Arrangement/Court Approval/Shareholder Dissent/Deference to Directors Rights-Powers

Smoothwater Capital Corporation v Marquee Energy Ltd., 2016 ABCA 360

• A business plan was developed (by both Boards) whereby Alberta Oilsands and Marquee would be combined together, and Alberta Oilsands’s cash would be used to develop Marquee’s assets.
• Smoothwater (which owned 15% shares in Alberta Oilsands but none of Marquee) opposed this business plan, and continued to press for the liquidation of Alberta Oilsands.
•  The Boards resolved that the transaction should proceed by way of an “arrangement” under s. 193 of the Act:

1. The shares of Marquee will be “arranged” so that each Marquee share will be exchanged for 1.67 shares of Alberta Oilsands. Marquee would thus become a wholly owned subsidiary of Alberta Oilsands;
2. Alberta Oilsands would have to issue about 206 million shares to acquire the Marquee shares, and would end up with about 418 million shares outstanding, resulting in a dilution of the Alberta Oilsands shareholdings of approximately 49%;
3. Alberta Oilsands would then “vertically” amalgamate with its now wholly owned subsidiary Marquee under s. 184 of the Act, a type of amalgamation that does not require shareholder approval, and does not generate rights to dissent. (thereby avoiding Smoothwater’s opposition; GBC)
4. Under this form of arrangement, only Marquee would be “arranged”.
5. In addition to the approval of ? of the Marquee shareholders,…

• the arrangement would also have to be approved by the Court.

Par. 6 of Decision

Highlights of Alberta Court of Appeal’s Commentary/Findings

·   What is “fair and reasonable” has to be measured considering the interests of all stakeholders, including the shareholders and the debentureholders. The directors have a duty to consider the broader interests of the corporation, and may not be able to satisfy everyone. A balancing of interests is required (paras. 128, 148); Par 15e

• Section 193(2) of the ABCA contemplates an application for approval of an arrangement by a “corporation”, a “security holder”, or a “creditor”. As Goldcorp points out, the rest of the section clearly signals that the “security holders” or “creditors” that are referred to are those of the corporation being arranged, not any other corporation affected by the arrangement. Par 20
•  Intuitively, it seems that shareholders should have a say in fundamental changes, and the ABCA does give them such rights in specific situations. An arrangement by another corporation that will affect Alberta Oilsands is not one of them. Par 36

  ·   Another component of shareholder democracy is that  majority rules”. When the shareholders are asked to decide something the decision binds all, even those who voted against the resolution. There is an extraordinary and powerful exception to that concept: the right to dissent and be bought out at “fair value”. This is the corporate equivalent of being allowed to take one’s marbles and go home. The ABCA only gives dissent rights in narrow and specific situations. Arrangements under s. 193 are not one, especially arrangements of other corporations. Par 38

• It is thus not bad faith for the directors to structure transactions to avoid dissent rights: Goldcorp Ont SCJ at paras. 44-7 par 46
•  HELD On balance, having regard to the deference owed to the directors, the need for certainty, and the absence of any statutory right to vote, a shareholders meeting of Alberta Oilsands should not be required. Par 48

·  HELD In conclusion, the appeal is allowed. The provision granting the Alberta Oilsands shareholders a right to vote is set aside. Par 50