Canada: Elections Of Directors And Shareholder Proposals: Amendments To The Canada Business Corporations Act Which Came Into Force On August 31, 2022
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Entry Into Force

The amendments made by Bill C-25 (PDF), An Act to amend the Canada Business Corporations Act, the Canada Cooperatives Act, the Canada Not-for-profit Corporations Act, and the Competition Act (the "amendments"), which received Royal Assent on May 1, 2018, came into force on August 31, 2022.

The amendments introduce significant changes to the Canada Business Corporations Act (PDF) (the "CBCA") regarding certain aspects relating to the process of electing directors and regarding proposals by shareholders of distributing corporations governed by the CBCA ("subject corporations").

Election of Directors

Compulsory Annual Election and Separate Vote

Under former section 106(3) of the CBCA, it was possible to elect a director for a three-year term, that is, a term that ended no later than the close of the third annual meeting following the election. With the coming into force of the amendments, shareholders of a subject corporation must now, at each annual meeting of shareholders, elect directors to hold office for a term ending not later than the close of the next annual meeting.

The amendments require that corporations hold a separate vote for each candidate for the position of director. This individual vote is a new requirement, compared to the previous procedure under which a board of directors could propose a slate of candidates and shareholders could vote to elect a block of candidates to director positions and not for each candidate. Under the TSX Company Manual, subject corporations with securities listed on the Toronto Stock Exchange (the "TSX") are already required to hold annual elections and hold separate votes for each candidate. The coming into force of the amendments will have the effect of requiring that certain subject corporations with securities listed on other exchanges, such as the TSX Venture Exchange (the "TSX-V") and the Canadian Securities Exchange (the "CSE"), hold annual elections, given that they allow elections of slates of candidates and staggered elections, where shareholders are permitted to choose the method of election.

Majority Vote for Directors

With the coming into force of the amendments, the shareholders of subject corporations will now have to vote for or against each of the candidates for the position of director, in an uncontested election, that is, an election in which there is only one candidate nominated for each position available on the board. Under the former provisions of the CBCA, shareholders had to vote "for" or "withhold" their vote for the election of candidates for director positions.

To be elected in an uncontested election, each candidate will have to obtain the number of votes in their favour that represents a majority of the votes cast for and against them by the shareholders present or represented by proxy, during the election, unless the corporation articles require a greater number of votes. In addition, a director, who was a candidate for election to a director position who was not elected by a majority of the votes cast in their favour in an election, may continue in office until the earlier of (a) the 90th day after the day of the election; or (b) the day on which their successor is appointed or elected.

Under the TSX Company Manual, a director of a subject corporation with securities listed on the TSX who is elected without having obtained a majority of votes cast in their favour in an election must immediately tender their resignation to the board of directors. The board of directors must then determine whether or not to accept the resignation within 90 days after the date of the relevant shareholders' meeting. The board is required to accept the resignation except under exceptional circumstances. Unlike the TSX's requirements, which exempt a listed issuer that is majority-controlled from the majority voting requirement, the amendments apply to majority-controlled subject corporations. The board's discretion has now been abolished by the amendments. Subject corporations with securities listed on exchanges other than the TSX-V and the CSE will now be required to comply with the CBCA requirements relating to majority voting for directors.

Appointment Between Annual Meetings

Before the amendments came into effect, only corporations whose articles expressly provided for the appointment of one or more directors between annual meetings were permitted to do so, under the CBCA. Under the amendments, this rule has become the exception. A corporation's board of directors may now appoint one or more new directors for a temporary term. Unless the articles clearly prohibit the board of directors from appointing new directors between annual shareholders' meetings, that term expires no later than the close of the next annual shareholders' meeting, provided that the total number of directors so appointed does not exceed one third of the number of directors elected at the previous annual meeting of shareholders.

The amendments include, however, one exception to this principle. A corporation may not appoint anyone to the position of director between meetings who did not receive a majority of votes cast in the last election of directors, except in the following two situations where someone must be appointed in order to comply with the requirements under the CBCA: (a) concerning the minimum number of directors who must be Canadian residents; and (b) for subject corporations, that they have a board of directors composed of at least three directors, two of whom are neither officers nor employees of the corporation or of corporations in its group.

Shareholder Proposal

The last change made by the amendments relates to the time frame and deadline for shareholders to submit a shareholder proposal. Under the amendments, shareholders will now be able to submit a shareholder proposal during the allotted 60-day period between the 150th and 90th day before the anniversary date of the last annual meeting of shareholders, rather than the 90th day before the anniversary date of the notice of the last annual shareholders' meeting issued by the corporation under the former provisions of the CBCA. This amendment therefore permits shareholders to submit proposals within a time frame that is closer to the date of the annual shareholders' meeting.

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.