Legal Update: “Notice-and-Access” Rules in Effect for Spring 2013 AGM Season
January 25, 2013
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Securityholder meetings held on or after March 1, 2013 will be eligible for “notice-and-access” rules allowing reporting issuers to post proxy-related materials, annual financial statements and management’s discussion and analysis to a website rather than requiring them to mail this information to securityholders. As the AGM season approaches, issuers should consider whether they can use these rules to reduce the costs of printing and mailing proxy-related materials, and what they need to do now to use the rules in the future:
- Issuers should review corporate and other legal requirements to determine whether they restrict or prevent an issuer’s use of the notice-and-access rules. In particular, a corporation governed by the Canada Business Corporations Act (CBCA) cannot use notice-and-access rules for 2013 meetings unless it previously obtained the consent of shareholders in compliance with the CBCA; issuers who have not obtained this consent should seek it in preparing the materials for their 2013 shareholder meetings if they want to use notice-and-access in 2014.
- Issuers planning to use notice-and-access must plan far enough in advance to meet the filing deadlines – at least 65 days before the meeting date is required, compared to 55 days under the current regime.
On November 29, 2012, the Canadian Securities Administrators (CSA) announced the adoption of amendments to National Instrument 54-101 – Communication with Beneficial Owners of Securities of a Reporting Issuer, National Instrument 51-102 – Continuous Disclosure Obligations (NI 51-102), and certain related policies and forms. These amendments:
- provide for a “notice-and-access” mechanism for the proxy-related materials, annual financial statements, and management’s discussion and analysis (MD&A) that reporting issuers are required to send to registered holders and beneficial owners of securities;
- aim to enhance disclosure of the voting process for beneficial owners; and
- simplify the process for appointing beneficial owners as proxy holders.
The amendments will generally come into force on February 11, 2013; certain amendments are to be implemented on February 15, 2013. Notice-and-access will only be available for meetings occurring on or after March 1, 2013.
Notice-and-access allows reporting issuers (other than investment funds) to deliver proxy-related materials and, in certain circumstances, annual financial statements and MD&A, by:
- posting them to a website other than SEDAR; and
- sending a notice informing securityholders that it has posted the materials and how the securityholders can access the materials.
A summary of the key features of the notice-and-access rules for securityholder meetings is as follows:
- Notice-and-access may be used for annual meetings, special meetings, meetings requisitioned by securityholders and dissident proxy solicitations.
- The record date for notice of a securityholder meeting must be at least 40 days before the meeting.
- When an issuer uses notice-and-access for the first time, it must file a notification of both the meeting and the record date for the meeting at least 25 days before the record date. However, the issuer can abridge this notification period to three business days before the record date for each subsequent meeting for which the issuer uses notice-and-access.
- Issuers must send a notice package to securityholders with a notice and the relevant voting document (form of proxy or voting instruction form) at least 30 days before the meeting. The issuer can deliver a notice package by mail or electronically in accordance with applicable legal requirements. The notice itself must:
- contain basic information about the meeting and the matters to be voted on;
- explain how to obtain paper copies of the materials (including annual financial statements and MD&A, if applicable); and
- explain the notice-and-access process in plain language.
Issuers who, pursuant to NI 51-102, elect to send annual financial statements and MD&A to all securityholders within 140 days after the issuer’s financial year-end can do so using the notice-and-access mechanism. The alternative annual request mechanism for annual financial statements and MD&A will continue to be available under NI 51-102.
The notice-and-access rules provide issuers with an additional method for delivering proxy-related materials and annual financial statements and MD&A. However, issuers must also comply with applicable corporate and other legal requirements for delivery of these materials.
Other Related Amendments
In addition to introducing notice-and-access rules, the amendments will effect two additional, related changes:
- Enhanced Disclosure of Voting Process. Issuers’ information circulars must provide enhanced disclosure about the voting process, including whether the issuer:
- is using notice-and-access;
- is sending proxy-related materials directly to non-objecting beneficial owners; and
- intends to pay for an intermediary to deliver proxy-related materials and a voting instruction form to objecting beneficial owners and, if not, a statement that objecting beneficial owners will not receive these materials unless their intermediary assumes the cost of delivery.
- Proxy Appointments of Beneficial Owners. The amendments simplify the process to appoint beneficial owners as proxy holders, making issuers and intermediaries responsible for these appointments if instructed to do so by the beneficial owner. Any such appointment will include the authority to vote on all matters that may come before the relevant meeting, subject to any prohibitions under corporate law.
Considerations For Issuers Wishing To Use Notice-And-Access
An issuer interested in making use of the new notice-and-access rules must take into account the following two key factors:
- whether it is restricted or prevented from doing so by corporate or other legal requirements; and
- the timeline necessary to plan for a securityholder meeting in order to comply with the lengthier deadlines required under the new rules.
First, issuers considering using notice-and-access must determine whether applicable corporate and other legal requirements respecting the delivery of proxy-related materials, annual financial statements, and MD&A are consistent with the notice-and-access regime. If they are inconsistent, the issuer may be restricted or even prevented from using the notice-and-access rules. A significant example of a legal requirement that is inconsistent with the notice-and-access rules is the CBCA. Corporations governed by the CBCA must obtain a shareholder’s consent to send documents in electronic form. Thus, CBCA issuers cannot use notice-and-access to deliver documents to a shareholder unless and until it has obtained that shareholder’s consent to do so. As a result of this restriction, a CBCA issuer is, practically, unable to use notice-and-access rules for 2013 shareholder meetings unless it previously obtained consent.
Second, issuers interested in using notice-and-access for an upcoming securityholder meeting, and which have obtained the required consent of securityholders (or are not required to obtain consent), must begin to plan sufficiently far in advance to meet the deadlines under the new rules. Under the new rules, issuers using notice-and-access for the first time must file the notification of the meeting and record date at least 25 days before the record date – or 65 days before the meeting date when combined with the record date requirements. Without considering any additional time required for intermediaries to send the notice package to beneficial owners of securities or the abridgement of the timing for notification of the meeting and record date, the sample timeline below illustrates the timing differences between the notice-and-access rules and the current regime:
In light of these factors, we recommend:
- Issuers interested in using notice-and-access rules carefully review the applicable corporate and other legal requirements to determine whether any such requirements restrict or prevent them from using the new rules.
- CBCA issuers which have not obtained shareholder consent consider now whether they wish to use notice-and-access in 2014 or beyond and, if so, seek such shareholder consent when preparing materials for their 2013 shareholder meetings.
- Issuers wishing to use notice-and-access and that have obtained any necessary consent (or which do not require it) plan far enough in advance to meet the filing deadlines under the notice-and-access rules.
Please contact your McInnes Cooper lawyer or any member of our McInnes Cooper Corporate Finance & Securities Team if you have any questions about this topic or any other legal issue.
McInnes Cooper has prepared this document for information only; it is not intended to be legal advice. You should consult McInnes Cooper about your unique circumstances before acting on this information. McInnes Cooper excludes all liability for anything contained in this document and any use you make of it.
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