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Bill C-25 Proposes Significant Changes to the CBCA

By: Hayley Silvertown | November 28, 2016

Important changes for public corporations governed by the Canada Business Corporations Act (CBCA) may be on the horizon – namely to director election processes and notice-and-access procedures. On December 14, 2016, the Government of Canada published proposed regulations to Bill C-25, which completed the second reading debate stage in the Parliament of Canada on December 9, 2016. If enacted, a few of the changes that can be expected are as follows:

1. Director Elections

Bill C-25 would make “majority voting” mandatory for uncontested director elections for all distributing corporations. Majority voting is a requirement that directors only be elected if they have received a majority of the votes cast at a meeting. This amendment will remove any role from the board of directors when the majority standard has not been met for one or more director nominees, specifically in regard to accepting a director’s resignation who has received a majority of withhold votes under the current system, since that director would no longer be elected in the first place.

Distributing corporations (including those listed on the TSX-V) will be required to:

(i)  hold annual elections, with each director being elected to hold office for a term ending no later than the day of the corporation’s next annual meeting;

(ii) elect all directors of public companies individually. Slate elections, where shareholders vote for a group of directors on an “all or none” basis – which results in the entire slate (group of directors) being elected or not elected) will be prohibited; and

(iii) vote either “for” or “against” director nominees (a change from the current for/withhold vote choice in effect). nominees in an uncontested election (i.e. for which there are equal numbers of nominees and positions available) would be elected only if that director receives more “for” votes than “against” votes. If a candidate fails to receive more votes for than against, then that person will not be elected as a director and the Board position will remain vacant.

2. Notice-and-access

If enacted, Bill C-25 will exempt directors of a corporation under the CBCA from the requirement to send to shareholders and other prescribed persons any of the prescribed documents or intermediaries from the requirement to send copies of such prescribed documents to beneficial shareholders.

The proposed amendments would presumably:

(i) permit the use of a notice-and-access system that would allow corporations to communicate with shareholders by electronic means to provide notice of meetings and to provide shareholders with online access to relevant documents – which includes providing shareholders with a link to the corporation’s financial statements in their notice-and-access packages. Distributing corporations that choose not to use the notice-and-access method, however, will only be required to send financial statements to those shareholders who request them; and

(ii) simplify the deadlines for shareholders to submit proposals in advance of shareholder meetings. Currently, the CBCA requires express written consent of shareholders for electronic delivery of proxy-related materials and that copies of financial statements and related auditors’ report for the most recently completed financial year must be sent to those shareholders who did not express to the corporation, in writing, their wishes to not receive them.

Note that the proposed amendments do not 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 such, 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 for this requirement.

Conclusion:

The proposed amendments represent significant changes to the corporate governance of CBCA corporations. Since Bill C-25 is a government bill and a majority of seats in the House of Commons are controlled by the governing party, it is highly likely that the bill will be enacted. CBCA corporations and their boards of directors should contact their legal counsel at Abrahams LLP to discuss its potential application to their specific circumstances.

 

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