Canadian securities regulators in several provinces are warning they will no longer wait to receive complaints from the public before intervening in transactions that could affect the rights of minority shareholders.
The warning comes in a staff notice circulated Thursday by provincial regulators from Ontario, Québec, Alberta, Manitoba and New Brunswick.
The notice concerns proposed mergers and other deals between two companies that may be controlled by the same owners. Regulators call these “material conflict of interest transactions,” have a set of rules that are supposed to protect the interests of minority shareholders.
In the future staff will review such deals on a “real time basis” to ensure they confirm with those rules. The staff notice reviews some recent cases involving minority shareholders, and compiles those findings into a list of procedures that regulators want to see companies follow.
“The objective of staff’s review program is to identify and resolve issues in real time, before a transaction is approved by security holders or closed, so as to reduce the risk of harm to minority security holders,” the regulators state.
The regulators say they’ll try to move as quickly as they can. If they have questions, they may contact the parties or their lawyers for information. They caution they’ll seek orders to halt a deal if they need more time. “We may apply for a temporary cease-trade or other appropriate order in respect of a proposed transaction if we believe it is in the public interest to do so.”
Alex Gorka, a lawyer with Osler, Hoskin & Harcourt LLP in Toronto, said the prospect of more “real time” reviews are a big deal. Transaction lawyers had noticed regulators taking a proactive look at deals already, he said. “But certainly I think we can expect more of it going forward.”
While the staff notice applies to regulators from five provinces, the reality of doing business in Canada means the policy likely has a national impact. Ontario, Quebec and Alberta are home to a lot of publicly traded companies. As well, the TSX Venture Exchange incorporates compliance with the minority investor protection rules in its listing requirements.
“It would be rather difficult to be conducting business in Canada and not be subject to this policy in one way or another,” Gorka said.
Naizam Kanji, director of the office of mergers and acquisitions at the Ontario Securities Commission, said regulators have high expectations for the disclosure and processes that should be followed in a deal involving related parties.
Much of that is spelled out in the staff notice. It says a company considering a material conflict of interest transaction should have the deal reviewed by a special committee of independent directors. Fairness opinions are not strictly required, but if they are provided, regulators expect them to include information about how the financial advisor will be paid for its report.
“The message from the commission is that we have high expectations for the parties on both sides of the transaction,” Kanji said. “We felt we should take all of this, put it together, and do some real time reviews.”