Timely Disclosure

Timely Disclosure

Updates and Commentary on Current issues in M&A, Corporate Finance and Capital Markets

IIROC Provides Guidance on Soliciting Dealer Arrangements

Since it costs a lot to win, and even more to lose,

You and me bound to spend some time wondering what to choose.

Deal – The Grateful Dead

IIROC recently published guidance regarding managing conflicts of interest arising from soliciting dealer arrangements. The guidance elaborates on existing conflict of interest rules in the context of takeover bids, plans of arrangement, proxy contests and other securities transactions involving various types of solicitation fees.

Soliciting dealer arrangements are relatively common in Canadian M&A transactions, but less so in connection with contested director elections. Contested director elections where a company pays fees to incentivize dealers to advise their clients to vote in favour of management’s nominees have proven controversial. In this regard, IIROC states that:

We believe that in some cases the conflicts of interest arising from these arrangements can be addressed for example by, appropriate policies and procedures. However, there are other arrangements where the conflicts are, in our view, unmanageable and therefore should be avoided. An example of this type of arrangement is one that relates to a contested director election involving fees that are paid only for votes in favour of one-side and /or only if a particular side is successful.

Contested director elections are, in IIROC’s view, unique in that they involve qualitative assessments—often without measureable or quantifiable supporting information—about an issuer’s future business strategy and the ability of competing slates of directors to successfully implement the strategy.

The guidance does not provide an absolute prohibition on one-sided and/or contingent arrangements in situations outside contested director elections. In other situations, IIROC’s guidance indicates that dealers should consider the specific situation in light of the relevant facts and circumstances, and consider if they can adequately address conflicts of interest. In such circumstances, IIROC notes that disclosure alone is generally an inadequate mechanism because of its limited, and sometimes contradictory, impact on the client’s decision-making process. As a result, IIROC advises that dealers should not only disclose the conflict, but also identify how it has addressed the conflict in the best interest of the client.

For further information on this development, please contact any member of our Securities and Mergers and Acquisition Group.

OSC Update re: Suppression of Terrorism Notice

On June 5, 2019, the Ontario Securities Commission (the OSC) sent out a notice by means of a broadcast e-mail (the Notice) with respect to certain amendments regarding the suppression of terrorism or Canadian sanctions (STCS) applicable to all registered firms, exempt dealers and exempt advisers (each a Firm).

Under Canadian federal law, Firms are required to file a monthly STCS report by the 14th day of each month (each a Monthly STCS Report) with their principal regulator in order to determine and disclose whether the Firm is in possession or control of property owned or controlled by or on behalf of an entity or person listed or designated in a particular federal provision (each a Designated Person).

Many of these federal provisions required a Firm to file a “Nil” Monthly STCS Report if it was determined that none of the Firm’s clients were Designated Persons.

The Notice confirms that Firms are now only required to submit a “Nil” Monthly STCS Report with their principal regulator with respect to Designated Persons under the Criminal Code (Canada) and the Justice for Victims of Corrupt Foreign Officials Act (Canada).

However, this effectively means that each Firm must still file a “Nil” Monthly STCS Report by the 14th of each month as was the case previously.

For further information regarding the Notice, please view a copy of the STCS Guide, which reflects the changes that have been made.

It Stays in the Family – Dual Voting Share Structures for Family Businesses

For many family businesses, control of long-term direction and management of the family corporation are key issues, particularly during times of growth or periods of succession. The Institute for Governance of Private and Public Organizations (“IGOPP”) recently published a new policy paper that should be of interest to family businesses and their advisors in planning the capital structure for their enterprises: The Case for Dual-Class of Shares, Policy Paper No. 11 (2019). The paper revisits[1] the state of dual-class public corporations in Canada, emphasizes their value to entrepreneurs, family businesses and Canadian society as a whole and makes a number of structuring recommendations, which are outlined below.

What is a Dual-Class Share Structure?

Canadian corporate statutes generally permit companies to adopt capital structures with multiple classes of shares with different rights or attributes (for example voting and non-voting shares or shares with preferential dividend, conversion or redemption rights). While the default approach is one vote per share, the flexibility of corporate laws permits the creation of several share classes with multiples votes, no voting rights or differential voting rights on certain matters (such as the election of the board of directors).[2] In this context, IGOPP’s paper focuses on share structures with two classes, one of which is given multiple votes per share. Among publicly traded Canadian corporations with dual class structures, voting ratios can range from 1:0 (a class of voting shares and a class of non-voting shares) to 100:1 (a class of superior voting shares with 100 votes per share and a class of subordinate shares with one vote each). The central feature of a dual-class share structure is that ownership and control over the corporation can be decoupled. Or, to put it differently, a minority ownership position in the corporation’s equity may still hold the majority of the votes.

Benefits of a Dual Class Share Structure for Family Businesses

Dual-class share structures for public companies are controversial and the debate has been raging for a considerable time.[3] The principal arguments against such structures are based on notions of shareholder democracy and protection of minority rights. Perhaps as a result, the number of publicly traded companies in Canada with a dual-class share structure has dropped from 100 in 2005 to 69 in 2018.[4]

Nevertheless, the benefits of such structures identified by IGOPP and other commentators may be of particular interest to family-run businesses. Superior voting rights permit families to plan and manage their businesses in the long term and facilitate generational change, while, at the same time, being able to access outside investor capital to support the growth of the business. The dual-class structure affords protection against hostile take-overs and what IGOPP perceives as shareholder activism driven by short-term (and perhaps short-sighted) profit maximization. Or, as put by IGOPP: “… the coupling of dual-class and family ownership brings about longer survivorship, better integration the social fabric of host societies, less vulnerability to transient shareholders and more resistance to strategic and financial fashions.”[5]

Recommended Features for a Dual Class Share Structure

In order to balance the advantages of a family controlled business, access to outside capital and the interests of minority shareholders, IGOPP recommends a number of features, including the following:

  • A voting ratio of 4:1 – This ratio retains a voting majority for family business at an ownership level above 20% and a blocking minority with respect to fundamental changes with an ownership interest of 11.1%. Reflecting research indicating that increasing variances between voting power and ownership level tends to negatively affect the quality of overall governance and favour self-interested, rather than business focused decision-making, this recommendation aims to balance legitimate family and overall business interests.
  • Minority Board Representation – One third of board members should be elected by the single-vote share class. This measure would give non-family investors a substantial indirect say in the management or supervision of the family business. To ensure continuity and compatibility with the family vision and values, IGOPP further proposes that minority directors be elected from a candidate pool nominated by the existing board.
  • “Coat Tail” Provisions – A major point of criticism of dual share structures has been price premium placed on multiple voting shares in case of a sale. The “uniquely Canadian” response to this issue is to treat all share classes equally on a sale.[6] IGOPP’s recommendation that family corporations adopt such “coat tail” provisions in their articles or bylaws to guarantee that all shareholders can participate in a sale of the family business on the same terms and conditions at the same price, would thus overcome the “private benefit” concerns.
  • Dilution Sunset Clauses – In the context of dual share structures, a sunset clause would trigger the abolition of superior voting rights if the justification for their existence has fallen away. For family businesses, this would typically be the case when the business loses its essential character as a family enterprise. There is a wide range of possible triggers. Examples are time-based (e.g. 20 years after an IPO) or event-based (e.g. on the exit, retirement or death of the founder). However, these approaches typically do not meet the needs of a multi-generational family business. On the other hand, as family involvement the business may diminish over the years, a sunset clause could be tied to a level of family ownership interest. This notion is connected to the proposed voting ratio and its rationale. For example, at a 4:1 voting ratio, the dilution sunset could be triggered if and when the controlling shareholders’ equity dropped below the blocking minority of 11.1% – the point when self-interest may typically outweigh the overall business interests.

There are, of course, many possible variations and combinations on how these basic recommendations could be implemented to meet the specific goals and needs of each family business. If you have any questions about corporate share structures, legal issues affecting family businesses or wish to learn more about Fasken’s private client services, please see here: Fasken Private Client Services.

[1] IGOPP first examined dual-class corporations in 2006: see Dual-class share structures in Canada:Review and Recommendations, Policy Paper No. 1 (October 2006).

[2] See, for example, ss. 24(3) and (4) and 140 of the Canada Business Corporations Act or ss. 58 and 173(1) of the Business Corporations Act (British Columbia).

[3] See, for example, Ryan Modesto, “The case for investing in companies with dual class sharesThe Globe and Mail (April 16, 2016, last updated June 19, 2017) or Shannon Bond and Nicole Bullock, “Lyft IPO revs up debate on dual class shares structures”, Financial Times (February 25, 2019).

[4] IGOPP, Policy Paper No. 11, p. 15.

[5] IGOPP, Policy Paper No. 11, p. 12.

[6] The Toronto Stock Exchange has, for over 30 years, listings for classes of “restricted securities”, that do not provide “takeover protective provisions”, which in effect ensure that these securities would be acquired for the same price as common securities.  For more detail, please see s. 624 of the TSX Company Manual.

Something old, something new: Proposed amendments to the CBCA in the 2019 budget implementation bill

On April 8, 2019, the federal government introduced Bill C-97 to implement measures from its spring budget. The bill proposes amendments to many federal statutes, including several important amendments to the Canada Business Corporations Act (CBCA) relevant to both private and public companies. Our summary of the proposed changes is set out below, some of which deal with familiar issues, while others would introduce new requirements for companies.

The codification of BCE

The federal government is proposing to codify in the CBCA the Supreme Court of Canada’s landmark ruling in BCE Inc v 1976 Debentureholders. In BCE the Supreme Court made clear that acting “in the best interests of the company” does not mean merely acting in the best interests of shareholders or any particular stakeholder group. Instead, the Supreme Court recognized that

“…conflicts may arise between the interests of corporate stakeholders inter se and between stakeholders and the corporation.  Where the conflict involves the interests of the corporation, it falls to the directors of the corporation to resolve them in accordance with their fiduciary duty to act in the best interests of the corporation, viewed as a good corporate citizen.” (BCE, paragraph 81.)

Bill C-97 would codify such a view. The bill would insert a new section in the CBCA that provides that directors and officers, when acting with a view to the best interests of a company, may consider, but are not limited to, certain listed factors, namely:

  • the interests of shareholders, employees, retirees and pensioners, creditors, consumers, and governments,
  • the environment, and
  • the long-term interests of the company.

Say on Pay comes to the CBCA

Bill C-97 would introduce a new section 125.1 into the CBCA requiring prescribed corporations to develop an approach with respect to the remuneration of members of senior management. A report on the company’s approach would then be placed before the shareholders at each annual meeting, at which meeting a “Say on Pay” vote would be held. Companies would also be required to disclose the voting results. As is common practice in Canada, the Say on Pay vote would be non-binding, however shareholders will often agitate for change where the support level for the Say on Pay vote fails to reach a sufficiently high threshold.

New reports to be tabled at the annual meeting

Bill C-97 also proposes requiring prescribed corporations to place before their shareholders at each annual meeting several reports.

  • First, a report respecting diversity among the directors and members of senior management. Such a report was first proposed as part of Bill C-25, and we have canvassed its contents in a previous post. There are no substantive changes from the report as earlier proposed in Bill C-25.
  • Second, the report concerning the remuneration of members of senior management, as discussed above.
  • Third, a report concerning “the recovery of incentive benefits or other benefits” as included in the above remuneration report. This appears to be a new type of report, and there is no further detail in Bill C-97 about its required contents, such detail being left to regulations. However, it may be similar to the existing practice, which is somewhat common across larger Canadian issuers, to disclose the existence and nature of any clawback policy.
  • Finally, a report respecting the well-being of employees, retirees and pensioners. This also appears to be a new type of report not previously contemplated in legislation and not commonly presented by issuers in Canada. There is no further detail in Bill C-97 about the required contents of such a report, such detail being left to regulations.

Control register to be made accessible to investigative bodies

The final major change relates to private companies governed by the CBCA and the pending requirement to prepare and maintain a register of individuals with significant control over the company. (See our previous post on this issue. This requirement was introduced in Bill C-86 and will take effect on June 13, 2019.)

Questions have arisen as to which parties external to the company would have access to the new register. Amendments in Bill C-97 clarify that companies would have to turn over their register on request to any police force, the Canada Revenue Agency and equivalent provincial bodies, and any other prescribed body with investigative powers as determined by the federal cabinet.

Such investigative bodies would be limited in making such requests in two key ways.

  • First, a request could be made only if the investigative body has reasonable grounds to believe that information in the register would be relevant to investigating a specified offence as set out in a new schedule to the CBCA. The contents of the schedule would be set, and could be revised by, the federal cabinet. A draft schedule is provided at the end of Bill C-97 and contains a long list of proposed offences.
  • Second, the investigative body must also have reasonable grounds to suspect that certain specified entities either (1) committed the offence, or (2) were used to commit the offence, facilitate its commission, or protect from detection or punishment a person who committed the offence. Such specified entities include the company itself, or some other company or entity that is controlled or otherwise influenced by an individual that is also an individual with significant control of the company that is the target of the request.

Failure to comply with the request can result in serious penalties. In particular, a director or officer of a company who knowingly authorizes, permits or acquiesces in the contravention of the above requirement to turn over information to investigative bodies is liable on summary conviction to a fine of up to $200,000, six months’ imprisonment, or both.

Coming into force

The proposed amendments to the CBCA in Bill C-97 will come into force at different times.

  • The amendments regarding the factors that may be considered concerning the best interests of the company come into force on the date Bill C-97 is granted royal assent.
  • In the case of the amendments concerning the register of individuals with significant control, no coming-into-force date has been fixed, but it will likely be a date in June of 2019.
  • The requirements to prepare and disclose the four reports will not kick in until regulations have been drafted and enacted, and such a process normally entails a consultation period. The standard Treasury Board guidance is that it takes 6–24 months for regulations to be enacted starting from the date of royal assent of the statute that delegated the power to make such regulations.

We will continue to monitor Bill C-97 as it winds its way through the legislative process.

Think Before You Send: The Legal Risks of Emails and Text Messages from Personal Accounts

If the Hillary Clinton email scandal wasn’t a clear enough lesson that one should not conduct “official” work using personal electronic communication tools (be it personal email, texts or other methods), a number of recent court decisions have required executives to produce communications from their personal accounts and devices. Executives and advisors should not assume that communications using methods other than corporate email will somehow be protected or otherwise not find the light of day in the event of a dispute or investigation.

John Schnatter v. Papa John’s International, Inc.

During an earnings call in November 2017, John Schnatter (“Schnatter”), the founder of Papa John’s International, Inc. (the “Company”), criticized the National Football League’s handling of the dispute between players and owners regarding national anthem protests. Some months later, Forbes reported that Schnatter had used a racial slur during a Company diversity training exercise. Schnatter subsequently resigned as chairman of the Company’s board of directors (the “Board”) at the Board’s request, but declined to resign as a director. The Board then established a special committee which decided to terminate agreements that the Company had with Schnatter.

In the wake of these events, Schnatter requested books and records from the Company, including emails and text messages from personal accounts and devices of the Company’s executives.

On January 15, 2019, the Court ordered the Company to permit Schnatter to inspect the personal accounts and devices of certain executives that were used to communicate about the possibility of changing Schnatter’s relationship with the Company. Chancellor Bouchard stated that executives should expect to provide such information in litigation if they choose those mediums to discuss corporate matters. Although there is no bright-line rule with respect to the inspection of executive’s personal accounts and devices, Chancellor Bouchard noted several factors that influenced the Court’s decision, including:

  • the Company’s directors did not have Company email addresses; and
  • the Company did not introduce at trial “a policy indicating that it views any information from the personal accounts or on the personal devices of its directors or officers to be ‘personal unrestricted information’ outside the control of the Company.”

In re Appraisal of Kate Spade & Co.

In 2017, former shareholders of Kate Spade & Co. (“Kate Spade”) sought appraisal of their securities following Coach Inc.’s (“Coach”) acquisition of Kate Spade. In response to interrogatories, Kate Spade asserted that none of its executives engaged in communications over email or text from their personal accounts or devices concerning the negotiation of the transaction with any executives of Coach. However, documents produced by Kate Spade indicated the possible existence of text messages between two of the executives. The former shareholders then moved to compel the production of such communication arguing that some of the executives had prior social relationships that could have given Coach an advantage in the negotiation process.

In a transcript ruling, the Court ordered Kate Spade to produce the relevant text messages. Chancellor Bouchard took the opportunity to discuss the value that can be derived from text messages: “It has been my experience that text messages can be the source of a lot of probative information in cases, particularly when they’re covered with emojis and other things of that nature. … Maybe a text message will show a personal relationship. Maybe it won’t show that. But, frankly, just the precision of timing of exactly when certain things happened is extremely important in cases. … And so I have found, frankly, text messages to be probative in that regard.”


These cases should serve as a useful reminder that directors, officers and advisors should endeavor to conduct company business only on their company accounts and devices and not on their personal accounts and devices. Once it is established that an executive uses a personal email account or device to conduct company business, those personal accounts or devices will likely be subject to discovery, which could result in sensitive or embarrassing personal information being produced. Although these rulings are not binding on courts in Canada, it was not too long ago that the Ontario Superior Court of Justice allowed a tier-one Canadian bank to inspect the emails of its former executives in connection with their move to form a competing financial services firm.

In order to protect information on an executive’s personal devices and accounts, companies should consider: (1) providing company email addresses and devices to the exectuive on which to communicate regarding company business; and (2) adopting a policy restricting the communication of company business on personal accounts and devices.

Competition Act and Investment Canada Act Thresholds Announced for 2019

The Competition Bureau announced the 2019 transaction-size pre-merger notification threshold under the Competition Act increased to C$96 million from C$92 million, effective February 2, 2019. Innovation, Science and Economic Development Canada also announced new foreign investment review thresholds under the Investment Canada Act, effective January 1, 2019.

For more information about the new thresholds under the Competition Act and Investment Canada Act, see the Competition Chronicle.

Power and Influence: New CBCA Registration Requirements for Private Companies


As of June 13, 2019, private corporations incorporated under the Canada Business Corporations Act (CBCA) must maintain a register regarding individuals who have “significant control” over the corporation through direct or indirect influence. This requirement was one of several new initiatives included in Bill C-86, the Budget Implementation Act, 2018, No. 2 which received Royal Assent on December 13, 2018.

New Conditions

Individuals will fall within the category of having significant control if the following triggers are present:

  • ability to control the corporation through indirect or direct influence; or
  • being the beneficial or registered owner of, or having the control or direction over, either indirectly or directly, a “significant number of shares” of the corporation (the threshold for such control is being 1) the owner of 25% or more of the outstanding shares of the corporation or 2) owning 25% or more of the outstanding number of voting shares of the corporation.

Non-Compliance Penalties

The punishment for intentionally disregarding the new requirements will consist of six months imprisonment and/or a fine up to $200,000. Parties potentially impacted by these consequences include shareholders, corporations, directors and officers.

Registration Requirements

The register for individuals with significant control of the corporation must contain the information below:

  • name, birthdate and latest address;
  • jurisdiction of residence for tax purposes;
  • date when individual obtained significant control and ceased to hold significant control of the corporation;
  • description of how the individual has significant control of the company;
  • description of the reasonable steps taken by the corporation in each financial year to ensure the register is complete and accurate; and
  • any other prescribed information as set forth in any regulations.

After the register has been created the corporation must be diligent as it pertains to keeping it up to date through at least one check during the fiscal year to see if additional individuals satisfy the significant control category.

The exact mechanics concerning the preparation and maintenance of the register will be shared through upcoming registration requirements.

Increased Transparency

Despite the new registration requirements currently applying only to private corporations formed under the CBCA, this move is a part of a potentially growing trend. Recent Recommendations in the House of Commons Standing Committee on Finance’s report on the Proceeds of Crime (Money Laundering) and Terrorist Financing Act highlight a potential transition to a universal registry to be applied both federally and to the respective provinces and territories.

The U.S. Government Shutdown: Ripple Effects North of the Border

Now in its fifth week, the U.S. federal government shutdown has become the longest in U.S. history. The partial shutdown began on December 22, 2018, following a stalemate between Congress and President Donald Trump over funding for a wall at the Mexican border. Many government services and agencies have been halted: NASA, the Smithsonian museums, the National Gallery of Art, the National Park Service. Others, like the postal service, social security, the Pentagon and the FBI, remain open due to the critical nature of the services they provide. To date, more than 800,000 federal employees have been furloughed or are working without pay, resulting in more than US$200 million in unpaid wages every workday. By tomorrow, federal district courts will have run out of funds.

North of the border, the situation is not as dire, although Canada is feeling the ripple effect of the budget impasse. For one, Canadian businesses contracting directly with the U.S. government are likely searching for ways to cope with, and in some cases survive, the shutdown. Travellers heading south may experience delays as many Transportation Security Administration workers have been calling in sick, refusing to work without pay. And as a result of partial closures at the U.S. Department of Agriculture (USDA) and the Food and Drug Administration (FDA), Canadian restaurants and grocery stores may be under pressure to find alternative sources of produce in cases where routine assessment or clearance by the USDA or the FDA is required for food imports into Canada.

Not the least of the negative ramifications of the shutdown this side of the border has been the impact on Canada’s capital markets.

Since December 27, 2018, the U.S. Securities and Exchange Commission (SEC) has been operating with very limited staff. Departments that perform key functions, such as monitoring the markets and responding to emergencies, continue to operate pursuant to the agency’s Operations Plan Under a Lapse in Appropriations and Government Shutdown. The SEC’s Division of Enforcement, for instance, continues to monitor the Tips, Complaints and Referrals system for reports alleging misconduct or harm to investors. Applications for restraining orders and investigations into fraud remain in play. The SEC’s electronic filing system, EDGAR, also remains open, allowing filers to obtain access codes and make certain filings.

A number of the SEC’s major functions have been temporarily discontinued, however. Non-emergency interpretative advice is currently unavailable, so inquiries relating to cross-border mergers, for example, are being put on hold. Processing of new and pending applications for exemptive relief and non-emergency assistance to Canadian authorities under any bilateral or multilateral arrangements have been suspended. And although the SEC continues to receive registration statements, offering statements and other documents, declaring registration statements effective and approving offerings have been halted, leading to a growing backlog of applications by registrants and issuers in the United States and Canada alike. Long-anticipated IPOs will need to wait for the standoff to end.

It is unclear how long the shutdown will last. Analysts estimate, though, that if the fallout continues for an extended period of time, the American economy (and consequently the Canadian economy) could face significant setbacks. For the sake of all those affected by the shutdown, including Canadian businesses and individuals, it is hoped that the standstill will come to an end sooner rather than later.

Streamlining Processes and Procedures: Objectives for the Burden Reduction Task Force

Recently, the Ontario Securities Commission, in coordination with the Ministry of Finance, created a Burden Reduction Task Force. The goal of this initiative is to enable Ontario’s businesses and markets to innovate, better compete with other jurisdictions and flourish as the regulatory load is reduced while not diminishing the safeguards in place for Ontario investors.

This Task Force will support the Government of Ontario’s Open for Business Action Plan by identifying short- medium- and long-term steps that can benefit Ontario by facilitating increased competitiveness by saving money and time for investors, issuers, registrants and other members in the financial markets. The comprehensive consultation is fully supported by the government and seeks to enable the transformation of inefficient past practices.

Areas for Market Input

The Task Force has selected various areas of interest where it encourages feedback from stakeholders concerning ways to reduce unnecessary burdens that include:

  • Increased efficiencies concerning day-to-day engagement with the OSC through cost savings as it pertains to procedural or operational processes
  • Eliminating filings and forms which are not needed or unnecessarily difficult for market participants along with providing easier access to information provided by the OSC
  • Harmonization of OSC requirements with other jurisdictions thereby reducing inconsistencies and costs


By March 1 stakeholders are encouraged to share suggestions with the OSC by using the Burden Reduction Survey or through e-mail at comments@osc.gov.on.ca. On March 27 market participants interested in discussing proposed changes should join the OSC hosted roundtable which will require the submission of a comment letter to the OSC.

The Big MAC: Affirmed

Days ago, the Supreme Court of the State of Delaware issued an order succinctly affirming the Delaware Court of Chancery’s judgment from October this year that found Fresenius Kabi AG had no obligation to close its proposed merger with Akorn, Inc. and Fresenius properly terminated the merger agreement on April 22, 2018 largely as a result of Akorn having suffered a material adverse effect (MAC).

The Court of Chancery’s decision is notable for a number of reasons, but the main attraction is the fact that the decision is generally understood to represent the first time a Delaware court has allowed a buyer to walk away from a public company merger on the basis of a contractual MAC provision.

Why it Matters

Merger agreements almost always allow the buyer to “walk” if the target suffers a MAC before closing or if the target’s representations are not true at closing subject to a MAC qualifier. As a result, the MAC definition is often hotly contested notwithstanding the fact that prior to Akorn nobody was successful in walking away on the basis that a MAC occurred. The Delaware courts have been very reluctant to find a MAC, trying to balance respect for the written terms of an agreement with an aversion to facilitating buyer’s regret.

The Decision

In a 246 page document, the Court of Chancery described the question of whether Akorn had experienced a MAC as a “straightforward issue” of contractual interpretation. It helped that the facts were ugly: during each of the four quarters following signing, on a year-over-year basis, Akorn’s revenues declined between 29% and 34%, its operating income declined between 84% and 124%, and its earnings per share declined between 96% and 300%. In reaching its decision, the Court of Chancery confirmed prior guidance that a MAC must be both “material when viewed from the longer-term perspective of a reasonable acquirer” and “durationally significant”.


The case does not create new law, but it does confirm that it is possible to find a MAC and provides a factual point of reference that others will turn to when a MAC is inevitably asserted in the future. Although not binding on courts in Canada, the decision is expected to be highly influential given the lack of jurisprudence on the point in Canada and the fact that the Delaware Courts are considered the leading commercial courts in the United States.