Securities Regulators Propose New Shareholder Rights Plan Rules

The Canadian Securities Administrators have published for comment proposed National Instrument 62-105 Security Holder Rights Plans and proposed Companion Policy 62-105CP Security Holder Rights Plans (collectively, the “Proposed Rule”).

Currently issuers have a limited ability to respond to an unsolicited or hostile take-over bid as the CSA’s approach to shareholder rights plans (a “Rights Plan”) is based on the belief that “there comes a time when the pill has to go”. Application of this approach has resulted in the securities commissions issuing cease trade orders against most Rights Plans within 45-55 days from the commencement of a bid.

The Proposed Rule is meant to increase an issuer’s ability to respond to a take-over bid, by allowing a Rights Plan which has been adopted by an issuer’s board of directors (the date of adoption being referred to as the “Implementation Date”) to remain in place provided the Rights Plan is approved by a majority of the issuer’s shareholders within 90 days of the Implementation Date.

The adoption of the Proposed Rule would lead to the following material changes to the current Rights Plan regime:

  1. A Rights Plan will become effective on the Implementation Date, provided it is approved by the issuer’s shareholders within 90 days of the earlier of: (a) the Implementation Date; and (b) the date a bid is launched.
    Similarly, material amendments to a Rights Plan are effective as of the date they are adopted by an issuer’s board, but must also be approved by shareholders within 90 days.
  2. Once a Rights Plan receives shareholder approval, it must be approved at each annual general meeting to remain in effect. If shareholders don’t approve a Rights Plan, it will cease to be effective.
  3. An effective Rights Plan may be terminated by majority shareholder vote at any time.
  4. If an issuer terminates a Rights Plan, it cannot adopt a new Rights Plan for at least 12 months (except in the face of a new bid).
  5. The hostile bidder and its joint actors will be excluded from the shareholder votes required to adopt, maintain, amend, or terminate the Rights Plan; however if a Rights Plan excludes shareholders, shareholder approval must be obtained by: (a) a majority vote of shareholders excluding the votes of an excluded shareholder and its joint actors, and (b) a separate vote that does not exclude such shareholders.
  6. If an issuer waives or modifies a Rights Plan with regard to a bid, that waiver or modification must apply to any other take-over bid that is announced or commenced at the same time, meaning preferential treatment of one bid by modification/waiver of a Rights Plan is prohibited.
  7. All Rights Plans must be available to the public on SEDAR, and an issuer must distribute a news release that contains required disclosure when a Rights Plan is adopted or materially amended.

 

For more information, please contact any member of the Boughton Law Securities Group.

The information contained in this post is a summary only and is not considered to be legal advice.

 

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