In July, 2008 amendments to National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) went into effect that permit dissident securityholders to solicit proxies for a meeting of securityholders of a reporting issuer (the Subject Company) without the requirement to mail an information circular to securityholders of the Subject Company. The amendments entirely do away with the requirement to even prepare a dissident information circular unless the dissident securityholder is proposing either (i) a significant acquisition or restructuring transaction involving the Subject Company at the time of the solicitation, or (ii) to nominate any individual for election as a director.
These changes (which are now found in Part 9 of NI 51-102) have the effect of harmonizing dissident proxy solicitation requirements under securities legislation with the requirements under the Canada Business Corporations Act and the Business Corporations Act (Ontario), which were amended in 2001 and 2007, respectively, to relax their dissident proxy circular rules.
As a result of the amendments, a dissident securityholder can solicit proxies from registered securityholders without sending them an information circular if:
- the solicitation is made by public broadcast, speech or publication (including, for example, by a newspaper advertisement or over the internet),
- solicitation by such means is permitted by the law under which the Subject Company is constituted, and
- the solicitation contains prescribed information (and such information is filed on SEDAR) relating to the Subject Company, the identity of the dissident securityholder, the percentage securityholding of the dissident securityholder in the Subject Company and the interests of the dissident securityholder in the matter for which proxies are being solicited.
If the dissident securityholder is proposing either (i) a significant acquisition or restructuring transaction involving the Subject Company at the time of the solicitation, or (ii) to nominate any individual for election as a director, then such dissident may only rely on the exemption from sending an information circular if, in addition to the requirements set out above, the dissident securityholder prepares and files on SEDAR (but need not mail to solicitees) an information circular or other document that includes information relating to the acquisition/restructuring or the proposed director nominee(s), as applicable, and the solicitation specifically refers to such information circular or other document and states that such document has been filed on SEDAR.
The Companion Policy to NI 51-102 has been amended to provide guidance on what constitutes a “solicitation to the public” referred to in Section 9.2(4) of NI 51-102 (being a component of the first of the conditions for the exemption as described above). Section 9.3 of the Companion Policy provides that a solicitation to the public would generally include a solicitation made by (i) a speech in a public forum, or (ii) a press release, statement or advertisement provided through a broadcast medium, a conference call or other electronic communication generally available to the public, or appearing in a newspaper, magazine, website or other publication generally available to the public. A solicitation would generally not be considered to be made to the public, however, if it was made by phone, mail or e-mail to only a select group of securityholders. Separate exemptions from the requirement to prepare and send a dissident information circular to solicitees may be available for solicitations not made publicly where the number of solicitees is small.
While we would not anticipate that these rule changes will unleash a flood of new dissident shareholder actions, they will lower some of the economic and logistical hurdles faced by activist shareholders who are already minded to challenge actions or proposals by management. This may be the case particularly in the already hot area of executive compensation in circumstances (such as changes to a company’s stock option plan) where shareholder approval is required.