Posts Tagged ‘Securities’

Jennifer MacGregor-Greer
Monday, March 9th, 2015    Posted by Jennifer MacGregor-Greer (posts)

In a previous article, we considered some of the situations in which a closely-held company might wish to expand its board.  This article will go on to consider how to identify possible board candidates.

Selecting board candidates is a process not to be taken lightly.  A company’s directors are responsible for setting its direction and maintaining its corporate governance standards – so the composition of a company’s board can have long-term implications.  If you simply plan to formalize an existing mentorship or adviser role, or if a large investor has negotiated a board seat as one of its investment conditions, you may know already who the director candidate is.  However, in all other cases, identifying suitable candidates is an important step.

The basic requirements for eligibility as a director under the Business Corporations Act (British Columbia) are that the director candidate:

  • is at least 18 years of age;
  • has not been found by a court to be incapable of managing his or her own affairs;
  • is not an undischarged bankrupt; and
  • has not been convicted of an offence in connection with the promotion, formation or management of a corporation or unincorporated business, or an offence involving fraud, with a few exceptions (including the person having received a pardon under the Criminal Records Act (Canada)).

Directors of BC companies are not required to be Canadian residents.  This is, however, not the case for corporations organized under the Canada Business Corporations Act, which requires 25% of a corporation’s directors to be Canadian residents.

Directors are also not required by statute to be shareholders of a company.  However, your company’s Articles may require directors to hold shares.  It is important to review your Articles to determine whether this is the case.

You may next wish to consider the strengths and weaknesses of the existing directors.  If the company’s founder is its sole director, typically that person may have industry expertise, but lack other skills – for instance, a high degree of financial literacy.  In other cases, especially if the founder is a serial entrepreneur, the founder may have excellent business skills but wish to add industry knowledge.  Since the board will set the company’s direction, oversee its finances and safeguard its governance practices, having the necessary skill set to do so is critical.

Another item to consider is your company’s goals and objectives.  Are you hoping to build a particular line of business in the next few years?  It may be useful to have a director who is knowledgeable about that line of business.  Are you intending to enter a certain market?  Having a director who knows the particular issues surrounding that market could be a determining factor in your success.

Finally, you may wish to consider independence and gender diversity when building your board.  Board independence has long been a requirement for public companies, and gender diversity is quickly becoming an important element in corporate governance best practice.  While securities laws require boards of public companies to consist of a majority of independent directors (i.e. directors who are not related to the management of the company and who have no other material relationship with the company), best practices for private issuers also require a meaningful number of independent directors.  Canadian securities regulators have also recently brought into effect “comply or explain” standards that require reporting issuers to disclose recruitment of women directors, and if no such recruitment has occurred, to explain why not.  While these diversity standards currently do not apply to companies that are not reporting issuers, it is reasonable to expect a trickle-down effect whereby investors in smaller companies will begin to demand a higher rate of diversity on boards.

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Posted by Jennifer MacGregor-Greer (posts) | Filed under Corporate Governance | ....
Dan Parlow
Monday, April 12th, 2010    Posted by Dan Parlow (posts)
Dan Parlow
Dan is a partner at the firm of Kornfeld LLP. He helps resolve commercial disputes for clients including investors, brokerage houses and financial institutions in the realization of claims by creditors and over disputed investments; entrepreneurs in claims over business assets, shareholder and partnership interests and commercial property; estates, trusts and beneficiaries over disputed wills, trusts and related claims; clients of realtors, lawyers, accountants, brokers and investment advisors; and businesses in the telecom, oil & gas and high-tech industries.

The British Columbia Securities Commission issued reasons on Thurdsay, April 8, 2010 for its recent decision not to enter the fray of a takeover battle for Yukon-based Crew Gold Corporation.

In the midst of a take-over battle between Russian-based Severstal Gold NV and Grand Cayman-based Endeavour Financial Corporation, Severstal asked the BC Securities Commission to compel TSX-listed Endeavour to comply with Canadian take-over bid requirements (Instrument MI-62-104 – Take-over Bids and Issuer Bids).

Pending that determination Severstal applied to the Executive Director to issue temporary order under section 161(2) of the Securities Act prohibiting Endeavour from trading Crew securities until a hearing was held to consider the issues raised by Severstal in its application.   The application was investigated quickly and 9 days later, the Executive Director issued a reply declining to intervene.

In last Thursday’s reasons,  the Securities Commission made short shrift of Severstal’s application to review that refusal, doing so both on procedural and substantive grounds.

Procedurally, the Commission applied Alberta and B.C.  law that the Executive Director’s discretion whether to issue such a temporary order is not subject to a review to the Commission under section 165(3) of the Securities Act.    It is not reviewable since the failure to make an order is not the same as a “decision” of the Executive Director which would be subject to statutory review.  Furthermore,  Severstal was held not to have standing to apply for a cease-trade order in that situation.

Although it could have simply dismissed Severstal’s application on procedural grounds, the Commission went one step further, in a move which is a caution to parties involved in a take-over battle not to use the Commission as a tool to manipulate a market battle without good reason.   The reasons underlying Severstal’s application were first, that recent Endeavour purchases in the marketplace were made with insider information; and second that having acquired more than 20% of the target company the purchases constituted a take-over triggering a regulatory process.  Severstal had itself announced a plan to make its own take-over bid at a price below what became the rising market price.

The Commission was obviously miffed with Severstal’s serious allegations of insider trading when it did not produce a shred of evidence to support it; the Commission expressed “concern” over that false allegation.    There had also been no “take-over bid” triggering the Canadian regulatory process, since Endeavour’s purchases of Crew Gold stock were made offshore and not from sellers “any of whom is in the local jurisdiction”.

I view the Securities Commission’s willingness to expand its decision to cover substantive issues, and its rebuke over false inside trading allegations, as indicative of its disinclination to be used as a tool by which public companies may seek to use securities regulation to manipulate natural market forces.

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