On Sept. 28, 2016, the federal Minister of Innovation, Science and Economic Development (the "Minister") introduced Bill C-25, An Act to amend the Canada Business Corporations Act, the Canada Cooperatives Act, the Canada Not-for-profit Corporations Act and the Competition Act. On Dec. 9, the Bill was referred to the Standing Committee on Industry, Science and Technology after second reading. The proposed regulations were published on Dec. 13.
These are the first comprehensive changes to the Canada Business Corporations Act ("CBCA") since 2001. Among the purposes of these amendments is to bring the CBCA in line with recent developments under Canadian securities laws and stock exchange rules.
The amendments cover four main areas: corporate governance, diversity disclosure, shareholder communications and technical amendments.
Annual Elections. Currently, the CBCA provides that an election of directors must be held every three years. The proposed amendments would limit a director's term to the close of the next annual meeting. These amendments would only be applicable to distributing corporations.
Individual voting. The proposed amendments would prohibit "slate voting" for directors. Corporations would be required to adopt "individual voting" where shareholders are permitted to vote for each individual director nominee. Currently, the CBCA does not mandate slate voting or individual voting.
Annual elections and individual voting have been a requirement for TSX and TSX-Venture listed companies since 2012.
Majority voting. Shareholders can either vote "for" or "withhold" their vote for a director nominee but a shareholder cannot vote "against" a director nominee. Under the proposed amendments, a director of a distributing corporation will only be elected if the number of votes cast in his or her favour represents a majority of the number of votes cast at the meeting, in person or by proxy.
Since 2014, TSX-listed companies have been required to implement majority voting policies. However, under many of those policies the board of directors is given a last say on whether to accept a director's resignation and in several instances in the past the resignations were not accepted. The CBCA amendments would go further and require the director's resignation. Additionally, the director would not be permitted to be appointed by the remaining directors to fill a vacancy on the board except in certain prescribed circumstances. The proposed regulations identify these limited exceptions as (i) satisfying Canadian residency requirements, or (ii) the requirement that at least two directors not also be officers or employees of the corporation.
There is continuing focus on improving diversity, including with respect to gender, both on boards and in senior management. Although the proposed amendments are currently voluntary, the Minister has indicated that this will be revisited if progress toward diversity is not met.
Distributing corporations will need to "comply or explain" under the proposed amendments whether the corporation has a written policy on diversity, including gender, and if not, why not. Under the Canadian securities laws, National Instrument 58-101 already requires certain disclosure on gender. The proposed amendments will require corporations to include information in their management proxy circulars in respect of diversity including gender composition, on the board and in senior management. Senior management includes executive officer positions such as CEO, CFO, president, chair and vice-chair.
Notice and Access. For several years, Canadian securities regulators have permitted distributing corporations to post certain proxy-related materials online in lieu of mailing such materials to shareholders, commonly referred to as notice and access (N&A). However, CBCA corporations have certain statutory restrictions which have prevented them from availing themselves of the full benefits of the notice and access system. Under the proposed amendments, CBCA corporations would be able to fully use the notice and access system which would in turn result in considerable monetary savings to many corporations. Non-distributing corporations would still be required to send financial statements to all shareholders other than those who indicate they do not wish to receive them.
Shareholder Proposal. A corporation can exclude a shareholder proposal in its management proxy circular if the proposal is not submitted to the corporation by the prescribed deadline based on the anniversary date of the prior annual meeting of shareholders. The prescribed timelines can be confusing to calculate causing a shareholder to miss an opportunity to submit a proposal. The proposed amendments would have a prescribed period with a pre-determined start and end date to eliminate this confusion.
The proposed technical amendments would include:
- prohibiting bearer certificates (i.e. a certificate without a registered owner's name);
- eliminating fractional shares and for each fractional share outstanding a certificate would be issued to the holder to receive a full share;
- allowing directors to appoint one or more directors to the board, up to one-third of the number of directors elected at the annual meeting, between annual meetings without having to include a specific provision in the articles of the corporation; and
- expanding the exemptions that may be granted by the CBCA Director and to change the test for granting such exemptions to a new "balancing test" where the CBCA Director must reasonably believe that "the detriment that may be caused to the corporation must outweigh the benefit to the corporations' shareholders, or in the case of a distributing corporation, to the public."