Proposed amendments to securities legislation regarding communications with beneficial security holders

July 2011 Authors: Christine Dubé, Tracey Kernahan

Contacts

On June 17, 2011, the Canadian Securities Administrators (CSA) issued for public comment further proposals to amend National Instrument 54-101 Communication with Beneficial Shareholders of Securities of a Reporting Issuer and related policies and instruments (the Revised Proposals) to introduce a “notice-and-access” system for delivery of security holder meeting materials. The Revised Proposals follow an earlier public consultation by the CSA in 2010 to introduce such a system to simplify the delivery of proxy-related materials and voting instructions to beneficial security holders (the Original Proposals). Comments on the Revised Proposals must be submitted to the CSA by August 16, 2011.

Modifications to notice-and-access mechanism

The notice-and-access mechanism would allow reporting issuers to file proxy-related materials (i.e., all material relating to a meeting required by law) on SEDAR and post such materials on a non-SEDAR website (usually the reporting issuer’s website). A key change from the Original Proposals is the option to use the notice-and-access method for both special and general meetings of issuers other than investment funds. The Original Proposals only allowed the use of the notice-and-access method for general meetings.  Under the Revised Proposals, reporting issuers may still choose to continue to deliver such materials by mail, and beneficial owners will be entitled to request delivery of a paper copy of the information circular at the reporting issuer’s expense.

To prevent security holder confusion, the Revised Proposals require that a reporting issuer who wishes to use the notice-and-access mechanism must provide advance notice to its security holders of this intention not less than three months or more than six months before the expected date of its security holder meeting. An issuer must also distribute a news release and post information regarding notice-and-access on a website other than SEDAR. In addition, proposed use of the mechanism would have to be included in the notification of meeting and record dates prescribed by NI 54-101.

Under the Revised Proposals, reporting issuers must send a notice package to all beneficial security holders which contains plain-language information about the notice-and-access method. This plain-language explanation was not proposed in the Original Proposals, but the CSA now think that security holders should have this basic information.  Security holders may provide standing instructions to receive a copy of the information circular in the notice material.  Previously, a security holder could only request a copy after the notice material was sent out. All security holders must receive the same basic notice package, except when a security holder has requested a paper copy of the information circular. The documents included in the notice package must be filed on SEDAR and posted on an issuer’s website no later than the day that the reporting issuer sends the notice package.

Specific timelines for forwarding the notice materials to proximate intermediaries are now proposed. Materials must be sent by prepaid mail, courier or the equivalent.  If by first-class mail, courier or the equivalent, the notice must be sent three business days before the 30th day before the date fixed for the meeting. If prepaid mail other than first class is used, the period is extended to four business days before the relevant date.

If a holder requests a paper copy of the information circular prior to the date of the meeting, the circular must be sent by first-class mail, courier or the equivalent within three business days of the request. If the request is received on or after the date of the meeting, and for a period of one year after the information circular has been filed, the issuer must send the circular by prepaid mail, courier or the equivalent within 10 calendar days of the request.

Under the Revised Proposals, paper copies of the information circular would have to be included with a notice package where the annual report is requested and sent as part of proxy-related materials.

SEC issuers

The Original Proposals exempted SEC issuers who use the US notice-and-access system prescribed by the SEC from the obligation to deliver proxy-related materials to Canadian beneficial owners. Now, only SEC issuers with a limited Canadian presence would be able to benefit from this exception.

Simplification of the beneficial owner proxy appointment process

Before the Revised Proposals, a beneficial owner who wished to vote at a security holder meeting had to instruct his or her intermediary or the issuer to appoint him or her as proxy holder. The intermediary and issuer were then responsible for arranging the appointment of the beneficial owner as proxy holder. To simplify the process, the Revised Proposals state that the beneficial owner would be given authority to attend, vote, and otherwise act for, and on behalf of, an intermediary or the issuer, in respect of all matters that may come before the meeting and at any adjournment or continuance.

The Original Proposals required an intermediary to deposit any proxy appointing a beneficial owner as a proxy holder within any time specified under corporate law for the deposit of proxies (the proxy cut-off).  This requirement has now been limited and applies only where the instructions are obtained from the beneficial owners at least one business day before the proxy cut-off.

A copy of the request for comments can be accessed here.

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