The Business Judgment Rule, the Public Interest Powers, and the “Fair and Reasonable” Test: Fellow Travellers or Ships in the Night?

Authors

Jeffrey MacIntosh, Faculty of Law, University of Toronto

Document Type

Article

Abstract

In the most controversial corporate transaction in Canadian history, Magna repurchased all of the Class B superior voting shares from its controlling shareholder, Frank Stronach, at a 1799 per cent premium to the otherwise identical but inferior voting Class A shares, thus ending Stronach’s long reign as de jure controller of Magna. Despite this massive and unprecedented premium, the transaction generated about three billion US dollars in aggregate value, or about 40 per cent of the pre-transaction market cap of Magna. I nonetheless argue that the transaction was massively flawed from both a procedural and substantive point of view and should not have been approved by the Ontario Securities Commission (OSC). The OSC has artificially and incorrectly limited its public interest powers to situations where there is an abuse of both shareholders and capital markets, as opposed to mere unfairness. But even under the ostensibly more demanding abuse standard, by flagrantly transgressing extant commercial norms, the transaction violated the reasonable expectations of Class A shareholders and should not have been approved.The transaction was also approved by the Ontario Superior Court of Justice as meeting the “fair and reasonable” standard required of a statutory arrangement. In so doing, the court followed extant jurisprudence. Nonetheless, the test itself is a historical anachronism that substantially ignores the two most important developments in Canadian corporate and securities law in the past half-century: the recognition of reasonable expectations as a source of legal rights, and a focus on the procedural propriety of the transaction as an indicium of substantive fairness.

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Citation Information

MacIntosh, Jeffrey. "The Business Judgment Rule, the Public Interest Powers, and the “Fair and Reasonable” Test: Fellow Travellers or Ships in the Night?." Osgoode Hall Law Journal 60.1 (2023) : 73-125.
DOI: https://doi.org/10.60082/2817-5069.3876
https://digitalcommons.osgoode.yorku.ca/ohlj/vol60/iss1/2