A plan of arrangement pursuant to a corporation’s governing corporate statute, such as the Alberta Business Corporations Act, RSA 2000, c B-9 (ABCA), has been a very popular option for corporations undergoing significant structural changes, particularly in the mergers and acquisitions context. In Alberta, the Court of King’s Bench has a dedicated commercial list which hears applications related to plans of arrangement and even provides helpful templates for such applications.
Each of the business corporations statutes in Canada set out a comprehensive procedure for how a plan of arrangement must proceed. In a recent Alberta Court of Appeal decision, the Court considered one such requirement under a previous version of the ABCA. Under the previous version of the ABCA, prior to any court approval of a proposed plan of arrangement, a meeting of creditors and holders of any debt obligations (including the right to acquire shares of the corporation) must be held, giving no discretion to courts to dispense with such a requirement.
In amendments made to the ABCA last year, the legislature relaxed some of the procedural requirements for plans of arrangement, including the meeting requirements, and gave courts the discretion to make orders that they saw fit for such procedural matters.
The Alberta Court of Appeal’s decision in Taiga Gold Corp. v. Munday, 2023 ABCA 12 (Taiga Gold) is instructive on what businesses should keep in mind when applying for approval on their plans of arrangement. Applicants must be able to demonstrate that:
- The arrangement meets the statutory requirements;
- The application is brought in good faith; and
- The arrangement is fair and reasonable.[1]
Applicants should also understand that, given the ex parte nature of any application for an interim order in relation to an arrangement, the Court expects a high degree of disclosure from the application, advising on issues such as the fairness of the proposed arrangement to all stakeholders (not just shareholders).
The remainder of this article discusses the issues raised in Taiga Gold and how recent amendments to the ABCA have changed the Court’s authority with respect to approval of plans of arrangement.
Taiga Gold Corp. v. Munday, 2023 ABCA 12
Taiga Gold Corp. (Taiga) was a publicly traded company that was acquired through a court-approved plan of arrangement under the ABCA. While pursuing the plan of arrangement, Taiga sought an ex parte interim order to set the date on which shareholders would convent to consider and vote on the arrangement, but failed to advise the court that certain holders of Taiga warrants opposed the plan of arrangement and that those warrant holders were not given the opportunity to meet and vote on the proposed plan. A vote of Taiga shareholders was ultimately conducted and approximately 85% of the shareholders voted in favor of approving the arrangement.[2] Following the vote, the chambers judge approved the arrangement, notwithstanding that the rights of the warrant holders were affected by the arrangement and that the procedural requirements under the (then) ABCA were not complied with. Her reasoning was that even if all the warrant holders voted against the arrangement, it would not have resulted in a different outcome. Furthermore, the chambers judge found that the arrangement was fair to both the shareholders and the warrant holders.[3]
On appeal, the Court of Appeal (the Court) considered whether the chambers judge erred in approving the plan of arrangement, and if so, what remedies it could order.
The Court of Appeal agreed with the appellants that the warrant holders were entitled to a meeting to vote on the proposed plan of arrangement, and in fact, such a meeting was mandated by the ABCA (as it then was).[4] It was not within the chambers judge’s authority to dispense with the requirement to hold the meeting of the warrant holders.[5] The Court concluded that the chambers judge erred by approving the plan of arrangement prior to a meeting of the warrant holders.[6]
However, in the result, the Court of Appeal declined to grant the relief sought. The ABCA gave courts the authority to amend an arrangement prior to its approval, but given that the transaction had already closed, the Court noted that it was unclear whether it had the authority to even partially unwind the transaction.[7] The Court noted that if the appellants wanted to preserve their right to receive an effective remedy on appeal, they should have applied for a stay of the chambers judge’s order.[8] The Court concluded its decision by stating that, although there was an error in approving the plan, it was unwilling to order an amendment of the transaction documents, particularly when the Court shared the chambers judge’s view that the arrangement was fair and reasonable.[9]
Amendments to the ABCA
Less than two months after the decision in Taiga Gold was issued, amendments to the ABCA came into force which would have empowered the chambers judge to make the decision that she did.
On May 31, 2022, the ABCA was amended so that section 193 (4) no longer mandated the holding of various meetings (of security holders or otherwise) for a proposed plan of arrangement. As it is now written, the ABCA grants courts the discretion to make orders that “it thinks fit” with respect to any notice and meeting requirements related to a proposed plan of arrangement.
Although the Court of Appeal in Taiga Gold did not comment on the effect of the ABCA amendments, it is likely that they would have found no error in the chambers judge’s decision, had it been rendered under the current version of the ABCA.
Conclusion
The recent decision of Taiga Gold highlights some of the difficulties that could arise with respect to procedural formalities under the previous version of the ABCA. The amendments to the ABCA have updated and streamlined corporate reorganizations and the plan of arrangement process in Alberta. These new amendments now allow for greater flexibility surrounding the implementation of plans of arrangements and reinforces Alberta’s standing as one of the most friendly and flexible jurisdictions for carrying out such transactions.
If you have any questions about Taiga Gold, the new ABCA amendments, or plans of arrangements generally, please reach out to the authors of this article, Kelly Osaka, Bennett Wong and Changhai Zhu or any member of the Dentons Securities Litigation group.
[1] Taiga Gold at para 11.
[2] Taiga Gold at para 8.
[3] Ibid at paras 14–15.
[4] Ibid at para 24.
[5] Ibid at paras 25–28.
[6] Ibid at para 37.
[7] Ibid at paras 39–40.
[8] Ibid at para 41.
[9] Ibid at para 42.
