CITATION: Mutende Equities Ltd. v. Partners Value Investments Inc., 2016 ONSC 7823
DIVISIONAL COURT FILE NO.: 338/16 DATE: 20161212
ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT
SACHS, THORBURN and RICCHETTI JJ.
BETWEEN:
MUTENDE EQUITIES LTD.
Appellant
– and –
PARTNERS VALUE INVESTMENTS INC.
Respondent
Jason Squire, for the Appellant
Andrew Gray, for the Respondent
HEARD at Toronto: December 12, 2016
THORBURN J. (Orally)
The Issues
[1] This is an Appeal of the Order of Conway J. dated June 16, 2016 which came before the Commercial Court for approval.
[2] The issues to be addressed on this Appeal are:
(1) Should Mutende have been granted standing to seek to vary the proposed Plan of Arrangement to include dissenting rights for Mutende in respect of the proposed Plan of Arrangement? and
(2) Was the arrangement fair and reasonable despite Mutende’s objection?
PVII’s Proposed Plan of Arrangement
[3] PVII initiated a Plan of Arrangement to reorganize the capital of the corporation into a limited partnership, with PVII shareholders receiving securities in the partnership in exchange for their shares. Under this proposed plan of arrangement, direct, registered shareholders of PVII were also given the right to dissent and be paid fair value for their shares.
[4] On April 28, 2016, Wilton-Siegel J. made an Interim Order in a Proposed Plan of Arrangement of Partners Value Investments Inc. He held that, “the only persons entitled to appear and be heard at the hearing of the within application shall be PVI and any person who has filed a Notice of Appearance” and Mutende did so.
[5] In the meantime, the arrangement was “overwhelmingly approved” at the meeting, with almost 100% of the three PVII share classes voting in its favour. PVII then applied “for a final order under s.182 of the OBCA approving the arrangement…”
[6] On June 15, 2016, Mutende brought its motion before Conway J. and made submissions. Mutende acknowledged that it was not a registered beneficial shareholder of PVII and therefore could not exercise dissenting rights pursuant to the OBCA. Mutende sought to obtain those rights under a revised Plan of Arrangement.
The Order of Conway J.
[7] Conway J. approved PVII’s plan of arrangement, explaining that “…the test for approval set out in BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. is met.” Conway J. held that Mutende had no standing to seek a proposed plan that would give it dissenting rights to the Plan of Arrangement “to reorganize itself from a publicly-traded corporation into a publicly-traded limited partnership” for the following reasons:
(1) Mutende is a 25% shareholder of Partners Holdings (also known as Quadco). Quadco is a 72% shareholder of Partners Limited. Partners Limited is a 49% shareholder of Partner Value Investments Inc. Therefore, Mutende was not a direct or beneficial shareholder of Partners Value Inc. By seeking an amendment of the Plan of Arrangement it is indirectly trying to get dissenting rights on an arrangement where it has no such right at law.
(2) The leading authority in BCE does not provide that indirect stakeholders of the company being arranged should have a say in the plan of arrangement; and
(3) To the extent that Mutende’s rights and interests are affected by actions taken or not taken by majority shareholders of Quadco, those are intra-shareholder issues that can be litigated as provided in the relevant shareholder agreements or otherwise. They are separate and distinct from this court’s analysis on the plan of arrangement.
[8] She noted that Partners Limited voted in favour of the Proposed Plan of Arrangement, as did 99.75% of the shareholders.
Positions of the Parties
[9] Mutende claims the application judge erred in finding that Mutende had no standing and in failing to consider the impact of the proposed Plan of Arrangement on Mutende.
[10] According to Mutende, it is “a significant indirect investor in [PVII] and [Brookfield] and, by operation of two shareholder agreements, is entitled to participate in the control, through [PVII], of [Brookfield].” It suggests that a 2002 unanimous shareholder agreement describes Quadco’s purpose as “control[ling] Brookfield, directly and indirectly.” In addition, a shareholder’s agreement also governed Partners Limited, which required that transactions be approved by written consent. Mutende also claims that by virtue of its shareholdings and these agreements, Quadco “controlled the election of more than half of [Brookfield’s] directors.”
[11] Mutende cites the decision of the Supreme Court in BCE v. Debentureholders which provides for a broad interpretation of the legal rights to be considered on the judicial approval of a Plan of Arrangement.
[12] The Respondent, PVII asks this court to dismiss Mutende’s appeal with costs. It claims that Mutende’s grievance is related “to a corporation that is a shareholder of a corporation that owned PVII shares,” not the arrangement itself. As such, it has no standing.
[13] PVII also claims that “Mutende took no steps to prevent the closing of the transaction” and the arrangement has since been fully implemented.
Jurisdiction and Standard of Review
[14] Section 255 of the Business Corporations Act, R.S.O. 1990, c. B.16, provides that “[a]n appeal lies to the Divisional Court from any order made by the court under this Act. R.S.O. 1990, c. B.16, s. 255.”
[15] Approval of a Plan of Arrangement, including the decision to grant dissenting rights, is a discretionary decision to which this court owes deference. (Magna International Inc. (Re), 2010 ONSC 4685, 101 O.R. (3d) 721, at paras. 4 and 5). Thus, absent an error in principle or a demonstration that the decision is clearly wrong, the decision of the motions judge should be upheld.
Analysis and Conclusion
[16] Mutende cites para. 129 of BCE Inc. v. 1976 Debentureholders, in support of its submission that “the interests of non-shareholder security holders …[be] considered and treated fairly”. Mutende further argues that a broad interpretation of standing is consistent with s. 182 of the OBCA, R.S.O. 1990, c. B.16.
[17] We do not read BCE as providing indirect stakeholders of the company being arranged with status to seek a variance of the Plan of Arrangement. On the contrary, paras. 132 and 133 of BCE provide that,
[132] A difficult question is whether s.192 applies only to security holders whose legal rights stand to be affected by the proposal, or whether it applies to security holders whose legal rights remain intact but whose economic interests may be prejudiced.
[133] The purpose of s.192, discussed above, suggests that only security holders whose legal rights stand to be affected by the proposal are envisioned. As we have seen, the s.192 procedure was conceived and has traditionally been viewed as aimed at permitting a corporation to make changes that affect the rights of the parties. It is the fact that rights are being altered that places the matter beyond the power of the directors and creates the need for shareholder and court approval. The distinction between the focus on legal rights under arrangement approval and reasonable expectations under the oppression remedy is a crucial one. The oppression remedy is grounded in unfair treatment of stakeholders, rather than on legal rights in their strict sense. (Emphasis added)
[18] Mutende concedes that it is not a shareholder of PVII. As such, it has no legal right to interfere in the business affairs of PVII.
[19] Partners Limited, the shareholder of PVII, consented to the Plan of Arrangement. It is inconsistent with basic corporate principles that Mutende should be entitled to circumvent the approval of Partners Limited. Only shareholders of a corporation have a right to complain about shareholdings, shareholder interests or compliance with any shareholder agreement of that corporation.
[20] In this regard, it is important to note that PVII was not a party to any of the shareholder agreements being relied upon by Mutende.
[21] Fairness is to be measured by consideration of the shareholders of the company to be arranged rather than parties who have no legal interest in the company to be arranged. (Smoothwater Capital Corporation v Marquee Energy Ltd., 2016 ABCA 360 at paras, 19-23)
[22] Dissenting rights are only available through the OBCA or Plans of Arrangement approved by the Court.
[23] In this case, granting dissenting rights to Mutende would in effect, ignore Partners Limited’s approval of the Plan. As the Respondent PVII noted, “[B]y allowing a shareholder of a shareholder of a shareholder to exercise dissent rights, a court would be interfering in the affairs of those other corporations, including dictating the manner in which they have decided to deal with their property, including exercising voting and dissent rights over shares.”
[24] Mutende has no standing to seek a variance of the Plan of Arrangement and has advanced no other basis in support of its claim that the Plan approved by Conway J. was unfair. For these reasons, we uphold the decision of the application judge and the Appeal is therefore dismissed.
COSTS – SACHS J.
[25] I have endorsed the Appeal book as follows: “This appeal is dismissed for reasons given orally by Thorburn J. The parties agree that the Respondent, as a successful party in the appeal, is entitled to its costs fixed in the amount of $5,700 all inclusive.”
___________________________ THORBURN J.
I agree
SACHS J.
I agree
RICCHETTI J.
Date of Reasons for Judgment: December 12, 2016
Date of Release: December 15, 2016
CITATION: Mutende Equities Ltd. v. Partners Value Investments Inc., 2016 ONSC 7823
DIVISIONAL COURT FILE NO.: 338/16 DATE: 20161212
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
SACHS, THORBURN and RICCHETTI JJ.
BETWEEN:
MUTENDE EQUITIES LTD.
Appellant
– and –
PARTNERS VALUE INVESTMENTS INC.
Respondent
ORAL REASONS FOR JUDGMENT
THORBURN J.
Date of Reasons for Judgment: December 12, 2016
Date of Release: December 15, 2016