Public Companies Practice: New CBCA Rules Impacting Shareholder Meetings and Materials
The Canada Business Corporations Act (the “CBCA”) and the Regulation thereunder have been significantly amended effective November 24, 2001. This notice has been prepared to assist our public CBCA clients in preparing for upcoming shareholder meetings under the new regime. Readers should also refer to our Legal Update published by the Business Law Section in December 2001 titled, “Amendments to the Canada Business Corporations Act (CBCA) and Related Regulations”.
Timing of Shareholder Meetings and Record Dates
The CBCA now requires that an annual meeting of shareholders be called not later than fifteen months after the holding of the last preceding annual meeting but no later than six months after the end of the corporation’s preceding financial year. This change is designed to ensure that corporations report to their shareholders in a timely fashion.
The specific period for fixing the record date to establish the shareholders entitled to receive notice of a shareholders’ meeting has changed. The Regulation now requires that the directors must fix a record date that is not less than 21 days and not more than 60 days before the date of the meeting (subject to the requirements of National Policy 41 as described below). Prior to the enactment of the amendments to the CBCA, the record date could not precede the date of the meeting by more than 50 days or by less than 21 days. Notice of a record date must be provided at least seven days before the record date by way of newspaper advertisement and written notice to applicable stock exchanges. Notice of the time and place of a meeting of shareholders must be sent not less than 21 days and not more than 60 days before the date of the meeting.
Public companies must also consider the requirements of National Policy 41 (Shareholder Communication) of the Canadian Securities Administrators when scheduling shareholder meetings and record dates. National Policy 41 requires an issuer to fix a record date to be a date no fewer than 35 and no more than 60 days prior to the date of the meeting. Notice of the meeting and record date must be filed with applicable securities commissions and stock exchanges at least 25 days before the record date. All proxy-related materials must be delivered to intermediaries at least 33 days before the meeting date and mailed to shareholders at least 25 days before the meeting date. National Policy 41 is currently being reformulated as National Instrument 54-101 and thus the foregoing requirements will have to be revisited upon this new instrument coming into force.
Meetings Outside Canada
The CBCA now expressly allows for meetings to be held outside of Canada. The place must be specified in the articles of the corporation or, alternatively, all of the shareholders entitled to vote at the meeting can agree that the meeting is to be held at that place. We note that it would be nearly impossible for all shareholders of a public company entitled to vote at a meeting to agree on the place of the meeting. Accordingly, an amendment to a corporation’s articles would be the only practical method to permit meetings to be held outside of Canada. This modification to the requirements of the CBCA is of particular significance to Canadian inter-listed public companies with substantial U.S. shareholder constituencies and may justify such an amendment to the articles.
The CBCA has been amended to expand the ability of shareholders to communicate with each other without triggering onerous proxy solicitation rules. These changes represent what could be a significant change to the corporate governance landscape. Prior to November 24, 2001, almost any communication could be deemed to be a solicitation requiring the preparation and mailing of requisite proxy documents to all shareholders. Exemptions from the proxy solicitation rules now permit a shareholder to make a public announcement concerning the shareholder’s voting intentions (whether by way of a speech in a public forum or the issuance of a press release, opinion, statement or advertisement). In addition, the new rules enable shareholders to communicate with each other, (i) for the purpose of obtaining support for shareholder proposals, (ii) if such communications relate to the business and affairs of the corporation, (iii) to organize a dissident’s proxy solicitation, (iv) if 15 or fewer shareholders are solicited, (v) as clients, by a person engaged in the business of providing proxy voting advice, and (vi) other communications as may be prescribed from time to time.
The CBCA has now been updated to keep pace with recent advances in communications technology. Subject to a corporation’s by-laws, the CBCA now permits any person entitled to attend a meeting of shareholders to participate by means of telephonic, electronic or other communication facilities that permit all participants to adequately communicate with each. The corporation must provide the means of communication for participants. The CBCA also provides that a meeting may be held entirely electronically if authorized by the by-laws of the corporation.
Electronic Delivery of Meeting Materials
Subject to a corporation’s articles and by-laws, the CBCA, together with amendments to securities legislation, the introduction of National Policy 11-201 (Delivery of Documents by Electronic Means) of the Canadian Securities Administrators and decisions of the Canadian Securities Administrators given to service providers involved in the shareholder meeting process, permits corporations to communicate with its shareholders and other stakeholders electronically.
The annual report, the notice of meeting, the proxy circular and the form of proxy can be delivered to shareholders by electronic means where the shareholder has consented in writing. The electronic documents may be sent to the information system designated by the shareholder (such as an email address) or may be posted on or made available through a generally accessible electronic source (such as a website) provided that the shareholder is provided with written notice of the availability and location of that electronic document.
A public company that wishes to deliver documents to its shareholders is required to comply with National Policy 11-201 (http://www.osc.gov.on.ca/en/Regulation/Rulemaking/Policies/11-201_19991215.html), including the requirement to obtain consents from potential recipients of electronic documents. A sample form of consent is attached as Appendix A to National Policy 11-201.
The CBCA now provides for electronic voting procedures. Unless the corporation’s by-laws otherwise provide, voting at a shareholders meeting may be undertaken by electronic means (which, in our view, includes telephonic touch-tone) provided by the corporation. Further, any person participating electronically in such a meeting and that is entitled to vote, may exercise its right to vote by electronic means that the corporation has made available for that purpose.
Proxy Circulars and Proxies
The requirements for the content of proxy circulars and forms of proxies have largely remained the same. One interesting change is a new requirement that management proxy circulars include a statement indicating the final date by which a corporation must receive a proposal that a shareholder proposes to raise at the next annual meeting (at least 90 days before the anniversary date of the notice of meeting). Rules governing those eligible to submit a shareholder proposal have changed, as have the procedures for submitting those proposals and the grounds for the rejection of those proposals.
Prior to November 24, 2001, the right of a shareholder to vote at a shareholders’ meeting was not restricted to shareholders registered as of a fixed record date; transferees who requested at least 10 days prior to the meeting that their names be included in the relevant shareholder list were entitled to vote. For most public companies, the majority of its shares are held in the name of an intermediary, usually the Canadian Depositary for Securities Limited, and owned beneficially through a chain of registrants. Prior to November 24, 2001, there was a potential for over-voting where both a non-registered holder (as of the record date) and a non-registered holder (post record date) could vote. When a new shareholder purchased shares after the record date, the previous owner may have already received and voted the proxies. The amendments to the CBCA provide for the setting of a fixed record date for voting purposes. Within ten days after the record date, the corporation is required to prepare a list of shareholders entitled to vote as of such record date for voting (or, in the absence of such a record date, within 10 days after the record date to receive a notice of the meeting) and showing the number of shares held by each shareholder. Each shareholder whose name appears on the list is entitled to vote the shares shown opposite its name at the meeting to which the list relates. Transfers of shares after the record date will not be recognized for voting entitlement purposes.
As described in our Legal Update published by the Business Law Section in December 2001 titled, “Amendments to the Canada Business Corporations Act (CBCA) and Related Regulations”, a number of other changes have been made to the CBCA that should be considered in the context of this year’s annual meeting.
Key Points to Remember for This Year’s Meeting
- Call the meeting not later than fifteen months after the holding of the last annual meeting and within six months of the end of the preceding financial year.
- Fix a record date for entitlement to receive a notice of meeting and entitlement to vote that is not less than 35 days and not more than 60 days before the date of the meeting. Notice of the record and meeting date must be filed at least 25 days before the record date. All proxy-related materials must be delivered to intermediaries at least 33 days before the meeting. Notice of the time and place of a meeting (together with all proxy-related materials) must be sent not less than 25 days and not more than 60 days before the date of the meeting to shareholders on the record date list.
- Ensure that the management proxy circular includes a statement indicating the final date by which the corporation must receive a proposal that a shareholder proposes to raise at the next annual meeting. Other minor changes have been made to the Regulation that should be reviewed to ensure compliance with disclosure requirements. For example, an expanded definition of officer may result in individuals not previously subject to the conflict of interest disclosure requirements now being subject to them.
- Delete disclosure in last year’s proxy circular regarding the process for transferees to exercise voting rights in respect of shares acquired after the record date. The CBCA is now clear that only those persons whose names appear on the list prepared by the corporation within ten days after the record date are entitled to vote.
- Consider obtaining the approval of shareholders to amend a CBCA company’s articles to specify a location for shareholder meetings outside Canada.
- Seeking the approval of shareholders to amendments to a CBCA company’s general by-law should be considered. Some of the possible amendments are listed below:
- Electronic documents and voting: the by-law should specifically allow the delivery of documents by electronic means and permit electronic shareholder and director meetings, including committees of directors.
- Registered office: the by-law should allow the board to change the location of the registered office within the province specified in the articles.
- Conforming changes: the by-law should be reviewed to ensure that its wording is consistent with changes to the CBCA, including provisions dealing with the role of directors being to manage, or supervise the management of, the business and affairs of the company, and the conflict of interest, indemnity and insurance disclosure provisions.
- Director residency requirements: the Canadian residency requirement can be reduced to 25% (subject to ownership restrictions or the company being in a prescribed business sector) and the percentage of Canadian directors required to be present at board meetings can be reduced to 25%.
- Consider obtaining consents from shareholders in advance of this year’s meeting in order to take advantage of electronic delivery of documents or obtain consents in conjunction with this year’s meeting so that documents may be delivered electronically next year. Alternatively, use this year's meeting to obtain consents from shareholders to allow the company to deliver documents electronically for future meetings.
- If voting is to be carried out by electronic means, the voting mechanism must allow for a verification of the votes cast while preventing the corporation from finding out how a particular shareholder voted.
- If new directors are to be elected, they must sign a consent to act within 10 days of being elected if they were not present at the meeting at which they were elected.