Written by Gary S.A. Solway, Brent W. Kraus, James T. McClary and Bradley M. Eidsness
On September 28, 2016, the Government of Canada tabled proposed amendments to the Canada Business Corporations Act (CBCA). Corresponding amendments are proposed for the Canada Cooperatives Act and the Canada Not-for-profit Corporations Act. (Read a Backgrounder of An Act to amend the Canada Business Corporations Act, the Canada Cooperatives Act, the Canada Not-for-profit Corporations Act and the Competition Act on the Government of Canada's website.)
In 2014, the Government asked for submissions on changes to the CBCA and numerous submissions were made proposing many useful changes. Very few changes are included in the proposed amendments. The Government indicated that additional consultation is required and additional amendments may be proposed at a later date.
With respect to the CBCA, the tabled amendments include reforming the process for electing directors of public corporations, requiring corporations to provide information with respect to diversity among directors and senior management, modernizing communications between corporations and shareholders and clarifying the prohibition on bearer certificates.
The director election process for CBCA corporations will be changed to require public corporations to annually elect directors. Currently, the election of directors is only required to occur every three years, although most corporations hold annual elections already.
Additionally, voting will be conducted on a candidate-by-candidate basis (as opposed to slate voting). If there is only one candidate nominated for each board seat, a candidate will only be elected if the votes cast in favour represent a majority of the votes cast in respect of that candidate.
In this respect, the amendments will somewhat align the CBCA with annual election and majority voting requirements applicable to corporations whose securities are listed on the Toronto Stock Exchange (TSX). The CBCA provisions are more onerous because they prohibit a candidate from being elected. Under the TSX rules, the candidate is elected but must promptly resign except in certain circumstances.
Board and Senior Management Diversity Disclosure
The amendments require a corporation to provide information to shareholders at every annual meeting with respect to diversity among the directors and senior management of the corporation. This information will include the gender composition of the directors and an explanation of the corporation's diversity policies. If no diversity policies are in place, the corporation must explain why. Further details concerning the required diversity information disclosure may be prescribed by regulation.
Notice and Access System
Currently, CBCA corporations are required to send out paper-based communications, including notifications of annual general meetings, management proxy circulars and financial statements. The amendments allow corporations to replace these paper-based communications with electronic communications through the introduction of a "notice and access" system by which corporations provide shareholders with electronic notifications and online access to required documents. This amendment makes the CBCA consistent with changes made to Canadian securities legislation in 2013.
Restriction of Bearer Shares
The amendments clarify that a corporation must issue certificates, warrants, or any other evidence of conversion privilege, option or right to acquire a share of the corporation in registered form. Issuances in bearer form are prohibited. All current certificates which have been issued in bearer form must be replaced.