Canada's courts have recently introduced new uncertainties to the country's mergers and acquisitions regime with decisions regarding the acquisition (by way of a plan of arrangement) of Pacifica Papers by Norske Skog Canada Limited. While almost 74% of Pacifica's shareholders voted in favour of the arrangement, the transaction was opposed by two minority shareholders (the dissident shareholders), which together held 20% of the shares.
In the Pacifica acquisition, the dissident shareholders attempted to thwart the transaction through allegations of improper procedure and lack of fairness. While the plan of arrangement was ultimately approved by the court of appeal and found to be fair, the discussion cast doubt on the reliability of certain processes with regard to shareholder actions.
The dissident shareholders contended that certain shareholder support agreements were solicited improperly. The trial court agreed, finding the support agreements to be unlawful because they amounted to the solicitation of proxies before the proxy circular had been distributed, in contravention of corporate statute requirements. While the court of appeal expressed reservations with this finding, it did not decide that it was incorrect. However, the court of appeal did find that the support agreements were unenforceable because proxies are always revocable.
As a result, two sources of uncertainty regarding the enforceability of support agreements have been introduced – potential statutory contravention as a result of untimely proxy solicitation and the revocability of a proxy until the actual casting of a vote, notwithstanding the presence of a support agreement.
The decisions regarding the Pacifica transaction included welcome confirmation that the courts will generally not interfere with the business judgments of parties involved in a transaction. However, the discussions of the courts regarding the revocability of proxies and the possible unenforceability of support agreements may have significantly undermined the dependability of shareholder intentions as expressed through support agreements.
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