CBCA Reforms: Shareholder Meetings and Diversity Disclosure

The federal government made progress towards modernizing the Canada Business Corporations Act by publishing on December 14 proposed regulations under the framework bill that was tabled on September 28. The reforms are aimed, in part, at reducing regulatory discrepancies between the CBCA and Canadian securities laws, TSX rules and certain international best practices. This bulletin summarizes the proposed reforms as they would apply to public CBCA companies.

Majority Voting

Majority voting is already required under TSX rules. The CBCA majority voting requirement would apply to all public CBCA companies – no exemption is currently proposed for venture issuers. Key features of the CBCA rule would be as follows:

• Shareholders would be able to vote "for" or "against" each director, and a director would not be elected if he or she failed to receive majority support at an uncontested meeting.
• The board would not have discretion to re-appoint the director, unless necessary to satisfy the Canadian residency requirement or the requirement that at least two directors not be officers or employees. This is stricter than the existing TSX rule, under which a director receiving less than majority support must tender his or her resignation, but the board may decline to accept the resignation, citing "exceptional circumstances."
• If the number of directors elected was less than the minimum required by the company’s articles, the powers of the board would be vested in the remaining directors, provided there is a quorum. Without a quorum, a special meeting would have to be called for another director election. 

Diversity Disclosure

One of the federal government's objectives is to increase diversity on boards of directors and among senior management. This is consistent with global trends, and the CBCA reforms would impose diversity disclosure requirements under a "comply-or-explain" model similar to securities laws. Unlike under securities laws, no exemption is currently contemplated for venture issuers. The required diversity disclosure would appear in a company’s proxy circular or other document provided to shareholders in connection with the annual meeting and would consist of the following:

• In respect of gender diversity, the disclosure would be the same as under securities laws.
• Companies would also have to disclose whether they have a policy addressing diversity categories other than gender and, if so, summarize its key provisions. Many companies’ existing diversity policies already address  race, religion, ethnicity, sexual orientation and other diversity categories. No specific categories would be prescribed under the CBCA, but companies whose policies are restricted to gender diversity would have to expand their policies or disclose why a broader policy has not been adopted.  

Internet Posting of Meeting Materials (Notice-and-Access)

The notice-and-access regime under securities laws permits meeting materials to be posted on a company's website, with only the notice of meeting and voting card being delivered to shareholders. The CBCA regime would be consistent with this, so CBCA companies would no longer need an exemption from the Director to adopt notice-and-access.

Timing of Implementation

The timing of implementation of the CBCA reforms is unclear as the bill has only passed second reading. Revisions may be made before it receives Royal Assent and before the regulations are finalized, so shareholder meetings in 2017 are unlikely to be affected. Comments on the proposed regulations may be submitted to Corporations Canada using the contact information in the Explanatory Note on Proposed Regulatory Amendments. Once the bill progresses further in the lawmaking process, draft regulations will be published again for formal consultation.

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This publication is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss the issues in this publication with you, in the context of your particular circumstances.

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