CANADA Law and Practice Contributed by: Kevin West, Andrea Hill, Priya Ratti and Gabriel Potkidis, SkyLaw
a “crown jewel” transaction with a view to the best interests of the corporation, and the sale must have a demonstrable business purpose. The board of a target may also decide to increase long-term debt substan - tially and concurrently declare special dividends to distribute cash to its shareholders. Defensive Private Placements Private placements that have the effect of blocking a bid have been recognised by Canadian securities regulators as a possible defensive tactic, but they could be found to be inappropriate if they are abusive or frustrate the ability of shareholders to respond to a bid or competing bids. Golden Parachutes Golden parachutes for key employees may be trig - gered if those employees are terminated after a third- party acquisition. White Knight Targets may seek an alternative transaction with a friendly party or a “white knight” that might offer more value (or in some cases more preferential terms or deal certainty) to its shareholders than the original bidder. Issuer Bid If a target is unable to find a white knight, it may offer to repurchase its outstanding shares itself. Pac-Man A target might flip the script and make a bid for the shares of the hostile bidder. Advance Notice By-Law A target’s by-laws or other constating documents may be amended to require advance notice of shareholder nominations for members to the board of directors, thereby giving the target the time to respond strategi - cally to a proxy fight in the context of a hostile bid. 9.4 Directors’ Duties Canadian directors owe the same duties when they are enacting defensive measures as in any other con - text. Boards in Canada owe a fiduciary duty to the cor - poration, not to the shareholders, and are not required to conduct an auction once a company is “in play”.
This principle is especially important for nominee directors, who should be careful to manage conflicts of interest and only share information with their nomi- nating shareholder with the consent of the company. Canadian courts have held that the conduct of direc - tors will be analysed on an objective standard of what a reasonably prudent person would do in comparable circumstances. See 8.3 Business Judgement Rule . 9.5 Directors’ Ability to “Just Say No” Target boards in Canada cannot “just say no” in the same way that this strategy is understood in the USA. Canadian directors of public companies, while they may implement defensive measures, are not able to prevent a bid from being presented to the sharehold - ers indefinitely. M&A litigation in Canada is not as prevalent as in other jurisdictions such as the USA. Class action securities litigation is relatively new in Canada. Parties involved in private acquisitions will often choose arbitration over litigation to provide them with greater efficiency and confidentiality. Notably, there has been a rise in the use of represen - tation and warranty insurance, which serves as the primary recourse for a breach of representations by the company or its security holders in instances where a policy has been put in place as part of closing. 10.2 Stage of Deal Litigation can occur at any stage of a transaction. A plan of arrangement requires court approval, which provides a forum for aggrieved stakeholders. 10. Litigation 10.1 Frequency of Litigation Other remedial avenues for stakeholders include a cease-trade order or other relief preventing the con - summation of a takeover bid from a securities regula - tor. 10.3 “Broken-Deal” Disputes Courts will typically uphold agreements in the M&A context and only in exceptional circumstances will
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