Directors' And Officers' Liability Update

Court Considers the Use of Corporate Press Releases during a Proxy Fight

In Smoothwater Capital Partners LP Inc. v. Equity Financial Holdings Inc., 2014 ONSC 324, the Court considered whether a corporate press release that responds to allegations of misconduct by a dissident shareholder amounts to "solicitation" of shareholder proxies.

The issue arose because before soliciting proxies, a corporation must send a management proxy circular to the corporation's auditor, to each shareholder whose proxy is solicited, and to each of its directors. If the company fails to comply with those requirements and the directors and officers knowingly authorize, permit, or acquiesce to that violation, the directors and officers are liable on summary conviction to an offence with maximum sanctions of a $5,000 fine or six-month imprisonment.