The Canada Business Corporations Act (“CBCA”) was amended effective August 31, 2022 to require shareholders of a public company governed by such legislation to vote “for” or “against” directors at annual meetings of shareholders. This is a departure from the “for” and “withhold” options previously offered to CBCA public company shareholders. Subject to certain exceptions, the amendments also contemplate that each director in an uncontested election (i.e., where the number of director nominees is equal to the number of directors positions to be filled) must receive more “for” votes than “against” votes to be elected.
The ability for shareholders to vote against the election of a director will be a new development in Canada. It is important to note, however, that under Canadian securities laws, a form of proxy must provide an option for the shareholders to vote “for” or have their votes “withheld” from voting in respect of the election of directors. Accordingly, reconciling these different requirements may result in shareholders of a company governed by the CBCA being given three choices for uncontested director elections: “for”, “against” or “withhold”. While an exception from the securities law requirements is available if:
- the issuer complies with the requirements of the laws relating to the solicitation of proxies under which the reporting issuer is incorporated, organized or continued (e.g., the CBCA), and
- such requirements are substantially similar to the requirements under Canadian securities laws, the Canadian Securities Administrators have not yet provided guidance on whether the amendments will be considered substantially similar to the requirements under Canadian securities laws.
Under current TSX requirements, directors must offer to resign if they do not receive a majority of “for” votes, but the board has the option of not accepting such resignation in exceptional circumstances. The CBCA amendments effectively remove this discretion. The amendments will also result in changes for many TSXV and CSE listed issuers since they are not currently required to follow a majority voting standard. However, the amendments create two exceptions to allow an unsupported nominee to be appointed as a director if that person is necessary for the corporation to meet its obligation under the CBCA for having either:
- at least two directors who are not officers or employees of the corporation or its affiliates; or
- to meet Canadian residency requirements, such as at least 25% of the board members being Canadian residents (or at least one director if the corporation has less than four directors).
If you are involved with a public company organized under the CBCA and have questions concerning the recent amendments to the Act, please contact Keith Inman at [email protected] or by phone at 250-869-1195.
Keith Inman is a securities and M&A lawyer with broad experience in capital markets. Keith regularly advises individuals and companies with respect to capital raises, securities reporting and compliance matters, purchases and sales of businesses and other corporate/commercial matters. Keith is licensed to practice law in Alberta and British Columbia.
