Bill 91 establishes a new regime for virtual shareholder and director meetings.
Business owners should be aware of the upcoming changes to Ontario corporations brought by Bill 91 (Less Red Tape, Stronger Economy Act), which modifies accepted legal procedures for virtual and hybrid shareholders' meetings and directors' meetings. For many Ontario corporations, the flexibility and convenience brought by these changes are welcome. However, minority shareholders should be mindful of how this new flexibility granted to corporations sets procedures for shareholder meetings, as it may negatively impact the ability of minority shareholders to exercise their rights.
The changes come into force on October 1st, 2023. At this time, business owners should consider whether they need to revise their by-laws or articles before the changes come into force to ensure they have the flexibility, convenience, and protections they need.
To E-Meet, or not to E-Meet?
While virtual meetings were possible prior to Bill 91, the recent legislative changes provide further clarity by specifically permitting virtual or hybrid (part virtual and part in-person) shareholders' meetings, except as otherwise stated in a corporation's articles or by-laws. This means corporations that only want physical in-person meetings will now need to specify such restrictions in their articles or by-laws.
Additionally, Bill 91 requires corporations to draft instructions to set out how people virtually attending can participate and, if applicable, how they can vote. The broadness of the term "instructions" provides wide flexibility for a corporation to draft rules (e.g., a thumbs-up emoticon constitutes consent). Still, for some minority shareholders or those anticipating contested meetings, since the broadness of the term "instructions" is also vague, it may pose a risk to their ability to effectively participate. For instance, instructions are drafted vaguely such that where multiple people speak, a determination of priority and the length of time permitted to speak are interpreted against such involved interests.
A Virtual Balancing Act for Shareholders' Meetings?
The new subsection 94(3) is a welcome opportunity for corporations to clarify through their articles or by-laws how to conduct virtual or hybrid shareholders' meetings, such as, who is to host or co-host, who is muted, and how to deal with connectivity issues. However, what may be worrying for some, is that this subsection expressly states that the articles or by-laws could limit or specify requirements for how a virtual or hybrid shareholders' meeting is held. For certain minority shareholders or those involved in contested meetings, this subsection could be used against such involved interests by setting certain limits or specific requirements. It should also be noted that for virtual shareholders' meetings, Bill 91 now broadens the threshold to "attends" for classifying a person as present (or if one votes) at a virtual or hybrid shareholders' meeting, whereas before Bill 91, the law required the establishment of "a link." The question is, however, what constitutes the meaning of "attends," especially where network or technology issues may occur. Additionally, if there is a virtual or hybrid meeting, one must enable all persons entitled to attend to "reasonably participate." While "reasonably participate" is probably fine for many situations, it may be unclear what "reasonably participate" actually means. For instance, if a shareholder has network issues during a discussion or a vote, how much time would they have to fix their problem before moving on? Ultimately, corporations should explore revisions to their by-laws and articles to ensure they access the flexibility and convenience permitted by this new regime, or to address any concerns that come with limiting or specifying requirements in conducting shareholders' meetings.
Beyond the Ballot Box – E-Voting and E-Proxies:
Bill 91 permits shareholders or proxies to vote virtually at a virtual or hybrid shareholders' meeting. For those opposed to virtual voting by shareholders or their proxy, the corporation must revise its by-laws to expressly reflect this position. What should be considered is what happens if a shareholder or a proxy demands a ballot where there is a virtual or hybrid meeting. How do you provide a ballot to those who are remote? Is it a virtual/email ballot? Corporations should consider if they wish to specify in their by-laws the manner of virtual/email voting (or at least specify the person who shall have the authority to make such determination) in the event that a shareholder demands a ballot, and consider appointing the corporation's corporate counsel to oversee the vote.
Click to Convene?
Business owners should keep in mind that these new rules for virtual and hybrid meetings are the default rules, they are not mandated. A corporation that prefers in-person directors' meetings can amend its articles or by-laws to require only in-person meetings. But in the absence of express language "opting out," virtual and hybrid meetings are allowed.
Changes Requiring Notice:
The notice for any virtual or hybrid directors' meeting must include instructions for virtually attending, participating and any voting. As such, corporations should clarify these instructions to minimize miscommunication and issues or to achieve other objectives. Lastly, corporations need to be aware that, a corporation's auditors now have a right to receive a notice of a directors' meeting to attend the meeting, as long as the meeting relates to their auditor duties.
Bill 91 also requires directors' meetings to provide that: "all persons attending the meeting are able to communicate with each other simultaneously and instantaneously," which should satisfy and mitigate concerns of those who would have network or technology issues. In comparison, the new subsection 94(4) for a shareholders' meeting (as discussed above) states that all persons entitled to the meeting must be able to just: "reasonably participate" – which is a noticeably lower standard than what is required for a directors' meeting. Additionally, as discussed above for shareholders' meetings, likewise for directors' meetings, one must "attend" to be classified as present at the directors' meeting, but it is not clear what "attend" means. It should be recognized that, unlike a shareholders' meeting, the changes do not specify whether voting classifies a person as present at a directors' meeting.
Raising the 'e'-Bar on Governance?
Importantly, Bill 91's new subsection 126(14) states that the articles or by-laws may limit the manner or specify requirements that apply with respect to holding a virtual or hybrid directors' meeting. This is practically the same provision as the new subsection 94(3) for shareholders' meetings (as discussed above). For directors' meetings, corporations should consider revising their by-laws or articles to achieve the flexibility they need, or to mitigate any concerns where minority shareholders may be affected. It should be noted that the requirement for simultaneous and instantaneous communications in a directors' meeting (as discussed above) may provide some overarching safeguards for its participants and those affected.
Virtual Access to Corporate Records
Furthermore, Bill 91 has introduced additional flexibility and convenience by allowing corporations to grant virtual access for:
- Directors and any person to examine minute book documents and corporate records, and the securities registrar.
- Shareholders to examine the shareholder list of those entitled to receive notice of a shareholders' meeting.
- Directors, shareholders, or creditors to inspect a corporation's consent to act as a first director.
However, without the corporation's permission, you may be required to physically access the corporate records, which may disappoint some expecting a statutory requirement for virtual access.
Overall, we expect that many corporations, directors, and shareholders will welcome the added convenience and flexibility brought by the Bill 91 changes. However, it is unclear how these new freedoms now granted to corporations to establish rules for virtual or hybrid meetings may be used to sideline minority shareholders. At a minimum, minority shareholders should consider whether the by-laws and articles contain adequate protections in the event of network or technology issues, or do not carry restrictions that may unfairly handicap minority shareholders, in the conduct of virtual or hybrid meetings and corporate proceedings. Ultimately, Bill 91 brings forward an opportunity for corporations to examine corporate articles or by-laws to consider how to conduct virtual or hybrid meetings, whether by keeping things simple and implicitly, consenting to the application of this new regime, or creating a detailed list of rules to specify limitations and restrictions to help bring the convenience or protection they need.
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.