Shareholder rights and shareholder agreements are commonly discussed in corporate settings. However, warrant holders’ rights may be overlooked in some circumstances. A recent decision from the Alberta Court of Appeal explains the importance of seeking effective relief as soon as possible in cases of proposed plans of arrangements. In this case, the Court illustrated why a party with concerns regarding a court’s decision to approve a plan of arrangement must immediately seek a stay of proceedings for the court’s approval order. Otherwise, a court may not be willing or have the authority to unwind a transaction that has already been completed.

Meeting scheduled for shareholders to vote on proposed plan of arrangement

In the case of Taiga Gold Corp v. Munday, the respondent, Taiga Gold Corp (“Taiga”), is a mineral exploration company incorporated under the Alberta Business Corporations Act. Before the arrangement, Taiga was a publicly traded company listed under the Canadian Securities Exchange. SGO Mining Inc. sought to acquire shares, warrants, and options in Taiga held by third parties.

On January 14, 2022, Taiga sought an ex parte interim order to set a date for shareholders to vote on and approve a proposed plan of arrangement. Taiga did not inform the Court that the appellants, who were warrant holders in the corporation, opposed the proposed plan of arrangement. The request for an interim order was granted, and the Court scheduled a meeting for shareholders to vote on February 22, 2022. The Court also provided specific directions regarding the following:

• Notice to the shareholders;
• Meeting conduct; and
• shareholder dissent rights.

Shareholders approve proposed plan; warrant holders not included

The interim order did not set a meeting for warrant holders of Taiga. It also did not impose a requirement that the warrant holders must also vote on the proposed plan of arrangement. Despite this, the majority of the appellants knew of the meeting as they were also shareholders of Taiga and received notice.

The scheduled meeting took place on February 22, 2022, and approximately 85% of the shareholders voted to approve the proposed plan of arrangement. The next day, the final hearing took place pursuant to the order. However, the appellants opposed Taiga’s application to obtain a final order approving the plan of arrangement. The hearing was subsequently adjourned to April 6, 2022, allowing time for Taiga to respond to the opposition and file expert reports.

Was the test for approving the plan of arrangement met?

In April 2022, at the final hearing, the appellants argued that Taiga did not meet the test for approving a plan of arrangement, as set out by the Supreme Court of Canada in BCE Inc v. 1976 Debentureholders (“BCE”). The test requires that before a plan of arrangement is approved, the corporate applicant must prove to the Court that:

1. the statutory procedures have been met;
2. the application was put forward in good faith; and
3. the arrangement is fair and reasonable.

The appellants’ three primary concerns with the proposed plan of arrangement were:

• The arrangement would impact their legal rights as their contractual right to exercise their warrants, or commence a claim, would be extinguished;
• The procedural requirements under section 193(4)(b) of the Alberta Business Corporations Act were not satisfied as there was no meeting for the warrant holders; and
• The proposed plan treated shareholders and warrant holders unequally, contrary to the third limb of the test in BCE. Specifically, the appellants claimed that the offer made to warrant holders was silent on the issue or the warrants’ value, whereas shareholders were offered full value for their shares.

Chambers judge approves proposed plan

After interpreting the warrant certificates, the chambers judge found that the warrant holders’ legal rights would be affected by the proposed plan of arrangement as they would be extinguished. Given this finding, the chambers judge indicated that the warrant holders should have also had a meeting prior to the approval of the proposed plan of arrangement in accordance with section 193(4)(b) of the Business Corporations Act. However, the chambers judge found that failure to have a warrant holders meeting would not have affected the vote given the smaller number of warrants held in comparison to shares, and was therefore not fatal to the outcome.

The chambers judge also rejected the appellants’ argument concerning warrant value, as she found that the price offered to both groups was fair and treated them both the same.

Decision appealed by warrant holders

The warrant holders appealed the decision to the Alberta Court of Appeal and asked the Court to determine, among other things, whether the chambers judge erred in finding that the Business Corporations Act’s procedural requirements were met. In particular, the Court of Appeal was asked to determine whether the court could waive the requirements under section 193(4)(b) of the Act to hold a meeting of warrant holders to allow them to vote on the plan of arrangements.

The Court of Appeal found that the chambers judge erred in finding that a warrant holders meeting was not required before the proposed plan of arrangement was approved. The legislation required a meeting take place; therefore, the first limb of the BCE test was not satisfied.

Warrant holders seek effective remedy from Court

The warrant holders asked the Court to grant an appropriate remedy and amend the plan of arrangement to provide warrant holders with dissent rights, allowing them to be paid the full value of their warrants. Alternatively, the warrant holders sought to carve out an exception from the release in article 6.2(c) of the arrangement to allow them to sue on the warrants.

Despite the Court of Appeal finding an error in the lower court’s decision to approve the arrangement, the Court held that it was unclear whether the transaction would have gone through with the requested changes, and it was not willing to change any of the terms of the arrangement that could have been critical to the parties. At this point, the transaction had already been completed, and the Court noted that it ultimately shared the chambers judge’s opinion that the proposed arrangement was fair and reasonable. Further, it was unclear whether the Court had the authority to partially unwind the transaction, and they were unwilling to do so.

The Court told the appellants that, regardless of any timeline restrictions, they should have applied to a chambers judge or a justice of the Court of Appeal for a stay of proceedings pending appeal if they wished to preserve their ability to receive an appropriate remedy on appeal.

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