This article has been contributed to the blog by David Rosenblat and Justine Erickson. David Rosenblat is an associate in the insolvency and restructuring group of Osler, Hoskin & Harcourt LLP and Justine Erickson is a summer student at Osler, Hoskin & Harcourt LLP.
Three recent decisions of the Ontario Superior Court of Justice have considered the use of fairness opinions in the context of plans of arrangement. In Champion Iron Mines Ltd. (Re), 2014 ONSC 1988 (“Champion Iron”), Brown J called into question the court’s ability to consider fairness opinions in the context of a proposed plan of arrangement when the opinion contains limited disclosure of the underlying analysis. However, two subsequently released decisions, Bear Lake Gold Ltd. (Re), 2014 ONSC 3428 (“Bear Lake”) and Re Patents Royal Host Inc., 2014 ONSC 3323 (“Royal Host”), considered Brown J’s decision and affirmed the previous disclosure practices associated with fairness opinions.
Fairness Opinions and Plans of Arrangement
The Ontario Business Corporations Act and the Canada Business Corporations Act provide corporations with the ability to effect certain fundamental changes, such as the restructuring of debt, by way of a plan of arrangement. Courts must approve of a plan of arrangement before it can be implemented.
In BCE Inc. v. 1976 Debentureholders, [2008] 3 SCR 560 (“BCE”), the Supreme Court of Canada held that before approving of a plan of arrangement courts must be satisfied that: (i) the statutory procedures have been met, (ii) the application has been put forward in good faith, and (iii) the arrangement is fair and reasonable in order to approve a plan of arrangement. In reviewing the directors’ decision on a proposed arrangement to determine if it is fair and reasonable, courts must be satisfied that an arrangement has a valid business purpose and that the objections of those whose legal rights are being arranged are being resolved in a fair and balanced way.
As the Supreme Court of Canada observed in BCE, courts have taken into account “the presence of a fairness opinion from a reputable expert” when conducting fairness analyses in the past. Fairness opinions are generally put forth to the court as an element of the board’s review in its own determination of the reasonableness of an arrangement. They are prepared by financial advisors after a thorough analysis which is usually presented to the board of directors. The form of opinion released to shareholders and to the courts typically contains limited disclosure of the analysis performed.
Champion Iron Mines Limited (Re)
The court approved Champion Iron’s proposed plan of arrangement; however, it did not consider the fairness opinion that was submitted in the proceedings. Brown J stated that “a court is not a boardroom” and can only evaluate admissible evidence. Brown J determined that the fairness opinion was inadmissible for the purposes of the application because it did not comply with the requirements of the Rules of Civil Procedure regarding expert evidence. Specifically, Brown J noted that the fairness opinion did not contain a description of the factual assumptions on which the opinion was based, a description of the research conducted that led to the formation of the opinion and a list of every document relied on in the formation of the opinion.
Brown J went on to describe the typical fairness opinion as “cookie cutter” in appearance and noted that supporting reasons are typically not apparent on the face of such opinions. From an evidentiary point of view, Brown J noted that this renders opinions inadmissible for the purpose of asking the court to rely on their content in support of granting an application.
Bear Lake Gold Ltd. (Re)
Wilton-Siegel J approved a plan of arrangement between Bear Lake Gold Ltd., Kerr Lake Mines Inc. and 2402196 Ontario Inc. on May 14, 2014. In his reasons released in early June, Wilton-Siegel J discussed the Champion Iron decision and concluded that the use of fairness opinions in the court approval process does not need to be changed.
The court described fairness opinions as a financial advisor’s opinion regarding the fairness or reasonableness of a transaction from a market perspective that assists special committees and boards of directors in assessing proposed transactions. Wilton-Siegel J noted that fairness opinions serve as evidence that a special committee or board of directors has considered the fairness and reasonableness of a proposed transaction on the basis of objective criteria (to the extent possible). He also held that the publication of fairness opinions in an information circular and the resultant reaction of shareholders and the market provide further evidence of the fairness and reasonableness of a proposed transaction and the integrity of the directors’ decision making process.
Wilton-Siegel J stated that “as in previous contested situations, particularly involving a reorganization of the interests of the existing securityholders of a corporation rather than an acquisition of outstanding securities by a third party, if a party proposes to qualify a fairness opinion as expert evidence under the Rules of Civil Procedure the detailed analysis that grounds the fairness opinion must be available if required by any objecting securityholders”.
Re Patents Royal Host Inc.
Newblould J discussed the use of fairness opinions in Royal Host, noting that “the purpose of a fairness opinion is a commercial one” and that “it is an opinion to be considered by the board of directors and the shareholders in a commercial context”, rather than an “expert report in the litigation context”. Newbould J went on to support the view that a fairness opinion can be indicia of the fairness and reasonableness of a proposed transaction, as held in Bear Lake.
Bear Lake and Royal Host indicate that previous practices regarding the use of fairness opinions for the purpose of gaining court approval of plans of arrangement will prevail in spite of the Champion decision.
Restructurings via plans of arrangement under the Canada Business Corporations Act were described in more detail in a recent article.

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