Canada: Amendments To National Instrument 54-101 Now In Force

In November 2012, the Canadian Securities Administrators (the "CSA") published final amendments ("Amendments") to National Instrument 54-101 Communication with Beneficial Owners of Securities of a Reporting Issuer. Among other things, the amendments serve to:

  • introduce notice and access ("Notice and Access") into the Canadian marketplace,
  • simplify the beneficial owner proxy appointment, and
  • improve disclosure regarding the beneficial owner voting process.

The Amendments came into force on February 11, 2013.

Notice and Access

By far the most impactful change is the introduction of Notice and Access. Under Notice and Access, a reporting issuer (other than an investment fund) can deliver proxy related materials by:

i. posting the relevant information circular and other proxy-related material on a website (other than SEDAR), and

ii. sending a notice informing beneficial owners that the proxy-related materials have been posted, and explaining how to access them.

Notice and Access is not mandatory, but is intended to provide reporting issuers with a reliable and cost effective manner of communicating with shareholders. The introduction of Notice and Access follows on the adoption of a similar (though not identical) regime by the SEC in 2009.

Notice and Access is also available for solicitation by persons or companies other than management.

How does it work?

A reporting issuer that intends to use Notice and Access must set a record date for notice that is no fewer than 40 days and no more than 60 days before the date of the meeting.

The reporting issuer must send a notice to each of its beneficial holders. The notice must contain specific information, such as the meeting details (e.g., date, time), a website address where the proxy-related materials are posted, an explanation of Notice and Access and how to obtain a paper copy of the proxy-related materials. The notice must be sent by prepaid mail, courier or the equivalent.

If the reporting issuer is using stratification,1 the notice must also list the types of registered holders or beneficial owners who will receive paper copies of the proxy materials.

On or before the notice is sent to beneficial holders, the proxy-related materials must be filed and also posted on a non-SEDAR website. The posting must be in a manner to permit an individual with a reasonable level of computer skill and knowledge to (i) access, read and search the documents on the website, and (ii) download and print the documents. The reporting issuer must also post:

a. any other disclosure materials regarding the meeting that the reporting issuer has sent to registered holder or beneficial owners of its securities, and

b. any written communications that the reporting issuer has made available to the public regarding each matter or group of matters to be voted on at the meeting, whether or not they were sent to registered holders or beneficial owners of securities.

Adopting Notice and Access

As noted above, the use of Notice and Access is not mandatory, but represents a potential cost effective alternative for distributing meeting materials. However, in recent U.S. experience, the adoption of a form of notice and access has led to a decline in participation levels of beneficial owners. The CSA therefore expects that when deciding on using Notice and Access, reporting issuers will evaluate the potential impact of using Notice and Access on beneficial owners, specifically considering:

  • the nature of the meeting business (including whether it is expected to be contentious), and
  • whether Notice and Access resulted in material declines in beneficial owners voting rates in prior meetings where Notice and Access was used.

In addition, when using Notice and Access for the first time, a reporting issuer must file on SEDAR the notification of meeting and record dates at least 25 days before the record date for notice (i.e., at least 65 days prior to the meeting). In addition, the CSA encourages issuers to consider additional methods of advance notice that may be appropriate. For example, the CSA suggests that an issuer could consider a special purpose mailing to its retail beneficial owners in advance of the first meeting for which Notice and Access is used.

Is it really that simple?

Well, not really.

While securities legislation contains significant rules for communicating with beneficial owners, reporting issuers must also consult corporate statutes and other constating documents (such as trust indentures), which often contain additional rules for registered holders of securities.

While not entirely free from doubt, it appears that issuers incorporated under the Business Corporations Act (Ontario) are not prohibited from using Notice and Access, and this interpretation is supported by a recent Ontario Securities Commission staff notice on the issue.2 Similarly, issuers incorporated under the Business Corporations Act (British Columbia) appear able to utilize Notice and Access. However, issuers incorporated under the Canada Business Corporations Act may have more difficulty in adopting Notice and Access, and would likely still be required to mail information circulars to registered shareholders in accordance with that legislation. In light of these uncertainties, issuers are encouraged to seek legal advice prior to adopting Notice and Access for the first time.

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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Heather Zordel
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