Advance Notice Provisions: Oppression and the Public Interest
Houseman, Gordon T., University of Toronto Faculty of Law Review
ABSTRACT I INTRODUCTION II SHAREHOLDERS, DIRECTORS, AND THE CORPORATION Shareholder Voting Power Legal Strategy to Replace Directors and the Element of Surprise III ADVANCE NOTICE PROVISIONS The Mechanisms to Implement Advance Notice Provisions The Advantages of Advance Notice The Disadvantages of Advance Notice IV ADVANCE NOTICE PROVISIONS IN PRACTICE Mundoro Maudore V PROBLEMATIC USE AND DRAFTING OF ADVANCE NOTICE PROVISIONS Timing and Manner of Adoption Preventing Nominations Before a Specific Date VI BCE AND ADVANCE NOTICE PROVISIONS Reasonable Expectations Oppression, Unfair Prejudice, or Unfair Disregard VII THE PUBLIC INTEREST POWER The Nature and Scope of Public Interest Power The Tension Between Corporate and Securities Law The Public Interest Power and Problematic Uses of Advance Notice Provisions VIII CONCLUSION
Advance notice provisions (1) require shareholders to give a company notice of director nominations and detailed information about nominees in advance of an annual or special meeting. (2) They can take the form of a policy adopted by the board of directors or an amendment to corporate by-laws or articles of incorporation. If a dissident shareholder (3) fails to comply with the advance notice provision, the directors can refuse the shareholder's nominations. (4)
Advance notice provisions can foster shareholder democracy by "allowing shareholders to fully participate in the director election process in an informed and effective manner",5 and can prevent a dissident from "[hiding] in the weeds" (6) to take advantage of a poorly attended meeting to elect the nominees of his or her choice. Arguably, however, directors can draft or implement an advance notice provision in a manner that is detrimental to the interests of shareholders. This article will argue that advance notice provisions have the potential to violate both corporate and securities law. (7)
Part II considers shareholders' statutory ability to vote on the corporation's directors and other important corporate matters. Further, Part II discusses the statutory mechanisms that shareholders can use to replace existing directors. Part III considers the mechanisms that directors can use to implement advance notice provisions, and discusses the advantages and disadvantages of the provisions to shareholders and directors.
Part IV discusses two recent court decisions that have upheld incumbent directors' use of advance notice provisions under corporate law: Northern Minerals Investment Corp v Mundoro Capital Inc (8) and Maudore Minerals Ltd v Harbour Foundation. (9) In particular, Part IV sets out the background of the disputes, the decision of each Court, and the events that followed each decision.
While advance notice provisions can be beneficial to shareholder democracy, directors may use advance notice provisions in a manner that harms the interests of shareholders. Part V suggests that advance notice provisions can have a deleterious effect on shareholders under several circumstances. For instance, directors may draft and implement advance notice provisions in a manner that effectively precludes shareholders from nominating directors at a meeting, or in a manner that reduces the chance that shareholders will elect a dissident shareholder's nominee.
Where an advance notice provision harms shareholders, the provision may be contrary to both corporate and securities law. Part VI argues that, although the Courts in Mundoro and Maudore did not strike down the advance notice provisions implemented by the directors, in the future, courts might invalidate such provisions when they are used by directors in a way that breaches the reasonable expectations of a dissident share-holder in a manner that is oppressive or unfairly prejudicial to his or her interests. …