . 1 6 3 [ 1 9 0 2 ] 2 c h . 421 . 1 6 4 I n o t h e r w o r d s , t h e r u l e i n A l l e n v. H y a t t (1914) 30 T . L . R . 444 a p p l i e s r a t h e r t han t he r u l e i n P e r c i v a l v . W r i g h t [ 1 902 ] 2 c h . 4 2 1 . In A l l e n v . H y a t t , t he d i r e c t o r s were h e l d t o have p u t t h e m s e l v e s i n t h e p o s i t i o n o f agen t s t o t h e s h a r e h o l d e r s , and t h e r e f o r e i n d i v i d u a l s h a r e h o l d e r s c o u l d r e c o v e r a g a i n s t them. See a l s o B r i e s s v. Wooley [ 1954 ] A . C . 333. 165 C o n s i d e r i n g t he o u t s t a n d i n g E n g l i s h c a s e s i n r e c e n t y e a r s , such as Hogg v. Cramphorn [ 1967 ] c h . 254 , Bamford v. Bamford [ 1 969 ] 2 W.L.R. 1107 and Bu she l 1 v. F a i t h [ 1 970 ] 1 A l l E.R. 53 ( H . L . ) , t h e p r e s e n t j u d i c i a r y seem t o have a p h i l o s o p h y more i n sympathy w i t h t h o s e i n c o n t r o l t han w i t h m i n o r i t y s h a r e h o l d e r s . 1 6 6 H o g g v . Cramphorn [ 1967 ] c h . 254. 1 6 7 A t 2 . 25 . I C O S e c u r i t i e s A c t , s . 1 0 6 ( 1 ) ( c ) : " ' I n s i d e r ' o r ' i n s i d e r o f a c o r p o r a t i o n ' means ( i ) any d i r e c t o r o r s e n i o r o f f i c e r o f a c o r p o r a t i o n ; o r ( i i ) any p e r s o n who b e n e f i c i a l l y owns, d i r e c t l y o r i n d i r e c t l y , e q u i t y s h a r e s o f s uch company c a r r y i n g more t h a n t e n p e r centum o f t h e 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 e q u i t y s h a r e s o f t h e company f o r t he t i m e b e i n g o u t s t a n d i n g , e x c e p t i n t h e ca se o f an u n d e r w r i t e r , s h a r e s t h a t have been a c q u i r e d by him as u n d e r w r i t e r i n the c o u r s e o f a c u r r e n t d i s t r i b u t i o n t o t he p u b l i c o f s uch s h a r e s . " 102 169 S e c u r i t i e s A c t , s . 2 : " ' A s s o c i a t e ' where used t o i n d i c a t e a r e l a t i o n -s h i p w i t h any p e r s o n means ( i ) any company o f w h i c h t he p e r s o n b e n e f i c i a l l y owns, d i r e c t l y o r i n d i r e c t l y , e q u i t y s h a r e s c a r r y i n g more t han t e n p e r centum o f t h e 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 e q u i t y s h a r e s o f t h e company f o r t h e t i m e b e i n g o u t s t a n d i n g ; ( i i ) any t r u s t o r e s t a t e i n w h i c h t he p e r s o n 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 o r as t o w h i c h t h e p e r s o n s e r v e s as 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 ; o r ( i i i ) any r e l a t i v e o r spouse o f t he p e r s o n o r any r e l a t i v e o f t h e spouse who has t he same home as t he p e r s o n . " 1 7 0 B . C . Companies A c t 1967, s . 1 0 7 ( 1 ) , " a f f i l i a t e " means an a f f i l i a t e d company. 1 7 1 S e c u r i t i e s A c t , s . 111. 1 7 2 S e c u r i t i e s A c t , s s . 107 -110 . 173 The Pane l has no l e g a l a u t h o r i t y and c o u l d n o t impose f i n e s . 1 7 4 R u l e 29 . 175 I t w i l l be r e c a l l e d t h a t t h e r e i s some doub t w h e t h e r t he company o r t h e s h a r e h o l d e r s can r e c o v e r t h i s p r o f i t a t common l a w . See t e x t t o f o o t n o t e 165. The f a c t t h a t d i s c l o s u r e g i v e s t h e s h a r e h o l d e r s p a r t o f t he e v i d e n c e n e c e s s a r y f o r an a c t i o n i s t h e r e f o r e l e s s s i g n i f i c a n t . T h i s i s a b r i e f r e f e r e n c e t o t h e p rob lems o f i n s i d e r t r a d i n g i n so f a r as t h e y a r e r e l e v a n t t o t a k e - o v e r b i d s . A much more d e t a i l e d s t u d y t han can be encompassed by t h i s t h e s i s i s r e q u i r e d f o r t he u n d e r s t a n d i n g o f t he w i d e r range o f p rob lems i n v o l v e d . 1 7 7 S e c u r i t i e s A c t , s . 8 1 ( 1 ) . 1 78 In t he ca se o f a p a r t i a l b i d , t he o f f e r must e x p i r e a f t e r t h i r t y - f i v e d a y s : S e c u r i t i e s A c t , s . 79 (e ) and ( f ) . In t he ca se o f a b i d f o r a l l t h e s h a r e s , t h e o f f e r can e x p i r e a f t e r t w e n t y - o n e d a y s , b u t t h i s p e r i o d may be e x t e n d e d : S e c u r i t i e s A c t , s . 7 9 ( a ) . I 70. T h i s s i t u a t i o n i s i n p r a c t i c e u n l i k e l y t o o c c u r . When t h e o f f e r e x p i r e s , t h e o f f e r o r w i l l e i t h e r have s u f f i c i e n t s h a r e s and w i l l t a k e them up and pay f o r t hem, o r t h e r e w i l l n o t be enough a c c e p t a n c e s , i n w h i c h c a s e he i s l i k e l y t o r e f u s e a l l a c c e p t a n c e s ( h a v i n g made t h e b i d c o n d i t i o n a l on a minimum number o f a c c e p t a n c e s ) . He i s n o t l i k e l y t o t a k e up and pay f o r t he low l e v e l o f a c c e p t a n c e s and t h e n p u t i n a h i g h e r b i d , as he w o u l d be t a k i n g a l a r g e r i s k . 180 Gene r a l P r i n c i p l e 8. 1 8 1 Code , R u l e 31. 182 c The f i r s t o f f e r was a s s e s s e d as b e i n g w o r t h Jc 25 m i l l i o n . The s e cond o f f e r was ba sed on t h e e a r n i n g s r a t e o f Pergamon P r e s s (wh i ch has s t i l l t o be a s s e s s e d ) . The g e n e r a l s h a r e h o l d e r s w o u l d have r e c e i v e d t w e n t y - f i v e t i m e s t he e a r n i n g s r a t e , and t h e Maxwe l l f a m i l y w o u l d have r e c e i v e d n i n e t e e n t i m e s t h e r a t e . Even on M a x w e l l ' s e s t i m a t e s , w h i c h a p p e a r t o have been o p t i m i s t i c , such terms i n d i c a t e t h a t t h e s e cond b i d was w o r t h l e s s t h a n £ 25 m i l l i o n . A n o t h e r p o i n t t o no te i s t h a t t he T a k e - o v e r P a n e l c o n s e n t e d t o t h i s a r r a n g e m e n t , a l t h o u g h i t c l e a r l y v i o l a t e d G e n e r a l P r i n c i p l e 9 o f t he Code: " A l l s h a r e h o l d e r s o f t he same c l a s s o f an o f f e r e e company s h a l l be t r e a t e d s i m i l a r l y by t h e o f f e r o r com-p a n y . " 103 183 Maxwe l l d i s p u t e d some o f t he r e v i s e d terms and c o u l d n o t come t o any ag reement w i t h S t e i n b e r g . 184 Times B u s i n e s s News, J a n u a r y 1 0 , 1970. Ru l e 29 r e q u i r e s t h e o f f e r o r t o pay t h e ma r ke t p r i c e t o a l l a c c e p t i n g s h a r e h o l d e r s i f he buys on t h e m a r k e t a t a p r i c e h i g h e r t han t h a t b i d . 1 pc Pe rgamon ' s b i d was w o r t h 50 s . p e r v o t i n g s h a r e . T h i s p r i c e was n o t q u i t e r e a c h e d on t he S t o c k Exchange a t t he t i m e o f t h e b i d . A f t e r t h e News o f t h e Wor ld-News L t d . d e a l was announced , t he p r i c e o f t h e News o f the W o r l d s h a r e s f e l l t o 2 5 s . , and has s i n c e r ema ined i n the 2 5 s . - 2 8 s . r a n g e . 1 07 T h i s r u l e came i n t o o p e r a t i o n on A p r i l 2 8 , 1969, a f t e r t h e News o f t h e W o r l d b i d . 1 op The Neon P r o d u c t s o f Canada L t d . t a k e - o v e r may be i n c l u d e d . 189 J a v a r a s , " E q u a l O p p o r t u n i t y i n t he S a l e o f C o n t r o l l i n g S h a r e s - - A R e p l y t o P r o f e s s o r A n d r e w s , " 32 U . C h i c . L.R. 420 a t 428. 190 See e s p e c i a l l y t h e Times B u s i n e s s News, December, 1968 , J a n u a r y , A u g u s t , S e p t e m b e r , and O c t o b e r , 1969, d u r i n g w h i c h months the News o f t he W o r l d -Pergamon and Pe rgamon-Lea sco b i d s t o o k p l a c e . As y e t t h e r e does n o t seem t o be any i n s t i t u t i o n i n B r i t i s h C o l u m b i a w h i c h has a r o l e s i m i l a r t o t he m e r c h a n t banks i n t a k e - o v e r s . F i n a n c i a l a d v i c e i s g e n e r a l l y g i v e n by a c c o u n t a n t s o r management c o n s u l t a n t s . However many o f t h e p rob lems d i s c u s s e d i n r e l a t i o n t o me rchan t banks a p p l y t o any f i n a n c i a l a d v i s e r s , w h e t h e r i n s t i t u t i o n a l o r i n d i v i d u a l . 191 I t i s i n t e r e s t i n g t o n o t e t h a t d u r i n g the p r e s s c o v e r a g e o f t h e o u t l i n e d b i d s , l a w y e r s were m e n t i o n e d o n l y o n c e , and t h a t was as a con sequence o f t h e w i t h d r a w a l o f R o b e r t F l e m i n g & Sons f r o m t h e i r p o s i t i o n as f i n a n c i a l a d v i s e r s t o Pergamon P r e s s . 1 g o See P a r t 1, pages 2 , 3 , 4 , 5 f o r t h e d e t a i l s o f t h e s e p u r c h a s e s . 193 The re i s some doubt w h e t h e r a bank c o u l d l e g a l l y buy a company ' s s h a r e s on b e h a l f o f t h a t company, as t h i s m i g h t be c o n t r a r y t o t h e r u l e i n T r e v o r v . W h i t w o r t h (1887) 12 App. Cas . 4 09 , t h a t i t i s u n l a w f u l f o r a company t o buy i t s own s h a r e s . However i n In Re C a s t i g l i o n e ' s W i l l T r u s t s [ 1958 ] 1 c h . 5 49 , i t was h e l d t h a t a l t h o u g h t h e company c o u l d n o t h o l d i t s own s h a r e s , t h e r e c o u l d be a t r u s t f o r t h e company unde r w h i c h c e r t a i n p e r s o n s , r e g i s t e r e d as h o l d e r s o f t h e s h a r e s , h o l d them on t r u s t f o r t h e company as b e n e f i c i a r y . 194 The p u r c h a s e s were made a f t e r t h e b i d s had been announced , b u t b e f o r e t h e y had been t e r m i n a t e d . See P a r t 1, pages 2 , 3 , 4 , 5 f o r d e t a i l s . 195 A d v i s e r s t o News o f t he W o r l d L t d . 1 g c Under C a n a d i a n l e g i s l a t i o n t h i s w o u l d be a p r o b l e m o f i n s i d e r t r a d i n g . However , f i n a n c i a l a d v i s e r s w o u l d no t n o r m a l l y be w i t h i n the d e f i n i t i o n o f i n s i d e r — C o m p a n i e s A c t , s . 1 0 7 ( 1 ) . The K imber Commit tee commented, a t 209: The Improper use o f c o n f i d e n t i a l i n f o r m a t i o n by p r o f e s s i o n a l a d v i s e r s c a n n o t be c ondoned , b u t t h e d i s c i p l i n i n g o f s uch pe r son s who abuse t h e c o n f i d e n c e p l a c e d i n them must be l e f t t o t he companies who r e t a i n them and t h e p r o f e s -s i o n a l b o d i e s t o w h i c h t h e y b e l o n g . " 104 196 ( c o n t i n u e d ) Even i n A m e r i c a , i t i s n o t l i k e l y t h a t a d v i s e r s come w i t h i n t h e i r l e g i s -l a t i o n . See R a t t n e r v. Lehman, 193 7 2d 564 , and B l a u v . Lehman, 286 7 2d 786. S e e , howeve r , t he new p r o v i s i o n s i n B i l l C - 4 , An A c t To Amend t he Canada C o r p o r a t i o n s A c t , s . 9 8 , under w h i c h f i n a n c i a l a d v i s e r s a r e made l i a b l e f o r i m p r o p e r t r a d i n g . 197 Ru l e 2 9 — s e e P a r t 3 , S e c t i o n B, t h e p r e c e d i n g s e c t i o n a t t e x t t o f o o t -no te 174. F i n a n c i a l a d v i s e r s w o u l d be w i t h i n t he s cope o f t h i s r u l e , as t h e y a r e i n c l u d e d w i t h i n t h e d e f i n i t i o n o f ' a s s o c i a t e . 1 198 The b i d p r i c e was 37s . p e r s h a r e . The s a l e was e f f e c t e d a f t e r t h e b i d had been announced and b e f o r e t he breakdown o f n e g o t i a t i o n s w i t h L e a s c o . 199 See P a r t 3 , S e c t i o n B f o r the a r gument , w i t h r e l e v a n t c a s e s , t h a t t h e f i d u c i a r y w i l l be l i a b l e f o r i n s i d e r t r a d i n g . 2 0 0 S e e , f o r e x a m p l e , L .S . S e a l y , " F i d u c i a r y R e l a t i o n s h i p , " [ 1962 ] C . L . J . 69 ( r e f e r r e d t o as S e a l y ) . 2 0 1 I n Read i n g v . R_. [ 1 949 ] K.B. 232 . 202 S e a l y a t page 73. 2 0 3 B o a r d m a n v . P h i p p s [ 1 967 ] 2 A .C . 46 . 2 0 4 S e a l y a t page 73. L o r d Loughborough i n W h i c h c o t e v . Lawrence (1798) 3 v e s . 740 a t 750. See a l s o Rega l ( H a s t i n g s ) L t d . v . G u l l i v e r [ 1942 ] 1 A l l E.R. a t 378 , and P h i p p s v. Boardman L1967J 2 A .C . 46. 2 0 6 [ 1 9 1 9 ] 1 c h . 291 . 2 0 7 [ 1 9 2 0 ] 2 c h . 124. 2 0 8 [ 1 9 2 0 ] 1 c h . 154. 209 I t s h o u l d be n o t e d , howeve r , t h a t i n Re Dad ' s C o o k i e Co. ( B . C . ) L t d . (1969) 69 W.W.R. 6 4 1 , a s p e c i a l r e s o l u t i o n was p a s s e d amending the a r t i c l e s o f a s s o c i a t i o n w i t h t h e e f f e c t o f r emov ing t h e r e s t r i c t i o n s on the t r a n s f e r o f s h a r e s , a g a i n s t t he w i s h e s o f t h e m i n o r i t y who had been p r o t e c t e d f r o m a t a k e -o v e r by t h e s e r e s t r i c t i o n s , w h i c h were i n t h e f o r m o f a f i r s t - o p t i o n c l a u s e . Under t he c l a u s e , any s h a r e s w h i c h were t o be s o l d s h o u l d have been o f f e r e d f i r s t t o t he e x i s t i n g s h a r e h o l d e r s , and t h e n , on r e f u s a l , t o t h e t a k e - o v e r b i d d e r . MacDona l d , J . , a t t e m p t i n g t o j u s t i f y h i s d e c i s i o n , s a i d : "The m a t e -r i a l does n o t c l e a r l y show t h a t he was t h e n , o r i s now, w i l l i n g and a b l e t o buy a l l t he s h a r e s . " The f r a u d on t he m i n o r i t y ca se s does no t appea r t o have been a r g u e d . 210 Companies A c t 1929, 19 and 20 Geo. V. c h . 2 3 , s . 155. 2 1 Companies A c t 1948, 11 and 12 Geo. V I , c h . 3 8 , s . 2 0 9 ( 1 ) . The mechanics o f t h e section a r e a d e q u a t e l y e x p l a i n e d t h e r e i n . 2 1 2 R e Wes te rn M a n u f a c t u r i n g ( R e a d i n g ) L t d . [1956] c h . 436 . 105 213 Es so S t a n d a r d ( I n t e r - A m e r i c a ) I n c . v . J .W. E n t e r p r i s e s I n c . [ 1 963 ] S .C.R. 144. 214 P e n n i n g t o n , ' T a k e o v e r B i d s , " 17 Am. J o . o f Comp. Law, 159 a t 183. 2 1 5 [ 1 9 3 3 ] A l l E.R. 105. 2 1 6 [ 1 9 3 3 ] A l l E.R. 105 a t 107. 2 1 7 F o r e x a m p l e , i n Re S h o p p e r s ' C i t y L t d . and M. Loeb . L t d . (1969) 3 D.L.R. (3d) 3 5 , where t h e d i s s e n t i e n t s h a r e h o l d e r o b j e c t e d on t he g round t h a t the p r i c e was i n a d e q u a t e . I t was s a i d , i n o v e r r u l i n g t h e o b j e c t i o n , "The q u e s t i o n i s w h e t h e r t h e o f f e r was u n f a i r t o t h e body o f s h a r e h o l d e r s as a who le and no adequa te e v i d e n c e was p r e s e n t e d b e f o r e me t o i n d i c a t e t h a t i t w a s . " 2 1 8 [ 1 9 6 1 ] c h . 829. 2 1 9 ( 1 9 6 9 ) 69 W.W.R. 641 . 2 2 0 A t 653 . P e n n i n g t o n , " T a k e o v e r B i d s , " 17 Am. J o . o f Comp. Law, 159 a t 184. 2 2 2 [ 1 9 6 7 ] 1 A l l E.R. 192. 2 2 3 l s t S c h e d u l e , P a r t I 1 ( b ) . 2 2 4 [ 1 9 6 1 ] c h . 270. B.C. Companies A c t , 1 8 1 ( 1 ) , and o t h e r C a n a d i a n Companies A c t s , n o t a b l y s e c t i o n 128 o f t h e Canada C o r p o r a t i o n s A c t 1952. 2 2 6 R e Companies A c t 1934 (1959) 29 W.W.R. 323. 227 Compare Maugham, J . ' s d i c t a and a t t i t u d e c i t e d above a t t e x t t o f o o t n o t e 10. 2 2 8 [ 1 9 5 4 ] 4 D.L.R. 839. 2 2 9 [ 1 9 6 3 ] S .C.R. 144. 2 3 0 P a r a . 287. 231 In e ach o f t h e ca se s q u o t e d i n t he t e x t , s uch an o r d e r was s o u g h t . So f a r as can be a s c e r t a i n e d f r om the r e p o r t s , no c a s e has come b e f o r e E n g l i s h o r C a n a d i a n c o u r t s i n w h i c h a v a r i a t i o n o f t he terms was a sked f o r . 2 3 2 P a r a . 283 . 233 I t may be n o t e d t h a t t he s e c t i o n a p p l i e s n o t o n l y t o t h e s h a r e - f o r - s h a r e t a k e - o v e r , w h i c h i s a genu i ne m e r g e r , b u t a l s o t o t he c a s h - o n l y b i d , w h i c h i s n o t a me r ge r . 234 See f u r t h e r , 0 Nea l & D e r w i n , E x p u l s i o n o r O p p r e s s i o n o f B u s i n e s s A s s o c i a t e s - ' S q u e e z e - o u t s ' i n Sma l l E n t e r p r i s e s . 0 Companies A c t 1948. 106 I t was t h e o p i n i o n o f t h e J e n k i n s Commit tee t h a t t h e s e c t i o n o p e r a t e s o n l y on o f f e r s f o r a l l t he s h a r e s . 237 T h i s r e q u i r e m e n t t h a t t h e o f f e r o r must be a company c r e a t e s l i t t l e d i f -f i c u l t y i n p r a c t i c e . I t i s o n l y t o o e a s y t o f o rm a company f o r the s o l e p u r -pose o f mak ing a t a k e - o v e r b i d . The c o u r t ' s d i s t u r b a n c e o f such a scheme i n Re B u g l e P r e s s L t d . [ 1961 ] c h . 270 was ba sed on t he f r a u d u l e n t n a t u r e o f t he n e w l y - f o r m e d company i n t h a t i t was i n c o r p o r a t e d by members o f t h e company t o be t a k e n o v e r . T h i s d e c i s i o n w o u l d no t i n v a l i d a t e an i n c o r p o r a t i o n by an i n d i v i d u a l o u t s i d e r . P a r t 4 ^See P a r t 3 I n t r o d u c t i o n , and S e c u r i t i e s A c t , s s . 2 3 - 2 9 . 2 The Code was r e v i s e d on A p r i l 28 , 1969, a f t e r t h e News o f t he W o r l d -Pergamon b i d . 3 C i t y Code , G e n e r a l P r i n c i p l e 1. A Hadden, " The C o n t r o l o f Company F r a u d , " P . E . P . R e p o r t , v o l . 3 4 , no . 503. P l a n n i n g , S e p t e m b e r , 1963, a t 273. 5 Some n i n e t y p e r c e n t o f B.C. companies a r e p r i v a t e compan i e s . e . g . d e t a i l s o f s h a r e p r i c e s w i t h i n t h e p r e v i o u s s i x month s , o f f e r e e and o f f e r o r d i r e c t o r s ' s h a r e h o l d i n g s i n t h e company. S e c u r i t i e s A c t , section 78. P Canada C o r p o r a t i o n s A c t , B i l l C - 4 , s e c t i o n 1 2 7 A ( g ) . g G r e e n h a l g h v . A r d e r n e Cinemas [ 1951 ] c h . 286 , a t 2 9 1 ; P a r k e v . D a i l y  News L t d . [ 1 962 ] c h . 927 a t 963 . 1 0 T h i s change wou l d r e v e r s e t h e e f f e c t o f P e r c i v a l v. W r i g h t [ 1902 ] 2 c h . 421 ^ A n example w o u l d be where an o f f e r o r who makes a b i d w h i c h i s f i n a n c i a l l y a t t r a c t i v e t o t he c u r r e n t s h a r e h o l d e r s , i n t e n d s t o make use o f t he company i n a way w h i c h i s damaging t o i t . 12 See Hanbu r y , Modern E q u i t y , 8 t h e d . 1962 , pages 574 - 76 . 1 3 G r a i g o l a , M e r t h y r & Co. v . Swansea C o r p o r a t i o n [ 1929 ] A . C . 344. 1 4 P a r t 3 , S e c t i o n A. 15 G e n e r a l P r i n c i p l e 11 . 1 6 S e c t i o n 203 (3 ) o f t h e Ghana Companies Code , 1963 , A c t 1 79 , d r a f t e d by P r o f e s s o r Gower, r e a d s : " I n c o n s i d e r i n g w h e t h e r a p a r t i c u l a r t r a n s a c t i o n o r c o u r s e o f a c t i o n i s i n the b e s t i n t e r e s t s o f t he company as a w h o l e , a d i r e c t o r may have r e g a r d t o t he i n t e r e s t s o f t he e m p l o y e e s , as w e l l as t h e members, o f t he company. " 107 1 7 [ 1 9 6 9 ] 1 A l l E.R. 9 69 ; see P a r t 3 , S e c t i o n A , t e x t t o f o o t n o t e 62 . 18 Counse l i n Bamford v . Bamford s u g g e s t e d t h a t t h i s was t he l e g a l p o s i t i o n , b u t t h e c o u r t e x p r e s s l y r u l e d a g a i n s t t he p r o p o s i t i o n . 19 In B r i t i s h C o l u m b i a i t w o u l d n o t be n e c e s s a r y t o ' e s t a b l i s h ' a Commis-s i o n , as t h e S e c u r i t i e s Commis s ion may be a d a p t e d by c r e a t i n g a T a k e - o v e r Depa r tmen t . A commi t t ee o f t a k e - o v e r e x p e r t s , s i m i l a r t o t he " F i n a n c i a l D i s -c l o s u r e A d v i s o r y B o a r d " under S e c u r i t i e s A c t , s e c t i o n 140 , s h o u l d be s t r u c k , and t he p r e s e n t manpower o f t he S e c u r i t i e s Commiss ion s h o u l d be i n c r e a s e d by t h e i n t r o d u c t i o n o f l a w y e r s and a c c o u n t a n t s t o s p e c i a l i s e i n t he T a k e - o v e r Depa r tment . F o r c o n v e n i e n c e , t h e word ' C o m m i s s i o n s ' w i l l be used t o c o v e r t he B r i t i s h C o l u m b i a and E n g l i s h b o d i e s . 20 I . e . t h e B.C. S e c u r i t i e s A c t and t he E n g l i s h Companies A c t . 21 T h i s i s a compromi se . One w o u l d l i k e t o see a l l t h e work done by h i g h l y -q u a l i f i e d e x p e r t s , b u t t he c o s t o f a t t r a c t i n g such pe r s on s t o f u l l - t i m e p o s t s w o u l d make such a scheme p o l i t i c a l l y i m p o s s i b l e . 22 Some c r i t i c i s m o f t h i s p r e - p u b l i c a t i o n p r o p o s a l may be made on t h e g rounds t h a t a b s o l u t e s e c r e c y c o n c e r n i n g b i d s i s n e c e s s a r y . However , t h i s i s r a r e l y s o , and i n any e v e n t t h e s e n d i n g o f documents t o t h e Commis s ion s h o u l d n o t i n v o l v e any l o s s o f s e c r e c y . Documents s uch as p r o s p e c t u s must be a p p r o v e d b e f o r e p u b -l i c a t i o n and no c o m p l a i n t s a g a i n s t t he S e c u r i t i e s Commiss ions have been made c o n c e r n i n g t h e i r h a n d l i n g o f t he document s . 2 3 S e e P a r t 3 , S e c t i o n A , pages 2 2 - 2 9 . 2 4 B i l l 125 , s e c t i o n 8 7 ( 1 ) . 25 S u b - s e c t i o n 2 r e a d s : "An a c t i o n unde r s u b - s e c t i o n 1 s h a l l n o t be com-menced u n t i l t h e s h a r e h o l d e r has o b t a i n e d an o r d e r o f t h e c o u r t p e r m i t t i n g t he s h a r e h o l d e r t o commence t he a c t i o n . " 26 S e c t i o n 87 (3 ) c o n t a i n s t h e c o n d i t i o n s : (a ) t he s h a r e h o l d e r was a s h a r e -h o l d e r o f t he c o r p o r a t i o n a t t h e t i m e o f t he t r a n s a c t i o n o r o t h e r e v e n t g i v i n g r i s e t o t h e cau se o f a c t i o n ; (b) t h e s h a r e h o l d e r has made r e a s o n a b l e e f f o r t s t o cause the c o r p o r a t i o n t o commence and p r o s e c u t e d i l i g e n t l y t he a c t i o n on i t s own b e h a l f ; and ( c ) t he s h a r e h o l d e r i s a c t i n g i n good f a i t h and i t i s p r i m a  f a c i e i n t h e i n t e r e s t s o f t he c o r p o r a t i o n o r i t s s h a r e h o l d e r s t h a t t he a c t i o n be commenced. D e s p i t e t h e s e c o n d i t i o n s , t h e O n t a r i o b u s i n e s s community seem t o be v e r y w o r r i e d abou t t h e s e c t i o n . 27 As i n t he Savoy H o t e l c a s e . 28 T h i s was recommended by t h e J e n k i n s Committee a t p a r a . 1 2 2 ( h ) . The New Yo r k S t o c k Exchange Company M a n u a l , p a r a . 15 a t A - 2 83 - 84 ( 1 9 6 8 ) , c o n t a i n s a r e q u i r e m e n t f o r s t o c k h o l d e r a p p r o v a l o f s t o c k t r a n s a c t i o n s t h a t w o u l d r e s u l t i n a t w e n t y p e r c e n t o r g r e a t e r i n c r e a s e i n t h e c o r p o r a t i o n ' s o u t s t a n d i n g s t o c k . 29 Where t h e c o n s i d e r a t i o n i s i n t h e f o r m o f a s s e t s , a p r o r a t a d i s t r i b u t i o n i s no t f e a s i b l e . Pe rhaps a s p e c i a l r e s o l u t i o n r e s t r i c t i o n c o u l d be a p p l i e d i n t h i s i n s t a n c e . 108 3 0 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 . (1915) 45 O.L.R. 195 ; M a r t i n v . G i b s o n (1907) 15 O.L.R. 623. 3 1 P a r a . 120. 32 Somet imes r e f e r r e d t o as ' c l o s e c o r p o r a t i o n s . ' 33 F i r s t o p t i o n , p r e - e m p t i v e r i g h t and p r o r a t a d i s t r i b u t i o n a r e s i m i l a r r e s t r i c t i o n s . 34 As i s t h e c a s e a t p r e s e n t , a f t e r t he d e c i s i o n i n Hogg v . Cramphorn [ 1966 ] 3 A l l E.R. 420. 35 B.C. Companies A c t ; B.C. S e c u r i t i e s A c t ; U.K. Companies A c t . 36 A t i y a h , " Though t s on Company Law P h i l o s o p h y , " 8 , The L a w y e r , 15 ( 1 9 6 5 ) . 37 P a r t 3 , S e c t i o n B, page 35 . 38 Roya l Commis s ion on B a n k i n g and F i n a n c e , page 336. 39 A t i y a h , " Though t s on Company Law P h i l o s o p h y , " 8 , The L a w y e r , 15 ( 1 9 6 5 ) . See a l s o B a s k i n , "A S e c u r i t i e s and Exchange Commis s ion f o r B r i t a i n ? , " 7, The L a w y e r , 7 ( 1 9 6 4 ) . "The p u b l i c i s supposed t o r e g a r d a c c e s s t o i n f o r m a -t i o n as a p r i v i l e g e , n o t a r i g h t . T h i s c o n d e s c e n d i n g a t t i t u d e towards t h e p u b l i c , and i t s i n h e r e n t advan tage f o r t he ' i n s i d e r ' i s no doub t l a r g e l y r e s -p o n s i b l e f o r k e e p i n g t he s m a l l i n v e s t o r ou t o f the m a r k e t i n E n g l a n d . " 40 N o t a b l y t h e F i n a n c i a l P o s t i n Canada and the F i n a n c i a l T imes i n E n g l a n d . 41 From one page o f t h e F i n a n c i a l P o s t , t h e f o l l o w i n g words and ph r a se s were chosen as i l l u s t r a t i o n s o f l anguage w h i c h a layman m i g h t f i n d d i f f i c u l t t o u n d e r s t a n d : v a l u e on t h e w a r r a n t ; o p e r a t i n g e a r n i n g s ; i n f l a t i o n a r y r e c e s -s i o n ; a p r o s p e c t u s c o v e r i n g t w e n t y - y e a r f i r s t - m o r t g a g e s i n k i n g f u n d bonds w i t h common s h a r e p u r c h a s e w a r r a n t s ; " t h e $50 m i l l i o n o f f e r e d t o t he p u b l i c was i n two m a t u r i t i e s w i t h t h e l o n g e r t e r m c a r r y i n g an e x t e n d i b l e f e a t u r e ; " a s y n e r -g i sm ( t h i s means t h e c o n c e p t t h a t t he sum o f two u n i t s u n i f i e d w i l l be more t h a n t he sum o f t h e i r two p a r t s ) . 42 In F e b r u a r y , 1970, when the New Yo rk S t o c k Exchange recommended a d j u s t -ment i n t h e r a t e o f c ommi s s i on on s t o c k s a l e s , i t recommended t h a t t he r a t e o f c ommi s s i on on s m a l l e r s a l e s s h o u l d be i n c r e a s e d , b u t t h a t f o r l a r g e r s a l e s t he c u r r e n t r a t e s s h o u l d be m a i n t a i n e d . T h i s seems t o be an encouragement t oward s b u l k b u y i n g by i n s t i t u t i o n s . 43 P a r t 3 , S e c t i o n B. 44 In f a c t , t h e v a l u a t i o n w o u l d be done by a s p e c i a l i s t f i r m and c o n f i r m e d by t h e d i r e c t o r s , b u t t h i s does n o t change t he n a t u r e o f t h e p r o b l e m . 45 T h i s was s u g g e s t e d i n " D i s c l o s u r e t o I n v e s t o r s — T h e Wheat R e p o r t , " pages 3 7 5 - 8 5 , d i s c u s s i n g t h e A m e r i c a n f o r m o f merge r p r o x y s t a t e m e n t . 46 Wheat R e p o r t , page 380. 109 47 N o t a b l y t h e i n s i d e r t r a d i n g r e g u l a t i o n s . 48 But i t i s u n l i k e l y rumour w i l l e v e r be b a n i s h e d f r o m the S t o c k Exchange f l o o r . 49 A s t a t u t o r y r i g h t t o b r i n g an a c t i o n f o r an i n j u n c t i o n i s p r o b a b l y r e q u i r e d . Such a r i g h t was g i v e n t o s h a r e h o l d e r s by s e c t i o n 217 (1 ) o f t h e Ghana Companies Code. cn A maximum f i n e o f $2,000 f o r t he company and each d i r e c t o r i s s u g g e s t e d . A s a v i n g c l a u s e , s i m i l a r t o s e c t i o n 100 (4 ) o f the S e c u r i t i e s A c t , unde r w h i c h t he company o r d i r e c t o r w o u l d n o t be l i a b l e i f he c o u l d n o t , w i t h t h e e x e r c i s e o f r e a s o n a b l e d i l i g e n c e , have known o f t h e i n a d e q u a c y , i s a l s o recommended. 51 See P a r t 3 , S e c t i o n B f o r a d i s c u s s i o n o f t h i s a c t i o n i n r e l a t i o n t o t a k e - o v e r c i r c u l a r s . 52 The t a k e - o v e r c i r c u l a r p r o v i s i o n s a r e d e s i g n e d t o e n s u r e t h a t s h a r e h o l d e r s have e q u a l i n f o r m a t i o n . Note a l s o : B.C. S e c u r i t i e s A c t , s . 81 ( e q u a l i t y o f p r i c e where terms o f t h e o f f e r a r e v a r i e d ) ; B.C. Companies A c t , s . 1 8 1 , and U.K. Companies A c t , s . 209 ( d i s s e n t i n g m i n o r i t y may be bough t o u t on the same terms as the m a j o r i t y ) ; C i t y Code , G e n e r a l P r i n c i p l e s 8 and 9 , Ru le s 1 4 , 2 6 , 2 9 , 3 0 , 31 . F o r e q u a l i t y o f s h a r e h o l d e r s ' r i g h t s i n d i v i d e n d c a s e s , s ee R.M. B r y d e n , "The Law o f D i v i d e n d s , " i n S t u d i e s i n Canad i an Company Law ( e d . Z i e g e l ) , 270 a t 271 . 53 E q u a l i t y p r i n c i p l e s c anno t a p p l y because d i r e c t o r - s h a r e h o l d e r s a r e i n a d i f f e r e n t p o s i t i o n f r om mere s h a r e h o l d e r s . The d e t a i l s o f t h e e x t r a b e n e f i t s must be d i s c l o s e d i n t he t a k e - o v e r c i r c u l a r s . However , t h e s e b e n e f i t s p r o v i d e an o p p o r t u n i t y f o r a b u s e , as t he d i r e c t o r s may r e c e i v e u n n e c e s s a r i l y h i g h com-p e n s a t i o n f o r l o s s o f o f f i c e o r v e r y h i g h s a l a r i e s i n t h e i r new p o s i t i o n s as i nducement t o a c c e p t , and recommend a c c e p t a n c e o f , t h e o f f e r . T h i s r e a l l y i s t h e i m p o r t a n t a r e a i n t h e s a l e o f c o n t r o l d i s p u t e . See And rews , " S t o c k h o l d e r s ' Equa l O p p o r t u n i t y , " 78 Ha r v . L. Rev. 5 40 ; J a v a r a s , " E q u a l O p p o r t u n i t y i n t he S a l e o f C o n t r o l l i n g S h a r e s — A R e p l y t o P r o f e s s o r A n d r e w s , " 32 U. C h i c . L.R. 4 20 ; B o y l e , " S a l e o f C o n t r o l l i n g S h a r e s , " 13 I n t . and Comp. L.Q. 185 ( 1 9 6 4 ) . See a l s o P a r t 3 , S e c t i o n C. 54 r n S h o r t v. T r e a s u r y Commi s s i one r s [ 1 948 ] A . C . 534. cc e . g . P e r l man v. F e l d m a n , 219 7 (2d) 173 and Benson v . B r a u n , 155 N.Y.S. (2d) 622. In t h e M a t t e r o f C o n s o l i d a t e d M a n i t o b a M ines L i m i t e d and G r e a t B a s i n  M ines L i m i t e d , B u l l e t i n o f O n t a r i o S e c u r i t i e s C o m m i s s i o n , December, 1966 , page 5 , t h e p o s s i b i l i t y o f premiums f o r t h e s a l e o f c o n t r o l l i n g s h a r e s was r e c o g n i s e d , b u t i t was m e r e l y s t a t e d t h a t t h e law i s n o t c l e a r . 56 A f t e r t he f i r s t o f f e r by L e a s c o f o r Pergamon had been w i t h d r a w n . The r e l e v a n t p a r t s o f t he T a k e - o v e r Code a r e G e n e r a l P r i n c i p l e s 8 and 9. 57 T h i s i s an example o f t he b e n e f i t o f a s y s t em w h i c h a l l o w s t h e a d m i n i s -t r a t o r c o n s i d e r a b l e d i s c r e t i o n . The P a n e l was a b l e t o h e l p t he p a r t i e s p u t t o g e t h e r a d e a l under w h i c h t he Maxwe l l f a m i l y s h a r e h o l d e r s r e c e i v e d l e s s t h a n t he i n d e p e n d e n t s h a r e h o l d e r s . U n f o r t u n a t e l y t h i s a t t e m p t a l s o f a i l e d . no 5P> 3 ° S e e P a r t 3 , S e c t i o n B. 59 B.C. Companies A c t , s . 107 A t o F; S e c u r i t i e s A c t , s s . 106 -115 . fin C f . " I f d i s c l o s u r e p r i o r t o e f f e c t i n g a p u r c h a s e o r s a l e w o u l d be i m p r o p e r o r u n r e a l i s t i c under t he c i r c u m s t a n c e s , we b e l i e v e the a l t e r n a t i v e i s t o f o r e g o t h e t r a n s a c t i o n . " - - I n t h e M a t t e r o f Cady , R o b e r t s & C o . , S e c u -r i t i e s Exchange A c t , R e l e a s e No. 6 668 , November 8 , 1961 . fil Such r e p o r t s must be f i l e d by i n s i d e r s who t r a d e i n the company ' s s h a r e s : B.C. Companies A c t , s . 107A. 62 As i n t h e M o n t h l y B u l l e t i n o f t he O n t a r i o S e c u r i t i e s Commi s s i on . 6 3 B . C . Companies A c t , s . 107B; S e c u r i t i e s A c t , s . 108. 6 4 B . C . Companies A c t , s . 107D; S e c u r i t i e s A c t , s . 111 . 65 I t may be a r gued t o t he c o n t r a r y t h a t t he words " a s a r e s u l t o f t h e t r a n s -a c t i o n " l i m i t t h e o p e r a t i o n o f " a n y p e r s o n " t o t h o s e who d e a l t w i t h t h e i n s i d e r . In any e v e n t t h e doub t i s s u f f i c i e n t l y i m p o r t a n t t h a t i t s h o u l d be r e s o l v e d . 6 6 B . C . Companies A c t , s . 107D; S e c u r i t i e s A c t . , s . 111 . fi7 Where t h e company has r e f u s e d t o b r i n g an a c t i o n on i t s own b e h a l f . A $25,000 maximum i s s u g g e s t e d . 6 9 P a r t 3 , S e c t i o n C. 7 0 P a r a . 99b. I t i s i r o n i c a l t o no te t h a t t h i s recommendat ion was made i n 1962 , and was r e l i e d on by t h e K imber C o m m i t t e e , r e p o r t i n g i n 1965 , and t h a t w h i l e t h e r e has been Canad i an l e g i s l a t i o n on i n s i d e r t r a d i n g f o r f o u r y e a r s now, t h e r e i s no s i g n o f s u ch l e g i s l a t i o n i n E n g l a n d . 71 I t may be n o t e d t h a t the Boa rd o f T r a d e i s q u i t e u n f i t t e d t o e n f o r c e t he d i s c l o s u r e t o the company o f s h a r e d e a l i n g s by d i r e c t o r s , becau se i t i s i m p r a c -t i c a l f o r t he Boa rd t o s u p e r v i s e a d e q u a t e l y a l l t he c o m p a n i e s ' r e g i s t e r s . I t w o u l d i n t e r v e n e o n l y when a s h a r e h o l d e r c o m p l a i n s , b u t t h i s i s n o t l i k e l y t o be a f r e q u e n t o c c u r r e n c e becau se d i s c l o s u r e i s t o a company r e g i s t e r n o t t o t h e s h a r e h o l d e r s . I t i s n o t w i t h i n t h e scope o f t h i s t h e s i s t o d i s c u s s t h e need f o r a S e c u -r i t i e s Commis s ion i n B r i t a i n . One s h o u l d n o t e , h oweve r , P r o f e s s o r A t i y a h ' s comments i n 8 , The Lawyer 1 5 , " Though t s on Company Law P h i l o s o p h y , " where he s u g g e s t s t h a t s u i t a b l e s t a f f f o r a Commis s ion a r e n o t a v a i l a b l e i n B r i t a i n becau se "Gove rnment i n E n g l a n d i s s t i l l f u n d a m e n t a l l y u n d e r t a k e n by n o n - s p e c i a l i s t s and t h e r e a r e n o t s u f f i c i e n t p e o p l e w i t h adequa te e x p e r i e n c e o f b o t h b u s i n e s s and p u b l i c a d m i n i s t r a t i o n . 72 F o r t he pu rpo se s o f t h i s s e c t i o n , ' s t o c k m a r k e t ' w i l l i n c l u d e bo th t he S t o c k Exchange ma r ke t and t h e o v e r - t h e - c o u n t e r m a r k e t . 73 I t i s v e r y d i f f i c u l t t o d e t e r m i n e w h e t h e r t he p r i m a r y pu rpo se o f a p u r -cha se o f s h a r e s i s t o s u p p o r t t h e i r p r i c e o r t o c r e a t e an i n v e s t m e n t p o o l . in 74 See P a r t 3 , S e c t i o n D f o r d i s c u s s i o n w h e t h e r a d v i s e r s owe a f i d u c i a r y d u t y t o the company o r t he s h a r e h o l d e r s . I t was c o n c l u d e d t h a t i t i s u n l i k e l y , though n o t i m p o s s i b l e , t h a t any d u t y i s owed t o s h a r e h o l d e r s . 7 5 R u l e 30 . 76 The s i m p l i s t i c answer wou l d be t o p r o h i b i t banks w h i c h a d v i s e compan ies f r o m recommending t h e i r s h a r e s t o i n v e s t m e n t c l i e n t s . A p a r t f rom the f a c t t h a t i t i s s w i n g i n g a s ledgehammer t o c r a c k a p e a n u t , t h e r e w o u l d be t he u n f o r -t u n a t e con sequence t h a t l a r g e r compan ies whose s h a r e s a r e w i d e l y t r a d e d m i g h t have d i f f i c u l t y i n g e t t i n g a d v i c e f r o m t h e b e s t b a n k s , e s p e c i a l l y i f i t i s r e q u i r e d s u d d e n l y . 7 7 T h e T a k e - o v e r Pane l and t h e S e c u r i t i e s Commiss ion a l r e a d y e x e r c i s e t h i s a d v i s o r y f u n c t i o n . 78 The p r a c t i c e o f i s s u i n g p o l i c y s t a t e m e n t s now c a r r i e d o u t by t h e S e c u r i -t i e s Commiss ion s h o u l d be a d o p t e d and expanded by t h e T a k e - o v e r Commi s s i on . 79 T h i s s h o u l d a p p l y i n any c a s e . 80 T h i s i n c l u d e s f i n a n c i a l a d v i s e r s , a c c o u n t a n t s , l a w y e r s , and any o t h e r p r o f e s s i o n a l a d v i s e r . 8 1 2 . 0 1 . 8 2 2 . 0 9 . 8 3 U . K . Companies A c t 1948, s. 2 0 9 ( 1 ) . B.C. Companies A c t , s . 181 . 8 4 P a r a . 283 . 8 5 I n Re Hoare [ 1933 ] A l l E.R. 105 a t 107. OC F o r t h e recommendat ion and comment s e e : Commis s ion o f E n q u i r y and i n t o t he W o r k i n g and A d m i n i s t r a t i o n o f t h e P r e s e n t Company Law, Ghana; a l s o , s e c t i o n 234 o f the recommended Ghana Companies Code , e n a c t e d as A c t 179 ( 1 9 6 3 ) . I t i s w o r t h n o t i n g t h a t a l t h o u g h P r o f e s s o r Gower was s c e p t i c a l abou t t he m e r i t s o f a c o m p u l s o r y a c q u i s i t i o n s e c t i o n , he was p e r s u a d e d t h a t such a s e c t i o n was d e s i r -a b l e i n l i m i t e d c i r c u m s t a n c e s . 8 7 S e e Re G r i e r s o n , Oldham and Adams L t d . [ 1967 ] 1 A l l E.R. 192 and P a r t 3 , S e c t i o n E, t e x t t o f o o t n o t e 222. 8 8 S e c t i o n 2 3 4 ( 5 ) . 8 9 P a r a . 2 94 , V I . 90 I t was a r gued i n P a r t 3 , S e c t i o n E, t h a t s e c t i o n 209 ( 1 ) a l r e a d y gave the c o u r t t h i s p owe r , b u t i n f a c t such a remedy does n o t appea r t o have been r e q u e s t e d . 91 Ghana Companies Code , s e c t i o n 2 3 4 ( 6 ) . 92 N o r m a l l y by t h e t i m e an a c t i o n comes t o c o u r t , t he o f f e r o r w i l l have t a ken up and p a i d f o r t h e s h a r e s d e p o s i t e d p u r s u a n t t o t he b i d . 112 P r o f e s s o r Gower recommended i n t h e Ghana ian R e p o r t t h a t t h e c o m p u l s o r y a c q u i s i t i o n s e c t i o n s h o u l d be f u r t h e r r e s t r i c t e d i n a p p l i c a t i o n by i m p o s i n g s t r i c t e r r e q u i r e m e n t s on the p e r c e n t a g e o f s h a r e s w h i c h must be t r a n s f e r r e d p u r s u a n t t o t h e o f f e r b e f o r e t h e s e c t i o n may be u t i l i z e d . However , i f t h e s e c t i o n a p p l i e s o n l y t o m e r g e r s , i . e . s h a r e - f o r - s h a r e o f f e r s , f u r t h e r r e s t r i c -t i o n s do n o t seem n e c e s s a r y . 9 4 T h i s w o u l d change the e f f e c t o f t he d e c i s i o n i n E s so S t a n d a r d ( I n t e r - A m e r i c a ) I n c . v . .J.W. E n t e r p r i s e s I n c . [ 1963 ] S.C.R. 144. I n s t e a d o f t h e s e c t i o n b e i n g i n a p p l i c a b l e where t he o f f e r o r a l r e a d y h o l d s t e n p e r c e n t o r more o f t he s h a r e s , i t i s now a v a i l a b l e , b u t t h e o f f e r o r must o b t a i n n i n e t y p e r c e n t o f t h e s h a r e s n o t under h i s c o n t r o l . 95 T h i s d i f f i c u l t y u s u a l l y a r i s e s i n p r i v a t e companies o r companies whose s h a r e s a r e n o t f r e e l y t r a d e d . 96 An e x t e n s i o n i n s cope w o u l d n o t be a s e v e r e i m p o s i t i o n on t he o f f e r o r becau se a n e c e s s a r y c o n d i t i o n f o r t he o p e r a t i o n o f t h e s e c t i o n i s t h a t t he o f f e r i s made f o r a l l t he s h a r e s . 113 BIBLIOGRAPHY Books Aranow & Elnhorn, Proxy Contests for Corporate Control, 2nd ed., 1968, Columbia University Press. 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Prevention of Fraud (Investment). The Licensed Dealers (Conduct of Business) Rules, Statutory Instrument No. 1216. 1960, Great Britain. Securities Act, R.S.B.C. 1967, c. 45. The City Code on Take-overs and Mergers. Articles Andrews, "Stockholders' Equal Opportunity," 78 Harv. L.R. 540, 1964. Atlyah, "Thoughts on Company Law Philosophy," 8, The Lawyer, 15, 1965. 115 Articles (continued) Baskln, "A Securities and Exchange Commission for Britain?," 7, The Lawyer, 7, 1964. Boyle, "Sale of Controlling Shares," 13, Int. & Comp. L.Q., 185, 1964. Bradshaw, "Defensive Tactics Employed by Incumbent Managements Contesting Tender Offers," 21 Stanford L.R., 1104, 1969. Bryden, "Law of Dividends," Studies In Canadian Company Law (ed. Zlegel) 270, 1967. Carney, "Anatomy of a Corporate Take-over," Vancouver Sun 6, February 10, 1968. Dyckman, "On the Investment Decision," 39, Accounting Review, Apri l, 1964. Gower, "Corporate Control, The Battle for the Berkeley," 68 Harv. L.R. 1176, 1955. Hadden, "The Control of Company Fraud, P.E.P. Report," vol. 34, no. 503, Planning, September, 1963. Hayes & Taussig, "Tactics of Cash Take-over Bids," 45 Harv. Bus. Rev., Apri l, 1967, 135. Javaras, "Equal Opportunity 1n the Sale of Controlling Shares—A Reply to Professor Andrews," 32 U. Chic. L.R., 420. Knauss, "A Reappraisal of the Role of Disclosure," 62 Michigan L.R., 607, 1963-64. Pennington, "Take-over Bids 1n the United Kingdom," 17 Am. Jo. Comp. Law, 159, 1969. Sealy, "Fiduciary Relationships," [1962] C.L.J. 69. Sealy, "Some Principles of Fiduciary Obligation," [1963] C.L.J. 119. Wedderburn, "Shareholders' Rights and the Rule 1n Foss v. Harbottle," 1958, C.L.J. 93. Cases Aaron's Reefs v. Twlss [1896] A.C. 273. Allen v. Gold Reefs of West Africa Limited [1900] 1 ch. 565. Allen v. Hyatt (1914) 30 T.L.R. 444. Australian Fixed Trusts Pty. Ltd. v. Clyde Industries Ltd. [1959] S.R. (N.S.W.) 33. Automatic Self-Cleansing Filter Syndicate Co. v. Cunnlnghame [1906] 2 ch. 34. 116 Cases (continued) Bamford v. Bamford [1969] 2 W.L.R. 1107; [1969] 1 All E.R. 969. Benson v. Braun, 155 N.Y.S. 2d 622. Bentley & Co. v. Black (1893) 9 T.L.R. 580. Blau v. Lehman, 286 7 2d 786 (1960). Boardman v. Phipps [1967] 2 A.C. 46. Bonlsteel v. ColUs Leather Ltd. (1915) 45 O.L.R. 195. Brless v. Wooley [1954] A.C. 333. Brown v. British Abrasive Wheel Co. [1919] 1 ch. 290. Bugle Press Ltd. Re [1961] ch. 270. Bushell v. Faith [1970] 1 All E.R. 53 (H.L.). Cast1gl1one's W111 Trusts, Re [1958] ch. 549. Dad's Cookie Co. (B.C.) Ltd. Re (1969) 69 W.W.R. 641. Dafen Tlnplate Co. Ltd. v. Llanelly Steel Co. (1907) [1920] 2 ch. 124. Derry v. Peek (1889) 14 App. Cas. 337. Esso Standard (Inter-America) Inc. v. J.W. Enterprises Inc. [1963] S.C.R. 144. Ford v. White [1964] 1 W.L.R. 885. Foss v. Harbottle (1843) 2 Hare 461. Fraser v. Whalley, 2 H.& M. 10. Gerdes v. Reynolds (1942) 28 N.Y.S. 2d 622. Hamilton v. Wright (1842) 9 C1.& F1n. I l l at 124. Harlowe's Nominees' Property Ltd. v. Woodslde (Lakes Entrance) 011 Co. (1968-69) 42 Aust. L.J. 123. Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] A.C. 475. Hely-Hutch1nson v. Brayhead Ltd. [1967] 3 W.L.R. 1408. Heptlng v. Schaaf [1964] S.C.R. 100. Hlrsche v. S1ms [1894] A.C. 654. Hoare Re [1933] All E.R. 105. Hogg v. Cramphorn Ltd. [1967] ch. 254. Cases (continued) Hutton v. West Coast Railway Co. (1883) 23 ch. D. 673. Institute of Patent Agents v. Lockwood [1894] A.C. 347. John Labatt Ltd. and Lucky Lager Breweries Ltd. Re (1959) 29 W.W.R. 323. Keech v. Sandford (1726) Sel. Cas. ch. 61. Legion 011s Ltd. v. Barron [1956] 2 D.L.R. (2d) 337. Llndgren v. L.& P. Estates Ltd. [1968] ch. 572. London County Freehold and Leasehold Properties Ltd. v. Berkeley Property and Investment Co. Ltd. [1936] 2 All E.R. 1039. Madden v. Dimond (1905) 12 B.C.R. 80. Martin v. Gibson (1907) 15 O.L.R. 623. Mills v. Mills (1938) 60 C.L.R. 150. McConnell v. Wright [1903] 1 ch. 546. North West Transportation v. Beatty (1887) 12 App. Cas. 589. Parke v. Dally News Ltd. [1961] 1 W.L.R. 493. Peek v. Gurney (1873) L.R. 6 H.L. 377. Percival v. Wright [1902] 2 ch. 421. Philipps v. Britannia Hygienic Laundry Co. Ltd. [1923] 2 K.B. 832 CA. Piercy v. Mills & Co. [1920] 1 ch. 77. Punt v. Symons & Co. [1903] 2 ch. 506. Rattner v. Lehman, 193 7 2d 564 (1952). Reading v. R. [1949] K.B. 232. Reffel v. Surrey County Council [1964] 1 All E.R. 473. Regal (Hastings) Ltd. v. Gulliver [1942] 1 All E.R. 378. Rosen v. Lindsay (1907) 7 W.L.R. 115. Russell v. Wakefield Waterworks Co. (1875) L.R. 20 Eq. 474. Scott v. Scott [1943] W.N. 16. Selangor United Rubber Estates v. Cradock (No. 3) [1968] 2 All E.R. 1073. Shoppers City Ltd. and M. Loeb Ltd. Re (1969) 3 D.L.R. 3d 35. Cases (continued) Sidebottom v. Kershaw, Leese & Co. [1920] 1 ch. 154. Shaw & Sons v. Shaw [1935] 2 K.B. 113. Short v. Treasury Commissioners [1948] A.L. 534. Solomons v. Gertzensteln (R.) Ltd. [1954] 2 All E.R. 625. Smith & Fawcett Ltd. Re [1942] ch. 304. Smith v. Hanson [1927] 2 W.W.R. 529. Steele v. Prltchard (1907) 7 W.L.R. 115. Stevens v. Chown [1901] ch. D. 894. Sussex Brick Co. Ltd. Re [1961] ch. 829. Trevor v. Whltworth (1887) 12 App. Cas. 409. Waterous & Koehrlng Waterous Ltd. Re [1954] 4 O.L*R. 839. Western Manufacturing (Reading) Ltd. Re [1956] ch. 436. Whlchcote v. Lawrence (1798) 3 Ves. 740. Zwlcker v. Stanbury [1953] 2 S.C.R. 438. 119 APPENDIX Report of the Committee of the Ontario Securities Commission on the Problems of Disclosure Raised for Investors by Business Combinations and Private Placements The Report was published after this paper was substantially completed, but is worth considering both because of the nature of i t s recommendations and because i t is l ike ly to form the basis of any new legis lat ion in this area in Br it ish Columbia. The Committee was concerned by the weaknesses in the operation of the 1 2 take-over provisions. It found that the exemptions seriously restr icted the effective scope of the provisions, and therefore i t recommended that the exemptions themselves should be restr icted. 3 The private agreement exemption should be limited to a maximum of f i f -teen separate agreements, with the intention of allowing i t s operation only where a small private company is concerned. The Committee decided that i t would not recommend restr ict ion of the exemption for a take-over by buying shares on the Stock Exchange, but rather would recommend a three-day disclosure requirement on any person who "con-tracted for twenty per cent of the equity shares through market purchases." The obligation to report within three days would continue each time an insider 's holdings increase by f ive per cent. In addition, the offeror is to be prohibited from reducing his pro rata purchases under section 79(g) by the number of shares purchased 1n the market. It is doubtful whether this wi l l effect ively prevent the abuses possible 1n market buying. The Securities Commission is to acquire the power to exempt particular bids from the Part IX requirements rather than the judges of the Supreme Court. The second area of recommended change concerns the take-over c ircular. The Committee did not recommend regulatory review of circulars by the Securi-ties Commission, but said that they should be approved, cer t i f ied and signed 120 by directors, as with a prospectus. Most Important of a l l , the provisions will be strengthened, because the shareholder is to be given a statutory right of rescission, and civi l l iabi l i ty for failure to comply with the circular requirements 1s provided for. Although this change does not go so far as the suggestions in the paper, a welcome step forward will be achieved i f these recommendations are accepted. The Committee recommended that the identity of a cash bidder for less than all of the outstanding shares should be disclosed. It maintained the position that a bidder for all the shares need not disclose Ms Identity. The Committee did not, however, recommend that the offeree directors must send out a circular whether they make a recommendation or not. This 1s disap-pointing. A further recommendation 1s that offerees should have a further seven days in which to withdraw tendered shares 1f the offer 1s amended, a minor, though welcome, protection. The Committee also recommended that the only condition which may be attached to the offer should be the offeror's right to withdraw on the failure of the offerees to tender the minimum number of shares. Chapter 9 deals with "Accounting for and Disclosure 1n Business Combina-tions and Acquisitions," but such recommendations as were made are not directly related to the subjects discussed 1n the paper. The Committee was content to await the publication of the results of a study being carried out by the Cana-dian Institute of Chartered Accountants. The need for national uniformity and standardization of accounting principles was stressed. The recommendations 1n the Report, 1f accepted, will strengthen the take-over provisions, but no attempt has been made to Improve the system of admini-stration and enforcement. This most important task remains. FOOTNOTES TO APPENDIX ^See Chapter 7 of the Report. In B.C. Securities Act, section 78(b). 3Sect1on 78 B(b)(1). 

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