fairness opinions in plans of arrangements

In 2014, corporate and securities lawyers across Canada united with grave concern over the Ontario Superior Court of Justice's decision in Champion Iron Mines, 2014 ONSC 1988. In Champion, the court considered an application to approve a plan of arrangement leading to an acquisition - a common use of this corporate procedure. In his decision, Justice Brown held that the fairness opinion adduced to support the application was inadmissible to prove that the proposed arrangement was fair and reasonable because the fairness opinion did not qualify as an expert opinion.

The decision caused a mild earthquake within the securities litigation bar. A quick search on an online search tool reveals articles written by all of the major national firms (or global firms with a Canadian presence) opining concern with the decision. The reliance on fairness opinion as evidence in court to support these applications is near ubiquitous. Special committees retain fairness opinions to help them execute their due diligence duties when assessing significant corporate transactions. To duplicate the cost to produce a report that would pass the expert evidence rules could materially, if not dramatically, increase the cost of these transactions.

In hindsight, this issue seems to have been overblown. Since its issue, only three courts have cited Champion. In British Columbia, one court cites Champion, - but largely ignores it (Jaguar Financial Corp. v. Alternative Earth Resources Inc., 2015 BCSC 2436). In Ontario, Bear Lake Gold Ltd. (Re), 2014 ONSC 3428 (CanLII), expressly questioned Champion and affirmed the utility of fairness opinions. One decision gave it favourable treatment: Re Interoil Corporation, 2016 YKSC 54 (CanLII) - but no court has since cited, let alone followed, this decision. It seems that the use of fairness opinions in the court has remained, and likely will remain, a staple of the plan of arrangement.

We continue to present the plan of arrangement as a potential solution for private companies who seek to undertake corporate change. Traditional transactional approaches can be more cost-effective, less risky, and require less time than the plan of arrangement tactic (being a litigation option). However, in the right circumstances and with the right evidence (an independent fairness opinion), one can use the plan of arrangement to overcome challenging governance challenges, such as a minority shareholder or director who is blocking restructuring. These applications need not be costly with the right support from the instructing solicitor and can be used not just in public company contexts, but in private ones as well.


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