Telus wanted to consolidate voting and non-voting shares into a single class. Mason Capital, a US hedge fund, objected to the proposal, arguing that it would confer a windfall on holders of the non-voting shares at the expense of holders of the voting shares (which have traditionally traded at a premium). In response to the company’s proposal, Mason hedged its risk by taking long and short positions on the two classes of shares. It also requisitioned a shareholder meeting to prevent the share consolidation – or, rather, it caused CDS (the registered holder of Mason’s shares) to do so. Under the BC Business Corporations Act, only a registered shareholder with a beneficial interest in the shares may requisition a meeting. Because Mason was a beneficial but not a registered shareholder, it was not, in Justice Savage’s view, a true party to the requisition. Without knowing ‘precisely’ who had requisitioned the meeting, Telus was unable to exercise its statutory duties to respond to the requisition. The judge also clearly expressed sympathy with the view that shareholder democracy is subverted when a shareholder whose economic interests are ‘not aligned’ with other shareholders is allowed to requisition a shareholder vote. The judge seems to suggest that there could be circumstances where a board would be justified in refusing to hold a meeting requisitioned by an ‘empty’ voter – that is, one with economic interests that are at odds with those of other shareholders.
Sensibly, the BC Court of Appeal has reversed. Groberman JA held that the chambers judge ‘erred in reading into the statute a requirement that the beneficial owners of shares be identified in a requisition’; the legislation refers to a requisitioning ‘shareholder’ and CDS qualified, as registered holder. A company does need to know whether the requisitioning shareholder has the required level of holdings and be able to communicate with it, but Telus was certainly in a position to know and do this vis-à-vis CDS. There is nothing in the legislation to suggest that Telus needed to look behind CDS to the underlying beneficial holder. Much less to question the motives of a beneficial shareholder like Mason Capital, as ‘nothing in the [relevant provisions] allows a court to disenfranchise a shareholder on the basis of a suspicion that it is engaged in “empty voting”.’ Mason Capital’s position that the historic premium attached to its shares should be preserved was a ‘cogent’ one that could be advanced by any shareholder. While Mason Capital’s hedging activities were cause for ‘a strong concern that its interests are not aligned with the economic well-being of the company’, there is nothing in the statute which prohibits this activity or which allows a court to intervene on equitable grounds. If empty voting is something that subverts shareholder democracy, then it’s up to legislatures and securities regulators to fix that.
Gordon Johnson of the Vancouver office of BLG acted for CDS.
[Link available here].