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Bulletin

•5 Minutes

Test - In a Win for Shareholders, B.C. Securities Commission Provides Joint Actor Guidance for Proxy Contests

January 26, 2024
Authors:
Patricia L. Olasker, .Aaron J. Atkinson and Jonathan Bilyk

Key Takeaways

  • The free flow of information and opinion among shareholders is an important feature of the public markets, and the application of the joint actor rules should not create a climate that stifles discussion among shareholders.
  • EWR obligations are not triggered on the mere formation of a group whose collective ownership satisfies the 10% EWR threshold. Rather, EWR obligations are triggered only upon the subsequent acquisition of a share of the issuer by a member of the group.
  • The mere alignment of concern does not constitute a plan of action or commitment to pursue a course of action.
  • A joint actor finding is ultimately fact-dependent and must be based on clear, convincing and cogent evidence. For persons to be found acting jointly or in concert in connection with the solicitation of proxies for voting on a dissident slate, generally such persons must be found to be operating with a common specific purpose and with a form of mutual understanding about how shares will be voted.

Important guidance on “acting jointly or in concert” in a proxy contest was provided by the British Columbia Securities Commission (Commission) in NorthWest Copper Corp. (December 22, 2023). The Commission declined to find a joint actor relationship between a dissident and another shareholder, notwithstanding that the shareholder had funded the dissident’s proxy contest to replace an incumbent board and had selected one of the nominees included in the dissident’s slate. Most notably, the Commission held:

  • A party alleging a joint actor relationship must provide clear, convincing and cogent evidence to support a finding of a joint actor relationship, not mere speculation or inference.
  • A high bar to a joint actor finding is necessary in order not to stifle the “free flow of information and opinion among shareholders,” even if that means that some joint actors “will fly under the radar.”

Background

Early Warning Reporting and Joint Actor Allegations

NorthWest relates to a proxy contest launched in connection with the 2023 annual meeting of shareholders of NorthWest Copper Corp. (NWST), a mineral-exploration company listed on the TSX Venture Exchange. NWST alleged that three of its shareholders were acting jointly or in concert to replace NWST’s incumbent directors and that they failed to comply with the early warning reporting (EWR) rules. Those rules require a shareholder to report when it has acquired, whether alone or with its joint actors, 10% or more of an issuer’s shares.

Whether a person is acting jointly or in concert is a question of fact, although there are circumstances in which persons may be presumed or deemed to be joint actors. Importantly for proxy contests, there is a presumption of joint acting between persons who have an agreement, commitment or understanding to vote securities jointly or in concert.

Key Facts

While the Commission noted that two of the three shareholders, being the dissident and the dissident’s supporter (Shareholder #2), may have been acting with a view to a common goal, their aggregated holdings in NWST were, without the third shareholder’s holdings (being the largest of the three), insufficient to reach the EWR regime’s 10% threshold. The Commission’s reasons thus focused on whether the largest shareholder (Shareholder #3) was acting jointly or in concert with either the dissident or Shareholder #2.

Set out below are the principal facts relevant to the Commission’s findings.

  • In April 2023, Shareholder #2, having already shared concerns regarding NWST’s management with the dissident, spoke with Shareholder #3 about the possibility of replacing one or two of NWST’s incumbent directors.
  • In May, Shareholder #2 informed Shareholder #3 that a dissident slate was being formed, and Shareholder #3 proposed his personal lawyer for the slate.
  • Later in May, the dissident notified NWST that he planned to nominate a competing slate of directors at NWST’s upcoming annual meeting. The dissident disclosed that he was not acting jointly or in concert with any other person.
  • In June, the dissident contacted Shareholder #3’s counsel to ask if Shareholder #3 would contribute to the costs of the dissident’s proxy solicitation. Shareholder #3 agreed, deposing later that he provided the funds because he wanted to keep his options open; having invested millions of dollars in NWST, he considered it prudent to invest a further $50,000 to $100,000 to protect his interest. Shareholder #3 made no commitment to support the slate.
  • In July, NWST contacted Shareholder #3 to negotiate a support agreement in which he would be required to support the incumbent board and provide NWST with equity financing in exchange for his nominee being named in management’s slate. The two other shareholders were not aware of these negotiations.
  • In August, the dissident delivered a new notice of his intention to nominate a slate of directors at the annual meeting. The dissident noted that he was not acting jointly or in concert with any person “except as disclosed below,” referring ostensibly to the disclosure in his notice that the “cost of any solicitation in respect of the nominees will be borne by the nominating shareholder and [Shareholder #3].”
  • On learning of the funding arrangement, NWST terminated its discussions with Shareholder #3.
  • Later in August, the dissident contacted Shareholder #3 directly for the first time and solicited his support for the dissident slate.
  • NWST requested the dissident to complete EWR filings disclosing that he was acting jointly with persons who collectively owned 10% or more of NWST’s shares. After he refused, NWST brought its complaint to the Commission.

Key Findings