On December 14, 2016, the Government of Canada published proposed regulations to Bill C-25. Bill C-25, which completed the second reading debate stage in the Parliament of Canada on December 9, 2016, would, if passed into law, result in important changes for public corporations that are governed by the Canada Business Corporations Act (CBCA).
For a summary of the proposed changes, see our previous post Bill C-25 contemplates important changes to director elections, notice-and-access procedures and other matters for public corporations governed by the Canada Business Corporations Act.
This post discusses updates regarding certain of the proposed changes based on new information provided in the proposed regulations.
In our previous post, we noted that the Bill proposes to eliminate the plurality system by building majority voting into the CBCA. This significant change means that a director would only be elected if the number of votes cast in his or her favour represents a majority of the total number of votes cast at a shareholder meeting. The proposed regulations provide details on the circumstances in which a board of directors could effectively overrule the shareholders where a director nominee does not receive a majority of the votes cast in his or her favour. The proposed regulations contemplate that a nominee who does not receive a majority of the votes could be appointed to the board by the directors only if the nominee is needed to meet one of the following two requirements under the CBCA:
- to have at least two directors who are not officers or employees of the corporation or its affiliates; or
- to have at least 25% of the directors be resident Canadians (or where a corporation has fewer than four directors, to have at least one resident Canadian).
By providing only two specific circumstances under which a board of directors could effectively overrule the shareholders where a director nominee does not receive a majority of the votes cast in his or her favour, the proposed changes to the CBCA are more rigid than the TSX’s existing majority voting rules discussed in our previous post.
In our previous post, we noted that the Bill appears to propose to alleviate any existing questions about the ability of a CBCA corporation to make use of the notice-and-access process, but that the Bill itself did not propose to alleviate or provide an exemption to the requirement that CBCA corporations deliver annual financial statements. The proposed regulations, however, contain significant changes to existing financial statement delivery requirements under the CBCA. Corporations using the notice-and-access process would only need to include a reference to a website link in the notice provided to shareholders and those not using notice-and-access would only have to send annual financial statements to those shareholders who request them. This will be welcome news to CBCA corporations looking to save on the costs of printing and mailing annual financial statements.
The proposed regulations also specify what documents are required to be sent by an intermediary to a beneficial owner under section 153 of the CBCA when a corporation is using notice-and-access.
We note that neither the proposed amendments to the CBCA nor the proposed regulations modify the management circular delivery requirement under section 150(1) of the CBCA in a way that permits the use of notice-and-access. As a result, it appears that corporations will continue to have to obtain an exemption from section 150(1) of the CBCA pursuant to section 151(1) of the CBCA in order to use notice-and-access unless a blanket exemption is provided under new section 258.3 of the CBCA or other adjustments are made to the proposed amendments and regulations prior to their coming into force.
In our previous post, we noted that information released in connection with the Bill suggested we should expect additional changes regarding the disclosure of gender composition of boards and senior management of public CBCA corporations and a “comply or explain” approach to the disclosure of diversity policies. As anticipated, the proposed regulations confirm that the proposed CBCA gender disclosure rules would be consistent with the gender disclosure rules now mandated by Canadian provincial securities laws. However, the CBCA disclosure rules extend beyond gender diversity and would also require annual “comply or explain” disclosure regarding diversity other than gender among the directors and members of senior management.
As noted in our previous post, these changes are not expected to be enacted for some time, as the Bill still needs third reading in the House of Commons and three readings in the Senate.