Executive Summaries Nov 23, 2021
Rogers Communication Inc.’s Surreal Case – Could this Happen in Québec?
In the midst of a $26 billion acquisition, a very private Toronto boardroom struggle at Rogers Communication Inc. (“RCI”) became a very public family feud and was only resolved by the intervention of a court in Vancouver. The share price has plummeted. Competitors have sought to suspend the regulatory approval process of the acquisition.
While a little surreal for corporate Canada, it seems more like a script from Billions than the woes of a senior listing on the Toronto Stock Exchange with a $25 billion market capitalization.
Succinctly and over simplified, RCI founder’s son sought to terminate the CEO for performance issues and the board responded by removing the son as chairman of the board. The son exercised the rights of the family entities controlling RCI with 97.5% of the voting shares by way of a signed shareholders resolution to remove the independent directors and replace them with a slate of new, presumably loyal, independent directors. RCI, the son’s mother and two of his sisters refuted the change of directors and disputed the legality of the son’s change in directors arguing that it could only proceed by way of a shareholder meeting. The son went to court in British Columbia, jurisdiction of incorporation of RCI, to have it decide the legality of the change in directors. The court rendered its decision on November 5, 2021 declaring the son’s change in directors legal.
With so many families or founders’ groups controlling publicly traded companies, could the same legal result happen under the laws in Québec?
The Short Answer
The short answer is no, presuming, of course, that the corporation is incorporated by the Federal laws of Canada or the laws of the province of Québec.
Why such a different result for RCI?
The articles of incorporation of corporation are key documents evidencing the deal struck between a corporation and its shareholders. Usually limited to a description of the share capital, the articles of RCI (“Articles”) are particular in that they also include provisions that are usually found in the general corporate bylaws of a corporation. Germane to the court’s decision, were provisions in the articles that provided for the termination and replacement of directors by way of an ordinary resolution of the shareholders and reception deeming provisions for correspondence sent by mail to other shareholders that were very similar to those you would find in any commercial agreement.
Although not common practice under Federal law or Québec law, there is nothing prohibiting including general bylaw type provisions into the articles of a corporation.
The provisions of the Articles in RCI that take on a different meaning when incorporated under the laws of British Columbia are the provisions regarding the definition of ordinary resolutions. Firstly, RCI’s Articles did not provide for a definition of an ordinary resolution which brought the analysis to the provisions of the British Columbia Business Corporations Act (“Act”). Secondly, under the Act, an ordinary resolution is passed either by a simple majority at a general meeting, be it annual or special, or, and more significantly for the purposes of the decision rendered by the court and the strategy employed by the son,
“after being submitted to all shareholders holding shares that carry the right to vote at general meetings, by being consented to in writing by shareholders that carry the right to vote at general meetings who, in the aggregate, hold shares carrying at least a special majority of the votes entitled to be cast on the resolution.”
As such, an ordinary resolution could be passed in writing provided that it was submitted to the shareholders and that it was carried with no less than a special majority (being two thirds of the issued and outstanding shares).
The son sent out by mail to all the shareholders through RCI’s transfer agent the resolution and related supporting materials to be signed by the shareholders, thereby “submitting” the resolution. The notice provisions in the Articles provided deemed reception of the resolution by the shareholders the day following the day of mailing. On that day, the son had all the entities that he controlled sign the resolution and it was passed with 97.5% thereby largely surpassing the special majority threshold required under the Act. The signed shareholder resolution was then submitted to RCI.
This would be impossible under both the Canada Business Corporations Act and the Québec Business Corporations Act where a written resolution needs to be signed by all shareholders.
Mind you, nothing is stopping a BC chartered company from operating in Québec, just like RCI...
As a final note, it is interesting to know that all of RCI’s corporate governance publications from 2004 were considered by the judge as surrounding circumstances not relevant to the decision at hand.
At BCF our professionals are able to assist you in determining corporate strategies that may be applicable in your situation. Do not hesitate to contact our Securities Law team for more information.
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