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Corporations, Partnerships & Associations Law - CORPORATIONS - Shareholder meeting called by court - Arrangement - Powers of court - Interim orders - Meetings of shareholders - Dissent and appraisal rights

Thursday, December 15, 2016 @ 7:00 PM  


Appeal by Marquee Energy from an order directing Alberta Oilsands Inc. (AOS) to hold a shareholder vote to approve the merger of AOS with Marquee. AOS was involved in oil sands operations in Alberta, and received a $35 million compensation payment from the Alberta government in 2015, when its licenses for Fort McMurray were cancelled. The licenses were AOS’s only asset. AOS began talks with Marquee, which had conventional oil and gas assets, but needed better capitalization. Smoothwater, a 14 per cent shareholder of AOS, urged AOS to liquidate the company and distribute the money it received from the government to the shareholders. Instead, AOS decided to enter into a letter of intent regarding a merger with Marquee. Knowing that Smoothwater was opposed to the merger, AOS and Marquee sought to structure the merger by way of a plan of arrangement, such that only the shareholders of Marquee would have the right to vote on the future of the companies. After Marquee obtained an ex parte order to hold a shareholders meeting to vote on the arrangement, Smoothwater applied for an amendment to the order to provide that AOS shareholders also had a right to vote. The chambers judge allowed Smoothwater’s application, finding that the arrangement was not fair and reasonable unless AOS shareholders were given a right to vote on the arrangement, and a right to dissent. He concluded that the essence of the proposed transaction was a merger of AOS and Marquee, that combining AOS and Marquee would accomplish a valid business purpose and that the primary reason for the arrangement was to avoid the need to get approval of AOS shareholders. He therefore concluded that the underlying business purpose was put forward in good faith, but the chosen method was not. He further found that the legal rights of AOS shareholders were being affected and that the arrangement as proposed was not fair and reasonable, but it could be made so by giving AOS shareholders voting and dissenting rights equivalent to those of Marquee shareholders.

HELD: Appeal allowed. The Alberta Business Corporations Act (ABCA) did not contemplate or require court approval of the transaction from the perspective of any person other than the stakeholders of Marquee. Fundamental changes of AOS were not in contemplation in the arrangement and the reasonableness and fairness test was not applied to them. The directors of AOS were prima facie entitled to execute fundamental changes of AOS in accordance with the ABCA and needed only have shareholder votes when required by the statute. Consequently, Smoothwater’s status to challenge the fairness of the arrangement was limited. It was not inappropriate for Smoothwater to bring the fair and reasonable issue before the court in advance of the Marquee meeting, as the application had practical consequences in an environment of urgency. While Smoothwater’s application could not simply be dismissed on the basis that it sought to advance “economic” interests, there was no provision in the statute that gave it a right to vote and, in that sense the arrangement would not affect its legal rights. It was not open to the chambers judge to re-characterize the transaction from the perspective of AOS and then use that characterization to vary Marquee’s arrangement. It was the arrangement itself that was to be approved by the court, not the subsequent steps to implement the business plan. It was not bad faith for the directors to structure transactions to avoid dissent rights. If the transaction was structured in a way that required a vote with dissent rights, that might result in a diversion of some of AOS’s cash to pay out dissenting shareholders, which would mean less cash available to implement the original business plan of developing Marquee’s assets. There was therefore a legitimate business reason for structuring the transaction as an arrangement.