No Options: Securities Commission Declines to Intervene in Dilutive Share Issuance During Proxy Contest

On October 5, 2026, the British Columbia Securities Commission (Commission) clarified the framework that applies when share issuances are challenged as defensive tactics during ongoing or imminent proxy contests. In Re Zefiro Methane Corp. (Zefiro), the Commission declined to exercise its public interest jurisdiction to intervene in an ongoing proxy contest. The Commission’s reasons are now the leading authority on how Canadian securities regulators treat share issuances in the context of shareholder activism.

Background

Zefiro Methane Corp. (Zefiro) is a British Columbia corporation listed on the Cboe Canada Exchange (Cboe). In May 2025, Zefiro could not repay a promissory note secured against the shares of its main revenue-generating subsidiary. To avoid losing the subsidiary, four investors advanced the funds to repay the note and received warrants in exchange.

In June 2025, the board terminated Talal Debs as Chief Executive Officer and appointed an interim CEO. In October 2025, one of the lenders sued Debs in New York. Zefiro announced that a special committee would investigate alleged misconduct by Debs, and Debs launched a proxy contest. The Commission found evidence that some of the respondents disliked Debs, considered him unfit to lead Zefiro and wanted to minimize his role in managing the company.

In January 2026, Zefiro’s board approved a debt restructuring under which three of the lenders exercised their warrants (with 75% of the exercise proceeds set off against the loan) and received additional shares. Cboe approved the transaction after requesting and receiving detailed explanations.

The Commission’s Decision

The Commission built on earlier decisions applying National Policy 62-202 to alleged defensive tactics, including:

• Mithaq Canada Inc. (Re), in which the Ontario Capital Markets Tribunal declined to cease-trade a private placement that was announced shortly after a takeover bid
• Re Eco Oro Minerals Corp., in which the Ontario Securities Commission set aside the Toronto Stock Exchange’s approval of a share issuance made without shareholder approval shortly before the record date for a contested meeting
• Re Hecla Mining, in which the Commission and the Ontario Securities Commission, in joint reasons, declined to cease-trade a private placement that was announced shortly after a takeover bid

Although these prior cases provided helpful guidance, the Commission applied a modified two-stage framework to reflect that it was dealing with a share issuance during a proxy contest rather than a takeover bid. Under this framework, the Commission considered whether the transaction had a compelling business objective, the process followed, the effect on voting dynamics and whether its structure and timing suggested a defensive motive.

At the first stage of the Zefiro framework, the Commission considered whether the issuance was clearly not a defensive tactic. The Commission found it was at least unclear whether the issuance was a defensive tactic. Around the same time, Zefiro had terminated Debs as CEO, amended its advance notice policy to give the board discretion to exclude him from the nomination process and publicized the allegations against him. Zefiro’s urgent need for financing helped its case, but the incentives offered to the lenders were not explained until early 2026, after the proxy contest had begun.

At the second stage of the Zefiro framework, the Commission considered whether the issuance was clearly abusive. The Commission found that it was not. Given the evidence of a motive to exclude Debs, the Commission scrutinized Zefiro’s position that the timing of the issuance was necessary and that there were no other reasonable options. It found that Zefiro faced financial difficulty with significant debt repayment deadlines and had sought alternative financing. The Commission also noted that Debs, who was on the board throughout, did not identify any alternatives before the board decided to proceed.

Key Takeaways

Zefiro provides important guidance on how Canadian securities regulators will assess share issuances challenged in the context of shareholder activism. Issuers considering financings during an imminent or ongoing proxy contest should expect regulators to examine factors including the issuer’s business objectives, alternatives considered, the governance process and conflict management, the effect on voting dynamics and the structure and timing of the issuance.

A serious need for financing can be decisive. Where an issuer needs capital very soon and has only one reasonable option, the Commission held that the lack of alternatives “becomes a dominant factor” — even where, as in Zefiro, the respondents considered Debs unfit to manage Zefiro and were prepared to take steps to exclude him.

The authors acted as counsel to Zefiro’s interim CEO in this proceeding.

For more information, please contact the authors or any other member of our Securities Litigation group.