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CSA Proposes Amendments to Streamline Communication with Beneficial Owners

On April 9, 2010, the Canadian Securities Administrators (CSA) published Proposed Amendments to National Instrument 54-101 Communication with Beneficial Owners of Securities of a Reporting Issuer and other related instruments and policies that are designed to introduce efficiencies to the procedures used by a reporting issuer to communicate with the beneficial owners of its securities. The two most significant changes to NI 54-101 contained in the Proposed Amendments are the introduction of a "notice-and-access" procedure for the delivery of proxy-related materials and the simplification of the process for beneficial owners to appoint proxy holders.

Notice-and-Access Procedure

The most interesting change to the existing requirements is the introduction of a notice-and-access procedure that would permit a reporting issuer to voluntarily elect to send proxy-related materials to beneficial owners by posting the information circular on the issuer’s website. To utilize the notice-and-access procedures, the reporting issuer would be required to:

  • send each beneficial owner a brief notice containing prescribed information advising the beneficial owner that the proxy-related materials have been posted, and explaining how to access them;
  • issue a news release at least 30 days before the meeting that contains the information set out in the notice;
  • send a voting instruction form to each beneficial owner that can be used to direct the voting of securities; and
  • establish a toll-free telephone number to permit beneficial owners to request paper copies of the information circular and send, at its expense, a paper copy to any beneficial owner that requests it.

SEC issuers that comply with the notice-and-access procedures in the US would be exempt from complying with the Canadian requirements.

It is currently proposed that the notice-and-access procedures would only be available for meetings where no fundamental changes are being voted on by securityholders. The CSA states that they would like to monitor implementation of the procedures before extending them to these "special meetings."

Beneficial Owner Proxy Appointment Process

The existing "legal proxy" process prescribed by NI 54-101 to enable a beneficial owner of securities to appoint a proxy and attend and vote at a meeting can be cumbersome, time-consuming and confusing. The Proposed Amendments would require intermediaries and reporting issuers to arrange to appoint the beneficial owner as the proxy holder, if he or she so requests, at no expense to the beneficial owner and to deposit the proxy by any relevant cut-off. The Proposed Amendments provide intermediaries and reporting issuers with flexibility as to how to best meet these obligations. For example, it could be as simple as permitting the beneficial owner to print his or her name (or the name of his or her appointee) in a space provided on the voting instruction form. That information could then be provided to the proxy tabulator or meeting scrutineer to enable the beneficial owner or other appointees to attend and vote at the meeting.

Other Changes

The Proposed Amendments also contain requirements for:

  • enhanced disclosure in information circulars regarding the beneficial owner voting process;
  • stricter rules on the use of beneficial ownership information by third parties;
  • indirect sending procedures; and 
  • certain other changes to the technical aspects of the beneficial owner communication procedures.

Deadline for Comments

The deadline for the submission of comments on the Proposed Amendments is August 31, 2010. The CSA states that it has provided this extended comment period to accommodate the 2010 proxy season. We would be pleased to raise with the CSA, on your behalf, any comments you may have on the Proposed Amendments or on the proxy voting system as a whole.