On February 11, 2013, new amendments to National Instrument 54-101 Communications with Beneficial Owners of Securities of a Reporting Issuer and to National Instrument 51-102 Continuous Disclosure Obligations came into force, providing reporting issuers with a new notice-and-access mechanism to send proxy-related materials to registered holders and beneficial owners of securities (securityholders).
Under notice-and-access, a reporting issuer can now deliver proxy-related materials by:
- posting the relevant information circular and the other proxy-related materials on a website other than Sedar (in addition to filing them on the Sedar website); and
- sending a notice informing securityholders that the proxy-related materials have been posted on the internet, and explaining how to access them, accompanied by the relevant voting document (the notice package).
The amendments also allow a reporting issuer to use notice-and-access to send its annual financial statements and annual MD&A (the annual report).
A bulletin summarizing the amendments was published by our firm on February 1, 2013. The purpose of this second bulletin is to identify the key considerations for an issuer before deciding whether or not to implement notice-and-access.
Notice-and-access can be used by all reporting issuers, other than investment funds, in respect of annual and/or special securityholder meetings taking place on or after March 1, 2013.
It is to be noted that applicable corporate law may restrict an issuer’s ability to use notice-and-access. Below is a summary of the relevant provisions of the Canada Business Corporations Act, the Business Corporations Act (Québec), the Business Corporations Act (Ontario), the Business Corporations Act (Alberta) and the Business Corporations Act (British Columbia). The issuer’s articles and by-laws should also be reviewed before implementing notice-and-access.
Canada Business Corporations Act
The Canada Business Corporations Act provides that management of a corporation cannot solicit proxies unless an information circular is sent to each shareholder whose proxy is being solicited. It also requires a corporation to send a copy of its annual financial statements to each shareholder at least 21 days before each annual shareholder meeting, except to a shareholder who has informed the corporation in writing that he/she does not want a copy of such financial statements. Electronic delivery does not satisfy these requirements, unless the shareholder has consented to such electronic delivery in writing. In addition, the Canada Business Corporations Act provides that shares of a corporation that are registered in the name of an intermediary or its nominee and not beneficially owned by the intermediary must not be voted unless the intermediary sends a copy of the notice of the meeting, financial statements and information circular to the beneficial owner without delay after receipt thereof.
As a result, notice-and-access is currently not available to reporting issuers that are incorporated under the Canada Business Corporations Act. Corporations Canada is aware of this issue and has had a number of discussions with securities regulators and industry participants. Potential solutions include amendments to the act or the regulations adopted thereunder, case-specific exemption orders, a blanket exemption order or a policy statement. However, there is no assurance that any of these solutions will be implemented in time for the 2013 proxy season.
Business Corporations Act (Québec)
The Business Corporations Act (Québec) does not contain any provisions regarding the sending of proxy-related materials or financial statements. Therefore, issuers that are constituted under the Québec act may use notice-and-access without contravening any corporate law requirement, provided the notice used under the notice-and-access provisions in National Instrument 54-101 satisfies the requirements in the act and the company’s articles and/or by-laws in terms of content and method of sending notice of meetings to shareholders.
Business Corporations Act (Ontario) and Business Corporations Act (Alberta)
Like the Canada Business Corporations Act, the Business Corporations Act (Ontario) and the Business Corporations Act (Alberta) permit delivery by electronic means in accordance with applicable electronic commerce legislation, which, in turn, provides that the recipient must consent to such manner of delivery. Although this legislation provides that such consent may be inferred (“from a person’s conduct if there are reasonable grounds to believe that the consent is genuine and is relevant to the information or document”); again, in practical terms, it seems that explicit consent to the use of notice-and-access would also be required from the shareholders of an Ontario or Alberta corporation.
Business Corporations Act (British Columbia)
The Business Corporations Act (British Columbia) provides that notice shall be sent by any manner agreed to by the sender and the recipient, and if none is agreed to, then in the manner required by the articles of the company, and if the articles do not apply, then notice may be sent by mail or delivery, or by fax or by email to the fax number or email address provided by the recipient. Provided the notice used under the notice-and-access provisions in National Instrument 54-101 satisfies the requirements in the act and the company’s articles in terms of content and method of sending notice of meetings to shareholders, notice-and-access generally should be available for use by BC companies in routine meetings.
Issuers intending to use notice-and-access should be aware that the deadline for sending the notice package to securityholders is 30 days prior to the meeting (compared to 21 days for providing paper copies of proxy-related materials), and that an issuer using notice-and-access must set the record date for notice of the meeting at least 40 days before the date of the meeting (compared to 30 days for the traditional approach).
In addition, an issuer using notice-and-access for the first time must file on Sedar a notification of meeting and record dates, indicating that it will be using notice-and-access, at least 25 days before the record date for notice of the meeting, without possibility of abridgment. As a result, the notification must be filed at least 65 days before the meeting date. For subsequent meetings of shareholders for which an issuer wishes to use notice-and-access, this 25-day period can be abridged to three business days.
The requirements set forth above should be taken into account by the issuer when setting a timetable for a securityholder meeting.
The notice package that is to be sent to securityholders can be sent by mail or, if prior consent has been obtained, electronically. In addition, if a transfer agent or other service provider offers an e-delivery method that is distinct from notice-and-access and that is otherwise compliant with securities legislation, such delivery method can continue to be used in conjunction with notice-and-access.
It should also be noted that an issuer that sends proxy-related materials using notice-and-access is prohibited from including in the notice package any information or document that relates to the particulars of any matter to be submitted to the meeting, except for the prescribed information and the annual financial statements and annual MD&A, which may be part of an annual report. Issuers should prepare their securityholder materials accordingly.
The proxy-related materials (and the annual report, if applicable) must be posted on the non-Sedar website on or before the date that the issuer sends the notice package to securityholders, and must remain posted for a one-year period. In addition, the issuer must post on the non-Sedar website any disclosure material regarding the meeting that it has sent to securityholders and any written communications that it has made available to the public regarding the matters to be voted on at the meeting (e.g., a press release).
The materials must be posted in a manner and be in a format that permit an individual with a reasonable level of computer skill and knowledge to access, read and search the documents on the website, and download and print the documents. For example, requiring the securityholder to navigate through several web pages to access the materials would likely not meet these standards. In addition, an issuer must not collect information that can be used to identify a person who has accessed the website address where the proxy-related materials are posted (no “cookies” can be used).
The choice of the non-Sedar website is at the issuer’s discretion, provided that the selected website complies with the requirements described above. For example, an issuer could post the proxy-related materials to its own website, or use the website of a service provider retained in connection with the meeting, such as a transfer agent, printer or investor communications firm. Obviously, an issuer that uses the website of a service provider will remain fully responsible for fulfilling its obligations and for the conduct of the service provider in this regard, and therefore due diligence should be conducted by the issuer to validate the quality and reliability of the service offering.
Paper Copies; Toll-Free Number
When using notice-and-access, a toll-free telephone number must be provided for use by the securityholder to request a paper copy of the information circular (and the annual report, if applicable) at any time from the date that the issuer sends the notice package up to and including the date of the meeting, including any adjournment.
If a request is received at the toll-free telephone number or by any other means, a paper copy of the relevant document must be sent free of charge by the issuer to the person making such a request. If the request is received prior to the date of the meeting, the relevant document must be sent by first class mail (equivalent of Canada Post Lettermail), courier or the equivalent within three business days after receiving the request. If the request is received on or after the date of the meeting, and within one year of the information circular being filed, then the relevant document must be sent by prepaid mail, courier or the equivalent within 10 days after receiving the request. An issuer that receives a request must not ask for any information about the person making such a request, other than the name and address to which the relevant document is to be sent, and must not disclose or use such name or address for any purpose other than sending the relevant document.
An intermediary may implement operational procedures to obtain standing instructions from a beneficial owner that is a client of the intermediary to the effect that a paper copy be sent in all cases when an issuer uses notice-and-access. If an intermediary chooses to implement such procedures, it will be required to request appropriate quantities of paper copies from the issuer, when sending materials to beneficial owners on behalf of the issuer, and to identify standing instructions in the list of non-objecting beneficial owners (NOBOs) provided to the issuer, when the issuer is sending materials directly to NOBOs, and the issuer will be required to give effect to the standing instructions obtained by the intermediary. An issuer may also implement similar operational procedures to obtain standing instructions from registered securityholders, but is not required to implement such procedures or to give effect to standing instructions from registered securityholders if it has not taken steps to obtain them.
When preparing for a securityholder meeting, an issuer intending to use notice-and-access should ensure that it has printed a sufficient number of paper copies to satisfy demand and that it has established the appropriate procedures to receive and process requests for documentation within the prescribed time periods. The toll-free telephone number does not need to be dedicated solely to receiving these requests, and therefore an issuer could use its general toll-free telephone number. An issuer could also use a service provider, but will remain fully responsible for fulfilling its obligations and for the conduct of the service provider in this regard.
It is also possible for an issuer to use “stratification” (i.e., include paper copies of the information circular and the annual report, if applicable, with the notice package for certain types of securityholders, while sending to others only the notice package). An issuer that uses stratification will be required to disclose that fact (including the stratification criteria that it is applying) in the notification of meeting and record dates to be filed on Sedar, the notice package to be sent to securityholders and the information circular for the meeting.