CANADA Law and Practice Contributed by: Kevin West, Andrea Hill, Priya Ratti and Gabriel Potkidis, SkyLaw
determined in accordance with the Handbook of the Canadian Institute of Chartered Accountants. 7.4 Transaction Documents In a takeover bid, the following transaction documents are required to be disclosed in full: • the takeover bid circular and any documents incor -
responsibilities. This stakeholder-friendly corporate governance model has been codified in the Canadian federal corporate statute. The common law provides guidance as to which stakeholders’ interests may be considered, but does not provide guidance on whose interests, if any, should be prioritised. Although directors do not owe a fiduciary duty to shareholders and the “Revlon duty” (ie, when a break-up or change of control transaction is inevitable, the board’s fiduciary duty is to maximise shareholder value) has not been upheld by Canadian courts, directors are not prohibited from taking steps to maximise shareholder value or prioritise sharehold - ers over other stakeholders. 8.2 Special or Ad Hoc Committees Special committees comprised of target directors who are independent of a proposed transaction are often established to evaluate the terms of the transaction. They may also: • consider strategic alternatives; • negotiate the proposed transaction; • provide recommendations to the board about the proposed transaction; and • if applicable, supervise a valuation or fairness opinion. It is common for target boards to establish special committees in business combinations involving a related party. Special committees are required by Multilateral Instrument 61-101 (MI 61-101) in certain circumstances when one or more directors have a conflict of interest. Members of the special commit - tee must be free of real or perceived conflicts. Courts will often consider whether and at what time in the process of a transaction a special committee was formed and the procedures it followed in evaluating the transaction. Establishing a special committee as soon as possible and before the material terms of a transaction are in place is a way to show that direc - tors’ decisions have been made without conflicts. 8.3 Business Judgement Rule Directors are provided a high level of deference at common law. Canadian courts have recognised the
porated by reference; • the directors’ circular; • any lock-up agreements; and • any support agreement.
In a plan of arrangement or other business combi - nation, the following documents are required to be disclosed in full: • the management information circular delivered with the meeting materials and any documents incorpo - rated by reference; • any support agreements; and • the arrangement or business combination agree - ment. Reporting issuers are required to meet certain contin - uous disclosure obligations and file material contracts on the SEDAR+. Directors’ duties in Canada include the following: • to act honestly and in good faith, with a view to the best interests of the corporation; and • to exercise the care, diligence and skill of a reason - ably prudent person in comparable circumstances. In discharging their fiduciary duties, directors must exercise their powers for the benefit of the corporation and not for an improper purpose. These duties are owed to the corporation even in the context of a business combination or a hostile bid. However, the Supreme Court of Canada has con - firmed that directors are permitted to consider the interests of a variety of stakeholders in fulfilling their 8. Duties of Directors 8.1 Principal Directors’ Duties
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