UBC Theses and Dissertations

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UBC Theses and Dissertations

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 B I D S : A COMPARATIVE STUDY OF ENGLISH AND B R I T I S H COLUMBIA LAW  by  LL.B.,  James H a r r y B e n n e t t Queen's U n i v e r s i t y , B e l f a s t  A Thesis Submitted in P a r t i a l F u l f i l m e n t o f t h e Requirements f o r the Degree o f Master  of  Laws  i n the Department 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 to the r e q u i r e d standard:  The U n i v e r s i t y  of B r i t i s h  May,  1970  Columbia,  of  In  presenting this  thesis  in p a r t i a l  f u l f i l m e n t o f the requirements  an advanced degree at the U n i v e r s i t y of B r i t i s h the L i b r a r y s h a l l I  f u r t h e r agree  for scholarly by h i s of  this  written  make i t f r e e l y a v a i l a b l e  tha  permission  thesis  It  for financial  r e f e r e n c e and  gain s h a l l  Depa rtment Columbia  that  study. thesis  by the Head of my Department  i s understood that copying o r  permission.  The U n i v e r s i t y o f B r i t i s h Vancouver 8, Canada  I agree  f o r e x t e n s i v e copying o f t h i s  purposes may be granted  representatives.  for  Columbia,  for  or  publication  not be allowed without my  i.  ABSTRACT The r e c e n t u p s u r g e i n t h e number o f and i n E n g l a n d legislation  has  in British  the i n s t i t u t i o n s the adequacy As  revealed several  and l e g a l  of control  i n England.  to discussion,  communities  i n England  i n c l u d e the d i r e c t o r s '  closure  of  financial  self-control  powers  of take-over  Some o f are  resulted  paper  which disturbed  of these bids  information, e q u a l i t y of advisers,  of voluntary  The o b j e c t o f t h i s  two b i d s  Columbia  These  are d e s c r i b e d .  the course  in B r i t i s h  of control.  i n some i m p o r t a n t a s p e c t s  were i l l u s t r a t e d d u r i n g These  problems  C o l u m b i a and a s y s t e m  involved  a background  take-over bids  is  by  to  examine  bids.  the  financial  the problems  i s o l a t e d and  which  examined.  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 , treatment f o r shareholders,  and the p o s i t i o n  of m i n o r i t y shareholders  in  dis-  the r o l e  a f t e r the  of com-  pletion of a bid. It w i l l  be s e e n  t h a t two d i f f e r e n t m e t h o d s  C o l u m b i a and i n E n g l a n d . tains  provisions  Commission.  In  In  City In  England  control  is  the s i t u a t i o n  both j u r i s d i c t i o n s The s t r e n g t h s  Commission  is  easily  and i s  (Conduct  1969,  and w e a k n e s s e s o f  powers,  i t cannot  The T a k e - o v e r  give  a voluntary  suffers  from a l a c k of  legal  a r e somewhat  Securities provisions but  more the  of s e l f - c o n t r o l .  role. the  Commission  inves-  has w i d e  i n f l e x i b l e and as  the a t t e n t i o n necessary  powers.  con-  a n d t h e i r e f f e c t on  to  the  problems  e x c e l l e n t r u l e s , w h i c h may be  a d j u s t e d to take account o f changes i n commercial  the Panel  A c t 1967  Rules,  system  an i m p o r t a n t  Code c o n t a i n s  British  P a n e l who a d m i n i s t e r  The S e c u r i t i e s  but the r u l e s  in  Legislative  of Business)  t h e two s y s t e m s  are noted.  operate  a d m i n i s t e r e d by t h e  more c o m p l e x .  t h e common l a w p l a y s  understaffed  w h i c h may a r i s e .  Dealers  and M e r g e r s ,  under d i s c u s s i o n  t i g a t o r y and l e g a l  is  control  the S e c u r i t i e s  e x e r c i s e d by t h e T a k e - o v e r  Code on T a k e - o v e r s  problems  Columbia,  relevant to take-overs,  are c o n t a i n e d i n the L i c e n s e d significant  British  of  It  is  circumstances,  discovered  that  but  1  shareholders  i n each j u r i s d i c t i o n have  t i o n and e n f o r c e m e n t o f is  the r u l e s .  common p r o b l e m s  In  those  the c o n t r o l l i n g i n f l u e n c e , there i s  areas  of access  i n which  u n c e r t a i n t y as  to  t h e common  to the r i g h t s  a n d 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  company  i n general is  best  c a n b e s t be a p p r o a c h e d  and e l i m i n a t e s  and i n E n g l a n d . established  It  the worst is  ally  is  facets  of  i n each j u r i s d i c t i o n under supervisory,  m a i n t a i n e d by e n a b l i n g  revise  through  the r u l e s  pertaining  a r e r e v e a l e d by an a procedure which  the present  t h e r e f o r e recommended  Act r e s p e c t i v e l y , having bility  share-  of  the  meeting.  suggested t h a t the problems which  of recent bids  law  of  holders  It  informa-  systems  investigatory  take-overs.  Commission  A c t and t h e  and l e g a l  a committee of experts to  combines  in British  that a Take-over  the S e c u r i t i e s  examination the  Columbia be  Companies  powers.  t o draw up and  Flexicontinu-  i•  TABLE OF CONTENTS Page Part 1 THE TAKE-OVER  BID  Introduction Two E x a m p l e s  1 o f the Take-over  Bid  A.  News o f t h e W o r l d L t d . - P e r g a m o n  B.  Pergamon  Press  Press  Ltd. Bid  L t d . - L e a s c o W o r l d T r a d e Company  Part  2 (U.K.) L t d . Bid  5  2  PROBLEMS WHICH MAY A R I S E IN A TAKE-OVER SITUATION Section A  Directors'  Section B  Disclosure  11  Section C  Accounting  12  Section D  E q u a l i t y of Treatment of Shareholders  12  Section E  Financial Advisers  13  Section  After  15  F  Defensive  Techniques  the B i d — M i n o r i t y Shareholders  Part  9  3  CONTROL OF TAKE-OVERS Introduction  16  Section A  Directors'  Section B  Disclosure  30  Section C  E q u a l i t y f o r Shareholders  42  Section D  Financial Advisers  51  Section  After  E  Powers  the B i d — T h e  18  Remaining  Shareholders  56  TABLE OF CONTENTS  (continued) Page Part SOME  4  RECOMMENDATIONS  Introduction  64  Section A  Directors'  Section B  Disclosure  72  Section C  E q u a l i t y o f Treatment o f Shareholders  78  Section  D  Financial Advisers  82  Section  E  After  FOOTNOTES  BIBLIOGRAPHY  APPENDIX  Powers  the Bid—The  65  Remaining  Minority Shareholders  85  89  1  Part 1 THE TAKE-OVER  BID  Introduction The t a k e - o v e r b i d i s attempts  a m e t h o d by w h i c h a c o m p a n y ,  o r an  individual,  to a c q u i r e e i t h e r a l l o r the m a j o r i t y of the shares or the  o f a n o t h e r company.  It  has  been d e s c r i b e d  assets  as:  " 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 the case o f a t a k e - o v e r , the b i d i s f r e q u e n t l y a g a i n s t the wishes o f t h e management o f t h e o f f e r e e c o m p a n y ; i n t h e c a s e o f an a m a l g a m a t i o n , t h e b i d i s g e n e r a l l y b y c o n s e n t o f t h e management o f b o t h companies. 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 h e 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 h e company; t h e p h r a s e w i l l , h o w e v e r , s o m e t i m e s be u s e d as m e a n i n g 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 which event the c o n t e x t w i l l i n d i c a t e the l a x e r usage."1 In  recent years  t h e use  o f t h e t a k e - o v e r b i d as  a technique of  business  2 reorganization In  England  has  this  is  tended to depress thus  providing  r a p i d l y i n both England  and B r i t i s h  shares  a t t r a c t i v e take-over propositions. interests  has  t o an u n n a t u r a l l y  In  British  which low  Columbia,  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  in  level,  the take-  bids. The r e a s o n s f o r a t a k e - o v e r b i d u s u a l l y  are t h a t the bidder thinks  make more p r o f i t a b l e u s e o f t h e o f f e r e e c o m p a n y ' s  assets,  and work f o r c e .  to purchase  business;  Other reasons  to increase  the s i z e  o f the combined companies; e.g.  Columbia.  l a r g e l y due t o t h e e f f e c t s o f t h e e c o n o m i c s i t u a t i o n t h e m a r k e t v a l u e o f company  i n f l u x of American over  been i n c r e a s i n g  a supply  company;  In s t a t i n g •A 3 i t was s a i d :  include the d e s i r e  or of i t s a  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  t o a c q u i r e a company v i t a l  to d i v e r s i f y i n t o another f i e l d  t h e need f o r a government  agency  can  management  competitor's costs  to the b i d d e r ' s of  he  per  unit  operations,  operation.  to encourage  take-over  bids,  2  " c h a n g e 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 m e e t more e f f e c t i v e l y t h e g r o w i n g c o m p e t i t i o n i t w i l l face in world markets. The n e e d 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 r o m o t e t h e 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 recognised."  4 Although be s e e n these  t h e r e are sound economic reasons  t h a t t h e y c r e a t e many l e g a l  problems,  problems.  two r e c e n t b i d s w i l l  Two E x a m p l e s  for take-over bids, As a b a c k g r o u n d  it  t o some  will of  be d e s c r i b e d .  of the Take-over  Bid  5 A.  News o f t h e W o r l d L t d . - P e r g a m o n 1968  - O c t o b e r 17 - Pergamon  the shares exchange  Press  Press  c  Ltd.  o f t h e News o f t h e W o r l d L t d .  basis  Ltd.  w i t h a cash a l t e r n a t i v e .  Bid  announced  an o f f e r t o  The t e r m s w e r e on a  7  acquire  share-for-share  The v a l u e o f t h e o f f e r was  estimated  o t o be 5 0 s .  per voting  share,  37s.  per  'A'  class  non-voting  share.  Maxwell  a l r e a d y h a d 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 o m an vidual,  s u b j e c t t o no h i g h e r  O c t o b e r 24 W o r l d , announced  Hambro's  o f f e r being received.  L t d . , merchant bankers  that discussions  and a d v i s e r s  t o News o f  a r e t a k i n g p l a c e b e t w e e n t h e News o f  W o r l d and News L t d . , an A u s t r a l i a n $. 8  indi-  company.  Maxwell  increased his  bid  the  the by  million. Since  t h e b i d was made t h e r e h a d b e e n 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 W o r l d s h a r e s . while  Hill,  Samuel  L t d . , Pergamon's  O c t o b e r 25 - The S t o c k shares.  I t was  Hambro's  L t d . bought  financial  Exchange  suspended  346,000 shares  advisers, dealings  bought  i n one  50,000.  i n News o f  r e p o r t e d t h a t News L t d . and t h e C a r r f a m i l y c o n t r o l  per cent of the voting  The T a k e - o v e r  the  World  fifty-one  shares. g  Panel  n o t made a n y o b j e c t i o n s .  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 , Murdoch,  shares  but  c h a i r m a n o f News L t d . , w i t h whom News  t h e W o r l d L t d . had been n e g o t i a t i n g , a n n o u n c e d t o buy t h e n o n - v o t i n g  day  t h a t he d i d n o t i n t e n d t o  i n News o f t h e W o r l d L t d .  had of offer  3  November 2 - Due t o c o n f u s i o n a r i s i n g News o f t h e W o r l d s h a r e s , general  from the suspension  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 ,  Ltd.^  Grenfell meeting.  to c l a r i f y  the p o s i t i o n .  1969.  LtdJ^ n o r Morgan  Panel d e c i d e d t h a t n e i t h e r Hambro's  may v o t e a n y News o f t h e W o r l d s h a r e s  These shares  in  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  m e e t i n g o f News o f t h e W o r l d L t d . s h a r e h o l d e r s  The T a k e - o v e r  of dealing  1  they hold i n the  were s a i d to account f o r f i f t e e n  general  per cent of the  issued  shareholdings. 12 November 15 - H i l l ,  Samuel  Ltd.  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 , t i o n as  a basis  advice to  for questions.  commissioned a G a l l u p P o l l  using  This  assess  t h e News o f t h e W o r l d b i d f a c t s i t u a -  poll  was  intended to support H i l l  Samuel's  Pergamon.  November 29 - Pergamon made m i n o r r e v i s i o n s compel  to  of  News o f t h e W o r l d t o p r o d u c e d e t a i l s o f i t s  December 3 -  its  b i d i n an a t t e m p t t o  n e g o t i a t i o n s w i t h News  Pergamon made a f o r m a l o f f e r t o t h e News o f t h e W o r l d  Ltd.  share-  holders. December 4 - The News o f t h e W o r l d B o a r d o f t i o n o f t h e P e r g a m o n o f f e r and w o u l d g i v e  reasons  d i r e c t o r s recommended  rejec-  later.  December 10 - News o f t h e W o r l d a n n o u n c e d a f o r e c a s t o f a s i x t y - t w o  per  c e n t p r o f i t s jump f o r t h e 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 d o c u m e n t s w e r e p u b l i s h e d . m e n d i n g r e j e c t i o n was trades  unionists  c i t e d as  t o a Pergamon  t h e " g r e a t a p p r e h e n s i o n among News o f t h e W o r l d take-over."  chairman, "would view w i t h grave management  S i r W i l l i a m C a r r , News o f t h e  concern the f u t u r e of e x i s t i n g c l o s e  World  union-  r e l a t i o n s h i p s u n d e r Pergamon c o n t r o l . "  December 12 signed  A major reason f o r recom-  I t was a n n o u n c e d t h a t News o f t h e W o r l d a n d News L t d .  a p a c t , the 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  date.  had  4  December  17 - The t e r m s  News o f t h e W o r l d s h a r e s publishing  interests  o f t h e p a c t gave  i n exchange  News L t d . f o r t y p e r c e n t o f  f o r a v a r i e t y of magazine,  i n A u s t r a l i a , then u n s p e c i f i e d .  the  newspaper  News L t d . w e r e t o  and  buy  13 t h e News o f t h e W o r l d s h a r e s own 3 3 7 , 0 0 0  Ltd.,  i . e . add 403,000 t o  their  shares.  December 19 - The S t o c k News o f t h e W o r l d A w r i t was Hambro's  h e l d by H a m b r o ' s  Exchange  lifted  the suspension  in  shares.  t a k e n o u t by some a c c e p t o r s o f t h e Pergamon  L t d . , News o f t h e W o r l d L t d . , News o f t h e W o r l d ' s  a n d News L t d . , s e e k i n g  a series  i m p l e m e n t a t i o n of the agreement Damages w e r e a l s o  on d e a l i n g  sought against  of injunctions  bid  against  Board of  directors,  ( i n c l u d i n g one r e s t r a i n i n g  b e t w e e n News L t d . and News o f t h e  World).  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 L t d .  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 breach of  the  for  fiduciary  obligations. December 31 - M a x w e l l , c h a i r m a n o f P e r g a m o n ,  Hill,  Samuel  L t d . and  Robert  14 F l e m i n g & Co.  c o n c e d e d t h a t t h e y had b o u g h t o n e - q u a r t e r m i l l i o n  shares,  but s t a t e t h a t t h e y were bought  support  the share  o f a News o f t h e W o r l d p e n s i o n  prevent the f u n d ' s  1969 failed.  shares  trustees,  to  o f whom S i r  fund brought  William Carr  is  an a c t i o n  one, from  to  voting  i n f a v o u r o f t h e a g r e e m e n t w i t h News L t d .  - January  1 - The H i g h  Court a c t i o n to f r e e z e the pension  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  by b o t h s i d e s  r a t h e r than  price. 15  Beneficiaries  the fund's  f o r investment purposes  Pergamon  in a take-over battle.  T h e r e was  suing a  fund  h a d b e e n u s e d as  ' l a c k of s i n c e r i t y '  in  votes pawns the  action. 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 shareholders  m e e t i n g o f t h e News o f t h e  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  t h e a g r e e m e n t b e t w e e n News L t d . and News o f t h e  World.  a resolution  World approving  5  January  3 - News o f t h e W o r l d s h a r e s  Exchange  t o 37s.  50s.  share.  per 1970  Exchange  per share.,  Maxwell's  1 7  fell  1 m i l l i o n on t h e  o f f e r was e s t i m a t e d as  - M a r c h - The v a l u e o f t h e News o f t h e W o r l d s h a r e s fell  a t one t i m e t o 2 3 s .  a p p r o x i m a t e l y 28s.  per  b u t has  since  Stock  being  on t h e  r a l l i e d and has  worth  Stock  remained  at  share. •j o  B.  Pergamon Bid  Ltd.-Leasco  W o r l d T r a d e Company  - J u n e 18 - L e a s c o  of  announced  an o f f e r w o r t h 3 7 s .  accept the  It  was  & Co., merchant bankers o f Pergamon  shares,  announced  and a d v i s e r s  to Pergamon,  owned m a i n l y by i n v e s t m e n t  3d. per s h a r e ,  a total  o f Jl3.8 m i l l i o n . Panel  announced  9d. per share.  chant bankers  p r i c e o f 35s.  and f i n a n c i a l a d v i s e r s  to Leasco  2.1  the  to  to Leasco,  Fleming  millions  r u n by F l e m i n g & C o .  t h a t b e t w e e n J u l y 20  shares  disposed  had b o u g h t  and  of 600,000  Rothschilds  37s.  Pergamon  & Sons,  mer-  200,000 shares  at  time.  A u g u s t 21 Pergamon.  t h a t he i n t e n d s  The o f f e r p r i c e was  family trusts  a t an a v e r a g e  sold  trusts  A u g u s t 10 a t r u s t e e o f t h e M a x w e l l  same  for  l a t e r d i s c l o s e d that during e a r l y J u l y Robert  A u g u s t 20 - The T a k e - o v e r  the  per share  offer.  Early July -  36s.  Take-over  Pergamon.  J u n e 19 - M a x w e l l , c h a r i m a n o f P e r g a m o n ,  at  (U.K.) L i m i t e d  1969-70  1969 shares  Press  It  was  The r e a s o n s  Systems C o r p o r a t i o n  announced g i v e n were  t h a t Leasco (1)  the p o s i t i o n o f  (a c r u c i a l s u b s i d i a r y  r e l a t i o n s h i p w i t h Maxwell  had w i t h d r a w n t h e i r b i d  of Pergamon),  S c i e n t i f i c International  company c o n t r o l l e d by M a x w e l l  family interests,  (3)  20 published forecast earnings  f o r Pergamon  International 19  in  1969.  (2)  the  Incorporated,  for  Learning  trading a private  the composition of  the  A u g u s t 22 - T h e T a k e - o v e r P a n e l demanded e x p l a n a t i o n s Stock  Exchange  t o consider suspending  i n Pergamon s h a r e s  d e a l i n g i n Pergamon  drew f r o m t h a t p o s i t i o n , f o r t h e r e a s o n legal  The a c c o u n t s  battle  between Leasco  f o r I.L.S.C.  f r o m i 2.5 m i l l i o n  trading  2 0  requested the Treasury  c o n t r o l o f Pergamon  adjustments  and Pergamon.  shares,  b u y a n y more Pergamon  times  shares,  a t a p r i c e lower than the o r i g i n a l  earnings  o f Pergamon  and t h e Maxwell  t h e same a v e r a g e  that neither  o r attempt to  37s. per share b i d  f o r the p u b l i c l y - h e l d average  f o r 1968 a n d 1 9 6 9 ; f o r t h e s h a r e s  auditors  f a m i l y i n t e r e s t s , a c a s h sum e q u i v a l e n t t o n i n e t e e n a t t r i b u t a b l e earnings. Panel  1 6 5 ( b ) ( 3 ) o f t h e Companies t o c o n s i d e r Pergamon's  the d i s c l o s u r e aspects Panel's  of the  owned by  issued  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 .  r e q u e s t e d t h e B o a r d 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  section  made a  t a l k s with the Take-over  The t e r m s o f t h e new o f f e r w e r e :  A u g u s t 2 8 - The T a k e - o v e r It  to ensure  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 h e a n n u a l  attributable Maxwell  profit forecast for  o f JE 1 m i l l i o n .  a n d Bank o f E n g l a n d  A u g u s t 27 - L e a s c o made a s e c o n d o f f e r a f t e r Panel  with-  and Pergamon.  t o j£ 2 , 0 5 0 , 0 0 0 , a n d d i s c l o s e d t h a t I . L . S . C .  Leasco n o r any o f i t s a s s o c i a t e s gain  to Pergamon,  f o r 1968 were n o t y e t p r e p a r e d .  p r o f i t o f o n l y £ 40,000 a f t e r  Maxwell  Dealing  t h a t t h e y d i d n o t w a n t t o be i n v o l v e d  A u g u s t 25 - M a x w e l l s a i d he h a d r e d u c e d h i s g r o u p ' s 1969  shares.  was s u s p e n d e d .  A u g u 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  in a possible  and a s k e d t h e  A c t , 1948.  accounts.  of the s i t u a t i o n .  The P a n e l  under  appointed independent  Comment was a l s o made on some o f Maxwell  s a i d he w o u l d a p p e a l t h e  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 .  S e p t e m b e r 9 - The B o a r d o f T r a d e o r d e r e d an i n q u i r y i n t o t h e a f f a i r s o f Pergamon and I . L . S . C .  under s e c t i o n  165(b)(3).  7  S e p t e m b e r 11 - The T a k e - o v e r Leasco  deal.  A d i s p u t e had a r i s e n  o f t h e new o r g a n i z a t i o n . m e n t was  t h a t he s h o u l d  Maxwell  gain  Maxwell  as  again  i n t e r v e n e d to save the  t o who was  t o be t h e c h i e f e x e c u t i v e  The P a n e l  t e r e d a c c o u n t a n t , began.  shares,  the second  A general  agreement  h e a d e d by a Q.C.  m e e t i n g o f t h e Pergamon  t o be h e l d t o d e t e r m i n e a new B o a r d o f d i r e c t o r s f o r t h e Rothschilds,  advisers  to Leasco,  issued  from the Board, but his  a consulting  r e t e n t i o n as  cannot  broke and a  down. char-  shareholders  a statement  One o f t h e t e r m s was  was  outlining  the removal  adviser.  of  Maxwell  There were t o  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  directors  be and  directors.  October 6 - Merchant  bankers  p e r c e n t o f Pergamon  advised acceptance of October 7 cular advising  chief  company.  a new o r g a n i z a t i o n f o r t h e company.  than f i f t e e n  the  an  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  S e p t e m b e r 16 - The B o a r d o f T r a d e e n q u i r y ,  t h r e e Pergamon  agree-  d e c i d e d t h a t , on  Leasco were e n t i t l e d t o nominate  c o n t r o l o f Pergamon w i t h o u t h i s  October 2 -  second  c l a i m e d t h a t one o f t h e t e r m s o f t h e  hold the p o s i t i o n .  i n t e r p r e t a t i o n of the agreement, executive.  Panel  representing shares  (mainly  t h e scheme p r o p o s e d  by  Brandts, merchant bankers  shareholders  shareholder-employees  those  to vote against  shareholders  institutional  who own more  investors)  Rothschilds.  now a d v i s i n g the scheme.  Pergamon,  issued  Maxwell  g a v e 100  an o p p o r t u n i t y t o a t t e n d t h e g e n e r a l  a  cirPergamon  meeting.  22 O c t o b e r 10 -  Rothschilds  v e n t i n g M a x w e l l , as  chairman of the general  i n g a t an a d v a n t a g e o u s tion,  successfully, At the general  proposed  point.  during  Maxwell's  m e e t i n g , M a x w e l l was  by R o t h s c h i l d s  meeting, from adjourning  advisers  appealed against  pre-  the meet-  the  injunc-  the meeting.  was a c c e p t e d .  t h e y d i d n o t have enough s h a r e s company.  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 g h C o u r t  v o t e d o f f t h e B o a r d and t h e  Leasco  scheme  succeeded at t h i s meeting,  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  but of  the  8 November States  5 -  I t was  had b r o u g h t  Maxwell  an a c t i o n a g a i n s t  Maxwell.  subsidiary  a t e d an a c t i o n a g a i n s t dealings  in  Pergamon  1970 - J a n u a r y  o f t h e B r i t i s h company.  Maxwell  20 - S t e i n b e r g ,  o f f e r f o r t h e Pergamon  remove  Incorporated,  England,  the  Leasco  initi-  in connection with  President of Leasco,  He s a i d  shares,  but i s  requested information.  t h e Pergamon  issued  their  trading in  a statement  1969 w o u l d n o t  t h a t he was c o m m i t t e d t o m a k i n g n o t c o m m i t t e d t o any  the Board o f Trade i n v e s t i g a t o r s  C o u r t t o c o m p e l one o f  t i o n 165(b)  In  adviser  prepared f o r Pergamon's  some m o n t h s . "  February -  legal  Press  to  United  shares.  t h a t the accounts  complete " f o r  and h i s  corporation i n the  The o b j e c t i v e was  f r o m t h e p o s i t i o n o f c h a i r m a n o f Pergamon  United States  saying  reported t h a t the Leasco  directors  began  an a c t i o n i n t h e  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 P e r g a m o n ' s  High  provide  The B o a r d o f T r a d e o r d e r e d an i n v e s t i g a t i o n & Co.,  a third  price.  t o c o - o p e r a t e and  i n t o the a f f a i r s of Robert Maxwell  be  under  sec-  a Maxwell-controlled operations  as  an o u t l e t  23 for  their publications. M a r c h 5 - The p r o f i t s f o r Pergamon  more t h a n £ 1 , 0 9 4 , 0 0 0 " April  -  Dealing  as  i n 1968 were p u b l i s h e d .  compared w i t h a f o r e c a s t f i g u r e o f . £  i n Pergamon  shares  remains  suspended  They a r e  "not  2,104,000.  by t h e S t o c k  Exchange.  9 Part  2  PROBLEMS WHICH MAY A R I S E 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  English  take-over bids  c a t e some o f t h e p r o b l e m s 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 h e c o u r s e o f bids,  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 .  rities  b e t w e e n t h e two o f f e r e e c o m p a n i e s .  c o m p a n y , c o n t r o l l e d by s h a r e h o l d i n g s case o f Pergamon, shareholding,  1  Robert Maxwell  E a c h was  belonging  such  T h e r e w e r e some s i m i l a a medium-size  publishing  to family groupings;  and t h e M a x w e l l f a m i l y t r u s t s  w h i l e S i r W i l l i a m C a r r and h i s  indi-  in  had t h e  family controlled  ?  the largest  News o f  the  World L t d . A.  Directors'  Defensive  Techniques  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 concern—the over bid.  far-ranging  In  the t y p i c a l  r a t e d from ownership,  i l l u m i n a t e a major area  scope 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 p u b l i c c o m p a n y , w h e r e management  the Board of d i r e c t o r s  t o an o f f e r .  t h e company, as  Although  the Board i s  usually  made t o t h e  advise  not  to  body w i t h w h i c h t h e o f f e r o r can n e g o t i a t e ,  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  have d i s c u s s i o n s  sepa-  f o r an i n t e l l i g e n t  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 ,  a useful  r e n t p o s i t i o n o f t h e company.  is  to a take-  ( o r t h e e x p e r t m a n a g e r s who  t h e m ) a r e t h e p e r s o n s who have t h e i n f o r m a t i o n n e c e s s a r y response  is  of  to the  cur-  I n 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  will  w i t h the o f f e r e e Board o f d i r e c t o r s , even though  the o f f e r  shareholders.  The d i r e c t o r s h a v e a n o t h e r i m p o r t a n t r o l e i n t h e t a k e - o v e r s i t u a t i o n . For s i m i l a r reasons,  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 a b o u t t h e c o m -  pany t h a n t h e s h a r e h o l d e r s , whether or not to refuse b e c a u s e , as w i l l short  the d i r e c t o r s w i l l  the o f f e r .  This  often advise  recommendation i s  the very  shareholders important  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  t i m e , a n d t h e s h a r e h o l d e r s may n o t h a v e t h e o p p o r t u n i t y t o o b t a i n a l l  10  the 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 a n d 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 opinion.  The d i r e c t o r s h a v e a v e r y r e a l  power i n such  circumstances.  Some e x a m p l e s 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 offers shortly  serve  to i l l u s t r a t e the range of p o s s i b l e  a f t e r Pergamon made i t s  directors  of the l a t t e r  L t d . , whose  chairman i s  action.  and  Leasco  For example,  b i d f o r t h e News o f t h e W o r l d s h a r e s ,  company b e g a n  very the  n e g o t i a t i o n s w i t h a t h i r d c o m p a n y , News  Rupert Murdoch.  Sir  W i l l i a m C a r r and Murdoch  reached  an a g r e e m e n t u n d e r w h i c h M u r d o c h w o u 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  of  4 the World s h a r e s ,  i n r e t u r n f o r t h e t r a n s f e r o f some News L t d .  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 announced t h e s e i n t e r e s t s n o t known.  When t h i s  agreement  had n o t b e e n s p e c i f i e d , a n d t h e i r v a l u e was  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  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 tance o f the deal w i t h Murdoch. a substantial  It  is  refusal  of Maxwell's  i n t e r e s t i n g to recall  number o f News o f t h e W o r l d n o n - v o t i n g  had o f f e r e d 37s., an o f f e r f o r t h e m . the  interests.  magazines,  shares,  was  therefore themselves  o f f e r , and a c c e p t h a t t h e r e were f o r which Maxwell  b u t M u r d o c h 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 F u r t h e r , he s a i d t h a t he had " n o t  thought about" plans  for  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 a s s h a r e h o l d e r s , may a c c e p t o r  any o f f e r .  B u t as  directors giving  a d v i c e to the general  body o f  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 ? 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 , a n d w h a t c r i t e r i a 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 shareholders  to the shareholders?  Board to these is  shareholders, What  type  should  they  non-voting  w e r e 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 h e  B o a r d recommended a c c e p t a n c e o f News L t d . ' s  It  The  refuse  offer.  World  Was a n y d u t y owed by  the  shareholders?  common now f o r m a j o r c o m p a n i e s  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  t o h a v e an e m p l o y e e ' s  number o f t h e c o m p a n y ' s  pension  shares.  fund  Generally  11  a t l e a s t one o f t h e c o m p a n y ' s in  some r e c e n t d e f e n c e s  directors will  to bids,  be a t r u s t e e o f t h e f u n d ,  d i r e c t o r - t r u s t e e s have v o t e d t h e  and  pension  5 fund's  shares  raises  the q u e s t i o n whether, i n the e x e r c i s e o f such d e f e n s i v e  directors  i n favour of a resolution  p r o p o s e d by 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 ,  This  powers,  and b e n e f i c i a r i e s o f t h e  the  pension  funds. During  t h e News o f t h e W o r l d b a t t l e ,  made p r o f i t s f o r e c a s t s the o f f e r . c a s t a£  2,050,000.^  On t h e same d a y as  7  during  d u r i n g the Pergamon-Leasco  must be r e v i s e d t o £ too h i g h .  have p r o v e d u n d u l y o p t i m i s t i c .  m i l l i o n p r o f i t f o r 1969  A u g u s t , 1969,  a n d News o f t h e  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 '  Yet both forecasts  2.5  b o t h Pergamon  r e j e c t i o n o f t h e Pergamon  attitudes Pergamon  the b i d i n December,  b i d , Maxwell  Leasco m a i n t a i n t h i s  World  fore-  1968.  In  conceded t h a t t h i s  also  recommending  b i d , t h e B o a r d o f News o f t h e W o r l d a n n o u n c e d  c a s t of a s i x t y - t w o per cent p r o f i t s jump, which a l s o 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 . defence to a take-over b i d , y e t i t i s  Such f o r e c a s t s  figure  reduced f i g u r e i s  t h e y p u b l i s h e d t h e f o r m a l documents  to  a fore-  t u r n e d o u t t o be u n r e a l i s t i c , seem t o be a t r a d i t i o n a l  u n c e r t a i n what l e g a l  control over  them  exists. B.  Disclosure During  the Pergamon-Leasco  the g r e a t e s t  c o n c e r n has  been  a f f a i r , t h e p r o b l e m w h i c h has  realize  offer  p u b l i c l y announced,  t o be s i g n i f i c a n t l y a f f e c t e d , a n d d i r e c t o r s o f  that in order that shareholders  i n t e r i m a n d be a b l e t o f o r m a r e a s o n a b l e ings  rise  to  disclosure.  "When t h e i n t e n t i o n t o make an o f f e r i s are l i k e l y  given  share  companies  may p r o t e c t t h e i r i n t e r e s t s assessment o f the value  prices  should in  the  of t h e i r  hold-  i n t h e e v e n t o f an o f f e r b e i n g m a d e , o r on t h e c o n t r a r y o f an e x p e c t e d not m a t e r i a l i s i n g , they should  o affairs  of t h e i r  company."  be k e p t c o n t i n u o u s l y  informed about  the  12  The p o i n t s were:  (a)  concerning  disclosure  the r e l a t i o n s h i p between the  poration Ltd. tion)  in dispute  International  ( j o i n t l y owned by Pergamon  and P e r g a m o n ,  i n the Pergamon-Leasco Learning  Systems  and t h e B r i t i s h P u b l i s h i n g  and i n p a r t i c u l a r t h e a c c o u n t s  for  bid  I.L.S.C.  Cor-  Corpora-  for its  first g  e i g h t e e n months (b)  of  t r a d i n g , t o December 3 1 , 1 9 6 8 ,  certain transactions  b e t w e e n Pergamon  f a m i l y i n t e r e s t s , Maxwell Maxwell In closure  & Co.  and c o m p a n i e s  S c i e n t i f i c International  c o n t r o l l e d by  Incorporated^  0  and  Maxwell  and  Robert  Ltd.  each case  t h e r e was some d o u b t w h e t h e r t h e r e had been a d e q u a t e  t o Pergamon  the various  but not y e t p u b l i s h e d ;  shareholders  o f the complex d e a l i n g s  companies, which are o u t l e t s  and t h e U n i t e d S t a t e s .  T h e r e was  some o f t h e a c c o u n t i n g  techniques  b e t w e e n Pergamon  f o r Pergamon's p u b l i c a t i o n s  a question  r a i s e d as  used i n d e s c r i b i n g  dis-  in  Britain  to the l e g i t i m a c y  the p o s i t i o n  and  of  between  the  companies. C.  Accounting Another accounting  affair.  This  principles' a year.  is  p r o b l e m was  the undeniably wide v a r i e t y of  Pergamon-Leasco accounting  financial affairs  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  could not agree  figures  f o r Pergamon's  b i d was w i t h d r a w n .  two e x p e r t a c c o u n t i n g f i r m s  o f t h e same  the course  What was  The q u e s t i o n  and  The d i s a g r e e m e n t naturally arises, of a set of  was if  figures,  be e x p e c t e d t o b a s e a n y d e c i s i o n on h i s  'under-  figures?  E q u a l i t y of Treatment of During  figures.  for  American,  i n 1968 and 1 9 6 9 ,  c a n n o t a g r e e on t h e m e a n i n g  how c a n t h e o r d i n a r y s h a r e h o l d e r standing'  trading  on t h e i n t e r p r e t a t i o n o f t h o s e  so wide t h a t the Leasco  case.  the  'generally accepted  w h i c h may be u s e d i n d e s c r i b i n g a c o m p a n y ' s  s t u d i e d the accounting  D.  demonstrated during  Shareholders  of the o u t l i n e d b i d s ,  the p o s i t i o n of  those  a s e c o n d o f f e r was made i n  shareholders  each  who a c c e p t e d t h e f i r s t  offer?  13  P e r g a m o n ' s s e c o n d o f f e r was £ 8  m i l l i o n higher  than the 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 , a n d c o m p l e t e d t h e t r a n s a c t i o n ^ m i g h t h a v e a considerable  sum.  been w o r t h l e s s  Leasco's  s e c o n d o f f e r f o r Pergamon was  than the f i r s t ,  depending  likely  on t h e r e v i s e d a u d i t on  to  lost  have  Pergamon's  12 accounts. offer,  In  also  original  view of Steinberg  depending  bid.  on t h e new a u d i t , w i l l  i t would appear t h a t the be c o n s i d e r a b l y  r e c e i v e the t h i r d ,  lower than  have o b t a i n e d a b e t t e r b a r g a i n  and one h o p e s ,  final  bid.  It  should  holders,  those  i n the Maxwell  There were s e v e r a l of giving  price  transactions  c e r t a i n persons,  during  the course  who m i g h t  p r o b a b l y be p a i d t o t h o s e  to  defeat during  whether the concept continues Financial  guidance  t o h a v e been i n  independent shareholders  t o have any p r a c t i c a l  T h e i r usual  title,  to the  an higher  who do e v e n -  w o u l d seem t o  a f f a i r , a n d i t may be  have doubted  meaning.  has  been t h e p a r t p l a y e d by t h e  i n the t a k e - o v e r c o n t e x t , i s  'financial  n o t been l i m i t e d t o g i v i n g  meradvisers'  mere f i n a n c i a l  parties.  the g r e a t e s t  c h a n t b a n k s c e n t e r e d on t h e  concern expressed  about the a c t i v i t i e s o f the  large shareholdings,  which they a c q u i r e d i n the course It  had  Advisers  e v i d e n t t h a t t h e i r r o l e has  Possibly  bids.  share-  of the b i d which  be s a i d  the Pergamon-Leasco  A remarkable feature of recent bids  but i t i s  the  Leasco.  s u f f e r e d a heavy  chant banks.  who  others.  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  E.  of  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 P e r g a m o n , a  than w i l l  tually sell  f a m i l y , and  the  be n o t e d t h a t  t h e s e c o n d o f f e r made a d i s t i n c t i o n b e t w e e n two c a t e g o r i e s 13  advantageous  the  than those  terms o f  the.effect  third  T h e r e f o r e a n y o n e who had c o m p l e t e d a t r a n s a c t i o n b a s e d on  terms o f the f i r s t o f f e r m i g h t will  s statements  mer-  i n the o f f e r e e companies,  of the n e g o t i a t i o n s  in  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 h e c o m p a n i e s  connection with involved also  by  the bought  14  heavily buying  i n the market.  B o t h t h e banks  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 ,  of the o f f e r e e companies. or, it  and t h e d i r e c t o r s s t a t e d t h a t t h e y and n o t on  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  i n the case of the a d v i s e r s  t o t h e o f f e r o r company,  were  behalf  price  up,  to acquire shares  for  a t a p r i c e lower than the o f f e r . W h a t e v e r may h a v e b e e n t h e i n t e n t , t h e e f f e c t was  the share possibly  p r i c e , thereby decreasing  the chances  to the detriment of the m i n o r i t y shareholders. m e e t i n g o f News o f t h e W o r l d s h a r e h o l d e r s , 1 fi  cent of  the s h a r e s ,  Morgan G r e n f e l l  c e n t h e l d by a d v i s e r s  t o companies  acquired substantial  c h a n t banks f u t u r e was  should purchase, so  t h e i r shares  uncertain.  h e l d 3.2 opposed  Ltd.  per c e n t — a t o t a l  It  successful,  At the time of  Hambro's  15  shares  be n o t e d t h a t H a m b r o ' s  t o News L t d . , t h e o p p o s i t i o n , t o g i v e  the l a t t e r  the  h e l d 11.8  per  of f i f t e e n per Hill  Samuel  may f a i r l y be a s k e d why  f o r investment purposes,  I t may a l s o  14  t o t h e Pergamon b i d .  shareholdings.  substantially  t h a t t h e b i d w o u l d be  general  had a l s o  to increase  mer-  i n a company Ltd. later legal  1 7  whose  sold  control  of  News o f t h e W o r l d . A r a t h e r d i f f e r e n t problem concerning  the banks  was  also  demonstrated.  18 Robert of  F l e m i n g & Sons 1g  36s.  3d.  I t was  sold  2.1  m i l l i o n Pergamon  a c c e p t e d t h a t none o f t h e s e  t h e l a w , y e t i t m u s t be n o t e d t h a t t h e s e d e a l i n g s in  an a d v a n t a g e o u s  a c t i v e l y engaged Flemings prices  position  to assess  in the negotiations  (and a n o t h e r  dealings  w i t h Leasco. shares  are l i k e l y  at a price  were i n breach  w e r e made by p e r s o n s  In  of  who w e r e  the s i t u a t i o n ,  being  the case of the s a l e  by M a x w e l l  family trustees)  t o be s u b s t a n t i a l l y h i g h e r  the p r i c e s  t o be r e c e i v e d by 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  the Leasco  b i d was  by the  than  who had n o t s o l d  when  withdrawn.  A n o t h e r c r i t i c i s m made d u r i n g resignation  to Leasco,  the p o s s i b i l i t i e s of  s a l e o f Pergamon  obtained f o r those shares  shares  by R o b e r t F l e m i n g s  the Pergamon-Leasco  a f f a i r arose out of  & Sons f r o m t h e i r p o s i t i o n as  financial  the  advisers  15  t o Pergamon.  This  o c c u r r e d on A u g u s t 2 4 ,  been w i t h d r a w n , b u t d u r i n g This  a c t i o n not only  b u t , perhaps guidance  left  the n e g o t i a t i o n s  at a c r u c i a l stage.  all  shareholdings like  The r e a s o n legal  Minority  the manoeuvring,  made and b r o k e n , i t i s  s t a t e d , t h a t t h e bank  b a t t l e b e t w e e n Pergamon  buying  very possible  to s e l l  It  The c o n t r a r y s i t u a t i o n may a l s o 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  minority sells  and  How f a r i s  may be d i f f i c u l t ,  not  this  price.  t h e y do  in a post-bid Is  minor not  isolated situation,  t h e r e , or should  there  persons? 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 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  d e s i r a b l e , and u n d e r w h a t c o n d i t i o n s  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 and S t e i n b e r g w e r e shown t o h a v e holding  is  to  agreements  t h e y do n o t r e l i s h b e i n g  t h e 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  Maxwell  expert  d i d not wish  t h a t a f e w p e o p l e may be l e f t w i t h  at a reasonable  be some f o r m o f p r o t e c t i o n f o r s u c h  It  advice,  of  and L e a s c o ,  and s e l l i n g o f s h a r e s ,  t h e new c o n t r o l l e r , o r s i m p l y b e c a u s e  out to him.  offer.  Shareholders  i n a v e r y weak v o t i n g p o s i t i o n .  sell  shareholders  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 b e c a u s e  f o r such shareholders  had  bank.  A f t e r the Bid—The After  offer  w h i c h l e d up t o t h e s e c o n d  o f more i m p o r t a n c e , i t d e p r i v e d t h e Pergamon  worthy of a respected  Leasco  the Board of 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  become i n v o l v e d i n a p o s s i b l e  F.  a f t e r the o r i g i n a l  t h e b a l a n c e between them.  o u t t o t h e o t h e r , some p e o p l e w i l l  shareholdings,  When one o f t h e s e  be l e f t  should  shareholding?  m e e t i n g o f Pergamon  large  to  shareholders,  with a very large  i n a r a t h e r weak  small  shareholders  position.  16  Part  3  CONTROL OF TAKE-OVERS Introduction In bids  England  t h e two m o s t  important instruments  a r e t h e Code on T a k e - o v e r s  duct of Business)  Rules,  and M e r g e r s  1960.  of control  over  take-over  and t h e L i c e n s e d D e a l e r s  1  The Code i s  (Con-  t h e r e s u l t o f an a g r e e m e n t  between  2 the major i n s t i t u t i o n s voluntary as  involved in  self-discipline.  the Take-over  It  has  take-overs no l e g a l  and r e p r e s e n t s  authority.  the p r i n c i p l e s  principles  or  rules  and r u l e s  at  A panel, referred  P a n e l , on w h i c h e a c h o f t h e i n s t i t u t i o n s  interprets  an a t t e m p t  o f t h e Code, and w i l l  is  to  represented,  intervene  if  these  are not complied w i t h during  the course of a b i d . The 3 Panel works i n c o - o p e r a t i o n w i t h the Board o f Trade and, indeed, the c h i e f s a n c t i o n w h i c h t h e P a n e l has i s t o recommend t o t h e B o a r d o f T r a d e t h a t t h e y  4 initiate  an a c t i o n w i t h i n t h e i r p o w e r s  The L i c e n s e d  Dealers  pursuant  to section  Legally,  the Rules  a rather limited  Provincial  Immediate  Securities  sibility  control of  Acts,  has  made by t h e B o a r d o f  Fraud  (Investments) A c t ,  take-overs  involved of  in take-over control  of  which are based  take-overs,  legal  p o w e r t o "make w h a t e v e r  is  as  on t h e r e c o m m e n d a t i o n s  Legislation  given  conthe  practice,  the take-over p r o v i s i o n s  in Ontario, matter, is  o f each P r o v i n c e , s e t  a u t h o r i t y and i s investigations  However  have  bids.  o f any s e c u r i t i e s  Commission  Trade  1958.  a r e now g e n e r a l l y  and i t w o u l d a p p e a r t h a t , i n  C o m m i t t e e on S e c u r i t i e s  the S e c u r i t i e s  The C o m m i s s i o n  because  guide-lines,  the c h i e f source 5  Attorney-General's  rules  h o u s e s , who a r e e x e m p t e d f r o m t h e p r o v i s i o n s .  t h e y a r e f o l l o w e d by t h o s e Canada,  of  Act.  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  significance  r e m a i n i m p o r t a n t as  In  the Companies  are s t a t u t o r y  of the P r e v e n t i o n  apply only  legal  d u c t e d by i s s u i n g Rules  7(3)  Rules  under  of  i t deems e x p e d i e n t f o r t h e  the  the  1965.  the  up u n d e r  s p e c i f i c powers,  of  responthe  s u c h as due  Acts. the  17  administration documents, a person for  8  of  this A c t , "  t o summon w i t n e s s e s  7  and r e q u i r e p r o d u c t i o n  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 ,  o r company  shall  hold or  9  t o make an o r d e r  r e f r a i n from d e a l i n g w i t h f u n d s , ^  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 m a n a g e r , In  both j u r i s d i c t i o n s , the Stock  trolling  bids  involving  companies  the r u l e s  of the Stock  sion.  some c a s e s t h e S t o c k  In  but t h i s  Exchange  apply  trustee.^  E x c h a n g e s p l a y an i m p o r t a n t p a r t i n  l i s t e d on t h e E x c h a n g e s .  E x c h a n g e s a r e more a d v a n c e d  than  E x c h a n g e s may i m p o s e  a n d 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 t h a t the Stock  or a  that  to  0  of  of  c a n r a r e l y be u s e d t o a d v a n t a g e ,  instances  but these  The r e a l  i n an o f f e n d i n g  as  many  the l e g i s l a t e d  fines,  the o f f e n c e s .  may s u s p e n d d e a l i n g s  In  i t generally  con-  provi-  are  sanction  minor is  company's  shares,  damages t h o s e  whom  1 ? it  is  i n t e n d e d to p r o t e c t , the There are  important differences  two j u r i s d i c t i o n s . Licensed ties  Dealers  The E n g l i s h  Rules:  the d e f i n i t i o n s  offer'  of that  Control right,  is  18(1)  those  in of  the  securi-  securities,  e n t i t l e d to  the  calcu-  acquire,  corporation." defined as:  the c o r p o r a t i o n , e x c l u d i n g  "control  d i r e c t o r i n d i r e c t , o r by means o f  the v o t i n g  the v o t i n g  power a t a m e e t i n g  power o f h o l d e r s  e x e r c i s a b l e o n l y on t h e h a p p e n i n g  any of  of classes  of  securi-  of s p e c i f i e d contingencies  or  upon  business."  The B r i t i s h rities  Rule  means an o f f e r t o a c q u i r e  a c q u i r i n g , o r becoming  over the e x e r c i s e of a m a j o r i t y of  specific  of a take-over  contained in  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  control  Act:  Columbia d e f i n i t i o n i s  "Take-over  made t o s h a r e h o l d e r s pany  in  definition is  "'take-over  l a t e d t o r e s u l t i n any p e r s o n  ties  shareholders.  contained in section  b i d means an o f f e r o t h e r w i s e  . . .  to purchase  t h a t , together w i t h the o f f e r o r ' s  g a t e exceed twenty per centum o f  78 o f t h e  t h a n an e x e m p t  Secu-  offer,  t h e number o f e q u i t y s h a r e s o f a c o m presently-owned  the outstanding  shares,  will  in  e q u i t y shares of the  aggrecompany."  18  The " e x e m p t o f f e r " c a t e g o r y  is  a considerable  An  "(i)  s h a r e s by way o f p r i v a t e a g r e e m e n t w i t h i n d i v i d u a l  shareholders shares  and n o t made t o s h a r e h o l d e r s  t o be e f f e c t e d t h r o u g h  the-counter market;  is  scope  o f t h e above d e f i n i t i o n . an o f f e r t o p u r c h a s e  "exempt o f f e r "  l i m i t a t i o n on t h e  generally;  the f a c i l i t i e s  shares  C h i e f J u s t i c e o f t h e Supreme  Rules for  to bids  o r i n an  . . .  ; or  Court designated  f o r more t h a n f i f t y  the L i c e n s e d  per cent o f the shares,  and a g r e e m e n t s  companies. Securities tory  This  is  an  Dealers bids The  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 ,  which is  to  public  a considerable  account f o r only ten per cent of B r i t i s h  may be a r e s t r i c t i o n w h i c h i s  Commission  or  the  w i t h more t h a n one s h a r e h o l d e r .  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 ,  as p u b l i c companies  by  but includes  but s e v e r e l y r e s t r i c t s the a p p l i c a t i o n of the t a k e - o v e r p r o v i s i o n s  tation,  (iv)  over-  Court."  B r i t i s h Columbia d e f i n i t i o n recognises  companies  purchase  i n a p r i v a t e company  d e f i n i t i o n l i m i t s the a p p l i c a t i o n of  p r i v a t e companies,  as:  an o f f e r t o  exchange  fewer than f i f t e e n shareholders  o f f e r e x e m p t e d by o r d e r o f a J u d g e o f t h e Supreme  The E n g l i s h  (ii)  of a stock  ( i i i ) an o f f e r t o p u r c h a s e  a p u b l i c company t h a t has  d e f i n e d i n s e c t i o n 78b  a practical necessity  to e x e r c i s e adequate s u p e r v i s i o n  through  limi-  Columbia if  the  the  statu-  controls. Many o f t h e s t a t u t o r y c o n t r o l s  to matters  of substance,  when c o n s i d e r i n g  imposed r e l a t e to procedure r a t h e r  s o t h e common l a w i s  important.  t h e r e s t r i c t i o n s on t h e p o w e r s  This  of directors  is  in a  than  illustrated take-over  situation. Section Directors' The p o w e r s  o f management  Powers  o f a company a r e u s u a l l y  by the a r t i c l e s o f a s s o c i a t i o n . s u c h powers  A  13  A strong  vested i n the  l i n e of cases  14  makes  directors  i t clear  as a r e v e s t e d i n t h e B o a r d by t h e a r t i c l e s may be e x e r c i s e d by  that the  19  directors  o n l y , a n d t h e i r e x e r c i s e o f t h e p o w e r s may n o t be i n t e r f e r e d w i t h  b y t h e company by d i r e c t o r s  in general  i n response  meeting.  Some o f t h e p o w e r s w h i c h may be  to a take-over o f f e r w i l l  exercised  be v e s t e d i n them by  the  15 articles, offer  is  virtue to  f o r example t h e power t o i s s u e  shares.  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 t h e i r powers  an o f f e r .  In  o f management,  some c a s e s ,  because  Even t h o u g h a  o f a company,  take-over  t h e d i r e c t o r s , by  h a v e a w i d e d i s c r e t i o n when  reacting  t h e t a k e - o v e r t r a n s a c t i o n c a n be c o m -  16 p l e t e d so q u i c k l y sult  the d i r e c t o r s w i l l  the shareholders 1.  take a c t i o n w i t h o u t being a b l e to  t o whom t h e o f f e r i s  The P o w e r t o Recommend R e f u s a l  made.  or Acceptance of a  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 a recommendation w i l l naturally  shareholders  shareholders  by t h e i r d i r e c t o r s .  from which to assess i t s having  usually  know more a b o u t t h e company a n d a r e i n a b e t t e r prospects.  Because  t h e d i r e c t o r s may a l s o  such  will  Presumably  h a v e c o n f i d e n c e i n t h e d i r e c t o r s , and t h e y w i l l  view t h a t d i r e c t o r s  holders,  Bid  o f an o f f e r , and  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  tend to accept advice given  con-  the take  the  position be  share-  d i f f e r e n t i n t e r e s t s from the independent s h a r e h o l d e r s ,  this  p o w e r 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 C o d e , L i c e n s e d D e a l e r s tain  provisions  regulating  a p a r t i c u l a r response  the contents  t o an o f f e r .  be p u t i n t o p o s s e s s i o n o f a l l i n f o r m e d j u d g e m e n t as  Rules,  and t h e S e c u r i t i e s  of a d i r e c t o r s '  The C i t y Code s a y s ?  the f a c t s  necessary  to the m e r i t s o r demerits  circular 7  con-  recommending  "Shareholders  must  f o r the f o r m a t i o n o f  an  o f an o f f e r . "  The Code d o e s n o t c o n t a i n a n y more s p e c i f i c i n s t r u c t i o n s tents  A c t each  as  to the  con-  of a c i r c u l a r . The T h i r d S c h e d u l e  of the Licensed Dealers  Rules  contains  to  be s a t i s f i e d i n r e l a t i o n t o a r e c o m m e n d a t i o n o f a c c e p t a n c e .  to  be i n c l u d e d a r e :  t h e number o f s h a r e s  the  requirements The  details  i n t h e o f f e r e e company h e l d by  its  20  directors;  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  o f t h e o f f e r e e company; w h e t h e r t h e d i r e c t o r s ticulars offeree  o f any m a t e r i a l change company;  i n the f i n a n c i a l p o s i t i o n or prospects  c i r c u l a r but only  Act requires if  par-  of  o f f e r e d to the d i r e c t o r s ;  p r i c e of the company's  S e c t i o n 93 o f t h e S e c u r i t i e s in a directors'  i n t e n d to accept the o f f e r ;  p a r t i c u l a r s o f any c o n t r a c t s  i n f o r m a t i o n on t h e p r e v i o u s  directors  the  and  shares.  s i m i l a r i n f o r m a t i o n t o be  the d i r e c t o r s  recommend r e f u s a l  or  given accep-  19 tance of  t h e o f f e r , a n d t h e y may c h o o s e  Act s p e c i f i e s sonment,  to remain s i l e n t .  p e n a l t i e s o f a f i n e o f n o t more t h a n $ 2 5 , 0 0 0 o r one y e a r ' s  or both f o r breach of  the  n a t u r e , the i n f o r m a t i o n obtained w i l l on w h i c h a s h a r e h o l d e r  financial  c a n make h i s  profits  decision.  directors'  h a v e i f he a c t s  leading?;  and  (2)  making  recommendation?  are procedural  provide s a t i s f a c t o r y The c i r c u l a r w i l l  the d i r e c t o r s  in  guidance  often  recommend r e f u s a l  contain of  the of  may be e x p e c t e d .  two b a s i c p r o b l e m s  c i r c u l a r which contains  shareholder  impri-  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 r employee disadvantages  There a r e , however,  a  usually  information, especially i f  o f f e r , when a g l o w i n g  the  provisions.  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 m u s t be g i v e n  additional  S e c t i o n 97 o f  concerning  a recommendation:  on i n f o r m a t i o n w h i c h i s  What f a c t o r s s h o u l d  the d i r e c t o r s  the contents of a (1)  What remedy d o e s  l a t e r r e v e a l e d t o be take i n t o account  a  mis-  when  20 (a)  The C i t y Code s t a t e s :  to shareholders  under these headings  care w i t h regard t h e meaning o f  to the statements  t h e Companies  B u t t h e Code has Even  if  no l e g a l  the standard of  under the prospectus  Act,  care i s  provisions  "Any  document o r a d v e r t i s e m e n t  addressed  m u s t 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  made t h e r e i n as  if  i t were a prospectus  of  within  1948."  a u t h o r i t y , so  the e f f e c t of t h i s  not complied w i t h , o f t h e Companies  rule is  no a c t i o n c o u l d be  Act.  limited. brought  The o n l y p o s s i b l e  legal  21  sanction  is  t h a t , i n a p p r o p r i a t e circumstances, the Take-over  recommend t h a t t h e B o a r d 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  Panel the  might  directors  21 under s e c t i o n 165(b)3 "that  its  (i.e.  which provides  the o f f e r e e company's)  information with respect to i t s This  f o r an i n v e s t i g a t i o n members  t h e i n f o r m a t i o n g i v e n was  The L i c e n s e d D e a l e r s  crucial  Where t h e d i r e c t o r s ' leading,  have n o t been g i v e n  all  Rules  the  expect."  i f some i n f o r m a t i o n w e r e o m i t t e d ,  a n d t h e S e c u r i t i e s A c t do n o t p r o v i d e  in this  i n the c i r c u l a r s i s  statu-  misleading,  c i r c u l a r contains  to bring  of the statements.  statements  which are f a l s e or  In an e x t r e m e , r a r e , c a s e  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  render this  action  i t may be  in proving  statement a c t i o n the p l a i n t i f f  negligent.  fraud w i l l  This  Heller & Partners 24  of care is  has  on h i s  mends a r e s p o n s e Byrne  given  i n w h i c h he knew o r o u g h t t o h a v e care, s k i l l ,  duty of  and j u d g m e n t .  It  is  mis-  defendant  a negligence duty which i s , a f t e r 23 Ltd., q u i t e d i f f e r e n t and i n d e p e n -  The H e d l e y B y r n e c a s e  owed w h e n e v e r someone  been  is  dent from the f i d u c i a r y duty.  stances  usu-  To s u c c e e d i n a n e g l i g e n t  s h a r e h o l d e r must p r o v e t h a t t h e  owed h i m a d u t y o f c a r e . & Co. v.  acted  ineffective.  a misstatement of f a c t which i s  Hedley Byrne  mis-  possible  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 w h e r e t h e r e has 22  directors  so  area.  t h e common l a w may p r o v i d e a remedy t o t h e s h a r e h o l d e r who has  on t h e b a s i s  ally  appears  misleading.  t o r y remedies where the i n f o r m a t i o n g i v e n t h e common l a w i s  it  a f f a i r s which they might reasonably  s e c t i o n would probably apply only  and n o t i f  if  i n d i c a t e d that a duty  advice or information in known t h a t r e l i a n c e was  circum-  being  placed  s u g g e s t e d t h a t where a d i r e c t o r recom-  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 the  Hedley  care.  The m e a s u r e o f damages r e c o v e r a b l e i s g o v e r n e d by M c C o n n e l l v . W r i g h t : " T h e 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 m e a s u r e d by t h e money w h i c h was i n h i s  25  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. That i s the u l t i mate, f i n a l , highest standard of his l o s s . B u t i n s o 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 m o n e y , t h a t l o s s i s d i m i n i s h e d . " This  is  the measure  o f damages b o t h f o r d e c e i t a n d f o r  F r e q u e n t l y a recommendation to r e f u s e a promising  profits forecast.  There i s  an o f f e r w i l l  negligence.  be a c c o m p a n i e d  some d o u b t w h e t h e r a s h a r e h o l d e r  r e c o v e r i f he h a d 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 . rule is  by  the  normal  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  the  s t a t e m e n t r e l i e d upon m u s t be one o f f a c t ,  or expression  o f o p i n i o n , i n Hedley Byrne  Devlin said:  "It  Although  misstatement,  n o t a mere p r o m i s e ,  & Co. v.  could  forecast  H e l l e r & Partners  cannot matter whether the i n f o r m a t i o n c o n s i s t s  27  Lord  of f a c t  or  28 of opinion, or is future,  a mixture of both."  d i r e c t o r s may be h e l d l i a b l e  It  is  therefore possible  for misleading  profits  forecasts,  v i d e d i t c a n 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 h e p l a i n t i f f 29 c a r e , and w e r e i n b r e a c h o f t h a t (b) mend a c o u r s e  in pro-  a duty  of  duty.  The s e c o n d p r o b l e m c o n c e r n i n g of action is  that  the d i r e c t o r s '  to e s t a b l i s h which f a c t o r s  consider  i n d e c i d i n g what recommendation  lations,  t h e S e c u r i t i e s A c t and t h e L i c e n s e d D e a l e r s  power t o r e c o m -  t h e d i r e c t o r can  t h e y s h o u l d make.  properly  The s t a t u t o r y  regu-  R u l e s do n o t c o n t a i n a n y 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 t h e C i t y Code s t a t e s : "Directors must always 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 a n y o t h e r p o w e r e x e r c i s e d by t h e d i r e c t o r s , t h e p o w e r o f mending a c o u r s e fide  of a c t i o n to the shareholders  recom-  m u s t be e x e r c i s e d by them  i n w h a t t h e y c o n s i d e i — n o t w h a t a c o u r t may c o n s i d e r — i s  i n the  "bona  interests  32 of the  company. 33  In  G r e e n h a l g h v . A r d e m e Cinemas  Ltd.  L o r d Evershed, M.R.  b e n e f i t o f t h e company m e a n t 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  said  that  a general  the body.  23 It  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  are e n t i t l e d to c o n s i d e r rests.  they are a l s o  not only other s h a r e h o l d e r s ,  but a l s o  T h e y a r e " n o t r e q u i r e d by t h e l a w t o l i v e i n an u n r e a l  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 v a g u e mood o f i d e a l f a c t s w h i c h m u s t be p r e s e n t  t o the mind o f any honest  shareholders, t h e i r own region  inte-  of  a b s t r a c t i o n from  obvious  a n d i n t e l l i g e n t man when  34 he e x e r c i s e s In  his  powers  as  a director."  the l i g h t of these general  the meaning  statements  and e f f e c t o f t h e p h r a s e  "bona  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 . to question  o f p r i n c i p l e , one has  to  consider  f i d e i n the i n t e r e s t of the  In  p r a c t i c e , the courts  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  there is  strong  are  company,"  unwilling  evidence  that  t h e y h a v e 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 h e i n t e r e s t o f a t h i r d p a r t y , the e x c l u s i o n  o f t h a t o f t h e company.  "Bona  a n d m e n t a 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  fide"  raises  to assess  problems  than a l e s s  of  to  motive  abstract  35 c o n c e p t s u c h as the d i r e c t o r s court w i l l In  1  " t h e i n t e r e s t o f the company." action is  i n t h e i n t e r e s t o f t h e company  more r e a d i l y t u r n i t s  the area of take-overs, a leading a u t h o r i t y i s  Report.  the Savoy Hotel  b u t w h i c h was t h e s u b j e c t o f an  c o n t r o l of  t h e company.  a scheme u n d e r w h i c h t h e m a i n a s s e t ,  company f o r m e d 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 . without i t s attractive  the  case,  Inspector's buying  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 a w a r e  someone was a t t e m p t i n g t o g a i n  p r i n c i p a l asset  the Savoy Hotel  p r o p o s i t i o n to the person  s c h e m e , w h i c h became known as pany,  one t o w h i c h  B r i e f l y the f a c t s were t h a t , a f t e r a p e r i o d of c o n s i d e r a b l e  shares  effect  is  and t h e I n s p e c t o r  not  mind.  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 ,  of  The q u e s t i o n w h e t h e r o r  buying  The r a t i o n a l e o f  sold  t h i s was  Company w o u l d no l o n g e r  intra vires  of the d i r e c t o r s .  i n the i n t e r e s t s  of the  to  to that  be an  t h e s h a r e s on t h e m a r k e t .  a c c e p t e d t h e bona f i d e s  t i o n was w h e t h e r o r n o t t h e t r a n s a c t i o n was  T h e i r r e a c t i o n was  t h e B e r k e l e y H o t e l , was  t h e W o r c e s t e r s c h e m e , was  that  the The  The comques-  company.  a  24 In  considering  t h i s , the Inspector  stated:  " I t i s c l e a r f r o m w h a t has been s a i d by t h e 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 h e B e r k e l e y as a h o t e l a n d r e s t a u r a n t w o u l d be i n j u r i o u s t o t h e i n t e r e s t s o f t h e e m p l o y e e s , s i n c e i t w o u 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 to the n a t i o n a l i n t e r e s t , having regard to the 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 : they were c o n s i d e r a t i o n s w h i c h , h o w e v e r 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 h e 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 h e s t a f f r e m a i n i n g a t t h e 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 the employees' public's  i n t e r e s t as  being  i n the i n t e r e s t s  o f t h e company.  and  Judicial  the support  38 for  a s i m i l a r p o i n t o f v i e w c a n be f o u n d i n  quoting a witness their  duties  to support o f none,  t o employees  in these  that proposition  a n d i n my o p i n i o n  o f employees  i t is  days,"  Plowman, J . s a i d :  as a p r o p o s i t i o n o f such i s . n o t  the  Maxwell  withdraw his  in a take-over situation.  as  to working  " B u t no  authority  l a w was c i t e d t o me; I  know  the  inte-  One o f t h e m a i n r e a s o n s why o f P e r g a m o n ' s b i d was  r e l a t i o n s h i p s w o u l d be d e s t r o y e d .  b i d because  consideration  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  to o b t a i n c o n t r o l of a newspaper,  After  law."  News o f t h e W o r l d b o a r d recommended r e f u s a l management-union  D a i l y News L t d .  who s a i d , " B o a r d s o f d i r e c t o r s m u s t t a k e i n t o  Nevertheless, rests  Parke v.  in this  In case  that  the  close  a n o t h e r a t t e m p t by the Sun,  he had  he c o u l d n o t come t o an a g r e e m e n t w i t h t h e  to  employees  conditions.  38 In  Parke v.  D a i l y News L t d .  ment t o e m p l o y e e s was j u s t i f i e d as  t h e a r g u m e n t was p u t f o r w a r d t h a t t h e i t w o u l d e n a b l e t h e company  c o - o p e r a t i o n from the trade unions. judge.  It  employees  is  T h i s a r g u m e n t was  maintain  n o t a c c e p t e d by  the  s u b m i t t e d , however, 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  the  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,  a duty to consider  t h a t i n t e r e s t , on t h e b a s i s  the d i r e c t o r s are  t h a t t h e company w i l l  39 if  to  pay-  good r e l a t i o n s w i t h t h e employees  are not maintained.  under  suffer  25  Apart current  from the i n s t a n c e  legal  position  is  i n which there  t h a t the employee's  is  r e l e v a n t when t h e d i r e c t o r s  or  refusal  and t h i s  o f an o f f e r .  Code i s , is  interest  are considering  What i s  relevant  is  immediately pertinent thereto.  whether  is  interest,  t o recommend  the s h a r e h o l d e r s '  Defensive  If  the d i r e c t o r s  may a l s o  interests  of employees  2.  c a n t h e y recommend  A c t i o n by  t a k e n as  and  alone,  interest,  i n the  P r i n c i p l e 11  a whole which should  City  reads:  be  considered,  creditors."  Directors  decide that a take-over o f f e r is  to shareholders  t a k e more p o s i t i v e  t h a t they should  defensive  undesirable,  refuse  a c t i o n to decrease  not  only  the o f f e r , but  they  the o f f e r o r ' s  chances  removing  prin-  success. The r a n g e  cipal fits  assets  of possible  defensive  from the c o n t r o l  increase  raising  techniques  includes:  o f t h e o f f e r e e company;  f o r the f o l l o w i n g y e a r ;  stock market, thereby  41  40  buy a l a r g e number o f s h a r e s  the p r i c e o f the s h a r e s ,  and g a i n i n g  in  prothe  greater  43  control; ging  the  forecast a large  42  ing  acceptance  t h e company  The a t t i t u d e d i s p l a y e d General  the  not a f a c t o r which  the i n t e r e s t of  therefore, particularly interesting.  together w i t h those  of  a coincidence of  seems t o be l i m i t e d t o t h e l o n g - t e r m a n d s h o r t - t e r m f i n a n c i a l  and f a c t o r s  "It  is  allotting a significant  t h e c a p i t a l s t r u c t u r e so a small  p a r t of the e q u i t y ;  a b i d f r o m a more f a v o u r a b l e  block of shares  to a nominee;  that effective control 44  and i n d u c i n g  offeror.  is  re-arran-  h e l d by a g r o u p  and r e c o m m e n d i n g  hold-  acceptance  of  45 46  Each o f t h e s e powers  on b e h a l f o f  interests are  of  t h e company.  t h e company,  relevant here.  the proper purpose right  d e f e n c e s , e x c e p t one  to b r i n g  involve  They must  the d i r e c t o r s  t h e r e f o r e a c t bona f i d e i n  and many o f t h e p r o b l e m s  Two f u r t h e r p r o b l e m s  are worthy  discussed of  the  directors.  the  in sub-section  discussion  d o c t r i n e , and t h e e f f e c t o f r a t i f i c a t i o n on a  an a c t i o n a g a i n s t  exercising  in  A  detail,  shareholder's  26  (a) There  is  The P r o p e r P u r p o s e  considerable authority  must e x e r c i s e t h e i r powers but also In given  Doctrine  f o r the purpose P i e r c y v.  Mi 11s  47  f o r the p r o p o s i t i o n  that  directors  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  f o r w h i c h t h e powers were  48  i t was  given.  h e l d t h a t where a power t o i s s u e  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  company,  shares  is  c a p i t a l when r e q u i r e d f o r t h e  pur-  49 poses o f t h e company,  i t is  a f i d u c i a r y power  them bona f i d e f o r t h e g e n e r a l is  advantage  w h i c h m u s t be e x e r c i s e d  o f t h e c o m p a n y , a n d when t h e  company  i n no n e e d 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 n o t e n t i t l e d t o use 50  power o f a l l o t t i n g s h a r e s  merely  the  shareholders.  e x i s t i n g m a j o r i t y of  Where t h e p r i m a r y p u r p o s e allotment also  f o r the purpose  by  their  of d e f e a t i n g the wishes  f o r a l l o t t i n g new s h a r e s  is  valid,  but  of  the  satisfies  a s e c o n d a r y p u r p o s e 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 uphold the d i r e c t o r s ' a c t i o n . Where, however, the p r i m a r y purpose 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 p u r p o s e 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 from being declared v o i d . The p r o p e r p u r p o s e to  a l l o t shares.  new d i r e c t o r s  It  doctrine is  been a p p l i e d t o o t h e r p o w e r s s u c h as t h e a d d i t i o n o f 53 to the Board a n d 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  It would appear,  in  techniques.  therefore, that, wide-ranging  the e x e r c i s e of those  the purposes  powers  intended.  by two r e c e n t E n g l i s h action  though  the  directors'  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  This  decisions  by t h e company i n g e n e r a l  restricted  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 m u s t  bona f i d e i n t h e i n t e r e s t o f t h e c o m p a n y , for  power  has  on a n y o f t h e l i s t e d d e f e n s i v e  powers  not l i m i t e d i n a p p l i c a t i o n to the  and m u s t e x e r c i s e t h e i r p o w e r s  reasonable  situation is  seriously  act only  affected  concerned with r a t i f i c a t i o n of a d i r e c t o r s ' meeting.  27  (b) In  Ratification  Hogg v .  Cramphorn  Ltd.  bona f i d e b e l i e v e d s h o u l d benefit of  the employees  55  a t a k e - o v e r b i d was made w h i c h t h e  be p r e v e n t e d f r o m s u c c e e d i n g . was e s t a b l i s h e d ,  directors  A t r u s t deed f o r  and s h a r e s were i s s u e d t o t h e  the  trus-  56 tees.  A shareholder  shareholders, ultra  vires  liable  o b j e c t e d a n d s u e d on b e h a l f o f 57  except the t r u s t e e s ,  t h e company.  t o be s e t  power t o r a t i f y  aside,  h i m s e l f and a l l  other  on t h e g r o u n d t h a t t h e t r u s t d e e d was  Buckley, J . held that although the shareholders  i n general  the t r a n s a c t i o n  m e e t i n g w o u l d have  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 h e o p p o r t u n i t y  for  was  the  them t o  58 do so was As  given.  59  Professor  bringing  Gower p o i n t s  the shareholders  t h e i r a c t i o n merely because  by a r e s o l u t i o n  of  rule  Harbottle  in  out,  Foss v.  the general  were n o t p r e v e n t e d  t h e i m p r o p r i e t y c o u l d have  m e e t i n g , whereas  a normal  been  eradicated  a p p l i c a t i o n of  w o u l d h a v e p r e v e n t e d them f r o m s u i n g .  from  Of  the  greater  fil importance  in a consideration  of  the take-over  bid is  the f a c t t h a t i t  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 c o u l d be r a t i f i e d In  Hogg v .  a n d 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  Cramphorn  in general  i t was a c c e p t e d t h a t t h e d i r e c t o r s  was  directors  meeting.  had a c t e d  bona  CO  fide.  In  Bamford v.  Bamford,  h a d a c t e d i n bad f a i t h . an  'outside'  a take-over shareholders  however,  i t was  assumed t h a t t h e  directors  The q u e s t i o n was w h e t h e r t h e a l l o t m e n t o f s h a r e s  company who w o u l d , w i t h t h e o f f e r e e c o m p a n y ' s d i r e c t o r s , b i d , was  capable of  o f t h e company.  by t h e s h a r e h o l d e r s  after  the d i r e c t o r s  it  t h a t even  if  i n making  t h e a l l o t m e n t , any  valid.  this  r a t i f i e d by a g e n e r a l case  had been m a d e , b u t b e f o r e  resist  meeting of  t h e a l l o t m e n t had been  had a c t e d i n b a d f a i t h  w a i v e d by a m a j o r i t y o f v o t e s t h e a l l o t m e n t was  In  being  the t r i a l .  I t was  and f r o m an i m p r o p e r  m e e t i n g o f t h e company,  the  ratified  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 a n d h a d at a general  to  and  held  motive been thus  28 CO  Professor fide  i n the i n t e r e s t s In  "In  Gower w r i t e s :  fide  o f t h e company  a footnote disposing  Bamford v.  "When,  of  Bamford v.  o f t h e company  a c t which exceeded the d i r e c t o r s ' act f o r that purpose;  it  is  i t seems t o be i m p o s s i b l e Bamford, Professor  "was  powers, because  the d i r e c t o r s '  i n the  continues:  i n t e r p r e t a t i o n provides  as  bona  sense of  an  they were not a u t h o r i z e d  g o o d f a i t h was  not  to  questioned."  d e s i r a b l e a r e s u l t as  s u g g e s t e d t h a t s u c h an i n t e r p r e t a t i o n i s  ments  Gower  used i n the narrower  bona  to r a t i f y . "  B a m f o r d , w h i c h may a p p e a r t o s u g g e s t t h e c o n t r a r y , " n o t  i n the i n t e r e s t s  While t h i s  h o w e v e r t h e d i r e c t o r s do n o t a c t  is  possible,  not c o n s i s t e n t w i t h the  judg-  case.  64 Harman, L . J . the assumptions  said:  "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  w h i c h we h a v e t o m a k e , made t h i s  d u t y — m a l a f i d e as  i t is  a l l o t m e n t i n breach of  said."  The l e a r n e d j u d g e w e n t 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 ' fiable  by t h e g e n e r a l  Russell, L.J.  their  a c t i o n was  rati-  meeting.  said:  6 5  " I t i s a r g u e d t h a t u n d e r t h e a r t i c l e s a l l o t m e n t c a n o n l y be made ( a ) by t h e b o a r d ( w h i c h i s t r u e ) a n d ( b ) by t h e b o a r d a c t i n g i n g o o d f a i t h , a n d t h a t a r e s o l u t i o n by t h e company w a i v i n g t h e d e f e c t i n a m a l a 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 m u s t 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 g u m e n t , w h i c h seems t o me t o r u n c o u n t e r t o t h e 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 h e 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 p o w e r s 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 . " It  is  submitted t h a t the r e s u l t o f t h i s  t h a t the shareholders even i f t h a t a c t i s  in general  and t h e d i c t a q u o t e d  m e e t i n g may r a t i f y an a c t o f t h e  done m a l a f i d e .  a n y room f o r an a r g u m e n t  decision  directors  The d i c t a do n o t , i t w o u l d s e e m ,  that there is  is  leave  a s i g n i f i c a n t d i s t i n c t i o n b e t w e e n an c c  a c t done If  "mala f i d e " this  a n d one done  i n t e r p r e t a t i o n of  for a minority shareholder voting  as  shareholders,  "not  bona  Bamford v.  are grave.  fide."  Bamford i s  Bearing  c o r r e c t , the  implications  i n m i n d t h a t t h e d i r e c t o r s , when  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 , e v e n  if  their in  interest is  opposed  to the company's  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  fide  interest,  a n d t h a t t h e y may be  shareholders,  r a t i f y t h e i r own m a l a  actions. A f u r t h e r r e m e d y w h i c h may be o p e n t o s h a r e h o l d e r s  i n such a  situation  68 is  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 . "  meaning  f o r the purpose  f r a u d means o p p r e s s i o n Although Hogg v .  of this  of the m i n o r i t y , or misuse  and Bamford v .  s u c h an a c t i o n , i t s h o u l d holders  have s u c c e e d e d  a less  restricted  of a f i d u c i a r y  Here  position.  that minority shareholders  in  the  Bamford t y p e s i t u a t i o n s would succeed  be r e a l i z e d t h a t t h e o n l y  have  has  a c t i o n t h a n f o r an a c t i o n i n d e c e i t .  i t might appear a t f i r s t s i g h t Cramphorn  "Fraud"  been c a s e s  involving  in  cases i n which the  a change  i n the  share-  company's  69 constitution,  u s u a l l y one o f t h e a r t i c l e s o f a s s o c i a t i o n .  s o n i n p r i n c i p l e why t h i s trine  is  should  be s o ,  but the f a c t remains  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  applicable  i n v e r y few i n s t a n c e s  The d i r e c t o r s  There  manner,  is  no  rea-  t h a t i f the  doc-  t h e remedy w i l l  of the take-over s i t u a t i o n .  have a w i d e range  o f p o w e r s w h i c h t h e y may e x e r c i s e i n  p o n s e 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 p o w e r s w i l l in  the m i n o r i t y shareholders  them be a w e l c o m e o f f e r . ^ 7  losing  F u r t h e r , the o f f e r i s  made t o t h e  indirectly.  t h a t some r e s t r i c t i o n s h o u l d  be i m p o s e d on t h e e x t e n t t o w h i c h t h e  T h e r e f o r e one may  p o s i t i o n which i s have the g r e a t  the m i n o r i t y shareholders  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  p o w e r w h i c h t h e y do  have.  are  argue  directors  c a n 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 considerations,  to  shareholders,  involved only  view of these  res-  result  an o p p o r t u n i t y t o a c c e p t w h a t m i g h t  n o t t o t h e company, w h i c h i s  In  be  the o f f e r .  i n a very  need f o r the d i r e c t o r s  weak to  30 Section  B  Disclosure When a s h a r e h o l d e r  receives  an o f f e r f o r h i s  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 or refuse  the o f f e r .  holder should of his  If  decide whether to  accept  the  the o f f e r i s  on a s h a r e - f o r - s h a r e  basis,  share-  value  the  value  shares.  the shares  quoted w i l l  7 1  s u f f i c i e n t i n f o r m a t i o n to assess a c c u r a t e l y the  and, i f  of the o f f e r o r ' s  time,  as p a r t o f a t a k e -  To e n a b l e h i m t o make an e n l i g h t e n e d r e s p o n s e ,  be g i v e n  own s h a r e s  shares  a r e q u o t e d on a S t o c k  Exchange,  be an i n d i c a t i o n o f t h e i r v a l u e .  t h e q u o t a t i o n may be  the p r i c e a t which they  But, f o r a v a r i e t y of  are  reasons,  misleading.  " T h e f a c t a p p e a r s t o be t h a t t h e 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 m e a s u r e 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 ; a n d t h e k n o w l e d g e o f t h e 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 subject. 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 the buyer or s e l l e r i n substance accepts the r e s u l t of t h i s information."^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 have f u l l  i n f o r m a t i o n about  t h e company.  because  t h e m a r k e t does  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 h e company e x a m p l e t h e r e may be a m i n o r d e p r e s s i o n ket w a i t s  f o r a p a r t i c u l a r monetary,  F u r t h e r , t h e q u o t a t i o n does n o t  of share  national  prices  involved;  position  o r w o r l d p r o b l e m t o be  take i n t o account the p o s s i b i l i t y  to e x p l o i t the company's  assets.  73  The s h a r e  rumour o r f a l s e  An o f f e r e e s h a r e h o l d e r Exchange  should  quotation f o r guidance  much more d e t a i l e d i n f o r m a t i o n . w h i c h has  been e v o l v e d o v e r t h e  as  t h a t the com-  p r i c e may  advanalso  buying.  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 to the value of his  This years.  is  shares.  p r o v i d e d by a s y s t e m o f  mar-  solved.  74 be m a n i p u l a t e d by f a l s e  for  g e n e r a l l y w h i l e the  p a n y 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 tageous  not  He  Stock  requires  disclosure  31  In  considering  securities  disclosure  regulation  is  the P o r t e r Commission  t o a s s i s t and e n c o u r a g e  investors  insiders  75  "The r o l e  the s e c u r i t i e s  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 tect  said:  industry  and i n t e g r i t y , t o  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 c o m m u n i t y o r  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 t h e m , a n d t o e n s u r e  quate 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  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 , sources of disclosed  i n f o r m a t i o n , one b e i n g  the annual  of to  pro-  corporate that  ade-  rationally."  t h e r e a r e two m a i n and i n t e r i m f i n a n c i a l  7fi statements  of  may be s e n t tion  is  t h e company  and t h e o t h e r b e i n g  to shareholders  i n connection w i t h the t a k e - o v e r b i d .  t h a t the s h a r e h o l d e r ,  been i n f o r m e d o f a l l  the c i r c u l a r s which are  when he has  the r e l e v a n t f a c t s  read these documents,  "It  is  difficult  f o r the o r d i n a r y  The i n t e n -  7 7  should  and s h o u l d , t h e r e f o r e , be i n a  able p o s i t i o n to that of a d i r e c t o r in considering  or  have compar-  the o f f e r .  i n v e s t o r , i n the absence  of  adequate 78  disclosure,  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  A s t u d y o f t h e c u r r e n t l a w and r e g u l a t i o n s mine whether they ensure financial  statements  to take-over 1. In  adequate d i s c l o s u r e .  shall  is  necessary  The r u l e s  be c o n s i d e r e d f i r s t ,  investment."  i n o r d e r to  r e l a t i n g to  and t h e n t h e r u l e s  deter-  annual  applicable  circulars.  Annual  Accounts  recent years  c o n s i d e r a b l e improvements  t i o n concerning annual  accounts  h a v e b e e n made i n t h e  legisla-  i n E n g l a n d and i n B r i t i s h C o l u m b i a , as  a  result 79  of the Reports  of the Jenkins  The p r o v i s i o n s  are, to a large extent, s i m i l a r .  In as  Committee and t h e Kimber C o m m i t t e e , r e s p e c t i v e l y .  each j u r i s d i c t i o n a g e n e r a l  to the contents  principle is  o f t h e p r o f i t and l o s s  l a i d down, and then  details  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  pro-  80 vided for. In B r i t i s h C o l u m b i a t h e a c c o u n t s m u s t 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 statement of surplus a n d 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 tion will  l e g i s l a t i o n does n o t r e q u i r e s u c h c a t e g o r i e s , though  i n t h e new A c t s  direction  are the requirements  figures  Major steps  f o r comparative figures  are given w i t h those  s t a t e m e n t s w h e r e a company has Act,  are i n t e n d e d to c r e a t e d i s c l o s u r e  a n d i n d o c u m e n t s w h i c h a r e more i n t e l l i g i b l e .  year's  informa-  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 a n d l o s s  The p r o v i s i o n s detail  the  83  f o r the c u r r e n t y e a r ,  subsidiaries.  84  In  in  i n the  whereby the and f o r  t h e 1967  of  greater right  previous  consolidated  English  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 m e t h o d s  account.  Companies preparing  85 some p a r t s  of  the accounts.  In  p r a c t i c e some c o m p a n i e s  were u t i l i z i n g the  86 directors'  report  intelligible  to give  i n f o r m a t i o n i n a n a r r a t i v e form which i s  to the average  investor.  This  has  much more  now been i n c o r p o r a t e d i n  the  statute. The c o n s e q u e n c e o f p u b l i c companies  o f the reforms now p r o v i d e  are not s u f f i c i e n t .  savings  in shares,  is  t h a t the annual  However i t may be a r g u e d  Today a w i d e r range  and i t i s  1967  accounts  financial information in greater detail  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 . ments  enacted in  not unreasonable  of people are  and  t h a t these investing  t o assume t h a t a l o w e r  improvetheir  percentage  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 a n n u a l a c c o u n t s , n e w l y 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 , h o w e v e 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. Various p r o f e s s i o n s c o n t r i b u t e to the i n f o r m a t i o n provided 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 , c o m b i n e d w i t h t h a t o f those engaged i n the 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 which i t i s d i f f i c u l t f o r the p u b l i c to i n t e r p r e t . It should be t h e 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 , s o 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 presented i n a form which i s understandable to 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 which i s  intelligible.  There i s  It  is  to present  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  suggested that t h 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 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 accounting  o b j e c t i v e has  principles.'  is  n o t been  problem a r i s i n g  the m u l t i p l i c i t y of  achieved.  out of  the  'accepted  33  " I t i s e v i d e n t t h a t o p t i m u m 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 statements of business organisations are presented o n 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 h e p r e s e n t t i m e two b a s i c a l l y c o m p a r a b l e c o m p a n i e s may h a v e t h e i r a c c o u n t s p r e s e n t e d using d i f f e r e n t accounting p r i n c i p l e s w i t h the 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 a n d o p e r a t i n g r e s u l t s may a p p e a r t o be q u i t e d i f f e r e n t in t h e i r f i n a n c i a l statements."89 The p r o b l e m was After  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 L e a s c o - P e r g a m o n  a f r i e n d l y agreement  respected accounting not agree  firms  t o a merger  rent accounting  principles  had b e e n made i n p r i n c i p l e , two  s t u d i e d the accounts  on t h e i r s i g n i f i c a n c e . in  affair.  o f Pergamon  The d i f f e r e n c e was  two b a s i c a r e a s :  (a)  Press,  highly-  and  could  due t o t h e u s e o f When s h o u l d  diffe-  development  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 ? profit  and l o s s  account 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  'accepted accounting p r i n c i p l e ' s t i p u l a t e s a one-year w r i t e - o f f , while 'accepted accounting a period of  p r i n c i p l e ' allows  another  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  over  years.  The s e c o n d d i s p u t e sale,  The  (b)  concerned the stage  p a r t i c u l a r l y a hire-purchase  a t which the proceeds  of  a  s a l e , c a n v a l i d l y be t e r m e d a p r o f i t — w h e n 90  the s a l e  has  problems  a r e t y p i c a l o f t h e many a c c o u n t i n g  there  a wide v a r i e t y of  is  b e e n a g r e e d , o r when t h e money has  is  remain f r e e to choose  straight  statement i s  l i n e or sinking  The J e n k i n s  that  fund, appropriate to the circumstances  of  directors  balance,  of their  the d e f i n i t i o n o f  company. 92  turnover  c a l c u l a t e d i n accordance with accepted accoun-  p r i n c i p l e s , and t h e p r o f i t s computed f o r t h e p u r p o s e t a x . 93  base  t h e m e t h o d by w h i c h  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  and t h e d i f f e r e n c e b e t w e e n p r o f i t s  profits  on w h i c h t o  C o m m i t t e e recommended  T h e r e 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 .  ting  because  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 91  dealing with depreciation. should  principles'  two  statements.  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 depreciation  These  d i f f i c u l t i e s which a r i s e  'accepted accounting  the p r e p a r a t i o n of f i n a n c i a l  come t o hand?  of  income t a x  and  34  "In s p i t e of the r e g u l a t i o n s . . . the v a s t d i f f e r e n c e i n account 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 c o m p a n i e s . Lack of s t a n d a r d i z e d accounting procedures reduces the value of d i s closure in a l l instances."94 In tants ting  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  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  argued  systems p r o p e r l y a p p l i c a b l e to v a r y i n g  c o r r e c t method.  A typical  accoun-  that there are d i f f e r e n t accoun-  situations  statement of t h i s  procedures,  attitude  a n d t h e r e c a n be no  single  is:  " T h e r e a r e , h o w e v e r , v a r i o u s methods o f c o m p u t i n g c o s t and a l t e r n a t i v e m e t h o d s o f a r r i v i n g a t t h e a m o u n t , i f a n y , t o be w r i t t e n o f f a n d t h e r e a r e v a r i o u s s p e c i a l b a s e s 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 s o 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 , nor even f o r a l l u n d e r t a k i n g s with a p a r t i c u l a r trade or industry. 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 a n y 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 h e 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 l e m m a i s consistent results accountant states  revealed—the investor so  requires  s t a n d a r d methods  giving  t h a t he may c o m p a r e o n e company w i t h a n o t h e r , w h e r e a s  the  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 companies  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 is  solution  that the accounts  t a n t t h a t the b a s i s and s h o u l d  has  been s u g g e s t e d :  should give  a t r u e and f a i r  adopted should  "The o v e r r i d i n g v i e w and i t i s  should  disclose  therefore  impor-  be u s e d c o n s i s t e n t l y f r o m p e r i o d t o p e r i o d ,  be a p p r o p r i a t e t o t h e n a t u r e and c i r c u m s t a n c e s  that the accounts  consideration  adequate 97  of the business,  and  information."  The J e n k i n s C o m m i t t e e 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 o u g h t 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 h e b a s i s u s e d . Any d e p a r t u r e f r o m t h e b a s i s p r e v i o u s l y i n use a n d t h e e f f e c t o f a n y s u c h c h a n g e s h o u l d a l s o be b r o u g h t t o t h e 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 . " This  solution  has  been a d o p t e d i n t h e 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  in  98 England.  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  by way o f n o t e t o t h e f i n a n c i a l s t a t e m e n t s  Act provides:  "There s h a l l  p a r t i c u l a r s o f any change  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  in  any a c c o u n t i n g  be  stated  accounprinciple  35  or p r a c t i c e made during the period covered that a f f e c t s the comparability of any of the statements with any of those f o r the preceding p e r i o d , and the e f f e c t , i f m a t e r i a l , of any such change upon the p r o f i t or loss of the p e r i o d . " 99 The 1967 Companies Act contains such provisions as:  " I f depreciation  or replacement of f i x e d assets i s provided f o r by some method other than a depreciation charge or provision f o r renewals, or i s not provided f o r , the method by which i t i s provided f o r , or the f a c t that i t i s not provided f o r , as the case may be" s h a l l be stated by way of note i f not otherwise shown. So also i t i s p r o v i d e d : ^  00  "Any material respects i n which any items  shown i n the p r o f i t and loss account are a f f e c t e d by any change i n the basis of accounting" s h a l l be shown by way of note. Two questions may be asked concerning t h i s s o l u t i o n :  (1) Is the objec-  t i v e of rendering one company comparable to another by the use of t h e i r annual accounts achieved?; and (2) W i l l the r e s u l t a n t accounts be r e a d i l y 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 average i n v e s t o r , uneducated i n f i n a n c i a l theory and language, the answer to both questions w i l l be ' n o .  1  Even i f i t i s noted that a d i f f e r e n t accounting p r i n -  c i p l e has been used from the one used the previous year, t h i s w i l l not help the i n v e s t o r who i s comparing one company with another, i f y e t a t h i r d account i n g p r i n c i p l e has been used.  In f a c t , the investor w i l l probably not r e a l i z e  the s i g n i f i c a n c e of any of the p r i n c i p l e s 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 misleading guidance to an unaware shareholder who:  36  "may have t h e i d e a t h a t t h e f u n c t i o n o f a c o m p a n y ' s b a l a n c e s h e e t i s t o show t h e 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 u p . As t h e Cohen Committee p o i n t e d o u t , 1 0 2 t h a t i s not t h e f u n c t i o n o f t h e b a l a n c e s h e e t , a n d 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 h e company i s a b o u t t o be l i q u i d a t e d . "103 "The p r i m a r y purpose o f t h e annual 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 , s h o w i n g how t h e i r f u n d s h a v e been u t i l i z e d a n d t h e p r o f i t s d e r i v e d f r o m s u c h u s e . 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 p u r p o s e 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 . Stated 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 m o n e t a r y t e r m s t h e c a p i t a l r e s e r v e s a n d 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 m a n n e r 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 h a v e b e e n d i s t r i buted o v e r the s e v e r a l types o f assets.. 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 h e p r o f i t o r l o s s t h e d i f f e r e n c e b e t w e e n t h e r e v e n u e 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 h e 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 amortization of c a p i t a l expenditure. Revenue a n d e x p e n d i t u r e a r e brought i n t o the account a t t h e i r r e c o r d e d monetary amounts. This 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 h e h i s t o r i c a l c o s t b a s i s . . . ."104 C l e a r l y the average understanding shareholder, have of  an a d e q u a t e  shareholder  over  the annual  accounts  shareholder  understanding  the company's  must  of  funds  should  n o t r e l y s o l e l y on  e i t h e r o f t h e company  o r o f an o f f e r o r company.  t h e use o f  given  of  individual  F i r s t he w i l l  the a c c o u n t s ,  not,  o f w h i c h he i s in a l l  and s e c o n d l y ,  r a t h e r than a v a l u a t i o n of  w h i c h he r e c e i v e s  a  probability,  they are a  record  t h e company.  The  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 h e  t o him i n t h e documents  his  information  i n connection w i t h the  take-  offer. 2.  Circulars  Connected w i t h Take-over  The r e c i p i e n t o f an o f f e r f o r h i s  Bids  shares,  as  part of a take-over  bid,  must  105 r e c e i v e a c i r c u l a r from the o f f e r o r . from the o f f e r e e d i r e c t o r s . when t h e d i r e c t o r s the b i d , Jenkins  1 0 6  The o f f e r e e may a l s o  Such a c i r c u l a r i s  o f t h e o f f e r e e company  British  Columbia,  recommend a c c e p t a n c e o r r e f u s a l  and i n E n g l a n d where t h e d i r e c t o r s  Committee c o n s i d e r e d whether r u l e s  required, in  receive a c i r c u l a r  recommend a c c e p t a n c e .  should  be d e v i s e d  1 0 7  to control  of The  the  37  contents  o f a c i r c u l a r recommending  r e f u s a l , but decided against  such  rules  108 on t h e g r o u n d s t h a t t h e y w o u l d n o t i m p r a c t i c a b i l i t y were g i v e n .  be p r a c t i c a b l e .  The p o s i t i o n  is  No r e a s o n s f o r  unsatisfactory  be a b l e  t o recommend t o s h a r e h o l d e r s  that they refuse  to give  r e a s o n 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  3.  The T a k e - o v e r  The p r o v i s i o n s  as  Bid  stantially  similar.  the length of  directors  may  an o f f e r , w i t h o u t h a v i n g 109 t h e y may make.  Circular  to the contents  set out i n the S e c u r i t i e s  as  this  Act  ^  1 1  the  offer,  are  sub-  g o v e r n i n g t h e b i d m u s t be e x p l a i n e d , 112  e.g.  and t h e L i c e n s e d D e a l e r s  1  The p r o c e d u r e  time the b i d w i l l  o f the c i r c u l a r accompanying  remain open,  Rules,  1 1 1  and w h e t h e r t h e o f f e r o r ' s  obli-  gation  t o t a k e up a n d p a y 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 . Other basic information i s also required t o be d i s c l o s e d u n d e r e a c h 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 of purchases o f shares w i t h the l a s t 115 s i x months, or the 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 of arrangements which h a v e 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 cash  to f u l f i l  his  116 obligations. arrangements  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 a n y c o n t r a c t s , o r a g r e e m e n t s b e t w e e n 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 a n d  t h e o f f e r o r m u s t be A curious  disclosed.  117  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  Columbia  legisla118  tion  is  while  t h a t i n England  t h e i d e n t i t y o f t h e o f f e r o r m u s t be  i n B r i t i s h Columbia  were o f the o p i n i o n  there  is  no s u c h r e q u i r e m e n t .  t h a t " t h e dominant  to accept i s  the adequacy  the b i d d e r ' s  i d e n t i t y could discourage  disclosed,  The K i m b e r  f a c t o r which i n f l u e n c e s  o f the p r i c e " and " t h a t c o m p u l s o r y the making  of bids  the  Committee offerees  disclosure  which might  of  other-  119 wise  be made.  i d e n t i t y of highly  While both p o i n t s  t h e o f f e r o r can be v e r y  e f f i c i e n t and s u c c e s s f u l  are v a l i d , important.  businessman,  i t may a l s o If  be s a i d  the b i d d e r i s  that  the  a well-known,  some o f f e r e e s may w i s h  to  remain  38  shareholders offerees w i l l control.  under h i s think  Surely,  control.  like  however, of a l l  the o f f e r e e s  in possession  cases  a p a r t i c u l a r bidder i s , because  he has  f o r the bidder i s  t h a t , and he may n o t g a i n  while  perhaps  The d a n g e r  It  f o r sound r e a s o n s , methods  s u f f i c i e n t shares  is  also  choice  true that in  each j u r i s d i c t i o n t h e r e i s  a  some  not a s u i t a b l e c o n t r o l l e r ,  which are unacceptable to the  120 unions. T h o u g h t h i s may n o t be i m p o r t a n t f r o m t h e s t r i c t l y l e g a l 121 122 point, i t c a n 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  many  for  h a v e t h e r i g h t t o make t h e i r  the r e l e v a n t f a c t s .  business  t h a t too  ' m a t e r i a l change'  trade view-  sub-section.  In  British  123 Columbia 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  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 a n y m a t e r i a l c h a n g e t i o n or prospects  o f t h e o f f e r e e company s i n c e  i n t e r i m o r annual  f i n a n c i a l statements  the  in  information  i n the f i n a n c i a l  the date of  of the o f f e r e e 125  the l a s t 124 company."  There i s  a similar provision  Although  t h e o f f e r o r may n o t be i n a v e r y g o o d p o s i t i o n  published  England. t o know much  about  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 n o t a l r e a d y be known t o t h e  holders,  t h e s e m a t e r i a l change  provisions  a case  these p r o v i s i o n s  w o u l d be t h e o n l y 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 such  as  In  l e g i s l a t i v e requirement to  the  such  disclose  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  points  shareholdings.  However t h e s u b - s e c t i o n s 'material  change?'  that this  provision will  courts 4.  share-  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  o f f e r e e d i r e c t o r s do n o t s e n d 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 .  the  posi-  are d i f f i c u l t  to apply.  What w o u l d be c l a s s i f i e d a s  What c o n s t i t u t e s  'information?'  be f r e q u e n t l y l i t i g a t e d ,  It  is  a  unlikely  s o t h a t one c a n n o t d e p e n d  on  for interpretation. Directors'  Circulars  The s e c o n d d o c u m e n t 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  are l i k e l y  to  receive  103 is  a directors'  circular.  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 as:  the  number o f s h a r e s by a n y o n e  in  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  h o l d i n g more t h a n t e n p e r c e n t o f t h o s e  shares  carrying  129  or  voting  130 rights;  a statement whether  the o f f e r e e d i r e c t o r s  intend to accept  131  132  offer;  t h e number o f s h a r e s  culars  the  o f any p r o p o s e d  owned by t h e o f f e r o r d i r e c t o r s ;  agreement  the  between t h e o f f e r o r and t h e o f f e r e e  partidirec-  133 tors;  w h e t h e r any d i r e c t o r o f  c o n t r a c t to which  the o f f e r o r i s  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 a p a r t y , and t h e p a r t i c u l a r s t h e r e o f ; 135  details Again  of  the o f f e r e e company's  both the S e c u r i t i e s  requiring cial  the p r i c e o f  disclosure  prospects  of  A c t and t h e L i c e n s e d  The  the  Act contains  an a d d i t i o n a l  latter provision  change'  is  sub-sections.  provision  not d i s c l o s e d  What i s  decide that a p a r t i c u l a r f a c t is  will  a court will  These  in  be i n h i b i t e d by t h e  regulations,  the  finan-  that  the f o r e g o i n g "  "the be  giving  accept the o f f e r .  c e d u r e , and o f  i n f o r m a t i o n as  This  is  to the previous  If  to  the  direc-  circumstances  not such a case where  the  prob-  decision.  The  on t h e i r  share  f o r the b i d , but, i f  be w i t h o u t t h e r e l e v a n t  'materiality' provisions enforcement.  the  prices, contracts  w o u l d t h e n be a w a r e o f t h e  i n and b i a s  role.  c o u l d comply w i t h  d e t a i l s , whether o f f e r e e d i r e c t o r s  interests  f u r t h e r w e r e r e q u i r e d , he w o u l d s t i l l  b u t much d e p e n d s  fact?  r u l e , and t h e y w i l l 1 qo the m a t e r i a l i t y of a f a c t .  The o f f e r e e s h a r e h o l d e r  the d i r e c t o r s '  t o make h i s  as w e r e made 137  could, i f e f f e c t i v e l y enforced, play a c r u c i a l  the o f f e r e e d i r e c t o r s , the procedural  sible,  in  ' b u s i n e s s judgment'  in considering 139  sub-sections  a material  t h e y w e r e 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  which  sub-sections  requiring  not m a t e r i a l , under what  interfere with that decision?  a b l y h a v e no h e s i t a t i o n  to  have  change  s u b j e c t t o t h e same o b j e c t i o n s  tors  If  Rules  1 3 6  'material  courts  Dealers  company.  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 stated.  p r i o r to the o f f e r .  of information i n d i c a t i n g a material  the  The S e c u r i t i e s  shares  information  c o u l d make t h i s  with  intend pronothin with impos  40  5.  Enforcement  Can a s h a r e h o l d e r who has disclosure fically  regulations  give  sue  suffered a loss  the offender?  a r i g h t t o damages.  It  to a f i n e of  he i s  up t o $ 2 5 , 0 0 0 o r i m p r i s o n m e n t  year or to both. $2,000:  The S e c u r i t i e s  provides  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  as a r e s u l t o f a b r e a c h o f  1 4 0  A c t does n o t  speci-  t h a t w h e r e an o f f e r o r  fails  g u i l t y o f an o f f e n c e and  liable  f o r a t e r m o f n o t more t h a n  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  the  one  a mere  1 4 1  Because tion arises  there is  no r e f e r e n c e t o c i v i l  w h e t h e r a s h a r e h o l d e r who has  s t a t u t o r y duty.  This  has  always  liability  in  the s t a t u t e , the  ques-  s u f f e r e d l o s s may s u e f o r b r e a c h  been a d i f f i c u l t q u e s t i o n .  of  Lord J u s t i c e Atkin  142 said:  "In  my o p i n i o n , when an A c t i m p o s e s  the q u e s t i o n whether a person action  depends  This  is  aggrieved  a duty of commission  by a b r e a c h o f  t h e d u t y has  or  omission,  a right  of  on t h e i n t e n t i o n o f t h e A c t . "  not very h e l p f u l ,  because  the i n t e n t i o n of the A c t i s  to p e r c e i v e , but the 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 not c o n c l u s i v e l y , that there i s Charlesworth  difficult  are imposed i n d i c a t e s ,  no i n t e n t i o n t o c r e a t e c i v i l  though  liability.  writes:  143 " I t has been s a i d , ' N o u n i v e r s a l r u l e c a n be f o r m u l a t e d w h i c h w i l l a n s w e r t h e q u e s t i o n w h e t h e r i n a n y g i v e n c a s e an i n d i v i d u a l c a n 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 , however, the 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 b e : 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 h e 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 h e 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 ) Is t h e 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 a d e q u a t e f o r t h e p r o t e c t i o n o f t h e person i n j u r e d ? I f t h e f i r s t two q u e s t i o n s a r e a n s w e r e d i n t h e 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 c a s e s t h e i n d i v i d u a l can s u e . " 1 4 4 The a n s w e r provisions was  has  to question  a) w i l l  d e p e n d on t h e f a c t s , b u t i f a b r e a c h o f  been c o m m i t t e d t h e answer w i l l  a shareholder  be  'yes.'  a t t h e r e l e v a n t t i m e , t h e answer  If  the p l a i n t i f f  to question  b) w i l l  be  the  is  or  'yes.'  41  The d i f f i c u l t y  is  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 .  It  is  submitted that  sections  under c o n s i d e r a t i o n are concerned w i t h t r a n s a c t i o n s  millions  o f d o l l a r s , and f i n e s  offerors only,  o f one y e a r ' s  w h i c h may  o f $25,000 and $2,000 w i t h t h e t h r e a t ,  imprisonment  does n o t p r o v i d e a d e q u a t e  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 However, i t i s  open t o doubt w h e t h e r the c o u r t s w i l l  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  the involve  to  protec-  businessmen.  take t h i s  attitude,  i n a breach of  145  statutory  146 duty  action. The l i a b i l i t y  curious.  p o s i t i o n w i t h r e s p e c t to the L i c e n s e d Dealers  The R u l e s a r e made p u r s u a n t 147  (Investments) Act.  Sub-section  (2)  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 this  to section  Rules  is  7 o f the P r e v e n t i o n o f  of that section  reads:  Fraud  "A p e r s o n  o n l y o f a b r e a c h o f r u l e s made  shall  under  section." There i s  no r e f e r e n c e i n t h e A c t t o c i v i l  liability,  t h e r e f o r e the  points  made a b o v e a b o u 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 . the argument criminal  for a successful  l i a b i l i t y . ^  Licensed Dealers  been d o n e .  There i s  because  there is  no r e f e r e n c e t o a n y f o r m o f  thus  f a r has  concerned remedies  I t w o u l d be more b e n e f i c i a l i f  t h e damage o c c u r s ,  no  quasi-  liability  in  be g r a n t e d i n t h i s  situation.  v e r y good p o s i t i o n  to bring  the  and e v i d e n c e t o p e r s u a d e  Secondly,  done.  damage  F i r s t , the appropriate  before action  by no means c l e a r t h a t an i n j u n c t i o n w o u l d  a shareholder  a t i m e l y a c t i o n , because  a c t i o n o n l y a f t e r t h e damage i s  a v a i l a b l e a f t e r the  some a c t i o n c o u l d be t a k e n  b u t t h e r e a r e two d i f f i c u l t i e s .  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 149  pleted.  stronger  Rules.  The d i s c u s s i o n has  action is  Indeed,  is  not normally  in a  he r e a l i z e s t h a t he has  He may n o t h a v e  the necessary  an  information  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-  42 6.  Conclusion  Despite  t h e c r i t i c i s m s w h i c h h a v e been m a d e , t h e s y s t e m o f  by means o f a n n u a l tive  in ensuring  accounts  and t a k e - o v e r c i r c u l a r s w i l l  t h a t the shareholders  will  n o r m a l l y be e f f e c -  r e c e i v e the i n f o r m a t i o n  t o make an i n f o r m e d c h o i c e , t h o u g h a t p r e s e n t he may h a v e standing  it.  However,  against,  because  a t t r a c t the  disclosure  difficulty  t h e s y s t e m c a n be a b u s e d , a n d t h i s m u s t be  the rewards  of a successful  necessary in  under-  guarded  take-over are very high  and  unscrupulous.  " D i s c l o s u r e , i n i t s e l f , i s n o t the complete answer to the p r o b l e m s 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 a n d 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 p e r s o n s e n g a g e d i n t h e s e c u r i t i e s industry are of great importance."'50 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 a mass o f f i g u r e s necessary holders  and t e c h n i c a l l a n g u a g e ,  could provide  a n d t h e n , by means o f e m o t i v e l a n g u a g e ,  to take a p a r t i c u l a r course  There i s  of  with accounting  o f the company's Finally,  attempt to persuade  the  share-  v a l u a t i o n o f t h e company,  supported evaluation  p e r f o r m a n c e and p o t e n t i a l .  the enforcement p r o v i s i o n s  Equality The c o n c e p t o f e q u a l i t y has 'Treat like with l i k e '  is  A is  B is  sufficiently like  to which f a c t o r s  for  are not C  Shareholders  always  been d i f f i c u l t  of treatment of shareholders  151  in practice.  a decision  in a take-over bid.  of t a k e - o v e r s — s a l e  i t has  whether  especially  Such c o n s i d e r a t i o n s  i n the a p p l i c a t i o n of the concept of  i l l - d e f i n e d and u n c e r t a i n , y e t  terms.  to apply  o f t e n a r b i t r a r y and open t o a r g u m e n t ,  are r e l e v a n t to the d e c i s i o n .  three important aspects  satisfactory.  a d e c e p t i v e l y s i m p l e i d e a , because  t e d l y c o n t r i b u t e to the problems  e q u a l i t y of  t h e minimum i n f o r m a t i o n  bases e x p l a i n e d , nor even f o r a p l a i n  Section  doctrine is  behind  action.  no r e q u i r e m e n t f o r a f a i r  with reasons,  as  the r e q u i r e m e n t s , and h i d i n g  undoubequality  The e f f e c t i v e s c o p e o f considerable  the  i n f l u e n c e on  of control, insider trading,  and  43  When one p e r s o n , minority shareholders almost  having will  control  o f a company,  o f t e n n o t have  c e r t a i n l y n o t on t h e same t e r m s .  sells  his  the o p p o r t u n i t y This  is  shares,  to s e l l  the  theirs,  the problem r e f e r r e d to  and as 152  sale  of 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  s u c h a s i t u a t i o n may n o t be g o v e r n e d  by t h e t a k e - o v e r  The K i m b e r C o m m i t t e e w e r e c o n t e n t t o s a y : the e v o l u t i o n insiders  of a legal  from i n s i d e r cial  d o c t r i n e w h i c h may i m p o s e  o f s u c h company  trading aspects,  process."  upon  the opinion  directors or  that  other  group a f i d u c i a r y duty  i n c a s e s o f change  a m a t t e r t o be l e f t  bid  provisions.  "We a r e o f  o f a company who c o n s t i t u t e a c o n t r o l  other shareholders  of a take-over  of c o n t r o l  to development  is,  toward apart  by t h e  judi-  1 5 3  154 The Code has t a k e n a d i f f e r e n t a p p r o a c h : " D i r e c t o r s whose s h a r e h o l d i n g s , t o g e t h e r w i t h t h o s e o f t h e i r f a m i l i e s and t r u s t s , e f f e c t i v e l y c o n t r o l a company, o r s h a r e h o l d e r s i n t h a t p o s i t i o n who a r e r e p r e s e n t e d on t h e B o a r d o f a c o m p a n y , a n d who c o n t e m p l a t e t r a n s f e r r i n g c o n t r o l , s h o u l d n o t , o t h e r t h a n i n s p e c i a l c i r c u m s t a n c e s , do so u n l e s s t h e b u y e r u n d e r t a k e s t o e x t e n d w i t h i n a reasonable p e r i o d of time a comparable o f f e r to the holders of the remaining e q u i t y share c a p i t a l , whether such c a p i t a l c a r r i e s voting rights or not. In s u c h s p e c i a l c i r c u m s t a n c e s , t h e P a n e l m u s t be c o n s u l t e d i n a d v a n c e a n d i t s c o n s e n t o b t a i n e d . " It of  is  suggested t h a t the approach  taken i n  d e a l i n g w i t h the p r o b l e m , even though  t h e Code i s  some b i d d e r s  the b e t t e r  method  may be d i s c o u r a g e d  by  155 the  provision. 1.  Insider  Where  Trading  there is  a general  o f f e r to a l l shareholders,  the c a p a c i t y o f s h a r e h o l d e r s ,  will  t h e o f f e r , a n d t h e more s h a r e s the bid i s  attractive.  directors'  possession to a l l  this  is  have  the o p p o r t u n i t y  they h o l d the g r e a t e r  The p r o b l e m o f  the shareholders  during  to a c c e p t or  p r o f i t they w i l l  d i s t r i b u t i o n of information i n has  a d i f f e r e n t a s p e c t o f t h e same p r o b l e m .  t i a t i n g w i t h the o f f e r o r s  the d i r e c t o r s ,  the course  in  refuse make the  a l r e a d y been d e s c r i b e d , Where  the d i r e c t o r s  if  are  and nego-  o f t h e b i d , t h e d i r e c t o r s may,  on  44  the basis pany  of  t h e i r knowledge  and s e l l  of the n e g o t i a t i o n s ,  t o t h e o f f e r o r a t an i n c r e a s e 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 higher  bid.  Clearly i t is  tage of s p e c i a l pany.  This In  is  England  possible  'insider  the s o l u t i o n  price.  in  t h a t the d i r e c t o r s in  t h e i r own c o m -  S u c h an o p p o r t u n i t y  r e a l i z e t h a t the o f f e r o r w i l l  information gained known as  buy s h a r e s  make a  would  second,  can t r a d e w i t h the  their capacity of directors  of  the  advancom-  trading.'  attempted is  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 he b e c o m e s , company  or ceases  "any  event  to be, i n t e r e s t e d in shares  o r any o t h e r b o d y c o r p o r a t e , b e i n g  company,  or a s u b s i d i a r y  The p e n a l t i e s exceeding  i n consequence  are  t h r e e months  o f the company's  (a)  on summary  o f whose  occurrence  i n , or debentures  the company's  holding  subsidiary 157  of, or  the holding  company."  c o n v i c t i o n , imprisonment  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 ;  f o r a term (b)  on  not  conviction  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 term not exceeding  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 holders  are so  incensed  by t h e d i r e c t o r s '  The common l a w m i g h t grounds  t h a t the d i r e c t o r s  "the general to perform is personal  provide  rule of equity  are is  or a f i n e or  a s u f f i c i e n t number o f  p r o f i t t h a t they v o t e him o f f  t h e company w i t h a remedy  in a fiduciary position t h a t no one who has  a l l o w e d t o e n t e r i n t o engagements  towards  duties  of  t h e company  of a f i d u c i a r y  share-  the and  nature  o r can have  t h o s e whom he i s  both.  the board.  i n d a m a g e s , on  i n w h i c h he has  i n t e r e s t c o n f l i c t i n g w i t h the i n t e r e s t s  protect."  two y e a r s  bound  a to  1 6 0  Further: " t h e k n o w l e d g e 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 r o u n d 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 s u c h k n o w l e d g e s h a l l n o t be c a p a b l e o f b e i n g u s e d f o r h i s own b e n e f i t t o i n j u r e t h e t r u s t . The g r o u n d 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 b e c a u s e s u c h k n o w l e d g e may e n a b l e h i m a c t u a l l y t o o b t a i n an undue a d v a n t a g e o v e r o t h e r s . " S u c h an a r g u m e n t h a s 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 c a s e 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 the course of a take-over b i d . However t h e g e n e r a l p r i n c i p l e 1 6 1  is  well  founded,  a n d t h e company  has  a strong  argument  i n such a s i t u a t i o n .  162  %  45  A d i f f e r e n t question  is  whether  an i n d i v i d u a l  damages f r o m a d i r e c t o r t o whom he s o l d  shares  if  shareholder the l a t t e r  i n f o r m a t i o n which would a f f e c t m a t e r i a l l y the value was  not  disclosed.  A straightforward  of  a p p l i c a t i o n of  can  had  recover 'inside'  the s h a r e ,  but  which  the r u l e enunciated  in  icq Percival  v. Wright  individual  shareholder  could not recover However the  —that  take-over  but only  on h i s  i t is  situation.  convenience  and t h e q u e s t i o n  is  rather  whether  the d i r e c t o r s  court  than  mean t h a t a  is  significantly  as  such i s  not d i r e c t l y i n v o l v e d .  t h e o f f e r o r may n e g o t i a t e w i t h  be a b l e  fiduciary  to recover  trading.'  an  shareholder  different  the  latter  are acting In  a r e now a c t i n g  It w i l l  on b e h a l f  o f t e n be d i f f i c u l t  f o r t h e company,  some i n s t a n c e s  at  for  least  duties  a r e owed t o them a n d t h e y ,  damages w h e r e  the  directors  have  directors, share-  determine  themselves, it will  for  of the  to  or f o r  be open t o  the the  i n which case  individually,  indulged  in in  Frequently,  the o f f e r e e  to decide t h a t they are a c t i n g f o r the s h a r e h o l d e r s ,  directors'  to  behalf.  t h e company.  in general.  duties  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  whether  holders  shareholders  own  to the company—would  suggested t h a t the p o s i t i o n  g e n e r a l , a n d t h e company the sake of  a d i r e c t o r d o e s n o t owe f i d u c i a r y  in  the  should  'insider  1 6 4  There  is  no d i r e c t a u t h o r i t y  to support  this  argument,  a n d t h e r e m u s t be  165 some d o u b 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 s u c h an a c t i o n . I n d e e d t h e s t r e n g t h o f t h e a r g u m e n t t h a t t h e company may r e c o v e r i s w e a k e n e d by t h e f a c t t h a t t h e m a j o r i t y o f  the shareholders  may be a b l e  to r a t i f y  the  166 improper  trading. 167  This insider "Every  uncertainty  trading insider  insider,  1 6  encouraged  legislation ^  the  should  of a corporation  K i m b e r C o m m i t t e e t o recommend  be e n a c t e d .  The r e s u l t i n g  or associate  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  1 6  ^  provision  or a f f i l i a t e  relating  that  1  7  0  of  to the c a p i t a l  is: the securities  46 of  t h e c o r p o r a t i o n , makes u s e o f  his  own b e n e f i t o r a d v a n t a g e ,  any s p e c i f i c  that, i f  generally  expected to a f f e c t m a t e r i a l l y the value pensate  any p e r s o n  i n f o r m a t i o n was or  company  o r company  of  a result  associate  t o have  the t r a n s a c t i o n ,  or a f f i l i a t e ,  as  known, m i g h t  the s e c u r i t i e s  is  also  for  reasonably l i a b l e to unless  com-  person  accountable  to  the  received or receivable  t h e c a s e may be as  be  the  been known t o t h e  and i s  f o r any d i r e c t b e n e f i t o r advantage  the i n s i d e r ,  information  of the t r a n s a c t i o n ,  known o r o u g h t r e a s o n a b l y  a t the time of  corporation  as  confidential  by  a result of  the  171 transaction." There  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  transaction  is  e f f e c t e d through  may n o t be a b l e t o p r o v e  the Stock  t o match h i s  this  the a c t i o n w i l l  c a n be p r o v e d ,  remarkable  'specific'  and  t o be  are i n a d d i t i o n  this  proving  case  Nevertheless shareholders  'use'  to the usual the  the s e c t i o n  as w e l l  as  and o t h e r i n s i d e r s  Clearly, was this  a possible section.  if  1  When m i g h t  t o have  it  Even  contains When  i t reasonably  if a  is  be  When c a n t h e  expec-  informa-  been known?'  hazard of proving  have 172  sections  are the  a worthwhile an a c t i o n .  have  who m i g h t  These  direct loss,  advance Further,  in  and  in  the  section,  a m a r k e d d e t e r r e n t e f f e c t on  consider  improper  o f f e r , the s h a r e h o l d e r  likely  that  this  trading.  bought shares w i t h o u t d i s c l o s i n g  attractive take-over  trading while negotiating  purchase.  interpretation.  the s e c u r i t i e s ?  represents  the d i r e c t o r s  But what  shareholder  information.  t h e company  combined w i t h the r e p o r t i n g directors  requiring  'confidential?  of  the p l a i n t i f f  share  s h a r e s f r o m t h e d i r e c t o r , as  'known o r ought r e a s o n a b l y  questions  When t h e  be b a s e d on a s e c t i o n w h i c h  ted to a f f e c t m a t e r i a l l y the value o f t i o n be s a i d  section.  s a l e w i t h the d i r e c t o r s '  number o f w o r d s a n d p h r a s e s  information  Exchange,  t h a t he b o u g h t h i s  may n o t be p o s s i b l e  this  effects  of section  that  there  c o u l d sue  under  111  w i t h an o f f e r o r a f t e r t h e o f f e r has  on  directors'  been  announced?  47  This  occurred during  pended d e a l i n g s  the Leasco-Pergamon  i n Pergamon's  Such a s i t u a t i o n i s  as  to the f i n a l  bid,  advantage  s u c h as  instincts  is  or reactions  A s h a r e h o l d e r who d o e s s u f f e r  the  the Such  answer  n o t buy o r s e l l  an  guidance non-factual  w i t h the o f f e r o r , o r  The i d e a l  they should  is  per-  that  the  if  shares.  directors.  a loss  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  which w i l l  t o arguments  by s e l l i n g  f r o m n e g o t i a t i o n s , w o u l d have  a f f e c t m a t e r i a l l y the value  because  dis-  guidance  t o such i n f o r m a t i o n .  t o t h e company.  do n o t w a n t t o d i s c l o s e ,  guidance  in their  not r e a d i l y d i s c l o s a b l e , e.g.  S u c h a d v i c e may n o t be a c c e p t e d by t h e  beneficial  The d i r e c t o r s  t o e r a d i c a t e by d i s c l o s u r e ,  h a p s d i s c l o s u r e w o u l d be h a r m f u l the d i r e c t o r s  sus-  to the p o s s i b i l i t y of success of  w o u l d n o t have a c c e s s  may be d i f f i c u l t  Exchange  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  o b t a i n e d may be o f a n a t u r e w h i c h material  to c o n t r o l .  p r i c e o f f e r e d , o r as  and t h e s h a r e h o l d e r  the Stock  shares.  difficult  c u s s i o n s w i t h the o f f e r o r s  bid until  t o a d i r e c t o r , who  d i f f i c u l t y in p r o v i n g  has that  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  of the shares,  w i t h i n the terms o f  the  to  section,  p r o b a b l y be i n e f f e c t i v e i n s u c h a s i t u a t i o n .  The T a k e - o v e r  Panel  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  lia-  173 bility  section.  o f mere  The Code t h e r e f o r e f o l l o w s  the E n g l i s h  statutory  solution  disclosure:  " S a v e i n s o f a r as i t a p p e a r s f r o m t h i s C o d e , 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 to f e t t e r the market. A c c o r d i n g l y , a l l p a r t i e s to a t a k e - o v e r o r m e r g e 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 Exchange, the Panel and t h e P r e s s ( n o t l a t e r t h a n 12 noon on t h e d e a l i n g d a y f o l l o w i n g t h e 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 d a y d u r i n g t h e o f f e r p e r i o d i n t h e m a r k e t o r o t h e r w i s e and a t w h a t a v e r a g e p r i c e . " 1 7 4 This  is  a very strong  t h e r mere d i s c l o s u r e  of  disclosure  trading  is  provision,  effective.  If  but the question there is  remains  no l i a b i l i t y  whe-  which  48 prohibits  the d i r e c t o r from t r a d i n g w h i l e i n possession  t i o n n o t known t o t h e s h a r e h o l d e r s , purchase  of relevant  he c o u l d buy t h e s h a r e s ,  informa-  disclose  the  t h e f o l l o w i n g d a y , a n d he w o u l d h a v e c o n f o r m e d w i t h t h e r u l e s  while  175 gaining  his  profit.  shareholders encouraged tion  would see  t h a t a d i r e c t o r had been b u y i n g  t o buy o r a t l e a s t h o l d on t o t h e s h a r e s  that the d i r e c t o r i s  Although has  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  this  is  in a better position  beneficial, i t is  already sold his  shares,  presumably  R e v i s e d and A l t e r n a t i v e  2.  little  a n d t h e y w o u l d be  t h e y h a v e , on t h e  to judge  consolation  the share  bid is  in  response  terms sing the  What i s  value.  Bids b i d and  t h a t r e v i s e d o f f e r s w e r e made i n e a c h c a s e . f i v e days a f t e r the  t h e 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  to the f i r s t o f f e r ?  who  a t a lower p r i c e , to the d i r e c t o r .  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 W o r l d s h a r e s offer.  assump-  to the shareholder  An i m p o r t a n t f a c t o r i n b o t h t h e News o f t h e W o r l d - P e r g a m o n Pergamon-Leasco  other  The S e c u r i t i e s  Act is  Pergamon original  deposited his clear:  the  "Where  shares the  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 the c o n s i d e r a t i o n o f f e r e d f o r the e q u i t y shares  offeror shall  shares  o f an o f f e r e e  pay s u c h 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  a r e t a k e n up a n d p a i d f o r p u r s u a n t  company, whose  to the t a k e - o v e r b i d , whether  or  not such shares  h a v e b e e n t a k e n up by t h e o f f e r o r b e f o r e t h e v a r i a t i o n o f  take-over  1  bid."  Under t h i s  7  the  7  section i t  is  evident t h a t the shareholder w i l l  be p a i d  the  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 . If the o f f e r expires a n d 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 h e r e m a i n i n g s h a r e s , i t  179 would appear t h a t the shareholder In  England  there is  has  no r i g h t  to the h i g h e r  price.  no c o m p a r a b 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  the  1 on  Companies holders  Act or the Licensed Dealers  o f t h e same c l a s s  an o f f e r o r  company."  Rules.  The Code s t a t e s :  o f an o f f e r e e company s h a l l  "All  share-  be t r e a t e d s i m i l a r l y  by  49  If  s t r i c t l y e n f o r c e d , such a p r o v i s i o n would ensure  holders  r e c e i v e the h i g h e s t  holders  is  price.  limited in effect.  In  Many w i l l  sell  n o t s u c c e e d and t h e y want t o t a k e a d v a n t a g e r a t h e r than r i s k  cessful. Stock bids the  depositing  The o f f e r o r w i l l  Exchange,  share-  t h e i r shares because  share-  on t h e m a r k e t  they f e a r the b i d  of the higher-than-normal  n o t be t h e b u y e r o f a l l  market  t h e s h a r e s s o l d on  buy a c o n s i d e r a b l e n u m b e r , as  o f f e r o r t o p a y 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  to  unsuc-  the  i n the  H o w e v e r i t w o u 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  for  will  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  b u t o f t e n he w i l l  described.  the  fact, equality of price for a l l  a p r i c e lower than the b i d p r i c e , presumably  price  that a l l  two  require  market.  I O]  The Code a l s o tion w i t h others p e r i o d a t above  provides:  purchases  shall  shares  the o f f e r p r i c e  being r e v i s e d , the f i n a l it  "If  t h e o f f e r o r company a l o n e o r i n  i n the market or otherwise during  (being,  the 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 losing  at a higher-than-bid  b i d had an u n u s u a l  IDO  and S t e i n b e r g  to making a t h i r d o f f e r but i s present purposes,  stamp d u t y a n d c o m m i s s i o n )  t h e i r shares are p r o t e c t e d from the  s e c o n d o f f e r was w o r t h l e s s  been w i t h d r a w n  I OA  is  quoted  may h a v e  f i r s t o f f e r , thereby losing Stock  Exchange  price.  p r i c e on t h e  as  This  saying  of  the  market. feature—  s e c o n d b i d has  t h a t he i s  n o t c o m m i t t e d t o a n y minimum p r i c e .  t h e more r e l e v a n t q u e s t i o n s  shareholders  1 oo  less  consequences  a n d , one w o u l d h o p e , r a r e  than the f i r s t .  f i r s t b i d a n d t h e s e c o n d , made s i x weeks Several  high  (excluding  the o p p o r t u n i t y to s e l l  The P e r g a m o n - L e a s c o  the  then  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 c h p r i c e b e i n g n o t  s h a r e s so a c q u i r e d d u r i n g  the  offer  b i d p r i c e under t h e r e v i s e d terms o f an o f f e r )  price  the  the o f f e r  i n t h e e v e n t o f any o r i g i n a l  than the weighted average  of  associa-  also  committed For  concern the r e l a t i o n s h i p  the between  later.  deposited t h e i r shares  the o p p o r t u n i t y to s e l l  in acceptance  of  at the r e l a t i v e l y  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 matter of basic contract law, should because It  is  c l e a r t h a t those shareholders on t h e S t o c k  Exchange  o f f e r have r e c e i v e d a h i g h e r  even l o w e r than t h e s e c o n d . p l e 9 b f t h e Code:  "If  after  who w e r e f o r t u n a t e e n o u g h  or p r i v a t e l y during  p r i c e t h a n a n y who m i g h t  o f f e r o r who may i n t h e f u l l n e s s This  is  have a c c e p t e d t h e  s o d e s p i t e R u l e 29  a bid is  During equality  o f t h e same c l a s s  reasonably  and G e n e r a l  committed.  shall  n o t be on l e s s  Pergamon  t h e News o f t h e W o r l d s h a r e s ,  first second  Princi-  i n c o n t e m p l a t i o n , an o f f e r  o f an o f f e r e e c o m p a n y , a n y  t h e News o f t h e W o r l d - P e r g a m o n  r u l e was  sell  the course of the  o f f e r made b y o r on b e h a l f o f t h e same o f f e r o r o r h i s  shareholders  to  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  b e e n made t o one o r more s h a r e h o l d e r s  for  shares  t h e y c o u l d n o t be h e l d on d e p o s i t f o r t h e s e c o n d o f f e r .  t h e i r shares  general  have r e t u r n e d t h e d e p o s i t e d  subsequent  associate  favourable  to  the  terms."  a f f a i r y e t another breach of  had made an o f f e r w o r t h 5 0 s .  but because  has  per  the share  t h e News o f t h e W o r l d B o a r d  did  n o t t h i n k M a x w e 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 m u s t be made.  The c o n s i d e r a t i o n was rests  The News L t d . o f f e r was  a v a r i e t y o f m a g a z i n e , newspaper  not a cash  and p u b l i s h i n g  i n A u s t r a l i a , which a t the time o f a c c e p t a n c e o f the o f f e r were  cified,  unassessable  as  bid.  inteunspe-  t o v a l u e , a n d 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 c o m -  18fi p a r e d w i t h t h e Pergamon  bid.  S e c o n d l y , M u r d o c h , c h a i r m a n o f News L t d . , s t a t e d t h a t he was n o t t o b i d f o r t h e News o f t h e W o r l d n o n - v o t i n g pay f o r them.  M a x w e l l had b i d 37s.  shares—he  c o u l d not a f f o r d to  6d. f o r these shares.  The a c t i o n o f  News o f t h e W o r l d B o a r d i n r e c o m m e n d i n g a c c e p t a n c e o f News L t d . ' s 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 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  going  the  o f f e r and  shareholders  of  bid.  187 R u l e 9 o f t h e C i t y Code i s i n t e r e s t i n g i n the l i g h t o f the above e v e n t s : " D i r e c t o r s must always 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 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 companies  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 h a v e 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 t h e a t t i t u d e o f t h e i r B o a r d i s d e c i sive. E x c e p t i o n a l l y , t h e r e may be g o o d r e a s o n s f o r s u c h a B o a r d 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 . Nevertheless, w h e r e a B o a r d recommends a c c e p t a n c e o f t h e 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 s u c h 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 , thus 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 m u s t v e r y c a r e f u l l y e x a m i n e i t s m o t i v e f o r so d o i n g a n d be p r e p a r e d t o j u s t i f y i t s g o o d f a i t h i n t h e 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 . " This  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 P e r g a m o n ' s b i d f o r News o f  World L t d . , but the Take-over think  Panel  a n d Code w e r e i n e x i s t e n c e , and one  t h a t an a l e r t c o n t r o l l i n g b o d y w o u l d h a v e  specific  about  t h e i r c o n s i d e r a t i o n , and have  c o u l d a c c u r a t e l y compare 3.  t h e two  the  would  r e q u i r e d News L t d . t o be more  i t v a l u e d so  that  shareholders  offers.  Conclusion 188  In of  these  recent take-over bids  treatment f o r shareholders  made t o p r o v i d e these  provisions  The p o s i t i o n  is  adequate  has  the i d e a l  been b a d l y  safeguards  well  described  tarnished.  to ensure  are e i t h e r d i f f i c u l t  that there should Attempts  a minimal  level  to e n f o r c e or s i m p l y  be  equality  have  been  of e q u a l i t y ,  have n o t been  but  enforced.  thus:  " A s i d e f r o m t h e e l e g a n c e o f t h e i d e a l , w h i c h I l e a v e t o comment 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 ' c a n o n l y be j u s t i f i e d i f i t somehow i m p r o v e 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 market. A d m i t t e d l y i t might 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 , but at great cost. I t m i g h t on t h e o t h e r h a n d be c o n t e n d e d t h a t e q u a l i t y w o u l d s o i m p r o v e t h e p s y c h o l o g y a n d 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 acts are a l l e g e d to do, t h a t a l l present shareholders would be b e n e f i t e d by t h e 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 proper to note 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 law i t i s the 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 h e 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 h e 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 Section Financial  D Advisers  The i m p o r t a n c e o f t h e r o l e p l a y e d by m e r c h a n t b a n k s overs  is  revealed in  advisers,' tiation  t h e now s u b s t a n t i a l  t h e banks have  of take-over bids  press  comment.  i n f l u e n c e d the p l a n n i n g , f a r beyond  the realm of  in  190  recent English Known as  machinery, finance.  191  take-  'financial  strategy  and  nego-  52  The l e g a l bid is  p o s i t i o n o f t h e m e r c h a n t banks  n o t c l e a r , and t h i s  t h e r e were u n d e s i r a b l e o f the World-Pergamon During  bought  announced  but during  case  t h e bank  parties  to a  become a m a t t e r f o r c o n c e r n , m a i n l y  consequences  t o some o f t h e i r a c t i o n s  and P e r g a m o n - L e a s c o  the course  companies  has  advising  because  during  t h e News  bids.  o f each b i d , t h e r e s p e c t i v e banks  sizeable shareholdings  take-over  advising  the o f f e r e e  on t h e m a r k e t , a f t e r t h e b i d h a d  continuing negotiations  between t h e p a r t i e s .  concerned s t a t e d t h a t the shares  were bought  192  for its  been  In  own  each  invest-  193 ment p u r p o s e s ,  and w e r e p u r c h a s e d  Accepting  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 s u c h  chases less  this  was  to r a i s e  on b e h a l f o f t h e o f f e r e e  the market p r i c e , thereby making  l i k e l y , which i n the circumstances  B u t i t may w e l l accept the  companies.  the success  of the  was a b e n e f i t t o t h e o f f e r e e  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  pur-  bid  companies.  who w i s h e d  to  offer.  The m e r c h a n t b a n k s  representing  the o f f e r o r companies  also  bought  shares  194 on t h e m a r k e t poses.  and a g a i n  Nevertheless,  Hambro's  News o f t h e W o r l d s h a r e s with  Ltd.  later sold  t o one o f t h e p a r t i e s  the e f f e c t t h a t the l a t t e r  Though t h i s cates  s t a t e d t h a t the purchases 195  company g a i n e d  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 shares  is  o f t h e o f f e r e e company s h o u l d o r by t h e c o m p a n i e s  between the advantage  of having  a r e s i l e n t on t h e p o i n t , a n d t h e r e i s  the  control  o f t h e News o f  the World.  i n t e n t i o n e d and i n n o c e n t , i t r e g u l a t i o n may be  indi-  abused.  t r a d i n g on t h e  market  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 involved.  A b a l a n c e has  t o be of  t o t r a d e on t h e m a r k e t , and t h u s  the p o s s i b i l i t y of m a n i p u l a t i o n of the share  1 9 6  per cent of  a f r e e market and the d i s a d v a n t a g e  to a b i d or t h e i r associates  legislation.  11.8  c o n s i d e r a b l e argument whether o r not such  t h e merchant banks  parties  its  pur-  i n v o l v e d i n t h e b i d , News L t d . ,  the p o s s i b i l i t y t h a t the present system o f There  were f o r investment  price.  struck allowing allow  The L i c e n s e d D e a l e r s  no r e l e v a n t p r o v i s i o n  i n the  Rules  Canadian  The C i t y Code  relies  on a s t r o n g  disclosure  provision,  b u t as  has  197 been s a i d b e f o r e , mere d i s c l o s u r e of  determined businessmen  be  I t was trary  cause  Fleming  million  suggested t h a t the approach  f o r c o n c e r n was  Pergamon  shares  on b e h a l f o f P e r g a m o n , i n those  Although  Panel  t h a t none o f  t h a t the bankers  in  this  case  i t would appear  s i m i l a r circumstances  for insider  a 'right  in  this  case  Press,  these  Code  that  had s o l d  dealings  position  2.1  3d.  each.  were  were n e g o t i a t i n g w i t h  hand  t h a t Robert in other bids  to judge  con-  Leasco, the  F l e m i n g & Sons had could provide  trading.  The d e f e n c e p u t f o r w a r d by t h e b a n k s  take-over  advice while another  a d v i c e a n d o n e d o e s n o t know t h e b u s i n e s s is  disclosed  a t a p r i c e of 36s.  and w e r e i n an a d v a n t a g e o u s  one d e p a r t m e n t p r o v i d e s  It  light  negotiations.  advantage,  opportunity  t o Pergamon  to the o f f e r o r , Leasco,  to law, but the f a c t i s  specific  the  t a k e n by t h e  h i g h l i g h t e d when i t was  & Sons, f i n a n c i a l advisers  a c c e p t e d by t h e T a k e - o v e r  trends  In  a  reconsidered.  Another Robert  n o t be i n t i m i d a t e d by  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 .  recent experience, i t is  should  will  controls  done by t h e o t h e r i s  does n o t know w h a t t h e l e f t  t h e two h a n d s a r e t o o c l o s e l y  hand i s  doing'  no  the that  investment not  convincing  argument,  connected f o r such a defence  but to  succeed. A t the present ding  provisions  d e f i n i t i o n of panies  time f i n a n c i a l  to a very 'insider'  Act provisions  a r e a f f e c t e d by t h e i n s i d e r They  are not  included within  of the S e c u r i t i e s  A c t and t h e  i n B r i t i s h C o l u m b i a , a n d t h e y w o u l d n o t be  clients  advisers  confidential  this  limited extent.  f o r the purposes  from a d v i s i n g have  advisers  to s e l l  In  England  is  i m p o s e d o n l y on  o r purchase  shares  i n companies  trathe Com-  precluded  to which  the  relationships.  the only o b l i g a t i o n directors.  is  to d i s c l o s e  dealing  in shares,  and  54  R u l e 29 o f t h e Code p r o v i d e s : shares  "In  a d d i t i o n a l l purchases  o f a n y o f f e r o r o r t h e o f f e r e e company made b y a s s o c i a t e s  o f i n v e s t m e n t c l i e n t s m u s t 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 to  t h e P a n e l , b u t n e e d n o t be d i s c l o s e d t o t h e This,  as  and s a l e s  again,  is  a mere d i s c l o s u r e  to e f f e c t i v e n e s s .  required?  Surely  the shareholders  should  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  account  Exchange  and  Press."  provision  F u r t h e r , why s h o u l d  for  of  and i s  subject to c r i t i c i s m s  d i s c l o s u r e t o t h e p r e s s n o t be know, t h r o u g h dealings  The common l a w may p r o v i d e a r e m e d y , b u t o n l y  the press,  of  such  by d i r e c t o r s . i f the f i n a n c i a l  advisers 199  are  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  The q u e s t i o n w h e t h e r one i s difficult.^ pany,  0 0  shareholders.  in a f i d u c i a r y r e l a t i o n s h i p to another i s  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  i t w o u l d a p p e a 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  often  t h e o f f e r e e com-  exist. 201  This  type of f i d u c i a r y s i t u a t i o n a r i s e s ,  'whenever the p l a i n t i f f person w i l l  entrusts  i n t h e words  of A s q u i t h ,  L.J.  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 . '  f i n d h i m s e l f i n s u c h a s i t u a t i o n i f he has  undertaken or i s  an o b l i g a t i o n  under  ( 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 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 h a v e done s o . " As a c o n s e q u e n c e 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 203 o f i n f o r m a t i o n o b t a i n e d b y 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 . "In with  p a r t i c u l a r t h e 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  i t the assumption  t h a t he w i l l  "He who u n d e r t a k e s  not act i n his  own i n t e r e s t . "  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  A  for  use  carries  204  n o t i n t h e same  205 matter act f o r  himself."  The q u e s t i o n w h e t h e r t h e company o r t h e s h a r e h o l d e r s will  d e p e n d on t h e a n s w e r t o t h e q u e s t i o n , " F o r whom i s  This  is  the  a difficult  shareholders,  q u e s t i o n , because  may b r i n g t h e a c t i o n  t h e bank a f i d u c i a r y ? "  although a take-over o f f e r is  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 the  made t o a l l  shareholders,  55 the advisers advisers  are u s u a l l y  may owe s h a r e h o l d e r s  t o t h e company,  pany w i l l directly  If  this  i n p r a c t i c e sue  is  so,  its  t h e company w i l l  to e n t e r the  be a b l e t o s u e  advisers,  e s p e c i a l l y i f i t has t r a d i n g , or i f  Leasco.  This  guidance,  Press  withdrawal  during  at a very  t h e company  left  Pergamon's  and t h e s h a r e h o l d e r s  the o u t l i n e d bids  basically  a point of  c o n t r a c t law.  contract,  though  The bank  so s h a r e h o l d e r s  o r company  presumably as  t h e y may h a v e h a d an a c t i o n i n n e g l i g e n c e . s u c h an a c t i o n by p r o f e s s i o n a l  bad p u b l i c i t y and l o s s  of reputation.  very  unsatisfactory.  lized.  Regulations  cularly  during  the legal  professional  a r e m e d y , as  Normally  in  the  w o u l d be t h e  been a m a j o r c o n t r i -  financial advisers  becomes  increasingly  who s u f f e r l o s s  specia-  because  they are the persons  is  British  the a c t i v i t i e s o f a d v i s e r s ,  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 be g i v e n  c o u l d n o t sue  n o t y e t become a c u t e i n  advising  is  England.  position of  are required to control  such a c t i v i t i e s should  in  aid.  law, but  advisers  i n c i d e n t has  T h o u g h t h e p r o b l e m has  C o l u m b i a , i t may do so as  affected.  This  o f c o n f i d e n c e i n m e r c h a n t banks  The u n c e r t a i n t y s u r r o u n d i n g  with  contracted with  individuals  main d e t e r r e n t a g a i n s t  bution to loss  financial  a l s o s u f f e r e d from the l a c k o f such  not r e s t r i c t e d to t a k e - o v e r s  t h e company,  was  directors without expert financial  problem i s  Press,  asked  c r u c i a l p o i n t i n the n e g o t i a t i o n s  This  Pergamon  for  benefited  t h e 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 a s t o Pergamon  duties  market.  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 b a n k s  advisers  that  t h e r e may be some d o u b t w h e t h e r t h e c o m -  or i n d i r e c t l y from the a d v i s e r s '  advisers  The a n s w e r may be  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  and t h e r e f o r e o n l y  improper t r a d i n g .  their  e m p l o y e d by t h e company.  partiof  most d i r e c t l y  56  Section A f t e r the B i d — T h e When t h e o f f e r o r has the take-over b i d is very  large  b i d d e r because  Remaining  completed, i t is  remain.  he w a n t s  Shareholders  t a k e n up a n d p a i d f o r a l l  percentage of the shares  number o f t h e s h a r e s  E  This  the shares  o f t e n the case  t e n d e r e d , and  t h a t the b i d d e r holds  and a few p e r s o n s  holding a very  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  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  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 m e r g e d w i t h a n o t h e r o f h i s or perhaps  he m e r e l y f e e l s  i t is  pany.  The m i n o r i t y s h a r e h o l d e r s  voting  p o s i t i o n , opposed  1.  small  to  the  a whollycompanies,  more c o n v e n i e n t t o h a v e a w h o l l y - o w n e d may a l s o be u n h a p p y  as  they w i l l  t o a m a j o r i t y whom t h e y may n o t  Where t h e M a j o r i t y C o n t r o l l e r W i s h e s  a  com-  be i n a weak  trust.  t o G a i n 100  Per Cent of  the  Shares A t common l a w , t h e o n l y ' o c c a s i o n can compel of  an u n w i l l i n g s h a r e h o l d e r  association  suitable t o change  to s e l l  e n a b l e h i m t o do s o .  p r o v i s i o n , so  In  The u s u a l  S u c h an a t t e m p t i s  two E n g l i s h  and Dafen T i n p l a t e Co.  his  shares  t o him i s  shareholder  if  v.  cases,  likely  Brown v .  L l a n e l l y Steel  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 .  Co.,  the a r t i c l e s  a r t i c l e s would not contain a  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  the a r t i c l e s .  on t h e m i n o r i t y .  on w h i c h t h e b i d d e r - m a j o r i t y  207  t o be condemned as  B r i t i s h Abrasive resolutions  However,  voting a  Wheel  passed  to  in another English  power  fraud Co.  206  effect case,  208 S i d e b o t t o m v. valid, was ness  as  Kershaw,  i t was  passed  L e e s e and C o . ,  t h e r e s o l u t i o n i n q u e s t i o n was  bona f i d e i n t h e b e s t  intended to enable the m a j o r i t y to expel c o m p e t i t i v e w i t h the It  is  interests  o f t h e company.  any s h a r e h o l d e r e n g a g e d  in  held It busi-  company.  d o u b t f u l whether a s u i t a b l e r e s o l u t i o n passed 209 t a k e - o v e r w o u l d be h e l d v a l i d .  in connection with a  57 I t was  felt  t h a t some p r o v i s i o n  b i d d e r who o b t a i n s rity  to s e l l  should  a very large percentage  t h e i r shares  be made t o e n a b l e t h e of the shares  successful  t o compel  the  t o h i m , a n d a s e c t i o n t o t h a t e f f e c t was  mino-  included  210 in  the E n g l i s h  Companies  o f t h e 1948 C o m p a n i e s of shares  Act:  o r any c l a s s  A c t o r not  was  i n a company  (in  this  value of the shares  this  after  s e c t i o n r e f e r r e d t o as  the making  the  209(1) transfer  s e c t i o n r e f e r r e d to  company), the  nine-tenths  h e l d a t t h e d a t e o f t h e o f f e r by o r by a n o m i n e e f o r , t h e t r a n s f e r e e  company  t i m e w i t h i n t w o months  involved  than  mean-  already  give  transfer is  of not less  as  (other than shares  may, a t a n y  whose  the t r a n s f e r e e  o f t h e o f f e r i n t h a t b e h a l f by  t r a n s f e r e e company b e e n a p p r o v e d by t h e h o l d e r s in  reproduced i n s e c t i o n  t o a n o t h e r c o m p a n y , w h e t h e r a company w i t h i n t h e (in  h a s , w i t h i n f o u r months  This  " W h e r e a scheme o r c o n t r a c t i n v o l v i n g  of shares  t h e t r a n s f e r o r company) ing of this  A c t , 1929.  of the e x p i r a t i o n of  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  desires  to acquire his  company s h a l l , u n l e s s  shares,  a n d when s u c h  dissenting  given  given  months,  that  the  on an a p p l i c a t i o n made by t h e d i s s e n t i n g  it  transferee  shareholder  the c o u r 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  t e r m s on w h i c h , u n d e r t h e scheme o r c o n t r a c t t h e s h a r e s  four  shareholder  a notice is  w i t h i n one month f r o m t h e d a t e on w h i c h t h e n o t i c e was fit  the s a i d  shares  thinks on  of the approving  the share-  pi i holders  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  Substantially Companies A c t has  Act.  t h e same p r o v i s i o n  There  a proviso  as  the shares  nine-tenths  lent provision  of  contained in section  a r e some m i n o r d i f f e r e n c e s .  shares,  the s e c t i o n s h a l l  of three-quarters  Columbia.  issued  more t h a n o n e - t e n t h  not apply  shares.  B.C.  English  unless  the  There i s  no  of  offeror  o f t h e number o f t h e s h a r e h o l d e r s  the value o f the t o t a l  in British  181 o f t h e  For example, the  t h a t where the o f f e r o r a l r e a d y h o l d s  the o f f e r e e company's obtains  is  company."  as  well  equiva-  58  T h e r e have  also  been d i f f e r e n c e s  i n the i n t e r p r e t a t i o n of the  signifi-  212 cance o f closing  the four-month  period.  date f o r acceptance i s  In  England  i t has  stipulated less  that i f  t h a n f o u r months  of  t h e o f f e r , a n d t h e o f f e r o r company  at  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 213  immediately. for  the f u l l  In four  The g e n e r a l no g u i d a n c e 'see  is  has  on an a p p e a l shares  enigma,  been h e l d  from the of the  t h a t t h e o f f e r must  date  shares  acquisition  remain  open  months. 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  is  based  is  not c l e a r ,  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 k e y p h r a s e s ,  Pennington  The j u d i c i a l  writes:  a t t i t u d e to the s e c t i o n  shareholder  approach  has  and  notably is  there-  Pennington's  the c o u r t ' s  the compulsory  jurisdiction acquisition  l o n g been s o m e t h i n g  i n t h e number o f t a k e - o v e r s  in recent  of  protection is  t o keep h i s horror  stems  shares,  in  f a c t given  o r who h o l d s  to the  of  an  years,  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  j u s t how l i t t l e who w a n t s  against  t a k e - o v e r b i d d e r has  but w i t h the i n c r e a s e  realizes  "The e x t e n t o f  by a m i n o r i t y s h a r e h o l d e r  by a s u c c e s s f u l  the c o u r t ' s  Mr.  obtained nine-tenths  a  important.  Professor  one  it  f i t to order o t h e r w i s e . '  fore very  his  Canada  has  been h e l d  that  dissenting  out f o r a better p r i c e . "  from the j u d i c i a l i n t e r p r e t a t i o n o f the s e c 215 216 tion. The l e a d i n g c a s e i s p e r h a p s Re H o a r e i n w h i c h Maugham, J . said: "I h a v e 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 i e w as t o when a c o u r t should think f i t to order otherwise. I t h i n k , however, t h a t the view o f the l e g i s l a t u r e i s t h a t where not l e s s than n i n e - t e n t h s o f the 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 a p p r o v e t h e scheme o r a c c e p t t h e o f f e r , p r i m a f a c i e a t any r a t e , t h e o f f e r m u s t be t a k e n t o be a p r o p e r o n e , a n d 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 h e 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 t e r m s by t h e 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 the reasons f o r i n d u c i n g t h e 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 o n s w h i c h m u s t 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 m a k i n g an a p p l i c a t i o n t o t h e c o u r t , and t h a t t h e 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 c u m s t a n c e t h a t t h e s a l e o r e x c h a n g e i s c o m p u l s o r y i s one w h i c h o u g h t  59 not to i n f l u e n c e the c o u r t . I t has b e e n 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 the case. The o t h e r c o n c l u s i o n I d r a w 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 t h e c o u r t o u g h t t o r e g a r d t h e scheme as a f a i r one i n a s m u c h as i t seems t o me i m p o s s i b l e t o s u p p o s e t h a t t h e c o u r t , i n t h e a b s e n c e 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 h e 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 s o v e r y l a r g e a m a j o r i t y o f t h e 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, siderable  J.'s  words,  spoken  in  'some  i n f l u e n c e on l a t e r j u d i c i a l  hesitation,'  h a v e had a v e r y  a t t i t u d e to the m i n o r i t y ' s  position,  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 t h e rights  under the s e c t i o n .  con-  minority's  217  218 S u c h an e x a m p l e may be f o u n d i n Re S u s s e x B r i c k Vaisey,  J . d i s p l a y e d an e v e n s t r o n g e r  Co. L t d .  attitude against  in  which  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 g o o d c a s e 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 c h e m e , o f a f a i r e r s c h e m e , o f one w h i c h w o u l d h a v e 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 h a v e understood the i m p l i c a t i o n s o f the c r i t i c i s m s : I h a v e no d o u b t a t a l l t h a t a b e t t e r scheme m i g h t h a v e b e e n 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 c h 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 c a s e ? Is t h e r e any p o i n t i n t h e scheme on w h i c h a b e t t e r v i e w m i g h t h a v e p r e v a i l e d , a n d a r a t h e r more g e n e r o u s t r e a t m e n t m i g h t h a v e b e e n o f f e r e d t o p e r s o n 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 h a v e b e e n m a d e , 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 b e c a u s e a scheme i s n o 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 o p e n t o v a l i d c r i t i c i s m i s not unfairness c o n s i s t e n t w i t h the s p i r i t of that judgment." In  Re D a d ' s C o o k i e C o .  affidavits  demonstrating  (B.C.) L t d .  219  the d i s s e n t i n g  t h a t the v a l u a t i o n of the shares  shareholder was  produced  doubtful.  220 M a c D o n a l d , J . was says  content to say:  about the value o f the s h a r e s ,  some t h i r t e e n s h a r e h o l d e r s  "Now M r .  but the m a t e r i a l , showing  holding over nine-tenths  t h e company h a v e a c c e p t e d t h e o f f e r , does p r i c e was  L e w i s may be r i g h t as  in value of  i n w h a t he i t does  that  the shares  not a f f i r m a t i v e l y e s t a b l i s h  that  of the  unfair."  I t s h o u l d be n o t e d t h a t i n t h e D a d ' s C o o k i e c a s e t h a t he had h a d 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  the a p p l i c a n t s t r e s s e d i n f o r m a t i o n to present  60 his  evidence.  the c o u r t s '  This  decisions  p r e s e n t as s t r o n g Pennington in  difficulty  is  r e f l e c t e d in other cases,  are s t r o n g l y  a case  advances  i n t e r p r e t a t i o n of the  as  he  and f r e q u e n t 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 to  might.  a plausible explanation for judicial section:  conservatism  221  "The c o u r t shuns the 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 the l i k e l y f u t u r e course o f t h e i r v a l u e s , because the j u d i c i a l form o f p r o c e d u r e i s n o 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 . It 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 presumption of f a i r n e s s i n favour of the take-over b i d or other p r o p o s a l and t o i n t e r f e r e o n l y w h e r e t h e r e i s c l e a r e v i d e n c e o f fraud or overreaching." 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  its 222  unsuitability  f o r the task  where Plowman, J .  of v a l u a t i o n i s  a c c e p t e d as  the f a i r  Re G r i e r s o n , Oldham a n d Adams L t d .  value of the shares  t h e i r quoted  immediately before the b i d , d e s p i t e the f a c t t h a t the quoted values p e r i o d o f t i m e , sworn per cent higher. that  value  for a  long  i n a f f i d a v i t s , indicated a value approximately f i f t e e n  T h i s was  the L i c e n s e d Dealers  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 Rules  require "at  d u r i n g t h e p e r i o d o f s i x months  least six  middle market  recalled  quotations  immediately preceding the date o f the  offer  „223 •  •  •  •  Although  the o f f e r p r i c e , 5s.  9 d . p e r s h a r e , was  v a l u e i m m e d i a t e l y p r i o r t o t h e b i d , i t was  Is.  and a c o n s i d e r a b l e  l o s s on t h e s h a r e h o l d e r s '  the a p p l i c a n t s  " f a i l e d to discharge 224  Re B u g l e shareholder  had  Press  has  Ltd.  succeeded.  is  the only  This  was  shares.  English  onus o f  case  in which the  an e x c e p t i o n a l c a s e  quoted  lowest  price  held  that  proof."  dissenting  i n which the m a j o r i t y  t o make a t a k e - o v e r b i d f o r  Bugle  of f o r c i n g the a p p l i c a n t  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  ted the o f f e r and, through  the  i n v e s t m e n t , y e t i t was  P r e s s L t d . , t h e p r i v a t e company, w i t h t h e p u r p o s e his  above  below the p r e v i o u s  t h e heavy  o f a p r i v a t e company f o r m e d a new company  sell  3d.  t h e medium o f t h e i r new c o m p a n y ,  the s h a r e s ,  to  accep-  served notice  of  61  compulsory of  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  the shares.  The l a t t e r  a p p l i e d to the court which refused  ten per  cent  to allow  this  f r a u d u l e n t m e t h o d o f e x p r o p r i a t i o n , a n d d e c l a r e d t h e new company was entitled  to acquire  the  not  shares. 225  In  Canada  applicants  s l i g h t l y more s u c c e s s f u l .  under In  the comparable  s e c t i o n 181(1)  Re J o h n L a b a t t L t d . a n d L u c k y  have  Lager  been  Breweries  ope Ltd.,  the d i s s e n t i n g  company was  shareholders  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 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 227 s t r i c t l y observed. In  Re W a t e r o u s  originally more  & Koehring  ties.  in nature  was  are examples  Waterous  J.W.  Ltd.  of the d i s s e n t i n g  Enterprises  Press L t d . , h e l d t h a t the s e c t i o n  Inc.  issued  is  shares  It  is  arises  ordering  of the a c q u i s i t i o n t h a t the s e c t i o n  note t h a t the Jenkins  as  on  held.  affected,  and  this  a t the date of  'to order  by v i r t u e o f t h i s  to p r i c e , or whether  took  the  that decision  phrase,  It  is  able to  to  interesting  the view t h a t "under s e c t i o n  or s h a l l  Both  i n England  vary  limited  of a dissentient shareholder  acquired."  holds  otherwise.'  the c o u r t i s  apply.  of  offer.  t h e C o u r t may o n l y o r d e r t h a t t h e s h a r e s n o t be c o m p u l s o r i l y  (Inter-  J . , following  The e f f e c t o f  the phrase  for  technicali-  law i n E s s o - S t a n d a r d  of the c l a s s  a p p l i e s o r i t does n o t 230  Committee  winning  contemplated the a c q u i s i t i o n  shares  out of  not c l e a r whether the court i s ,  the terms  shares  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  t e n p e r c e n t o r more o f t h e c o m p a n y ' s An i m p o r t a n t q u e s t i o n  be  section.  i n which Judson,  n i n e t y p e r c e n t m u s t be i n d e p e n d e n t l y t o be t h a t t h e s e c t i o n  held  extended from time to time  point.of 229  Re B u g l e  appears  must  an o f f e r t o p u r c h a s e  shareholders  Inc.  n i n e t y per cent o f the t o t a l  the court  provisions  h e l d not to comply w i t h the  T h e y s u c c e e d e d on a s u b s t a n t i a l  v.  Labatt  228  America)  this  and i t s  o p e n f o r one month and s u b s e q u e n t l y  t h a n f o u r months These  w e r e g r a n t e d an o r d e r t h a t t h e  209(1)  and i n C a n a d a  shall the  to  62  actions seeks  under the s e c t i o n s  an o r d e r d e c l a r i n g  have  b e e n f r a m e d i n s u c h a way  t h a t the respondents  t h a t the  applicant  are n e i t h e r e n t i t l e d nor  bound  231 to acquire his Clearly  shares.  the courts  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 .  and t o a l e s s e r cretion  ding  e x t e n t i n Canada,  i n a very  conservative  to the Jenkins  against  this  rights  greater weight  is  do n o t h a v e a c c e s s  Lager  Breweries. dealt  2. It  confiscatory  of  t h a n Re B u g l e To t h e p r e s e n t  t h e company  the M i n o r i t y happen  the shares  have  d e r i v e d from the  value,  too e a s i l y and e f f e c t ,  see  this  dis-  is,  accor-  but  minority  itself  accords  but the c o u r t s , overlooked  the  and t h a t t h e evidence  applicants  in support  f i t to order otherwise  time m i n o r i t y shareholders  fol-  fact  P r e s s L t d . a n d Re J o h n L a b a t t L t d . and  Shareholders  t h e i r shares  W i s h To Be B o u g h t  t h a t a group o f s h a r e h o l d e r s  becomes  have  been  of  in Lucky  too  i t may be d i f f i c u l t at a reasonable  private or closely held.  to the technique  with a very  Under such c i r c u m s t a n c e s  to outsiders  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 .  Out  i s o l a t e d a n d d o m i n a t e d by an o f f e r o r  Minority  known  as  a  if  small majority-  t h e g r o u p may  not impossible  if  shareholding  n i n e t y per cent of the shares,  shareholders 'squeeze-out'  in  this  situation  by w h i c h t h e  not  for  price, especially  A f t e r a l l , a ten per cent  i n s u c h a company when t h e m a j o r i t y c o n t r o l  susceptible  England  of companies,  A d m i t t e d l y the s e c t i o n 233  i n nature  a t t h e end o f t h e b i d .  is  in  to e x e r c i s e  the merger  other values  sheep,  t o r e m a i n i n t h e company, y e t  them t o s e l l  chosen  to information which could provide  may s o m e t i m e s  shareholder wish  dicta like  Unfortunately  sec-  with.  Where  percentage  to f a c i l i t a t e  be w e i g h e d  e f f e c t to a  The i n t e n t i o n o f t h e s e c t i o n  One h o p e s t h a t t h e c o u r t s w i l l  extreme cases  severely  have  t o the f a c i l i t a t i o n o f mergers  that the s e c t i o n  less  manner. 232  i n the shares.  l o w i n g Maugham, J . ' s  cases.  the courts  Committee,  value should  shareholders'  their  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  is  are  majority,  63  using  s u c h methods  their  shares  as  not d e c l a r i n g d i v i d e n d s ,  a t a p r i c e below  value.  induce  the m i n o r i t y to  sell  problem i n l i m i t e d  cir-  234  pqc  Section  209(2)  cumstances. section  The s u b - s e c t i o n  209(1).  to  follows  of ninety  are complied w i t h ,  t h e o f f e r o r company,  which  a solution  An o f f e r f o r a l l  a c c e p t e d by h o l d e r s ditions  provides  u n d e r t h e scheme  to t h i s  t h e same p r o c e d u r e  the shares  per c e n t i n value of the shares.  the holders  requiring  of  the remaining  i t to acquire  "those  It section is  will as  be n o t e d t h a t t h e c o u r t has  to the terms o f as  c a s e s on s e c t i o n 2 0 9 ( 2 ) . be o n l y  existence of to  purchase  it  is  and  these  s h a r e s may g i v e  connotice  s h a r e s on t h e t e r m s shareholders  as may be a g r e e d company  on  upon o r as  or the  the  shareholders  order."  n o t known b e c a u s e ,  will  If  or c o n t r a c t the shares o f the approving  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 f i t to  as  m u s t be by a company  w e r e t r a n s f e r r e d t o i t , o r on s u c h o t h e r t e r m s  thinks  and r e q u i r e m e n t s  the o r d e r .  f a r as This  a wider d i s c r e t i o n  How t h i s  o n c e n o t i c e has  may be b e c a u s e  encourage  been s e r v e d  regrettable that there is  discretion will  c a n be a s c e r t a i n e d , t h e r e h a v e  t o o g l a d t o buy o u t t h e r e m a i n i n g the s e c t i o n w i l l  under  those  i n many  shareholders, bidders  on t h e m .  no c o m p a r a b l e  instances  be  the  reported  majority  and a l s o  the  any  the lack of  legislation in  sub-  exercised  b e e n ho  who may h a v e  Despite  this  British  very  doubts cases,  Columbia.  64  Part  4  SOME RECOMMENDATIONS Introduction In  considering  solutions  i n mind the c h a r a c t e r i s t i c s take-overs  is  issuance  only  problems  Commission  has  a small  duties  ranging  part of t h e i r r e s p o n s i b i l i t y . Commission  workers  specialising  insider  trading  and a r e  t h e r e f o r e not e a s i l y  is  It  understaffed  in particular fields  and t a k e - o v e r s .  s u c h as  a n d do n o t  d i s c r e t i o n in dealing with p a r t i c u l a r cases. considerable The m o s t consists  legal  powers.  active English  of experts  with a voluntary rience.  over  in a l l  is  evident  prospectus, are  provisions  t h a t the have  British  sufficient  proxy  statements,  l a r g e l y s e t out  l e a v e the Commission  The C o m m i s s i o n  secu-  does,  in  statutes  a wide however,  1  a d m i n i s t r a t i v e body  facets  of  is  the Take-over  Panel  t h e t a k e - o v e r b i d , and t h e y are  agreement w h i c h can e a s i l y  F u r t h e r the Panel  governing  the whole area of  and does n o t  The r e g u l a t i o n s  changed  bear  England.  and t r a d i n g , a n d 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  Columbia S e c u r i t i e s  have  r a i s e d , one s h o u l d  of the d i f f e r e n t a d m i n i s t r a t i v e systems  i n B r i t i s h C o l u m b i a and i n  The S e c u r i t i e s rities  to the v a r i o u s  be amended i n  c a n demand t h a t t h e p a r t i e s  which  working  the l i g h t of  expe-  t o a b i d comply  with  3 t h e s p i r i t as w e l l is  as  the l e t t e r of  t h a t t h e Code a n d t h e P a n e l  the Code.  i n themselves  d e t e r m i n e d b u s i n e s s m a n c o u l d have h i s "The  gentlemanly  agreements  The p e n a l t y f o r t h i s have  way a g a i n s t  and p r e s s u r e s  of  no l e g a l  a u t h o r i t y , and a  the wishes the Stock  freedom  of  the  Panel.  E x c h a n g e s and  other 4  City  authorities  can s a f e l y  Where s t r o n g  action is  be i g n o r e d justified  the Board o f Trade, to which made.  However,  p r e v e n t damage  s u c h power i s being  by t h e  i l l - b r e d and  the Panel  i t may recommend  c a n be l e g a l l y e f f e c t i v e  t h a t an i n v e s t i g a t i o n  u n w i e l d y and s l o w - m o v i n g ,  done by " t h e  ill-bred  and  unscrupulous.  and i s  unscrupulous."  not  should likely  through be to  65 The l i m i t a t i o n s i m p o s e d 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 be a t t r i b u t e d t o t h e d i f f i c u l t y British  Columbia p r o v i s i o n s  part,  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 .  could, in  t h e o r y , be i m p r o v e d by r e m o v i n g  exemption granted f o r p r i v a t e companies,  The  the  but t h i s would g r e a t l y i n c r e a s e  the  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  a n d w o u l d p l a c e an i m p o s s i b l e  on an a l r e a d y o v e r - e x t e n d e d C o m m i s s i o n . of  the S e c u r i t i e s  pany, because  required is  definition is  f o r more t h a n f i f t y  trol  o f a company c a n be h e l d w i t h l e s s  for large  per cent o f the v o t i n g s h a r e s ,  vided the remaining  voting shares  definition  bids  includes  designed  the  public  u n r e a l i s t i c in that i t provides  bids  bill  doubtful  provisions  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 c o m -  the d i s c l o s u r e  The E n g l i s h  Further, i t is  burden  only f o r  those  although e f f e c t i v e con-  than twenty per cent o f the v o t e s ,  are w i d e l y d i s t r i b u t e d .  f o r twenty per cent o f the s h a r e s  f o r t h e new C a n a d a C o r p o r a t i o n s  companies.  A c t proposes  The B r i t i s h 7  w h i l e the  to include o f f e r s  pro-  Columbia draft  for  ten  g per cent of the e q u i t y w i t h i n the scope o f n i t i o n should per cent l i m i t  its  be amended t o a c c o u n t f o r b i d s is  recommended as  l o a d c a n be more e a s i l y a b s o r b e d and, at present,  being  provisions.  defi-  f o r de f a c t o c o n t r o l , a n d a t e n  the most r e a l i s t i c .  by t h e P a n e l , as  d o e s n o t a p p e a r t o be  The E n g l i s h  i t deals  The i n c r e a s e d only with  work-  take-overs  over-burdened.  Section A Directors' The c o n t r o l o f d i r e c t o r s important question problem i s  crucial.  i n defence against individual  i n company  Powers  i n t h e e x e r c i s e o f t h e i r powers l a w as  The d i r e c t o r s  a whole.  c l e a r l y should  a b i d , b u t one s h o u l d  shareholders,  In  latter.  become a  the take-over s i t u a t i o n  remember t h a t t h e o f f e r i s  n o t t o t h e company.  very the  be a b l e t o t a k e some a c t i o n made t o  The b a l a n c e b e t w e e n t h e  o f t h e company a n d 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 of the  has  should  the  interests  be w e i g h t e d i n  favour  66 At present  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  t h e y a r e a c t i n g on i t s  behalf.  But because  o f t h e company  t h e i n t e r e s t o f t h e company  when has  Q  b e e n 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 consequences  o f a change  immediately apparent.  i n emphasis  the shareholders,  the r i g h t  should  for  wrongful  e x e r c i s e o f p o w e r when t h e d i r e c t o r s  in  the course  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 to  1 0  to sue  should  shareholders  of a take-over b i d .  appears  because  be t h a t  be  individual  d i r e c t o r s on t h e i r own i m p r o p e r l y use  Such a change  behalf  their  powers  c o u l d be e f f e c t e d m o s t  con-  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  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 .  i n g problems  practical  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  A s i g n i f i c a n t consequence  be g i v e n  the  There w i l l  be c o n s i d e r a b l e  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 h a v e  draft-  a duty  to  r the This  company  and a l s o ,  problem should  under the proposed  be f a c e d s q u a r e l y ,  law, to the shareholders  r a t h e r t h a n d i s p o s e d o f by t h e  but unjust expediency of automatically deciding company,  as  is  the present  by a s e c t i o n w h i c h p r o v i d e s  position.  The d i f f i c u l t y  that there is  presumption  d u t y t o t h e company. f i r s t when a h i g h e r the  may be d i s p l a c e d i f  can perhaps  a presumption  the d i r e c t o r s  The d i f f i c u l t y w i t h t h i s d u t y t o t h e company e x i s t s .  simple  i n f a v o u r o f one c l a i m a n t , t h e  t h a t the  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 but t h i s  individually.  is  be  resolved  directors,  the  shareholders,  p r o v e t h e y owe a  higher  t h a t i t may n o t be c l e a r This  decision will  f a c t s o f e a c h c a s e and c a n b e s t be made by t h e c o u r t s .  depend  Perhaps  the  at on  section  c o u l d be w o r d e d 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 presumption w i l l  p l a c e d r a r e l y , as  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  significant  t h e r e c a n be f e w c a s e s  d u t y t o t h e company  Further, i f  be  dis-  in a take-over situation.  t h e s h a r e h o l d e r becomes  aware t h a t t h e d i r e c t o r s  e x e r c i s e some p o w e r f o r an i m p r o p e r p u r p o s e  or  intend  i n t h e i r own i n t e r e s t s ,  to  he  12 should  have  the standing  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 ,  ing the a c t i o n before i t occurs.  However t h e chances  of a  shareholder  prevent-  67 succeeding  are remote, because  the necessary  he w i l l  evidence i n adequate  n o r m a l l y have d i f f i c u l t y  in  obtaining  t i m e and " a mere v a g u e a p p r e h e n s i o n  is  not  13 sufficient  to support  shareholder  is  prevention is  an i m m e d i a t e t h r e a t t o do s o m e t h i n g . "  u n l i k e l y t o be s u c c e s s f u l ,  the d i r e c t o r s should  tice  interests.  holders'  this  As has  have t h e o p p o r t u n i t y ,  as  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  been s u g g e s t e d ,  i n t e r e s t s , a n d i t has  reality.  interests  concerning  act in a take-over situation is 14  t h e i r employees'  recognise  the  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 question  employees'  he s h o u l d  Although  The T a k e - o v e r  t a k e n as  the r e l e v a n c e of  the  d i r e c t o r s do c o n s i d e r i n  become c l e a r t h a t t h e l a w 15  Code has  done s o :  a whole which should  It  is  prac-  should  the  share-  be c o n s i d e r e d , t o g e t h e r w i t h  1c those o f employees It  may w e l l  be n e c e s s a r y lish  and c r e d i t o r s . "  be t h a t t h e c o u r t s w i l l  to l e g i s l a t e .  This  ciple  considering  how t o e f f e c t  i n f a v o u r of the i n d i v i d u a l  of the decision  i n Bamford v.  this  change,  but again  w o u l d be u n f o r t u n a t e b e c a u s e  or the B r i t i s h Columbia Statutes In  effect  include sections  this  Bamford.  1 7  It  one i s  is  o f emphasis  an a l m o s t m e a n i n g l e s s act i f  allows  t o be  done m a l a f i d e and f o r an i m p r o p e r p u r p o s e  in  and though authority o f Lords  w o u l d a p p e a r t o be t h e c u r r e n t  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 a n d c a n be r e v e r s e d o n l y  and p e r s u a d e s  A possible require  This  method  a special  by t h e d i r e c t o r s .  i f someone  t h e i r Lordships 1g of reducing  t o do  is  legal  bad l a w , i t i s  takes  spectre  the  law  ratified also  position, Court of  a s i m i l a r case  to the  Appeal House  so.  t h e e f f e c t o f t h e d e c i s i o n w o u l d be  r e s o l u t i o n t o be p a s s e d i n o r d e r t o r a t i f y However i n many i n s t a n c e s  prin-  exercise  by a s i m p l e m a j o r i t y o f t h e c o m p a n y , e s p e c i a l l y w h e r e t h e d i r e c t o r s a r e majority shareholders.  Eng-  standards.  c o n f r o n t e d by t h 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 their actions  may  n e i t h e r the  p r e s c r i b i n g such  recommended c h a n g e  shareholders,  it  an i m p r o p e r  c o u r t a c t i o n w o u l d be  to action  necessary  68  to  d e c i d e w h e t h e r t h e 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 .  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 meeting i s  considering  Not o n l y would t h i s holders, of  but again  as  a resolution concerning  be a s e v e r e  A further  shareholders  possibility  when t h e  an i m p r o p e r d i r e c t o r s '  r e s t r i c t i o n on t h e d i r e c t o r s '  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  rights  to the  general action.  as  share-  impropriety  acts. The m o s t 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  on t h e m i n o r i t y t o i n c l u d e m a l a f i d e e x e r c i s e s courts w i l l  n o t do t h i s ,  of  of the doctrine of  directors'  powers.  the p o s i t i o n of the m i n o r i t y shareholder  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 1.  A Take-over  Even  i f the e f f e c t s of the d e c i s i o n  directors  t h a t t h e damage  has  facts  an a c t i o n .  a c c e p t e d as  problems  has  be.  success-  not i n a s a t i s f a c t o r y p o s i t i o n .  The t a k e - o v e r b i d w i l l  three aspects:  been s e e n ,  concerning  Bamford are  the e x e r c i s e of t h e i r powers,  (a)  being done;  a r e a b o u t t o b e , o r have b e e n , b r e a c h e d ; As  unfairly  If  i t is  likely  discover  the  a l r e a d y h a v e been a v o i d e d will  o n l y be a b l e t o  or  recover  inadequate.  t o p r e v e n t t h e damage  involved.  i n Bamford v.  t h e c a s e may b e , and t h e s h a r e h o l d e r s  The p r o b l e m h a s  so  i t would  a l r e a d y b e e n done by t h e t i m e t h e s h a r e h o l d e r s  d a m a g e s , w h i c h may be  early  are s t i l l  have a c t e d mala f i d e i n  and b r i n g  the  Commission  f u l l y evaded, the shareholders the  If  is  as  fraud  obtaining information s u f f i c i e n t l y (b) (c)  deciding whether anyone's e n f o r c i n g the r i g h t s  t h e s e same d i f f i c u l t i e s  take-overs,  notably disclosure  s u g g e s t e d t h a t the b e s t s o l u t i o n , though  rights  of the  recur in several  of  and i n s i d e r t r a d i n g .  i t may n o t be i d e a l ,  is  the  parties the It  is  establish-  19 ment  of a Take-over  administrative the  Take-over  bodies Panel.  Commission in  w h i c h would combine the b e s t q u a l i t i e s o f  t h e two j u r i s d i c t i o n s , t h e S e c u r i t i e s  Commission  the and  The C o m m i s s i o n s  w o u l d be s e t  empowered t o make r e g u l a t i o n s greater f l e x i b i l i t y the s t a t u t e i t s e l f .  up u n d e r t h e r e l e v a n t a c t s ,  with respect to take-overs.  than a system  This  under which the p r o v i s i o n s  The C o m m i s s i o n s  and w o u l d be provides  much  are enacted  w o u l d h a v e a c o m m i t t e e composed o f  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  in experts  s e c t i o n composed o f  lawyers  21 and a c c o u n t a n t s . regulations advisory  The c o m m i t t e e w o u l d h a v e two f u n c t i o n s :  and r e v i s e  them i n t h e l i g h t o f e x p e r i e n c e ; and  c a p a c i t y i n cases of p a r t i c u l a r d i f f i c u l t y .  be r e s p o n s i b l e  f o r the day-to-day  and i n v e s t i g a t i n g All  complaints  documents  running  (a) (b)  to d r a f t to act in  The w o r k i n g  r e l a t e d to  f i v e business  would  circulars  take-overs.  d i s t r i b u t e d in connection with a take-over bid should  d e l i v e r e d t o the Commission  an  section  of a f f a i r s , scrutinizing  by s h a r e h o l d e r s  the  be  d a y s b e f o r e t h e y a r e due t o be  pub-  22 lished, .  s o t h a t t h e y may be s c r u t i n i z e d by t h e C o m m i s s i o n  and amended  if  necessary. This  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  problem, getting that  i n f o r m a t i o n i n adequate  t h e l a w and r e g u l a t i o n s  ment, remains  t i m e , and b e i n g  are being complied w i t h .  t o be c o n s i d e r e d .  of the d i r e c t o r s '  The o b j e c t i v e i s  in a position  powers It  ensure enforce-  t o a c h i e v e t h e most e f f i c i e n t and t h e  shareholders,  t h a t the d i r e c t o r s are able to e x e r c i s e  to p r o t e c t the l e g i t i m a t e i n t e r e s t s  to  The t h i r d a s p e c 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 Commission w h i l e a t t h e same t i m e e n s u r i n g  powers  their  involved.  may be r e c a l l e d t h a t t h e s h a r e h o l d e r s  h a v e c e r t a i n common l a w r e m e d i e s , 23 t h o u g h t h e r e i s some d o u b t 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 b e e n made t o s u p p l e m e n t t h e s e r e m e d i e s i n t h e d r a f t b i l l f o r t h e 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 to subsection 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 a n d a l l o t h e r s h a r e h o l d e r s o f t h e c o r p o r a t i o n s u i n g f o r a n d on b e h a l f o f t h e c o r p o r a t i o n t o e n f o r c e a n y 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 u n d e r t h i s A c t o r u n d e r any o t h e r s t a t u t e o r r u l e o f l a w 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 s u c h 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 shareholder pany.  is  not very w e l l  d r a f t e d , and i t i s  c a n r e c o v e r damages on h i s  However  not c l e a r whether  the  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  a properly drafted section  giving  the s t a t u t o r y  right,  com-  subject  26 to the s t i p u l a t e d c o n d i t i o n s , of  t h e company w o u l d be o f In  to bring  s u c h as  t a k e - o v e r documents, necessary.  If  that of preventing supported  t h e l a w has  could sue,  by t h e s t a t u t o r y  right  n o t been c o m p l i e d w i t h ,  m e e t i n g o f t h e company  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  the d e r i v a t i v e a c t i o n s e c t i o n . p r o v i d e d by t h e C o m m i s s i o n viously  recommended.  bringing  t h e r e was This potential  a basis  The C o m m i s s i o n  no one e l s e  to bring  if  liability,  of the p r o s p e c t i v e  there are p o s s i b l e  should  and p l a c e  t h a t the  in a personal  under  information  a c t i o n , as  the r e s i d u a l  an a c t i o n s h o u l d  company  power  c o u l d use  be  the  power  pre-  of  be b r o u g h t  the s h a r e h o l d e r s '  Further,  increase  and  directors'  p o s i t i o n , as  they  t o f o u n d an a c t i o n , a n d  i t may be e x p e c t e d t h a t t h e  and o t h e r d o c u m e n t s  their  Commission's  would prevent a t l e a s t  damage.  The P o w e r t o A l l o t  The d i r e c t o r s '  injunction  it.  to the i n f o r m a t i o n necessary  circulars  f o r an  could exercise his  have  conside-  unsatisfactory  necessary,  shareholder  would a l s o  but would improve  of take-over  behalf  be g i v e n  the Commission  i n v o l v e d , so  f o r evidence  if  to sue  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  w o u l d be more c e r t a i n .  scrutiny  2.  An i n d i v i d u a l  an a c t i o n on b e h a l f o f t h e company 27  w o u l d have a c c e s s rights  as  should  the d i s t r i b u t i o n of  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 r e p o r t before the general  an a c t i o n on  benefit.  c o n j u n c t i o n w i t h such a s e c t i o n , the Commission  r a b l e powers,  if  to a shareholder  Shares  p o w e r 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 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  from  as the  some  71  Commission's  control.  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  have t h e power t o i s s u e  any s h a r e s  i n the o r i g i n a l  should  not  or increased c a p i t a l without 28  the p r i o r approval This company  o f t h e company  i n general  meeting."  r e s t r i c t i o n would not adequately p r o t e c t a m i n o r i t y shareholder  in  a  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 h e L o n d o n  Stock  Exchange,  29 is  that issues  of shares  f o r cash  ought  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 existing shareholders. 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 g u m e n t , b u t no common l a w p r e - e m p t i v e r i g h t h a s been e s t a 31 blished.  The J e n k i n s  restriction, a resulting  loss  of f l e x i b i l i t y .  into larly  This  highly  considering  loss  o f the pro r a t a d i s t r i b u t i o n  could arise  i s where the d i r e c t o r s  t o t h e company.  This  flexibility  is  argument  in.  is  own  The s i t u a t i o n i n w h i c h  because  most l i k e l y  he has  it  shareholders  think i t d e s i r a b l e to bring  perhaps  of  not  f o r c a s h , because  from the company's  p r o v i d e d t h e c a s h comes  t h e company w i t h a s h a r e h o l d i n g , useful  of  a l l o t m e n t of shares  n o t m a t t e r whether the cash.comes  o r from o u t s i d e r s , culty  thought  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 b e c a u s e  i m p r e s s i v e when one i s should  Committee  diffi-  someone  a talent particu-  to occur i n small  private  32 companies  i n which case  the p a r t i c i p a n t s w i l l  require at least a f i r s t  option  33 restriction,  and p o s s i b l y  a consent  a l l o t m e n t to a p a r t i c u l a r person a l l o t t e d shares. directors If  The l o s s  tion  is  can u s u a l l y  is  p u b l i c the shares  of f l e x i b i l i t y  very persuasive.  In  l a r g e r companies  a  be f a c i l i t a t e d by means  desired of  already  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 , s o  may be a b l e t o g i v e o r s e l l  t h e company  therefore,  There w i l l  clause.  some o f t h e i r s h a r e s  to the  c a n p r o b a b l y be b o u g h t  argument  Such a s t r o n g  r e s t r i c t i o n as  newcomer.  on t h e S t o c k  a d v a n c e d by t h e J e n k i n s  the  Exchange.  Committee i s  not,  a p_ro r a t a _ d i s t r i b u -  m e r i t e d by t h e p o t e n c y o f t h e p o w e r t o a l l o t s h a r e s 34 r e l a t i v e l y u n f e t t e r e d hands.  in the  directors'  Section  B  Disclosure It tion of  is  convenient  to consider  connected w i t h t a k e - o v e r s ,  the problems  may be b o r n e  and f o r w h o s e b e n e f i t i s 1.  the annual  t h e two m a i n s o u r c e s  accounts,  i n mind:  of  informa-  and t h e c i r c u l a r s .  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  G e n e r a l l y two q u e s t i o n s sure,  separately  what i s  Many  treatment.  the aim o f the  disclo-  i t made?  Accounts  35 The r e l e v a n t s t a t u t e s mation If  require  and q u i t e d e t a i l e d f i n a n c i a l  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 i m p o s e  the f i n a n c i a l  satisfied.  facts  There  is  are adequately  no r e q u i r e m e n t  e x p l a i n e d , o r t h a t the various cial  full  position "There  placed i t s  be p o i n t e d  disclosed,  any o t h e r k i n d o f  the s t a t u t o r y  t h a t the s i g n i f i c a n c e  strengths  infor-  of  control  regulations  are  the accounts  and w e a k n e s s e s o f t h e c o m p a n y ' s  be finan  out.  c a n be no q u e s t i o n  t h a t , by and l a r g e ,  f a i t h i n the p r o v i s i o n  English  company  o f i n f o r m a t i o n r a t h e r than  law  has  i n any s y s t e m  of  36 control  As  o f companies  has  difficulty  or t h e i r a c t i v i t i e s . "  37  been p o i n t e d o u t in  understanding  r e c e n t i m p r o v e m e n t made i n terminology  In local  Canada  capital  into  and  of,  i n t e n d e d t o be m a d e - - t o  the  One  average  has  been p l a c e d on t h e n e e d t o  attract  industry. important to encourage  more i n f o r m a t i o n  and t i g h t e n i n g  the  complex  o t h e r t h a n an e x p e r t .  to i n v e s t o r s ,  individual  reducing  up s e c u r i t i e s  legislation."  Canadian  ownership  the c o s t o f modest  38 prices,  because  The mass o f f i g u r e s  by a n y o n e  great  expert.  a t l e a s t g r e a t emphasis  "We b e l i e v e i t providing  or to the  is  i n v e s t o r may h a v e  despite, or possibly  t h e i r contents.  t o whom d i s c l o s u r e  investor,  individual  the accounts,  are not r e a d i l y understood  may v a l i d l y a s k individual  the s m a l l  by  share  Professor publicity provide  A t i v a n has w r i t t e n :  rather  t h a n c o n t r o l , and s o  information which only  b r e a k down t h e d i s t r u s t However, operations difficult  "So  it  is  felt  long  l o n g as  company  this  and become i n c r e a s i n g l y  designed  to  be h a r d  to  to present  fairly  the o p e r a t i o n s  by t h e o r d i n a r y  securities.  companies  complex o r g a n i z a t i o n s ,  to  expand  i t becomes  more  o f t h e company  investor.  The  thei  in  a  increasingly  contributes  to the  inves-  difficulty. This  has  been t h e s i t u a t i o n  q u e n c e , new m e t h o d s the mutual Expert  tageous  securities  portfolio  of  funds  money.  in  Other  the mutual  advice  is  company  to l i k e l y sive,  have  funds,  is  will  be i n v e s t m e n t s ,  sometimes  guaranteed  are  to would-be  the p r o f e s s i o n a l shareholders.  i n t e r e s t in having  t h e r e f o r e not unbiased, analysis  market performance. investors  important  the most  to create a while others  his advan-  balanced will  be  a minimum r e t u r n on  investment  These  his  or  shares  on t h e s a l e s .  useful  Thei  interpretations  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  U n f o r t u n a t e l y such s e r v i c e s  cannot  which  brokers  t h e maximum number o f  b u t t h e y do p r o v i d e  of business  services  investment  t h e y make t h e i r l i v e l i h o o d f r o m t h e c o m m i s s i o n  and s m a l l  conse-  fund.  a financial  accounts,  a  may e n t r u s t  choose  a s u f f i c i e n t amount o f money  r e c e n t developments  counsellors  The m o s t  t o w h i c h an i n d i v i d u a l  e m p l o y e d by t h e m u t u a l  The i n d i v i d u a l  provide expert advice  as  or unit trusts,  a n d have  n o w , a n d , p a r t l y as  have been d e v e l o p e d .  i n w h i c h some s e c u r i t i e s  investment  traded,  f o r some y e a r s  investment  investors  speculations.  of  p u b l i c i t y is  the l a r g e r  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  are  geared  by t h e man i n t h e s t r e e t f o r company  manner w h i c h can be u n d e r s t o o d  tors'  law i s  the e x p e r t can i n t e r p r e t , i t w i l l  a l s o q u i t e c l e a r t h a t as  for directors  as  t e n d t o be  a f f o r d the o u t l a y necessary  as  expen-  t o buy g o o d  advi  40 Another which,  important source  unfortunately,  still  of  tends  financial  advice is  the f i n a n c i a l  t o c a t e r f o r t h o s e who h a v e  some  press knowledge  74  o f t h e m a r k e t , a n d much o f  the terminology  remains  a mystery  t o t h e man  in  41 the  street. The t o t a l  as  e f f e c t of these developments  an i n t e r m e d i a r y i s  realizing  tutions  being  recognised.  t h a t the r o l e of the  The S t o c k  t h a t much o f t h e t r a d i n g w i l l 42  employing e x p e r t s .  is  E x c h a n g e s show s i g n s  be done e i t h e r by e x p e r t s  The t e n d e n c y now i s  expert of  o r by  that disclosure  insti-  should  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 vidual, As  and t h i s  appears  he i s  may n o t h a v e if  he h a s  studies  n o t o b t a i n much u s e f u l  practised in construing  o n e , and a t t h e p r e s e n t  Accounting  by e x p e r t s who i n i t i a l l y  has  f r o m t h e company  Considering  accounts  t h e t i m e f a c t o r , he investment  broker,  t i m e , t h e f i n a n c i a l p r e s s make d e t a i l e d in  sufficient  h a v e 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  circulars.  Principles  Even i f one a c c e p t s  ambiguities  guidance  confronted with a take-  a n d 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  The i n d i v i d u a l w i l l  2.  them.  is  the o p p o r t u n i t y to get d e t a i l e d advice from his  o f few b i d s ,  detail.  As  accounts.  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  o v e r o f f e r , he w i l l unless  t o i n c l u d e annual  indi-  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 will  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 ,  of accounting p r i n c i p l e s w i l l 43 been e x p l a i n e d  be  done the  remain a problem.  t h e l a w i n e a c h j u r i s d i c t i o n has  attempted to  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 a n y c h a n g e i n a c c o u n t i n g m e t h o d s one c o m p a n y ' s a c c o u n t s solution. the  There remains  Institutes  methods  should  be n o t e d t h e r e i n .  the d i f f i c u l t  This  is  not the complete  t a s k , w h i c h c a n o n l y be p e r f o r m e d by  of Chartered Accountants,  of doing  research  i n t o the  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  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 u s e d a c c o r d i n g pany's  circumstances.  in  various a small  t o the com-  75 Then p e o p l e o u t s i d e significance ciate  the accounting  O n l y when t h i s  g r e s s h a v e been a c h i e v e d , a n d o n l y pared w i t h another  It company tors,  on t h e b a s i s  Take-over has  should  o f t h e d i f f e r e n c e between t h e s e methods,  the r e l e v a n c e o f a change.  3.  profession  of t h e i r f i n a n c i a l  the  appre-  real  be m e a n i n g f u l l y  procom-  statements.  Circulars  and t h e g r o w i n g  the i n d i v i d u a l  of  trends  r e l a t i n g to disclosure  importance of expert or i n s t i t u t i o n a l  shareholder-offeree  mation from the t a k e - o v e r over c i r c u l a r s  t h a t t h e y can  been done w i l l  t h e n c a n one company  been s u g g e s t e d t h a t , b e c a u s e  accounts,  has  so  be e d u c a t e d i n  circular.  will  g a i n most o f h i s  Consequently  p r o v i d e d by t h e d i r e c t o r s  i t is  helpful  thought  in inves-  infor-  t h a t the  o f t h e o f f e r e e company  should  take-  be  expanded. One i m m e d i a t e c h a n g e  should  be t h a t t h e o f f e r e e d i r e c t o r s  t h e i r shareholders  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  course  If  in  of a c t i o n .  reaction to a take-over  shareholders In of  the law a l l o w s  take-over  circulars  paper  no r e q u i r e m e n t  o r an a s s e s s m e n t o f i t s In over  financial i t was  of  amount  position  to  c i r c u l a r , they w i l l  and p o t e n t i a l .  present  in respect of i n terms  t h e company w o u l d be t o s p o o n - f e e d b u r d e n on t h e d i r e c t o r s . has  and  the  of  offer,  the  offer,  o r an  in a takeassessment  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  the s h a r e h o l d e r s ,  Some f o r m o f l i a b i l i t y  t o be r e t a i n e d , s o  contents  and f u t u r e p o t e n t i a l .  i t with either a valuation  However,  inform  of information,  f o r a v a l u a t i o n o f t h e company  support  powers  position.  concluded that although  c u r r e n t performance  particular  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 r e c o m m e n d a t i o n  of performance  cular  the o b l i g a t i o n  and e c o n o m i c  the d i r e c t o r s '  send  to e x e r c i s e considerable  impose  provided a substantial  informed the shareholders t h e r e was  b i d , i t should  o f the company's  Part 3 of this  directors  should  and w o u l d impose  f o r the contents  i t w o u l d be u n f a i r t o compel  a harsh  of the  directors  to  of  cir-  assess  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  task  a t the best o f t i m e s , w i t h i n  44 the  r e l a t i v e l y short The s u g g e s t e d  p e r i o d a l l o w e d by a t a k e - o v e r  change i s  bid.  that d i r e c t o r s should  be r e q u i r e d t o s e n d  out  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 , a n d it  should  i n c l u d e an a s s e s s m e n t  o f the company's  i n v o l v e some a n a l y s i s  o f a n d comment on t h e c o m p a n y ' s  This  will  cial  statements.  certified,  p e r f o r m a n c e and p o t e n t i a l .  A n y s t a t e m e n t made on t h e b a s i s  by t h e same a u d i t o r s , as  S u c h a scheme w i l l  involve  being  of these  audited  accounts  should  be  c o n s i s t e n t w i t h them.  a f a i r l y c o m p l e x d o c u m e n t , a n d one i s  w i t h the o l d problem t h a t the i n d i v i d u a l  finan  faced  i n v e s t o r may n o t u n d e r s t a n d  it.  An  45 attractive (a)  solution  is  t h a t the c i r c u l a r should  a concise statement of basic  i n f o r m a t i o n ; and  be d i v i d e d i n t o two (b)  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 . a precis  an a p p e n d i x  parts:  containing  The f i r s t p a r t w o u l d  o f t h e s e c o n d , a n d e a c h 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 h e 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 o u n d the second It  is  in  part. admittedly d i f f i c u l t  t o a c c u r a t e l y summarise  d o c u m e n t and c o m p l y w i t h t h e n e c e s s a r y pany's  be  performance.  Experiments  showed t h a t a r e a s o n a b l e  summary  a major commercial  standard of presenting  f a i r l y the  c a r r i e d o u t by t h e Wheat R e p o r t S t u d y of a large  com-  Group  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 six  to seven  page a v e r a g e  length  statement.  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 , a n d has  commonly b e e n r e g a r d e d as  cited  reason  for this  were a l l o w e d , but t h i s than  is  offer? Stock  is  crucial in  that a l t e r n a t i v e bids  does  Exchange,  reason  the shareholders is  If  most  be d e p r i v e d o f a is  often  t o o much  a company i s  t h a t w h e r e t h e company  t h e r e may be c o n s i d e r a b l e  This  c o u l d be made i f  n o t seem a b a d f a u l t .  b e i n g o f f e r e d , why s h o u l d A more m e a n i n g f u l  a take-over bid.  speed  worth  time more  higher  q u o t e d on a  f l u c t u a t i o n s of share  price while  77  the b i d remains  uncompleted.  This  c r i t i c i s m has  become l e s s  m e r i t e d as  47 improved d i s c l o s u r e  provisions  have b r o u g h t  greater  p u b l i c i t y and  less  48 scope  f o r rumour.  the p a r t i e s  The d a n g e r e x i s t s , b u t t h e remedy l i e s  t o t h e b i d who, e n c o u r a g e d  o r the Stock  Exchange,  i n t h e hands  by t h e s u g g e s t e d T a k e - o v e r  would maintain a steady  of  Commission  flow of information to  the  public. It  is  any s h a r e s business  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 a n d pay deposited pursuant  days  t o t h e b i d f o r a minimum p e r i o d o f  a f t e r t h e f o r m a l b i d has  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 . pare i t s tion  documents  contained in  This  would give  and a l l o w t h e s h a r e h o l d e r s  t h e c i r c u l a r s and s u p e r v i s i n g  adequate s c r u t i n y by t h e Commission  t h e company  time to  t o a c t on t h e b a s i s  of  pre-  informa-  t h e i r contents.  One w o u l d hope  w o u l d a l l o w amendment o f a n y  conthat  misleading  done.  Enforcement  The p r o p o s e d  scheme p l a c e s  a n d w h i l e one m u s t e n s u r e care not to p e n a l i s e to unduly It  t h a t t i m e , any  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  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 4.  twenty-eight  them.  The s u g g e s t e d T a k e - o v e r C o m m i s s i o n trolling  been made, and u n t i l  for  is  preventing  a considerable  r e s p o n s i b i l i t y on t h e  directors,  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  d i r e c t o r s s o h e a v i l y as  r e s t r i c t t h e i r a b i l i t y to advise  t o make t h e i r t a s k  take  impossible,  or  shareholders.  t h e r e f o r e recommended t h a t t h e C o m m i s s i o n 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  should  have  t h e power  c i r c u l a r and o f c o m p e l l i n g  of  its  49 amendment.  It  should  defaulting  companies  also  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  a n d 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  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 w o u l d be r e s t r i c t e d t o h i s gent  misstatement.  51  t o sue  under  which  50  fines.  under the s e c t i o n ,  common l a w 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  and negli-  78  Section  C  E q u a l i t y of Treatment of The f i r s t o b j e c t i v e i s equality  has  to recognise  Shareholders  the e x t e n t to which  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 .  relevant sections  and r u l e s  r e f l e c t the b a s i c  the concept  A wide v a r i e t y o f  principle that  of  the  shareholders  52 should  be t r e a t e d  1.  equally.  Equality of  There  Price  a r e , however,  the theory,  several  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  e s p e c i a l l y when t h e t e r m s  cannot  apply  to those  members  who,  shares  on t h e m a r k e t , p r o b a b l y  of  a b i d are considered.  r a t h e r than accept the o f f e r , s e l l  expecting  t h a t the b i d w i l l  advantage  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  practical  nor  desirable  Obviously  fail.  a gamble.  to r e q u i r e e q u a l i t y of treatment f o r such  A further limitation is o f f e r e d to the shareholders  t h a t t h e c o n c e p t can o n l y as  may be e n t i t l e d t o c o m p e n s a t i o n  shareholders.  apply  is  take neither  speculators.  to the  T h o s e who a r e a l s o  it  their  They It  of  terms  directors  o f p o s i t i o n , o r t h e y may n e g o 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 b e c a u s e t h o s e  shareholders  having  control  of  for their loss  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 for  t h e i r shares.  Canada,  because  It  is  not c e r t a i n whether the p o s i t i o n 55  the American  cases  might  is  t h e same  in  h a v e some i n f l u e n c e a n d i t may be  t h a t any p r e m i u m p a i d f o r c o n t r o l l i n g s h a r e s m u s t be d i v i d e d among  all  shareholders. 56 As a m a t t e r o f p o l i c y , t h e T a k e - o v e r P a n e l d e c i d e d , quite rightly in 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 h e 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 t h e r e a l i t y o f  The c u r r e n t p o s i t i o n of e q u a l i t y of  appears  the h i g h e r  p r i o r i t y o f making  t o be t h a t t h e r e i s  treatment of shareholders  an u n d e r l y i n g  but that i t i s  a deal. principle  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 i m p o r t a n t as stances.  a basic standard,  This  2.  is  the o n l y  Equality of  Usually t i o n about mation  r e a l i t i e s of a particular situation.  is  remains  b u t one w h i c h c a n be v a r i e d t o meet t h e  feasible  circum-  approach.  Information  the d i r e c t o r s w i l l  t h e company important  The c o n c e p t  h a v e more d e t a i l e d a n d w i d e - r a n g i n g  than i t s  in giving  shareholders,  all  an e q u a l  so  informa-  d i s t r i b u t i o n of t h i s  opportunity  infor-  to react i n t e l l i g e n t l y .  58 As  has  been s e e n ,  the f i n a n c i a l  this  statements  The i n s i d e r  d i s t r i b u t i o n of information is  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  trading provisions  the s i t u a t i o n where t h e r e i s cial  access  the theory  is  Despite  been g a i n e d  the company's  by t h e use  that a l l shareholders its  are the c o n t r o l mechanism w h i c h  the  and t h e  share  the  bid.  spe-  shareholders.  o f i n f o r m a t i o n o b t a i n e d by an  should  inherent d i f f i c u l t i e s ,  affairs  of  governs  no p a r i t y o f i n f o r m a t i o n b e t w e e n t h o s e w i t h  to i n f o r m a t i o n about  Where p r o f i t has  e f f e c t e d by means  insider,  profit.  the r e l e v a n t B r i t i s h  Columbia  sec-  59 tions  have  the m a t e r i a l  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 trade. Some i m p r o v e m e n t s c a n be  i n f o r m a t i o n , o r he m u s t n o t  61  made t o r e n d e r t h e s e c t i o n more e f f i c i e n t . should This  be p u b l i s h e d m o n t h l y  will  increase  prospective  For example,  insider  accessible  t o anyone  i n a form e a s i l y  the d e s i r e d e f f e c t of the r e p o r t s ,  shareholders  should  reports interested.  that shareholders  know when and how much i n s i d e r s  have  and  traded.  cq The p r e s e n t  scheme  under which the r e p o r t s  does n o t e f f e c t i v e l y a c h i e v e t o go t o i n s p e c t  the  this  a i m , as  a r e open t o p u b l i c  inspection  f e w a r e p r e p a r e d t o make t h e  effort  Register.  64 As are best  to the wording resolved  of  the l i a b i l i t y  by t h e c o u r t s  as  section  cases a r i s e ,  many o f thus  the d i f f i c u l t i e s  preserving  T i g h t e r d r a f t i n g would r e s u l t  i n an unwelcome  section.  one o r two p h r a s e s w h i c h m i g h t  There  a r e , however,  narrowing  of  flexibility.  the scope  of  the  be a l t e r e d by  legislation.  The m o s t n o t a b l e e x a m p l e i s  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  l i a b l e t o compensate  any p e r s o n  a r e s u l t of the t r a n s a c t i o n .  for  "It  may  65 be a r g u e d sing  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  relevant information l i a b l e to a l l shareholders  a t a p p r o x i m a t e l y t h e same t i m e , e v e n t h o u g h This  imposes  a v e r y heavy  liability  who s o l d  i n the  disclo-  market  they d i d not t r a d e w i t h the  on i n s i d e r s ,  not n e c e s s a r i l y  a r e l i a b l e t o t h e company f o r a n y d i r e c t g a i n , a n d a l s o  insider.  d i r e c t o r s , who  t o any s h a r e h o l d e r s  for  cc the  loss  t h e y have s u f f e r e d .  To t h e p r e s e n t  Such l i a b i l i t y  time l i a b i l i t y  because  t h e r e h a v e b e e n no c a s e s .  holders  h a v e some d i f f i c u l t y  i n t e r e s t t o s u e , e s p e c i a l l y as  Having provisions enforcing  be t h a t  the i n d i v i d u a l shareholders  a r e l a t i v e l y small  are perhaps  f o r t h i s may w e l l  enforced  t h a t because  suffer  fore,  One r e a s o n  n o t been  the i n f o r m a t i o n necessary  Another point is  an a c t i o n somewhat  f o r i n s i d e r t r a d i n g has  burdensome.  in obtaining  an a c t i o n . only  seems u n n e c e s s a r i l y  personal  loss,  the wording  found may  each  t h e y may n o t h a v e a s u f f i c i e n t  o f t h e s e c t i o n makes  unpredictable at present.  to  share-  Individual  the r e s u l t  shareholders,  of  there-  n o t the most s u i t a b l e p l a i n t i f f s .  regard to this  f a c t and t o t h e s u g g e s t i o n t h a t t h e p r e s e n t  are u n s a t i s f a c t o r y , the s e c t i o n i s  liability  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  desirable.  U n d e r s e c t i o n 107E  the S e c u r i t i e s  for  Commis-  C-7  sion, action  i n s p e c i f i e d circumstances  i n t h e name and on b e h a l f o f t h e company  by s e c t i o n 1 0 7 D . " should 107D,  may be r e q u i r e d " t o commence o r c o n t i n u e  It  is  be e x t e n d e d t o a l l  suggested that t h i s  to enforce the l i a b i l i t y  d u t y i m p o s e d on t h e  could sue.  The l i a b i l i t y  created  Commission  c a s e s w h e r e t h e r e w o u l d be an a c t i o n u n d e r  and t h a t o n l y t h e Commission  an  section  i m p o s e d w o u l d be CO  a f i n e , w h i c h m i g h t be h e a v y 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 , liability  on t h e i n s i d e r t o a c c o u n t  t o t h e company  for his  w o u l d t h e n be u n d e r a d u t y t o d i s t r i b u t e t h e damages among 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 s o l d i n the market.  who, a t t h e t i m e o f  with a further  gain. its  The  company  innocent  the wrongful  share-  transaction,  This sue,  solution  but i t i s  admittedly deprives  r e a l i s t i c to give  vide t h a t the s u f f e r e r s  will  t h e p e r s o n who l o s e s  of his  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  The C o m m i s s i o n  because  to i n f o r m a t i o n , e s p e c i a l l y with i t s  investigation, action.  b e t t e r access and i t w i l l  Further i t  3.  gain,  The E n g l i s h  in  they  powers  of  not s u f f e r from a l a c k of i n t e r e s t i n pursuing  the  be l i a b l e t o  a n d 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 ,  t o an a l m o s t l i m i t l e s s  The P o s i t i o n  pro-  a more e f f e c t i v e p l a i n t i f f  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  account only f o r his than being exposed  is  to  and t o  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  are not g e t t i n g a t present. i t has  right  rather  liability.  England  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 bility  f o r i m p r o p e r t r a d i n g is 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 ,  there  some d o u b t w h e t h e r a c t i o n a t common l a w t o r e c o v e r damages f o r i n s i d e r would succeed. in  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  an a c t i o n a g a i n s t The J e n k i n s  any t r a n s a c t i o n  an i n s i d e r f o r i m p r o p e r  Committee r e c o m m e n d e d :  makes  have  succeeded  "A d i r e c t o r o f a company w h o ,  s e c u r i t i e s should  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  action  i n so d o i n g ,  be l i a b l e t o c o m p e n s a t e  unless  t h a t i n f o r m a t i o n was  a p e r s o n who s u f f e r s known t o t h a t  107D,  except that  company w o u l d n o t be g i v e n a n d one r e a s o n  is  'insider'  a right  from  body f o r c o m p a n i e s , to-day control of section.  T h e r e has  b e e n no s u c h  but i t  is  The B o a r d o f T r a d e i s  not designed  company a f f a i r s  his  person." similar the  enactment,  t h a t t h e r e i s , a s y e t , no s t a t u t o r y b o d y s u i t a b l e f o r  a d m i n i s t r a t i o n o f such a scheme.  of  w o u l d be more n a r r o w l y d e f i n e d a n d  to sue.  com-  confiden-  The e n a c t m e n t o f s u c h a r e c o m m e n d a t i o n w o u l d r e s u l t i n a p r o v i s i o n to section  in  company o r o f a n y o t h e r  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 h e v a l u e  those  trading  trading.  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  p a n y i n t h e same g r o u p , tial  7 0  n o r company  is  the general  the  supervisory  t o t a k e s u c h an a c t i v e r o l e i n  as w o u l d be e n t a i l e d by an i n s i d e r  day-  trading  82  Although  i n s i d e r t r a d i n g extends w e l l  recommended T a k e - o v e r  Commission  The c o n t r o l o f s u c h t r a d i n g i s of the Commission's company It the  terms  could a d m i n i s t e r the necessary  provisions.  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  of reference while B r i t a i n continues  law w i t h o u t a S e c u r i t i e s is  beyond the t a k e - o v e r s i t u a t i o n , the  Commission.  extension  to  supervise  7 1  t h e r e f o r e recommended t h a t t h e E n g l i s h  i n t r o d u c t i o n of a s e c t i o n s i m i l a r to s e c t i o n  Companies 107D,  A c t be amended  m o d i f i e d as  by  suggested  above. Section D Financial Concern about  Advisers  the r o l e of advisers  to p a r t i e s  to a take-over bid is  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 , but 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 urgent  of answers.  72 Should  advisers  be a l l o w e d t o t r a d e on t h e s t o c k m a r k e t  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 to  one o f t h e p a r t i e s ?  t r a d e , u n d e r w h a t c o n d i t i o n s may t h e y do s o ?  of control should  be e x e r c i s e d o v e r  Where t h e f i n a n c i a l a d v i s e r s t h e r e may be s e r i o u s  involved in a bid. substantial case,  on s h a r e  shareholding  f a c t o r which w i l l  They w i l l  i n v e s t m e n t , and a l s o  allowed form  investment  advisers  have a d u t y t o a duty to the  their  company  m o s t a c u t e w h e r e t h e c l i e n t a l r e a d y has  i n a company w h i c h  the f i n a n c i a l advisers  they are  A p a r t from t r a d i n g what  a r e merchant banks o r  The c o n f l i c t i s  If  a  them?  conflicts of interest.  c l i e n t whom t h e y a d v i s e  i n the course of  may h a v e  is  a party to the b i d .  In  such a  a duty to inform t h e i r c l i e n t s of  materially a f f e c t t h e i r investments,  a  any  b u t i f t h e y do s o ,  they  may n o t be a c t i n g i n t h e i n t e r e s t o f t h e company w h i c h t h e y a r e a d v i s i n g . some i n s t a n c e s  t h e m e r c h a n t b a n k s do t h e b u y i n g a n d s e l l i n g o f t h e  The s i t u a t i o n i s shares less  i n a company  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  party to a b i d f o r f u t u r e investment purposes.  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 is  In  shares. purchase There  not y e t d i r e c t l y i n v o l v e d ,  is so  83  the question their  is  simply whether advisers  client-company during Such p u r c h a s i n g  company,  or to i t s  be a b u s e d  be a l l o w e d t o buy s h a r e s  in  a bid.  of shares  the p r i c e o f the company's  should  has  a strong  secondary  effect  73  of  raising  s h a r e s and t h i s may o r may n o t be o f b e n e f i t t o  shareholders.  74  There i s  and m a r k e t m a n i p u l a t i o n m i g h t  a danger  t h a t such  trading  the  could  occur. 75  The T a k e - o v e r  Code c o n t a i n s  between the b e g i n n i n g "No d e a l i n g s  a rule  of negotiations  o f any k i n d  t a k e - o v e r o r merger  and p u b l i c a n n o u n c e m e n t  by any p e r s o n who i s  discussions  ( a ) when t h e i n i t i a l  or  to suppose  reason  made, and t h e announcement discussions This  as  t h e c a s e may  accepts and i t  only  the advisers  suggested  The q u e s t i o n  is  to the  of  prelimi-  is  made o r i n t i m a t e 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  and t h e company.  If  s i t u a t i o n , he s h o u l d  a t a k e - o v e r i n w h i c h he i s  be of  a professional  the shares  inte-  adviser involved,  have a d u t y not t o  trade  involved.  Where a m e r c h a n t bank should  advisers  The b a l a n c e o f  more c o m p l i c a t e d w h e r e an a d v i s e r owes  p r o b l e m i s w h e t h e r one b r a n c h o f a bank to trade in  approach  the course of a b i d .  i n v e s t m e n t c l i e n t s and t o a company.  clients  privy  a c c e p t t h e r e s p o n s i b i l i t i e s and d u t i e s  that in this  on t h e m a r k e t d u r i n g  i n the shares  be."  a p o s i t i o n he m u s t a l s o is  o f an o f f e r .  t h a t an a p p r o a c h o r an o f f e r w i l l  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  concerns  period  o f the approach or o f f e r or of the t e r m i n a t i o n  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 rests  the  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 the t i m e ( b ) when t h e r e i s  trading during  (including option business)  t h e o f f e r o r and o f f e r e e companies nary  governing  duties is  both to  his  concerned,  the  be p r e v e n t e d f r o m a d v i s i n g  its  o f a company w h i c h a n o t h e r b r a n c h  is  advising  76 on a t a k e - o v e r .  The b a l a n c e o f s u c h c o n f l i c t i n g i n t e r e s t s  d e t e r m i n e , and w i l l for  legislation.  It  vary from case is  to case,  p r e f e r a b l e t o have  and s o  is  is  difficult  not a s u i t a b l e  a more f l e x i b l e s y s t e m o f  to  subject control,  84 making  u s e o f t h e recommended T a k e - o v e r  c o n f l i c t p o s i t i o n should  ask  Commission.  An a d v i s e r who i s  the o p i n i o n o f the Commission  before  in  a  acting,  7 7  78 and a b o d y o f r u l e s , w h i c h s h o u l d general  s t a n d a r d , v a r i a b l e a t the Commission's  advisers it  has  be p u b l i s h e d ,  should  not take advantage  w o u l d be d e v e l o p e d . d i s c r e t i o n , should  o f i n f o r m a t i o n g a i n e d as  that  advisers  before  d e s i r a b l e t h a t they  should  been d i s c l o s e d t o t h e p u b l i c .  Where a d v i s e r s  are allowed to trade  be c o n t r o l l e d , a n d i t i s  79  i t is  therefore suggested  80  t h a t any a d v i s e r  i n c l u d e d w i t h i n the d e f i n i t i o n of i n s i d e r , f o r the purposes ding  be  The  should  be  of i n s i d e r  tra-  provisions.  81 The K i m b e r R e p o r t s t a t e d : 'insider ties  trading'  is  generally  "In  the s e c u r i t i e s  industry  used t o denote purchases  or sales  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  t h e company i s  such  t h a t he i s  information concerning Advisers  likely  t o have a c c e s s  phrase of  securi-  relationship  to  to relevant material  t h e company n o t known t o t h e g e n e r a l  w o u l d c l e a r l y have a c c e s s  the  public."  t o m a t e r i a l i n f o r m a t i o n , a n d t h e Corn-  op  mittee's  recommendation  the professional real by  bodies  that professional to which they belong  p r o t e c t i o n or compensation  persons is  should  be d i s c i p l i n e d by  not adequate.  It  provides  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  no  dealing  advisers. In  contrast,  advisers  is  the t h i r d problem concerning general  one w h i c h  is  best solved  by a c t i o n s  control of  i n c o n t r a c t and i n  c o m b i n e d w i t h d i s c i p l i n e i m p o s e d by t h e r e l e v a n t p r o f e s s i o n a l incidents  as  the r e s i g n a t i o n  chant bankers,  at a crucial  from t h e i r p o s i t i o n  d e a l t w i t h by t h e a b o v e m e a n s , p r o b a b l y the most damaging t r a t i v e body s u c h  as  advisers  although  consequence  t i m e by R o b e r t  as a T a k e - o v e r o r S e c u r i t i e s  equity,  bodies.  to Pergamon, are most  conduct. Commission  Such  Fleming &Sons, mer-  p u b l i c and p r o f e s s i o n a l o f such  professional  censure  A statutory is  suitably is  adminis-  n o t i n a good  85 position  t o d i s c i p l i n e p e r s o n s d e a l i n g w i t h i t , as  which could a f f e c t business  1.  the B i d — T h e  Compulsory  hostility  r e l a t i o n s m i g h t be c r e a t e d . Section  After  unnecessary  E  Remaining  Minority  Shareholders  Acquisition  83 In of  considering  the compulsory  acquisition sections  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 .  According  one s h o u l d  to the Jenkins  be  aware  Committee  84 they are designed  to f a c i l i t a t e mergers,  be u s e d t o e n a b l e a c a s h  and t h e f a c t t h a t t h e s e c t i o n s  bidder to o b t a i n  100  per cent share  control  is  may inci-  85 dental.  Despite  Maugham, J . ' s  reluctance to recognise  allow expropriation of minority shares, The m o s t Professor factors,  advanced  revision  of section  Gower i n t h e Ghana C o m p a n i e s the r e v i s e d s e c t i o n  the b i d is  allows  on a s h a r e - f o r - s h a r e  basis,  have  Code.  point should  In  view of  the opportunity  be b o r n e  the  is  to  in  mind.  above-mentioned  a c q u i s i t i o n of shares  or share-for-share  a cash  the e f f e c t  209(1) h a s b e e n recommended by  compulsory  Such a b i d e f f e c t s a merger whereas former shareholders  and t h i s  it,  only  w i t h a cash  option.  b i d d o e s n o t , and i n a m e r g e r  t o r e m a i n members  of the  when  the  merged  organization. This sections, bids.  d i s t i n c t i o n should which should  There  a minority's  is  little  shares  The G h a n a i a n problems  be amended s o  merely f o r  its  Court  the E n g l i s h  t h a t t h e y no l o n g e r  own  and B r i t i s h apply  t o cash  bidder to  Columbia only  expropriate  convenience.  other interesting  features.  One o f  the  major  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 h e t a s k  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  The s o l u t i o n  in  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 cash  s e c t i o n has  in section  be r e c o g n i s e d  fair  or not,  p u t f o r w a r d i n t h e Ghana Code  . . . the C o u r t b e f o r e making  and i s  88  is:  an o r d e r m a y ,  matter to the R e g i s t r a r ,  who s h a l l  investigate  o f t h e o f f e r and t o  the f a i r n e s s  87  r e l u c t a n t t o do  so.  "On any a p p l i c a t i o n t o if  i t thinks  the  f i t , refer  a p p o i n t one o r more c o m p e t e n t r e p o r t e r s report thereon  to the  Court."  the to  86 This  is  a sensible  The a p p l i c a n t w o u l d h a v e  acknowledgment  of the l i m i t s of j u d i c i a l  t o p r e s e n t some p r i m a f a c i e c a s e  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. 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  capacity.  t h a t the o f f e r  The E n g l i s h  by t h e a d o p t i o n o f a s i m i l a r  and  is B.C.  provision.  89 The J e n k i n s to vary  C o m m i t t e e recommended  the terms  t h a t the c o u r t should  be  empowered  o f t h e o f f e r on w h i c h t h e s h a r e s o f a d i s s e n t i e n t  share-  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 .  This  wise  t h e o n l y r e m e d y open t o d i s s e n t i e n t s  is  that  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  is  j u s t i f i e d because  to request  rable  t h a t the c o u r t should  fairness, everyone  be a b l e t o v a r y  is  order  The m i n o r i t y  seems t o be p r e f e -  i n accordance  out at a reasonable  with  price,  and  satisfied.  Unfortunately  this  answer  is  d i d not face the problem t h a t i f for  It  the terms  s o t h a t t h e m i n o r i t y c a n be b o u g h t  the c o u r t to  acquisition.  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 c o m p a n y .  other-  too s i m p l e , because the c o u r t improves  the Jenkins  the terms  Committee  of the  t h e m i n o r i t y , t h o s e who h a v e 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  offer  offer  will  91 not o b t a i n equal  terms.  makes  . . t h a t t h e t r a n s f e r e e company s h a l l  an o r d e r  the shares then, give  .  Professor  Gower r e c o m m e n d e d :  c o n c e r n e d upon t e r m s d i f f e r e n t f r o m t h o s e  unless  the Court s h a l l  be b o u n d t o  within  o f t h e same c l a s s  two months  shall  as  o t h e r w i s e o r d e r , t h e t r a n s f e r e e company  shall  who a c c e p t e d t h e o r i g i n a l  o f the g i v i n g  to a l l other  o f s u c h n o t i c e any s h a r e h o l d e r to acquire his  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  holders  o f f e r , and a t any shall  shares  t h o s e o r d e r e d by t h e C o u r t a n d a n y s u c h f o r m e r  him any a d d i t i o n a l  acquire offer  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 same t e r m s  Court  of the o r i g i n a l  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 c h amended t e r m s  of shares  his  "Where t h e  upon  time  be the  shareholder  t o pay o r t o t r a n s f e r  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 h a v e b e e n e n t i t l e d had  s h a r e s b e e n a c q u i r e d on t h e t e r m s o r d e r e d by t h e  Court."  to  87 The o f f e r o r m u s t ,  under t h i s  p r i c e which the court regards  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  as f a i r .  This  is  the  a remarkable 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 u p o n , are serious sequences, vary  f o r the o f f e r o r .  the terms o n l y where the o f f e r i s  would undoubtedly that t h e i r bids In to vary  British  It  Columbia s t a t u t e s  Some m i n o r amendments  ing gained i s  r e c e i v e the  is  be amended  courts  higher  are d e s i r a b l e  nominees,  Power o f t h e M i n o r i t y  to c l a r i f y the s e c t i o n s .  apply only  to o f f e r s  for a l l  should  is  and  It  should  the  sharehold-  i.e.  not  to ensure,  s o f a r as  is  Their  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 n o t  possible,  ninety per cent of the shares.  pass a s p e c i a l  resolution, usually  very wide powers,  Bearing  opposed  purchased  or  con-  i n m i n d t h a t a m a j o r i t y who  s e v e n t y - f i v e per cent of the v o t e s ,  i n c l u d i n g t h a t o f amending  that  trust.  The s e c t i o n a p p l i e s o n l y w h e r e an o f f e r o r company has trols  already  Shares  an u n w i l l i n g m i n o r i t y d o e s n o t h a v e t o r e m a i n l o c k e d w i t h i n a company 95 to a very  shares  be made.  to Require O f f e r o r to Purchase  of s e c t i o n 209(2)  with  accordingly.  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 , 94  The p u r p o s e  ensure  t h e r e f o r e suggested t h a t the English 93  An amendment t o t h e 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  h e l d by t h e o f f e r o r o r i t s 2.  to  i t seems p r e f e r a b l e t o empower t h e  s t a t e d t h a t the s e c t i o n s  o f a company.  offerors  t h a t , w h e r e 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  requirement.  be e x p r e s s l y  one  The e x i s t e n c e o f s u c h a p o w e r  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  terms, w i t h the proviso latter  to  reasonable.  s p i t e of the d i f f i c u l t i e s , the terms  c l e a r l y u n f a i r , i n which case  f o r the o f f e r o r .  con-  e x e r c i s e t h e i r power  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  are  consequences  by v i r t u e o f t h e s e v e r i t y o f t h e  i t may be e x p e c t e d t h a t t h e c o u r t s w i l l  does n o t have g r e a t sympathy  the  However,  and t h e  can  has  the a r t i c l e s of a s s o c i a t i o n ,  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 , s h o u l d be e x t e n d e d i n s c o p e . 96  one and  88 The a r g u m e n t litate not  a p p l i c a b l e to section  mergers i t s h o u l d  relevant here.  controller It  is  chase  o n l y be a v a i l a b l e w h e r e as  undesirable  as w i t h a company  as m a j o r i t y  is  i t is  designed  the o f f e r o r i s  their Finally,  faci-  t o be l o c k e d i n w i t h an  is  individual  shareholder. or  com-  per  cent  h e l d o r n o t , may be r e q u i r e d by t h e m i n o r i t y t o  pur-  a bid for a l l  independently  to  a company,  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  p a n y , who makes o r more,  It  2 0 9 ( 1 ) t h a t as  the shares  and a c q u i r e s  seventy-five  shares. t h e r e seems t o be no s i g n i f i c a n t  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  B r i t i s h Columbia s t a t u t e should  adopt a s e c t i o n  d i s t i n c t i o n between i t is  recommended  similar  England  that  t o 2 0 9 ( 2 ) as  the modified.  89  FOOTNOTES  Part 1 ^Weinberg, Take-overs  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 a n d B r i t i s h Columbia are not a v a i l a b l e , but the trend 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 h e p e r i o d 1 9 5 6 - 6 6 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 C a s h T a k e - o v e r B i d s , " 45 H a r v . B u s i n e s s R e v . , A p r i l , 1 9 6 7 , 1 3 5 , 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 a n d 1966.  3 G o v e r n m e n t W h i t e P a p e 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 h e Monop o l i e s and M e r g e r s A c t 1 9 6 5 , 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 . I n t h e R e p o r t o f t h e Company Law C o m m i t t e e ( 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 h e 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. 2 0 9 : " I t a p p e a 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 h a v e on t h e w h o l e s e r v e d a u s e f u l e c o n o m i c p u r p o s e 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 , a n d t h a t i n m o s t c a s e s t h e new m a n a g e r s h a v e p r o v e d more e f f i c i e n t than the o l d . " 4  5 The d e t a i l s o f b o t h t h e s e b i d s w e r e o b t a i n e d f r o m t h e T i m e s n e w s p a p e r and t h e T i m e s 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 h e Times f o r the days a f t e r the d a t e s g i v e n i n t h e t e x t .  7  R e f e r r e d t o as  "Pergamon."  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 , managing Pergamon.  d i r e c t o r and l a r g e s t  shareholder  in  Q  The T a k e - o v e r P a n e l i s t h e b o d y w h i c h c o n t r o l s g u i d a n c e o f t h e C i t y Code on T a k e - o v e r s a n d M e r g e r s . 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  Advisers  ^Merchant  t a k e - o v e r bids under the T h e s e w i l l be e x p l a i n e d  t o News o f t h e W o r l d . bankers,  advisers  t o News L t d .  bankers,  advisers  to  12 Merchant  Pergamon.  13 is  A d v i s e r s t o News o f t h e W o r l d L t d . approximately twenty per cent.  The p e r c e n t a g e  of shares  involved  ^ R o b e r t F l e m i n g & S o n s , m e r c h a n t b a n k e r s , who became f i n a n c i a l advisers t o P e r g a m o n when H a m b r o ' 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  T h e s e b e n e f i c i a r i e s w e r e e n c o u r a g e d and a i d e d by Pergamon  advisers.  C h a i r m a n o f News o f t h e W o r l d . 1 7  I  Chairman of  o  A subsidiary  Pergamon. o f an A m e r i c a n c o m p a n y , r e f e r r e d t o as  R e f e r r e d t o as  1 9  20  This  "Leasco."  "I.L.S.C."  f o r e c a s t was made d u r i n g P e r g a m o n ' 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 e e t h e Times B u s i n e s s News, A u g u s t 2 9 , 1 9 6 9 , p. 2 1 . 22 Advisers to Leasco. 23 F o r an a n a l y s i s o f t h e M a x w e l l c o m p a n i e s , s e e t h e S u n d a y T i m e s W e e k l y Review, August 24, 1969, pp. 37-38. Part  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 , M a x w e l l c o n t r o l l e d t h i r t y per cent of the votes. H o w e v e r , p r i o r t o t h e m e e t i n g he h a d b o u g h t 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 h a d a l s o s o l d more t h a n 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 M a x w e 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 P e r g a m o n ' s o f f e r , o f some t h i r t y - t w o per cent o f the t o t a l s h a r e s . P r i o r to the o f f e r , Carr 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 h e f a m i l y a g r e e d to s e l l his t w e n t y - f i v e per cent s h a r e h o l d i n g to Maxwell. 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 h e 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 cited in that Part. 4  News  Ltd. is  an A u s t r a l i a n  company.  5 T h i s h a p p e n e d i n t h e News o f t h e W o r l d 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  This  is  an e i g h t e e n p e r c e n t e r r o r !  P e r g a m o n ' s p r o f i t s f o r 1968 w e r e r e - a s s e s s e d 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 £ f o r e c a s t of a j E 2,104,000 p r o f i t . 7  a t " n o t more t h a n £ 1 , 0 9 4 , 0 0 0 . ' 2 , 5 0 0 , 0 0 0 p r o f i t , and a s e c o n d  P S t a t e m e n t by t h e T a k e - o v e r P a n e l , made d u r i n g t h e L e a s c o - P e r g a m o n  break-  down. g  March 1,  An States. 1 0  1970.  There i s  still  dispute over these  A m e r i c a n company c o n n e c t e d w i t h P e r g a m o n ' s  accounts.  operations  i n the U n i t e d  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 c h  12  See J a n u a r y , i s n o t e d as s a y i n g offer.  a situation is  very  unlikely.  1970, e n t r y P a r t 1, t h e Pergamon-Leasco b i d , where S t e i n b e r g t h a t he i s n o t c o m m i t t e d t o a n y minimum p r i c e f o r h i s t h i r d  13 I t w i l l be r e c a l l e d f r o m P a r t 1 t h a t u n d e r t h e t e r m s M a x w e l l a n d h i s f a m i l y w e r e t o r e c e i v e an amount a s s e s s e d n i n e t e e n , w h e r e a s 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 a m u l t i p l i e r of twenty-five. 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 r e j e c t e d , the p r i c e o f the shares f e l l c o n s i d e r a b l y . This o f t h e W o r l d c a s e , a n d i s l i k e l y t o h a p p e n when t h e S t o c k s u s p e n s i o n on d e a l i n g i n P e r g a m o n 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 .  o f the second o f f e r by a m u l t i p l i e r o f t o be a s s e s s e d by  , o n c e t h e b i d was h a p p e n e d i n t h e News Exchange l i f t s the  1 fi  1 7  Advisers  t o News L t d .  Advisers  t o Pergamon,  at  first.  R o b e r t F l e m i n g & Sons became a d v i s e r s 19  The b i d p r i c e was  Samuel  resigned.  37s. Part  Revised  t o Pergamon when H i l l ,  ed., April  28,  3  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 h e A c c e p t i n g Houses C o m m i t t e e , t h e 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 C o m p a n i e s , t h e 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 h e 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 F u n d s , and t h e Stock Exchange, London. 3 Under t h e Companies A c t 1948, t h e Board o f T r a d e 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 c o m p a n i e s a n d d i r e c t o r s . The m a i n p o w e r s w i l l be r e f e r r e d t o i n t h e 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 p o w e r s 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 w h e r e a n y o f f e n c e u n d e r t h e A c t has b e e n c o m m i t t e d ; s e c t i o n 1 6 4 , i n v e s t i g a t i o n o f a c o m p a n y ' s a f f a i r s on a p p l i c a t i o n o f m e m b e r s ; s e c t i o n 1 6 5 , p o w e r s o f i n v e s t i g a t i o n when t h e 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 h a v e n o t " b e e n g i v e n a l l the i n f o r m a t i o n w i t h r e s p e c t to i t s a f f a i r s which they might reasonably e x p e c t . " 5  The  B r i t i s h Columbia Act i s  Known as  the Kimber  ^Securities  the S e c u r i t i e s  Report.  Act, section  23(1).  Act, section  23(4).  o Securities  A c t , R.S.B.C.  1967,  ch.  45.  92 Q  Securities  Act, section  24.  ^Securities  Act, section  28.  ^Securities  Act, section  29.  12 F o r comment on t h e p o w e r o f a S t o c k E x c h a n g e t o s u s p e n d t r a d i n g , s e e I n 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 1 9 6 6 , a n d I n 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 x c h a n g e , r e p o r t e d i n t h e F e b r u a r y , 1 9 7 0 , B u l l e t i n of the O n t a r i o S e c u r i t i e s Commission. The e x e r c i s e o f t h e p o w e r i s s u p p o r t e d , though the d i f f i c u l t i e s are 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 [ 1 9 0 6 ] 2 c h . Shaw &~Sons v . Shaw. L 1 9 3 5 J 2 K . B . 1 1 3 ; S c o t t v . S c o t t [ 1 9 4 3 J W.N. 1 6 .  34;  15  T h i s p o w e r 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 . 1g S e c u r i t i e s A c t , s e c t i o n 7 9 ( a ) i m p o s e s 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 ) i m p o s e s a similar limitation. 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 a n n o u n c e d p u b l i c l y some w e e k s b e f o r e t h e f o r m a l o f f e r i s made. T h i s i s sometimes n e c e s s a r y b e c a u s e rumours o f a p o s s i b l e b i d cause 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 h e m a r k e t . In s u c h c a s e s t h e S t o c k E x c h a n g e 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 the true p o s i t i o n . 1 7  Rule  14.  18 T h e r e 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 a n d f o r a c i r c u l a r w h i c h r e c o m 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 h e 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 c h 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 c o m m e n d a t i o n . 2 0  Rule  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 B o a r d may i n i t i a t e an a c t i o n u n d e r s e c t i o n 1 6 9 ( 4 ) o f t h e C o m p a n i e s A c t 1 9 4 8 . 2 2  Hedley  Byrne  2 3  [ 1 9 6 4 ] A.C.  & Co.  v.  H e l l e r & Partners  L t d . [1964] A.C.  465.  465.  T h u s P e r c i v a l v. W r i g h t [1902] 2 c h . 421, which s t a t e d t h a t the 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 cation. 2 4  2 5  [1903]  1 ch.  546.  26 England: 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 3 6 J 2 A l l E.R. 1 0 3 9 ; F o r d v T ~ W h i t e [ 1 9 6 4 ] 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 ( 1 9 0 7 ) 7 W . L . R . 1 1 5 ; H e p t i n q v . S c h a a f [ 1 9 6 4 ] 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 . , 6 1 1 , and Mayne & M c G r e g o r on Damages, 1 2 t h e d . , p a r a s . 957 and 9 5 8 .  93  2 7  [ 1 9 6 4 ] A.C.  465  at  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 B y r n e 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 c o m p a n y , g i v e n by a b a n k . 29 I n 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 , a n d 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 b y t h e S e c u r i t i e s and E x c h a n g e C o m m i s s i o n , P r o x y R u l e 1 4 9 - 9 , made u n d e r t h e S e c u r i t i e s A c t s Amendments o f 1 9 6 4 . See f u r t h e r , A r a n o w & 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  Rule  9.  31 T h i s i s a r e s t a t e m e n t i n company l a w t e r m s o f t h e e q u i t a b l e p r i n c i p l e applying to f i d u c i a r i e s . 3 2  Re  S m i t h & F a w c e t t L t d . [ 1 9 4 2 ] c h . 304 a t  3 3  [1951]  3 4  Mills  3 5  See,  ch. v.  306.  286.  Mills  ( 1 9 3 8 ) 60 C . L . R .  f o r example, Lindgren v.  150  L.&  P.  (Aust.  H.C.).  Estates  [1968] 1 A l l  E.R.  917.  The S a v o y H o t e l L i m i t e d and t h e B e r k e l e y H o t e l Company L i m i t e d : Investig a t i o n under s e c t i o n 1 6 5 ( b ) o f t h e Companies A c t 1948. R e p o r t o f M r . 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 G o w e r , " 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 , " 1 9 5 5 , 68 H . L . R . 1 1 7 6 . 3 7  Para.  14(iii).  [ 1 9 6 2 ] 1 c h . 927 a t 9 6 3 . I n Hogg v . C r a m p h o r n [ 1 9 6 6 ] 3 A l l E.R. 420, o n e o f t h e m a i n r e a s o n 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 h e e f f e c t i t w o u l d h a v e 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 . For devel o p m e n t o f t h e a r g u m e n t s i n v o l v e d , s e e B e r l e , " C o r p o r a t e P o w e r s as P o w e r s i n T r u s t , " 44 H a r v . L. R e v . 1049 ( 1 9 3 1 ) , and D o d d , " F o r Whom A r e C o r p o r a t e M a n a g e r s T r u s t e e s ? , " 45 H a r v . L.R. 1145 ( 1 9 3 2 ) . 3 8  39 Though s p o k e n i n a d i f f e r e n t c o n t e x t , t h e famous w o r d s i n H u l t o n v . West C o a s t R a i l w a y C o . ( 1 8 8 3 ) 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 c a k e s a n d a l e , b u t t h a t t h e r e a r e t o be no c a k e s a n d a l e e x c e p t s u c h as a r e r e q u i r e d f o r t h e b e n e f i t o f t h e c o m p a n y . " 40 As i n t h e S a v o y H o t e l c a s e . 41 As i n t h e P e r g a m o n - L e a s c o and News o f t h e W o r l d - P e r g a m o n b i d s . 42  As i n t h e P e r g a m o n - L e a s c o  and News o f t h e W o r l d - P e r g a m o n  bids.  43 As i n Hogg v . C r a m p h o r n [ 1 9 6 6 ] 3 A l l E.R. 420 and B a m f o r d v . 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 h e S a v o y H o t e l c a s e .  Bamford  [1969]  94  45 As i n t h e News o f t h e W o r l d - P e r g a m o n b i d , when News L t d . was  induced t o make an o f f e r w h i c h was a c c e p t e d . For a d e t a i l e d study of defensive t e c h n i q u e s , s e e B r a d s h a w , " D e f e n s i v e T a c t i c s E m p l o y e d by I n c u m b e n t 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 a n d 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 h e m a r k e t . 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 b e c a u s e t h e company 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 A p p . 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  The d i r e c t o r s c a n i s not allowed to C a s . 409. A 3, S e c t i o n C.  F r a s e r v . W h a l l e y , 2 H.& M. 10; P u n 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 C a n a d a , S m i t h v . H a n s e n , 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 e a c h c a s e t h e 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 h e 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 . C r a m p h o r n [1966] 3 A l l E.R. 420. 4 7  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 c o m p a n y , a n d t h e s h a r e h o l d e r s c a n n o t s u e 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 . Percival v. W r i g h t [1902] 2 c h . 421. S e e , h o w e v e r , A l l e n v . H y a t t ( 1 9 1 4 ) 30 T . L . R . 4 4 4 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 ship w i t h the shareholders. 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 c o m p a n y , 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 . W o o d s i d e ( L a k e s E n t r a n c e ) O i l C o . , 1 9 6 8 - 6 9 42 A u s t . L . J . 1 2 3 , i t was h e l d t h a t t h e 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 p o w e r s b o n a f i d e i n t h e i n t e r e s t o f t h e company a n d "not f o r i r r e l e v a n t purposes." T h i s g i v e s a w i d e r s c o p e t h a n t h e E n g l i s h and C a n a d i a n c a s e s , b u t i t i s p e r h a p s o n l y an e x p r e s s i o n o f t h e 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 h e o n l y v a l i d r e a s o n f o r a new i s s u e o f s h a r e s . Hirsche  5 1  v.  Sims  5 2  Madden  v.  Dimond  5 3  Legion  Oils  [1894] A.C.  654.  ( 1 9 0 5 ) 12 B . C . R .  L t d . v.  Barron  80.  (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 7 2 . 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 h e m a r k e t , b e c a u s e s u c h b u y i n g i s n o t done on b e h a l f o f t h e company. See f o o t n o t e 7 3 . 5 5  [1966]  3 All  E.R.  420.  56 Ten v o t e s w e r e a t t a c h e d t o e a c h 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 w e r e 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, the 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 t h e s h a r e s w i t h one v o t e e a c h , a n d t h e c a s e c o n t i n u e d on that basis. 57 The d i r e c t o r s w e r e 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 , t h o u g h t h e company was. P i e r c y v . M i l l s [ 1 9 2 0 ] 1 c h . 77 a n d P u n t v . Symons [ 1 9 0 3 ] 2 c h . 506 w e r e d i s t i n g u i s h e d on t h e g r o u n d t h a t i n t h o s e c a s e s c o n t r o l had a l r e a d y c h a n g e d h a n d s 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 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 a c t i o n , t h e c o u r t was c o n s i d e r i n g i m p r o p e r use by t h e d i r e c t o r s o f 59 6 0  G o w e r , The P r i n c i p l e s  (1843)  2 Hare  meeting r a t i f i e d the a l l o t m e n t . I t may was b r o u g h t i n t h e f o r m o f an u l t r a v i r e s t h e q u e s t i o n w h e t h e r t h e a l l o t m e n t was an t h e i r powers.  o f Modern  Company  Law, 3 r d e d . , 1969,  a t p.  586.  461.  fil The p o i n t a b o u t F o s s 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 b e c a u s e t h e s h a r e h o l d e r s w i l l a l m o s t a l w a y s be a b l e t o b r i n g a derivative action. I n a n y 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 . C r a m p h o r n t h e a c t i o n was f r a m e d 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 h e 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. ( 1 8 7 5 ) L . R . 20 E q . 4 7 4 . I t i s therefore q u i t e p o s s i b l e t h a t the court 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 , a n d had no i n t e n t i o n o f d o i n g s o . [ 1 9 6 9 ] 2 W.L.R. 1107;  6 2  [1969] 1 A l l  E.R.  969.  CO  G o w e r , The P r i n c i p l e s o f M o d e r n Company L a w , 3 r d e d . , 1 9 6 9 , F o r f u r t h e r c r i t i c i s m , s e e W e d d e r b u r n ' s n o t e a t 32 M . L . R . 5 6 3 . [1969]  6 4  At  6 5  1 All  p a g e s 975  E.R. I  969  a n d 976  a t 972  a t page  567.  I.  A-B.  cc I n 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 e x a m p l e o f an a c t ' n o t b o n a 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 h e d i r e c t o r s h a d n o t t u r n e d t h e i r m i n d s 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  North-West  Transportation  v.  Beatty  ( 1 8 8 7 ) 12 A p p .  Cas.  589.  S e e G r e e n h a l g h v . A r d e r n e C i n e m a s [ 1 9 4 6 ] 1 A l l E.R. 5 1 2 . See a l s o G o w e r , P r i n c i p l e s o f M o d e r n Company L a w , p a g e s 5 6 4 - 5 8 0 . For a r a t h e r d i f f e r e n t view s e e W e d d e r b u r n , S h a r e h o l d e r s ' R i g h t s a n d t h e R u l e i n F o s s v . H a r b o t t l e , 1958 C . L . J . 93. 6 8  B r o w n v . B r i t i s h A b r a s i v e Wheel C o . [ 1 9 1 9 ] 1 c h . 2 9 0 ; D a f e n 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 9 2 0 ] 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 9 5 9 ] 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 h e M i n o r i t y , " 77 S . A . L . J . 2 9 7 , ( 1 9 6 0 ) . 6 9  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 a n d p a y 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 ) accept his o f f e r . I f t h e 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 meas u r e s , s u c h 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 b e c a u s e t h e 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 shares. 7 0  Normally the time l i m i t f o r d e p o s i t i n g shares i s twenty-one days: 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 e a c h c a s e t h e t i m e may be e x t e n d e d . 7 1  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 , 1 9 3 3 ,  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 h a n t o someone who w a n t s t o c o n t i n u e t h e b u s i n e s s . 74 S e e 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 R o y a l C o m m i s s i o n 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 S h a r e s o f W i n d f a l l O i l s and M i n e s L i m i t e d , e s p e c i a l l y C h a p t e r X V , pages 9 1 - 9 3 . 75 R o y a l C o m m i s s i o n on B a n k i n g a n d F i n a n c e , a t p a g e 3 4 4 .  76 In B r i t i s h C o l u m b i a : a n n u a 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 . C o m p a n i e s A c t 1 9 6 0 , c h . 6 7 , s . 1 5 7 ; i n t e r i m s t a t e m e n t s by B . C . C o m p a n i e s A c t , s . 164(a)(1). In E n g l a n d : a n n u a l s t a t e m e n t s by C o m p a n i e s A c t 1 9 4 8 , s . 1 4 8 . Interim 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 the A c t , b u t t h e y a r e under S t o c k Exchange r e g u l a t i o n s f o r quoted companies. The J e n k i n s C o m m i t t e e w e l c o m e d 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 . 3 9 6 . B r i t i s h Columbia: 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 h e 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 ) . England: 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 d o c u m e n t c o n t a i n i n g a r e c o m m e n d a t i o n 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 Rules, 3rd Schedule. The J e n k i n s C o m m i t t e e d i d n o t t h i n k i t w o u 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 w e r e g i v e n f o r this curious decision. 7 7  78 Kimber Report, p a r a .  4.02.  79 In E n g l a n d 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 C o m p a n i e s A c t 1 9 4 8 , s s . 1 4 7 - 1 6 3 , a n d i n t h e 8 t h S c h e d u l e as amended b y t h e C o m p a n i e s A c t 1 9 6 7 , s s . 3 - 2 4 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 h e r e l e v a n t p r o v i sions are: C o m p a n i e s 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 h e same as S e c u r i t i e s A c t , ss. 118-127. The r e c o m m e n d a t i o n s w e r e 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 . 330-423, a n d t h e K i m b e r 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 a n d t h e p r i n c i p l e 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 e w o f t h e a f f a i r s o f t h e company a s a t t h e e n d 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 h e 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 " the f i n a n c i a l p o s i t i o n o f the c o m p a n y — S e c u r i t i e s A c t 1967, s s . 120, 121, 122, 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 . Securities  A c t , s.  118(l)(d).  ^Securities  A c t , s.  118(1 ) ( e ) .  8 1  83 S e c u r i t i e s A c t , s. 118. B.C. C o m p a n i e s A c t , s . 1 5 7 ( l ) ( a l ) ( i i ) . Companies A c t 1 9 4 8 , 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. 125(1). B.C. C o m p a n i e s A c t , s . 1 6 2 . Companies A c t 1 9 4 8 , 2nd S c h e d u l e , P a r t I I I 17.  97 85  e . g . C o m p a n i e s A c t 1 9 6 7 , 2nd S c h e d u l e 5 , w h e r e t h e m e t h o d o f 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 . For requirements  as  t o minimum c o n t e n t , s e e C o m p a n i e s  arriving  A c t 1967,  ss.  15-24.  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 c o m p a n i e s as p u b l i s h e d i n the 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 documents, op K i m b e r R e p o r t 4 . 0 4 — a l t h o u g h 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 , the i d e a expressed u n f o r t u n a t e l y remains v a l i d .  89 90  Kimber Report  4.05.  T h e r e was a s p e c i a l c o m p l i c a t i o n i n t h e L e a s c o - P e r g a m o n i n s t a n c e . One company i n t h e Pergamon g r o u p ' 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 , c o m p a n y w i t h i n t h e g r o u p , a n d 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 Amer i c a n company d i d n o t s e l l t h e 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 h e A m e r i c a n b r a n c h o f t h e 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  Para.  397.  92 93  See J e n k i n s  Report,  para.  394.  See J e n k i n s  Report, para.  386.  94 Knauss, "A R e a p p r a i s a l 1963-64.  607,  of the Role o f D i s c l o s u r e ,  62 M i c h i g a n  L.  Rev.  95 Memorandum by t h e I n s t i t u t e to the Jenkins Committee. 9 6  of Chartered Accountants  i n England  and  Wales  Ibid.  97 Jenkins 9 8  S.  Report,  123(1).  "schedule 1 0 0  Companies  See  2,  para. also  370. 123(2).  14(2).  A c t 1967,  Schedule  2  14(6)(b).  I n a s u r v e y c a r r i e d o u t i n 1 9 4 8 , 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 a n n u a 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 information. S e e Dyckman on t h e I n v e s t m e n 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 2 8 6 - 8 7 . 1  0  1  ID?  103  Cohen  R e p o r t a t page  Jenkins  Report, para.  98. 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 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 W a l e s .  Members  by  the  98  B r i t i s h Columbia: S e c u r i t i e s A c t , s. 83(1): "A t a k e - o v e r b i d c i r c u l a r 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 . " England: 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 p p e a 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 . " shall  Securities  1 0 6  1 0  \icensed Para.  1 0 8  A c t , s.  Dealers  84(1).  Rules-, 3 r d S c h e d u l e .  273.  109 E x c e p t t h e common l a w l i a b i l i t y 1 1 0  1  1  ]  S. l s t  discussed  below.  88. Schedule,  Part  II.  112 113  Securities  A c t , s.  88(d).  Licensed Dealers  Rules,  1st Schedule, Part  II  1.  S e c u r i t i e s A c t , s.  88(c).  Licensed Dealers  Rules,  1st Schedule, Part  II  l ( i i  A c t , s.  88(a).  Licensed Dealers  Rules,  1 s t S c h e d u l e , P a r t II  2(i)  A c t , s.  88(b).  Licensed Dealers  Rules,  1st Schedule, Part  I  A c t , s.  88(f).  Licensed Dealers  Rules,  1st Schedule,  II  ^Securities 115 1(b)  Securities and ( c ) .  11 fi  117  Securities  Part  2(5)  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 II 2 ( 6 ) and ( 7 ) . IIP L i c e n s e d Dealers R u l e s , Rule 1 a ( i i ) . 119 Para. 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 Inc.-Canadian 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 , 1 9 7 0 , p a g e 6 , f o r comment. H o w e v e r , e v e n i f t h e r e h a d 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 , because 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 e x e m p t e d f r o m t h e p r o v i s i o n s u n d e r S e c u r i t i e s Act 78(b). 120 A l s o w h e r e 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 . ( 2 d ) 6 2 2 , a n d G e r d e s v . R e y n o l d s ( 1 9 4 1 ) 28 N . Y . S . ( 2 d ) 6 2 2 . 121 T h e r e i s some d o u b t a b o u t t h i s p o i n t . S e e M i l n e r - H o l l a n d R e p o r t on t h e S a v o y H o t e l c a s e , H.M.S.O. 1954. B u 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 u c h 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 h e i n t e r e s t o f t h e company." 122 One o f t h e r e a s o n s why t h e News o f t h e W o r l d B o a r d 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 g o o d r e l a t i o n s h i p w i t h t h e u n i o n s . T h i s was b o r n e o u t i n F e b r u a r y , 1 9 6 9 , when M a x w e 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 h e Sun n e w s p a p e r b e c a u s e he c o u l d n o t r e a c h a g r e e m e n t w i t h t h e u n i o n s .  99 123  Securities  A c t , s.  88(i),  124, 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 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  1  L i c e n s e d Dealers  Rules,  1 s t S c h e d u l e , P a r t II  plans  2(8).  pf.  I n B r i t i s h C o l u m b i a , t h e y n e e d n o t do s o w h e r e t h e y make no r e c o m m e n d a tion. I n 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 s e n d 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 h e c o m p a n y ' s a s s e t s c o u l d be more p r o f i t a b l y e m p l o y e d i n some o t h e r w a y . The o f f e r e e d i r e c t o r s w o u l d n o t w a n t t o d i s c l o s e t h i s i f they c o u l d not e x p l o i t the a s s e t s i n t h i s way, because o f l a c k o f funds o r e x p e r t i s e , but the b i d d e r c o u l d . 128 Licensed Dealers Rules, 3rd Schedule (1). S e c u r i t i e s A c t , s. 93(a 129 130 131 132 133 134 135 136  S e c u r i t i e s A c t , s.  93(a  No e q u i v a l e n t u n d e r t h e L i c e n s e d D e a l e r s  Rules.  Securities  A c t , s.  93(b  Licensed Dealers  Rules,  3rd Schedule  (2).  Securities  A c t , s.  93(c  Licensed Dealers  Rules,  3rd Schedule  (3).  Securities  A c t , s.  93(d  Licensed Dealers  Rules,  3rd Schedule  (4)  Securities  A c t , s.  93(e  Licensed Dealers  Rules,  3rd Schedule  (6).  Securities  A c t , s.  93(f  Licensed Dealers  Rules,  3rd Schedule  (7).  Securities  A c t , s.  93(g  Licensed Dealers  Rules,  3rd Schedule  (8).  Securities  A c t , s.  93(h  and  (5).  137, See B e n t l y & C o . v . B l a c k ( 1 8 9 3 ) 9 T . L . R . 5 8 0 , " 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 not a statement of f a c t . " See a l s o P e e k v . G u r n e y ( 1 8 7 3 ) L.R. 6 H . L . 377 a t 4 0 3 , a n d A a r o n ' s R e e f s v . T w i s s [ 1 8 % T ~ A . C . 2 7 3 . 138  As  i n the prospectus  cases  c i t e d above, footnote  139  i . e . S e c u r i t i e s A c t , s s . 8 8 ( i ) , 93 ( g ) and ( h ) . 1 s t: SScch e d u l e , P a r t I I ( 8 ) a n d 3 r d S c h e d u l e ( 8 ) . 140 141  at  S.  137. Licensed Dealers  Rules  97(1).  Securities  '^Phillips 841.  v.  A c t , s.  97(2)  and  (3),  B r i t a n n i a H y g i e n i c Laundry  Co. L t d . [ 1 9 2 3 ] 2 K . B .  832  CA.  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 t h e d . , 1 9 6 2 , page 4 5 4 , p a r a . 9 6 3 . Quoted w i t h a p p r o v a l a n d a p p l i e d i n R e f f e l v . S u r r e y C o u n t y C o u n c i l [ 1 9 6 4 ] 1 A l l E.R. 743. F o r a d i f f e r e n t , t h o u g h n o t o p p o s i n g , v i e w , s e e F l e m i n g , Law o f T o r t s , 3 r d e d . , 1 9 6 5 , p a g e s 1 2 6 - 1 3 6 , on t h e s t a t u t o r y n e g l i g e n c e p e r s e r u l e .  100  1 4 4  Solomons  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  at  637.  1 AC I t may be n o t e d t h a t i n i s t a k e n t o remove c i v i l l i a b h i b i t c e r t a i n a c t i o n s i n some o f damages may be b r o u g h t f o r cumstances.  s . 1 4 0 ( 1 ) and ( 2 ) o f t h e S e c u r i t i e s A c t , c a r e 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 circumstances. This would imply t h a t actions 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 -  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 B y r n e & C o . v . H e l l e r & P a r t n e r s [ 1 9 6 4 ] A . C . 4 6 5 , d i s cussed i n the previous 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 to the 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 duty of care t o them. This a c t i o n , h o w e v e r , d e p e n d s 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 h e 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 h e c o n t e n t s o f t h e c i r c u l a r . 1 4 7  1958 Statutes,  c.  45.  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 a u d ( 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 c a s e s w h e r e t h e r e has been a b r e a c h o f the Licensed Dealers Rules. S e c t i o n 18 r e a d s : "Any person who, i n f u r n i s h i n g a n y i n f o r m a t i o n f o r a n y o f t h e p u r p o s e 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 a n y 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 0 0 , o r t o b o t h s u c h i m p r i s o n m e n t a n d s u c h f i n e o r , on summary c o n v i c t i o n , t o a t e r m 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 b o t h s u c h i m p r i s o n m e n t a n d such 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 only of a breach o f such r u l e s . " , 4 8  149 C a s e s s u c h as S t e v e n s v . Chown [ 1 9 0 1 ] 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 c a s e s t o t h e 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 A g e n t s v . L o c k w o o d [ 1 8 9 4 ] A . C . 3 4 7 , a c a s e 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 B o a r d o f T r a d e . 1 5 0  Kimber  Report  4.02.  151 I t i s i n t e r e s t i n g t h a t though the 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 a n d much o f t h e l a w i s b a s e d 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 h e 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 proposition of equality for shareholders. T h i s may be one r e a s o n why t h e s c o p e of the concept i s u n c e r t a i n . Perhaps the b e s t example o f the i n f l u e n c e o f the d o c t r i n e i s A l l e n v. G o l d R e e f s o f West A f r i c a L i m i t e d [ 1 9 0 0 ] 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 t h e d e f i n i t i o n o f t a k e o v e r i s " a n 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 a g r e e m e n t 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 a n d n o t made t o t h e s h a r e h o l d e r s g e n e r a l l y . " Licensed Dealers Rules, 18(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 . " U n d e r 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 r o u p 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 , a n d t h e b u y i n g on t h e S t o c k E x c h a n g e e x e m p t i o n t h a t Neon P r o d u c t s o f C a n a d a L t d . was t a k e n o v e r . For 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 , see 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 S u n , F e b r u a r y 1 0 , 1 9 6 8 , page 6.  101 153  N  Kimber R e p o r t , p a r a . 3.12.  154 T a k e - o v e r Code, Rule 10.  1 0  155 The p r o b l e m s 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 s o w i d e - r a n g i n g a n d y e t d e t a i l e d t h a t a n y d i s c u s s i o n w i t h i n t h e s c o p e 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 value. F o r r e c e n t d e b a t e on t h e p r o b l e m , s e e : A n d r e w s , " S t o c k h o l d e r s ' E q u a l O p p o r t u n i t y , " 78 H a r v . L. R e v . 5 4 0 ; 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 . ( 1 9 6 4 ) 1 8 5 . T h e 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. S e e a l s o P e r l m a n v . F e l d m a n , 219 7 2 d 173 and B e n s o n v . B r a u n , 155 N . Y . S . 2d 6 2 2 . C o m p a n i e s A c t 1967, s. 27(3)(b)., . 1 5 6  :  1 5 7  Companies  A c t 1967, s.  27(l)(b)(i)  1 5 8  Companies  A c t 1967, s.  27(8)(a)  and ( i i ) .  and ( b ) .  159 1 6 0  This  is possible  Regal  (Hastings)  only i f the d i r e c t o r i s not i n a c o n t r o l l i n g p o s i t i o n . L t d . v . G u l l i v e r [ 1 9 4 2 ] 1 A l l E.R.  378 a t 381F.  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 ( 1 7 2 6 ) S e l . C a s . c h . 6 1 . S i m i l a r a u t h o r i t y f o r C a n a d a c a n be f o u n d 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  1  T h e d e c i s i o n s i n 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 [ 1 9 4 2 ] 1 A l l E.R. and Boardman v . P h i p p s [ 1 9 6 7 ] 2 A . C . 4 6 , 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 2  1 6 3  [1902]  378  2 c h . 421.  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 ( 1 9 1 4 ) 30 T . L . R . 444 a p p l i e s r a t h e r t h a n t h e r u l e i n P e r c i v a l v . W r i g h t [ 1 9 0 2 ] 2 c h . 4 2 1 . In A l l e n v . H y a t t , t h e d i r e c t o r s w e r e 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 a g e n 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 . W o o l e y [ 1 9 5 4 ] A . C . 3 3 3 . 1 6 4  165 C o n s i d e r i n g t h e 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 , s u c h as Hogg v . C r a m p h o r n [ 1 9 6 7 ] c h . 2 5 4 , B a m f o r d v . B a m f o r d [ 1 9 6 9 ] 2 W . L . R . 1107 a n d B u s h e l 1 v . F a i t h [ 1 9 7 0 ] 1 A l l E.R. 5 3 ( H . L . ) , t h e p r e s e n t j u d i c i a r y seem t o h a v e a p h i l o s o p h y more i n s y m p a t h y w i t h t h o s e i n c o n t r o l t h a n w i t h m i n o r i t y shareholders. 1 6 6  1 6 7  Hogg At  v . Cramphorn  [1967] c h . 254.  2.25.  I CO  S e c u r i t i e s A c t , s. 1 0 6 ( 1 ) ( c ) : "'Insider' or ' i n s i d e r of a corporation' means ( i ) a n y 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 ) a n y p e r s o n who b e n e f i c i a l l y o w n s , 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 u c h company c a r r y i n g more t h a n t e n p e r c e n t u m 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 , e x c e p t i n t h e c a s e o f an u n d e r w r i t e r , s h a r e s t h a t h a v e b e e n a c q u i r e d by h i m as u n d e r w r i t e r i n t h e 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 the p u b l i c o f such 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 h e p e r s o n b e n e f i c i a l l y o w n s , 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 h a n t e n p e r c e n t u m 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 h e 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 s p o u s e o f t h e p e r s o n o r any r e l a t i v e o f t h e s p o u s e who has t h e same home as t h e p e r s o n . " B.C. company. 1 7 0  Companies  A c t 1967,  1 7 1  Securities  A c t , s.  1 7 2  Securities  Act, ss.  s.  107(1),  "affiliate"  means an  affiliated  111. 107-110.  173 The P a n e l 1 7 4  Rule  has  no l e g a l  authority  and c o u l d n o t  impose  fines.  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 d o u b t w h e t h e r t h e company o r t h e s h a r e h o l d e r s c a n 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 1 6 5 . 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 h e 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 r o b l e m s o f i n s i d e r t r a d i n g i n s o f a r as they are r e l e v a n t to take-over b i d s . A much more d e t a i l e d s t u d y t h a n c a n be e n c o m p a s s e d 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 h e u n d e r s t a n d i n g o f t h e w i d e r r a n g e of problems i n v o l v e d . Securities  1 7 7  A c t , s.  81(1).  1 78 In the case o f a p a r t i a l b i d , the 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 days: S e c u r i t i e s A c t , s. 7 9 ( e ) and ( f ) . In t h e c a s e 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 c a n 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. 79(a). I 70.  This s i t u a t i o n i s in p r a c t i c e u n l i k e l y to occur. 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 h a v e 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 p a y f o r t h e m , o r t h e r e w i l l n o t be e n o u g h 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 of acceptances). He i s n o t l i k e l y t o t a k e up and p a y f o r t h e l o w l e v e l o f a c c e p t a n c e s a n d 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 1  8  1  182  General  Principle  Code, Rule  8.  31.  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 c o n d o f f e r was b a s e d on t h e e a r n i n g s r a t e o f Pergamon P r e s s ( w h i c h has s t i l l t o be assessed). 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 h a v e r e c e i v e d t w e n t y - f i v e t i m e s t h e e a r n i n g s r a t e , and t h e M a x w e 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 rate. 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 h a v e b e e n o p t i m i s t i c , s u c h t e r m s i n d i c a t e t h a t t h e s e c o n d 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 . Another p o i n t to note i s t h a t the Take-over Panel consented to t h i s arrangement, although i t c l e a r l y v i o l a t e d General P r i n c i p l e 9 o f the Code: " A l l shareholders o f the 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 c o m pany."  103 183  M a x w e l l d i s p u t e d some o f t h e r e v i s e d t e r m s agreement 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  10,  a n d c o u l d n o t come t o  any  1970.  R u l e 29 r e q u i r e s t h e o f f e r o r t o p a y t h e m a r k e 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 b u y s 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 h a n t h a t b i d . 1 pc  P e r g a m o n ' s b i d was w o r t h 5 0 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 h e S t o c k E x c h a n g e a t t h e 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 W o r l d - N e w s L t d . d e a l was a n n o u n c e d , t h e p r i c e o f t h e News o f t h e 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 e m a i n e d i n t h e 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 , 1 9 6 9 , a f t e r t h e News o f World b i d . 1 op The Neon P r o d u c t s o f C a n a d a L t d . t a k e - o v e r may be i n c l u d e d .  the  189 J a v a r a s , "Equal O p p o r t u n i t y i n the Sale o f C o n t r o l l i n g Shares--A Reply 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 4 2 8 . 190 See e s p e c i a l l y t h e T i m e s B u s i n e s s News, D e c e m b e r , 1 9 6 8 , J a n u a r y , A u g u s t , S e p t e m b e r , a n d O c t o b e r , 1 9 6 9 , d u r i n g w h i c h m o n t h s t h e News o f t h e W o r l d Pergamon and P e r g a m o n - L e a s c o 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 h e m e r c h a n t banks i n t a k e - o v e r s . Financial advice i s g e n e r a l l y g i v e n b y 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 . H o w e v e r many o f t h e p r o b l e m s d i s c u s s e d i n r e l a t i o n t o m e r c h a n t b a n k s 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 , whether i n s t i t u t i o n a l or 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 note t h a t d u r i n g the press coverage o f the o u t l i n e d b i d s , l a w y e r s w e r e m e n t i o n e d o n l y o n c e , a n d t h a t was as a c o n s e q u e n c e 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 & S o n s 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 go See P a r t 1, p a g e s 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 T h e r e i s some d o u b t w h e t h e r a bank c o u l d l e g a l l y buy a c o m p a n y ' s shares on b e h a l f o f t h a t c o m p a n y , 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 ( 1 8 8 7 ) 12 A p p . C a s . 4 0 9 , 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 . H o w e v e r 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 [ 1 9 5 8 ] 1 c h . 5 4 9 , 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 u n d e 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 w e r e made a f t e r t h e b i d s h a d been a n n o u n c e d , b u t b e f o r e t h e y h a d b e e n t e r m i n a t e d . See P a r t 1, p a g e s 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 h e W o r l d L t d . 1 gc  U n d e r 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 . H o w e v e r , f i n a n c i a l a d v i s e r s w o u l d n o t n o r m a l l y be 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 — C o m p a n i e s A c t , s. 107(1). The K i m b e r C o m m i t t e e c o m m e n t e d , a t 2 0 9 : The I m p r o p e r u s 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 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 o n d o n e d , b u t t h e d i s c i p l i n i n g o f s u c h p e r s o n s who a b u s e t h e c o n f i d e n c e p l a c e d i n them m u s t be l e f t t o t h e c o m p a n i e s who r e t a i n t h e m and t h e p r o f e s s i o n a l bodies to which they belong."  104 196  (continued) E v e n 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 lation. See R a t t n e r v . L e h m a n , 193 7 2d 5 6 4 , a n d B l a u v . L e h m a n , 286 7 2d 7 8 6 . S e e , h o w e v e r , t h e 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 h e C a n a d a C o r p o r a t i o n s A c t , s . 9 8 , u n d e r 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 improper t r a d i n g . 197 R u 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 n o t e 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 h e s c o p e o f t h i s r u l e , as t h e y are i n c l u d e d w i t h i n the d e f i n i t i o n of ' a s s o c i a t e . 198 The b i d p r i c e was 3 7 s . 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 h a d been a n n o u n c e d and b e f o r e t h e b r e a k d o w n 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 t h e a r g u m e n t , 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 . 1  S e e , f o r example, L.S. ( r e f e r r e d t o as S e a l y ) . 2 0 0  2 0 1  In  Reading  v.  Sealy, "Fiduciary Relationship,"  R_. [ 1 9 4 9 ] K . B .  [1962] C . L . J .  69  232.  202 Sealy 2 0 3  a t page  Boardman  2 0 4  Sealy  v.  73.  Phipps  a t page  [1967] 2 A.C.  46.  73.  L o r d L o u g h b o r o u g h i n W h i c h c o t e v . L a w r e n c e ( 1 7 9 8 ) 3 v e s . 740 a t 7 5 0 . S e e a l s o 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 [ 1 9 4 2 ] 1 A l l E.R. a t 3 7 8 , and P h i p p s v . Boardman L 1 9 6 7 J 2 A . C . 4 6 . 2 0 6  [1919]  1 ch.  291.  2 0 7  [1920]  2 ch.  124.  2 0 8  [1920]  1 ch.  154.  209 I t s h o u l d be n o t e d , h o w e v e r , t h a t i n Re D a d ' s C o o k i e C o . ( B . C . ) L t d . ( 1 9 6 9 ) 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 a m e n d i n g t h e 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 e m o v i n g t h e r e s t r i c t i o n s on t h e t r a n s f e r o f s h a r e s , a g a i n s t t h e w i s h e s o f t h e m i n o r i t y who h a d 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 w e r e 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 . U n d e r t h e c l a u s e , a n y s h a r e s w h i c h w e r e t o be s o l d s h o u l d h a v e been o f f e r e d f i r s t t o t h e e x i s t i n g s h a r e h o l d e r s , a n d 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 bidder. MacDonald, J . , attempting to j u s t i f y h i s d e c i s i o n , s a i d : "The mater 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 h e s h a r e s . " The f r a u d on t h e m i n o r i t y c a s e s does n o t a p p e a r t o h a v e been a r g u e d . 210 C o m p a n i e s A c t 1 9 2 9 , 19 and 20 G e o . V. c h . 2 3 , s . 1 5 5 . 2 1  Companies A c t 1 9 4 8 , 11 a n d 12 G e o . V I , c h . 3 8 , s . 2 0 9 ( 1 ) .  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  Re  Western  Manufacturing  (Reading)  Ltd.  [1956] ch.  436.  The mechanics  105 213  Esso Standard 144.  S.C.R.  (Inter-America)  Inc.  v. J.W.  Enterprises  Inc.  [1963]  214 Pennington,'Takeover  Bids,"  2 1 5  [1933] All  E.R.  105.  2 1 6  [1933]  E.R.  105 a t  All  17 Am. J o . o f Comp.  L a w , 159 a t  183.  107.  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. L o e b . L t d . ( 1 9 6 9 ) 3 D . L . R . ( 3 d ) 3 5 , w h e r e 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 h e g r o u n d t h a t t h e 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 , " T h e 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 b o d y o f s h a r e h o l d e r s as a w h o l e a n d no a d e q u a t e 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 7  2 1 8  [1961]  ch.  2 1 9  (1969)  69 W.W.R.  2  2  0  At  829.  653.  Pennington, [1967]  2 2 2  2  2  l s t  3  2 2 4  641.  "Takeover  1 All  Schedule,  [ 1 9 6 1 ] ch.  E.R.  Bids,"  17 Am. J o . o f Comp.  Re  184.  192.  Part I  1(b).  270.  B.C. C o m p a n i e s A c t , 1 8 1 ( 1 ) , a n d o t h e r C a n a d i a n s e c t i o n 128 o f t h e C a n a d a C o r p o r a t i o n s A c t 1 9 5 2 . 2 2 6  L a w , 159 a t  Companies  A c t 1934  ( 1 9 5 9 ) 29 W.W.R.  Companies  Acts,  notably  323.  227 Compare Maugham, 2 2 8  [1954]  4 D.L.R.  2 2 9  [1963]  S.C.R.  2 3 0  Para.  J.'s  dicta  and a t t i t u d e c i t e d a b o v e  at t e x t to footnote  10.  839.  144.  287.  231 I n e a c h o f t h e c a s e s q u o t e d i n t h e t e x t , s u c h an o r d e r was s o u g h t . So f a r as c a n be a s c e r t a i n e d f r o m t h e 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 h e t e r m s was a s k e d f o r . 2 3 2  Para.  283.  233 I t may be n o t e d t h a t t h e 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 genuine merger, but a l s o to the c a s h - o n l y b i d , which i s not a merger. 234 See f u r t h e r , 0 N e a 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 'Squeeze-outs' i n Small E n t e r p r i s e s . Companies A c t 1948. 0  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 o n l y on o f f e r s f o r a l l t h e s h a r e s .  Committee t h a t the s e c t i o n  operates  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 m u s t be a company c r e a t e s l i t t l e d i f ficulty in practice. I t i s o n l y t o o e a s y t o f o r m a company f o r t h e s o l e p u r pose o f making 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 s u c h a scheme i n Re B u g l e P r e s s L t d . [ 1 9 6 1 ] c h . 270 was b a s e d on t h e f r a u d u l e n t n a t u r e o f t h e 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 n o 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 individual outsider. Part ^See P a r t 3 I n t r o d u c t i o n ,  4  and S e c u r i t i e s  A c t , ss.  23-29.  2 The Code was r e v i s e d on A p r i l 2 8 , Pergamon b i d . 3 C i t y C o d e , G e n e r a l P r i n c i p l e 1.  1969,  after  t h e News o f t h e W o r l d -  A  Hadden, "The C o n t r o l P l a n n i n g , September, 1963, 5  o f Company a t 273.  Some n i n e t y p e r c e n t o f B . C .  Fraud,"  companies  P.E.P.  Report,  are p r i v a t e  e.g. d e t a i l s of share p r i c e s w i t h i n the previous 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.  v o l . 34, no.  503.  companies.  s i x months,  offeree  S e c u r i t i e s A c t , section 78. P Canada  Corporations  Act, Bill  C-4,  section  127A(g).  g G r e e n h a l g h v. A r d e r n e Cinemas News L t d . [ 1 9 6 2 ] c h . 9 2 7 a t 9 6 3 . 1 0  This  change w o u l d r e v e r s e  [1951] c h . 286,  a t 291; Parke v.  t h e e f f e c t o f P e r c i v a l v.  Wright  Daily  [1902] 2 c h .  421  ^ A n e x a m p l e w o u l d be w h e r e 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 h e 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 h e company i n a way w h i c h i s d a m a g i n g t o i t . 12  See H a n b u r y ,  1 3  Graigola,  1 4  Part  Modern  Merthyr  3, S e c t i o n  Equity,  & Co.  v.  8th ed. 1962, Swansea  pages  Corporation  574-76. [1929] A.C.  344.  A.  15 General  Principle  11.  S e c t i o n 2 0 3 ( 3 ) o f t h e Ghana C o m p a n i e s C o d e , 1 9 6 3 , A c t 1 7 9 , d r a f t e d by P r o f e s s o r Gower, r e a d s : "In c o n s i d e r i n g whether a p a r t i c u l a r t r a n s a c t i o n or c o u r s e o f a c t i o n i s i n t h e b e s t i n t e r e s t s o f t h e company as a w h o l e , a d i r e c t o r may h a v e r e g a r d t o t h e i n t e r e s t s o f t h e e m p l o y e e s , as w e l l as t h e members, o f the company." 1 6  107  1 7  [1969]  1 All  E.R.  969;  see  P a r t 3, S e c t i o n A, t e x t to f o o t n o t e  62.  18 C o u n s e l i n B a m f o r d v . B a m f o r d s u g g e s t e d t h a t t h i s was t h e l e g a l p o s i t i o n , but the 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 the 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 C o m m i s s i o n , as t h e S e c u r i t i e s C o m m i s s i o n 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 Department. A committee of t a k e - o v e r e x p e r t s , s i m i l a r to the " 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 " u n d e r S e c u r i t i e s A c t , s e c t i o n 1 4 0 , s h o u l d be s t r u c k , and t h e p r e s e n t manpower o f t h e S e c u r i t i e s C o m m i s s i o n 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 h e T a k e - o v e r Department. F o r c o n v e n i e n c e , t h e w o r d ' C o m m i s s i o n s ' w i l l be u s e d t o c o v e r t h e 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. the  B.C.  Securities  A c t and the E n g l i s h  Companies  Act.  21 T h i s i s a compromise. One w o u l d l i k e t o s e e a l l t h e w o r k done by h i g h l y q u a l i f i e d e x p e r t s , but the c o s t of a t t r a c t i n g such persons to f u l l - t i m e posts w o u l d make s u c h 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 r o u n d s that absolute secrecy concerning bids i s necessary. However, t h i s i s r a r e l y s o , and i n a n y e v e n t t h e s e n d i n g o f d o c u m e n t s t o t h e C o m m i s s i o n 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 u c h as p r o s p e c t u s m u s t 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 a n d no c o m p l a i n t s a g a i n s t t h e S e c u r i t i e s C o m m i s s i o n s h a v e b e e n 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 the documents. 2 3  2  4  See Bill  P a r t 3, S e c t i o n A, pages 125, s e c t i o n  22-29.  87(1).  25 Sub-section 2 reads: " A n a c t i o n u n d e r s u b - s e c t i o n 1 s h a l l n o t be c o m 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 h e s h a r e h o l d e r t o commence t h e a c t i o n . "  26 S e c t i o n 87(3) c o n t a i n s the c o n d i t i o n s : ( a ) t h e 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 the c o r p o r a t i o n a t the time o f the t r a n s a c t i o n or o t h e r event g i v i n g r i s e t o t h e c a u s e 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 c a u s e t h e c o r p o r a t i o n t o commence a n d p r o s e c u t e d i l i g e n t l y t h e a c t i o n on i t s own b e h a l f ; a n d ( c ) t h e s h a r e h o l d e r i s a c t i n g i n g o o d f a i t h a n d i t i s p r i m a f a c i e i n the i n t e r e s t s of the c o r p o r a t i o n or i t s shareholders t h a t the 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 c o m m u n i t y seem t o be v e r y w o r r i e d about the s e c t i o n . 27 As i n t h e S a v o y 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 C o m m i t t e e a t p a r a . 1 2 2 ( h ) . The New Y o r k S t o c k E x c h a n g e Company M a n u a l , p a r a . 15 a t A - 2 8 3 - 8 4 ( 1 9 6 8 ) , c o n t a i n s a requirement f o r s t o c k h o l d e r approval of stock t r a n s a c t i o n s t h a t would r e s u l t i n a twenty per cent or g r e a t e r i n c r e a s e i n the c o r p o r a t i o n ' s outstanding stock. 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 not f e a s i b l e . P e r h a p s 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 this instance.  108  B o n i s t e e l v . C o l l i s L e a t h e r Co. G i b s o n ( 1 9 0 7 ) 15 O . L . R . 6 2 3 . 3 0  3 1  Para.  32  Ltd.  ( 1 9 1 5 ) 45 O . L . R .  195; M a r t i n  v.  120.  Sometimes  r e f e r r e d t o as  'close  corporations.'  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 restrictions. 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 h e d e c i s i o n i n Hogg v . C r a m p h o r n [ 1 9 6 6 ] 3 A l l E.R. 420. 35 B.C. C o m p a n i e s A c t ; B . C . S e c u r i t i e s A c t ; U.K. C o m p a n i e s A c t .  36 Atiyah, 37  "Thoughts  on Company Law P h i l o s o p h y , "  P a r t 3 , S e c t i o n B,  38  Royal  Commission  page  8 , The L a w y e r ,  15  (1965).  35.  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 , " T h o u g h 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 a n d E x c h a n g e C o m m i s s i o n 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 . This condescending a t t i t u d e towards the p u b l i c , a n d i t s i n h e r e n t a d v a n t a g e f o r t h e ' i n s i d e r ' i s no d o u b t l a r g e l y r e s p o n s i b l e f o r keeping the s m a l l i n v e s t o r out o f the market 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 Times i n E n g l a n d . 41 From one p a g e 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 w o r d s and p h r a s e s w e r e c h o s e n as i l l u s t r a t i o n s o f l a n g u a g e w h i c h a l a y m a n m i g h t f i n d d i f f i c u l t to understand: 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 h e 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 s m ( t h i s means t h e c o n c e p t t h a t t h e 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 h e sum o f t h e i r two p a r t s ) . 42 I n F e b r u a r y , 1 9 7 0 , when t h e New Y o r k S t o c k E x c h a n g e recommended a d j u s t ment i n t h e r a t e o f c o m m i s s i o n on s t o c k s a l e s , i t recommended t h a t t h e r a t e o f c o m m i s s i o n 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 h e 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 e n c o u r a g e m e n t t o w a r d 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,  Section  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 d o e s n o t c h a n g e t h e 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 , " p a g e s 375-85, d i s c u s s i n g the American form of merger proxy statement.  46  Wheat R e p o r t , page  380.  109 47 48 floor.  Notably  the i n s i d e r t r a d i n g  But i t i s  regulations.  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  from the Stock  Exchange  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 required. S u c h 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 2 1 7 ( 1 ) o f t h e Ghana C o m p a n i e s C o d e . cn  A maximum f i n e o f $ 2 , 0 0 0 f o r t h e company and e a c h 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 to 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 , under which t h e 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 , h a v e 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 take-over 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 w h e r e t e r m s o f t h e o f f e r a r e v a r i e d ) ; B.C. C o m p a n i e s A c t , s . 1 8 1 , a n d U.K. C o m p a n i e s 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 b o u g h t o u t on t h e same t e r m s as t h e m a j o r i t y ) ; C i t y C o d e , G e n e r a l P r i n c i p l e s 8 and 9 , R u l e s 1 4 , 2 6 , 29, 30, 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 e e R.M. B r y d e n , " T h e Law o f D i v i d e n d s , " i n S t u d i e s i n C a n a d i a n 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 cannot apply because d i r e c t o r - s h a r e h o l d e r s are i n a d i f f e r e n t p o s i t i o n f r o m 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 m u s t be d i s c l o s e d i n t h e t a k e - o v e r c i r c u l a r s . However, these 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 h e 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 c o m 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 n d u c e m e n t 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 . This r e a l l y i s the important area i n the s a l e of c o n t r o l d i s p u t e . See A n d r e w s , " S t o c k h o l d e r s ' E q u a l O p p o r t u n i t y , " 78 H a r v . L. R e v . 5 4 0 ; 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. 420; 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 Commissioners [ 1 9 4 8 ] A . C . 534.  cc  e . g . P e r l man v . F e l d m a n , 219 7 ( 2 d ) 173 and B e n s o n 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 i n e s L i m i t e d and G r e a t B a s i n Mines 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 p r e m i u m s 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 l a w i s n o t c l e a r . 56 A f t e r t h e f i r s t o f f e r by L e a s c o f o r Pergamon had b e e n 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 h e 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 e x a m p l e o f t h e b e n e f i t o f a s y s t e m w h i c h a l l o w s t h e a d m i n i s trator considerable discretion. The P a n e l was a b l e t o h e l p t h e p a r t i e s p u t t o g e t h e r a deal under which the Maxwell 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 than the independent s h a r e h o l d e r s . Unfortunately t h i s attempt also f a i l e d .  5P> 3  °See  59  B.C.  no P a r t 3, S e c t i o n Companies  B.  A c t , s.  107 A t o F; S e c u r i t i e s  Act, ss.  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 u n d e r t h e c i r c u m s t a n c e s , we b e l i e v e t h e a l t e r n a t i v e i s to forego the t r a n s a c t i o n . " - - I n the M a t t e r of Cady, Roberts & C o . , Secur i t i e s E x c h a n g e A c t , R e l e a s e No. 6 6 6 8 , November 8 , 1 9 6 1 . fil S u c h r e p o r t s m u s t be f i l e d by i n s i d e r s who t r a d e i n t h e c o m p a n y ' s shares: B.C. C o m p a n i e s 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 h e 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 . 6 3  B.C.  Companies  A c t , s.  107B;  Securities  A c t , s.  108.  6 4  B.C.  Companies  A c t , s.  107D;  Securities  A c t , s.  111.  65 I t may be a r g u e d t o t h e c o n t r a r y t h a t t h e w o r d s " 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 . I n a n y e v e n t t h e d o u b 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;  Securities  A c t . , s.  111.  fi7  6 9  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  A $ 2 5 , 0 0 0 maximum i s  suggested.  Part  3, S e c t i o n  own  behalf.  C.  P a r a . 99b. I t i s i r o n i c a l t o n o t e t h a t t h i s r e c o m m e n d a t i o n was made i n 1 9 6 2 , a n d was r e l i e d on by t h e K i m b e r C o m m i t t e e , r e p o r t i n g i n 1 9 6 5 , and t h a t w h i l e t h e r e has been C a n a d i a n 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 n o w , t h e r e i s no s i g n o f s u c h l e g i s l a t i o n i n E n g l a n d . 7 0  71 I t may be n o t e d t h a t t h e B o a r d 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 h e d i s c l o s u r e t o t h e 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 , b e c a u s e i t i s i m p r a c t i c a l f o r the Board to s u p e r v i s e adequately a l l the companies' r e g i s t e r s . It 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 b e c a u s e 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 shareholders. 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 Commission i n B r i t a i n . One s h o u l d n o t e , h o w e v e r , P r o f e s s o r A t i y a h ' s comments i n 8 , The L a w y e r 1 5 , " T h o u g h t s on Company Law P h i l o s o p h y , " w h e r e 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 Commission are not a v a i l a b l e i n B r i t a i n because "Government 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 a d e q u a t e 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 public administration. 72 For the purposes o f t h i s s e c t i o n , ' s t o c k market' w i l l i n c l u d e both the S t o c k Exchange m a r k e 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 very d i f f i c u l t to determine whether the primary purpose of a p u r c h a s e 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 t h e company o r t h e 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 , t h o u g h n o t i m p o s s i b l e , t h a t a n y d u t y i s owed t o s h a r e h o l d e r s . Rule  7 5  30.  76 The s i m p l i s t i c a n s w e r w o u l d be t o p r o h i b i t b a n k s from 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 . t h a t i t i s s w i n g i n g a sledgehammer t o c r a c k a p e a n u t , t u n a t e c o n s e q u e n c e t h a t l a r g e r c o m p a n i e s whose s h a r e s 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 from t h e b e s t b a n k s , required suddenly. T h e Take-over Panel advisory function. 7 7  and t h e S e c u r i t i e s  w h i c h a d v i s e companies A p a r t from the f a c t t h e r e w o u l d be t h e u n f o r are w i d e l y traded might especially i f i t is  Commission  already exercise  this  78 ties  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 C o m m i s s i o n s h o u l d be a d o p t e d a n d e x p a n d e d by t h e T a k e - o v e r C o m m i s s i o n . 79 T h i s s h o u l d a p p l y i n any c a s e .  80 This includes f i n a n c i a l a d v i s e r s , professional adviser. 8 1  2.01.  8 2  2.09.  8 3  U.K.  8 4  Para.  8 5  In  Companies  A c t 1948,  s.  a c c o u n t a n t s , l a w y e r s , and any  209(1).  B.C.  Companies  A c t , s.  other  181.  283.  Re H o a r e  [ 1 9 3 3 ] A l l E.R.  105 a t  107.  OC  F o r t h e r e c o m m e n d a t i o n a n d comment s e e : C o m m i s s i o n o f E n q u i r y and i n t o t h e W o r k i n g a n d 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 L a w , G h a n a ; a l s o , s e c t i o n 234 o f t h e recommended Ghana C o m p a n i e s C o d e , e n a c t e d as A c t 179 ( 1 9 6 3 ) . It is 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 a b o u t t h e 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 s u c h a s e c t i o n was d e s i r able in limited circumstances. S e e Re G r i e r s o n , O l d h a m a n d Adams S e c t i o n E, t e x t t o f o o t n o t e 2 2 2 . 8 7  8 8  Section  8 9  Para.  L t d . [1967] 1 A l l  E.R.  192 and P a r t  3,  234(5).  294,  VI.  90 I t was a r g u e d 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 2 0 9 ( 1 ) a l r e a d y g a v e t h e c o u r t t h i s p o w e r , b u t i n f a c t s u c h a remedy d o e s n o t a p p e a r t o h a v e been r e q u e s t e d . 91 Ghana C o m p a n i e s C o d e , 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 h e o f f e r o r w i l l up a n d 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 h e b i d .  have  taken  112  P r o f e s s o r Gower recommended i n t h e G h a n a i a n 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 b y 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 t h e p e r c e n t a g e o f s h a r e s w h i c h m u s t 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 the s e c t i o n applies only to mergers, i . e . share-for-share 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 . T h i s w o u l d change the e f f e c t o f the d e c i s i o n i n Esso 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 9 6 3 ] S . C . R . 1 4 4 . Instead of the 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 the o f f e r o r a l r e a d y h o l d s ten p e r c e n t o r more o f t h e 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 m u s t o b t a i n n i n e t y p e r cent o f the shares not under h i s c o n t r o l . 9 4  95 shares  This d i f f i c u l t y usually arises are not f r e e l y traded.  i n p r i v a t e companies o r companies  whose  96 An e x t e n s i o n i n s c o p e 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 h e o f f e r o r because a necessary c o n d i t i o n f o r the o p e r a t i o n of the s e c t i o n i s t h a t the o f f e r i s made f o r a l l t h e s h a r e s .  113 BIBLIOGRAPHY Books Aranow & Elnhorn, Proxy Contests for Corporate Control, 2nd ed., 1968, Columbia University Press. Berle & Means, The Modem Corporations and Private Property, New York, MacMUlan, 193T Charlesworth on Negligence, 4th ed., 1962, London, Sweet & Maxwell. 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U.S. Securities and Exchange Commission, Disclosure to Investors: Reappraisal of Federal Administrative Policies Under the 1933 and 1934 Acts. New York, Commerce Clearing House, 1967 (The Wheat Report). Statutes and Regulations, etc. Bill C-4, An Act to Amend the Canada Corporations Act, First Reading, October 27, 1969. Canada Corporations Act, R.S.C. 1952, c. 53. Companies Act, 11 and 12 Geo. 6, c. 38 (1948, Great Britain). Companies Act, 15 and 16 E11z. 2, c. 81 (1967, Great Britain). Companies Act, R.S.B.C. 1960, c. 60. Companies Act, R.S.B.C. 1967, c. 12. Ghana Companies Code, 1963 (Act 179). Monopolies and Mergers Act, 11 and 12 EHz. 2, c. 50 (1965, Great Britain). New York Stock Exchange Company Manual, 1968. Ontario Business Corporations Act 1968, Bill 125. Prevention of Fraud (Investments) Act, 6 and 7 EHz. 2, c. 45 (1958, Great Britain). 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, A p r i 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., A p r i 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 C A . 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 f o r Investors by Business Combinations and Private Placements The Report was published a f t e r this paper was substantially completed, but i s worth considering both because of the nature of i t s recommendations and because i t is l i k e l y to form the basis of any new l e g i s l a t i o n i n this area in B r i t i s h Columbia. The Committee was concerned by the weaknesses in the operation of the take-over provisions.  1  It found that the exemptions  2  seriously r e s t r i c t e d  the e f f e c t i v e scope of the provisions, and therefore i t recommended that the exemptions themselves should be r e s t r i c t e d .  3 The private agreement exemption  should be l i m i t e d 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 r e s t r i c t i o n of the exemption f o r a take-over by buying shares on the Stock Exchange, but rather would recommend a three-day disclosure requirement on any person who "contracted f o r twenty per cent of the equity shares through market purchases." The obligation to report within three days would continue each time an i n s i d e r ' s holdings increase by f i v e per cent.  In a d d i t i o n , the o f f e r o r i s  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  w i l l e f f e c t i v e l y prevent the abuses possible 1n market buying. The Securities Commission i s to acquire the power to exempt p a r t i c u l a r 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 i r c u l a r . The Committee did not recommend regulatory review of c i r c u l a r s by the S e c u r i t i e s Commission, but said that they should be approved, c e r t i f i e d 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 c i v i l l i a b i l i t y 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 a l l 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 Combinations 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 Canadian 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 takeover provisions, but no attempt has been made to Improve the system of administration and enforcement.  This most important task remains.  FOOTNOTES TO APPENDIX ^See Chapter 7 of the Report. In B.C. Securities Act, section 78(b). 3  Sect1on 78 B(b)(1).  

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