Canadian securities regulators are going to demonstrate commendable restraint in the exercise of the “public interest” jurisdiction to pre-empt the job of unconflicted boards of directors answering unsolicited takeovers. The brand new proposal allows boards facing hostile bids as much as 105 days before regulators intervene with measures that might curtail a board’s discretion, namely cease-trading “poison pill” defences. This can be a marked departure from the current “standard” – that is somewhat unevenly applied – of securities regulators often being ready to cease-trade poison pills after 45-70 days and suggests a regulatory rethinking of once the “public interest” should be invoked.
The CSA’s proposed regime should allow most conscientious boards to satisfy their duties under corporate law when answering hostile bids. This may also encourage private parties to challenge the behaviour of conflicted (or otherwise deleterious) boards through the courts, which are in a better position at an institutional level than are securities regulators to cope with such corporate law issues.
The logic underlying this insurance policy reform suggests a broader reconsideration of whether private parties should have the authority to invoke the power conferred on securities regulators to create a number of punitive and remedial orders if, in the regulator’s opinion, it’s within the “public interest” to do so.
While the statutory public-interest power does not expressly provide that the application could be through private parties, decisions made by the Ontario Securities Commission – and it is rules of procedure – have effectively allowed such applications, even if other remedies, either prior to the commission or perhaps in the courts, can be found.
Over time, it might be ‘more reasonable’ to expect the commission … to intervene.
Despite numerous references towards the “public interest” in securities regulation, there is no statutory definition of the term or guidance (apart from precedent) regarding the scope of these power or how it ought to be exercised. Recently, the commission has effectively adopted a “reasonable expectations” standard, taking an ever more broad look at situations that is prepared to create “public interest” determinations with respect to matters that discuss the exercise by directors of the statutory duties under corporate law, often in the behest of non-public parties having a particular curiosity about the issue at issue. This will ‘t be surprising: There’s a amount of circularity baked into any “reasonable expectations” standard. Over time, it might be “more reasonable” to expect the commission’s willingness to intervene, even absent an alleged breach from the Securities Act, particularly when investor confidence is alleged to be on the line.
Related
- New takeover rules limiting poison pills can make it harder to create hostile bidsCanadian regulators extend time for unsolicited takeover bids
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The Top court of Canada discussed the nature from the commission’s public-interest jurisdiction in a 2001 decision (Committee for that Equal Management of Asbestos Minority Shareholders). While acknowledging that the commission’s public-interest jurisdiction is broad, the Supreme Court stated the purpose is neither remedial nor punitive and that it “cannot be utilized merely to remedy Securities Act misconduct alleged to have caused harm or damages to private parties or individuals.”
With the proposed new approach to “poison pills,” it might be time for you to reflect more broadly around the trend to increase “public interest” relief as a right to private applications. One approach was signalled by the commission in the determination earlier this week to deny Catalyst Capital Group’s request, on “public interest” grounds, for any hearing to delay a vote by Corus Entertainment’s shareholders (of which Catalyst is a) on the company’s proposed takeover of Shaw Media.
Commission staff effectively played a “gatekeeper” role. They ought to assist the commission determine when a credit card applicatoin satisfies the factors articulated by the Top court and, if that’s the case, bring the application themselves (rather than leaving it to personal parties to do so). This discipline may also help to develop more transparent standards and principles when ever this extraordinary power is going to be available, assisting to demarcate more clearly what exactly are issues of corporate law and directors’ duties, and just what are problems with “public interest” that warrant intervention through the commission.
Just out of the box the situation with regards to the regulating the use of poison pills, this discipline – and the consequential exercise of restraint through the commission (in its willingness to hear such applications) – should enhance the commission’s authority and credibility while strengthening the present remedies available for breaches of directors’ duties under corporate-law statutes. As explained by Justice William O. Douglas, when he served as the first chairman of the U.S. Securities and Exchange Commission, “government should keep the shotgun, so to speak, behind the door, loaded, well-oiled, cleaned, ready for use however with the hope that it will never have to be used.”
Sean Vanderpol and Edward Waitzer, professor at Osgoode Hall School, are partners at Stikeman Elliott LLP.
