Canada: Statutory Majority Voting Requirements To Come Into Force For CBCA Incorporated Reporting Issuers

Effective August 31, 2022, directors of reporting issuers that are incorporated under the Canada Business Corporations Act (CBCA) will have to be elected by a majority of the votes cast for and against them, unless otherwise required by the issuers' articles.

As announced on March 3, 2022, the CBCA will be amended effective August 31, 2022 to:

• introduce a statutory majority voting requirement for uncontested  director elections;
• require directors to be elected for a term ending not later than the close of the issuer's next annual shareholder meeting;
• prohibit slate voting;  and
• change the period during which shareholders must deliver proposals to be included in an issuer's proxy circular  (collectively, the CBCA Amendments).

Importantly, given that the CBCA Amendments will only come into force on August 31, 2022, they should not impact voting at annual meetings for reporting issuers with December 31 year ends who are generally required to hold their annual general meetings in the first six months of 2022.

As we've previously discussed, the CBCA Amendments were initially set out in Bill C-25, An Act to amend the Canada Business Corporations Act, the Canada Cooperatives Act, the Canada Not-for-profit Corporations Act and the Competition Act  which received Royal Assent in May 2018; however, such amendments did not come into effect at such time as they required an order of the Governor in Council as well as the publication of related regulations.

Majority Voting Requirement

For shareholder meetings held after August 31, 2022, CBCA-incorporated reporting issuers must allow shareholders to vote "for" or "against" individual director nominees in an uncontested election, rather than "for" or "withhold" (as the CBCA currently provides). Subject to the issuer's articles, where only one nominee is up for election for each board seat and less than 50% of the votes cast by shareholders are "for" a particular director nominee, such nominee will not be elected as a director. However, if an incumbent director is not elected by a majority of "for" votes at the meeting, s/he will still be permitted to continue in office until the earlier of (a) the 90^th day after the day of the election; and (b) the day on which their successor is appointed or elected.

In limited circumstances, the elected directors may also reappoint the incumbent director even though s/he did not receive majority support in the most recent election. More specifically, the newly adopted regulations to the CBCA will allow reappointment in two circumstances:

• where it is required to satisfy the CBCA's Canadian residency requirement; or
• where it is required to satisfy the CBCA's requirement that at least two directors of a distributing corporation not also be officers or employees of the corporation or its affiliates.

If the shareholders fail to elect the number or minimum number of directors required by the issuer's articles due to a lack of a majority of "for" votes for any director nominee(s), the directors who were elected at the meeting may exercise all their powers as directors provided that they constitute a quorum.

Majority Voting – Not New in Canada

While a statutory majority voting requirement will be new for CBCA-incorporated reporting issuers, as we have discussed in the past, issuers listed on the Toronto Stock Exchange (TSX) should already be familiar with majority voting policies. The TSX adopted amendments to the TSX Company Manual in 2014 that have required TSX-listed issuers to adopt majority voting policies. Pursuant to TSX requirements for majority voting policies, each director must be elected by a majority of votes cast with respect to his or her election, other than in a contested meeting. Since 2014, issuers listed on the TSX (regardless of jurisdiction of incorporation) have adopted policies that require that:

• a director immediately tender resignation to the board if he or she is not elected by at least a majority (50% +1 vote) of the votes cast with regard to his or her election;
• the board determine whether to accept the resignation within 90 days of the shareholders' meeting, which resignation should be accepted absent exceptional circumstances;
• the resignation become effective when accepted by the board;
• a director who tenders a resignation will not participate in board or committee meetings at which the resignation is considered; and
• the issuer promptly issue a news release with the board's decision including, in the case of a board not accepting the resignation, the reasoning behind such decision.

Key differences between the CBCA majority voting provisions and the TSX requirements include:

Once the CBCA Amendments come into force, CBCA-incorporated issuers may want to consider revoking or amending their TSX-compliant majority voting policies.

Other Amendments to Director Election Requirements

Also in line with existing TSX requirements, the CBCA Amendments will require that directors of distributing corporations be elected individually and for terms ending at the issuer's next annual meeting. Currently, directors of CBCA-incorporated issuers may be elected for three-year terms and there is no prohibition on slate voting; however, as noted, the TSX requires that directors be elected on an individual basis.

Shareholder Proposals

Effective August 31, 2022, the CBCA will also be amended to change the period during which shareholders must deliver proposals to be included in an issuer's proxy circular. Currently, a shareholder of a CBCA-incorporated issuer who wants to include a shareholder proposal in the issuer's proxy circular must submit the proposal to the issuer at least 90 days before the anniversary date of the notice of meeting delivered in connection with the issuer's last annual meeting. Pursuant to the CBCA Amendments, a shareholder will be required to deliver the proposal to management during the 60-day period between 90 and 150 days before the anniversary date of the issuer's prior annual meeting. An issuer's proxy circular must include the final date by which shareholders must submit a proposal to the corporation for the following annual meeting.

Other Amendments to the CBCA

Amendments to the CBCA to allow for notice-and-access, require say-on-pay resolutions and mandate disclosure with respect to clawback policies that were included in Bill C-25 and Bill C-97, Budget Implementation Act, 019, No. 1 that are not yet in force will come into force on a day to be fixed by order of the Governor in Council, presumably once the associated regulations have been published. For further details about these amendments please see: Corporate Governance Developments Set to Be Codified into the CBCA (November 20, 2019) and Regulations for CBCA's New Diversity, Majority Voting and Notice-For-Access Provisions Released (January 20, 2017).

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.