Policy on exempting interested persons from the dissident proxy solicitation requirements – Canada Business Corporations Act, subsection 151(1)
Table of contents
- Legislative framework
- What documents must I submit?
- Related information
- What does Corporations Canada do?
- Factors considered in reviewing an application
- Conditions for issuing an exemption
- When an application to the Director is not necessary
- Access to information contained in an application
- Appeal of Director's decision
- Annex A - Application Template
This policy sets out information to facilitate an application to the Director appointed under the Canada Business Corporations Act (CBCA) to exempt an interested person from some or all of the dissident proxy solicitation requirements in the Act and Regulations.
The dissident proxy solicitation requirements are designed to ensure that shareholders, whose proxies are solicited, are given sufficient information to form an informed opinion and decide whether or not to grant the dissident proxy authority.
The Director will only exempt an interested person from the dissident proxy solicitation requirements if the Director is satisfied that the exemption will not deprive solicited shareholders of the information necessary to arrive at an informed decision.
For information on a management proxy solicitation exemption application, please see the Policy on exempting interested persons from the management proxy solicitation requirements – Canada Business Corporations Act, subsection 151(1).
Nothing in this policy is intended to constitute a binding statement of what position the Director will take with respect to a particular application. This policy is intended to reflect the Director's understanding of the Director's role in processing an application by an interested person under subsection 151(1) of the CBCA.
The term "dissident" in Part XIII of the Act and Part 7 of the Regulations refers to a person who solicits proxies other than management or a person acting on behalf of the management of the corporation.
Section 147 of the Act defines the term "solicit" or "solicitation". Paragraph (a) of that definition lists situations that are considered to be solicitations. Paragraph (b) of that definition explicitly excludes several circumstances as being solicitations, namely certain communications between shareholders, from the definition of solicitation (see the section below "When an Application to the Director is not Necessary"). Only under circumstances where a dissident is committing an act deemed under the CBCA to be a solicitation will subsection 150(1) apply.
Subsection 150(1) of the CBCA provides that a dissident shall not solicit proxies unless a dissident proxy circular, in prescribed form and stating the purposes of the solicitation, is sent to:
- the auditor of the corporation,
- each shareholder whose proxy is solicited,
- each director and
- the corporation.
The prescribed form of a dissident's proxy circular is set out in section 57 of the Canada Business Corporations Regulations, 2001 (CBCR). Subsection 57(1) incorporates by reference Form 51-102F5 of National Instrument 51-102 of the Canadian Securities Administrators entitled Continuous Disclosure Obligations. Subsection 57(2) automatically exempts non-distributing corporations from the requirements of Part 1(c) and items 8, 9, 10 and 16 of Part 2 of Form 51-102F5.
Subsection 153(1) of the Act provides that shares of a corporation that are registered in the name of an intermediary or their nominee and not beneficially owned by the intermediary must not be voted unless the intermediary, without delay after receipt of the notice of the meeting, financial statements, management proxy circular, dissident’s proxy circular and any other documents sent to shareholders for use in connection with the meeting, sends a copy of the documents to the beneficial owner, along with a written request for written voting instructions from the beneficial owner, unless the intermediary has already received such instructions.
Subsection 151(1) of the Act provides, however, that on the application of an interested person the Director may exempt the person, on any terms that the Director thinks fit, from any of the requirements of subsections 150(1) or 153(1), which exemption may have retroactive effect.
Section 54 of the CBCR specifies the requirements for a form of proxy. While these requirements are binding on management, they are not binding on a dissident. Accordingly, an exemption need not be sought in respect of the form of proxy. Nevertheless, if a dissident does circulate a form of proxy, subsection 150(2) of the CBCA requires the dissident to send the form of proxy to the Director. The Director will take into account the form of proxy and any other documents sent to the shareholders in making a determination as to whether to issue an exemption from the dissident proxy solicitation requirements under paragraph 150(1)(b) of the CBCA.
A person who does not comply with the solicitation requirements and who fails to obtain an exemption by the Director is in contravention of the Act which can result in civil and/or criminal liability.
What documents must I submit?
An application for exemption must include:
- a cover letter (see Schedule A - Example cover letter);
- a statement of facts that includes all material information which might affect the Director's decision (see Schedule B - Statement of facts);
- arguments setting out the reasons for the type of exemption sought (see Schedule C - Arguments); and
- payment of the $250 filing fee.
The Director recognizes that the applicant may also be making similar representations under various provincial securities legislation. The Director will accept an application made under any provincial securities legislation provided it contains all relevant information or additional information is attached so as to comply with the requirements of the CBCA and CBCR.
The cover letter must indicate the name of the applicant and the name of the corporation. The letter must also note that it is an application under subsection 151(1) of the CBCA for an exemption related to a dissident proxy circular and provide a description and the details of the exemption sought. The letter must state whether the exemption sought is total or partial. If a partial exemption is sought, the applicant must indicate the requirements in the CBCR that would not apply or, alternatively, that would apply to the solicitation in question.
Core information for a partial exemption
In all cases where a partial exemption is requested, the Director takes the position that shareholders solicited by a dissident should benefit from "core information". The core information is the minimum information deemed sufficient to enable shareholders to make an informed decision on the solicitation. While this information may or may not be contained in a circular, it must be disclosed to shareholders at the time of the solicitation. The Director will only issue an exemption if satisfied that the partial exemption will not deprive solicited shareholders of core information.
While the core information may vary from case to case, typically, the minimum information that should be communicated to all solicited shareholders is:
- the identity of the corporation and the dissident;
- details of any material interest of the dissident in the securities of the corporation to which the solicitation relates and any material interest of the dissident in the matter to be voted upon; and
- the right to revoke a proxy, the method of solicitation and the identity of the person bearing the cost of the solicitation.
If the applicant seeks to renew an exemption that has been issued previously and the circumstances have not substantially changed, it is not necessary to complete a detailed application. Instead, a letter stating that the applicant is seeking to renew a specific exemption and that the circumstances have not substantially changed will be accepted. If the applicant wishes to change the wording of the exemption, the applicant should refer to the changes and provide reasons for these changes in the letter.
When is the application to be made?
An application should be made before the date of notice of meeting referred to in section 149 of the CBCA (paragraph 89(1)(d) of the CBCR). However, the Director can extend the time for making an exemption application if the applicant establishes that no prejudice will result from the extension (subsection 89(2) of the CBCR).
Additional information requested by Director
The Director may require additional information not provided in the application in order to decide whether or not to exempt an interested person from the dissident proxy solicitation requirements. The Director has the authority to seek such additional information from the applicant or third parties (section 91 of the CBCR). With respect to information requested from third parties, the applicant will be given a copy of the information obtained and be given a reasonable opportunity to respond (section 92 of the CBCR).
There is no statutory obligation on the Director, however, to seek information at the request of third parties nor to allow third parties, such as the corporation, to make representations regarding an application.
What does Corporations Canada do?
Corporations Canada will check that your documents comply with the CBCA and other requirements and will consider the request. The general test used by the Director consists in determining whether solicited shareholders, if the exemption were granted, would, without the prescribed dissident proxy circular, have sufficient information about the dissident and the solicitation to make an informed decision whether or not to grant the dissident proxy authority.
If granted, Corporations Canada will issue an exemption (see sample exemption in Schedule D of Annex A) with the effective date being the date the exemption was granted. The exemption is only in effect for a specific meeting of shareholders and any adjournments of that meeting.
The Director is permitted to grant an exemption that will have retroactive effect (subsection 151(1) of the CBCA). Requests for retroactive exemptions are reviewed on a case-by-case basis. A retroactive exemption will only be granted where the applicant establishes that no prejudice was caused to solicited shareholders.
Corporations Canada will publish the corporation's name and a brief summary of the exemption on our website in the section "Corporations Canada's Monthly Transactions".
Time for Processing an Application
Section 90 of the the CBCR provides that "the Director shall, within 30 days after receipt of an application for an exemption, grant the exemption requested or send to the applicant written notice of the Director’s refusal, together with reasons for the refusal".
Corporations Canada staff will generally issue an exemption or send an appropriate response within 15 working days of receiving a request.
An applicant requiring that the Director review the application on an expedited basis should bring the urgency of the request to the attention of the Corporations Canada's staff when filing the application and must provide reasons for the urgency.
Factors considered in reviewing an application
Based on the statement of facts provided by the applicant (e.g., the nature of the solicitation, the characteristics of solicited shareholders, other sources of information available to shareholders, etc.), the Director will determine if the test is met and, in turn, whether or not to grant the exemption sought.
The following lists certain type of exemptions that may be granted where particular circumstances, supported by the statement of facts, are argued:
- Financial hardship: The financial resources available to the dissident are short of meeting the cost associated with fulfilling the solicitation requirements.
Type of exemption granted: A partial exemption may be granted, authorizing an altered form or abridged circular, disclosing at least core information.
- Prejudice to the dissident: This factor goes beyond the issue of financial resources to look at other difficulties. A situation may arise where certain information required to be disclosed in the Regulations has little material value to solicited shareholders and such information is not available or its disclosure would be difficult and prejudicial to the dissident.
Type of exemption granted: A partial exemption may be granted, indicating what information (other than core information) that does not need to be disclosed to shareholders.
- Securities exemption: The applicant may benefit from an exemption under securities law or an order from a securities regulator.
Type of exemption granted: The type of exemption granted varies according to the circumstances filed in support of the securities exemption. Typically, a partial exemption may be granted.
- Proxy-like disclosure: Solicited shareholders are provided with documents (e.g., letter instead of circular) that disclose information substantially equivalent to the information required by the Regulations.
Type of exemption granted: A full exemption may be granted from preparing and sending a circular.
- Solicitation of proxies in support of a shareholder proposal: A shareholder, making a proposal pursuant to section 137 of the Act, may solicit proxies in support of the proposal.
Type of exemption granted: Where the core information is contained in the proposal, a full exemption may be granted with respect to the circular. Otherwise, a partial exemption may be granted.
In all cases, the Director takes into account the nature of the matters to be discussed at the meeting of shareholders and its potential effect on the corporation, in deciding whether to grant the exemption sought. The Director will review with greater scrutiny proposals calling for a fundamental change, a change of control, or where the dissident stands to receive a material benefit not shared by other shareholders.
Conditions for issuing an exemption
The Director may require the applicant to forward a copy of the exemption directly to the corporation whose shareholders are solicited.
The Director may require the applicant to make available to interested stakeholders, namely non-solicited shareholders, a copy of the exemption and, if any, materials disclosed to solicited shareholders.
Where a partial exemption is granted, the Director may find it appropriate to spell out, in the exemption decision, the core information to be included in the document that the applicant will send to solicited shareholders.
When an application to the Director is not necessary
There are a few situations where a dissident may communicate with other shareholders without being required to send a prescribed dissident proxy circular. In these situations, an exemption is not required:
- Exclusions in the CBCA definition of "solicitation"
Paragraph 147(b) states that the definition of "solicit" or "solicitation" in the Act does not include:
- the sending of a form of proxy in response to an unsolicited request made by or on behalf of a shareholder,
- the performance of administrative acts or professional services on behalf of a person soliciting a proxy,
- the sending by an intermediary of the documents referred to in section 153,
- a solicitation by a person in respect of shares of which the person is the beneficial owner,
- a public announcement, as prescribed, by a shareholder of how the shareholder intends to vote and the reasons for that decision,
- a communication for the purposes of obtaining the number of shares required for a shareholder proposal under subsection 137(1.1), or
- a communication, other than a solicitation by or on behalf of the management of the corporation, that is made to shareholders, in any circumstances that may be prescribed.
- Solicitation to fifteen or fewer shareholders
Subsection 150(1.1) of the Act provides that "despite subsection (1), a person may solicit proxies, other than by or on behalf of the management of the corporation, without sending a dissident's proxy circular, if the total number of shareholders whose proxies are solicited is fifteen or fewer, two or more joint holders being counted as one shareholder".
- Solicitation by public broadcast
Subsection 150(1.2) of the Act provides that "despite subsection (1), a person may solicit proxies, other than by or on behalf of the management of the corporation, without sending a dissident's proxy circular, if the solicitation is, in the prescribed circumstances, conveyed by public broadcast, speech or publication".
The application of this exception is prescribed in section 69 of the CBCR which requires the dissident to include certain information in the communication in order to ensure that solicited shareholders have been provided sufficient information to make an informed decision. Before soliciting proxies, the person must send the required information and a copy of any related written communication to the Director and the corporation.
The application of subparagraph 147(b)(v) is prescribed in section 67 of the CBCR, which describes what types of public announcements are excluded (e.g., a speech made in a public forum, an opinion that is broadcast or in a publication generally available to the public).
The application of subparagraph 147(b)(vii) is prescribed in section 68 of the CBCR, which sets out the conditions under which persons other than management can communicate with shareholders without having to produce a dissident proxy circular. For instance, a shareholder can communicate with shareholders, with no form of proxy being sent, about the business and affairs of the corporation - including its management or proposals contained in a management proxy circular (paragraph 68(1)(a)) - or about the organization of a dissident proxy circular (paragraph 68(1)(b)).
Access to information contained in an application
Any person who has paid the required fee is entitled to examine, make copies or extracts of any document required by the CBCA to be sent to the Director (section 266 of the CBCA). The information filed with the Director in support of an exemption application is not confidential since such information is required to be filed in order to obtain an exemption. Consequently, an application for exemption is public information.
The Director will generally not revoke an exemption before providing notice to the applicant and the opportunity to respond by submitting new facts and arguments to support the exemption.
A revoked exemption ceases to carry effect from the date of revocation.
Applicants are reminded that section 250 in the Act creates an offence with respect to documents required by the Act or Regulations to be sent to the Director, or any other person, that contains a false or misleading statement about material fact or omits to state a material fact.
Section 250 applies to both the documents filed in support of an exemption application as well as any document/information disclosed to shareholders in reliance on an exemption issued by the Director.
Appeal of Director's decision
An applicant who feels aggrieved by a decision of the Director to grant, or to refuse to grant, an exemption may apply to the court, pursuant to paragraph 246(c) of the Act, for an order requiring the Director to change the decision.
Annex A – Template of an application under subsection 151(1) of the CBCA
Schedule A – Example cover letter
235 Queen Street
Ottawa, Ontario K1A 0H5
Re: (name and number of the corporation)
Dissident Exemption Proxy Solicitation Requirements
This application is made under subsection 151(1) of the Canada Business Corporations Act (the "Act") to exempt the Dissident of the Corporation from the requirements of subsection 150(1) of the Act to send the prescribed dissident proxy circular, for the ("annual" or "special" or "annual and special") meeting of the shareholders to be held on or about the (date).
This application is for a ("full" or "partial") exemption from the requirements of subsection 150(1) of the Act (for a partial exemption, describe the exemption sought, referring to the provisions of the Regulations).
Enclosed is a statement of the facts of the case and the arguments in favour of granting the exemption. Also enclosed is a cheque for $250 payable to the Receiver General for Canada.
Schedule B – Statement of facts
The following statement provides sufficient facts and all material information in order to enable the Director to make an informed decision about the exemption sought:The following is a non-exhaustive list of facts that may be material:
- the date of the meeting;
- the nature of the meeting (i.e. annual, special or annual and special) and items on the agenda, if known;
- the nature of the dissent;
- interests of the dissident, if any, in the solicitation;
- the proxies solicited (i.e. sophistication of solicited shareholders, etc);
- other sources of information available to shareholders (e.g. press releases, corporate bulletins, management proxy circular, shareholder proposal, etc);
- core and other information that the applicant is proposing to disclose, indicating derogations from the requirements of the Regulations (it may be appropriate to include, and the Director may request to review, a copy of the information that would be sent);
- the method of dissemination of information.
Schedule C – Arguments
This application is made pursuant to subsection 151(1) of the Canada Business Corporations Act which empowers the Director to exempt an interested person from any of the requirements of section 149, subsection 150(1) or subsection 153(1) of the Act.
The exemption, if granted, will not deprive solicited shareholders of the information necessary to make an informed decision whether or not to grant the Dissident proxy authority.
In particular, the exemption should be granted for the following reason(s):
The following is a non-exhaustive list of possible arguments:
- The financial resources available to the Dissident are short of meeting the cost associated with fulfilling the solicitation requirements.
- The information proposed not to be disclosed would have little material value whereas its disclosure would prejudice the Dissident because (state cause of prejudice).
- The Dissident is exempt under securities law or has been granted an exemption order from a securities regulator, as follows: (describe exemption).
- Solicited shareholders are provided with (describe document(s)) that disclose information substantially equivalent to the information required by the Regulations.
- The Dissident is soliciting proxies in support of a shareholder proposal pursuant to section 137 of the Act and the core information is contained in the proposal.
Schedule D – Sample exemption
Canada Business Loi canadienne sur les
Corporations Act sociétés par actions
File No. 123456-7
IN THE MATTER CONCERNING THE DIRECTOR APPOINTED UNDER
THE CANADA BUSINESS CORPORATIONS ACT
IN THE MATTER OF
(hereinafter called the "Corporation")
THE APPLICATION OF
(hereinafter called the "Dissident")
FOR AN EXEMPTION UNDER SUBSECTION 151(1) OF
THE CANADA BUSINESS CORPORATIONS ACT
UPON APPLICATION BY the Dissident in accordance with subsection 151(1) of the Canada Business Corporations Act (the "Act"), to fully exempt it from the requirements of subsection 150(1) of the Act to send the prescribed dissident proxy circular for the annual meeting of shareholders to be held on or about December 1, 2018;
AND UPON reading the application documents and being satisfied that there is adequate justification for so doing;
IT IS HEREBY DETERMINED that the Dissident is fully exempt from sending the prescribed dissident proxy circular for the annual meeting of shareholders to be held on or about December 1, 2018 with respect to the requirements of subsection 150(1) of the Act.
THIS EXEMPTION is made subject to the following terms:
1. The Dissident immediately provides, upon receipt, a copy of this exemption to the Corporation.
DATED, this 1st day of June, 2018.
- Date modified: