Can a majority shareholder remake a company’s board of directors with the stroke of a pen?
That will be the central question before a judge on Monday, as Edward Rogers’ attorneys seek court approval for his recent decision to remove five directors from the Rogers Communications Inc. board of directors and replace them with their own nominees.
Experts say you may have the law on your side, but it won’t be a “dunk.”
Edward is chairman of a family trust that controls 97.5 percent of the voting shares in the telecommunications company and has said that gives him authority to replace the directors through a written resolution.
Against Edward are the company itself and members of his own family, including his mother Loretta Rogers, who filed an explosive affidavit on the matter on Friday.
Among other things, she claimed that her son has “ignored” the checks and balances that her late husband, company founder Ted Rogers, established in his estate and “breached his commitment to carry out Ted’s wishes.”
“I strongly disagree with Edward’s personal view that he has the right to exploit his position of trust as chairman of the Control Trust to circumvent Ted’s wishes, the interests of other members of the Rogers family, and the governance structure that has enforced him. allowed Rogers to become a successful public company despite family control, ”said Loretta.
The case will be heard by Judge Shelley Fitzpatrick of the Supreme Court of British Columbia, which is where the company is incorporated.
“This is not a blow to Mr. Rogers,” said Richard Leblanc, professor of governance, law and ethics at York University.
He said two weaknesses in Edward’s case could be not paying due attention to shareholder democracy and “the wishes of Mr. (Ted) Rogers according to Mrs. Rogers.”
The legal dispute revolves around the interaction between corporate law in British Columbia and the articles that govern the company.
The articles establish that the shareholders can remove the directors of the board by means of an “ordinary resolution” and that the “vacancy created by said dismissal can be filled in the same meeting.”
The term “ordinary resolution” is not defined in the company statutes. But in the BC Business Corporations Law, a part of the definition states that it can be done in writing with the consent of enough shareholders with the right to vote.
Edward’s team argues that this is the heart of the argument. On October 22, he sent a written resolution to the company saying that he had removed and replaced the five directors of the board with his own nominees.
(David Peterson, who is one of the directors Edward has sought to replace, is also a vice president of Torstar Corp., the company that owns Toronto Star.)
His lawyers say that this measure was effective as soon as he sent that resolution in writing.
“At first glance, I think Edward Rogers has the strongest argument as a strictly corporate law issue,” said Camden Hutchison, assistant professor at the Peter A. Allard School of Law at the University of British Columbia.
“Assuming they followed procedures the way they were supposed to, they are allowed to replace the board with a written resolution.”
He said British Columbia law is clear that companies can establish a process of their own choosing to remove directors and Rogers’ corporate articles state that this can be done through a written resolution.
Hutchison said that the fact that the articles refer to filling vacancies “in the same meeting”, suggesting that an actual meeting might be necessary, is a “source of ambiguity that could arise in the audience.”
As of Friday night, Rogers Communications had not filed response materials with the court. Over the past week, the company, and eight directors on its board, said Edward’s action was “invalid” and that changes to the board cannot be made “without calling a shareholders meeting.”
In her affidavit on Friday, Loretta Rogers said: “A fundamental protection afforded to shareholders is the right of all shareholders, including holders of Class B shares without voting rights, to be notified and to participate in meetings of shareholders”.
He noted that following this process gives stakeholders the opportunity to express their views before making a decision. Non-voting shareholders could also vote with their money, buying or selling shares of the company depending on what they think of the plans.
Hutchison said he believes the court will rule quickly on the matter. He noted that the judge does not have to follow the “company’s schedule”, but will be aware that “if this is not resolved soon, it will run the risk of damaging the business.”
“The judges don’t like to be rushed,” Leblanc said. “But under the circumstances, I would expect some kind of ruling early or in the middle of next week, perhaps with written support to follow.”
“Time is of the essence given the claim of two valid boards of a public company,” he said. “There can only be one valid license plate.”
Reference-www.thestar.com