As we reported in our bulletins of February 1 and 14, 2013, new amendments to National Instrument 54-101 Communications with Beneficial Owners of Securities of a Reporting Issuer (NI 54-101) and to National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) came into force on February 11, 2013, providing reporting issuers with a new notice-and-access mechanism allowing them to post proxy-related materials, annual financial statements and annual MD&A on a website instead of mailing them to registered holders and beneficial owners of securities.
Our first bulletin summarized the amendments and our second bulletin identified key considerations, including corporate law restrictions applicable to issuers incorporated federally or under Québec, Ontario, Alberta or British Columbia corporation statutes, for issuers deciding whether or not to implement notice-and-access.
The purpose of this third bulletin is to report the recent guidance provided by Corporations Canada and provincial securities regulators with respect to corporate law restrictions.
Canada Business Corporations Act
As discussed in our February 14, 2013 bulletin, reporting issuers that are incorporated under the Canada Business Corporations Act (CBCA) cannot implement notice-and-access without obtaining the appropriate exemption or the prior written consent of each shareholder.
Shortly after the publication of our bulletin, Corporations Canada confirmed that notice-and-access provides shareholders with sufficient disclosure to support an application for an exemption from the requirement to send the prescribed management proxy circular to each shareholder whose proxy is solicited. However, it noted specifically that its statutory authority to grant exemptions does not extend to the requirement to send financial statements to shareholders nor to the requirements applicable to intermediaries such as securities dealers or trust companies. Therefore, even if they apply for and obtain an exemption from Corporations Canada to use notice-and-access to post proxy-related materials, reporting issuers will need to send paper copies of their annual financial statements and annual MD&A to shareholders that have not consented to the contrary in writing. Corporations Canada took no position as to the effect of an exemption granted to an issuer on the duties of an intermediary under the CBCA.
The time required to obtain an exemption should be taken into account by reporting issuers that are incorporated under the CBCA when setting a timetable for a shareholder meeting using notice-and-access. The legal fees to be incurred in connection with the application for exemption, and the unavailability of the notice-and-access procedure for the sending of the annual financial statements and annual MD&A to shareholders, should also be considered before deciding whether or not to implement notice-and-access.
Business Corporations Act (Québec)
As discussed in our February 14, 2013 bulletin, notice-and-access is compatible with the Business Corporations Act (Québec).
Business Corporations Act (Ontario)
On February 28, 2013, the Ontario Securities Commission issued OSC Staff Notice 54-702 Notice-and-access: Interaction with National Policy 11-201 Electronic Delivery of Documents and the Ontario Business Corporations Act to provide guidance to reporting issuers incorporated under the Business Corporations Act (Ontario) (OBCA). OSC Staff expressed the view that it is not necessary for OBCA reporting issuers to obtain exemptive relief from the OSC under Section 113 of the OBCA in order to use notice-and-access in compliance with NI 51-102 and NI 54-101, each as amended effective February 11, 2013, for meetings taking place on or after March 1, 2013.
The OBCA requires a corporation to send proxy-related materials to registered shareholders and to send annual financial statements and auditor’s report to registered shareholders who have informed the corporation that they wish to receive a copy of those documents, but those provisions of the OBCA do not apply to beneficial owners. OSC Staff noted that the definition of “send” in the OBCA reads “includes deliver and mail” (underlining added). Accordingly, OSC Staff concluded that the definition is broad enough to permit electronic delivery, including the procedures contemplated by notice-and-access.
The OBCA also provides that a document or notice “may” be sent by mail, by personal delivery, or by electronic means in accordance with the Electronic Commerce Act, 2000 (ECA). OSC Staff observed that the ECA states that a recipient cannot be required to use or accept a document in electronic form without his or her consent, but in the view of OSC Staff, under notice-and-access a shareholder is not required to use or accept the electronic form of a proxy circular (or related materials) since shareholders have the option of requesting a paper copy at no cost to the shareholder. Further, although the ECA states that posting of information or documents to a website does not constitute provision of the information or document, under notice-and-access by mailing the notice package to shareholders, issuers do more than merely post to a website.
The way appears to be open for OBCA corporations to consider the use of notice-and-access.
Business Corporations Act (Alberta)
There have been no pronouncements by Alberta regulators on the use of notice-and-access by corporations incorporated under the Business Corporations Act (Alberta).
Business Corporations Act (British Columbia)
Again, as noted in our bulletin of February 14, 2013, notice-and-access should be available for use by BC companies in routine meetings, provided that the notice used under notice-and-access satisfies the requirements of the Business Corporations Act (British Columbia) and the company’s articles in terms of content and method of sending notice of meetings to shareholders.