Empty Voting and Hidden Ownership in Canadian Jurisprudence

Abstract

The classic understanding of equity encompasses a suite of economic and governance rights, which typically includes the rights to vote, receive dividends, and participate in distribution of assets upon dissolution. This conventional view, outlined in corporate legislations, is supported by Canadian jurisprudence and corporate law scholarship. However, financial innovations have facilitated the separation of voting rights from the financial entitlements of shares, creating a marketplace where shareholder interests are reconfigured and traded in diverse ways. Derivatives and securities lending arrangements have led to phenomena known as empty voting and hidden ownership. In empty voting, an investor retains voting rights without an economic stake in the shares, challenging the assumption that shareholders' interests align with the company's welfare. Hidden ownership involves using derivatives to gain an economic interest in shares without beneficial ownership, potentially circumventing disclosure requirements and neutralizing the target company's defences. Addressing the concerns of empty voting and hidden ownership, various jurisdictions have proactively amended their regulatory frameworks to include derivatives within their early warning disclosure requirements. In contrast, Canada's stance on this issue remains unchanged, as its early warning disclosure regime has not been formally adapted to encompass such derivatives. Thus, to grasp the Canadian approach to mitigating empty voting and hidden ownership, one must delve into the judicial and regulatory landscapes. This exploration forms the crux of this article, aiming to contribute to the scholarly discourse by analyzing how Canadian courts and securities commissions navigate the complexities surrounding the decoupling of economic interest and voting power.