Bill C-25 Proposes Amendments to the Canada Business Corporations Act and the Competition Act

Securities

10/18/2016       By Frank DeLuca

On September 28, 2016, the Government of Canada tabled Bill C-25 for first reading. The Bill includes proposed amendments (the Amendments) to, among others, the Canada Business Corporations Act (the CBCA) and the Competition Act.

The CBCA

If the Amendments are passed, the CBCA would undergo its most comprehensive changes since 2001. The principal changes proposed in the Amendments include the following:

Corporate governance:

  • Diversity disclosure: Certain CBCA corporations would be required to place before their shareholders at every annual meeting certain “prescribed information” relating to diversity among the directors and members of senior management;
  • Shareholder communications: Broader means of electronic communications would be permitted to provide notice of meetings and online access to relevant documents; and
  • Corporate transparency: All shares and share warrants would be required to be in registered form (i.e., there would be a prohibition on the issuance and use of bearer shares and bearer share warrants).

Exceptions to the Amendments may be given to certain “prescribed” corporations or in certain “prescribed” circumstances; however, such “prescribed” items will be outlined in revised CBCA regulations, which have not yet been published.

Corporate Governance

Election of Directors

Under the Amendments, distributing corporations would be required to elect directors at each annual meeting for a term ending no later than the next annual shareholders’ meeting (i.e., one year). An exception would be allowed for “any prescribed class of distributing corporations” or “in any prescribed circumstances respecting distributing corporations,” in which case elections could be held every three years, in accordance with the current CBCA regime.

For certain “prescribed corporations,” the Amendments would also require that a separate vote of shareholders be taken with respect to each candidate nominated for director. This Amendment would effectively eliminate the use of slate voting, which is currently permitted under the CBCA.

Majority Voting

The Amendments propose that where the number of director candidates is the same number as the number of positions to be filled (i.e., an uncontested director election), each candidate would need to receive a majority of the votes to be elected. The CBCA currently permits election of directors by plurality voting, under which the candidate receiving the most votes wins.

In the event that a director does not receive a majority of the votes cast pursuant to the Amendments, he or she could not be appointed as a director to fill any vacancy until the next annual shareholders’ meeting, except in “prescribed circumstances”.

Diversity Disclosure

Certain diversity disclosure initiatives have been proposed in the Amendments, with the objective of increasing women’s representation, as well as diversity, on corporate boards and in senior management.

The Amendments would require that directors of “prescribed corporations” place certain “prescribed information” respecting the diversity of the corporation’s directors and “members of senior management” (as such terms will be defined in the revised regulations) before the shareholders at every annual meeting. This information would be required to be sent along with the notice of meeting, unless a shareholder has informed the corporation in writing that he or she does not want to receive such information.

This Amendment helps to align CBCA corporations with Canadian securities regulations. However, based on the current wording of the Amendments, it remains unclear whether the CBCA will mirror the “comply or explain” approach imposed in the securities regime, or whether it will develop a new approach.

Shareholder Communications

Although electronic distribution of information from a corporation to its shareholders has been permitted since 2001, the Amendments are intended to facilitate greater communication among participants in the corporate governance process. Although the exact detail is yet to be set out, the release notes to the Amendments indicate that CBCA corporations would be permitted to make use of a “notice and access” system, which may allow corporations to use electronic communications (e.g., a company’s website) to provide notice of meetings and online access to relevant documents. The Amendments also clarify the date for shareholders to submit a proposal to the board (i.e., within the “prescribed period”).

Corporate Transparency

Certain corporate transparency amendments have been proposed in the Amendments, with the objective of reducing regulatory burden and increasing business certainty. This Amendment clarifies that all shares and share warrants will be required to be in registered rather than bearer form.

The Competition Act

In an effort to modernize the application of the affiliate definition to apply to a wider range of non-incorporated business structures, the Amendments substitute the neutral term “entity” in many provisions that to date have only included corporations. The definition of “entity” reads to include a partnership, sole proprietorship, trust or other unincorporated organization capable of conducting business.

What’s Next

Regulations, once published, will provide more context to the application and implications of a number of the Amendments. To take effect, the bill will need to be passed by federal lawmakers, which may include references to parliamentary committees. As a result, the bill could be enacted as is, be enacted with further changes or be abandoned. In addition, through its 2014 public consultations, the Canadian government identified a number of other corporate governance issues that require further analysis. This may mean that further proposed changes could follow.

For further information regarding this matter, please contact Frank DeLuca, Stefanie Sebanc or any other member of the Securities Group.