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Global rules on foreign direct investment (FDI)
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
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Canada | Publication | March 2022
Amendments to the Canada Business Corporations Act (CBCA) related to the election of directors and shareholder proposals will come into force this summer. These changes are the latest in a series of CBCA amendments to take effect in the past several years.
As of August 31, 2022, the following amendments to the CBCA will be in effect:
Annual Elections with a Separate Vote for Each Candidate
Directors of public CBCA corporations will need to be elected on an individual and annual basis. Currently, the CBCA allows directors to be elected as part of a slate and for up to a three-year term. The TSX already requires annual elections and individual rather than slate voting. However, the amendments will result in a change for some TSXV- and CSE-listed issuers, as those stock exchanges permit staggered elections and slate voting as long as shareholders agree to such provisions.
Majority Voting for Directors in Uncontested Elections
Where there is only one candidate nominated for each position available on the board, shareholders will be able to vote “for” or “against” each nominee director (instead of “for” or “withhold” under the current system), and each nominee director must receive a majority of “for” votes to be elected. Further, if a nominee director does not receive a majority of “for” votes, they may not be appointed a director by the board before the next annual meeting of shareholders, except if necessary to ensure the board has the requisite number of resident Canadians or independent directors.
Under current TSX requirements, directors must offer to resign if they not receive a majority of “for” votes, but the board has the option of not accepting such resignation in “exceptional circumstances.” The amendments remove this discretion. The amendments will also result in changes for many TSXV- and CSE-listed issuers since they are not currently required to follow a majority voting standard.
Note that if an incumbent director fails to obtain a majority of “for” votes at the shareholder meeting, that director may be able to continue as a director for a transition period of up to 90 days following the meeting.
Shareholder Proposals
The amendments and draft regulations change the timeframe for a shareholder to submit proposals to a CBCA corporation to between 90 to 150 days before the anniversary of the last annual shareholder meeting (instead of a deadline of 90 days prior to the anniversary date of the notice of the last AGM). This change will make the deadline clearer and allow shareholders to submit proposals closer to the date of the AGM. Those corporations who choose to disclose the deadline for next year’s proposals in their current circular should take note of this change as they finalize their circulars for their 2022 meetings.
Other amendments to the CBCA related to corporate governance and shareholder communications are still not in force and we do not expect them to be in force for at least another year:
With respect to the amendments related to notice-and-access and delivery of financial statements, Corporations Canada had advised back in May 2018 that it would take approximately 18 to 24 months before the amendments would be fully in force. They were obviously delayed, but we have not received an updated timeline. The corporate governance amendments are more substantial, as they could result in significant changes for corporations, particularly as regards “well-being” disclosure. Corporations Canada undertook a consultation process for those amendments in the first quarter of 2021. Given the potential extent of the changes and the fact that we have not yet seen draft regulations, we do not anticipate that these changes will be in effect prior to the 2024 shareholder meeting season.
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Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
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