Changes afoot: Canadian corporate law

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Changes afoot: Canadian corporate law

Changes afoot: Canadian corporate law

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April 20, 2021 (Updated as of 17 May, 2021)

Update: On May 6, 2021, Corporations Canada announced that the proposed amendments described below will not come into force on July 1, 2021. While a new implementation date has not been announced, the statement issued by Corporations Canada indicates that it is anticipated that it will be outside the proxy season to ensure that the proposed changes to the election of directors’ process will minimally disrupt the election of directors at the annual shareholders’ meetings. Your Dentons team will continue to monitor these changes and provide updates as they come.

Proposed amendments to Canadian corporate regulations are planned to come into force on July 1, 2021 and are currently open for comment. On March 27, 2021, the proposed amendments were pre-published in the Canada Gazette. The Government has launched public consultations giving the public and key stakeholders the opportunity to comment on the proposed regulations until April 27, 2021. The changes are intended to achieve three things: (1) increase board quality and accountability towards shareholders; (2) more clarity and predictability to stakeholders around the availability of various documents so corporations can prepare accordingly; and (3) more coherent rules for a more consistent application.

Background

On May 1, 2018, 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. The Amending Act aimed to reduce regulatory burdens to enhance shareholder democracy and participation, diversity and women’s representation on corporate boards and in management positions, and to improve corporate transparency and business certainty.

While parts of the Amending Act have already come into force, other provisions require regulatory amendments to become operational. The proposed amendments, which will be discussed in detail below, will amend:

the Canada Business Corporations Regulations, 2001 (“CBCR”);
the Canada Cooperatives Regulations (“Coop Regulations”); and
the Canada Not-for-profit Corporations Regulations (“NFP Regulations”).

In the section below, we summarize the current requirements and outline the proposed changes.

The proposed amendments

The proposed amendments will provide details to the following provisions:

election of directors;
keeping and producing documents by the Director; and
technical regulatory amendments.

1) Election of directors

The proposed amendments would amend the CBCR and Coop Regulations.

Mandatory annual election of directors

Current Requirement	Proposed Amendment
Except in the case where the corporation has adopted a system of cumulative voting, an election of directors must be held at least once every three (3) years, and a director’s term expires no later than the close of the third annual meeting following their election. This rule applies to both public and private Canada Business Corporations Act (“CBCA”) corporations.	All public corporations will be required to hold a complete election of the entire board at each annual meeting. Private companies can continue with the three (3) year rule or adopt this new one.

Mandatory individual director voting

Current Requirement	Proposed Amendment
No requirement for slate or individual voting except where the corporation’s articles or by-laws have adopted a system of cumulative voting.	All public corporations required to elect their directors by individual director voting. Can be voluntarily adopted by private companies but not required.

Majority voting

Current requirement	Proposed Amendment
Election of directors is done by plurality voting where shareholders are given the choice to vote "for" or "withhold". In an uncontested election, a plurality system allows an individual to be elected with less than a majority of the votes cast "for".	All public corporations will be subject to mandatory majority voting, involving: shareholders will be able to vote “for” or “against” a director rather than “withholding”, so a new proxy form will be created; if, in an uncontested election, a candidate fails to receive more votes “for” than “against”, the individual is not elected and the position remains open; and with limited exceptions, a failed candidate is not eligible to be appointed to fill in the vacancy before the next meeting of shareholders. Exceptions: to meet the corporation’s obligations under the statute to have at least two (2) directors who are not officers or employees of the corporation or its affiliates; or to fulfill the certain percentage of the Canadian residency requirements of the Board members.

Current requirement

Proposed Amendment

Election of directors is done by plurality voting where shareholders are given the choice to vote "for" or "withhold". In an uncontested election, a plurality system allows an individual to be elected with less than a majority of the votes cast "for".

All public corporations will be subject to mandatory majority voting, involving:

shareholders will be able to vote “for” or “against” a director rather than “withholding”, so a new proxy form will be created;
if, in an uncontested election, a candidate fails to receive more votes “for” than “against”, the individual is not elected and the position remains open; and
with limited exceptions, a failed candidate is not eligible to be appointed to fill in the vacancy before the next meeting of shareholders.

Exceptions:

to meet the corporation’s obligations under the statute to have at least two (2) directors who are not officers or employees of the corporation or its affiliates; or
to fulfill the certain percentage of the Canadian residency requirements of the Board members.

Appointment of additional directors between annual meetings

Current Requirement	Proposed Amendment
Directors can appoint one or more additional directors to hold office for a term ending no later than the next annual meeting of shareholders. Currently, a CBCA corporation must expressly opt into this provision in its articles.	The default will be reset so that directors have the power to appoint one or more additional directors for a term ending no later than the next annual meeting UNLESS the corporation has expressly opted out of this in their articles.

2) Government retention of documents

Each of the CBCA, NFP Act and the Coop Act provide that the government may appoint a “Director” to administer such act, which includes requirements for the Director/government to retain and produce documents filed with the government for particular periods of time. The intention of this amendment is so that the public and corporations have increased certainty around availability of filed documents.

Current Requirement	Proposed Amendment
The standard retention period for most documents filed with the applicable “Director” (the government) is six (6) years.	Retention period	Types of documents
	Indefinite.	articles and certificates, letters patent, supplementary letters patent, charters and surrender of charters list of directors registered office address by-laws
	Two years after receipt/issuance by the Director.	annual returns letters of satisfaction
	Three years after receipt.	financial statements
	Six years after receipt.	proxy circulars diversity disclosure exemption applications

3) Technical regulatory amendments

The proposed amendments would make the following technical or non-material changes in the CBCR, the Coop Regulations and the NFP Regulations.

Fixing time periods, including:

90 days for the pre-approval of a corporate name;
60 days as the time period to change a corporate name when ordered to do so by the Director;
90-150 days before the anniversary of the previous annual meeting as the time period for sending shareholder proposals to the corporations; and
6 years from the date of dissolution for the person specified to retain the corporate records of the dissolved corporation.

Minor changes to the name granting rules, including to:

allow a person who has reserved a corporate name to consent to another person using that name;
remove “pool” from the list of words associated with cooperatives;
clarify the role of the Office of the Superintendent of Financial Institutions (“OSFI”) with respect to corporate names that connote the corporation carriers on the business of a financial institution regulated by OSFI; and
clarify the rules when the corporate name is primarily or includes the name or the family name of an individual, such as when consent to the use of the family name is required;

repealing the time period for filing an annual return under section 263 of the CBCA (currently the annual return must be filed within 60 days of the incorporation anniversary);
repealing sections 2 to 7 of the Coop Regulations regarding the sending of electronic documents to Corporations Canada; and
amending typographical errors, such as incorrect section numbers and English and French inconsistencies.

Dentons will be closely monitoring the public consultation and provide updates as they come. If you or your organization is interested in submitting feedback during the public consultation and are looking for assistance, our Dentons team is happy to help. Please contact Jay Duffield or Daniela Acevedo for more information.