Shareholder activism is on the rise in Canada. As Canadian
issuers wrestle with activist shareholders, the advance notice
policy has become an important tool to protect companies from
activist shareholders who might otherwise attempt to ambush a
shareholders meeting by quietly collecting proxies and making a
surprise motion from the floor to nominate directors.
To deal with this very real threat to corporate control, at
least three Canadian companies recently have adopted advance notice
policies – Mundoro Capital, our client MAG Silver and most
recently Bell Copper. Such a policy, which is effective upon
adoption by the board, requires any person proposing to nominate a
director for election at a meeting of shareholders to provide the
company with advance notice of, and prescribed details concerning,
any such proposed nominee. Unless proper notice is given to the
company in accordance with the prescribed notice period, any such
proposed nominee is ineligible for election at the shareholders
meeting. Each of Mundoro Capital and MAG Silver put its advance
notice policy to shareholders for approval, on the basis that the
policy would terminate on expiry of the shareholders meeting (but
after the election of directors) if not approved by shareholders at
For companies incorporated in jurisdictions outside of British
Columbia, advance notice policies can be implemented by the board
through a by-law amendment with immediate effect, which would then
need to be confirmed by ordinary resolution of the shareholders at
the next shareholders meeting. In British Columbia, where companies
have only articles, proceeding in this manner would require a
special resolution of shareholders to confirm the amendment to the
articles of the company. For that reason, it likely is more
sensible for British Columbia companies to proceed through board
adoption of the policy.
The advance notice policy device has now received endorsement
from the Supreme Court of British Columbia as well as the two
leading proxy advisory firms – ISS and Glass Lewis.
On July 20, 2012, Mr. Justice R. Punnett of the Supreme Court of
British Columbia upheld the advance notice policy adopted by the
board of Mundoro Capital in his decision in Northern Minerals
Investment Corp. v. Mundoro Capital Inc. In
Mundoro, the court rejected Northern Minerals'
argument that directors of a British Columbia company do not have
any powers that are not specifically granted to them in the
corporation's articles or the British Columbia corporate
statute. Instead, the Court found that the Mundoro board had acted
reasonably and within its powers in implementing the policy. In
reaching its decision, the court noted the following key factors
that evidenced the "good faith and reasonableness" of the
the policy gave the Mundoro board discretion to waive any
requirement in the policy, which discretion can be reviewed by a
the company intended to seek shareholder approval of the policy
at its next shareholders meeting.
Following the Mundoro decision, at least two other Canadian
issuers have implemented an advance notice policy. Davies'
client MAG Silver introduced a similar policy that on October 5,
2012 was endorsed by a vote of 99.56% of the shares voting on the
policy at its annual general meeting. Importantly, both ISS and
Glass Lewis recommended that their subscribers vote in favour of
MAG's policy. These proxy advisory firms confirmed the
legitimacy of these policies as an important tool to:
provide a reasonable framework for shareholders to nominate
ensure that information regarding shareholder nominated
directors is distributed in a timely and adequate manner (ISS);
avoid the potentially negative impact a stealth proxy fight can
have where a relatively small group of shareholders take control of
a company's board without paying any premium for such control
and where other shareholders (if voting by proxy) have no ability
to evaluate and vote on any directors nominated by the dissident
shareholder (Glass Lewis).
A copy of the Mundoro decision is available
here. A copy of MAG Silver's advance notice policy is
Erecting and maintaining responsible and viable defences against
unexpected threats to corporate control requires a careful and
ongoing assessment of risks and the development of strategic
responses to those risks. For many Canadian public companies, the
adoption of properly constructed advance notice provisions, either
through a board policy or through by-law amendments, would be well
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.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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