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CSA Proposes National Instrument 62-105: Security Holder Rights Plans

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The Canadian Securities Administrators (CSA) published for comment proposed National Instrument 62-105 Security Holder Rights Plans, with the intention of establishing a comprehensive regulatory framework in respect of rights plans in Canada.

The proposed Instrument would provide a target company’s board and shareholders with greater discretion in the use of rights plans.

According to Bill Rice, Chair of the CSA and CEO of the Alberta Securities Commission, “the CSA believe that the proposed rule will modernize, harmonize and codify an appropriate regulatory approach to rights plans in Canada….barring exceptional circumstances, the decision to adopt and maintain a rights plan would be a matter for company boards and shareholders, not securities regulators.”

Specifically, the proposed framework allows a rights plan adopted by a board of directors to remain in place provided majority shareholder approval of the plan is obtained within 90 days after the rights plan is adopted or, if adopted after a takeover bid has been commenced, within 90 days after the date of the commencement of the takeover bid. To remain in effect, the rights plan would have to be approved at each annual meeting of the company following the initial shareholder approval. Any announced takeover bidder for the company, and joint actors of the bidder, would be excluded from the shareholder vote. Shareholders would also be able to terminate a rights plan at any time by majority vote at a shareholder meeting.

Under the current regime, securities regulators will usually cease trade a shareholder rights plan after a limited period of time once the plan has given the target board sufficient time to respond to a takeover bid.  The draft framework proposes that regulators not intervene to cease trade a rights plan that has complied with the proposed framework, which is a significant step in empowering the target board and shareholders in responding to a takeover bid.

The CSA comment period is open till June 12, 2013.