On January 31, 2023, the Canadian Securities Administrators (CSA) published an exemption (the “Exemption”) that exempts public companies incorporated under the Canada Business Corporations Act (CBCA) from certain requirements of Canadian securities laws that apply to the form of proxy used in uncontested director elections. The Exemption resolves a potential conflict between the requirements for the form of proxy contained in recently enacted amendments to the CBCA and those contained in Canadian securities laws.
Background
Historically, under both Canadian corporate and securities laws, shareholders have been given the option to vote “FOR” or to “WITHHOLD” from voting their shares in respect of director nominees. As a matter of corporate law, a director was validly elected so long as at least one vote was cast in favour of their election. More recently, the widespread adoption of so-called “majority voting policies”, particularly for TSX listed companies, has required directors to receive more “FOR” votes than “WITHHOLD” votes in uncontested director elections to remain on the board (subject to narrow exceptions).
On August 31, 2022, amendments to the CBCA came into effect that require CBCA public companies to provide shareholders with the option to vote “FOR” or “AGAINST” each director nominee in uncontested director elections. If a nominee receives more votes “AGAINST” than votes “FOR”, the nominee is not validly elected as a director of the corporation. Effectively, the amendments impose a statutory majority voting standard for uncontested director elections for CBCA public companies. These amendments caused some confusion among public companies and their counsel about what voting options shareholders of CBCA public companies need to be provided on the form of proxy in uncontested director elections to comply with the requirements of both the CBCA and Canadian securities laws.
The Exemption
The Exemption resolves this potential conflict by providing that, with respect to uncontested director elections, CBCA public companies are exempt from giving shareholders the option to vote “FOR” or “WITHHOLD” and must instead give shareholders the option to vote “FOR” or “AGAINST” each director nominee. The clarity that this Exemption provides to CBCA public companies is a welcome development.
For public companies (and other reporting issuers) not incorporated under the CBCA, Canadian securities laws continue to require them to provide shareholders with the option to vote “FOR” or to “WITHHOLD” from voting in respect of director nominees. It will be interesting to see if other jurisdictions in Canada follow the CBCA’s more shareholder-friendly approach to director voting.
A copy of the CSA Staff Notice can be found here. To discuss the CSA’s exemption from the director election form of proxy requirement, or for any further information, please contact any member of our Capital Markets Group.
