Article Volume 17:3

Insider Trading, Proxy Solicitation and Take-over Bids under the Canada Corporations Act

Table of Contents

No. 31

Insider Trading, Proxy Solicitation

and Take-over Bids

under the Canada Corporations Act*

Melvin L. Rothman**

The recent amendments to the Canada Corporations Act,’ Bill
C-4,2 received Royal Assent on October 7, 1970, and the last of its
provisions were proclaimed in force on July 31, 1971.

While the regulations and forms referred to in Bill C4 had
not been formally issued as of the writing of this article, the
Department of Consumer and Corporate Affairs had issued an
“exposure draft” of these regulations and forms, inviting public
comment thereon. These were highly detailed in setting out the
requirements for compliance with the Act and corresponded very
closely to the Ontario regulations and forms.

Among the amendments under Bill C-4, there are extensive
changes and additions to the Canada Corporations Act in the areas
of Insider Trading, Proxy Solicitation and Take-Over Bids, and it
is this subject matter that the present article will attempt to sum-
marize.

While the new amendments are profound insofar as the Canada
Corporations Act is concerned, many practitioners will not be un-
familiar with either the philosophy or the rules. Indeed, many of
the new provisions have been modelled very closely after the On-
tario Securities Act,’ which followed the Kimber Report 4 issued
in 1965. The Kimber Committee, chaired by John R. Kimber, Q.C.,
then Chairman of the Ontario Securities Commission, had been
appointed by the Attorney General of Ontario in 1963 to review

* This article was written before the 1970 version of the Revised Statutes of
Canada was published, and accordingly the references in the article are to
the statutory provisions existing at the time of the writing of the article.
(The substance of the changes of Bill C4 can now be seen in R.S.C. 1970,
1st Supp., c. 10, but the numbering has been changed to relate to the Canada
Corporations Act as revised in R.S.C. 1970, c. C-32.)

**Judge of the Superior Court of the Province of Quebec.
1 R.S.C. 1952, c. 53 as amended.
2 Now Stat. Can. 1969-70, c. 70.
3 Stat. Ont. 1966, c. 142, as amended by Stat. Ont. 1967, c. 92.
4 (Report of the Attorney General’s Committee on Securities Legislation

in Ontario, Province of Ontario, March 1965).

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the working of securities legislation in Ontario in the light of mod-
em business conditions and, in particular, problems of take-over
bids, insider trading and the degree of disclosure to shareholders
and requirements as to proxy solicitation. The amendments to the
Ontario Securities Act were supported by amendments to the Cor-
porations Act r of Ontario.

It is acknowledged in the explanatory notes to Bill C-4 that the
purpose of many of the new amendments is to insert into the Act
provisions similar to the provisions in these matters contained
in securities and corporation legislation in a number of provinces.
Ontario having taken the lead in regulating certain kinds of corpo-
rate behaviour and trading in securities, it must be welcomed that
some effort has been made under the Canada Corporations Act to
synchronize for federal companies some of the rules applicable
thereto. Given the size and vitality of the Ontario securities market,
even those who do not welcome the changes will probably recog-
nize a certain inevitability in them. Indeed, since federal and other
non-Ontario companies whose shares have been publicly traded in
Ontario have had to conform to the requirements of the Ontario
Securities Act in any event, the new amendments are hardly new
in spirit.

Disclosure of Insider Trading

and Insider Liability

The Insider Trading amendments, 6 replace the old section 98
of the Act and conform very closely to the provisions of the Ontario
Securities Act. While the old Section 98 of the Canada Corporations
Act required a director or officer or any shareholder controlling
more than ten per cent of the issued shares of a Company to
report details of all purchases and sales by him of the Company’s
securities, the new sections involve extensive change, procedural
as well as substantive. The principal differences are:-

1. The “Insiders” required to report their interests and changes
in their interests in the Company’s securities have been defined
in detail and broadened.

2. The new definition of Insiders relates only to directors,
officers and shareholders of “public companies” (defined as com-
panies that have securities outstanding in respect of which a
prospectus has been filed or any of whose shares are listed on a

r Stat. Ont. 1966, c. 28.
6 Stat. Can. 1969-70, c. 70, ss. 98 to 98F.

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recognized stock exchange in Canada), 7 whereas the old Section
98 required reports from directors, officers or shareholders of
federal companies generally.

3. Insider reports are no longer to be filed with the Secretary
of the Company nor maintained for inspection of shareholders at
the Company’s offices. Reports are now to be filed directly’ with
the Department of Consumer and Corporate Affairs who may then
make the information and copies available not only to the share-
holders but any other person.

4. The directors are no longer obliged, specifically, to disclose
to shareholders at each annual meeting the particulars of purchases
and sales by Insiders in the preceding period.

5. Insiders, their associates and affiliates as well as any person
employed or retained by the Company and the Company’s auditors
are liable both to shareholders and other persons as well as to the
Company where they use confidential information for their own
benefit.

The “Insiders” required under Section 98(1)(b) to report their

trading are: –

(i) Any director or officer of a public Company,
(ii) Any person who beneficially owns, directly or indirectly,
equity shares of a public company carrying more than ten per cent
of the voting rights attached to all equity shares for the time being
outstanding (excluding those acquired by him as an underwriter
for public distribution), or

(iii) Any person who exercises control or direction over equity
shares of a public company carrying more than ten per cent of
the voting rights attached to all equity shares for the time being
outstanding.

“Insiders” are also deemed to include directors or officers of
any company that is in itself an Insider, as well as corporations
that are controlled by or affiliated with any of the foregoing
persons.”

“Equity Shares” would include not only common shares and
other shares carrying voting rights under all circumstances, but
also any share carrying voting rights by reason of the occurrence
of any contingency that has occurred and is continuing.9 Thus,
for example, the commonly seen preferred share that is non-voting
except where dividends have not been declared for two years would

7 See Section 98(1)(c).
8 Section 98(2).
0 Section 3(1)(ga).

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come within the definition of “Equity Shares” if this contingency
occurred and, they would continue to be “Equity Shares” as long
as such contingency continued.

It should be noted that for purposes of Section 98 to 98F,
“Insiders” relates only to directors, officers and shareholders of a
“Public Company” and further, that the definition of a “Public
Company” in Section 98(1)(c) is not simply “a Company that is
not a Private Company” as defined in the present definition section 10
but is limited to a Public Company that has outstanding any of
its securities in respect of which a prospectus or document of a
similar nature has been filed with and accepted by the Minister
under Section 74 or by a public authority under Section 76A, or
a public company whose shares are listed for trading on any
recognized stock exchange in Canada.” The Insider Trading sections
of the Act are therefore directed, as a practical matter, to corpo-
rations that offer their shares to the public.

A person who was an “Insider” when the Section came into force
or who thereafter became an “Insider” must, within ten days fol-
lowing the end of the month when either event occurred, file with
the Department of Consumer and Corporate Affairs, a report of his
“Insider interests in the securities of the Company”, comprising: –

(a) his direct or indirect beneficial ownership of securities of

the company, and

(b) the control or direction that he exercises over the “Equity

Shares” of the Company. 12

He is further required to report any changes in his Insider
interest within ten days following the end of the month when
they occur. 3 Where a company acquires an insider interest in
another company, each of the directors and officers of the acquiring
company are deemed to have been “Insiders” of the acquired com-
pany for six months and are required to file reports.’4 Reports by
individuals and companies that include securities owned beneficially
by companies they control, subsidiaries or affiliates, will suffice so
that the subsidiaries or affiliates need not file separate reports.’5
The Minister may, if satisfied that in the circumstances of a
particular case, there is adequate justification for so doing, grant

‘o Section 3(1)(k).
11 See supra, n. 7.
12 Sections 98A(1) and 98A(2).
13Section 98A(4).
14Section 98A(5).
15 Sections 98A(6), (7), (8) and (9).

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an order of exemption from these provisions and, if the Minister
so decides, such order may have retrospective effect. 0

All reports filed with the Department under Section 98A are
to be open to public inspection during ordinary business hours,17
and the Minister may, upon payment of the fee prescribed by
the regulations, provide any person with a copy of such documents. 8
The Minister may further summarize in a monthly periodical the
information contained in the reports filed as well as any exemptions
granted by him.19

In addition to penal prosecution for failure to file a report or
filing a false or misleading report 20, the Minister may apply to the
Chief Justice or Acting Chief Justice of the Court of the Province
where a company has its head office for an Order requiring com-
pliance, 2′ however, the Order so made is subject to appeal by any
interested person 22

The liability of “Insiders” for using confidential information
to their own advantage is, again, very closely modelled after the
Ontario Securities Act. The liability attaches not only to the
“Insider” himself but also to every person employed or retained
by the Company, its auditor as well as every “associate or affiliate”
of the “Insider”. 23 “Associates” are defined to include spouses,
sons and daughters of the “Insider”; partnerships in which the
“Insider” is a partner; trusts or estates in which he has a substantial
interest or serves as trustee; any relative of the “Insider” or relative
or his spouse if that relative has the same home; and any Company
of which the “Insider” beneficially owns, directly or indirectly,
equity shares carrying more than ten per cent of the voting rights. 24
This casts a very broad net and would encompass not only directors
and officers but all other employees of the company as well as all
consultants; attorneys, auditors and agents retained by the company.
It is of interest to note that a spouse, son or daughter of an “Insider”
is automatically classed as an “Insider”, while any other relative
must share the same home to be so.

Liability is engaged by any of such persons who, in connection
with a transaction relating to the securities of the company, makes

16 Section 98A(10).
1 Section 98B(1).
1 Section 98B(2).
10 Section 98B(3).
20 Sections 98C(l), (2) and (3).
21 Section 98C(5).
22 Section 98C(6).
23 Section 98D.
24 Section 98(1)(a).

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use of any specific confidential information for his own benefit
or advantage that, if generally known, might reasonably be expected
to affect materially the value of the securities of the company.
He is liable to compensate any person for any direct loss suffered
by that person as a result of the transaction unless the information
was known or ought reasonably to have been known to such person.
In addition, he is accountable to the company for any direct benefit
received or receivable by him as a result of the transaction.20

For purposes of Section 98D, every director or officer of any
other company that becomes an “Insider” of a company shall be
deemed to have been an “Insider” for six months.2 Action to
enforce the liability is limited to two years after the date of
completion of the transaction, or if the transaction is one which is
required to be reported under Section 98A, two years from the
time of reporting in compliance with that Section. 7

Where any owner of securities of the company or the Minister
has reasonable grounds for believing that the company has a
cause of action under Section 98D and where the company refuses
or fails to commence an action within sixty days after receipt of a
written request from such owner of securities or fails to prosecute
an action diligently, application may be made to the Chief Justice
or Acting Chief Justice of the Court of the province in which the
Head Office is situated for an Order directing that an action be
commenced or continued by the director of the Corporations Branch
in the name and on behalf of the Company to enforce the liability
under Section 98D.

s8

Finally, Section 98F prohibits an “Insider” of a company from
knowingly selling securities he does not own, or, if he owns them,
from failing to deliver them witnin twenty days of the sale or
failing to deposit them in the mails or other usual channels of
transportation within five days, unless the “Insider” proves he was
unable in good faith to make such delivery or deposit or that
to have done so would have caused undue inconvenience or expense.
This Section is penal only and does not affect title to the securities.20
Under Section 98F(2), moreover, an “Insider” is prohibited from
knowingly buying, directly or indirectly, any “Put Option” or “Call
Option”,30 but this prohibition does not apply to prevent an “Insider”
from selling securities in respect of which he holds an option to

25Section 98D(1).
26 Section 98D(3).
27Section 98D(2).
28 Section 98E(1).
20 Section 98F(5).
30As defined in Section 98F(6).

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purchase if, immediately after selling short, he exercises his option
and carries out the necessary steps to deliver the securities he has
sold, and it does not prevent such “Insider” from selling convertible
securities if, immediately after selling short, he takes the necessary
steps to convert and deliver the securities he has sold.31

Proxies and Proxy Solicitation

Prior to the new amendments under Bill C-4,
the Canada
Corporations Act under Section 103(2), contained
the simple
requirement that at all meetings of shareholders, every shareholder
was entitled to give one vote for each share then held by him and
such vote could be given in person or by proxy, whether or not
such proxy was himself a shareholder. A proxy, of course, is simply
an instrument whereby a shareholder entitled to vote at a meeting
grants to another person the right to vote on his behalf, and it
has long been recognized as an important method by which share-
holders can make their views known at shareholders’ meetings. A
considerable body of case law has accumulated over the years as
to the form, use and abuse of proxies, but until recently, there have
been few statutory ground rules governing the form and contents
of proxies, their duration and revocation, who may solicit them
and under what circumstances. Given the ever increasing size of
corporations, the number of their shareholders and the increasing
gulf, both of distance and information, that separates the manage-
ment of many large companies from their shareholders, to say
nothing of the confusion that can result and sometimes does in a
major proxy battle, the necessity for a set of rules and the new
amendments contained in Sections 106A to 1061, are more than
evident.

Under Section 106B(1), every shareholder who is entitled to
vote in person or by proxy at a meeting of shareholders may, by
means of a proxy, appoint a person, who need not be a shareholder,
as his nominee to attend and act at the meeting in the manner,
to the extent and with the power conferred by the proxy, A proxy
is defined as, “a completed and executed form of proxy by means
of which a shareholder has appointed a person as his nominee to
attend and act for him and on his behalf at a meeting of share-
holders”, and a “form of proxy” is defined as “a written or printed
form that, upon completion and execution by or on behalf of a
shareholder, becomes a proxy”3 2

31 Section 98F(3).
32 Section 106A(a) and (c).

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Section l06B contains a number of rules as to the execution and
validity of a proxy. It shall be executed by a shareholder or his
attorney authorized in writing or, if the shareholder is a corporation,
under its corporate seal or by an officer or attorney thereof duly
authorized.33 It ceases to be valid one year from its date, but in
any event, does not confer authority to vote at any meeting other
than the meeting in respect of which it is given or any adjournment
thereof.34 It may be revoked in any manner permitted by law and
may, in addition, be revoked by instrument, in writing, executed by
the shareholder or by his attorney authorized in writing or, if the
shareholder is a corporation, under its corporate seal or by an
officer or attorney thereof duly authorized, and deposited either
at the Head Office of the company at any time up to and including
the last business day preceding the date of the meeting or, any
adjournment thereof, at which the proxy is to be used, or with
the chairman of such meeting on the day of the meeting or
adjournment thereof and, upon either of such deposits, the proxy
is revoked. 5 The directors may, by resolution, fix a time, not
exceeding forty-eight hours (excluding Saturdays and holidays)
preceding any meeting or adjourned meeting of shareholders, before
which time proxies to be used at that meeting must be deposited
with the company or an agent thereof, and this shall be specified
in the notice calling the meeting or in the information circular or
explanatory memorandum relating thereto.

The requirements as to the necessity for sending forms of
proxy to shareholders and contents of the proxy will depend upon
the nature of the company.

If the company is a “Private Company” or a “Public Company”
that has fewer than fifteen shareholders,
the requirements of
Sections 106C and 106D(1) regarding the sending and solicitation
of proxies and the provisions of Section 106F regarding the form of
proxy, will not apply.30 In such case, it is only required that the
proxy, if sent, shall contain the date thereof and state the appoint-
ment and name of the nominee. It may contain a revocation of a
former proxy and restrictions, limitations or instructions as to
the manner in which the shares in respect of which the proxy is
given are to be voted or that may be necessary to comply with
the law of any jurisdiction in which the shares of the company
are held or listed on a stock exchange or with a restriction or

33 Section 106B(2).
34 Section 106B(3).
35 Section 106B(5).
36 Section 106E.

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limitation as to the number of shares in respect of which the proxy
is givenY 7

Where the company is a “Public Company” that has fifteen
shareholders or more, there are additional requirements. In the
case of a solicitation by and on behalf of management, an “infor-
mation circular” as prescribed by regulation must accompany the
Notice of the meeting, either as an appendix to or as a separate
document and must be sent by prepaid mail to each shareholder
whose proxy is solicited.” In the case of any other solicitation, the
person making the solicitation, concurrently with or prior thereto,
must deliver or send to each shareholder whose proxy is solicited, a
written explanation of the purposes of the solicitation in such form
and containing such information as may be prescribed by regulation
and known as an “explanatory memorandum” 9 Whether the proxy
is solicited by management or otherwise, Section 106F contains
detailed requirements as to the contents of the form of proxy
including, whether the proxy is solicited on behalf of management,
a blank space for dating the form of proxy, an indication that the
shareholder has the right to appoint a person to attend and act
at the meeting other than the person, if any, designated in the
form of proxy, and instructions as to the manner in which such
right may be exercised, means whereby the person whose proxy
is solicited can specify how his shares shall be voted with respect
to each matter or group of related matters identified therein or
in the information circular or explanatory memorandum. The
proxy may also confer discretionary authority with respect to
amendments or variations to matters that may properly come before
the meeting if the person soliciting the proxy is not made aware
of such variations or amendments within a reasonable time prior
to the time of solicitation and if a specific statement is made in
the information circular, explanatory memorandum or form of
proxy that the proxy confers of such discretionary authority. The
information circular, explanatory memorandum or form of proxy
must also state that the shares represented by the proxy will be
voted or withheld from voting in accordance with any choice
that may be specified by the shareholder in the proxy.

Even in the case of a company having fifteen shareholders or
more, it is possible, under Section 106E, in particular circumstances,
to apply to the Minister for an exemption order from Sections 106C
and 106D.

37 Section 106B(4).
38 Section 106D(1)(a).
39 Section 106D(1)(b).

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Finally, any person who has accepted designation as a nominee
and fails to comply with the directions of the shareholder granting
the proxy is guilty of an offence and liable on summary conviction
to a fine not exceeding One Thousand Dollars or to imprisonment
not exceeding six months, or both.40 A person who has been de-
signated as a nominee in a proxy as a result of his solicitation of
proxies shall be deemed to have accepted such designation for
purposes of such penal sanction.41

Section 106G prescribes the procedure to be followed by brokers
and other traders in securities with respect to the voting of shares
registered in their names but which are not beneficially owned
by them. These provisions would apply to “street certificates” or
other certificates registered in the names of brokers but beneficially
owned by their clients.

Section 106A(d) defines a “registrant” as a person registered
or required to be registered to trade in corporate securities under
the laws of any jurisdiction.

Section 106G requires that, in the absence of written instructions
to the contrary from the beneficial owner, shares of a company
that are registered in the name of a registrant or in the name
of his nominee that are not beneficially owned by the registrant
shall not be voted at any meeting of shareholders of the company
unless the registrant forthwith upon the receipt of a copy of the
notice of the meeting, financial statements, information circular,
explanatory memorandum and any other material sent to share-
holders for use in connection with the meeting, sends to the
beneficial owner of the shares copies of all such material together
with a written request for voting instructions from the beneficial
owner stating that if voting instructions are not received at least
twenty-four hours prior to the expiry of time within which proxies
may be deposited or twenty-four hours prior to the time fixed for
the holding of the meeting, as the case may be, a proxy in respect
of those shares may be given or the shares otherwise voted at
the meeting at the discretion of the registrant.

The registrant who receives written

instructions from the
beneficial owner is required to vote such shares in accordance
with such instructions, or, if requested by the beneficial owner,
must give to the beneficial owner or his nominee a proxy enabling
the beneficial owner or his nominee to vote any of the shares. There
are the usual penal sanctions applicable to any registrant who
fails to comply with these rules.

40 Section 106F(4).
41Section 106F(5).

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Section 106H appears to strike a blow for increased corporate
democracy and shareholder participation. It enables any ordinary
shareholder of the company who is entitled to vote at a meeting of
shareholders to submit to the company a notice of any matter that
he proposes to raise at a shareholders’ meeting, called “a proposal”,
as well as a statement of such shareholder in not more than two
hundred words in support of such proposal. The proposal must be
submitted at least ninety days before the last day on which notice
of the meeting must be given and, in such event, the company must
set forth the proposal in its information circular, identify it in the
form of proxy and provide means by which shareholders can make
their choice known as to the proposal. The proposal may include
nominations for a director or directors of the company if the
proposal is submitted by at least ten shareholders holding not
less than one-fifth of the issued shares of the company carrying
the right to vote.

The company may, however, omit to include the proposal in
its information circular and form of proxy, except in the case of a
nomination of directors, where it clearly appears that the proposal
is primarily for the purpose of enforcing a personal claim or
redressing a personal grievance against the company or its directors,
or primarily for the purpose of promoting general economic, politi-
cal, racial, religious, social or similar causes, or where the proposal
is not a proper subject for action by shareholders, or relates to
the conduct of the ordinary business operations of the company,
or where the same proposal has, at the same shareholder’s request,
been included in the information circular relating to either of the
last two annual meetings and the shareholder has failed, without
cause, to present the proposal in person or by proxy.

While Section 106H does provide some machinery for increased
shareholder participation, its authors have not been fanatic in
their quest for shareholder democracy. In excepting matters which,
“are not a proper subject for action by shareholders ‘ 42 and those
which relate to, “the conduct of the ordinary business operations
of the company”,43 there can be a very limited number of matters
for shareholders to propose. Most matters of interest to shareholders
appear to come within the exceptions.

Where the company asserts that the proposal and any statement
in support thereof may be omitted, it must notify the shareholder
submitting the proposal of its intentions to omit same within
fourteen days after receipt of the proposal and must further

42 Section 106H(6)(b).
43 Section 106H(6)(c).

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forward a statement of the reasons why the company deems the
omission to be proper.

Although the scope of shareholder “proposals” is narrowed by
the exceptions which the company can invoke to omit proposals,
this must still be considered a step in the right direction. A share-
holder is given the right, at the company’s expense, and without
incurring the personal expense and effort of a proxy solicitation
of his own, of sumbitting matters which are the proper subject
for action by shareholders to his fellow shareholders.

Take-Over Bids

A company or individual desiring to acquire effective control
of a Public Company may proceed in several ways. It can, of course,
proceed to purchase such shares as may be obtainable on the mar-
ket if these shares are listed on a stock exchange or traded over
the counter. If any individual or group of shareholders holds any
substantial block of shares, it can attempt to come to a private
agreement for the purchase of such shares. Finally, and especially
in cases where acquisition on the open market or by private agree-
ment is not possible or is uneconomical, it may consider making
a general offer to all of the shareholders to purchase all or a given
proportion of the issued and outstanding shares of the company
at a given price. Such offers or “Take-Over Bids” have become in-
creasingly common with the growth and diversification of business.
The spectacular rise of conglomerates and acquisitions generally
during the 1960’s made Take-Over Bids a very commonplace occur-
rence. Considering the confusion, disruption and inequity that can
result from unregulated Take-Over Bids, it is appropriate that some
effort has been made in the new amendments to rationalize the
process.

Section 127A (g) defines a Take-Over Bids as, “an offer, or
offers, (other than an exempt offer) directly or indirectly, made
at approximately the same time to shareholders to purchase such
number of equity shares of a company as, together with the of-
feror’s presently own shares, will in the aggregate exceed ten per
cent of the outstanding equity shares of the company”. Section 127A
(b) in defining an “exempt offer”, exempts an offer to purchase
shares by way of private agreement with individual shareholders
and not made to shareholders generally, an offer to purchase shares
through the facilities of a recognized stock exchange or over the
counter market, and an offer to purchase shares in a Private Com-
pany or in a Public Company that has fewer than fifteen share-
holders.

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Section 127C requires that the Take-Over Bid be sent by pre-
paid mail to each of the directors and to all of the shareholders
of the offeree company resident in Canada and a copy of the Take-
Over Bid and all supporting or supplemental material, if any, must
forthwith be sent to the Department of Consumer and Corporate
Affairs. Section 127F requires that a Take-Over Bid circular shall
form part of or accompany the Take-Over Bid and shall contain
such information as may be prescribed by the regulations.

Section 127B lays down a series of rules applicable to every

Take-Over Bid:-

(a) The period of time within which shares may be deposited
pursuant to a Take-Over Bid must be not less than twenty-one days
from the date thereof.’

(b) Any shares deposited pursuant to the Take-Over Bid must
not be taken up and paid for by the offerer until the expiration
of ten days from its date.

(c) Any shares deposited pursuant to a Take-Over Bid may be
withdrawn by or on behalf of an offeree at any time until the
expiration of ten days from its date.

(d) Where a Take-Over Bid is made for less than all of the
equity shares of a class owned by offerees, shares deposited pur-
suant thereto must not be taken up and paid for by an offeror
until the expiration of twenty-one days from its date.

(e) Where a Take-Over Bid is made for less than all the equity
shares of a class owned by offerees, the period of time within which
shares may be deposited pursuant to the Take-Over Bid or any
extension thereof must not exceed thirty-five days from the date
of the Take-Over Bid.

(f) Where a Take-Over Bid is made for less than all the equity
shares of a class owned by the offerees, the shares deposited pur-
suant to the Take-Over Bid must be taken up and paid for if all
the terms and conditions stipulated by the offeror or waived by
him have been complied with, within fourteen days after the last
day within which such shares may be deposited pursuant thereto.
(g) Where a Take-Over Bid is made for less than all the equity
shares and where a greater number of shares is deposited pursuant
thereto than the offeror is bound or willing to take up and pay for,
the shares taken up by the offeror must be taken up as nearly as
may be pro rated, disregarding fractions, according to the number
of shares deposited by each offeree.

44Section 127C creates presumption that the Take-Over Bid shall be deemed

to have been dated as of the date on which it was sent by prepaid mail.

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Where the offeror increases the amount of his bid before its
expiration, he is obliged to pay the increased amount to each share-
holder whose shares are taken up and paid for pursuant to the
Take-Over Bid, whether or not such shares had been taken up
prior to increasing his offer. 5 Where an offeror who has made a
Take-Over Bid for all the equity shares amends his offer to a
bid for less than all the equity shares, the Take-Over Bid is deemed
to be for less than all the equity shares.4 If a greater number of
shares is deposited, he would then have to take them up pro rata.
Section 127E requires that where the Take-Over Bid is made
for cash, in whole or in part, the offeror must make adequate
arrangements to insure that the required funds are available to
effect payment in full for all shares that the offeror has offered
to purchase.

The Take-Over Bid must contain or be accompanied by a “Take-
Over Bid Circular”, containing such information as may be pre-
scribed by the regulations.!

Where the Board of Directors of the offeree company recom-
mends the acceptance or rejection of the Take-Over Bid by the
shareholders, the Directors must send a “Directors’ Circular”, con-
taining such information as may be prescribed by the regulations,
to each of the Directors and to all of the shareholders of the
offeree company resident in Canada, with a copy of such Directors’
Circular and all supporting and supplementary material to be sent
to the Department of Consumer and Corporate Affairs.4

Neither the offeror nor the Directors shall make use of any
opinion or statement of a solicitor, auditor, accountant, engineer,
appraiser or any other person whose profession lends credibility
to such statement, in any Take-Over Bid or Directorss’ Circular,
unless such person has consented in writing to the use of such
report, opinion or statement. 9

Any Take-Over Bid made on behalf of the company must be
approved and the delivery thereof authorized by its Directors. Simi-
larly, the contents and delivery of any Directors’ Circular must be
approved by the Directors of the offeree company.

Any person may at any time apply to the Chief Justice, Acting
Chief Justice or Judge designated by either of them, of the Court

45 Section 127D(1).
46 Section 127D(2).
47 Section 127F.
48 Section 127G.
49 Section 127H.
5o Section 1271.

No. 3]

THE CANADA CORPORATIONS ACT

of the Province in which the Head Office of the offeree company
is situated for an Order declaring a Take-Over Bid to be or to
have been an exempt offer, and the Judge may, upon such terms
and conditions as he may impose, grant such an exemption, if, in
the opinion of the Judge, the exemption would not be oppressive
to any shareholder or class of shareholders of the company.51 Ten
day’s notice of such application must be given to the Minister,
and the Minister is thereupon entitled to appear by Counsel and
be heard thereon. Any interested person may appeal from any Order
grating or refusing an exemption. Applications for exemption and
the Orders made thereon are to be published by the Department
in a monthly periodical.

Where the Take-Over Bid provides that the consideration for
the shares of the offeree company is to be, in whole or in part,
securities of any other company, the Take-Over Bid Circular must
contain the information prescribed by Section 77 of the Canada
Corporations Act, namely, the particulars that would be required
in a prospectus, modified, as the circumstances require, or as re-
quired under the prospectus provisions of the Province or foreign
country in which a Take-Over Bid Circular or a document of a
similar nature is required for such a Take-Over, as may be de-
scribed by the regulations. The Take-Over Bid must also contain
the particulars of any information known to the offeror that indi-
cates any material change in the financial position or prospects
of the company whose securities are offered in exchange for the
shares of the offeree company since the date of the latest published
interim or annual financial statement of such company.52

Section 127L provides fines or imprisonment, or both, for any
person that authorizes, permits or acquiesces in any Take-Over Bid
that fails to comply with the provisions of the Act or does not
contain the information, statements or consents prescribed by
regulations or contains any information that is false or misleading
with respect to any material fact or omits to state any material
fact, the omission of which makes the statements contained therein
false or misleading, except in certain cases where the untruth of
the statement or the fact of the omission was not known to the
person who authorized, permitted or acquiesced in the mailing
of the Take-Over Bid Circular or the Directors’ Circular and, in
the exercise of reasonable diligence, could not have been known
to such person.

51 Section 1273.
52 Section 127K.