On Aug. 25, 2015, the participating provinces and territory in the Cooperative Capital Markets Regulatory System achieved an important milestone towards implementation of the system by publishing a revised consultation draft of the uniform provincial and territorial capital markets act (now known as the Capital Markets Act), along with the drafts of the initial regulations proposed for adoption by the participating provinces and territory under the draft uniform act. These materials have been published for a 120-day public comment period.
This article is part of Gowlings' Guide to the Proposed Initial Regulations and related materials. In this segment of our guide, we discuss the proposed initial regulations relating to the protection of minority security holders in special transactions. You can view other sections of the guide here.
The participating provinces and territories are proposing to carry forward Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions in all of the participating provinces and territories. To date, Multilateral Instrument 61-101 has been adopted in Ontario and Québec so this will represent a regulatory change in the participating provinces and territories other than Ontario. Note however that Multilateral Instrument 61-101 effectively applies to all TSX and TSXV companies, as TSX companies are reporting issuers in Ontario and the TSXV has incorporated Multilateral Instrument 61-101 in its entirety into Policy 5.9 of its corporate finance manual.
Multilateral Instrument 61-101 sets out a regulatory regime in connection with certain types of business transactions in which minority security holders may require some protection. These are insider bids and issuer bids, related party transactions and certain business combinations. Multilateral Instrument 61-101 can impose a number of procedural requirements, including:
- enhanced disclosure;
- review and approval by an independent committee of the issuer's board of directors;
- the preparation of a formal valuation by an independent financial adviser; and
- minority shareholder approval.
Section 58 of the draft uniform act provides the foundation for enacting Multilateral Instrument 61-101 as a regulation under that act. The section contains a general obligation for offerors, offeree issuers and issuers, to, in accordance with the regulations, "identify, disclose and manage conflicts of interest that may arise among security holders in connection with a take-over bid, issuer bid, going-private transaction, related party transaction, business combination or similar transaction."
Rationale behind MI 61-101
Multilateral Instrument 61-101 is intended to apply to business transactions that may give rise to conflict of interest concerns. These transactions are capable of being abusive or unfair to minority shareholders due to an imbalance of information and voting power between minority shareholders on the one hand and insiders and control persons on the other. The participating provinces and territories are proposing that Multilateral Instrument 61-101 be carried forward into all of their jurisdictions in order to mitigate the risk of abuse or unfairness towards minority shareholders in transactions of this nature.
How is MI 61-101 changing?
The participating provinces and territories propose to adopt Multilateral Instrument 61-101, largely, in its current form as of March 2, 2015. The only noteworthy change that has been proposed relates to the application of an exemption for issuers governed by the Ontario Business Corporations Act (OBCA).
Multilateral Instrument 61-101 currently exempts an issuer in Ontario that is governed by the OBCA from provisions of the OBCA that apply to going private transactions in certain circumstances, including where the issuer has complied with certain requirements in Multilateral Instrument 61-101 relating to business combinations. The participating provinces and territories have proposed to extend the application of the exemption to any issuer in a participating province or territory that is incorporated under the OBCA.
What are the implications?
In respect of issuers listed on the TSX or TSXV, there should not be any change. Nevertheless, all insider bids, issuer bids, business combinations and related party transactions carried out in respect of other reporting issuers in the participating provinces and territories will need to be carefully reviewed in light of Multilateral Instrument 61-101, as additional disclosure, valuation and security holder approval requirements may apply to these transactions under the new system.
If you would like to discuss these regulations and how they will apply to your business, or if you wish to be added to our email distribution list for related publications, please contact Tal Cyngiser* or any of the following lawyers:
*Tal Cyngiser, an Associate in our Toronto office, was seconded to the Canadian Securities Transition Office (CSTO) for over a year, working extensively with the participating provinces and their securities commissions on the drafts of the initial regulations.
To view our full guide, click here.