As shareholder activism increases in Canada, so too are the
number of proxy disputes. As such, more Canadian public companies
are implementing advance notice by-laws and policies. Advance
notice by-laws are common in the United States, having been
utilized by American companies for over twenty years. Advance
notice by-laws generally require that a company be given advance
notice of shareholder proposals relating to the nomination of
directors. In the absence of such by-laws or policies, and provided
they have sufficient votes to do so, dissidents have the ability to
"ambush" a meeting of shareholders and replace some or
all of the board of directors without advance notice to the company
or to its shareholders.
Northern Minerals Investment Corp. v. Mundoro Capital Inc.
Although such policies are relatively new in Canada, there is
some recent jurisprudence on this subject. The Supreme Court of
British Columbia considered in Northern Minerals Investment Corp.
v. Mundoro Capital Inc., 2012 BCSC 1090, two of the tools used by
companies in connection with proxy contests: (i) the implementation
of an "advance notice policy", that in this case had been
adopted by the Mundoro board after it had mailed the information
circular for its meeting of shareholders, and (ii) the postponement
of a shareholder meeting. In sustaining both actions taken by the
board of Mundoro, the court reaffirmed the authority of a
company's board of directors to pursue such initiatives.
Northern Mineral argued that the advance notice policy
diminished shareholder democracy by depriving shareholders of their
statutory right to elect directors. The court disagreed and
concluded there was no infringement on the rights of Mundoro
"In this case it has not been established that the Policy
is one that infringes shareholder rights. Rather, the Policy in
fact ensures an orderly nomination process and that the
shareholders are informed in advance of an AGM what is in issue. In
doing so the Policy prevents a group of shareholders from taking
advantage of a poorly attended shareholders meeting to impose their
slate of directors on what could be a majority of shareholders
unaware of such a possibility arising. The submission of the
petitioner equates the "rights" of a small group of
dissident shareholders with all shareholders of the company. The
interests of the two groups do not necessarily coincide."
Despite the court making clear that its conclusion was not a
general endorsement of advance notice policies and that each case
will be decided based on its particular facts, the decision
suggests that such policies could be considered to be consistent
with shareholder rights, rather than a tool of board
We note that the court considered shareholder approval of the
advance notice policy to be important and we would recommend that
such advance notice provisions be adopted by way of a by-law and
that the company seek shareholder approval for the advance notice
Implementation of By-law
The board directors of a company may adopt an advance notice
by-law, following which the by-law should be submitted to the
shareholders at the next meeting of shareholders. The advance
notice by-law would be effective from the date of such
directors' resolution until it is confirmed or rejected by the
shareholders at the next meeting.
In our opinion, a properly drafted advance notice by-law would
prevent shareholders from nominating directors without providing
the company with adequate time to consider and respond in an
informed way to such proposed nominations. The advance notice
by-law should facilitate an orderly and efficient meeting process,
not by discouraging nominations, but by ensuring that all
shareholders, including those participating by proxy rather than in
person, receive adequate notice of the nominations, allowing them
to register an informed vote.
As the proxy season nears, WeirFoulds is advising its public
company clients on the implementation of advance notice by-laws. We
believe that advance notice by-laws can be important instrument for
a public company to ensure that all shareholders are treated fairly
and are provided with timely information in connection with the
nomination of directors, benefiting both the company and its
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.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
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.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).