Ellipsiz prepares for showdown

Dispute sets tone for shareholders meeting

It’ s messy, indeed it’ s downright ugly and combatants at Ellipsiz Communications — the largest shareholder Tat Lee ( also known as Michael) Koh and three directors — are set for one more battle at a July 7 shareholders’ meeting.

Along the way in the dispute, which has been ongoing for about a year, some nuances in the meaning of “personal interest” and of a company’s right to refuse to grant a shareholders meeting when a requisition has been made, have surfaced.

So far the score is 1-1 with the Ontario Superior Court of Justice agreeing with the company and its three Canadian directors, and three justices of the Ontario Divisional Court agreeing with the largest shareholder, who has a 42 per cent stake.

A quick recap: Ellipsiz has been public in Canada since November 2015. Its largest asset is a Taiwan operating company that provides services to telecommunications companies.

Last June, on the eve of its first annual meeting, the largest shareholder tried to change his support for the three Canadian nominees — but was overturned by the chairman. In August, the largest shareholder demanded the three resign — and if not he would requisition a shareholders meeting. The board rejected that demand and also rejected the demand for a shareholders meeting using the personal grievance exception. ( The company started collecting more information on the chairman, some of which found its way to the regulators.) In February, the courts agreed with the company; in June the largest shareholder won the day.

“The essence of the disagreement between the two courts, is that the lower court judge interpreted a grievance as an interest,” said Mark Wilson, a partner at Wildeboer Dellelce. “The Appeal Court ( disagreed) and said that’s not what the statute says.”

“Trying to knock people out of exercising an important statutory right, requires that the statute has to be read simply and narrowly. And don’t conflate it,” added Wilson. “Just because a person has an interest in a company (as a 42 per cent shareholder would) doesn’t mean that it’s a grievance. It’s not logical to equate the two.”

In the June ruling, the three justices noted that “on three main points,” all of which were directly related to the “business and affairs of the respondent,” the two parties had different views. In other words, matters other than personal grievance/ interest were involved.

After the recent decision, Koh, the largest shareholder said in a release: “The entrenched directors have little regard for the law and have repeatedly acted in a clandestine manner. It is the conduct of the entrenched directors themselves that is at best highly questionable.”

Wilson said the Divisional Court’s decision is important because it means issuers won’t be able to readily forestall shareholder requests for a meeting. “Issuers have used technical defences to try and frustrate uses of the requisitioning right,” a right that allows a shareholder with a five per cent stake to call a meeting and propose new directors. “It’s a powerful right,” he said, with one of the worst abuses being the issuer’s ability to set the timing of such a requisitioned meeting at their discretion. “That’s tough to defeat,” he added.

Wilson argues investors can feel buoyed by this decision when considered alongside a recent Ontario Securities Commission ruling on Eco Oro Minerals. In that case, the OSC overturned a TSX decision that allowed a private placement of shares to friends of the company about a week before the record date. In a write-up, Oslers noted the OSC’s decision also “effectively unwinds the private placement unless and until it is approved by Eco Oro’s shareholders.”

THE ENTRENCHED DIRECTORS HAVE LITTLE REGARD FOR THE LAW.