A significant milestone in Bill C-25’s progress into becoming law has been passed, with the Bill receiving Royal Assent on May 1, 2018. An Act to amend the Canada Business Corporations Act, the Canada Cooperatives Act, the Canada Not-for-profit Corporations Act and the Competition Act can now be cited as S.C. 2018, c. 28 (the “Act”).
Bill C-25 has had a slow journey through the legislative process, and many key provisions still have yet to come into effect. Bill C-25 passed first reading in the Parliament of Canada on September 28, 2016 with proposed regulations being released later that year on December 14, 2016. The Act contemplates extensive changes to the governance of public corporations governed under the Canada Business Corporations Act (CBCA). Our earlier post summarizing changes to the CBCA resulting from Bill C-25 can be viewed here and our post summarizing the proposed regulations can be viewed here.
Provisions Yet to Come Into Force
While the Act has received Royal Assent and many of its provisions are now in force, certain key provisions will only come into effect on a date to be determined by order of the federal cabinet (upon proclamation). Certain provisions can only come into force once the relevant regulations have been adopted concurrently. These provisions include:
Majority voting requirement for directors of public companies;
Shortening of the duration of director terms for public companies from a maximum of three years to a maximum of one year;
Requirement that shareholders vote on individual director candidates, rather than a slate;
Changes to fully allow distributing corporations to use notice-and-access to make proxy circulars and financial statements available to shareholders; and
Diversity (including but not limited to gender) disclosure requirements for public companies.
Competition Act Changes
The Act also introduces important amendments to the Competition Act (Canada), which are now in force. These amendments expand the affiliation rules under the Competition Act (Canada), essentially applying the same rules to all “entities”, which include corporations, partnerships, sole proprietorships, trusts or other unincorporated organizations. These new rules may result in a greater number of transactions being subject to pre-merger notification and are particularly important in a private equity context involving partnerships. On the other hand, the new affiliation rules broaden the criminal cartel exception, which was previously limited to agreements between affiliated corporations. The exception now applies to all affiliated “entities” and therefore provides greater flexibility for agreements between affiliated partnerships and other unincorporated entities. More information on updates to the Competition Act can be found in our earlier post on the subject.
Amendments to Bill C-25
Following our earlier posts on Bill C-25, several amendments were made to the bill as it wound its way through both houses of Parliament. The most noteworthy changes are highlighted below:
Majority voting: The Act provides that director nominees can only be elected in uncontested elections if the number of votes cast in their favour represents a majority of votes cast for or against them. The Act now permits incumbent directors who did not meet this majority voting requirement to remain in office until the earlier of 90 days after the date of their election or the day when their successor is appointed or elected.
Diversity disclosure: Proposed regulations accompanying the Act, as updated in January2018, require that diversity disclosure pertaining to boards of directors and senior management apply to each designated group listed under the Employment Equity Act. Apart from women, designated groups include members of visible minorities, persons with disabilities and aboriginal people. This new disclosure requirement under the CBCA is more expansive than the diversity disclosure rules under most provincial securities regulations.
Notice-and-Access: The updated regulations clarify that in respect of providing proxy circulars to shareholders under the CBCA, (i) a distributing corporation or cooperative may use notice-and-access provided that the provincial securities rules for notice-and-access are followed; (ii) for other types of corporations the proxy circular must be sent to shareholders; and (iii) the proxy circular would still need to be sent to the auditor, to each director and to the corporation in the case of a dissident proxy circular.
The applicable regulations remain in draft form and are subject to further review and comment by the public and the Department of Justice. The Treasury Board of Canada Secretariat advises that the period between impact assessment of a proposed regulation and promulgation of the regulation can take between 6 and 24 months. It is anticipated that CBCA corporations will not be required to comply with the new majority voting and diversity disclosure requirements until at least the 2020 proxy season or later.