Hostile takeover

How BC law treats it

Take-over bids for BC reporting issuers are regulated by the Securities Act, RSBC 1996, c 418 and National Instrument 62-104 Take-Over Bids and Issuer Bids, administered by the BC Securities Commission. A take-over bid is generally an offer that would bring the bidder's holdings to 20 percent or more of a class of voting or equity securities. Since 2016, a bid must stay open for at least 105 days (the target board can shorten this to as few as 35 days), must be subject to a condition that more than 50 percent of the securities not held by the bidder are tendered, and must be extended by at least 10 days once that condition is met. Target boards respond under National Policy 62-202 Take-Over Bids: Defensive Tactics. Securities regulators will intervene against defensive tactics that deny shareholders the chance to decide on a bid. Shareholder rights plans (poison pills) are generally cease traded once they have served their purpose of buying time, so under the current regime they can delay a bid but rarely block it. Directors owe their fiduciary duty to the corporation, not to any one group of shareholders, and may consider the interests of all stakeholders (BCE Inc v 1976 Debentureholders, 2008 SCC 69). A shareholder harmed by unfair conduct uses the oppression remedy under s. 227 of the Business Corporations Act, SBC 2002, c 57 (BCBCA). The BCBCA governs related corporate steps, such as the compulsory acquisition of remaining shares after a bid obtains 90 percent acceptance (s. 300). Private BC companies cannot be taken over in this way. Their articles normally restrict share transfers, and shareholders agreements usually add consent rights, rights of first refusal and drag along and tag along terms.

What it means for your business

Most BC private company owners will never face a hostile bid, because no one can acquire their company unless shareholders choose to sell and the articles and shareholders agreement allow the transfer. The practical lesson is to keep transfer restrictions and a well drafted shareholders agreement in place, especially when bringing in investors. For BC public companies, a hostile bid triggers strict securities timelines and board duties, and needs securities counsel immediately. Example: A TSX Venture listed BC mining company receives an unsolicited bid at a 20 percent premium. Its board forms a special committee, considers alternatives during the 105-day bid period, and recommends that shareholders reject the bid while it seeks a better offer.

Risks and common mistakes

Believing a private BC company can be taken over without its shareholders agreeing to sell. Assuming the Business Corporations Act, rather than securities law, regulates take-over bids. Treating a shareholder rights plan as a permanent block to a bid. Assuming directors owe their fiduciary duty directly to shareholders rather than to the company. Leaving share transfer restrictions out of the articles or shareholders agreement when issuing shares to investors.