Introduction
On
Background
In
Decision
In determining the validity and effectiveness of the Consent Resolution, the court considered the provisions of both the articles of RCI (the Articles) and the Business Corporations Act (
"(a) to be a proceeding at a meeting of . shareholders, and
(b) to be as valid and effective as if it had been passed at a meeting of shareholders that satisfies all the requirements of this Act and the regulations, and all the requirements of the memorandum and articles of the company, relating to meetings of shareholders."
Applying these principles, the court concluded that both the Articles and the Act expressly permitted the removal and replacement of directors by the Consent Resolution, since it was:
(i) consented to in writing by shareholders holding at least two-thirds of the Class A shares that carried the right to vote; and
(ii) properly submitted to all Class A shareholders carrying the right to vote. Therefore, the court concluded that the five independent directors were validly removed and replaced, despite the lack of a formal shareholder meeting.
The court reached its decision, notwithstanding considerable evidence introduced by RCI that "surrounding circumstances" required the court to resolve any minor ambiguities in the Articles and the Act in favour of minority shareholder protection - in this case, requiring a shareholders' meeting. Such evidence included:
- a personal and confidential "Memorandum of Wishes" (MOW) to the RTC advisory committee, executed in
September 2008 by RCI's founder, the lateTed Rogers , which "somewhat presciently" in the words of the court, contemplated a potential situation where the majority of the Board is in conflict with the interests of the Rogers family, as represented by the Control Trust Chair. In those circumstances, the MOW stated that it wasTed Rogers' expectation that the Control Trust Chair would run the "public gauntlet" of calling a shareholder meeting to replace the RCI directors who were opposed; - expert opinion that the process under the Consent Resolution did not conform to "best corporate practices," due to a lack of transparency and accountability and the failure to disclosure corporate information which otherwise would be provided in connection with a shareholders' meeting;
- RCI's many public statements proclaiming its commitment and adherence to "good" or "sound" corporate governance, including reference to its nominating committee (a standing committee of the Board) whose mandate is to identify candidates to serve on the Board who may be "either elected by shareholders at a meeting or appointed by the Board";
- RCI's many public statements referring to its directors as being "elected" and that its board includes "independent directors";
- RCI's adoption of a "majority voting" policy, in accordance with TSX requirements;
- the absence of any explicit public statement by RCI that its controlling shareholder is able to remove and replace directors by a Consent Resolution and without convening a shareholder meeting;
- expert opinion that the use of the Consent Resolution was "unique and unparalleled" in relation to the governance of other large Canadian public companies; and
- RTC having never previously exercised its right to vote by way of a Consent Resolution.
In reaching its decision, the court determined that evidence related to the "surrounding circumstances" was not helpful to the fundamental issue before it, as much of this evidence post-dated the making of RCI's Articles in 2004. The court stressed that evidence respecting "surrounding circumstances" must never be allowed to change or overrule the plain meaning of the words being judicially interpreted.
Comment
The decision also re-affirms that
It is important to note that the use of written Consent Resolutions to remove and replace directors in the absence of a shareholders' meeting is, in practice, limited to closely controlled private corporations or public companies with dual-class or similar share structures where voting control is not widely held. Obtaining written consent resolutions from a super-majority of shareholders in a widely-held public enterprise is generally impractical, as a logistical matter. The ability to rely upon consent resolutions may also be different in jurisdictions other than
Overall, investors should approach and price their investment in companies with dual-class or similar share ownership structures with full awareness that governance and the process for electing directors under such structures are fundamentally different than in most public companies in which voting shares are widely held. The decision in Rogers v.
About BLG
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Mr
Bay Adelaide Centre,
Tel: 4163676000
Fax: 4163676749
E-mail: info@blg.com
URL: www.blg.com
© Mondaq Ltd, 2021 - Tel. +44 (0)20 8544 8300 - http://www.mondaq.com, source