Directors of reporting issuers incorporated under the Canada Business Corporations Act (CBCA) will have to be elected by a majority of the votes cast for and against them effective August 31, 2022, unless otherwise required by the articles.

As announced on March 3, 2022, the CBCA will be amended effective August 31, 2022 to:

• Introduce a statutory majority voting requirement for uncontested director elections;
• Require directors to be elected for a term ending not later than the close of the issuer's next annual shareholder meeting;
• Prohibit slate voting; and
• Change the period during which shareholders must deliver proposals to be included in an issuer's proxy circular (collectively, the CBCA Amendments).

Importantly, given that the CBCA Amendments will only come into force on August 31, 2022, they should not impact voting at annual meetings for reporting issuers with December 31 year-ends who are generally required to hold their annual general meetings in the first six months of 2022.

Background

As noted in our insight dated April 20, 2021¹, Bill C-25, An Act to amend the Canada Business Corporations Act, the Canada Cooperatives Act, the Canada Not-for-Profit Corporations Act and the Competition Act (the Amending Act) received Royal Assent in May 2018. However, parts of the Amending Act did not come into effect at such time because they required an order of the Governor in Council as well as the publication of related regulations. Key updates which will come into effect on August 31, 2022 are summarized below.

Majority voting requirement

For shareholder meetings held after August 31, 2022, CBCA-incorporated reporting issuers must allow shareholders to vote "for" or "against" individual director nominees in an uncontested election, rather than "for" or "withhold" (as the CBCA currently provides). Where only one nominee is up for election for each board seat and less than 50% of the votes cast by shareholders are "for" a particular director nominee, such nominee will not be elected as a director (subject to provisions in the issuer's articles). However, if an incumbent director is not elected by a majority of "for" votes at the meeting, they will still be permitted to remain as a director until the earlier of: (a) the 90^th day after the day of the election; or (b) the day on which their successor is appointed or elected.

The elected directors may also reappoint the incumbent director even if they do not receive majority support in the most recent election in certain instances. Specifically, the newly adopted regulations to the CBCA will allow reappointment in only two circumstances:

• Where it is required to satisfy the CBCA's Canadian residency requirement; or
• Where it is required to satisfy the CBCA's requirement that at least two directors of a distributing corporation are not also officers or employees of the corporation or its affiliates.

If the shareholders fail to elect the number or minimum number of directors required by the issuer's articles due to a lack of a majority of "for" votes for any director nominee(s), the directors who were elected at the meeting may exercise all their powers as directors, provided that they constitute a quorum.

While a statutory majority voting requirement will be new for CBCA-incorporated reporting issuers, as noted in our 2022 Proxy Season Guide², issuers listed on the Toronto Stock Exchange (TSX) will be accustomed to majority voting policies. However, this will be a significant change for CBCA-incorporated reporting issuers that are listed on the TSX Venture Exchange, the Canadian Securities Exchange or the NEO Exchange. The TSX adopted amendments to the TSX Company Manual in 2014 that have required TSX-listed issuers to adopt majority voting policies. Pursuant to TSX requirements for majority voting policies, each director must be elected by a majority of votes cast with respect to their election, other than in a contested meeting. Since 2014, issuers listed on the TSX (regardless of jurisdiction of incorporation) have adopted policies that require:

• A director immediately tender resignation to the board if they are not elected by at least a majority (50% +1 vote) of the votes cast with regard to their election;
• The board to determine whether to accept the resignation within 90 days of the shareholders' meeting, which resignation should be accepted absent exceptional circumstances;
• The resignation become effective when accepted by the board;
• A director who tenders a resignation will not participate in board or committee meetings at which the resignation is considered; and
• The issuer promptly issue a news release with the board's decision including, in the case of a board not accepting the resignation, the reasoning behind such decision.

Key differences between the CBCA majority voting provisions and the TSX requirements include: 

Once the CBCA Amendments come into force, CBCA-incorporated issuers may wish to consider revoking or amending their TSX-compliant majority voting policies.

Other amendments to director election requirements

As with existing TSX requirements, the CBCA Amendments will require that directors of distributing corporations be elected individually and for terms ending at the issuer's next annual meeting. Currently, directors of CBCA-incorporated issuers may be elected for three-year terms and there is no prohibition on slate voting. As noted above, however, the TSX requires that directors be elected on an individual basis.

Shareholder proposals

The CBCA Amendments will also change the period during which shareholders must deliver proposals to be included in an issuer's proxy circular. Currently, a shareholder of a CBCA-incorporated issuer who wants to include a shareholder proposal in the issuer's proxy circular must submit the proposal to the issuer at least 90 days before the anniversary date of the notice of meeting delivered in connection with the issuer's last annual meeting. Pursuant to the CBCA Amendments, a shareholder will be required to deliver the proposal to management between 90 and 150 days before the anniversary date of the issuer's prior annual meeting. An issuer's proxy circular must include the final date by which shareholders must submit a proposal to the corporation for the following annual meeting.

Other amendments to the CBCA

Amendments to the CBCA to allow for notice-and-access, require say-on-pay resolutions and mandate disclosure with respect to clawback policies that were included in the Amending Act and Bill C-97, An Act to implement certain provisions of the budget tabled in Parliament on March 19, 2019 and other measures that are not yet in force, will come into force on a day to be fixed by order of the Governor in Council, once the associated regulations have been published.

For further details about these amendments please see our 2022 Proxy Season Guide.

The authors would like to thank Serena Sajan, summer law student at Dentons’ Calgary office, for her valuable contributions to the article.

¹ Changes afoot: Canadian corporate law
² Dentons 2022 proxy season guide