A proxy battle over the future of a fund that invests in energy companies is getting nastier.
Energy Income Fund is accusing a group of dissident investors of breaching securities law in their attempt to replace the management of the fund, a tactic that the dissidents expected and their representative has called "ridiculous."
Last week a group of investors claiming ownership of more than 20 per cent of the fund's units announced they were seeking a vote to switch management, saying they were unhappy with some recent moves to raise money at a price they didn't like. The way the fund is set up, a 20 per cent block is enough to force a vote.
The fund's management immediately rejected the move, denying the requisition for a meeting.
Monday, the fund explained why, accusing the dissidents of acting "jointly or in concert in acquiring the fund units and requisitioning the meeting which would mean they repeatedly breached the takeover provisions of the Securities Act." The fund also accused the shareholders of failing to disclose the size of their stake, and trading "when they possessed material information that was not generally disclosed to the public."
"Trading records show that the dissident unitholder group acquired nearly its entire announced position of 1.85 million units since Oct. 25, 2011, for the apparent purpose of requisitioning a meeting," the fund said. "While acquiring this position, the dissident group did not disclose it had acquired more than 20 per cent of the fund's units, well above the required limit for disclosure"
The fund is asking the Ontario Securities Commission to cease-trade the securities owned by the dissidents and to stop them from pushing forward with the proxy battle.
David Calnan, a lawyer representing the dissidents, did not immediately return messages Monday seeking comment on the allegations. However, in an interview last week, Mr. Calnan said the dissidents expected the fund might argue that the dissidents were acting contrary to securities rules as they gathered a group that had the required size to force a meeting.
"They are waving this thing saying that somehow our group has breached the takeover bid rules in the Ontario Securities Act," Mr. Calnan said. "I can't fathom what they are talking about, because you have to get a group that has more than 20 per cent in order to call a meeting."
"It seems ridiculous," he added. "All we're doing is what the trust says we have to do. If you're doing what the trust says you have to do, how can you also be breaching the rules of the act. That would be a real strange situation if the Ontario Securities Commission wants to apply those rules to prevent anybody from ever taking action under this type of declaration of trust."