Archived — Regulatory Impact Analysis Statement — Canada Business Corporations Act (CBCA)

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Table of Contents

Description

The Canada Business Corporations Act (CBCA) was significantly amended by Bill S-11 to improve the legal framework for federal corporations by enhancing shareholder decision input in decision making and providing corporations with greater flexibility in pursuing marketplace opportunities. For instance, the amendments allow a stronger international representation on the boards of CBCA corporations thereby enhancing global competitiveness. Bill S-11, formally known as An Act to amend the Canada Business Corporations Act and the Canada Cooperatives Act, received royal assent on June 14, 2001.

The regulations replace entirely the former regulations under the Canada Business Corporations Act (CBCA) and provides the regulatory framework to implement Bill S-11. Given the number of changes needed to be made, including modernization of the drafting language, it was decided to replace all the former regulations with a renumbered version that includes the new provisions required by Bill S-11 and removes unnecessary regulations.

All changes to the regulations are listed in Annex A, including technical or non-material changes. This section describes only significant changes to the regulations required by Bill S-11 amendments in the order that they appear in the regulations:

  • definition of "distributing corporation" and "going private transaction"
  • electronic documents
  • directors' residency
  • corporate interrelationships
  • insider trading
  • electronic shareholders meeting
  • shareholder proposals
  • proxy solicitation and proxy circular exemptions
  • modified proportionate liability
  • cancellation of certificates

Two changes, though significant, are not described in detail but are summarized in Annex A. The CBCA has been amended so that (1) the Director who administers the CBCA can set forms administratively, such as an application form for incorporation, rather than by regulations and (2) certain items such as time limits and references to other federal legislation which were prescribed in the statute are now to be prescribed in the regulations. The result of the first amendment is that forms are to be repealed from the regulations. As for the second amendment, the regulations now prescribe a number of requirements that were formerly prescribed in the CBCA. An example is the time period the Director must retain certain records of a particular corporation. The CBCA used to stipulate the period to be six years; now the regulations prescribe that time period. The reason for this amendment is to allow government to respond more quickly to a changing environment without having to go to Parliament to make statutory changes of this nature, e.g., time periods. Where the prescribed requirements have been transferred to the regulations, they remained the same except where they were changed to harmonize with provincial requirements.

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Definition of "Distributing corporation" and "going private transaction"

The definition of "distributing corporation", which many refer to as a public company, is harmonized with the provincial securities legislation definitions of "reporting issuer". Where a definition of "reporting issuer" exists in a provincial or territorial statute, that definition prevails for federal corporations to which that statute applies. Corporations that are subject to an exemption under provincial legislation are not considered distributing corporations. If a corporation is not subject to a provincial statute, it is a distributing corporation if it engages in an activity that would have been caught by securities legislation. For instance, a corporation that lists its shares in a stock exchange in the United States but not in Canada would be considered a distributing corporation.

The definition of a "going private transaction", i.e. where a distributing corporation becomes a private corporation without the consent of shareholders, is based on the definition in the Ontario Business Corporations Act. It is intentionally broad to expressly include transactions commonly referred to in the marketplace as going-private transactions. The CBCA was amended to allow going-private transactions only if they comply with any applicable provincial securities law.

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Electronic Documents

The amendments to the CBCA permit corporations to use electronic documents in communicating with its shareholders. The regulations fix the manner in which consent to electronic communication may be given (and revoked) and allow documents to be posted on web sites provided the addressee receives notice about the location of the document. Certain documents cannot be posted on web sites, however; namely documents required by the CBCA to be sent to a specific place such as a registered office. When documents must be sent to several addressees, the regulations state that the documents must be sent to the addressees at the same time, regardless of the manner in which they are being provided. Documents may also be sent to a specific information system instead of the specific place established in the CBCA, such as the registered office of the corporation. Finally, the regulations clarify that an electronic document is considered to have been received when it enters an information system, such as a server, or if it is made available through a web site or other electronic source, when the notice of the availability is received by the addressee. The notice could be sent electronically and is considered received when it enters an information system designated by the addressee.

The electronic documents regulations do not apply to the transmission of security certificates and to documents or information sent to or issued by the Director. The Director administratively specifies how this information is to be sent.

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Directors Residency

Amendments to the CBCA reduced the residency requirements for directors so that only 25 percent of directors of a corporation must be Canadian residents rather than a majority. The regulations establish the business sectors that are required to maintain a majority of resident Canadian directors. These sectors are uranium mining; book publishing, distribution and book sales where the sale of books is the primary part of a corporation's business; and distribution of film and video. Corporations operating in industry sectors that are regulated by federal statutes may be subject to different residency requirements.

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Corporate Interrelationships

The CBCA has been amended to allow a subsidiary to acquire shares of the parent corporation to increase flexibility for global corporations that choose to incorporate under the CBCA. The amendment benefits Canadian corporations with foreign subsidiaries that want to merge with or take over foreign companies and provide the appropriate tax advantages to shareholders of the target corporation. The regulations set out the conditions that must exist before and after the acquisition. The conditions prior to the acquisition are: the subsidiary must not be resident in Canada; the value paid for the shares must be equal to the fair market value of those shares; the shares are widely held and actively traded on a Canadian stock exchange; and the acquisition is for the sole purpose of transferring the shares to shareholders of a non-Canadian corporation that deals at arm's length, as determined by the Income Tax Act, with the corporation and its subsidiary.

After the acquisition, the subsidiary must immediately transfer the shares to shareholders of the non-Canadian corporation and cannot retain beneficial interest of the shares. After the transfer, the non-Canadian corporation must become a subsidiary of the parent corporation but cannot become a resident in Canada. The subsidiary transferring the shares cannot become a Canadian corporation.

If the conditions after the acquisition are not met within 30 days, the parent corporation must cancel the shares, return the amount paid for the shares, and deduct that amount from the corporation's stated capital account.

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Insider Trading

The regulations specify the number of shares or votes that an individual must hold to be deemed an "insider" of a corporation since the number is no longer set out in the CBCA. This reflects the policy decision to transfer requirements such as the prescribed number of shares to the regulations from the statute. The prescribed amount of ten per cent is not a change from the former statutory requirement. The CBCA was also amended so that a person who proposes to make a take-over bid is deemed to be an insider. The definition of "take-over bid" is also set out in the regulations. Consistent with the objective of harmonizing federal and provincial law wherever possible, the definition of "take-over bid" incorporates the relevant provincial definitions.

In addition, the regulations set out the circumstances under which an insider is exempt from liability: where the insider was acting as an agent or trustee; where the insider participated in an automatic dividend reinvestment plan; and where the insider was fulfilling a legal obligation.

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Electronic Shareholders' Meeting

The regulations specify that shareholders may also vote by telephonic or electronic means provided that the voting mechanism allows a verification of the votes cast while preventing the corporation from finding out how a particular shareholder voted.

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Shareholder Proposals

The amendments to the CBCA enhance shareholders' rights by liberalizing the mechanisms through which persons may notify a corporation of any matter they propose to raise at an annual meeting of shareholders (a "proposal"). To be eligible to submit a proposal, a person must hold, or have the support of persons who hold, 1 percent of the total number of outstanding voting shares of the corporation or the number of shares with a value of $2000. The person or those supporting him or her must have held the shares for at least six months. A corporation may ask the shareholder to provide proof that he or she owns the required amount of shares and has owned them for at least the minimum period required. The shareholder must respond within 21days after the corporation's request.

The regulations fix the word limit for a proposal and its supporting statement to 500 words and prescribe the deadline for submission as 90 days before the anniversary date of the notice of meeting that was sent in connection to the previous annual meeting of shareholders.

A corporation can refuse to include a shareholder's proposal in its proxy circular if, within the two-year period before the submission, the shareholder failed to present, in person or by proxy, at the annual meeting a proposal that was included in a proxy circular.

If substantially the same proposal was submitted previously, the corporation can refuse to include the proposal in the management proxy circular if the minimum amount of support was not achieved within the previous five year period. The prescribed minimum amount is 3 percent of the total number of votes if the proposal was introduced at one annual meeting, 6 percent if the proposal was introduced at two annual meetings, and 10 percent if the proposal was introduced at three or more annual meetings. The scale is based on Rule 14 made under the United States' Securities and Exchange Act of 1934.

If a corporation includes in its circular a proposal submitted by a shareholder and that shareholder fails to continue to hold the required numbers of shares until the actual meeting, the regulations allow the corporation to refuse to include any subsequent proposal submitted by that shareholder in its proxy circular for a period of two years.

The regulations require a corporation to notify a person submitting a proposal of its intention to omit a proposal from its circular, if it intends to do so, within 21 days of receipt of the proposal or of proof of ownership.

The CBCA was amended so that the deadline date for submitting a proposal is pegged to the anniversary date of the notice of the previous annual meeting rather than to the annual meeting date itself. There was some concern that this change may cause confusion among shareholders. To avoid confusion, the regulations require that management proxy circulars that are sent to shareholders include a statement indicating the final date by which a corporation must receive a proposal that a shareholder proposes to raise at the next annual meeting.

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Proxy Solicitation and Proxy Circular Exemption

The amendments to the CBCA increase the rights of shareholders to communicate among themselves. The CBCA is structured so that a shareholder engaging in an activity that falls under the statutory definition of "solicitation" must send a proxy circular to all other shareholders at his or her own expense. To expand shareholders' rights, the definition in the CBCA was amended to exclude certain shareholder communications from this requirement.

For example, the CBCA amendments require the regulations to prescribe the type of public announcement that is excluded from definition of "solicitation". The regulations exclude speeches made in public fora as well as press releases, statements, or advertisements provided through broadcast or telephonic means, or other publications available to the public.

The regulations also set out the conditions under which persons other than management can communicate with shareholders without having to produce a dissident proxy circular. The regulation differs from the proposed regulation that was prepublished in Part I of the Canada Gazette. (See discussion under Consultations and in Annex B on dissident proxy circular.)

The regulations also set out the circumstances under which a person may solicit proxies by public broadcast without sending a dissident's proxy circular. These circumstances relate to the content of the public broadcast and that the person must send a notice and a copy of any related publication to the Director and to the corporation before soliciting proxies.

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Modified Proportionate Liability

The CBCA was amended to include a regime of modified proportionate liability with respect to the provision of financial information required under the Act. Modified proportionate liability means that every defendant found by a court to be responsible for a financial loss arising out of an error, omission or misstatement in financial information required by the legislation or the regulations would be liable to the plaintiff only for the portion of the damages corresponding to the defendant's degree of responsibility. This is a departure from the joint and several liability regime that existed in the CBCA prior to the amendments and that applied to all plaintiffs. (Under a joint and several liability scheme, a plaintiff can seek full compensation from any of the defendants found liable.) The joint and several liability regime continues, however, to apply in certain cases, one of which is where the plaintiff's investment in the corporation is below a threshold to be prescribed by the regulations. The regulation fixes the investment value threshold for joint and several liability at $20 000.

In its original report on modified proportionate liability, the Senate Standing Committee on Banking, Trade and Commerce recommended a net worth test to differentiate between those investors who would have access to joint and several liability and those who would be governed under a modified proportionate liability regime. Given the privacy issues with a net worth test, the investment value threshold, set at $20 000, is intended to meet the same policy purpose. It is intended to provide protection to small investors without requiring plaintiffs to disclose all of their personal assets to the court. The Senate Standing Committee agreed with this approach.

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Cancellation of Certificates

The regulations set out the conditions under which the Director may cancel the articles and related certificates of a corporation. These circumstances are: (a) where the error is obvious; (b) where the error was made by the Director; (c) where ordered by a court; or (d) where the Director lacked the authority to issue the articles and related certificate.

The regulations also establish the circumstances under which the Director can cancel a certificate at the request of the corporation or an interested party. Those circumstances are: (a) where there is no dispute among the directors and/or shareholders on the circumstances of the application; or (b) where the corporation has not used the articles and related certificate, or, if it has, where anyone dealing with the corporation on the basis of the certificate has consented to the cancellation.

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Alternatives

There are no alternatives to the regulations because they are required for the proper functioning of the CBCA. For example, a number of the regulations prescribe time periods and amounts such as dollar values for specific sections of the CBCA. Without these specifications, the CBCA provisions cannot come into force.

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Benefits and Costs

Most of the changes in the regulations are enabling rather than restricting, meaning that they will allow a corporation or a shareholder to do or perform an action which could not be done previously or otherwise. For instance, the CBCA was amended to allow electronic communications. The regulations set out the requirements that must be met so that the communication could take place (e.g., how consent must be obtained, how voting must be conducted). These provisions are enabling because there is nothing in the CBCA or the regulations that requires a corporation to use electronic means when communicating with shareholders. Therefore, a corporation electing to use electronic communications will do so on the basis that the benefits of using electronic means exceed the costs of having to comply with the relevant sections of the regulations. For instance, if a corporation wanted to hold an electronic vote, the cost imposed by the regulations is that it must have an electronic voting system that ensures subsequent verification of the votes and permits votes to be presented without it being possible for the corporation to identify how each shareholder or group of shareholders voted.

A similar enabling provision concerns communications among shareholders. The regulations prescribe the circumstances that allow a shareholder to communicate with other shareholders without incurring the expense of publishing a dissident proxy circular or seeking an exemption from the Director. The overall benefit is enhanced shareholder participation in the affairs of the corporation. There is no additional cost to the corporation, the shareholders, or the Director. In fact, it is expected that the Director will receive fewer exemption requests, resulting in marginal savings for the dissident.

The shareholder proposal provisions also do not impose costs since they set out the rules that a person must follow in order to submit a proposal. The CBCA has been amended to expand shareholder rights and requires the regulations to set out the deadlines that must be met. Arguably, expanding shareholders rights increases the costs for corporations that have to handle a higher number of proposals. However, the regulations themselves do not impose a cost. Instead, the objective of the regulation is to strike a balance between the interests of the person submitting the proposal and the corporation in terms of giving each party sufficient time to submit a proposal and respond to it.

The only fee change relates to corrected certificates and no additional costs are imposed as a result of the change. Under the CBCA, the Director is authorized to correct any certificate he issues. A corrected certificate issued where the error was made by the Director will be provided for free while the fee for any other type of corrected certificate will be fixed at $200 instead of being "the same fee as would be payable for the certificate it replaces." The fees for most certificates are $200 with the exception of $250 for a certificate of incorporation for which an application was not made online (an online application for a certificate of incorporation is $200). The $200 fee represents the estimated cost of providing a corrected certificate. The fee will only provide a savings for those who paid $250 for a certificate of incorporation and no new costs will be imposed on federal corporations.

These regulations arguably do not impose any tangible costs since they provide the necessary details to make the federal corporate framework operational. Most of the benefit and cost considerations were considered at the policy level when the amendments were made to the CBCA. For instance, Parliament decided that the benefits of expanding shareholder rights outweighed the costs that may be imposed on the corporations. Therefore, the costs of not having the regulatory framework would be the denial of the rights of a corporation or person that is conferred on them by the amendments to the CBCA.

With respect to benefits, corporations will benefit from the regulations that harmonize requirements with provincial securities requirements, such as the definition of "distributing corporation" and the insider securities provisions. Harmonization would result in lower compliance for CBCA corporations since they have only one set of standards to follow rather than two.

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Consultations

The regulations were prepublished in Part I of the Canada Gazette on September 8, 2001 and the public was invited to submit comments within the 30 days following publication. Prior to prepublication, consultations were held twice on previous drafts of the regulations. First, in the Spring of 2000 in conjunction with the first tabling of the amendments as Bill S-19, the draft regulations were submitted to the Senate committee and were also posted on Industry Canada's website. After Bill S-19 died on the order paper because of the Fall election, the bill was retabled as Bill S-11 in February 2001. The accompanying draft regulations benefited from comments from the first set of consultations and also included new provisions such as regulations related to electronic documents and corporate interrelationships. The public was again afforded the opportunity to comment on the draft regulations.

A summary of the comments received during the first two consultations and during the prepublication period is set out in Annex B.

Based on the submissions, several changes were made to the prepublished regulations. None of the changes presented a change in policy. Instead, the modifications were made to better meet stated policy objections and are essentially corrective in nature. For instance, the definition of "distributing corporation" was too broad and went beyond harmonizing the definition with provincial securities legislation. Similarly, one of the prescribed business sectors to which a more restrictive directors' residency rule applied was originally overly inclusive. In addition, the impact of some of the proposed regulations had an unintended effect such as the electronic document provision that in effect treated corporations using electronic means to communicate with shareholders differently from corporations using traditional means. The proposed regulation to harmonize record dates related to shareholder meetings with provincial securities requirement had the opposite effect of restricting the corporation when the intention was to provide corporations with more flexibility. A proxy circular disclosure item which was required in the former regulations was unintentionally excluded from the regulation.

Only one significant modification was made to the regulations. The Coalition for CBCA Reform which represents ten of the largest publicly traded companies in Canada submitted that the proposed regulation setting out the conditions under which persons other than management can communicate with shareholders without having to produce a dissident proxy circular was too broad and should be deleted. The intended purpose of the regulation was to enhance shareholder communication and the regulation was based on Rule 14a-2 made under the United State's Securities and Exchange Act of 1934. Accordingly, the suggestion to delete the regulation was not accepted. Instead the regulation was modified to more closely follow Rule 14a-2 so that persons in a conflict situation could not benefit from the regulation. For example, a shareholder seeking election as a director cannot communicate with other shareholders about being elected. Also a person benefiting from the regulation could not seek directly or indirectly the power to act as proxy. In such circumstances, the person must send a proxy form and circular providing information to the shareholder. While the Coalition for CBCA Reform would still prefer that the regulation be deleted, it does accept the changes made. In addition, a representative subcommittee of the Canadian Bar Association agrees to the changes. The Canadian Bar Association proposed the original regulation during the Senate hearings for Bill S-19.

Since the changes restricted the scope of the prepublished regulation, interested stakeholders – primarily shareholder organizations – were contacted directly to bring their attention to the changes. The proposed changes were also posted on Corporations Canada website with an explanation on why the changes were being made.

In general, all who responded supported the changes to the regulation. Fairvest, a provider of Canadian corporate governance research and related services to institutional investors, found the changes to be reasonable. The Pension Investment Association of Canada, a representative organization for pension funds in Canada in matters relating to investment and corporate governance, also fully supported the changes. Two stakeholders – Shareholders Association for Research and Education and Social Investment Organization – approved of the changes but suggested two further modifications.

The first suggestion was to allow persons acting on behalf of shareholders to benefit from the regulation. This change would be consistent with Rule 14a-2. While the regulation could be interpreted to implicitly allow such persons to communicate with other shareholders, the suggested change was made for the sake of clarity. The second suggestion was to allow persons who receive special commission or remuneration from a third party to provide proxy voting advice to any shareholder. Consistent with Rule 14a-2, the regulation only allows persons to provide proxy voting advice to shareholders who are clients as long as any special commission or remuneration are not paid by third parties. This issue will need to be further examined as a separate initiative to determine the advisability of expanding the scope of the regulation.

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Compliance and Enforcement

The CBCA is a self-enforcing statute where interested parties can resolve their disputes through the courts. The Director, as a policy, will only intervene in limited circumstances where a significant public interest is involved and the spending of public funds is justified. With respect to the administration of the CBCA, e.g. issuing certificates and filing of annual returns, the Director already has in place procedures and mechanisms to ensure compliance with the CBCA and the associated regulations. The regulations do not require any new compliance procedures.

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Contact

Robert Weist
Director, Compliance Branch
Corporations Canada
10th Floor, 365 Laurier Ave. W
Ottawa, ON K1A 0C8
Tel: 613-941-5756
Fax: 613-941-5781
weist.robert@ic.gc.ca

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Annex A
Summary of Canada Business Corporations Regulations, 2001
Section of the Regulations Description
Interpretation The definition of "document" has been removed since provisions relating to forms to be sent to the Director have been deleted. See description section of Regulatory Impact Analysis Statement regarding the inclusion of the definitions of "distributing corporation" and "going private transaction".
Part 1 — General Forms – The regulations require the Director to publish any administrative forms, procedures or policy guidelines in a publication generally available to the public.

Electronic Documents – See description section of Regulatory Impact Analysis Statement

"Resident Canadian" Class of Persons Prescribed – No change to the existing regulations.

Exemption Circumstances Prescribed – The circumstances under which the Director may exempt a corporation from a requirement to send a notice or information to the Director under the CBCA are that the exemption must not prejudice any of the shareholders or the public interest.

Retention of Records – The time period for the retention of the Director's records has been moved from the CBCA to the regulations, but the specified time period of six years is not a change from the former CBCA requirement.

Business Sectors –See description section of Regulatory Impact Analysis Statement.

Part 2 — Corporate Names The regulations are essentially the same as the former regulations. "Official marks" has been added so that a corporate name cannot be confused with both a trade-mark or an official mark. The regulations also clarify the reasons for refusing a corporate name if it lacks distinctiveness. The other substantive change is the addition of a criterion to determine what is a combined English and French form of a corporate name which is now permitted under the CBCA.
Part 3 — Corporate Interrelationships See description section in Regulatory Impact Analysis Statement
Part 4 — Insider Trading See description section in Regulatory Impact Analysis Statement.
Part 5 — Meeting of Shareholders Record Dates – The prescribed period for directors to fix the record date for entitlement: to receive payment of dividend; to participate in a liquidation distribution; or for any other purpose is not more than 60 days before the particular action to be taken. The prescribed period for the directors to fix a record date for entitlement to receive notice of a meeting of shareholders and to vote at a meeting is not less than 21 days and not more than 60 days.

Notice of Meetings – The specific periods for fixing the record date to establish the shareholders of record, as well as for providing notice of a shareholders' meeting, have been moved from the statute to the regulations. The prescribed period is not less than 21 days and not more than 60 days before the meeting.

Communications Facilities – See description section in Regulatory Impact Analysis Statement for electronic meetings.

Part 6 — Shareholder Proposals See description section in Regulatory Impact Analysis Statement.
Part 7 — Proxies and Proxy Solicitation Other than the section on Proxy Circular Exemption (see description section in the Regulatory Impact Analysis Statement), the regulations are essentially the same as the former regulations with the new requirement that the management proxy circulars must also include a statement indicating the final date by which a corporation must receive a proposal that a shareholder proposes to raise at the next annual meeting. The other changes are consequential. For example, paragraph 35(i) of the former regulations regarding financial assistance to shareholders or officers of a corporation has been deleted because the relevant section of the statute has been repealed.
Part 8 — Financial Disclosure This part is not changed from the former regulations.
Part 9 — Constrained Share Corporations The constrained share regulations are the same as the former regulations except for some wording changes to modernize the language and make minor non-substantive clarifications. The substantive change is that the reference to the Insurance Companies Act and the Trust and Loan Companies Act has been moved from the CBCA to the regulations.
Part 10 — Rules of Procedure for Applications for Exemption This part is not changed from the former regulations.
Part 11 — Net Value of Total Financial Interest See modified proportionate liability in the description section in Regulatory Impact Analysis Statement
Part 12 — Cancellation of Certificates See description section in Regulatory Impact Analysis Statement
Part 13 — Prescribed Fees The regulations add a provision that no fee is payable for the issuance by the Director of a corrected certificate when the correction is required solely as a result of an error made by the Director. Also, the regulations state that a corporation may charge a fee for the issuance of a security certificate. This is not a new fee; the amount ($3) has simply been moved from the statute to the regulations.
Schedule 1 — Reporting Issuer This schedule is referred to in the definition of "distributing corporation" in the regulations. It incorporates by reference the definitions of reporting issuer in each provincial law.
Schedule 2 — Definition of Take-over bid This schedule is referred to by the definition of the term "take-over bid" in the regulations. It lists the appropriate definitions of take-over bid in each provincial and territorial law.
Schedule 3 — Executive Remuneration This schedule is not changed other than to update provincial/territorial information, where required.
Schedule 4 — Indebtedness of Directors and Officers This schedule is not changed other than to update provincial/territorial information, where required.
Schedule 5 — Fees The schedule fixes the fee for a corrected certificate to $200 rather than stating that the fee is the "same fee as would be payable for the certificate it replaces." This amount better reflects the cost of providing the certificate. This change has minimal impact since the fee for most certificates is $200. The exception is the certificate of incorporation that is not filed online for which the fee is $250; the fee is $200 if filed online.
Regulations repealed
  • Sections in Part 1 of the former regulations regarding forms, the format of the forms and the transmission of notices and documents in electronic forms have be removed since the Director now has the authority to establish these requirements administratively. Schedule 1 of the former regulations will also be deleted for the same reason.
  • The take-over bid and insider reporting provisions are also deleted since the related provisions in the CBCA have been repealed.
  • Provisions concerning the reservation of corporate names and the use of the NUANS® Name Search System database has been removed since no requirement exists that these be established by regulation.
  • The regulation related to exemption from public disclosure of financial statements has been removed since no requirement exists that it be established by regulation.
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Annex B
Canada Business Corporations Regulations, 2001
Summary of Comments

Bill S-11 which amends the Canada Business Corporations Act received Royal Assent on

June 14, 2001. The proposed Canada Business Corporations Regulations, 2001 (CBCR) will bring the amendments into effect. The regulations were published in Part 1 of the Canada Gazette on September 8, 2001, with a notice inviting the interested parties to submit comments by October 8, 2001.

Prior to prepublication in Part I of the Canada Gazette, consultations on the draft regulations were held twice. First, in the Spring of 2000 in conjunction with the first tabling of the amendments as Bill S-19, the draft regulations were tabled in the Senate with the bill and were also posted on Industry Canada's website. After Bill S-19 died on the order paper because of the Fall election, the bill was retabled as Bill S-11 in February 2001. The accompanying draft regulations benefited from comments from the first set of consultations and also included new provisions such as regulations related to electronic documents and corporate interrelationships. The public was again afforded the opportunity to comment on the draft regulations.

We have considered the comments received to date, including comments from the two previous consultations, and thank those individuals and organizations who have provided their views.

The following is a summary of the comments received during the first two consultations and during prepublication.

A. Definitions

1. "Distributing Corporation" (s. 2)

Proposed regulation:To harmonize with the provinces, a "distributing corporation" means a corporation that is a "reporting issuer" or "distributing corporation" under any provincial securities or business legislation. Also included in the definition are a corporation:

  1. that has filed a prospectus or similar document under provincial legislation or under the laws of a jurisdiction outside Canada;
  2. any of the securities of which are listed on a stock exchange in or outside Canada; or
  3. that is involved in, formed for, resulting from or continued after an amalgamation, a reorganization, an arrangement or a statutory procedure, if one of the participating body corporates is a distributing corporation (i.e., is caught by other subsections of the definition).

Comments:

  • Harmonization with the provinces is supported and is sufficiently realized by incorporating the provincial definition. However, the definition appears to be over-inclusive. Of greatest concern is the use of such expressions as "involved in", "formed for" and "participating body corporate" in the last subsection. A non-distributing corporation can be "involved in" a variety of transactions, reorganizations or statutory procedures in which a distributing corporation is a "participating corporation" without itself becoming a reporting issuer under provincial securities law. (Coalition for CBCA Reform)
  • The definition of a "distributing corporation" should reproduce the presumption in the now repealed paragraph 2(7)(b) of the CBCA that deems a corporation to be a "distributing corporation" even if they do not comply with securities legislation. Without it, many so-called "private" investment corporations that routinely solicit investors and distribute securities widely to the public without filing the required prospectus or otherwise do not comply with provincial securities will be able to carry on their illegal trade with less regulatory framework and greater impunity. If they are deemed to be distributing corporations, the public would have the right to access their corporate records and can obtain copies of financial statements sent to the Director, appointed under the CBCA. (Mr. James Smirnois)

Response: Incorporation by reference of the provincial definition is problematic because certain jurisdictions do not have a comparable concept. Since the CBCA applies across Canada, the definition of "distributing corporation" must be inclusive. Furthermore, it should also capture corporations that are non-distributing in Canada but are distributing elsewhere, e.g. the United States. With respect to the comment about the use of broad expressions such as "involved in", etc, the provision is modelled after the relevant section of the Saskatchewan Securities Act.

In follow-up discussions, the Coalition for CBCA Reform suggested that the regulations be modified to state that where a definition of "reporting issuer" exists in a provincial or territorial statute, that definition should prevail for federal corporations to which that statute applies. Otherwise, the other provisions in the proposed regulation would apply. The final regulation has been modified accordingly. The regulation no longer refers to "distributing corporation" since the term as defined in provincial corporate statutes cannot apply to CBCA corporations.

With respect to the comment about corporations that do not comply with securities legislation, the securities commissions are the appropriate bodies to enforce securities legislation and to impose sanctions. Including a deeming provision in the regulations offers very little protection to the public since corporations that do not comply with securities legislation are much less likely to comply with corporate legislation.

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2. "Going-Private Transaction" (s. 3)

Proposed regulation: "Going-private transaction" (GPT) includes an amalgamation, arrangement, consolidation or other transaction involving a distributing corporation that results in the interest of a shareholder being terminated without his or her consent and without receiving in exchange shares of equivalent value of the successor corporation.

Comments:

  • The definition in the regulations is substantially broader than the definitions found in the Ontario Securities Commission (OSC) rule and the Quebec Securities Commission (QSC) policy and the definition contains none of the exemptions in the Ontario Rule. With the recent harmonizing of QSC policy Q-27 and the Ontario Rule, consider a definition that is more closely aligned with those standards. Recognizes that using broad language may be desirable given the objective of clarifying that GPTs are permitted, but concerned that dissent rights should not inadvertently attach to transactions that are accidentally caught by a too broadly worded definition. (Coalition for CBCA Reform)

Response: Harmonization with the definitions contained in Ontario Securities Commission Rule 61-501 and QSC Policy Q-27 would not achieve the purpose of the CBCA, which is to expressly permit transactions commonly referred to in the marketplace as going-private transactions. The provincial instruments referred to only regulate a GPT involving a related party of the issuer and their definitions are drafted accordingly. The definition of GPT set out in the proposed regulations is designed to cover all such transactions, whether or not a related party is involved. Bill S-11 is clear that a corporation may not carry out a GPT unless it complies with any applicable provincial securities laws. The federal scheme does not impose any additional requirements on corporations in this area.

The comment concerning dissent rights is an issue relating to the statute and not the regulation. Bill S-11 contains a provision requiring a review of the CBCA within five years. We will consider the dissent right issue at that time.

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B. Electronic Documents and Meetings

1. Consent (s. 7(1) and s. 8)

Proposed regulations: Before any document required to be sent by the CBCA or the regulations can be sent electronically, the addressee must provide consent. The proposed regulations stipulate that the consent must be in writing.

Comment:

  • The proposed regulations are inconsistent with the Canadian Securities Administrators' National Policy 11-201 which allows for a consent to be given electronically or non-electronically. The policy also allows for the revocation of a consent to be provided either in writing or non-electronically. The regulations should permit electronic consent to receive materials electronically, as well as allowing for the revocation of the consent to be provided electronically. (Computershare Trust Company of Canada)

Response: Section 252.5 of the CBCA states that any requirement under the Act or the regulation that require information be created in writing is satisfied by the creation of an electronic document as long as the information in the electronic document is accessible so as to be usable for subsequent reference and any regulation is complied with. Therefore, the regulations allow consent to be provided or revoked electronically.

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2. Receipt of electronic documents (s. 12)

Proposed regulation: A document sent electronically is considered to be received when it enters the information system designated by the addressee or, if the document is posted on a website, when it is accessed by the addressee.

Comments:

  • Determining whether an electronic document has been accessed by an intended recipient at a website may be impractical to monitor for the sender. It would be more practical if the regulations were to deem any web-posted document as received either (a) when notice of the posting is communicated to the recipient or (b) at the time it is posted if the sender has received from or on behalf of the recipient a prior general acknowledgement that web posting is an acceptable means of communication and the recipient has undertaken to be responsible for monitoring the web-site. (Coalition for CBCA Reform)

Response: We agree that it is not practical to require corporations to monitor whether a shareholder has accessed web-posted documents. Moreover, it would place a higher duty on corporations engaging in electronic communications; corporations sending documents by mail are not required to monitor whether the mail has been opened by a recipient. The onus should remain, however, on the corporation to inform recipients that a specific document can be accessed electronically. The regulations have been modified so that an electronic document posted on the website is considered to received when the notice of the posting is received by the addressee, or if sent electronically, when the notice enters the information system designated by the addressee.

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3. Electronic participation at shareholders meetings (s. 45, s. 46)

Proposed regulations: When a vote is to be taken at a meeting of shareholders, the voting may be carried out electronically if the communications facility permits subsequent verification of the votes and permits the tallied votes to be presented to the corporation without it being possible for the corporation to identify how each shareholder or group of shareholder voted.

Comments:

  • There is a need to include relevant standards regarding electronic participation at shareholder meetings. (Coalition for CBCA Reform)
  • Mandating a secret ballot requirement for all electronic voting would be highly controversial. If all that is intended is to have the capacity to perform a secret ballot electronically as a pre-requisite to an electronic voting system to be used at a shareholder meeting, we have no difficultly with that objective. (Coalition for CBCA Reform)

Response: Setting standards in an area that is continuously evolving would not be appropriate at this time. It is preferable not to regulate this area unless such a need arises. According to the drafters from the Department of Justice, the wording of the regulation does require a communications facility to be used for electronic voting to have the capacity to permit verification and secret balloting.

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C. Directors Residency (s. 16)

Proposed regulation: Corporations engaging in a prescribed business sector must have a majority of its directors be Canadian residents. One of the proposed business sectors is book publishing, distribution and retail.

Comment:

  • Unlike the other prescribed business sectors, it is not ncommon for retail outlets to sell books and magazines as a small part of a much larger business. To alleviate concern as to what directorship rules apply in this regard, we propose that the word "primarily" be inserted before the word book. (Corporate Law Subcommittee, Ontario Bar Association)

Response: The regulation was not intended to capture retailers that sell books as a minor part of its business. The regulation has been modified so that it only captures corporations that engage primarily in the sale of books.

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D. Shareholders' Meeting – Record Dates (s. 43 and s. 44)

Proposed regulations: The prescribed period for directors to fix a record date for shareholders entitled to receive a notice of meeting and for shareholders entitled to vote at a meeting is not less than 35 days and not more than 60 days before the date of the meeting. The prescribed period for directors to provide a notice of time and place of a meeting of shareholders is not less than 35 days and not more than 60 days before the meeting.

Comment:

  • Although the time limits conform to National Policy Statement No. 41 (NP 41), the regulations do not incorporate the possibility of obtaining from the applicable securities commission an exemption or waiver from these time limits. Under NP 41, the time period could be abridged to not less than 25 days. Thus the regulation would not be in harmony with NP 41 nor will it be consistent with National Instrument 54-101 which will replace NP 41. (Corporate Law Subcommittee, Ontario Bar Association, Mr. Robert Karp, Torys, and Mr. Donald Gilchrist, Osler Hoskins)
  • The CBCA as amended permits two record dates, one for determining who is entitled to receive notice of the shareholder meeting and another for determining who is entitled to vote at a meeting. Both must comply with the maximum and minimum day requirement but need not be the same date. With respect to shares registered in the name of an intermediary, it is unclear what duty the intermediary has to those who become transferees of beneficial interests between the meeting notice date and the voting notice date. (Corporate Law Subcommittee, Ontario Bar Association)

Response: The policy objective was to harmonize the record dates with provincial securities policies to provide CBCA corporations with greater flexibility. Prescribing a minimum of 35 days, however, has the opposite effect. Accordingly, the minimum number of days has been changed to 21 days which was the minimum in the former regulations and is consistent with other provincial corporate legislation. The prescribed period no longer conflicts with the record dates set out in NP 41.

As for the issue regarding an intermediary's responsibility during the period between the record date for the notice of meeting and the voting notice date, this is an issue that would be best resolved by the Canadian Securities dministrators (CSA) through NP 41 or National Instrument 54-101. Industry Canada has already raised this issue with CSA.

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E. Shareholder Proposals

1. Eligibility threshold (s. 47)

Proposed regulation: To be eligible to submit a proposal, a person must hold, or have the support of persons who hold, 1 percent of the total number of outstanding voting shares of the corporation or the number of shares with a fair market value of $2 000. These shares must be held for at least six months prior to submitting the proposal.

Comments:

  • The limits are too low. A much more significant minimum threshold should be set. (TD Bank Financial Group)
    Comments submitted during Senate hearings for Bill S-19.
  • The limits are too high. There is no evidence that the shareholder proposal mechanism has been abused in the past in Canada. An individual should only have to be an powner of one share. (National Business Law Section, Canadian Bar Association)
    Comments submitted during Senate hearings for Bill S-19.
  • The specified minimum requirements should not represent an economic barrier to small shareholders. The recommended minimum requirements is either a shareholding of 1 percent or at least $1 000. (Michael Jantzi Research Associates Inc.)
    Comments submitted during Senate hearings for Bill S-19.
  • The timing of the fair market value could be at the close of business on the preceding business day. (Ontario Securities Commission)
  • The earlier draft of the regulations provided with Bill S-11 clearly indicated that the eligibility threshold for submitting shareholder proposals clearly indicated that the threshold to apply should be "the lesser of" those prescribed. This clarification was eliminated in the wording in the prepublished version. It is not clear when a shareholder has satisfied the eligibility requirements, despite the use of the word "or" indicating that only one requirement needed to be satisfied. (Shareholders Association for Research and Education, Social Investment Organization)
  • The eligibility threshold regulation should not apply to any pending litigation before the courts upon its coming into force. (Mr. James Smirnois)

Industry Canada's Response: Bill S-11 amended the shareholder provisions in the CBCA to expand shareholders' rights. The prescribed eligibility thresholds address concerns regarding shareholders who have not manifested a genuine stake in the affairs of the corporation. The thresholds are based on the U.S. Securities and Exchange Commission's rules. These restrictions are offset by provisions in the CBCA that allow pooling of shareholder holdings to meet the thresholds. No changes to the prescribed thresholds have been made to the regulation.

The regulation incorporates the suggestion that the timing of valuation be at the close of business on the preceding business day.

The wording of the regulation, in both English and French, is clear that a shareholder has to satisfy one of the two thresholds, i.e. the number of shares equal to 1 percent of total voting shares or whose fair market value is $2 000. It is not necessary to indicate that the lesser of the two thresholds apply.

With respect to the concern raised about the impact of the regulation on pending litigation, it is up to the courts to determine the impact of the regulation once it comes into force.

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2. Resubmission thresholds (s. 52)

Proposed regulation: If substantially the same proposal was submitted previously, the corporation can refuse to include the proposal in the management proxy circular if the minimum amount of support was not achieved within the previous five-year period. The minimum amount is 3 percent of the total number of votes if the proposal was introduced at one annual meeting, 6 percent if the proposal was introduced at two annual meetings, and 10 percent if the proposal was introduced at three or more annual meetings.

Comments:

  • The voting thresholds for resubmission are too low. More reasonable thresholds would be 20 percent in year one, 33 percent in year two and 40 percent in year three. (Coalition for CBCA Reform)
  • The thresholds are too low as they would allow a shareholder to dominate the agendas of meetings year after year. The thresholds should start at 40 percent for the first meeting. Also, the proposed regulation would put an administrative burden on companies to track the status of shareholder proposals year after year. (TD Bank Financial Group)
    Comments submitted during Senate hearings for Bill S-19.
  • The minimum amount of support for a shareholder's proposal, expressed as a percentage of the total number of shares voted, should be calculated as a percentage of the shareholder vote exclusive of that of a controlling shareholder. (Citizen's Council on Corporate Issues)
    Comments submitted during Senate hearings for Bill S-19.
  • Thresholds for resubmission of substantially similar proposals should be calculated as a percentage of the shareholder vote. (Michael Jantzi Research Associates Inc.)
    Comments submitted during Senate hearings for Bill S-19.
  • The resubmission thresholds should be redrafted to more closely reflect the wording in Rule 14a-8 of the General Rules and Regulations promulgated under the U.S. Securities and Exchange Act of 1934 to be more explicit and clear in its meaning and intention. (Shareholders Association for Research and Education)

Industry Canada's Response: The prescribed threshold are unchanged. The minimum support thresholds are based on the United States SEC rule made under the U.S. Securities and Exchange Act of 1934 and the wording used respects the federal government's drafting practices. Though different from the U.S. rule, the wording captures the substance.

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3. Prescribed response time periods (s. 48, s. 54)

Proposed regulations: Once a proposal is submitted, a corporation may request within 14 days that a shareholder provide proof that he or she meets the eligibility requirements. The shareholder has 21 days after the corporation's request to provide that proof. If the corporation refuses to include a proposal in the management proxy circular, the corporation must notify the shareholder in writing of its refusal within 21 days after the receipt by the corporation of the proposal or of proof of ownership.

Comments:

  • Corporations are afforded significantly different periods of time to refuse shareholder proposals (21 days after receipt of proposal or up to 56 days if the corporation demands proof of ownership). The shareholder whose ownership is challenged will have less time to dispute a proposal prior to the annual meeting. Shorter time periods are recommended: 10 days for the corporation to request proof of ownership; 14 days for the shareholder to provide proof of ownership; and 7 days for the corporation to notify shareholder of refusal. (Shareholders Association for Research and Education)

Industry Canada's Response: No changes have been made to the regulations. The time periods were chosen to strike a balance between the needs of the corporation and the person making a proposal. The regulations do not prevent a shareholder from providing proof of ownership at the time the proposal is submitted.

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4. Disclosure in proxy circular (s. 58(z.8))

Proposed regulation: Management proxy circulars that are sent to shareholders must include a statement indicating the final date by which a corporation must receive a proposal that a shareholder proposes to raise at the next annual meeting.

Comments:

  • Bill S-11 changed the latest deadline for submitting proposals from 90 days prior to the anniversary of the preceding annual meeting to 90 days prior to the anniversary of the notice of that meeting. Since this change may create confusion and, the regulations should require corporations to disclose the deadline for submission in their management proxy circular. (National Business Law Section, Canadian Bar Association)
    Comments submitted during Senate hearings for Bill S-19.
  • There is no requirement in the CBCA to provide in the proxy circular a notice to shareholders as to the next deadline for delivery of proposals as is required in the U.S. (Michael Jantzi Research Associates Inc.)
    Comments submitted during Senate hearings for Bill S-19.
  • The requirement that a management proxy circular must include a statement indicating the final date by which the corporation must receive a proposal for the next annual meeting does not assist shareholders if the last proxy circular is distributed before the coming into force of this regulation. It is not clear what shareholders are to be guided by if they wish to submit a proposal at a meeting to be held after the coming into force of Bill S-11. For instance, if the proxy circular sent prior to implementation of the regulations contains no such indication, how will shareholders determine the anniversary date of the previous notice of meeting? There should be a waiting period of at least 1 year during which the provisions of proposed regulation 47 which prescribes the eligibility thresholds for submission of a proposal so that corporations have the opportunity to comply with the requirement to disclose of the final date in their proxy circular. (Mr. James Smirnois)

Industry Canada's Response: The prepublished regulation benefited from these earlier suggestions to require disclosure in the proxy circular of the deadline for submission of shareholder proposals for the following annual meeting.

When Bill S-11 and the regulations come into force, shareholders must comply with the regulations establishing the eligibility thresholds for submission of a proposal. The submission date is determined by the regulation, not by the proxy circular. The date of the previous notice of meeting is public information and can be ascertained without much difficulty. Corporations would be required to disclose the deadline in proxy circulars that are distributed after the coming into force of Bill S-11 and the regulations. Therefore, a waiting period to bring the relevant regulation into force is not necessary.

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5. Word limit (s. 49)

Proposed regulation: The statement supporting the proposal and the proposal must together not exceed 500 words.

Comments:

  • While the word limit for a shareholder proposal is appropriate, the maximum length of the corporation's response to a shareholder proposal should also be limited to a maximum of 500 words. (Michael Jantzi Research Associates Inc.)
    Comments submitted during Senate hearings for Bill S-19.

Industry Canada's Response: This regulation is based on the U.S. rule which contains no such restriction. The regulation remains unchanged.

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F. Proxy Circular

1. Disclosure of financial assistance

Prepublished regulation: The former regulations required corporations to disclose any financial assistance which were permitted under the CBCA. Prior to Bill S-11, corporations were not allowed to provide financial assistance to shareholders, directors, officers and employees except in limited circumstances. These restrictions have been deleted in Bill S-11 and corporations are currently allowed to provide financial assistance. The prepublished regulation did not include any requirements to disclose any financial assistance.

Comment:

  • The repeal of the financial assistance provisions in the CBCA does not remove the need for the shareholders to know about related-party or share-purchase financial assistance to insiders and others. The primary rationale for the repeal of the financial assistance provisions was that adequate protection already exists through the fiduciary obligations imposed on directors. If shareholders and other investors are to properly monitor and police the discharge of these fiduciary obligations, it is imperative that adequate and clear disclosure be made to them of material financial assistance transactions in favour of insiders. The Ontario Securities Act regulations specifically enumerates financial assistance as a disclosure item. (Wayne Gray, McMillan Binch)

Response: The deletion of the financial assistance provisions in the CBCA does not remove the regulatory requirement to disclose any material financial assistance in a proxy circular. The omission of this requirement was not intended and was removed from the proposed regulation because it referred to the deleted financial assistance provisions. The requirement without reference to the deleted sections of the statute has been retained in the regulation.

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2. Disclosure of proxy voting results

Proposed regulation: No disclosure of the results of proxy voting is required in the proxy circular.

Comment:

  • Greater disclosure by corporations of proxy voting results should be required. Such disclosure should be made in proxy information delivered to shareholders prior to the next annual or special shareholder meeting. Specifically, the following information should be disclosed: maximum number of votes eligible; total number of votes cast on each issue; total number of votes rejected on each issue; total number of votes in the affirmative; total number of votes in the negative; and total number of votes withheld (abstained). (Pension Investment Association of Canada)

Response: The proposed changes are material and would require further examination and consultations to ensure that all views are considered. We will examine the feasibility of this issue as a separate initiative.

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3. Dissident proxy circular (s. 69)

Proposed regulation: The draft regulations for Bill S-19 excluded from the definition of "solicitation" communication made to fewer than 16 shareholders.1 The National Business Law Section of the Canadian Bar Association submitted at the Senate hearings that the limit was too restrictive and that other exemptions should be made such as permitting (a) discussions among shareholders of management proposals (similar to the exemption in the United States SEC Rule 14a-2(b)(1) under the U.S. Securities and Exchange Act of 1934); (b) all communications with a view to soliciting proxies through a dissident proxy circular; and (c) furnishing proxy vote advice by a person engaged in the business of proving such advice to a client who is a shareholder. In response, the proposed regulation was broadened so that the conditions under which persons other than management can communicate with shareholders without having to produce a dissident proxy circular are:

  • the communications relate to the affairs of the corporation and no form of proxy has been sent;
  • the communications relate to the organization of a dissident's proxy solicitation; or
  • the person is engaged in the business of providing proxy advice.

Comments:

  • The first condition is circular (not sending out a proxy means one is exempt from having to send out a form of proxy) and should be deleted. This provision would allow shareholders to influence votes so long as a form of proxy has not been sent without meeting any minimum disclosure or dissident proxy requirements. The result is that the underlying purpose of protecting shareholders by making sure they are informed about the identity, background, interests and plans of those who are less formally soliciting their votes will not be realized. (Coalition for CBCA Reform)

Response: Consistent with Bill S-11, the regulation is meant to encourage communication among shareholders. Imposing disclosure requirements would unduly restrict communication. We appreciate the concern about shareholder protection and believe the limitations set out in Rule 14a-2(b)(1) under the U.S. Securities and Exchange Act of 1934 provide adequate safeguards. The regulation has been modified so that it corresponds more closely with the U.S. rule. Specifically, the regulation is clarified so that (1) it does not apply to persons seeking directly or indirectly the power to act as proxy and (2) the following persons are not permitted to engage in communication activities when no form of proxy is sent:

  • a shareholder who is an officer or director of the corporation or who serves in a similar capacity and whose communication is financed directly or indirectly by the corporation
  • a shareholder who is or who proposes a nominee for election
  • a shareholder communicating in opposition to a transaction recommended or approved by the board of directors of the corporation and who is proposing or intends to propose an alternative transaction to which the shareholder or an affiliate or associate of the shareholder is a party
  • a shareholder who would receive a benefit from a decision relating to a matter to be voted on at a shareholders meeting that would not be shared pro rata by all other holders of the same class of shares, other than a benefit arising from the shareholder's employment with the corporation
  • any person acting on behalf of a shareholder described above.

To more closely model the regulation after Rule 14a-2b, certain conditions must be met before a person who renders financial, corporate governance or proxy voting advice can provide proxy voting advice to shareholders. To protect shareholders, these conditions are:

  • the person must disclose to the shareholder any significant relationship with the corporation and any of its affiliates or with a shareholder who has submitted a proposal in accordance with subsection 137(1) of the Act and any material interests the person has in relation to a matter on which advice is given
  • the person receives no special commission or remuneration for furnishing the proxy voting advice from any other person other than a shareholder or shareholders receiving the advice; and
  • the proxy voting advice is not furnished on behalf of any person soliciting proxies or on behalf of a nominee for election as a director.
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4. Form of proxy (s. 55(6))

Proposed regulations: The form of proxy must provide a means for shareholders to indicate how their shares are to be voted for each matter identified in the notice of meeting or in a management proxy circular, dissident's proxy circular or proposal. A form of proxy may confer authority with respect to matters for which a choice is not provided if the form of proxy, management proxy circular or dissident's proxy circular states, in bold-face type, how the proxyholder will vote the shares. This is not a new regulation and exists in the current Canada Business Corporations Regulation.

Comments:

  • The provision allowing a form of proxy not to confer a choice should be repealed to give shareholders the opportunity to vote separately and expressly on each proposal submitted to a shareholders' meeting. (Association de protection des épargnants et investisseurs du Québec Inc.)
    Comments submitted during Senate hearings for Bill S-19.
  • The provision allowing a form of proxy not to confer a choice should be repealed to accord with our recommendation that a proxyholder must be required to vote the share in accordance with the wishes of the shareholder and not at the proxyholder's discretion. Furthermore, the regulations should prohibit the drafting of a proxy form in such a way as to give any advantage over other candidates to candidates put forward by management. (Citizen's Council on Corporate Issues)
    Comments submitted during Senate hearings for Bill S-19.
  • Democracy would be far better served if the shareholder could vote separately for each candidate. The regulations should specify proxy form drafting parameters that would establish the principle of separate vote for each candidate. (Association de protection des épargnants et investisseurs du Québec Inc.)
    Comments submitted during Senate hearings for Bill S-19.

Industry Canada's Response: The proxy form regulations were amended in 1998 to be harmonized with applicable provincial securities legislation. Since our objective is to harmonize as much as possible to reduce compliance costs for CBCA corporations, no changes have been made at this time.

G. Financial Disclosure (s. 71)

Proposed regulations: Financial statements must be prepared in accordance with generally-accepted accounting principles (GAAP) as set out in the Handbook of the Canadian Institute of Chartered Accountants. This is not a new regulation and the requirement exists in the current Canada Business Corporations Regulation.

Comments:

  • This regulation could become an impediment to the work being done by Canadian and U.S. securities regulators and others to either endorse international accounting standards or allow Canadian companies to report based on US GAAP. Greater flexibility should be included by amending the regulation so that distributing corporations can prepare their reports based on any other accounting standards that Canadian securities authorities endorse as acceptable for reporting issuers.(Coalition for CBCA Reform)

Industry Canada's Response: We will review this suggestion after considering the results of the Canadian Securities Administrators' consultations on financial reporting.

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1. When the amendments to the CBCA were retabled as Bill S-11, a new provision was included to allow dissident proxy solicitation to 15 or fewer shareholders. See subsection 150(1.1) of the CBCA. Return to (1)