Search Button - Minden Gross LLP site Twitter Button - Minden Gross LLP page LinkedIn Button - Minden Gross LLP page Instagram Button - Minden Gross LLP

145 King Street West, Suite 2200 | Toronto, Ontario | M5H 4G2 | 416 362 3711

Vaccination and Office Visitation Policy

Minden Gross LLP has implemented a vaccination and visitation policy for our office and its visitors. Read: https://www.mindengross.com/our-firm/minden-gross-llp-vaccination-and-office-visitation-policy

Holiday Closure - July 1

Please be advised our office will be closed on Friday, July 1, for Canada Day.

News & Events

Securities Insights: Rogers Court Ruling a Cautionary Tale for B.C. Companies

Nov 16, 2021

By: Andrew Elbaz, Zohar Barzilai, Zachary Janes, and Michael Shafarenko - Securities and Capital Markets Group

Securities and Stocks - pixabay.comThe Rogers family power struggle has come to a swift resolution, but corporate governance issues linger, particularly for public companies incorporated in British Columbia.

On Friday, November 5, 2021, the B.C. Supreme Court ruled that the unilateral actions taken by Edward Rogers to remove and replace five directors of Rogers Communications Inc. (“RCI”) were valid and effective. On November 7, RCI announced that it would not seek an appeal of the Court’s ruling.

Background

Over the summer of 2021, Edward’s concerns about the leadership of RCI’s Chief Executive Officer, Joe Natale, were heightened by RCI’s potential $26 billion acquisition of Shaw Communications Inc. According to Rob Gemmell, an independent director of RCI, several members of RCI’s board of directors (“Board”) had expressed concern with Mr. Natale’s performance over the year leading up to the Shaw deal. Edward described the deal as “the largest single transaction in RCI’s history” and “critical” to RCI’s future.[1] As chair of RCI’s Board, Edward was determined to ensure that the company was in the right hands.

But a majority of RCI’s Board, including Edward’s mother and two sisters, did not agree that RCI needed new leadership. As described in our previous article, the Board blocked Edward’s attempt to replace RCI’s CEO. Frustrated, Edward decided to test his might as RCI’s effective controlling shareholder.

Edward is Chair of the Rogers Control Trust (“RCT”), which controls 97.5% of RCI’s Class A Voting Shares (the only shares carrying a right to vote at shareholders’ meetings). Acting as RCT Chair, Edward prepared a written resolution of the RCT (the “Consent Resolution”) to remove five of RCI’s directors and replace them with another five directors who Edward believed would better align with his interests.

Then, on October 21, 2021, Edward took the following key steps:

  1. he announced the Consent Resolution at an RCT Advisory Committee meeting and gained the Committee’s approval; and
  2. he mailed the Consent Resolution and biographies of the proposed directors to all Class A shareholders.

The following day, Edward arranged for the Consent Resolution to be executed by the registered holders of RCT’s Class A Voting Shares. Edward then mailed the Consent Resolution to RCI informing the company of the change of directors.

RCI responded that the Consent Resolution was invalid because, in its view, directors of RCI could only be removed and replaced at a shareholders’ meeting. The B.C. Supreme Court was asked to urgently resolve the dispute by determining whether the Consent Resolution was valid and effective.

No Shareholders’ Meeting Required

As discussed in our previous article, whether Edward could act as RCT Chair to remove and replace directors unilaterally without a shareholders’ meeting depended on the Court’s interpretation of Article 3.4 of RCI’s Articles and the applicable provisions of the B.C. Business Corporations Act (“BCBCA”).

Article 3.4 provides that directors can be removed by “ordinary resolution”, which is not defined in RCI’s Articles. Therefore, the Court imported the definition from the BCBCA, which provides that an “ordinary resolution” may be passed, after being submitted to all of the holders of voting shares, by being consented to in writing by those holders who carry at least a special majority of the votes entitled to be cast on the resolution.

The BCBCA refers to such written consent of voting shareholders as a “consent resolution”. Section 180 of the BCBA provides that a consent resolution of shareholders is deemed to be

  1. a proceeding at a meeting of those shareholders, and
  2. as valid and effective as if it had been passed at a meeting of shareholders that satisfies all the requirements of the BCBCA, and all the requirements of the articles of the company, relating to meetings of shareholders.

In light of such language in the BCBCA, which the Court found was incorporated into RCI’s Article 3.4 by reference to the term “ordinary resolution”, the Court held that a shareholders’ meeting was not necessary to remove and replace directors of RCI.[2] Rather, if Edward’s Consent Resolution complied with the above definition of “ordinary resolution”, a shareholders’ meeting would be deemed to have taken place for the purposes of the BCBCA and RCI’s Articles.

Representing 97.5% of the Class A Voting Shares, there was no question that the Consent Resolution achieved a special majority (defined in RCI’s Article 1.1 as 2/3 of the votes entitled to be cast). Therefore, the only issue was whether Edward “submitted” the Consent Resolution to all Class A shareholders.

Mailing the Consent Resolution was Sufficient

Section 7(1) of the BCBCA provides that records may be sent to shareholders in any manner provided in the company’s articles. RCI’s Article 11.1 provides that records are considered to be sufficiently given to shareholders if mailed to their recorded address.

Because Edward mailed the Consent Resolution (then unsigned) to all Class A shareholders in accordance with Article 11.1, the Court held that the Consent Resolution was “submitted” to all Class A shareholders within the meaning of the BCBCA.[3]

RCI put forward a number of arguments as to why the Court should not consider the Consent Resolution to have been properly submitted to shareholders:

  1. The submission was required to include more materials than merely the Consent Resolution and the biographies of directors;
  2. Submitting the Consent Resolution through mail one day prior to executing the Consent Resolution did not provide shareholders with a meaningful chance to review the materials;
  3. Only RCI can submit a resolution to shareholders; and
  4. Edward was required to send the Consent Resolution to both Class A (voting) and Class B (non-voting) shareholders.

The Court dismissed all four of the above arguments as contrary to the plain meaning of the BCBCA and RCI’s Articles. The definition of “ordinary resolution” in the BCBCA, adopted in RCI’s Article 3.4, requires only that the Consent Resolution be submitted to shareholders. Therefore, the Court suggested that Edward was not even required to include the biographies of his proposed directors; mailing only the Consent Resolution may have been sufficient.[4] Moreover, because RCI’s Article 11.1 provides that mailing any required materials constitutes sufficient notice of same, Edward was not required to provide shareholders with a longer window to review the materials before executing the Consent Resolution.[5] With respect to RCI’s third and fourth arguments above, the Court noted that nothing in the BCBCA or RCI’s Articles required that Edward rely on RCI to submit the Consent Resolution to shareholders or that he submit the Consent Resolution to Class B shareholders.[6]

The Court was unmoved by the fact that RCI usually provides notice of shareholders’ meetings to Class B shareholders. In the Court’s view, any right of Class B shareholders to attend shareholders’ meetings contained in RCI’s Articles was satisfied under the deeming rules in section 180 of the BCBCA, as discussed above.[7] The Court stated that it would create confusion and uncertainty to read in additional requirements for notice to shareholders; if RCI wished to invoke a more rigorous process to remove and replace directors, it could have done so in its Articles, but it did not.[8]

Navigating B.C. Corporate Laws

The Court’s holding highlights the importance of utmost precision when drafting a company’s articles. This is especially true for companies incorporated in B.C. since the BCBCA defers to the company’s articles for many important governance procedures, such as the removal of directors. The Court noted in the Rogers ruling that the BCBCA is unique in this respect.[9]

Under the Federal model (sections 109(1) and 142(1) of the Canada Business Corporations Act), removal of directors requires either (i) a majority vote at a shareholders’ meeting or (ii) a written resolution signed by all shareholders entitled to vote. Most of Canada’s provinces and territories have adopted this approach, so Edward’s Consent Resolution would likely be invalid if RCI was incorporated anywhere in Canada other than B.C.

The BCBCA’s more relaxed governance rules are of particular concern for public companies. The possibility of a controlling shareholder upheaving a company’s internal governance structure without requisitioning a shareholders’ meeting can create uncertainty for investors. Investors rely on shareholders’ meetings to obtain important disclosure about the company and its operations.

In RCI’s case, even though Edward controls the result of a vote at a shareholders’ meeting, the requirement to requisition a shareholders’ meeting would mean that Edward would have to provide advance notice to shareholders. RCI would have to prepare an information circular describing the business to be transacted and the reasons for the proposed change in directors. Shareholders would also be able to ask questions at the shareholders’ meeting. All of this translates into more disclosure being available to investors in the company.

The Consent Resolution relied upon by Edward, however, circumvents this standard process, and investors in B.C. companies should be aware. Jeffrey MacIntosh, a University of Toronto Faculty of Law professor, went so far as to suggest that securities regulators may consider enjoining Edward under their broad “public interest” powers. MacIntosh also suggested that an interested party could claim that Edward’s actions constituted “oppressive” conduct or a breach of fiduciary duty under the BCBCA. But these remedies may be unrealistic in practice due to the difficulty in proving that Edward’s actions were contrary to the best interests of RCI and its stakeholders and not the result of Edward’s reasonable and informed exercise of business judgment.

To ensure that similar governance issues do not arise, companies should engage legal advisors to review their articles and by-laws to limit unintended consequences in light of applicable corporate laws. As the Rogers case demonstrates, this may be especially important for B.C. companies. On the other hand, some companies may view the relative flexibility under the BCBCA as a potential benefit. B.C. companies have greater freedom to fashion their own rules and procedures with respect to certain governance matters, which may be preferable to the extent that a company’s articles are skillfully drafted.


This article was prepared on behalf of the Minden Gross LLP Capital Markets Institute (MGCMI). The MGCMI seeks to publish relevant topics on securities laws, corporate governance and other topics affecting the Canadian capital markets community. The MGCMI holds regular educational seminars for colleagues, clients, and friends of Minden Gross LLP. If you have questions about this article or any securities and capital markets issues for your business, contact any member of the MGCMI group below. To be added to our email list, contact info@mindengross.com.

Andrew Elbaz
Chair - Securities and Capital Markets
e: aelbaz@mindengross.com
p: (416) 369-4329

Zohar Barzilai
Securities and Capital Markets
e: zbarzilai@mindengross.com
p: (416) 369-4164

Alexander Katznelson
Securities and Capital Markets
e: akatznelson@mindengross.com
p: (416) 369-4434

David Judson
Securities and Capital Markets and Business Law
e: djudson@mindengross.com
p: (416) 369-4108

Michael Shafarenko
Securities and Capital Markets
e: mshafarenko@mindengross.com
p: (416) 369-4145

Zachary Janes
Securities and Capital Markets
e: zjanes@mindengross.com
p: (416) 369-4146

The information contained in this article does not necessarily reflect the views or opinions of Minden Gross LLP, or any of its lawyers, employees, or clients, and does not constitute legal advice. This information should not be acted upon without prior consultation with legal advisors.



[2] Ibid. at paras 192, 198.

[3] Ibid. at paras 212, 237.

[4] Ibid. at para 206.

[5] Ibid. at para 209.

[6] Ibid. at paras 222, 233.

[7] Ibid. at para 235.

[8] Ibid. at paras 209-210.

[9] Ibid. at paras 120, 129.