The CSA Proposes a New Framework for Shareholder Rights Plans and Amendments to the Early Warning Reporting Regime

by Bennett Jones LLP

Last week, the Canadian Securities Administrators (CSA) published a proposed new regulatory framework for shareholder rights plans under National Instrument 62-105 Security Holder Rights Plans, and significant changes to Canada’s early warning reporting regime with proposed amendments to National Instrument 62-103 Early Warning System and Related Take-Over Bids and Insider Reporting Issues, Multilateral Instrument 62-104 Take-Over Bids and Issuer Bids and National Policy 62-203 Take-Over Bids and Issuer Bids.

These proposals represent significant developments in the Canadian securities law landscape in an attempt to address, among other things, defensive tactics in M&A transactions and increasing shareholder activism.

Shareholder Rights Plans


Historically, Canadian regulators have taken the position that shareholder rights plans may only legitimately be used to delay a hostile bid for a limited period of time to allow the target’s board of directors to explore strategic alternatives (generally 45 to 60 days). Canadian regulators will generally strike down or “cease trade” a shareholder rights plan after this period, at a hostile bidder’s request.

Proposed Rules

The proposed rules provide a mechanism for target boards to have greater control over a hostile bid process while reinforcing the Canadian policy position that shareholders should have the freedom to decide on the merits of a hostile bid. Canadian regulators will generally no longer intervene to cease trade shareholder rights plans that comply with the rules and are approved by shareholders. The proposed rules provide that shareholder rights plans:

  • are effective immediately but must be approved by a majority of shareholders within 90 days of the earlier of the date of adoption or the date a hostile bid was commenced;
  •  must be approved at each annual meeting following the year of initial approval by majority vote of shareholders to remain effective;
  •  may not be implemented within 12 months of when a plan was not approved or terminated by shareholders (other than in response to a subsequent hostile bid, subject to shareholder approval within 90 days);
  •  can be terminated by the shareholders at any time by majority vote;
  •  can only be used as a defense against a take-over bid and not for other purposes (such as a proxy solicitation); and
  •  cannot discriminate between bids.

Shares held by a hostile bidder will be excluded from any shareholder vote to adopt, reconfirm, amend or terminate a shareholder rights plan.

More Time to Consider Strategic Alternatives

Where a shareholder rights plan is adopted in response to a hostile bid, Canadian regulators will not intervene to cease trade the plan during the up to 90-day period between commencement of the bid and the shareholder meeting called to approve the plan, giving the target board more time to explore strategic alternatives. If a strategic alternative is not identified during the 90-day period, the target board may either cancel the shareholder meeting and allow shareholders to tender to the bid or continue soliciting proxies to obtain approval of the plan at the shareholder meeting.

Standing versus Tactical Rights Plans

Depending on the date a bid is launched, annually approved shareholder rights plans (“standing plans”) could give target boards considerably longer to explore alternatives (up to a year), subject to the ability of a hostile bidder to acquire a sufficient number of shares to requisition a shareholder meeting to terminate the plan prior to its next annual confirmation. However, it remains to be seen if shareholders—and shareholder advisory services—will support giving boards up to 12 months to delay shareholder consideration of a bid. Alternatively, a rights plan may be implemented only in response to a hostile bid (“tactical plans”). Adopting a tactical plan would eliminate the time and expense associated with approving a plan at the annual shareholder meeting, while still giving the board time to respond to an unsolicited bid and leaving shareholders with the final say on the merits of the plan and the unsolicited bid.

Early Warning Reporting Regime

Proposed amendments

The proposed amendments to the early warning regime bring Canada in greater alignment with the United States, the United Kingdom and other jurisdictions, and improve transparency in light of growing shareholder activism in Canada. The most significant of the proposed amendments:

  • reduce the reporting threshold from 10% to 5%;
  • require “equity equivalent derivative” positions (derivatives that substantially replicate the economic consequences of ownership) and securities lending arrangements to be accounted for when calculating whether the 5% threshold has been reached;
  • require disclosure if an investor’s ownership percentage drops below 5%;
  • require disclosure of increases and decreases in ownership of 2% or more;
  • result in increased disclosure of both economic and voting interests; and
  • restrict eligible institutional investors from using the alternative monthly reporting regime if they solicit, or intend to solicit, proxies.

Lower Reporting Thresholds

Increasing shareholder activism has prompted the CSA to come to a view that greater transparency in shareholdings is required in Canada, and accordingly has proposed reducing the reporting threshold from 10% to 5%, the level at which shareholders of Canadian companies may generally requisition a shareholder meeting. Equity derivatives and securities lending arrangements will be included within the 5% threshold. The lower threshold should result in a significant increase in reporting given the number of investors that have share positions in reporting issuers of between 5-10%.

Hidden Ownership and Empty Voting

The CSA has proposed measures to address concerns of “hidden voting” and “empty voting”. “Hidden voting” occurs where an investor acquires a substantial economic interest in an issuer without requiring public disclosure, notwithstanding such interest could be converted into voting securities. “Empty voting” occurs when an investor acquires voting interests through derivatives or lending arrangements without acquiring the corresponding economic interests. Under the current rules, which are based on the concepts of beneficial ownership, control or direction, these types of interests are not required to be disclosed. The proposed amendments require both economic and voting interests to be disclosed.

New Reporting Threshold for Decreases in Ownership

Any decrease in ownership of 2% or more will require disclosure, which is a departure from the existing regime which requires reporting of increases of 2% or more and gives the investor the discretion to determine whether a decrease in ownership is a material fact requiring disclosure. In addition, a decrease in ownership below the 5% reporting threshold will require disclosure.

Enhanced Disclosure

Early warning reports will require enhanced disclosure, in particular with respect to the intentions of the person acquiring the securities and the purpose of the acquisition. This will give the market a better opportunity to evaluate the purpose of the acquisition and its impact.

Alternative Monthly Reporting

The alternative monthly reporting (AMR) regime is intended to apply to passive investors, but can currently be used by investors who intend to actively engage shareholders and solicit proxies. The CSA believes that this is not consistent with the intent of the AMR regime. Accordingly, it is proposed that eligible institutional investors that solicit, or intend to solicit, proxies in respect of director elections or reorganizations, amalgamations, mergers, arrangements or similar corporate actions will not be permitted to use the AMR system.

Time for Comment

The CSA have requested comments with respect to the shareholder rights plan proposals and early warning regime amendments by June 12, 2013.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Bennett Jones LLP | Attorney Advertising

Written by:

Bennett Jones LLP

Bennett Jones LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.