Since the Supreme Court of Canada’s 2008 decision in BCE, Canadian boards responding to a hostile bid have been faced with a conundrum.  On the one hand, Canada’s highest court has enshrined the idea that boards may consider all affected stakeholder interests, not just those of shareholders, in exercising their fiduciary duty to act in the best interests of the corporation. Theoretically, this might permit a board wide latitude in responding to a hostile suitor.  On the other hand, in all but the rarest of cases, Canada’s securities regulators have effectively limited the utility of shareholder rights plans (also referred to as “poison pills”), which are the most common tool that boards wield to keep a hostile bidder at bay. In accordance with National Policy 62-202, the CSA’s general policy on defensive tactics which was first adopted in 1986, securities regulators have cease-traded rights plans, rendering them inoperative after 45 to 60 days on the basis that shareholders should have the final say on any bid. Complicating matters, recent rights plan decisions have raised questions of consistency in the approach of securities regulators and the role of directors’ business judgment.
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