Mergers, Markets and Microchips

Where corporate law and securities law meet

Robert Michelin, lawyer

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On November 28^th 1997, the McGill University Law Faculty hosted its annual Conference «The Law and You: A Practical Guide». The theme of this year's conference, entitled Mergers, Markets and Microchips, was the impact of technology and globalization in securities law and the relevance of such changes for the practicing attorney.

One of the key speakers from the regulatory realm was Mary H. Walsh, CBCA¹Director and Director General, Corporations Directorate, Industry Canada. Ms. Walsh's presentation centered around the idea that recent years have seen the convergence of corporate law and securities law. As a result, corporate lawyers charged with counseling public companies have an increasingly complicated task, due primarily to the significant role played by securities regulators in defining the behavior of such companies.

In analyzing the convergence of corporate law and securities law, Ms. Walsh employed two analytical tools. First, she traced an evolutionary pattern from the time when the CBCA was first implemented through to the
present, suggesting that securities law and corporate law have only become intertwined since corporate law came under this statute; such convergence was not evident under the CBCA's predecessor, the Canadian Companies Act². Second, she compared the regulatory environment in Ontario with that of the United States in an effort to demonstrate the interventionist public interest role present in the former and the impact of such a role in removing the barriers between the two areas of law.

Evolutionary pattern

Prior to the introduction of the CBCA, securities were larely regulated by corporate law statutes. Under such a system, there was little need for interventionist securities regulators empowered by a distinct statute. In the early 1970s, however, the role of securities law began to expand. This expansion was partly due to the fact that the new corporate legislation created an environment for expansionist securities legislation. Ms. Walsh cited the relatively weak enforcement mechanisms available to the Director under the CBCA as one aspect of this environment. By expansionist, Ms. Walsh was refering to securities legislation which defined the key role of the regulator as that of protector of the public interest. Specifically, this meant involving itself in transactions where shareholders/investors were potentially subject to abuse pursuant to corporate transactions. It marked a departure from the traditional corporate tendency to allow internal forces to settle post-transaction uncertainties.

United States vs. Ontario³

Ms. Walsh cited the United States as an environment where the securities regulator generally hesitates to impose fiduciary duties that go beyond the traditional ones found in corporate law.⁴The Securities Exchange Commission (SEC), she suggested, does not use whatever discretionary powers it may possess in order to protect the public from the results of transactions which may be abusive to investors. Rather, it tends to make recommendations to self-regulating organizations such as the New York Stock Exchange, suggesting that rules favorable to SEC positions be adopted.

In Ontario, however, the Ontario Securities Commission (OSC) has indicated a willingness to take a considerably more interventionist stance. According to Ms. Walsh, the OSC has interpreted the Ontario Securities Act (OSA)⁵in such a way as to allow it wide discretionary powers. In other words, the OSC's interpretation of its own mandate allows it to use the enforcement mechanisms provided by the OSA to intervene in transactions in the name of protecting the public interest. Equally important to the efficacy of its interventionist role is its freedom to interpret the phrase public interest. The result, according to Ms. Walsh, has been the expansion growth of the jurisdiction of securities legislation where once corporate legislation was unrivaled.

1 Canada Business Corporations Act, R.S.C. 1985, c. 44.

2 Canada Corporations Act, R.S.C. 1970, c. 32.

3 In discussing this idea, Ms. Walsh relied primarily on the text of the following article which appeared with her conference materials: Patrick Moyer, "The Regulation of Corporate Law by Securities Regulators: A Comparison of Ontario and the United States", University of Toronto Faculty Law Review, Vol. 55, No. 1, Winter 1997.

4 Like Canada, American securities legislation occurs at the federal and state levels. The Securities Exchange Commission (SEC) is responsible for administering the various legislation responsible for federal securities regulation. Each state also has its own securities legislation which impose disclosure and other requirements.

5 R.S.O. 1990, c. S.5

 

 

 

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