Have Canadian securities administrators finally brought proxy delivery processes into the digital age? The Canadian Securities Administrators (CSA) certainly hope so.
With electronic communications now ubiquitous and proxy battles on the rise, it is fitting that issuers should be provided with the opportunity to employ efficient, reliable and low-cost online methods of communicating with registered holders and beneficial owners of their securities. The CSA's timely new rules simplifying this process are now finalized, giving issuers the possibility, for meetings held on or after March 1, 2013, of delivering trimmed-down notice packages (rather than a full set of paper proxy-related materials) that provide details of where to access online proxy-related materials or order printed materials.
Prior to implementation, however, early adopters of this voluntary "notice-and-access" procedure must consider whether their own articles and by-laws, as well as governing corporate law, permit the use of the process. Commentators have noted that several Canadian corporate statutes potentially conflict with the new rules. While we discuss some of these potential conflicts below, we recommend that issuers contact us to determine whether notice-and-access is available to them for the 2013 proxy season.
Background on the New Rules
The new rules, which come into effect February 11, 2013, will amend National Instrument 54-101 – Communication with Beneficial Owners of Securities of a Reporting Issuer and National Instrument 51-102 – Continuous Disclosure Obligations. Significant features of the amendments include the introduction of the "notice-and-access" procedure, the simplification of the appointment procedure for beneficial owners as proxy holders and enhanced disclosure requirements regarding the beneficial owner voting process. The final amendments also clarify that notice-and-access may be used for non-management proxy solicitations.
Under the notice-and-access process, a reporting issuer may deliver proxy-related materials by posting the relevant information circular or, if appropriate, other materials, on SEDAR and an alternate website. The issuer must also send a notice informing registered holders and beneficial owners that such materials have been posted electronically and how to access them. This procedure is not available for investment funds.
A reporting issuer that uses notice-and-access for the first time must file a notice of meeting and record dates, which includes information on whether the issuer will use notice-and-access, on SEDAR at least 25 days before the record date for notice. For subsequent meetings, the notice of meeting and record dates must be sent at least three days before the record date for notice. For issuers using notice-and-access, the record date for notice must be at least 40 days before a meeting.
Under the new process, the notice provided to shareholders may be sent by mail or electronically, provided that prior consent has been obtained. An issuer using notice-and-access must explain the notice-and-access process in plain language in its notice. The notice must contain certain specified information, including the time and place of the meeting, the matters to be voted on, where to find the proxy-related materials and how to obtain a paper copy of the information circular or other documents. Intermediaries may receive standing instructions from their client beneficial owners to obtain paper copies whenever an issuer uses notice-and-access.
Beneficial Owner Proxy Appointment Process
The amendments simplify the process by which beneficial owners are appointed as proxies by giving issuers and intermediaries more flexibility to determine their own specific arrangements. Management or the intermediary must appoint a non-objecting beneficial owner (NOBO) or its nominee as a proxy holder if the NOBO has so instructed management in any written form. The NOBO or nominee must be given authority to attend, vote and otherwise act for management in respect of all matters at the meeting, unless giving such authority is prohibited by corporate law.
Enhanced Disclosure of Beneficial Owner Voting Process
While current rules require disclosure in proxy-related materials of how a beneficial owner may exercise its voting rights, the amendments also require issuers to disclose if:
- materials will be sent via notice-and-access and, if using stratification, whether certain types of shareholders will receive paper copies of the materials;
- materials will be sent directly to NOBOS and
- the issuer intends to pay for an intermediary to deliver the materials to objecting beneficial owners (OBOs) and, if not, a statement that OBOs will not receive such materials, unless their intermediary assumes the costs.
We note that the wording of the new rule is slightly unclear as to whether it requires disclosure if issuers will not be using notice-and-access. We have confirmed with the Ontario Securities Commission that the rule is not intended to require issuers to provide this negative disclosure. We understand that the CSA intends to publish guidance on various aspects of the rule, including confirmation on this point.
Corporate Law Requirements Related to Notice-and-Access
While the notice-and-access rule has been published under securities laws, issuers still need to consider the applicable corporate law requirements prior to implementing notice-and-access. Notice-and-access changes the default delivery method for proxy-related materials to merely providing notice of where documents can be accessed electronically and details on how to order paper copies (thereby placing an obligation on recipients to seek out or request the materials), whereas corporate law generally requires information circulars be sent by mail, unless a shareholder has opted-in to receive documents electronically. While this change has been carefully considered and planned for from a securities law perspective, corporate statutes are not consistent in how they contemplate or address this method of making shareholder meeting materials available to shareholders. Below, we provide examples of the potential conflicts that should be considered.
CBCA and CBCA-Based Statutes
The Canada Business Corporations Act (CBCA) and all CBCA-based statutes, including the Bank Act and the Insurance Companies Act, require that all proxy-related materials be "sent" to shareholders. Intermediaries are also required to "send" materials to beneficial owners before their shares can be voted. These requirements may be met by sending materials via regular mail or by personally delivering them. The CBCA expressly permits electronic delivery of any notice or document only when the shareholder has consented in writing and specified a "designated information system" for the receipt of the electronic document (such as an email address) and the document is provided to such information system. Our interpretation of these provisions of the CBCA is that shareholders would need to explicitly consent to the notice-and-access procedure so as to permit its use by corporations governed by the CBCA.
Many of the provincial statutes follow the CBCA approach with respect to the general requirements pertaining to the delivery of documents to shareholders by mail or personal delivery. In Ontario and Alberta, however, the corporate statutes provide that these documents may be delivered electronically pursuant to their respective "e-commerce" act. These e-commerce acts still require that the accepting party consent to the receipt of electronic documents; however, issuers may overcome this requirement, in certain circumstances, by inferring consent.
Unlike the CBCA, the Business Corporations Act (Québec) (QBCA) and the British Columbia Business Corporations Act (BCBCA) do not contain any proxy solicitation rules (such as the requirement that a person send a proxy circular to the shareholders whose proxies that person is soliciting). However, in order to meet their corporate law requirements, QBCA and BCBCA issuers that use notice-and-access in the context of shareholders' meetings concerning special business should ensure that any notice sent to shareholders contains a statement of the special business on the agenda in sufficient detail, to permit the shareholders to form a reasoned judgment on it, and contain the text of any special resolution to be submitted to the meeting. As the notice-and-access regime limits the extent of information that can be included in proxy-related materials sent without an information circular, issuers should carefully consider the preparation of these notices.
Saskatchewan-based issuers should be able to more easily interpret their corporate law requirements as the Business Corporations Act (Saskatchewan) (SBCA), which generally follows the CBCA, appears to have contemplated a regime similar to notice-and-access. The SBCA provides that electronic documents can be considered to be delivered if they are posted on a website and the addressee is provided notice of the availability and location of such documents. However, like the CBCA, the SBCA still requires consent in writing to this electronic delivery method.
Recognizing the potential conflicts with certain corporate statutes, the CSA will likely issue further guidance for issuers, such as a staff notice or frequently asked questions, in consultation with the Director or equivalent authorities under the various corporate statutes. Depending on the corporate statute, it is unclear whether exemptive relief would be available to resolve a conflict, and it is uncertain whether the responsible authorities will have the necessary powers to cure conflicts by regulation. If that power is not available, amending the corporate statutes may be the only course of action available. We understand that the CSA and corporate authorities are currently considering these issues.
Recommendations for Reporting Issuers
It remains to be seen whether notice-and-access will see a large initial uptake among Canadian reporting issuers in time for the 2013 proxy season. However, issuers interested in pursuing notice-and-access should consider their governing statute, check their own constating documents and tread carefully. Issuers are encouraged to contact us regarding compliance with corporate statutes, the preparation of proxy-related materials that utilize notice-and-access procedures and any questions with respect to the amendments.
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