This article is sponsored by Fasken Ottawa.
Many corporations are in the process of calling annual shareholders’ or members’ meetings. Traditionally, public, private and not-for-profit corporations, governed under the Canada Business Corporations Act (CBCA), Business Corporations Act (Ontario) (OBCA) and Canada Not-for-profit Corporations Act (CNCA), have held in-person annual meetings; however, in the context of the COVID-19 pandemic, corporations are adopting virtual and hybrid annual meeting alternatives to meet their corporate and regulatory requirements. This article provides recent developments and trends in the area to provide a roadmap to corporations navigating this process as of early April 2020.
Federally incorporated businesses under the CBCA
No timeline relief provided
For businesses incorporated under the CBCA, Corporations Canada announced that corporations are expected to call an annual shareholders’ meeting within 15 months from the previous annual meeting and within six months after the corporation’s previous financial year. For the corporation’s first shareholder meeting, the annual meeting must be called within 18 months of the corporation coming into existence.
For corporations that cannot meet the timelines and are unable to hold virtual or hybrid meetings, as described below, the CBCA provides that a court of competent jurisdiction may order a meeting to be called, held and conducted in a manner that the court directs. A court order can vary timing, vary or waive applicable quorum requirements, or allow a corporation to provide notice to shareholders within a shorter timeframe or via a different format.
It is important to note that there are restrictions imposed on court activities as a result of COVID-19 which differ from one judicial district to another. Court activities may be limited to strictly urgent matters and such matters may be dealt with via telephone conferences only, rather than in-person hearing. An application for a court-ordered meeting or extension of time is likely to be deemed urgent in light of the ongoing proxy season.
Virtual or hybrid meetings permitted and encouraged
Corporations Canada has encouraged corporations to use technology to conduct a virtual or hybrid annual shareholders’ meeting.
Under the CBCA, corporations may hold a virtual meeting if permitted by the corporation’s by-laws. A virtual meeting is a meeting entirely conducted through telephonic, electronic or other communication facilities that permit all participants to communicate adequately with each other during the meeting. All participants join into the meeting through a digital channel.
If the corporation’s by-laws prohibit, or are silent, on holding virtual meetings, the board of directors may amend the by-laws to permit a virtual meeting to be held. The amendment will be effective until the next shareholders’ meeting, when shareholders can confirm or reject the by-law amendment. Corporations may also opt to hold a hybrid meeting.
Unlike virtual meetings, the corporation’s by-laws do not need to expressly permit, as long as the by-laws do not prohibit, a hybrid meeting. Hybrid meetings are conducted with participants attending the meeting in-person at a physical location and with other participants attending through the means of telephonic, electronic or other communication facilities. Participants attending the meeting through digital channels must be able to communicate adequately with each other during the meeting. In the circumstances of a hybrid meeting, shareholders and proxyholders will be strongly discouraged from attending the meeting in-person and will be encouraged to vote in advance.
For both virtual or hybrid meetings, shareholders and proxyholders will be permitted to vote where the meeting process complies with statutory and regulatory requirements on proper verification, voting procedures, tallying and confidentiality requirements.
Federally not-for-profit corporations under the CNCA
Authorized delays already permitted in legislation
The CNCA permits not-for-profit corporations incorporated thereunder to apply for an extension of time for calling an annual meeting. Generally, not-for-profit corporations under the CNCA are expected to call an annual shareholders meeting within 15 months from the previous annual meeting and within six months after the corporation’s previous financial year (or for the corporation’s first shareholder meeting, within 18 months of the corporation coming into existence).
To apply for an extension, Corporations Canada has provided a reminder to not-for-profit corporations to email the director at IC.corporationscanada.IC@canada.ca at least 30 business days prior to the date on which the corporation would send out the notice for calling the annual meeting. The director under the CNCA will evaluate applications on a case-by-case basis, on any terms that the director under the CNCA thinks fit, to determine whether the members would be prejudiced by the extension. Extensions are generally effective for one financial year.
Virtual or hybrid meetings also permitted and encouraged
Corporations Canada has also encouraged not-for-profit corporations to engage in virtual or hybrid meetings where possible and where the corporation’s by-laws provide for such meetings. The CNCA has similar provisions to those under the CBCA in respect of holding virtual and hybrid meetings (see above).
Corporations incorporated under the OBCA
Emergency order permitting extension
On March 31, 2020, the Ontario government published Ontario Regulation 107/20 under the Emergency Management and Civil Protection Act (the “Order”). The Order includes a temporary suspension of the existing timeline for annual shareholders meetings for businesses incorporated under the OBCA. Ordinarily, annual meetings must be called within 15 months from the previous annual meeting (or for the corporation’s first shareholder meeting, within 18 months of the corporation coming into existence) under the OBCA. The Order now permits the following extensions:
- If the corporation’s annual meeting falls during the state of emergency declared on March 17 , 2020, the corporation may delay the holding of its annual meeting up to 90 days from the date following the termination of the state of emergency.
- If the corporation’s annual meeting falls during the 30 days following the state of emergency, the corporation may delay the holding of its annual meeting up to 120 days from the date following the termination of the state of emergency.
We note the difference in language between the OBCA and the Order. The OBCA requires the corporation to “call” an annual meeting while the Order provides an extension for the last day an annual shareholder meeting can be “held.” As such, it may be prudent to read the Order conservatively as generally requiring the board to “hold” the annual meeting within the 15- (or 18-) month period, as applicable.
Emergency order permitting virtual or hybrid meetings despite by-laws
The Order also temporarily permits virtual or hybrid meetings to be held despite the corporation’s by-laws stating the contrary. Ordinarily, under the OBCA, virtual meetings are permitted where:
- the meeting is held by telephone or electronic means;
- the shareholders can vote at the meeting or the shareholders can communicate with one another; and
- the by-laws do not expressly state otherwise.
Under the Order, OBCA corporations that have by-laws that expressly prevent a meeting by electronic means will be temporarily of no effect.
Any virtual meeting is deemed to be held at the corporation’s registered office. The CBCA does not contain a similar provision. The OBCA specifically provides that a meeting of shareholders may be held by telephonic or electronic means, and a shareholder who, through those means, either votes at the meeting or establishes a communications link to the meeting is deemed to be present. The CBCA also provides that a person participating in a meeting by electronic means is deemed for the purposes of the CBCA to be present at the meeting.
Other guidance on annual meetings for reporting issuers
Extensions from the Toronto Stock Exchange and TSX Venture Exchange
Subject to applicable legislation, the Toronto Stock Exchange (TSX) and the TSX Venture Exchange (TSXV) are permitting all issuers to hold their 2020 annual meeting by Dec. 31, 2020, regardless of their fiscal year end date. The TSX and TSXV ordinarily require an issuer to hold an annual meeting for its shareholders within six months from the end of its fiscal year. Issuers do not need to submit a Form 9 to receive this extension.
It is important to note that issuers must comply with their applicable corporate statute and constating documents, as noted above, which may or may not provide for a similar extension.
CSA guidance on notice requirements for virtual/hybrid meetings
On March 20, 2020, the Canadian Securities Administrators (CSA) announced that issuers contemplating a virtual or hybrid meeting in place of a traditional annual meeting are expected to:
- notify all relevant participants (including securityholders, proxyholders, market participants) in a timely manner; and
- provide the same type of notice to beneficial owners as registered holders.
Reporting issuers who are currently in the process of preparing proxy-related materials should include in the proxy-related materials clear instructions on attendance and participation in the annual meeting such as how to obtain remote access, how to participate and how to vote in the meeting.
Additionally, reporting issuers involved in proxy contests, holding special meetings for merger and acquisition transactions, or obtaining securityholder approval for transactions under Multilateral Instrument 61-101 Protection of Minority Securityholders in Special Transactions should contact their principal regulator to discuss what steps would be appropriate in those circumstances.
If a reporting issuer’s proxy-related materials have already been filed, the reporting issuer must:
- issue a news release announcing the change in the date, time or location of the annual meeting;
- file the news release on SEDAR; and
- inform all parties involved in the proxy-voting process of the change.
The CSA has announced that there is no need to solicit or update proxy-related materials if the reporting issuer is only changing the date, time or location of its in-person annual meeting. However, issuers should act promptly once the corporation decides to make such changes and issuers should publish a press release sufficiently in advance of the annual meeting.
Corporations interested in virtual or hybrid meetings should review their by-laws and other constating documents to ensure that there are no legal barriers to holding a virtual or hybrid meeting or to make amendments, if appropriate. Public corporations should also ensure that adequate disclosure and timely notice is provided to securityholders and beneficial owners related to attendance and participation in a virtual or hybrid annual meeting.
Virginia Schweitzer is a partner in the Fasken Ottawa office. As a leading corporate and M&A lawyer, she has provided counsel to technology and mining clients across North America for IPOs, private placements, mergers and acquisitions, and to not-for-profit corporations on corporate governance issues. Virginia can be reached at VSchweitzer@fasken.com
Karen Cheung is an articling student in the Fasken Ottawa office. She graduated from the University of Ottawa, Faculty of Law. During law school, Karen competed in the Donald G.H. Bowman Tax Moot, volunteered as a caseworker for Ecojustice (Ottawa) and was a student editor for the Canadian Journal of Women and the Law. She can be reached at firstname.lastname@example.org