Fasken recently published two articles (on March 12 and March 13, 2020) relating to alternatives to in-person annual shareholders' meetings in the context of the COVID-19 pandemic. In light of the rapidly evolving circumstances and the ongoing proxy season, we have detailed recent developments and trends in the area in order to provide a road-map to corporations navigating this process.
In the week since our last bulletin, the following developments and trends have emerged:
- Relaxed regulatory requirements: In response to COVID-19, on March 20, 2020, the Canadian Securities Administrators issued guidance to issuers with respect to hybrid and virtual meetings, as outlined below.Securities regulators in the United States have also announced similar permissive proxy rules. This guidance provides corporations with welcomed regulatory flexibility to make changes to the date, time, location and format of their meetings to better respond to the evolving pandemic.
- Most popular meeting formats. Additional Canadian issuers, listed either on the TSX or TSX Venture Exchange, including Rogers Communications Inc., Canadian National Railway Company, Canadian Pacific Railway Limited, EnWave Corporation (TSX Venture Exchange), Fortis Inc. and Yamana Gold Inc., have taken the fully virtual route. Many Canadian issuers, including Teck Resources Limited, TFI International Inc., Fairfax Financial Holdings Ltd., Logistec Corporation and BluMetric Environmental Inc. (TSX Venture Exchange), have instead decided to maintain their in-person meeting with a simultaneous webcast while strongly encouraging shareholders not to physically attend the meeting and to vote in advance by proxy. We note that no Canadian issuer has yet adopted a hybrid format (which allows for both online and in-person voting) in response to the COVID-19 crisis. However, several issuers have embraced such format for the past few years. In the current context, certain issuers are considering postponing their meeting altogether to a later date while they assess available options. Osisko Gold Royalties Ltd. has adopted this approach.
- Proxy advisory firms get onboard – the key is to provide meaningful access. As reported by Kingsdale Advisors, GlassLewis and ISS have relaxed their policies with regards to virtual-only meetings, the latter indicating that it will be "very reasonable" as it relates to virtual-only meetings while remaining strict with its previous statement that issuers "must provide full disclosure ensuring that the meeting will not limit shareholders' rights to participate". Glass Lewis, on the other hand, confirmed that it will be lenient with corporations motivated to switch to a virtual setting due to the COVID-19 outbreak, as clearly stated in their public disclosure.
- Practical considerations. There are limited service providers available to conduct hybrid and virtual meetings in Canada. Corporations would be wise to act quickly if interested in pursuing this type of meeting due to potential availability constraints.
Road-Map to Taking your Meeting Virtual or Hybrid
Corporations must juggle with both corporate and securities law requirements in their decision to take their meeting virtual. The section below sets out the options available to a corporation which wishes to switch to a virtual setting, based on the timing of its upcoming annual meeting.
1- You have not yet mailed and filed proxy materials
The first step is to consult your corporate statute, articles and by-laws to assess what options are available to you.
- From a corporate law perspective, most corporate statutes authorize virtual meetings if provided for in the by-laws of the corporation.
- While British Columbia corporate law may require a court order to conduct a virtual meeting, corporations governed by the Canada Business Corporation Act and other provincial corporations such as Ontario allow for the possibility so long as all participants are able to participate in the meeting and communicate adequately with each other.
- Hybrid meetings can be conducted under most corporate laws, subject to any restrictions contained in the corporation's articles or by-laws.
- For an in-person meeting with live webcast, if shareholders are not able to participate and communicate with each other, they will not be deemed to be present for purposes of quorum requirements. In this case, collecting sufficient votes by proxy in advance of the meeting is important. It is also advisable to hold a question period at the end of the meeting.
If your articles and by-laws allow you to hold your meeting under the desired format, details regarding the meeting must be communicated in the proxy materials and delivered to shareholders as usual, with the caveat that disclosure relating to the new format must be added with a specific indication as to how and why holding the meeting by virtual means will not limit shareholders' rights to participate.
- Alternatively, a court order may be sought (as detailed below). In addition, as boards often have the ability to unilaterally amend the corporation's by-laws under most corporate statutes (other than in Québec), to the extent the by-laws impose significant restrictions on alternatives to in-person meetings, directors may amend the by-laws as needed, either permanently or on a "one-off" emergency basis, subject to ratification by shareholders at the next meeting. Nonetheless, if the amendment is not subsequently approved by the shareholders at the annual meeting or quorum is not met, such amendment would cease to be effective and the meeting would be held in breach of the corporation's constating documents.
- Issuers filing and mailing materials for an annual meeting may want to consider including flexible language in their proxy materials indicating that meeting plans may be adapted given rapidly evolving circumstances surrounding the COVID-19 pandemic. Corporations should clearly advise shareholders that they will be notified of any change in the meeting location or format via press release and posting on the corporation's website.
2- You have already mailed and filed proxy materials
If you have already distributed your proxy materials, shareholders will need to be informed as soon as practicable of the change to a new medium.
- In the case of a change to a virtual-only meeting, corporate statutes or by-laws may impose certain formalities on corporations (such as the sending of an amended notice to shareholders), as the location of the meeting would be deemed to have changed. Therefore, opting for a hybrid meeting or webcasting may be more appealing for issuers in these circumstances. For a hybrid meeting or live webcast, no additional mailing is required, as the location, date and time of the meeting remain the same.
- No matter the format used, securities laws impose additional requirements on public issuers. As mentioned above, regulators have taken the relaxed position that an issuer that has already mailed and filed its proxy materials can notify shareholders of a change in the date, time, or location of its annual meeting without mailing additional proxy materials if: (i) a press release announcing such change is issued, (ii) the announcement is filed as definitive additional soliciting material, as the case may be, and (iii) the issuer takes all reasonable steps necessary to inform other intermediaries in the proxy process of the change.
Seeking Court Orders
If your corporation is not permitted to hold a virtual or a hybrid meeting based on its constating documents, or if it is unclear whether your corporation is permitted to do so, for precautionary purposes, you may decide to apply for a court order to ensure your meeting is validly held. Indeed, Canadian corporate statutes generally provide that a court of competent jurisdiction may order a meeting to be called, held, and conducted in the manner that the court directs.
The court order may, for instance, vary or waive any applicable quorum requirement, allow the corporation to provide notice to shareholders within a shorter timeframe and via a different format (e.g. by press release instead of by mail or personal delivery). If the meeting is called, held and conducted in compliance with the court order, interested parties will for all purposes be prevented from challenging the validity of the meeting.
Fasken recently represented Rogers Communications Inc. before the Supreme Court of British Columbia and obtained an order permitting it to hold its next annual meeting of shareholders as a virtual-only shareholder meeting. Such order was sought based on specific provisions of the British Columbia Business Corporations Act. More particularly, the court order states that the meeting to take place is deemed to be held at Rogers' head office and, to prevent any quorum issues, it also states that the shareholders or proxy holders entitled to participate in, and vote at, the meeting and who are participating by electronic communications medium are deemed to be present at the meeting.
In light of concerns over COVID-19, we expect chances of success to be relatively high in obtaining a court order given the health and safety measures prescribed by the authorities are extraordinary circumstances allowing courts to interfere in internal corporate affairs. For instance, on March 20, 2020, some of Canada's biggest financial institutions and insurers, namely Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal, Canadian Imperial Bank of Commerce, National Bank of Canada, Canadian Western Bank, Laurentian Bank of Canada, Manulife Financial Corp., Great-West Lifeco Inc., Canada Life Assurance Company and Sun Life Financial Inc., obtained a joint court order to hold virtual-only annual meetings in light of the COVID-19 pandemic. This creates an additional favorable precedent.
It is, however, important to note that the evolving health and safety measures imposed in light of COVID-19 could impact corporations' ability to obtain an order in a timely fashion. Restrictions imposed on court activities may be different from one judicial district to another. For instance, court activities may be limited to strictly urgent matters and such matters may be dealt with via telephone conferences only, rather than in-person hearing. Nonetheless, an application for a court-ordered meeting is likely to be deemed urgent in light of the ongoing proxy season. That being said and leaving the possible restrictions on court activities aside, we expect applications for court-ordered hybrid or virtual meetings to be cost and time efficient.
Recourse to courts should be reserved for necessary cases only. A virtual or hybrid meeting is generally permitted by the Canada Business Corporations Act, the Ontario Business Corporations Act and the Québec Business Corporations Act so that, in principle, a court order will not be required for a virtual or hybrid meeting for corporations governed by those statutes if their by-laws provide for such formats.
If you have any questions or if we can be of any support to you during this proxy season, please do not hesitate to contact any member of our Capital Markets team.
The authors wish to thank Jean Michel Lapierre, Neil Wiener, Neil Kravitz, Gilles Leclerc, Tristan Lalumière-Roberge and Christophe Leduc for their contributions.
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.