Canadian securities regulators have proposed rule changes that would permit reporting issuers to make their information circulars available on a website without having to mail hard copies to shareholders. Notice-and-access, as the procedure is known, was originally proposed last year and is being re-proposed with various modifications to reflect comments the regulators received from market participants. The most significant change from the 2010 proposal is that notice-and-access would be permitted not just for annual meetings but also for special meetings. This is meant to reduce potential confusion among securityholders, maximize efficiency and avoid the implication that annual meetings are less important than special meetings. The main features of notice-and-access are summarized below, as are the other proposed changes to National Instrument 54-101, Communication with Beneficial Owners of Securities of a Reporting Issuer, and National Instrument 51-102, Continuous Disclosure Obligations. The comment period is open until August 16, 2011.1
Features of Notice-and-Access
The notice-and-access proposal would permit, but not require, a reporting issuer to make its information circular available to securityholders by posting it on a website in addition to filing it on SEDAR. To take advantage of notice-and-access, an issuer would have to send a notice package to securityholders at least 30 days before the relevant meeting containing, among other things
- particulars about the meeting and a description of the matters to be voted on;
- a website address (other than SEDAR) where the information circular is available;
- explanatory information about notice-and-access and a statement indicating whether the issuer is still sending paper copies of the information circular to any securityholders (see below); and
- the relevant voting document (a proxy for registered securityholders or a request for voting instructions for beneficial owners).
A reporting issuer would have to send a paper copy of the information circular free of charge and within certain deadlines to a securityholder who requests it. A securityholder would also be able to give standing instructions to receive a paper copy in the notice package for all meetings. Moreover, any securityholder who uses the annual request form to request the issuer's annual financial statements and management's discussion and analysis (MD&A) will be deemed to have requested to receive a paper copy of the information circular in the notice package.
Reporting issuers would not be permitted to include in the notice package any additional material relating to the matters being considered at the meeting (other than a document relating to the approval of financial statements) unless the information circular is also included. This restriction is meant to prevent shareholders from relying on the limited material in the notice package without referring to the information circular.
By the time the notice package is sent, the issuer's information circular would have to be filed with securities regulators and posted on a non-SEDAR website. The original proposal required the information circular to be filed and posted on the same day as the package was sent to securityholders. By permitting the circular to be filed and posted in advance of the mailing, the current proposal will enable a reporting issuer to incorporate its circular by reference into its annual information form as well as to mail a single package to shareholders that includes the annual financial statements and MD&A.
Before using notice-and-access for the first time, a reporting issuer would have to inform securityholders that it intends to do so by issuing a news release and posting certain information on its website between three and six months before the relevant meeting.
Limited Exemption for Certain SEC Issuers
The proposed notice-and-access rules are similar to those of the U.S. Securities and Exchange Commission. Most Canadian issuers are exempt from the U.S. rules on the basis that they qualify as "foreign private issuers" under U.S. securities law. Under the CSA proposals, a cross-border issuer would only be exempt from the Canadian notice-and-access rules if it (i) is subject to the U.S. rules, and (ii) has a limited Canadian presence, meaning Canadian residents own securities carrying no more than 50% of the votes for the election of the issuer's directors and none of the following apply:
- a majority of the issuer's executive officers and directors are residents of Canada;
- more than 50% of the issuer's assets are located in Canada; and
- the issuer's business is administered principally in Canada.
Appointing Beneficial Owners as Proxy Holders
The proposed rules would make issuers and intermediaries responsible for appointing beneficial owners as proxy holders, if requested, and for depositing proxies by the applicable deadline. Intermediaries could continue to use their existing appointee systems to achieve this result. When beneficial owners are appointed as proxy holders, they would have to be given the general authority to vote and otherwise act in respect of any matter coming before the relevant meeting.
Obtaining a NOBO List Without Using a Transfer Agent
Under the proposals, reporting issuers would be able to request beneficial ownership information without using a transfer agent as long as the relevant intermediary reasonably believes that the reporting issuer (or a third party, if the issuer is making the request through a third party) has the technology to receive the list of non-objecting beneficial owners.
Other Potential Reforms to the Proxy Voting Process
The Canadian securities regulators noted that during the comment period, market participants suggested various other reforms to the proxy voting process. Some of the issues that have been identified include the role of proxy advisory firms, empty voting (where voting rights are exercised by someone who does not have the full economic interest in the shares) and inadequate record-keeping practices that cause problems such as over-voting (where two parties improperly vote the same shares). The regulators stated that they continue to assess the overall effectiveness of the proxy voting process and may publish proposals for further regulatory reform at a later date
1 As an exception, investment funds would not be permitted to use notice-and-access.
The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.