Friday Finds – September 6, 2019

By Danica Bennewies

Welcome back to the CBLB! We took a little vacation in August, but now that the summer is over, we’re returning with our regular weekly posts. Since we’ve been gone for a month, we’re starting up this week with a recap post to talk about some of the big corporate and securities law news stories that we missed. A lot has happened in the corporate and securities law world recently so let’s jump right in!

When we left off talking about the Air Canada/Transat deal, Transat was urging its shareholders to vote in favour of Air Canada’s $13 per share takeover deal. Two of Transat’s largest shareholders, Letko Brosseau and Penderfund, said that this deal was too low and that they would oppose it. On August 23rd, Transat’s shareholders voted in favour of an $18 per share ($720-million total) takeover bid from Air Canada. The deal received nearly 95% approval, meaning that the only step left in closing the deal is getting regulatory sign-off from the Competition Bureau and other regulatory authorities. The deal already received  the go-ahead from the Superior Court of Quebec last week, however other regulatory approvals are still required. Considering that the conclusion of this deal will secure for Air Canada about 60% of the Canadian transatlantic market, this remaining regulatory review is expected to be intense. Nonetheless, according to Transat board member Jean-Yves Leblanc, the travel company is confident that they will get this approval. There are also concerns around what the deal will mean for Transat’s head office and whether job cuts will result. Despite these concerns, shareholders feel that the deal is overall positive, as it will allow Transat to better compete with growing international competition.

Catching up on cryptocurrency news, the Ontario-based Kik Interactive Inc. has requested an early court date so that it can challenge allegations brought against it by the Securities and Exchange Commission (SEC). You may recall that back in June the SEC brought a lawsuit against Kik, claiming that it illegally raised US$100-million from the initial coin offering of its digital token, Kin. The SEC alleged that Kin is a security and Kik failed to provide the proper disclosure in its ICO. On the other hand, Kik claims that its token is a currency and not covered by US securities laws. Kik filed a 130-page formal response to the SEC’s allegations with the US District Court for the Southern District of New York in early August. In a recent press release, the chief executive of Kik, Ted Livingston, sounded confident that the Ontario start‑up had a strong case, claiming that the SEC “has repeatedly twisted facts to make its case”, raising questions of whether the regulator actually has substantial evidence against the company. This will be an important precedent in cryptocurrency regulation and will hopefully provide some clarity regarding the legal framework around both Kin and other cryptocurrencies.

There have also been developments in the cannabis sector recently. A few weeks ago, the Ontario Securities Commission issued a management cease trade order for insiders at the medical cannabis company, CannTrust Holdings Inc. The order blocks nine insiders at CannTrust from buying or selling the company’s shares until two business days after the company makes its required filings. CannTrust sought this order from the OSC earlier in August, anticipating that it would miss the mid-August filing deadline for its interim financial statements for the six-month period ending on June 30th. CannTrust missed the deadline due to a Health Canada probe into unlicensed growing activity at its greenhouse in Pelham, Ontario and issues at its manufacturing facility in Vaughan, Ontario. The cannabis company says that its filings will depend largely on Health Canada’s decisions regarding potential regulatory non-compliance at these two facilities, and for the mean time it is unable to provide any further information regarding when these problems will be resolved.

In regulatory news, Canadian securities regulators issued guidance for public companies in early August regarding disclosure rules for climate change-related risks. In particular, the Canadian Securities Administrator’s (CSA) notice highlights that these risks and their financial impacts are now considered to be mainstream business risks and must be disclosed to investors. According to the CSA, this is meant to be used to educate and help smaller issuers meet their disclosure requirements. The notice gives guidance on when climate change risks are considered material to investors, a more challenging analysis given the uncertainty and often difficult-to-quantify nature of climate change risks. This guidance includes naming specific climate change risks that could affect a company’s financial performance, including physical risks such as severe weather events, as well as regulatory and technology-related risks. Finally, the notice also encourages company boards and management to undertake climate risk management self-assessments to gauge how well these risks are being identified and integrated into a company’s strategic plan.

We also had regulatory updates from the US in the past month. On August 21st, the SEC issued new guidance on proxy voting, tackling concerns regarding the power of proxy advisory firms. According to this guidance, proxy voting advice is considered a “solicitation” under federal rules, and anti-fraud rules therefore apply. Advisers must vote proxies in a manner consistent with their fiduciary obligations. Furthermore, if advisers are relying on advice from proxy advisory firms to vote proxies, they must take reasonable steps to make sure that the use of this advice is also consistent with their fiduciary duties. Following the release of the new guidance, Tom Quaadman, executive vice-president of the U.S. Chamber’s Center for Capital Markets Competitiveness, praised the initiative, saying that “Proxy advisory firm reform is critical to reversing the decline of companies going and staying public in the United States…”. However, not all affected parties are praising the SEC’s guidance. In particular, the president of one of the leading proxy advisory firms, Institutional Shareholder Services Inc. (ISS), expressed concern that the guidance would limit ISS’ ability provide “independent, timely and accurate data, research, insights and perspectives…”.

That wraps up the August recap edition of Friday Finds! Thanks for joining us and be sure to check back next week for more of the biggest corporate and securities law news stories.