Policy on exempting interested persons from the management 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
- 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 management proxy solicitation requirements in the Act and Regulations.
The management proxy solicitation requirements are designed to enhance the rights of shareholders to participate at the meeting of shareholders in decisions of the corporation. The prescribed form of proxy enables shareholders to exercise their right to vote when they will not be attending the meeting. The prescribed management proxy circular further ensures that shareholders have access to corporate information in a timely manner so they may exercise their vote in an informed way.
The Director will only exempt an interested person from the management proxy solicitation requirements if the Director is satisfied that the exemption will not deprive shareholders of the capacity to exercise their right to vote or of the information necessary to make an informed decision.
For information on a dissident proxy solicitation exemption application, please see the Policy on exempting interested persons from the dissident 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.
Section 149 of the Act requires management of a distributing corporation and management of a non-distributing corporation having more than 50 shareholders to solicit proxies before every meeting of shareholders. Subsection 150(1) of the CBCA provides that management shall not solicit proxies unless a management proxy circular, in prescribed form, is sent to:
- the auditor of the corporation,
- each shareholder whose proxy is solicited, and
- each director.
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 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.
It is not mandatory for a non-distributing corporation with 50 or fewer shareholders entitled to vote at a meeting to solicit proxies. Note, however, that if management chooses to send out forms of proxy or otherwise solicit shareholders, management may be caught by the definition of "solicitation" in the Act. According to the definition of "solicit" or "solicitation" in section 147 of the Act, the sending of a form of proxy or other communication to a shareholder may be reasonably calculated to result in the procurement, withholding or revocation of a proxy and, therefore, be a solicitation. In such cases, interested persons may wish to apply to the Director to be exempt from some or all of the requirements for sending a prescribed form of proxy and / or management proxy circular.
The requirements for a prescribed form of a proxy form are set out in section 54 of the Canada Business Corporations Regulations, 2001 (CBCR). Section 54 incorporates by reference section 9.4 of National Instrument 51-102 of the Canadian Securities Administrators entitled Continuous Disclosure Obligations.
The requirements for the prescribed form of a management's proxy circular are set out in section 55 of the CBCR. Subsection 55(1) incorporates by reference Form 51-102F5 of National Instrument 51-102 of the Canadian Securities Administrators entitled Continuous Disclosure Obligations. Subsection 55(2) adds a few additional requirements for the prescribed proxy circular. Please note that subsection 55(3) 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 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 section 149, subsection 150 (1) or subsection 153 (1), which exemption may have retroactive effect".
A person who acts in violation of the mandatory 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, where the corporation is a distributing corporation, it 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 identify the corporation, indicate that an application is being made under subsection 151(1) of the CBCA 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.
The applicant must also indicate whether it seeks to be exempt from the requirements of sending:
- the prescribed form of proxy;
- the prescribed management proxy circular; or
- the prescribed management proxy circular and prescribed form of proxy.
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 management 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 a dissident, to make representations regarding an application.
What does Corporations Canada do?
Corporations Canada will check that your documents comply with the requirements before considering the request.
With respect to a request for exemption from sending the prescribed form of proxy, the test used by the Director consists of determining whether shareholders, if the exemption were granted, would have the capacity to exercise their right to vote.
With respect to a request for exemption from sending the prescribed management proxy circular, the test consists of determining whether shareholders would have sufficient information about the business and affairs of the corporation, its management, the solicitation, and the subject matter to be voted upon at the meeting of shareholders to make an informed decision whether or not to grant management 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 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 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
Applicants must demonstrate that all or some of the items to be disclosed in a proxy form or proxy circular are not necessary in the circumstances and that the shareholders would not be prejudiced, if the exemption order is issued, from any or part of the provisions of section 149, subsection 150(1) and subsection 153(1) of the CBCA.
The following are examples where complete or partial exemptions from proxy requirements have been granted:
- Management intends to provide shareholders with documents that disclose information substantially equivalent to the information required by the Regulations.
Type of exemption granted: A full exemption may be granted with respect to the management proxy circular on condition that the substantially equivalent material is sent.
- Shareholders have access to or are provided with, on a regular basis, sufficient information, including financial information, to exercise their vote in an informed way. This may occur where the corporation periodically issues information to shareholders through information bulletins.
Type of exemption granted: Where what is provided to shareholders generally satisfies the disclosure requirements, a full exemption may be granted with respect to the management proxy circular. Otherwise, a partial exemption may be granted, indicating what information needs to be disclosed to shareholders.
- A majority of the shareholders of the corporation are employees, officers and/or directors of the corporation and the remaining shareholders are either sophisticated investors or former employees, directors and officers of the corporation who routinely have up-to-date and reasonably complete information on the corporation and are able to exercise their right to vote;
Type of exemption granted: A full exemption may be granted with respect to just the management proxy circular or both the management proxy circular and the form of proxy.
- All shareholders support the exemption.
Type of exemption granted: A full exemption may be granted with respect to just the management proxy circular or both the management proxy circular and the form of proxy.
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 for a fundamental change or a change in control rather than matters of a routine nature.
Conditions for issuing an exemption
The Director may require an applicant to make available to interested stakeholders a copy of the exemption as well as all information disclosed or otherwise available to shareholders.
Where the Director exempts an interested person from the mandatory requirement of sending a form of proxy in section 149 of the Act, the Director may nevertheless compel the interested person to send a form of proxy to those shareholders who request one from the corporation.
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 without 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 have 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 of the corporation and corporation number)
Management Exemption Proxy Solicitation Requirements
This application is made under subsection 151(1) of the Canada Business Corporations Act (the "Act") to exempt the management of the Corporation from the requirements of ("subsection 150(1) of the Act" or "section 149 and subsection 150(1) of the Act") to send the prescribed ("management proxy circular" or "form of proxy and management proxy circular") 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. (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 solicitation (i.e. mandatory or other);
- interest of a member of management, if any, in the action to which the solicitation refers;
- interest of the applicant;
- whether the corporation affected by the application is or is not a distributing corporation;
- the characteristics of the shareholders (i.e. geographical location, degree of sophistication, etc);
- other sources of information available to shareholders generally (such as press releases, corporate bulletins, documents disclosed pursuant to securities law, etc);
- information/forms 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/forms 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) and 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 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 shareholders have access to or are provided with, on a regular basis, sufficient information, including financial information, to make an informed decision at the meeting. This may occur where, depending on the circumstances, the Corporation periodically issues information to shareholders through corporate bulletins either voluntarily or in compliance with securities, exchange or market rules.
- Applicant proposes to provide shareholders with documents that disclose information substantially equivalent to the information required by the Regulations.
- Certain information required to be disclosed under the Regulations has little value to shareholders under the circumstances and that such information is not available or its disclosure would be prejudicial to the Corporation or other persons.
- Both of the following:
- majority of shareholders are employees, officers and directors of the Corporation (or former employees, officers and directors living in the same area of the Corporation); and
- the remaining shareholders are either institutional/sophisticated investors (i.e. large investors), insiders of the Corporation or other persons closely involved in the business and affairs of the Corporation and able to exercise their right to vote.
- The consent of all shareholders for the exemption has been obtained.
Schedule D – Sample exemption
sociétés par actions
File No. 123456-7
IN THE MATTER CONCERNING THE DIRECTOR APPOINTED UNDER THE CANADA BUSINESS CORPORATIONS ACT
THE APPLICATION OF THE MANAGEMENT OF
(hereinafter called the "Corporation")
FOR AN EXEMPTION UNDER SUBSECTION 151(1) OF
THE CANADA BUSINESS CORPORATIONS ACT
UPON APPLICATION BY the management of the Corporation in accordance with subsection 151(1) of the Canada Business Corporations Act (the "Act"), to fully exempt it from the requirements of section 149 and subsection 150(1) of the Act to send the prescribed form of proxy and the prescribed management 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 management of the Corporation is fully exempt from sending the prescribed form of proxy and the prescribed management proxy circular for the annual meeting of shareholders to be held on or about December 1, 2018 with respect to the requirements of section 149 and subsection 150(1) of the Act.
THIS EXEMPTION is made subject to the following terms:
- Management provides shareholders, on annual basis, financial information and an annual report from the Corporation.
- The annual meeting in respect of which this exemption is made is not held after January 31, 2019.
DATED, this 1st day of June, 2018
- Date modified: