Radical changes in store for Canadian securities regulation

Lots of big developments, or potentially big developments, occurred in the Canadian M&A and securities space this week with proposals by the Canadian Securities Administrators (CSA) and Quebec’s securities regulator (the Autorité des marchés financiers or AMF) on poison pills, and announced CSA plans to lower the early warning reporting threshold for ownership or control changes.

The CSA released its proposed changes to the rules around shareholder rights plans (poison pills) on Thursday and the AMF outlined a separate plan at the same time.

In a client update, Osler, Hoskin & Harcourt LLP outlined the legal issues at play:

The two proposals provide an opportunity for Canadian capital market participants to engage in an important debate about issues such as the balance of power between boards of directors, bidders and shareholders, and whether courts or securities regulators should adjudicate disputes regarding defensive tactics.

This debate is animated by a fundamental tension between two competing models of corporate governance at the heart of Canadian securities regulation and corporate law. The CSA’s current approach to the regulation of defensive tactics adheres to a shareholder primacy model, in which the primary objective of take-over bid regulation is the protection of the bona fide interests of shareholders. By contrast, the Supreme Court of Canada’s decision in BCE Inc. v. 1976 Debentureholders articulated its conception of directors’ fiduciary duty under corporate law more broadly, stating instead that directors’ fiduciary duty is owed at all times to the corporation and not to any particular stakeholders. The AMF Proposal proposes to reconcile this conflict by having securities regulators defer to directors’ decisions where a proper process has been followed and there is no evidence of abuse. It remains to be seen how Canadian reporting issuers, institutional shareholders and activist investors will position themselves in this debate and whether the AMF Proposal will gain support.

Both the CSA and AMF proposals will have a 90 day comment period.

And the other CSA draft amendments, proposing to change the early warning reporting requirements, were released on Wednesday. According to the CSA, the amendments:

…are meant to provide greater transparency about significant holdings of issuers’ securities by proposing an early warning reporting threshold of 5%, requiring disclosure of both increases and decreases in ownership of 2% or more of securities, and enhancing the content of the disclosure in the early warning news releases and reports required to be filed.

Currently, the early warning threshold is 10%, so the proposed changes would make it easier for companies to become aware of potential shareholder activist activity. The consultation period for these proposed changes will end on June 12, 2013.

Oslers released a video of partner Jeremy Fraiberg discussing the proposed changes:

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