2012 BCSC 1090 Northern Minerals Investment Corp. v. Mundoro ...

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2012 BCSC 1090 Northern Minerals Investment Corp. v. Mundoro Capital Inc. [31] The respondent notes that the company is widely held with a large public shareholding. As a result the retaining of a proxy agent does not suggest a proxy contest as proxies are part of an AGM in any event, nor on the evidence did the company anticipate a proxy fight. [32] The respondent submits that the petitioner as of the date of hearing had not stated whether it intended to conduct a proxy battle. They state however that the inference is that “it intends to do so but without giving any of the other shareholders any warning or notice of the directors it intends to nominate.” The respondent further submits the result is shareholders will be asked to vote on a surprise last minute slate which is an ambush on unsuspecting shareholders who may not bother to file their proxies or attend the meeting because they would not be aware that the company was in play. On the basis of the notice of the AGM there was nothing to indicate that anything out of the ordinary would occur at the AGM given the proposed order of business was to accept the financial statements, elect directors and reappoint auditors. [33] After the hearing of this matter on Friday June 15, 2012 but before I dismissed the petitioner’s applications to prevent the postponement of the AGM and the changing of the date of record, the petitioner issued, on June 18, 2012 the names of five nominees for election as directors to replace Mundoro’s current board of directors. This announcement confirmed for the first time the intentions of the petitioner. [34] After the Advance Notice Policy was announced the petitioner advised the respondent that it would seek to set aside the Policy and as a result brought this petition. The board of directors of Mundoro met to consider the timing of the AGM in light of the new information. Teo Dechev, the chief executive officer of the respondent said this in her affidavit filed in this proceeding: 8. The Board determined that it was appropriate to postpone the Meeting in light of the following: (a) (b) (c) the company is entitled to hold its annual general meeting at any time before August 28, 2012; the Company wanted to afford shareholders ample opportunity to put forward an alternate slate or alternate director nominees; and the fact that it was in the interests of shareholders generally to have additional time to consider the recent development, including specifically, the Policy. [35] The petitioner has not placed before this Court any evidence that the directors were acting other than in the best interests of the shareholders of the company. There is no evidence to support its allegations that the board was acting to protect their positions as board members, nor is there validity to the assertion that the board was not acting to protect shareholder rights and was targeting the petitioner. The petitioner adverts to the action being prejudicial to the shareholders however it is the petitioner who has acted in its own interest as a shareholder but not necessarily in the interests of all shareholders given the petitioner only holds a small percentage of the outstanding shares. The petitioner’s action, if carried out as originally apparently planned, would have denied the majority of shareholders an opportunity to participate given the expectation that the meeting would be in effect pro forma. The late announcement by the petitioner of its intentions would not permit sufficient time to insure that all shareholders were advised and given the opportunity to attend or submit their proxies. http://www.courts.gov.bc.ca/jdb-txt/SC/12/10/2012BCSC1090.htm[10/22/2012 1:37:45 PM]
2012 BCSC 1090 Northern Minerals Investment Corp. v. Mundoro Capital Inc. [36] As a result I find that there is no evidence that the board was not acting in the best interests of the shareholders. In my view the late indication by the petitioner of its intentions did give rise to special circumstances and the board was justified in responding. It is for the board to determine what is in the best interests of the corporation and its shareholders. If their decisions are challenged there are provisions in the Act for shareholders to seek redress. [37] With respect to the record date given the discretion in the board to postpone the AGM to such a date as they deem appropriate it follows that they also have the authority to change the record date. Advance Notice Policy [38] The final issue is whether the Policy is unenforceable. [39] The submission of the petitioner is founded on the notion that directors only have those powers that are granted to them by the articles. They also submit that the Act expressly provides that the election and removal of directors must occur in accordance with the articles. [40] They submit that Mundoro is using the Policy to attempt to prevent what is expressly permitted by securities laws applicable to proxy contests. They allege that the Policy seeks to avoid compliance with the legal requirements that must be followed (Part 9 of National Instrument 51-102 Continuous Disclosure Obligations). They further allege the Policy affects shareholder democracy because the Policy deprives shareholders of their right to elect directors in accordance with the Act. The result they submit is that the board can entrench themselves and are therefore improperly seeking to protect and thereby benefit themselves. [41] The petitioner asserts that while shareholder rights do not typically extend to managing a corporation (as their rights are limited to voting rights), that their most significant right is to elect directors of the corporation. They submit that the Policy is an attempt to interfere with that fundamental right without authorization or justification. [42] Their argument is that s. 19 of the Act provides that a company and its shareholders are bound by a company’s articles and notice of articles and that any alteration of those articles must be signed and sealed by the company and each shareholder. In addition they state that the Act requires that the election and removal of directors must occur in accordance with the articles. [43] They refer to Part 5 Division 1 of the Act respecting the election and removal of directors and s. 122’s requirement that the directors must be elected or appointed in accordance with the Act or the articles. They note that Part 14 of the articles governs the role of shareholders in the election and removal of directors and that directors must be qualified in accordance with Article 13.4 and the Act. They submit that there are no restrictions on the nomination process. They submit that the proposed Policy requires a change to the articles because the directors do not have the authority to change the articles. [44] In effect they submit that a special resolution of the shareholders is required (s. 259 of Act and 9.4 of http://www.courts.gov.bc.ca/jdb-txt/SC/12/10/2012BCSC1090.htm[10/22/2012 1:37:45 PM]
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2012 BCSC 1090 Northern Minerals Investment Corp. v. Mundoro ...

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