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In circumstances where a company issues a press release
defending the actions of its board against accusations by dissident
shareholders, the press release will not necessarily be considered
a solicitation for the purposes of section 147 and 150 of the
Canada Business Corporations Act, RSC 1985, c C-44 (the
Smoothwater Capital Partners LP I v Equity
Financial Holdings Inc., 2014 ONSC 324 (“Equity
On the same day that Equity Financial Holdings Inc. (the
“Company”) announced the date of its annual general and
special meeting of the shareholders, the dissident shareholders,
represented by Smoothwater, issued a proxy solicitation and press
release openly criticizing the Company’s board of directors and
the timing of the meeting.
The Company responded five days later with its own press release
defending its board of directors and criticizing Smoothwater in
turn for failing to engage the Company’s board in meaningful
discussions prior to starting a costly and unnecessary proxy fight.
At the time of the press release, the Company had not yet mailed
the management information circular but advised in the press
release it would provide the management information circular in
connection with the annual and special meeting of the
Justice McEwen of the Ontario Superior Court considered the
“principal purpose” of the press release and concluded
the purpose of any press release is fundamental to its
characterization as a solicitation, emphasizing that “The
Equity press release must be looked at on its own” (at para
Although the definition of solicitation is interpreted broadly,
the Court in Equity Financial emphasized the importance of
context when determining whether a particular communication
constitutes solicitation for the purposes of section 150 of the
CBCA. Justice McEwen considered the press release in the context of
its response to Smoothwater’s accusations, stating,
“Reviewed in context it defends, amongst other things, its
history, leadership and explains why it is combining the date of
the Annual and Special Meeting of Shareholders” (at para
Justice McEwen ruled the press release issued by the Company did
not constitute solicitation of proxies because it was a single
press release and its principal purpose was to defend the actions
of its board and keep its shareholders informed. On its own, the
fact the Company was in the midst of a proxy battle was not enough
to qualify as solicitation under section 147 of the CBCA.
Implications for Corporations and Shareholders
The decision in Equity Financial recognizes the numerous
exemptions and advantages available to dissident shareholders, and
functions as a check on the resulting expansion of shareholder
activism. The Court qualified its decision however, stating the
Company was “entitled to respond to Smoothwater in a single
press release. This is not to say that in the present circumstances
a series of press releases could not constitute a
solicitation” (at para 14).
While companies and reporting issuers involved in proxy disputes
may take advantage of the Equity Financial decision to
defend the actions of their boards against the accusations of
dissident shareholders, they must remain mindful of how the press
release fits within the larger context of the dispute.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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