Hellen Siwanowicz, McMillan LLP
The Canadian Securities Administrators (the “CSA”) adopted amendments to National Instrument 54-101 – Communication with Beneficial Owners of Securities of a Reporting Issuer (“NI 54-101”) and National Instrument 51-102 – Continuous Disclosure Obligations in November 2012. These amendments are intended to improve the process by which reporting issuers (“Issuers”) send proxy-related materials to, and solicit proxies and voting instructions from, registered holders and beneficial owners of their securities. The amendments came into force on February 11, 2013. The amendments:
- provide Issuers with a new notice-and-access mechanism to send proxy-related materials to registered shareholders and beneficial owners of securities, which dispenses with the mailing of paper copies of such materials and thereby reduces print and mailing costs;
- simplify the process by which beneficial owners are appointed as proxy holders in order to attend and vote at shareholders meetings; and
- require Issuers to provide enhanced disclosure regarding the beneficial owner voting process.
Notice-and-access can only be used for shareholder meetings taking place on or after March 1, 2013. The use of notice-and-access is not mandatory.
Under notice-and-access, an Issuer (other than an investment fund) may deliver proxy-related materials by:
- posting the relevant information circular on SEDAR and on a non-SEDAR website; and
- sending shareholders a notice package that contains a notice and the relevant voting document (a form of proxy or voting instruction form (“VIF”), as applicable).
The notice sent to shareholders must:
- contain basic information about the meeting and the matters to be voted on;
- explain how to obtain a paper copy of the information circular (and, if applicable, annual financial statements and annual management discussion and analysis); and
- explain in plain language the notice-and-access process.
The notice package may include financial statements to be approved at the meeting and related management discussion and analysis or the annual report.
A notice package may be sent by mail or, if prior consent has been obtained, electronically. Issuers using notice-and-access must send the notice package to shareholders at least 30 days before the meeting (compared to 21 days if not using notice-and-access).
In order to use notice-and-access, an Issuer must set a record date for notice of the meeting date that is at least 40 days before the meeting (compared to 30 days if not using notice-and-access).
An Issuer must file on SEDAR a notification of meeting and record dates containing information about the meeting and its use of notice-and-access. Where the Issuer is using notice-and-access for the first time, the notification must be filed at least 25 days before the record date for notice (at least 65 days before the date of the meeting). For meetings subsequent to the first meeting for which an issuer uses notice-and-access, the issuer may abridge the timeline for filing the notification of meeting and record dates to three business days before the record date for notice.
Shareholders are still able to request paper copies of meeting materials if an issuer uses notice-and-access. Issuers must send paper copies of requested documents within three business days after receiving the request (10 calendar days if the request is received after the applicable meeting).
Notice-and-access may also be used to deliver proxy-related materials in connection with a proxy solicitation that is not a solicitation by management of the Issuer.
Although notice-and-access has been made available for use by Issuers under securities laws, Issuers must still comply with relevant corporate law requirements in respect of shareholder meetings.
Pursuant to a notice published by Industry Canada on February 15, 2013, Issuers governed by the Canada Business Corporations Act (“CBCA”) must apply for an exemption under the CBCA in order to use notice-and-access. However, any exemption received would not extend to the requirement to send financial statements to shareholders nor to the requirements applicable to intermediaries under the CBCA.
It is noteworthy that the position of the Ontario Securities Commission (“OSC”) is that Issuers incorporated under the Business Corporations Act (Ontario) (“OBCA”) do not need to obtain exemptive relief under the OBCA in order to use notice-and-access. In Staff Notice 54-702 – Corporate Finance Guidance – Notice-and-access: Interaction with National Policy 11-201 Electronic Delivery of Documents and the Ontario Business Corporations Act published on February 28, 2013, the OSC explained that although the OBCA requires that a management proxy circular be sent to each shareholder whose proxy is solicited, the OSC is of the view that the term “send” as used in the OBCA is inclusive and does not prohibit the use of electronic delivery or electronic documents. Given the complexity of the issue from a corporate and securities law standpoint, Issuers should consult with their legal counsel to determine if notice-and-access is available to them.
In the United States, the introduction of notice-and-access was accompanied by lower response rates from voting shareholders, especially from retail shareholders. It is noteworthy that in the United States, only the notice is included in the package as there is no requirement to include the form of proxy or VIF. The amendments to NI 54-101 require that the form of proxy and VIF be included in the notice package. Only time will tell if the use of notice-and-access results in an overall decrease in securityholder voting in Canada.
Hellen Siwanowicz is a Partner at McMillan LLP and gratefully acknowledges the assistance of David Mendicino, an Associate at McMillan LLP, in preparing this article.