An Ontario court denied a hedge fund’s request to adjourn and delay a company’s annual meeting, amid allegations that the company had engaged in “oppressive conduct” against the fund. The court ruled that the company complied with the law in calling the meeting, and indicated that courts shouldn’t be quick to intervene.
According to a decision of the Ontario Superior Court of Justice, a hedge fund, Kaos Capital Ltd., brought an urgent application, asking the court to delay the planned annual meeting of a biotech company, Psyence Biomedical Ltd. (PBM), citing concerns about the circumstances surrounding the meeting. The company is purportedly developing “psychedelic” medicines.
The court said that the hedge fund sought an order delaying the company’s shareholder meeting until Feb. 22 at the earliest, arguing that the notice provided to shareholders about the meeting didn’t comply with legal requirements, and arguing that the short notice prevented it from nominating directors.
However, the court rejected those arguments, finding that the meeting was called in compliance with the statutory requirements in this area.
On that count, the court found that the meeting was properly convened because the company was only required to provide 10 days notice to shareholders under the law.
It noted that, while the company is based in Toronto and registered in Ontario, it’s traded on the Nasdaq and makes regulatory filings with the U.S. Securities and Exchange Commission (SEC), so it’s not considered a public issuer in Ontario, and falls into the category of “other companies,” which only have to provide 10 days notice to shareholders.
“PBM met this technical requirement,” the court said — adding that the company also provided shareholders with information for the meeting in compliance with the legislative requirements.
However, according to the court’s decision, Kaos argued that the court could still adjourn the meeting, if it finds that, “there has been oppressive conduct,” by the company, even if it has met the technical requirements for holding the meeting.
“Kaos argued that there is a difference between technical compliance and meaningful compliance,” the court noted.
Among other things, the fund argued that the company should have posted a notice on its website announcing the meeting back in mid-December. It also argued that the short notice prevented it from nominating directors, since shareholders were given less than 30 days written notice of the meeting, which is required by the company’s bylaws.
The court said that the hedge fund speculated that the company may have taken steps to actively dilute the fund’s position in the company; and that there may be conflicts of interest that were not disclosed in its proxy circular, which was filed with the SEC.
However, the court didn’t make any findings about the validity of these allegations, saying that given the urgent application to delay the meeting, “there was not sufficient evidence” for the court to consider those issues.
The court also stressed that it, “will not lightly” adjourn a meeting that has been properly called.
It concluded that, in this case, “None of the proposed reasons to delay the shareholder meeting have been established.”
The court acknowledged that while the company could easily have posted a notice on its website about the upcoming meeting, it said that’s not required under the legislation — nor is the company required to give the same notice to shareholders as a public issuer, the court said.
And, it found that the company met shareholders’ “reasonable expectations” in calling the meeting — since the notice was technically compliant, and it had followed similar procedures in calling its two previous annual meetings.
“As noted by PBM, the notice process that was employed for this shareholders’ meeting was not tactical or designed to respond to Kaos’ new investment; it simply followed the company’s past practice,” the court said.
As for the allegations of shareholder dilution, and other issues, the court said, “At this stage, there is much speculation” — but that arguments about delaying the meeting were focused on whether the meeting was called in compliance with Ontario law, which the court found it was.
“I make no findings at this stage on the underlying conduct that is alleged to be oppressive in this application,” the court concluded.
“The appropriate way forward is for the meeting to be held as scheduled. The [hedge fund] may return to court for relief … if there is any evidence of impropriety,” it said.