In general, corporate legislation in Canada provides that if a corporation engages in specific types of transactions, such as an arrangement or amalgamation, shareholders are entitled to vote against the transaction. If the transaction is nevertheless approved, shareholders can then exercise a right to dissent and be paid fair value for their shares.
Last month, I blogged that a chambers judge in the Yukon had allowed beneficial shareholders to exercise a right of dissent. The decision of the chambers judge was contrary to the standard practice in Canada, which has traditionally limited dissent rights to registered shareholders. I noted that this issue had been argued before the British Columbia Court of Appeal, sitting as the Yukon Court of Appeal, and queried how this would affect corporate meetings practice in Canada if the decision was affirmed.
On October 12, 2012, the decision in Certain Shareholders of Crew Gold Corporation v. Crew Gold Corporation was released by the Court of Appeal. This decision has restored the traditional rule that, other than in very limited circumstances, only registered shareholders are entitled to exercise dissent rights. The Court found that the chambers judge “erred in relieving” the shareholders “from the requirement that they be registered shareholders in order to exercise a right of dissent.”
The Court also found that the registration requirement was not a technicality but rather was a legislative requirement and that shareholders have only been judicially relieved from this requirement in “exceptional circumstances” where the conduct of a corporation has been misleading or amounted to a form of estoppel. The Court held that this registration requirement protects against uncertainty and allows a corporation to rely upon the share register when determining which shareholders are entitled to exercise dissent rights.
Importantly, the Court held that the corporation did not have a duty to advise each shareholder of the manner by which each could become a registered shareholder. Instead, the Court decided that “advice that might extend beyond referring shareholders to information already disseminated to them or their legal advisor and/or intermediary(ies), who are expressly tasked with the responsibility of advising the beneficial shareholders on this issue, in my view, would result in a positive or affirmative duty on a corporation that could give rise to potential liability for inaccurate advice and would undermine the clear intention of the legislature that this burden lies with the shareholder.”
In the end, the Court found that the judicial exception to the registration requirement is “very narrow” and only encompasses misleading or inaccurate information, or conduct amounting to an estoppel. Directors and officers who manage corporate meetings that approve transactions giving rise to dissent rights can take note that order has been restored and, absent highly unusual circumstances, they will not be required (i) to assist shareholders in becoming registered, or (ii) to recognize the dissent rights of a beneficial shareholder.