In May 2018, An Act to amend the Canada Business Corporations Act, the Canada Cooperatives Act, the Canada Not-for-profit Corporations Act and the Competition Act (Bill C-25) received Royal Assent. Certain amendments to the Canada Business Corporations Act (CBCA) still required supporting regulations to be drafted, however, and were therefore not immediately proclaimed into force. Among these were amendments (Amendments) that would: (i) require certain CBCA corporations to require that separate votes be held (i.e., would prohibit slate voting) for the election of each candidate to the board of directors; (ii) impose a majority-voting requirement where such elections are uncontested (i.e., where there is only one nominee for each available board seat); and (iii) permit shareholders to vote shares for or against (rather than “withholding” shares from voting) each nominee in such uncontested elections. As set out below, Corporations Canada has published proposed regulations (Regulations) to accompany such Amendments.
Pursuant to the Amendments, individual votes must be taken in respect of each nominee for election to the board of directors of certain prescribed corporations governed by the CBCA. The Regulations establish that this prohibition on slate voting will only apply to distributing corporations (generally, public companies). For TSX-listed corporations governed by the CBCA, these changes will not have an impact since the TSX Company Manual already mandates individual voting on nominees.
The Amendments provide that shareholders of distributing corporations governed by the CBCA will be able to vote against nominees in uncontested elections of directors, rather than just withholding their vote from such nominees. The Regulations establish that a form of proxy to be used in respect of a shareholders' meeting at which there will be an uncontested election of directors must allow for shareholders to vote for or against the proposed directors.
It is important to note, however, that under Canadian securities laws, such a form of proxy must provide an option for the shareholders to vote for or have their votes withheld from voting in respect of the election of directors. While an exception from such requirement is available if (i) the issuer complies with the requirements of the laws relating to the solicitation of proxies under which the reporting issuer is incorporated, organized or continued (e.g., the CBCA) and (ii) such requirements are substantially similar to the requirements under Canadian securities laws, the Canadian Securities Administrators have not yet provided guidance on whether the Amendments and Regulations will be considered substantially similar to the requirements under Canadian securities laws.
The pending Amendments would also require that a majority voting standard be used for uncontested elections of directors of distributing corporations governed by the CBCA, except such corporations as may be prescribed by regulation. Further, the Amendments provide that if an individual who was a candidate in an election of directors held by such a corporation is not elected during that election (i.e., does not receive more votes for their election than against), the individual cannot to be appointed to the board, except in prescribed circumstances, before the next meeting of shareholders at which an election of directors is required to be held.
While the Regulations do not provide for any carve-outs from the application of this new election standard, they do create two exceptions to allow a person who fails to be elected to be appointed as a director if that person is needed to meet the corporation's obligation under the statute to have either (i) at least two directors who are not officers or employees of the corporation or its affiliates or (ii) at least 25 per cent of the board members be Canadian residents (or at least one director if the corporation has less than four directors).
Currently, TSX-listed corporations governed by the CBCA (unless they are majority-controlled) are required to have a majority voting policy requiring candidates to tender their resignation if they do not receive more votes for their election than votes withheld and, absent exceptional circumstances, for the issuer’s board to accept such resignation. The Amendments and Regulations will effectively supersede such majority voting policies by statutorily providing that a candidate without majority support has not been elected, thereby precluding the need for them to resign. In addition, as drafted, the requirement for majority voting will apply to majority-controlled companies.
While the Regulations do not address the provisions in the Amendments relating to the sending of meeting materials to shareholders (i.e., notice and access), they do revise the provisions related to the permissible timing for the submission of shareholder proposals. Once the Amendments and Regulations are in force, shareholder proposals will be able to be submitted within the 60-day period that begins on the 150th day before the anniversary of the previous annual meeting of shareholders (previously, the deadline for the submission of such proposals was at least 90 days before the anniversary date of the notice of meeting that was sent to shareholders in connection with the previous annual meeting of shareholders).
Corporations Canada has proposed that the Amendments and Regulations come into force on July 1, 2021, so as to “minimally disrupt” proxy season, which tends to most commonly take place in the spring.
For further information, please contact:
Matthew Merkley 416-863-3328
Eric Moncik 416-863-2536
or any other member of our Capital Markets or Corporate Governance groups.
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