This season's annual meeting process is now over for most public issuers, and most issuers likely do not yet want to start thinking about next year. However, set out below are some items public companies may wish to consider in advance of next year's annual meeting.
Advance Notice for "Notice-and-Access"
Canadian Securities Administrators (CSA) are proposing to provide public companies with a new "notice-and-access" mechanism that will permit delivery of proxy-related materials by sending a notice package to beneficial owners and registered holders. The notice package would not contain an information circular, but instead would be accessible by virtue of being filed on SEDAR and posted on a non-SEDAR website1.
In June 2011, the CSA published proposed changes to this pending new regime. Such changes include a requirement that, prior to using notice-and-access for the first time, issuers must provide advance notice of such intended use three to six months before the meeting2.
Although the revised draft amended regulatory instruments have only been published for comment, without any assurance that they will come into effect prior to the 2012 proxy season, assuming that this is the case, if a public issuer thinks it may wish to utilize the notice-and-access regime for next year's meeting, it will need to begin planning in advance for this notice requirement. The comment period closed on August 16, 2011; we will be monitoring these comments and any action taken by the CSA, if any.
New Disclosure Requirements
If a public company wishes to utilize notice-and-access, the proposed requirements will require it to prepare and send the following to registered holders and beneficial owners:
- a notice containing certain specified information; and
- a document in plain language that explains notice-and-access and includes certain specified information.
These documents are new, and issuers will need to allow sufficient time for their preparation, particularly the first time they are used3.
In addition, there will be new requirements for additional disclosure in information circulars, including the following:
- if applicable, that the issuer is sending proxy-related materials to registered holders or beneficial owners using notice-and-access, and if "stratification"4 is being used, the types of registered holders or beneficial owners who will receive paper copies of the information circular;
- whether the issuer is sending proxy-related materials directly to non-objecting beneficial owners (NOBOs); and
- whether management of the issuer has decided not to pay for intermediaries to forward proxy-related materials to objecting beneficial owners (OBOs) and if that is the case, that it is the responsibility of objecting beneficial owners to contact their intermediaries to make necessary arrangements to exercise voting rights attached to securities they beneficially own.
There will also be new content requirements for the notification of the meeting date and record date that is filed on SEDAR, requiring inclusion of (i) whether the issuer is sending proxy-related materials to registered holders or beneficial owners using notice-and-access, and, if stratification is to be used, the types of registered holders or beneficial owners that will receive paper copies of the circular; (ii) whether the issuer is sending proxy materials directly to NOBOs; and (iii) whether the issuer intends to pay for delivery to OBOs.
The proposed changes will likely require other consequential changes to information circulars and related documents previously used by issuers, including the following:
- changes that will simplify the process by which beneficial owners are appointed as proxyholders in order to attend and vote at shareholder meetings. These changes will likely impact the description of rights of non-registered beneficial owners included in precedent circulars5. The prescribed forms of requests for voting instructions will change, such that issuers that directly solicit voting instructions from NOBOs will need to use a revised form;
- changes that will likely impact the form of request for delivery of financial statements issuers send to registered shareholders and beneficial owners. It is proposed that such request forms should also encompass, where the reporting issuer uses notice-and-access, the ability to request a paper copy of the information circular6; and
- consequential change to the prescribed form for Request for Beneficial Ownership Information to require issuers to state whether they are using notice-and-access and any stratification criteria being used.
Application to Special Meetings
The original proposals would not have permitted use of notice-and-access for "special meetings." In the revised proposals, it is now proposed that notice-and-access can be used for all meetings. However, the revised proposals exclude investment funds from using notice-and-access.
Assuming that the proposals will ultimately be implemented as currently proposed, the extent to which notice-and-access will be used for special meetings (or, even annual meetings, particularly in the first year) will remain to be seen. It is likely that most issuers will first use the process for an annual meeting, rather than a special meeting, particularly in light of the requirement for advance notice prior to first use7.
Corporate Law Requirements
The proposed reforms include, for purposes of Canadian securities laws, proposed amendments to National Instrument 54-1018 which permits notice-and-access to be used for non-registered beneficial owners of securities, and also to National Instrument 51-1028, which permits notice-and-access to be used for registered shareholders. For registered shareholders, the ability to use a notice-and-access process will depend upon whether that system is permitted under the governing corporate laws9. As a result, before an issuer uses notice-and-access for registered shareholders, it will need to be concluded that this is permitted under the governing corporate legislation, that it is permitted or not restricted under the issuer's constating documents, and that all required consents have been obtained.
McCarthy Tétrault Notes
The proposed regulatory reforms were originally published by the CSA for comment in April 2010. The revised proposals were published for comment in June 2011, with a comment period expiring in August 2011. As indicated above, the materials published do not indicate when they might be implemented. However, it is possible that they may be implemented to be in place for the 2012 proxy season. We will continue to monitor these proposals. Assuming that they are implemented, we would be pleased to assist you in preparation of proxy-related materials that reflect all applicable new requirements.
1. For a further discussion of the proposed reforms, originally published in April 2010, and a summary of comments from public companies, institutional investors, investment consultants and lawyers, see "CSA Proposed Amendments to Streamline Communication with Beneficial Owners" by Robert O. Hansen and Jennifer McGoey; "Reaction to CSA's Proposed Amendments to the Beneficial Owner Communication Process", by Lara Nathans and Aida Shahbazi; and "Revised Proposed Amendment to Material Instrument 54-101 – Communication with Beneficial Owners of Securities of a Reporting Issuer", by Lara Nathans and Leila Rafi. The proposed Canadian notice-and-access system differs from the system adopted in the U.S. by the SEC in 2009. Most notably, the proposed Canadian model is not mandatory and requires that a voting instruction form be sent with the notice package.
2. It is proposed that such notice must be effected by issuance of a news release and posting of a plain language document explaining notice-and-access on a non-SEDAR website.
3. Among other things, the explanation document must include information regarding the date and time by which a request for a paper copy of the circular should be received in order for the requester to receive the circular in advance of any deadline for the submission of proxies or voting instructions and the date of the meeting. As currently drafted this would potentially require issuers to estimate with certainty timing required for mail delivery to each requester, and it is not clear how conservative issuers can be in complying with this requirement (for example, by indicating that the request must be received at least 15 days (or more) before the meeting date, even if mailing the circular to some or most requesters could potentially be achieved in a shorter period.)
4. This term is used by the CSA to describe the process of including a paper copy of the information circular with the notice package that is sent to some registered holders or beneficial owners (e.g. that may have provided a standing request to receive such a copy).
5. For example, the proposed amendments will repeal prior provisions relating to "legal proxies" and replace them with provisions that require intermediaries and management as applicable to appoint beneficial owners (or nominees) as proxyholders to attend and vote at meetings.
6.Instructions to receive annual financial statements and related MD&A will also constitute instructions to include a paper copy of the information circular where the issuer uses notice-and-access.
7. In addition, the proposed amendments will impose a requirement that, where a reporting issuer is using notice-and-access, it cannot abridge the record date for notice to less than 30 days before the meeting and sending the notification of meeting date and record dates to less than 30 days before the meeting, which could possibly expand slightly the timetable for a special meeting if an issuer might be seeking to abridge the timetable to the maximum extent possible.
8. Regulation 54-101 and Regulation 51-102, respectively, in Québec.
9. Corporate or other governing law requirements may require that each holder has expressly consented to receipt of materials in electronic form. In some jurisdictions (for example, British Columbia), unless each recipient has agreed to the method of electronic delivery, or the method of delivery specified in the articles of the company is drafted broadly enough to encompass the proposed notice and access regime, delivery in that manner may not be a method currently prescribed.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.