Recently, the Alberta Securities Commission (ASC) released its decision in Re PointNorth Capital Inc., in which the ASC dismissed an application by dissident shareholders to terminate a soliciting dealer arrangement that had been entered into by an issuer in the context of a proxy fight.
Liquor Stores N.A. Ltd. (Liquor Stores), is an Alberta-based reporting issuer with 251 retail liquor stores. PointNorth Capital (Point North) held almost 10% of Liquor Stores' common shares and requested representation on the Liquor Stores Board. In January 2017, Liquor Stores formed a special committee of independent directors "to assist the [Liquor Stores] Board in its response to the anticipated proxy contest initiated by" PointNorth. The anticipated proxy contest materialized. Liquor Stores and PointNorth each made arrangements to solicit proxies from shareholders.
Each of Liquor Stores and PointNorth issued news releases during the course of the proxy contest. In a June 2017 news release, Liquor Stores announced the recommendation that proxies be exercised in favour of Liquor Stores' candidates. The news release also announced Liquor Stores' formation of a soliciting dealer group that would compensate brokers for time spent alerting shareholders to the importance of voting the white proxy to protect the future value of the shareholders' investment in Liquor Stores. Pursuant to the soliciting dealer arrangement, Liquor Stores agreed to pay a dealer manager a work fee of $100,000 for services rendered in connection with the formation and management of a soliciting dealer group (Soliciting Dealer Group) and a solicitation fee of $0.05 per common share to any member of the Soliciting Dealer Group that facilitated the valid voting by a retail shareholder of his or her shares in support of each member of the Liquor Store's slate of directors, to a maximum of $1,500 per shareholder.
PointNorth conceded that the soliciting dealer arrangement was not in contravention of Alberta Securities laws. Both PointNorth and Liquor Stores agreed that the ASC has broad – but not unlimited – powers to act protectively and preventively in the public interest, even in the absence of Alberta securities laws. Finally, all parties agreed that the standard test for exercising such jurisdiction was the impugned conduct was "clearly abusive" to shareholders and the capital market. However, PointNorth argued that where securities laws are silent on a topic (such as in this case), there might be a lower bar than the "clearly abusive" test.
In its decision, the ASC Panel found that PointNorth had not established that any actual harm was caused by the soliciting dealer arrangement. The ASC Panel noted that Alberta securities laws set out detailed and comprehensive regimes for the solicitation of proxies and for the obligations of brokers and dealers. In the absence of a breach of specific securities law, the public interest jurisdiction should only be exercised to address a clearly demonstrated abuse of investors and the integrity of the capital markets. The ASC Panel did not accept that the ASC's public interest mandate included imposing new policy requirements, noting that any new policy requirements addressing potential dealer conflict issues could have broader and unintended consequences.
The ASC Panel's decision confirms that the ASC will use caution and consider the consequences before exercising its extraordinary public interest jurisdiction. Further, in order to exercise its jurisdiction, the impugned conduct must be "clearly abusive" to shareholders and the capital market.