June 12, 2018
The Canada Business Corporations Act (CBCA) is catching up with the times. On May 1, 2018, amendments to the CBCA proposed in Bill C-25, An Act to amend the Canada Business Corporations Act, the Canada Cooperatives Act, the Canada Not-for-profit Corporations Act, and the Competition Act, received Royal Assent. Originally proposed in September 2016, the CBCA amendments introduce changes to the corporate governance regime of federally-regulated corporations by attempting to harmonize their legal corporate governance framework with that of their provincially-regulated counterparts and existing securities laws. The changes align with the changing face of the Canadian market and focus on three key areas: diversity disclosure, director elections and shareholder communication. Not all of the amendments are in effect yet and it could be several years before they are, so CBCA corporations likely won’t need to comply with some of the new requirements immediately. But becoming fully compliant will take time, and boards will benefit from starting to plan for them now:
Here are three key areas in which the amendments, though not yet in effect, will modernize the CBCA – and federally-regulated public corporations.
The face of Canada’s population is changing. That diversity is reflected in many facets of the corporate world – but not yet the facet of corporate governance. The CBCA amendments seek to remedy that by imposing obligations on directors of “prescribed corporations” to give to shareholders specific information about diversity among its directors and members of senior management. These diversity disclosure requirements go beyond the gender disclosure obligations that Canadian securities laws impose on non-venture reporting issuers by extending disclosure to “designated groups”, defined to include “designated groups” per the Employment Equity Act which includes women, Aboriginal Peoples, persons with disabilities and members of visible minorities, and making diversity disclosure mandatory for venture reporting issuers. The CBCA will define “members of senior management” by reference to the definition of “executive officers” in National Instrument 51-102 – Continuous Disclosure Obligations, which includes the CEO, CFO, President, Chair, or any other individual who performs policy-making functions for the corporation. Adopting a “comply or explain” model, reporting issuers must provide the information prescribed by Items 10 to 15 of Form 58-101F1 under National Instrument 58-101 – Disclosure of Corporate Governance Practices, including:
The amendments strengthen shareholder democracy, promote directors’ accountability to shareholders and introduce checks on the power of corporate boards.
Corporations will be allowed to use electronic communication as the primary means of providing proxy materials and financial statements to shareholders. This will reduce expenses by eliminating the circulation of copious amounts of documentation to shareholders and effectively align the CBCA regulations respecting distribution with those of the provincial securities regulators. Currently, securities regulators permit public companies to deliver meeting materials to shareholders electronically by way of notice-and-access (that is, filing the documents online on SEDAR). However, this option practically isn’t available to CBCA companies due to a number of technical requirements the CBCA imposes, such as the requirement to obtain shareholders’ express written consent before sending electronic materials. Where deemed appropriate by the directors, the new amendments also allow for corporations to seek full exemption from the delivery of documents if they have already filed with any of the securities regulators documents containing similar information.
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