CBCA Reforms Receive Royal Assent

Progress towards amending the Canada Business Corporations Act continues with Bill C-25 receiving Royal Assent on May 1. The amendments are aimed, in part, at greater alignment between the CBCA and Canadian securities laws, TSX rules and certain international best practices. Key reforms affecting public CBCA corporations are diversity disclosure, majority voting requirements and internet posting of meeting materials (notice-and-access).

Timing of Implementation

The regulations under Bill C-25 are still in draft form and are expected to be finalized in the next 18-24 months. Market participants may provide comments on the draft regulations to Corporations Canada using the contact information in the Explanatory Note on Proposed Regulatory Amendments.¹ Next steps are for the Department of Justice to consult on the regulations, possibly resulting in revisions; the regulations will then be published in the Canada Gazette, along with a Regulatory Impact Analysis Statement; market participants may then review and comment on the regulations as published in the Gazette. Only after these steps are completed will the regulations be finalized and proclaimed into force.

Depending on the ultimate timing of the process, CBCA corporations will likely be required to comply with the new diversity disclosure and majority voting requirements in the 2020 or 2021 meeting season. However, notice-and-access may, if desired, be used for delivering meeting materials in the meantime—see below for details.

Diversity Disclosure

Consistent with global trends, the federal government is aiming to increase diversity on boards of directors and among senior management. The draft CBCA regulations impose diversity disclosure requirements under a "comply-or-explain" model consistent with Canadian securities laws. However, while Canadian securities laws have been focused solely on the underrepresentation of women, the draft CBCA regulations require disclosure addressing enumerated categories derived from Canada's Employment Equity Act, namely women, visible minorities, aboriginal people and people with disabilities. Also in contrast to securities laws, the draft CBCA regulations do not contemplate any exemption for venture issuers.

Under the draft CBCA regulations, public CBCA corporations would be required to disclose

• the number and percentage of women, visible minorities, aboriginal people and people with disabilities on the board of directors and in executive officer positions;
• whether the issuer has adopted a written policy in respect of diversity relating to the enumerated categories on the board of directors;
• the extent to which diversity relating to the enumerated categories is taken into account when nominating directors and appointing executive officers; and
• whether targets have been adopted for women, visible minorities, aboriginal people and people with disabilities on the board and in executive officer positions.

Many corporations' existing diversity policies already address race, religion, ethnicity, sexual orientation and other diversity categories. The CBCA regulations would not mandate that corporations amend their policies, but disclosure would have to be made specifically in respect of the enumerated categories. The required diversity disclosure would appear in a corporation's proxy circular or other document provided to shareholders in connection with its annual meeting.

Majority Voting

Key features of the draft CBCA majority voting regulations are as follows:

• Shareholders would be able to vote "for" or "against" each director, and a director would not be elected if he or she failed to receive majority support at an uncontested meeting. (This is stricter than the TSX rule, under which a director receiving less than majority support must immediately tender his or her resignation but, in exceptional circumstances, the board may decline to accept the resignation.)
• An incumbent director who fails to receive majority support could remain in office until a successor is appointed or elected, up to a maximum of 90 days after the meeting. (This is more lenient that the TSX rule, which requires a director to resign immediately.)
• The board would not have discretion to re-appoint the director, unless necessary to satisfy the Canadian residency requirement or the requirement that at least two directors not be officers or employees of the corporation.

Internet Posting of Meeting Materials (Notice-and-Access)

The notice-and-access regime under securities laws permits meeting materials, including the information circular, financial statements and MD&A, to be posted on an issuer's website, with only the notice of meeting and voting card being delivered to shareholders. The draft CBCA regulations are consistent with this, so CBCA corporations would no longer need an exemption from the Director to adopt notice-and-access.

Until now, many CBCA corporations have not used notice-and-access because the Director's legislative power to grant an exemption covered only the information circular delivery requirement; the financial statement delivery requirement remained. With Royal Assent, the legislation has broadened the Director's powers, so corporations may seek a complete exemption from the physical delivery requirements pending finalization of the regulations. Corporations Canada has indicated that exemptions should be applied for at least 60 days in advance of the delivery deadline for meeting materials.

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¹ See http://www.ic.gc.ca/eic/site/cd-dgc.nsf/eng/cs07274.html.

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