Part 13 Proxies (clauses 67-72)

The definition of "registrant" would be repealed and replaced by a new definition of "intermediary", based on the definition in current provincial securities legislation. The proxy solicitation rules would be amended to remove unnecessary regulatory obstacles to shareholders discussing corporate performance and other corporate matters. For example, solicitations made by public broadcast and publication would be exempt from the proxy circular delivery requirements provided certain conditions are fulfilled (s. 147).

A number of consequential amendments are also included as are several minor technical amendments , including amendments designed to facilitate the efficient operation and administration of the statute.

Briefing Book
An Act to amend the Canada Business Corporations Act and the Canada Cooperatives Act

Bill Clause No. 67
CBCA Section No. 147
Topic : Proxies (Shareholder Communication)

Sources of Proposed Law 
Securities Exchange Act of 1934 (U.S.), Rule 14a

Changes From Present Law 
A. Amend the definition "solicit" or "solicitation" in section 147 to incorporate the following changes:

Exempt a public announcement by a shareholder concerning the shareholder's voting intentions, as prescribed;

Exempt a communication made for the purpose of obtaining the shares for a shareholder proposal under the new section 137(1.1) [see clause 59];

(3) Exempt a communication, other than a solicitation by or on behalf of the corporation, that is made to shareholders in any circumstances that may be prescribed;

Renumber paragraphs in the definition of "solicit" or "solicitation".

B. Repeal the definition of "registrant" and replace it with a new definition of "intermediary" based on the definition currently found in National Policy Statement No. 41.

Purpose of Change 
A. A major problem for shareholders arises out of possible interpretations of paragraph 147(c) which defines "communication to a shareholder under circumstances reasonably calculated to result in the procurement, withholding or revocation of a proxy" as a solicitation. As a result of this definition, almost any communication could be deemed to be a solicitation. The shareholder could then be held liable, upon summary conviction, to a fine not exceeding $5,000 or imprisonment for up to six months or both, for failing to send the requisite proxy documents to all shareholders.

The need for a new standard of shareholder participation was recognized in the United States, which had a similar definition of solicitation. In 1992, the Securities and Exchange Commission (SEC) amended its proxy rules for the purpose of "promoting free discussion, debate and learning among shareholders and interested persons." In the SEC's view, "the federal proxy rules [had] created unnecessary regulatory impediments to communication among shareholders and others and to the effective use of shareholder voting rights."

The amendments would eliminate unnecessary regulatory obstacles to the exchange of views and opinions by shareholders and others concerning management performance and initiatives presented for a vote of shareholders.

B. Section 147 of the CBCA defines "registrant," whose duties correspond to those of an intermediary, as: "a securities broker or dealer required to be registered to trade or deal in securities under the laws of any jurisdiction". The definition of "intermediary" under NP 41 includes a much wider range of institutions. This amendment would bring the CBCA into harmony with current securities legislation, particularly National Policy Statement No. 41 and with current securities holding practices.

Similar Provincial Laws 

Current Wording 
147. "solicit" or "solicitation" includes

(a) a request for a proxy whether or not accompanied by or included in a form of proxy,

(b) a request to execute or not to execute a form of proxy or to revoke a proxy,

(c) the sending of a form of proxy or other communication to a shareholder under circumstances reasonably calculated to result in the procurement, withholding or revocation of a proxy, and

(d) the sending of a form of proxy to a shareholder under section 149, but does not include

(e) the sending of a form of proxy in response to an unsolicited request made by or on behalf of a shareholder,

(f) the performance of administrative acts or professional services on behalf of a person soliciting a proxy,

(g) the sending by a registrant of the documents referred to in section 153, or

(h) a solicitation by a person in respect of shares of which he is the beneficial owner;

"registrant" means a securities broker or dealer required to be registered to trade or deal in securities under the laws of any jurisdiction;

Proposed Wording 
147. "solicit" or "solicitation"

(a) includes

(i) a request for a proxy whether or not accompanied by or included in a form of proxy,

(ii) a request to execute or not to execute a form of proxy or to revoke a proxy,

(iii) the sending of a form of proxy or other communication to a shareholder under circumstances reasonably calculated to result in the procurement, withholding or revocation of a proxy, and

(iv) the sending of a form of proxy to a shareholder under section 149,

(b) does not include

(i) the sending of a form of proxy in response to an unsolicited request made by or on behalf of a shareholder,

(ii) the performance of administrative acts or professional services on behalf of a person soliciting a proxy,

(iii) the sending by an intermediary of the documents referred to in section 153,

(iv) a solicitation by a person in respect of shares of which the person is the beneficial owner,

(v) a public announcement, as prescribed, by a shareholder of how the shareholder intends to vote and the reasons for that decision,

(vi) a communication for the purposes of obtaining the number of shares required for a shareholder proposal under subsection 137(1.1), or (vii) 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;

(vii) 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;

"intermediary" means a person who holds a security on behalf of another person who is not the registered holder of the security, and includes

(a) a securities broker or dealer required to be registered to trade or deal in securities under the laws of any jurisdiction;

(b) a securities depositary;

(c) a financial institution;

(d) in respect of a clearing agency, a securities dealer, trust company, bank or other person, including another clearing agency, on whose behalf the clearing agency or its nominees hold securities of an issuer;

(e) a trustee or administrator of a self-administered retirement savings plan, retirement income fund, education savings plan or other similar self-administered savings or investment plan registered under the Income Tax Act;

(f) a nominee of a person referred to in any of paragraphs (a) to (e); and

(g) a person who carries out functions similar to those carried out by individuals or entities referred to in any of paragraphs (a) to (e) and that holds a security registered in its name, or in the name of its nominee, on behalf of another person who is not the registered holder of the security.

Bill Clause No. 68
CBCA Section No. 149(2)
Topic : Proxies (Shareholder Communications)

Sources of Proposed Law 

Changes From Present Law 
Amend s. 149 to provide that non-distributing corporations with 50 shareholders or fewer (two or more joint holders being counted as one shareholder), are not required to send a form of proxy as required by s. 149(1).

Purpose of Change 
The CBCA requires the management of all corporations, distributing and non-distributing, with 15 or more shareholders entitled to vote at the meeting, to formally solicit proxies in preparation for each annual or special meeting. The CBCA provides more onerous obligations on private corporations than do provincial corporate statutes, which do not require private companies to send a form of proxy to their shareholders at all.

Implementation of this amendment would increase the level of harmonization between the CBCA and provincial securities and corporate statutes with respect to differentiating between distributing and non-distributing corporations.

Raising the threshold for mandatory proxy solicitation by management of non-distributing CBCA corporations to 50 shareholders would eliminate the paper burden and legal costs associated with the preparation and distribution of proxy forms by private corporations who now have between 15 and 50 shareholders. It would also reduce the paper burden on government due to the filing requirements of s. 150.

Finally, mandatory solicitation requirements would ensure statutory protection for minority shareholders in private companies with a large number of shareholders. This provision was amended at the Senate Committee stage to change the threshold from "fewer than fifty" to "fifty or fewer" to ensure consistency with provincial securities legislation.

Similar Provincial Laws 

Current Wording 
149. (1) Subject to subsection (2), the management of a corporation shall, concurrently with giving notice of a meeting of shareholders, send a form of proxy in prescribed form to each shareholder who is entitled to receive notice of the meeting.

(2) Where a corporation has fewer than fifteen shareholders, two or more joint holders being counted as one shareholder, the management of the corporation is not required to send a form of proxy under subsection (1).

Proposed Wording 
149. (2) The management of the corporation is not required to send a form of proxy under subsection (1) if it

(a) is not a distributing corporation; and

(b) has fifty or fewer shareholders entitled to vote at a meeting, two or more joint holders being counted as one shareholder.

Bill Clause No. 69
CBCA Section No. new 150(1.1) and (1.2)
Topic : Proxies (Shareholder Communications)

Sources of Proposed Law 
Securities Exchange Act of 1934 (U.S.)

Changes From Present Law  
Add a new provision allowing proxies to be solicited where 15 or fewer shareholders are solicited.

Provide that a person, other than management of the corporation, may solicit proxies without sending a proxy circular if the solicitation is, in the prescribed circumstances, conveyed by public broadcast, speech or publication.

Purpose of Change  
(A) Harmonization with provincial securities rules.

(B) This section is modelled on the SEC rules. See rationale set out under clause 67.

Similar Provincial Laws  

Current Wording  
N/A

Proposed Wording  
150. (1.1) 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.

(1.2) 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.

Bill Clause No. 70
CBCA Section No. 151
Topic : Proxies (Government Administration)

Sources of Proposed Law  

Changes From Present Law  
Any exemption order made by the Director under the section would not be subject to the Statutory Instruments Act.

This amendment deals with public notice exemptions.

Purpose of Change  
Under the Statutory Instruments Act, orders are required to be made by the Governor-in-Council. By removing the word "order", the Act is clarifying that the Director's authority to issue an exemption is not caught by the Statutory Instruments Act. The following sections would also be amended accordingly:156, 171(2) and 258.2.

See explanation in clause 6.

Similar Provincial Laws  

Current Wording  
151. (1) On the application of an interested person, the Director may make an order on such terms as he thinks fit exempting such person from any of the requirements of sections 149 or subsection 150(1), which order may have retrospective effect.

(2) The Director shall set out in the periodical referred to in section 129 the particulars of exemptions granted under this section together with the reasons therefor.

Proposed Wording  
151. (1) 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 or subsection 150(1), which exemption may have retrospective effect.

(2) The Director shall set out in a publication generally available to the public the particulars of exemptions granted under this section together with the reasons for the exemptions.

Bill Clause No. 71
CBCA Section No. 152(3)
Topic : Proxies (Shareholder Communications)

Sources of Proposed Law

Changes From Present Law 
Amend s. 152(3) by replacing the words "votes that might be cast at the meeting on such ballot" with the words "votes that might be cast by shareholders personally or through proxy at the meeting on the ballot…".

Purpose of Change 
This section now empowers the chairperson of the meeting of shareholders to avoid a ballot where he/she knows that the dissenting votes will represent fewer than five percent of all the votes that might be cast by the shareholders personally or by proxy at the meeting. Its purpose is to avoid wasting time at the meeting conducting futile ballots. However, the current wording is ambiguous as to which votes must be counted. The proposed change would clarify that the chairperson must consider those votes that are actually represented at the meeting by shareholders personally or by proxy.

Similar Provincial Laws 
Business Corporations Act (Alberta)

Current Wording 
152. (3) Notwithstanding subsections (1) and (2), where the chairman of a meeting of shareholders declares to the meeting that, if a ballot is conducted, the total number of votes attached to shares represented at the meeting by proxy required to be voted against what to his knowledge will be the decision of the meeting in relation to any matter or group of matters is less than five per cent of all the votes that might be cast at the meeting on such ballot, unless a shareholder or proxyholder demands a ballot,

(a) the chairman may conduct the vote in respect of that matter or group of matters by a show of hands; and

(b) a proxyholder or alternate proxyholder may vote in respect of that matter or group of matters by a show of hands.

Proposed Wording 
152. (3) Despite subsections (1) and (2), if the chairperson of a meeting of shareholders declares to the meeting that, if a ballot is conducted, the total number of votes attached to shares represented at the meeting by proxy required to be voted against what to the knowledge of the chairperson will be the decision of the meeting in relation to any matter or group of matters is less than five per cent of all the votes that might be cast by shareholders personally or through proxy at the meeting on the ballot, unless a shareholder or proxyholder demands a ballot,

Bill Clause No. 72
CBCA Section No. 153
Topic : Proxies (Consequential Amendment)

Sources of Proposed Law 

Changes From Present Law 
Amend s. 153 to replace "registrant" with "intermediary".

Amend s. 153(2) to eliminate the prohibition against a registrant appointing a proxyholder to vote shares registered in his name or in the name of his nominee and clarify that the voting instructions from the beneficial owner must be written.

Amend s. 153(5) to clarify that the beneficial owner must provide the intermediary with appropriate documentation to support a request under that provision.

Purpose of Change 
(A) The definition of "registrant" is replaced in s. 147 with a definition of "intermediary". The amendments to s. 153 are consequential amendments.

The current legislation would preclude an intermediary from appointing a proxyholder to vote securities without first obtaining voting instructions from the beneficial owner of the shares. This drafting does not accord with how the industry currently operates. Where there are multiple layers of ownership, only the last intermediary in the chain actually knows the identity of the beneficial owner of the shares - therefore only that intermediary is in a position to obtain voting instructions from the beneficial owner. The objective of s. 153(2) is to prevent securities being voted by anyone other than the beneficial owner without first obtaining the voting instructions from the beneficial owner. The legislation goes too far by also precluding intermediaries from appointing proxyholders. This problem is being corrected. The voting instructions from the beneficial owner must be written in order to ensure that an intermediary is not able to act o the basis of verbal instructions from the beneficial owner of the share.

The amendment to CBCA, s. 153(5) and CCA, s. 169(5) is desirable from an evidentiary point of view.

Similar Provincial Laws 

Current Wording 
153. (1) Shares of a corporation that are registered in the name of a registrant or his nominee and not beneficially owned by the registrant shall not be voted unless the registrant, forthwith after receipt of the notice of the meeting, financial statements, management proxy circular, dissident's proxy circular and any other documents other than the form of proxy sent to shareholders by or on behalf of any person for use in connection with the meeting, sends a copy thereof to the beneficial owner and, except where the registrant has received written voting instructions from the beneficial owner, a written request for such instructions.

(2) A registrant shall not vote or appoint a proxyholder to vote shares registered in his name or in the name of his nominee that he does not beneficially own unless he receives voting instructions from the beneficial owner.

(3) A person by or on behalf of whom a solicitation is made shall, at the request of a registrant, forthwith furnish the registrant at that person's expense with the necessary number of copies of the documents referred to in subsection (1) other than a copy of the document requesting voting instructions

(4) A registrant shall vote or appoint a proxyholder to vote any shares referred to in subsection (1) in accordance with any written voting instructions received from the beneficial owner.

(5) If requested by a beneficial owner, a registrant shall appoint the beneficial owner or a nominee of the beneficial owner as proxyholder.

(6) The failure of a registrant to comply with this section does not render void any meeting of shareholders or any action taken thereat.

(7) Nothing in this section gives a registrant the right to vote shares that he is otherwise prohibited from voting.

(8) A registrant who knowingly fails to comply with this section is guilty of an offence and liable on summary conviction to a fine not exceeding five thousand dollars or to imprisonment for a term not exceeding six months or to both.

(9) Where a registrant who is a body corporate commits an offence under subsection (8), any director or officer of the body corporate who knowingly authorized, permitted or acquiesced in the commission of the offence is a party to and guilty of the offence and is liable on summary conviction to a fine not exceeding five thousand dollars or to imprisonment for a term not exceeding six months or to both, whether or not the body corporate has been prosecuted or convicted.

Proposed Wording 
153. (1) 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 other than the form of proxy sent to shareholders by or on behalf of any person for use in connection with the meeting, sends a copy of the document to the beneficial owner and, except when the intermediary has received written voting instructions from the beneficial owner, a written request for such instructions.

(2) An intermediary, or a proxyholder appointed by an intermediary, may not vote shares that the intermediary does not beneficially own and that are registered in the name of the intermediary or in the name of a nominee of the intermediary unless the intermediary or proxyholder, as the case may be, receives written voting instructions from the beneficial owner.

(3) A person by or on behalf of whom a solicitation is made shall provide, at the request of an intermediary, without delay, to the intermediary at the person's expense the necessary number of copies of the documents referred to in subsection (1), other than copies of the document requesting voting instructions.

(4) An intermediary shall vote or appoint a proxyholder to vote any shares referred to in subsection (1) in accordance with any written voting instructions received from the beneficial owner.

(5) If a beneficial owner so requests and provides an intermediary with appropriate documentation, the intermediary must appoint the beneficial owner or a nominee of the beneficial owner as proxyholder.

(6) The failure of an intermediary to comply with this section does not render void any meeting of shareholders or any action taken at the meeting.

(7) Nothing in this section gives an intermediary the right to vote shares that the intermediary is otherwise prohibited from voting.

(8) An intermediary who knowingly fails to comply with this section is guilty of an offence and liable on summary conviction to a fine not exceeding five thousand dollars or to imprisonment for a term not exceeding six months or to both.

(9) If an intermediary that is a body corporate commits an offence under subsection (8), any director or officer of the body corporate who knowingly authorized, permitted or acquiesced in the commission of the offence is a party to and guilty of the offence and is liable on summary conviction to a fine not exceeding five thousand dollars or to imprisonment for a term not exceeding six months or to both, whether or not the body corporate has been prosecuted or convicted.