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Increasing use of plans of arrangementSmith Lyons, Toronto

With the unprecedented level of mergers and acquisitions activity in Canada, an increasing number of complex, negotiated deals are being structured as plans of arrangement rather than as takeover bids. Plans of arrangement are carried out under Canadian corporate statutes, which generally define arrangements very broadly to include, among other things: amalgamations; exchanges of securities of the corporation held by security holders for other securities, money or other property of another corporation; and other forms of reorganization. Corporate statutes place certain limits on transactions structured as arrangements which can be overcome if the transaction is structured properly.

The basis of the plan of arrangement is the arrangement agreement. The transaction requires the approval of the court before implementation, but it is customary for the applicant to seek an interim order. This is useful in identifying and addressing issues, especially since the court has broad discretion over substantive and procedural matters. Arrangements are also subject to the approval of shareholders. Finally, articles of arrangement must be filed after the final court order is granted.

Advantages to arrangements include:

  • the transaction is binding on all shareholders, eliminating the need for second-stage squeeze-out transactions to take the target private;
  • significant flexibility allows for effective tax planning and for dealing more effectively with various types of outstanding securities; and
  • use in a share exchange acquisition of a Canadian company by a foreign public company, swapping shares issued by a Canadian issuer and exchanging them into shares of the foreign public company, giving a tax-free rollover to Canadian holders.

Arrangements are not always appropriate. An arrangement requires the agreement of the parties, which means that it is only available in a friendly transaction. Arrangements also generally take longer to complete and are more costly than takeover bids.

Mark Travers

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