Part 16 Going-Private Transactions ans Squeeze-Out Transactions (clause 97)

The provisions respecting prospectus qualification would be repealed (s. 193).

Going-private transactions (GPTs), in relation to distributing corporations, would be expressly permitted, subject to compliance with applicable provincial securities legislation.

A GPT must comply with prescribed requirements (i.e., fairness criteria parallel to the protections adopted from time to time by provincial securities legislation).

A squeeze-out transaction must be approved by an ordinary resolution of the majority of the minority of the shareholders.

Provisions are also included enabling the Director to grant individual and blanket exemptions from the prescribed requirements applicable to GPTs.

Briefing Book
An Act to amend the Canada Business Corporations Act and the Canada Cooperatives Act

Bill Clause No. 97
CBCA Section No. 193(1)
Topic  Going-private Transactions and Squeeze-out Transactions (Going-Private Transactions)

Sources of Proposed Law

Changes From Present Law
Expressly permits going-private transactions, as defined by the regulations (see clause 1(5) - definition of "going-private transaction"). However, if there are any applicable provincial securities laws, the corporation must comply with those laws.

Purpose of Change 
GPTs refer to amalgamations, arrangements, consolidations or any other transaction that would result in the termination of shareholder interests with compensation, but without consent and without a replacement of equivalent value in a participating security. There is a concern that the CBCA only sets out rules for one type of GPT (compulsory acquisitions) and that other forms of GPT may not be permitted. This uncertainty can cause CBCA corporations considering a GPT to continue into another jurisdiction in order to ensure that the desired transactions can legally be carried out. The amendment would define a GPT in the regulations and specify that such transactions are allowed to the extent that such transactions comply with the applicable provincial securities laws, if any.

This provision was substantially changed as a result of an amendment introduced at the Senate Committee stage. Bill S-11 originally proposed to expressly allow GPTs and to incorporate by reference - in the regulations - standards of fairness for minority shareholders mandated by provincial securities regulators. The proposed amendment was predicated on Ontario and Quebec harmonizing their GPT requirements. Before the Bill went to print, Industry Canada was informed by both Ontario and Québec that they had agreed to harmonize their requirements. Bill S-11 was therefore tabled with a GPT regime that incorporated by reference a harmonized set of rules. It was later learned that although the Ontario rule and the Quebec policy are harmonized in substance, there are technical differences of application which makes incorporation by reference difficult, if not impossible. As a result, under Bill S-11, a corporation would in practice be required to comply with inconsistent provincial requirements, which was not the intent of the provision and would cause great confusion in the marketplace.

Another issue is that the Québec requirements are contained in a policy statement rather than in legislation, regulations or rules. Policy statements do not have the force of law. It would therefore be inappropriate for federal legislation to mandate compliance with a provincial policy statement since this would have the effect of elevating its legal status beyond that intended by its province of origin. In order to avoid these problems, the incorporation by reference has been removed. The CBCA would now permit GPTs subject to compliance with applicable provincial securities legislation.

Similar Provincial Laws 

Current Wording 
N/A

Proposed Wording 
Going-Private Transactions and Squeeze-Out Transactions
193. A corporation may carry out a going-private transaction. However, if there are any applicable provincial securities laws, a corporation may not carry out a going-private transaction unless the corporation complies with those laws.

Bill Clause No. 97
CBC Section No. 194
Topic  Going-private Transactions and Squeeze-out Transactions (Going-Private Transactions)

Sources of Proposed Law 

Changes From Present Law 
(A) Expressly permits squeeze-out transactions, as defined by the regulations (see clause 1(5) - definition of "squeeze-out transaction")

(B) Provides that a squeeze-out transaction (relating to a non-distributing corporation) shall be approved by an ordinary resolution of the majority of the minority of the shareholders.

Purpose of Change 
(A) See Clause 97, s. 193 - Purpose of Change (introduction)

(B) Private company minority shareholders are as deserving of protection as their public company counterparts. However, this fact must be balanced against the high costs to offerors of providing the full panoply of procedural safeguards. For example, having to obtain valuations or fairness opinions for a corporation with only five minority shareholders may be unnecessary where the shareholders are intimately aware of the financial situation and prospects of the corporation. In addition, difficulties may be encountered valuing the minority shares of a private corporation given the general absence of a market in those circumstances. Accordingly, the safeguards adopted preserve the majority of the minority approval also found in the requirements relating to going-private transactions, but does not mandate any requirements respecting valuations or enhanced disclosure. In addition, aggrieved shareholders would also be entitled to exercise their dissent and appraisal rights pursuant to s. 190 (see clause 94(2)) and the oppression remedy under s. 241.

Similar Provincial Laws
Business Corporations Act (Ontario )

Current Wording 
N/A

Proposed Wording 
194. A corporation may not carry out a squeeze-out transaction unless, in addition to any approval by holders of shares required by or under this Act or the articles of the corporation, the transaction is approved by ordinary resolution of the holders of each class of shares that are affected by the transaction, voting separately, whether or not the shares otherwise carry the right to vote. However, the following do not have the right to vote on the resolution:

(a) affiliates of the corporation; and

(b) holders of shares that would, following the squeeze-out transaction, be entitled to consideration of greater value or to superior rights or privileges than those available to other holders of shares of the same class.