The Canada Business Corporations Act (CBCA) will be amended effective August 31, 2022 (Amendments) to require shareholders of a public company governed by such legislation to vote “for” or “against” directors at annual meetings of shareholders. This is a departure from the “for” and “withhold” options previously offered to CBCA public company shareholders. Subject to certain exceptions, the Amendments also contemplate that each director in an uncontested election (i.e., where the number of director nominees is equal to the number of directors positions to be filled) must receive more “for” votes than “against” votes to be elected.

Conversely, Canadian securities laws¹ will still require that proxies provide securityholders with the option to vote “for” or “withheld” in respect of the election of directors. This creates a potential discrepancy between corporate and securities law requirements. While public companies are exempt under securities laws from the requirement for proxies to have “for” and “withheld” voting options if the company complies with the laws relating to the solicitation of proxies under the governing corporate legislation of the company, there has not been clear guidance as to whether this applies to the CBCA as we note that one provincial securities regulator has indicated to the authors that proxies should still include a “withhold” option following August 31, 2022.

The Canadian Securities Administrators (CSA) have yet to comment whether deference will be given to the CBCA, and more specifically, whether the “against” requirement under the CBCA may be sufficient to satisfy the “withhold” requirement under securities laws. Unless and until such comfort is provided, public CBCA companies will need to decide how best to comply with these somewhat conflicting requirements. One option for such companies to ensure compliance with the requirements of both corporate and securities laws is to have proxies prepared for any post August 31, 2022 shareholder meeting that contemplates the election of directors to include options to vote “for”, “against”, and “withhold”, notwithstanding that “against” and “withhold” votes will have identical application. Public companies governed by the CBCA may also consider allowing shareholders to vote “for” and “against/withhold” (combining the latter two options). However, before proceeding with a hybrid “against/withhold” option, such companies should contact their transfer agent and intermediary (i.e., Broadridge) to determine whether all requisite parties are able to accommodate this option.

If CBCA public companies pursue the three separate options (i.e., “for”, “against”, and “withhold”), this approach could confuse investors as to whether “against” and “withhold” mean different things, and also leaves potential exposure for the intent of the CBCA to be defeated. For illustrative purposes, a director may receive 4,000,000 “for” votes, 3,000,000 “against” votes, and 2,000,000 “withheld” votes. Such director may take the position that they were duly elected, as the number of “for” votes was greater than the number of “against” votes (and the CBCA does not speak to how “withhold” votes should be considered) and thus they were validly elected. As such, and until such time as the CSA issues a statement to address this discrepancy, CBCA public companies should consider adopting a majority voting policy that mirrors the requirements of the CBCA but which specifies that a director is only elected if the number of “for” votes exceeds the aggregate of “against” and “withhold” votes.

Takeaways and looking ahead

We expect that over the coming period, unless exemptive relief is applied for and obtained (which doesn’t seem practical based on the corresponding time and expense), or until the CSA issues a blanket order, there will be some uncertainty for CBCA public companies as to how best to comply with the different rules. We may see a variety of approaches taken, including three options, two options with the combined “against/withhold”, or an option where others may take a more aggressive stance that “against” is the same as “withhold” provided that adequate disclosure is made. We also note that while these changes only apply to CBCA companies, and there are no proposed amendments to other provincial or territorial statutes that the authors are aware of, such as the Business Corporations Act (Ontario), time will tell if any of the provincial or territorial statutes may be changed in a similar manner. Finally, while the Toronto Stock Exchange (TSX) has its own majority voting requirement for TSX listed companies, those rules generally defer to the corporate statutes, and thus, should not be affected by the Amendments.

Should you have any questions about the Amendments, please do not hesitate to contact co-authors Ben Iscoe, Ora Wexler, Alex Farcas, Jason Saltzman or any member of Dentons Canada’s Securities and Corporate Finance group.

1. Section 9.4(6) of National Instrument 51-102 – Continuous Disclosure Obligations.