Page 26 - CCCA 226419 Magazine Fall 2014

{ Feature } Patricia Olasker, a corporate lawyer at Davies Ward Phillips & Vineberg in Toronto, adds, “If it is a problem, it’s exceedingly “if [empty voting] rare in our experience.” Orestes Pasparakis, a litigator at Norton Rose Fulbright in is a problem, it’s Toronto who worked on the TELUS case, says the TELUS situa- exceedingly rare in tion was “unique,” but it doesn't change the fact that “there are our experience.” opportunities for hedge funds and others to use empty voting in an opportunistic and undemocratic way.” However, he notes, Patricia Olasker, corporate law, “It takes a very sophisticated investor to do this properly. The Davies Ward Phillips & Vineberg number of people capable of doing this is quite small.” But they are large in size. Investors like Mason, George Soros, Carl Icahn and Bill Ackman control billions of dollars and can move markets with a tweet. on politicians to amend laws to restrict empty voting and give Jordan Barry, associate professor of law at the University of judges more discretion to deal with it. San Diego School of Law, who has written about empty voting, In a submission to Industry Canada’s public consultations says, “People don’t necessarily agree on how big of a problem it on the Canada Business Corporations Act, TELUS is asking the is because it’s very hard to tell how often it happens. It doesn’t federal government to amend the law to provide judges with have to be disclosed.” the ability to suppress a shareholder’s vote if its equitable to He notes that in the TELUS case, Mason could easily have do so and the court concludes that the benef cial owner of the stayed silent and tanked the vote at the AGM and “the market shares does not have an economic interest in the company that would have been surprised.” Instead, it went public. is commensurate with the number of shares benef cially owned. He thinks any regulatory solution has to start with disclosure TELUS has also had meetings with B.C. legislators to discuss rules at securities commissions, rather than giving judges more similar changes to that province’s Business Corporations Act. discretion on how they weigh a vote in a hearing: “A lot of this Michel Belec, TELUS’ senior vice president, legal services, happens because it relies on the assumption you can be sneaky says the “Mason arbitrage strategy was one we hadn't anticipat- about it.” He concedes the problem is compounded when a ed. The idea that someone would want to defeat a proposal that company needs a supermajority of the vote to prevail under was economically advantageous to both share classes wasn’t at corporate law statutes, as TELUS did with its f rst plan, which it the top of our mind.” later scrapped, in favour of a plan of arrangement. He continues, “What we are trying to effect through the pro- Barry adds the growing world of derivatives and the rules posed changes to corporate legislation is a rebalancing of the around them also contributes to the problem. “With derivatives, tools that are available to management when faced with the the rules are patchier in places, and that’s an ongoing problem.” empty voter. It’s an expensive and disrupting process to have to Another issue he believes needs to be addressed is the proxy respond to. Not every company is going to have the resources or plumbing system. “It's been a problem in a lot of places,” Barry wherewithal to defend against these kinds of investment tactics.” says. “The mechanics of moving and keeping track of the vote has not kept up with the mechanics of moving around shares. I the scope oF the proBlem think it’s going to get easier to engage in empty voting.” TELUS isn't alone in its worries over the impact of empty vot- ing. Robert Rooney, executive vice president corporate and gen- eral counsel at Talisman Energy Inc., also raised the “compli- cated issues of over voting and empty voting” in his submission to industry Canada. But just how extensive is the problem of empty voting and “there are can it be regulated without interfering with the capital markets? opportunities for hedge Academics and professionals can't agree on the extent of the problem, and there have been few cases on it. funds and others to For example, Bryce Tingle, the N. Murray Edwards Chair in use empty voting in Law at the University of Calgary, believes if empty voting was truly a problem, the state of Delaware, home of U.S. corpo- an opportunistic and rate law, would have dealt with it by now. “Delaware generally undemocratic way.” doesn’t allow grass to grow under its feet, and if empty voting was going on to any signif cant degree, they would move quick- Orestes Pasparakis, litigator, ly to address it.” Norton Rose Fulbright 26 CCCa Magazine | Fall 2014 autoMne