Advance Notice By-Law 2.0

Advance notice by-laws are a long-standing, commonly accepted corporate governance tool in Canada. In 2012, our Special Situations Team successfully defended the first challenge to advance notice requirements in Northern Minerals Investment Corp. v. Mundoro Capital Inc., where the court confirmed the validity of such requirements. Since then, advance notice by-laws and policies have been viewed as critical to serving the following governance purposes:  

• to promote orderly shareholder meetings and election contests; 
• to enable boards to make informed recommendations on director nominees; 
• to prevent “stealth” nominations and proxy contests; and 
• to ensure all shareholders are provided with the opportunity to vote in an informed and timely manner. 

Today, more than a thousand Canadian issuers have adopted advance notice requirements as a good governance practice. Independent proxy advisory firms, including Institutional Shareholder Services and Glass Lewis & Co., LLC, generally support the adoption of such requirements so long as they do not contain nomination windows and/or disclosure requirements that are unduly burdensome.

Recent developments in advance notice by-laws and policies

Over the last decade, we have seen a maturation in the activism landscape in North America, including the increased frequency of activist campaigns seeking board changes as a means of influencing and effecting change at an issuer, and the broadened pool and increased sophistication of market participants involved in such activist campaigns. 

In the United States, advance notice by-laws have evolved significantly to address recent case law and other modern practicalities relating to contested shareholder meetings, including recent high-profile challenges of various provisions in so-called third-generation advance notice by-laws. 

One such challenge was the Delaware Court of Chancery decision in Kellner v AIM ImmunoTech Inc. in 2023, and the related appeal in 2024, which described the evolution of advance notice by-laws and provided guidance on various common provisions included therein. Many of the impugned provisions formulated in AIM ImmunoTech’s advance notice by-laws were found to be overly broad. Nevertheless, the court affirmed in part the valid objectives of such provisions when properly drafted. In endorsing the two primary functions of prescribing (i) the timing of notices of nominations, and (ii) the disclosure of basic information of the nominating stockholder and its nominees, the court acknowledged that advance notice by-laws have evolved to better serve these functions.  

The common form of advance notice by-laws adopted by Canadian issuers has largely remained unchanged for over a decade – despite advancements and developments in other jurisdictions. 

Recommended updates

To ensure that advance notice by-laws continue to achieve their proper objectives, our Special Situations Team recommends the following key updates to the form of Canadian advance notice by-laws (Advance Notice By-Law 2.0):

Extending the nomination period 

Advance Notice By-Law 2.0 extends the deadline for giving notice of a director nomination, from the current 30 days, to 60 days prior to the date of the annual meeting of shareholders. 

Practitioners can likely appreciate that the current deadline of 30 days prior to the annual meeting is simply too short. Securities law requirements and logistical lead-time relating to printing and mailing of proxy materials mean that, practically, issuers have to finalize their director nominees and proxy circular well ahead of the nomination deadline.  

The proposed 60-day pre-annual meeting deadline is intended to strike the right balance between (a) maintaining an issuer’s ability to review, evaluate and react to a nomination notice, including any disclosure to be included in its proxy circular, and comply with the timing requirements to mail its proxy materials, and (b) not unduly restricting a shareholder’s ability to rely on the advance notice nomination process to put forward a director nominee by, for example, having to comply with more stringent timing requirements under a corporate law shareholder proposal regime. 

Disclosure related to the nominee director  

Advance Notice By-Law 2.0 clarifies the disclosure required to be included in the nomination notice for the nominee directors. Specifically, the nomination notice should include information on: 

• whether proposed nominees are being provided financial or monetary compensation for their service as a director or nominee; and
• whether proposed nominees are required to act or vote in a certain manner pursuant to an agreement, arrangement, understanding or commitment with any other person. 

Such disclosure helps ensure that issuers and shareholders receive the information necessary to assess whether there is any “material relationship” between a proposed nominee and any other person that could reasonably be expected to impact a proposed nominee’s ability to act in accordance with the fiduciary duties of a director. 

Disclosure related to the nominating shareholder  

Advance Notice By-Law 2.0 also clarifies the disclosure required to be included in the nomination notice for the nominating shareholders. Specifically, the nomination notice should include information on:

• any agreement, commitment, arrangement or understanding between a nominating shareholder and any other person that pertains to the nomination of a proposed nominee or to the future service of a proposed nominee as a director;
• any other person known by the nominating shareholder to financially or otherwise materially support the nomination of a proposed nominee; and
• any proxy, agreement, commitment, arrangement, understanding or relationship pursuant to which the nominating shareholder has a right to vote any of the issuer’s voting shares. 

Such disclosure helps ensure that issuers and shareholders receive information on any de facto nominating shareholder and any known support for the proposed nominee. The legitimacy of these provisions in advancing the proper objectives of advance notice by-laws has been recognized in recent US decisions. 

For additional insights about Advance Notice By-law 2.0, watch our webinar on demand. For further inquiries or to request a copy of the full text of Advance Notice By-law 2.0, reach out to a member of our Special Situations Team.