TSX Developments on Corporate Governance and Transactions Requiring Securityholder Approval

The Toronto Stock Exchange has adopted new rules relating to director elections, including a requirement that listed issuers disclose whether or not they have a majority voting policy. The TSX believes that these changes are necessary to bring Canadian corporate governance practices in line with international standards. Along with the new rules, the exchange is seeking comment on a proposal to make majority voting mandatory in uncontested director elections. The TSX has also issued a staff notice reminding issuers of their disclosure obligations when they are undertaking transactions requiring securityholder approval.

Director Elections and Disclosure About Majority Voting

All TSX-listed issuers that currently elect their directors by slate or have a staggered board will have to modify their practices to elect directors individually and to elect all directors annually. The TSX will provide certain accommodations for issuers that need to amend their governing documents. 

In respect of majority voting, all listed issuers must disclose in their circulars whether or not they have adopted a majority voting policy and, if not, they must (i) explain in the circular why not and describe their practices for electing directors, and (ii) advise the TSX if a director receives a majority of withhold votes.

Following an election of directors, listed issuers must promptly issue a news release providing detailed information about the voting results. This is in addition to the existing SEDAR filing requirement under which issuers must disclose the outcome of a vote but must only disclose detailed voting results if the vote was conducted by ballot. The TSX’s proposal for mandatory majority voting, discussed below, is more specific about the level of detail required to be included in the voting results news release.

These new requirements will become effective on December 31, 2012, unless a securityholders’ meeting has already been set and the proxy materials approved, in which case implementation at the next meeting is permissible.

Proposal for Mandatory Majority Voting

The rule changes described above include a requirement for issuers to disclose whether or not they have a majority voting policy, but the TSX is proposing to go further by making majority voting mandatory in director elections at uncontested meetings. Under the proposal, issuers would have to promptly disclose by news release the results of the vote for each director. If the vote was by show of hands, the news release would have to disclose the number of securities voted by proxy in favour or withheld for each director and the outcome of the vote by show of hands. A director who receives a majority of withhold votes would immediately have to tender his or her resignation, which the board would have to consider and then disclose its decision by news release within 90 days.

Comments on the majority voting proposal are due by November 5, 2012. 

Disclosure About Transactions Requiring Securityholder Approval

The TSX has issued a staff notice reminding issuers of their disclosure obligations when they are undertaking transactions requiring securityholder approval, such as issuances of securities in connection with acquisitions or private placements and transactions by non-exempt issuers1 involving insiders or other related parties. The staff notice provides a detailed description of the disclosure requirements summarized below, which apply to circulars mailed to securityholders as well as to forms of written consent and news releases, if applicable in the circumstances.

  • Issuers must disclose the principal terms of the transaction and the securities issuable, including whether or not the transaction has been negotiated at arm’s length. Pricing information must include the discount or premium in relation to the market price.
  • The maximum number of each type of securities issuable must be disclosed, along with the corresponding percentage of the issuer’s outstanding securities on a pre-transaction, non-diluted basis. If the number of securities issuable is based on future market prices, the pricing formula must be disclosed along with several pricing and dilution scenarios.  
  • The issuer must describe the effect of the transaction on control of the issuer and give information about the holdings of any new control person or significant securityholder. The terms of any voting trust or similar arrangement must also be disclosed.
  • Information must be provided about any insiders or related parties participating in the transaction and their holdings. For transactions by non-exempt issuers, a summary of the independent valuation must be included. If minority approval is required, information about the securityholders excluded from the vote and their holdings must be given.

In general, issuers must disclose all information necessary to ensure that securityholders have sufficient information to make an informed decision about whether or not to approve a transaction. The staff notice also reminds issuers that a draft circular or, depending on the circumstances, a news release or form of written consent, must be provided to the TSX for preapproval.


1 Non-exempt issuers are subject to special reporting rules as a result of not meeting certain financial or other criteria upon listing. See section 501 of the Listed Company Manual for details.

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