CSA propose "notice and access" shareholder communication model

Mihkel E. Voore and Ramandeep Grewal

As we discussed in our post of April 9, the Canadian Securities Administrators (CSA) have recently published much-anticipated proposals to amend National Instrument 54-101 Communication with Beneficial Owners of Securities of a Reporting Issuer (NI 54-101), which would give issuers the option to post proxy-related materials on a non-SEDAR website under a “notice-and-access” model. The proposed amendments aim not only to facilitate communication with shareholders, but also include amendments intended to increase the overall efficiency and equity among key players involved in the securityholder communication process.

Notice-and-access

Specifically, the proposed amendments would allow a reporting issuer to distribute proxy related materials to shareholders in one of three ways: (a) by sending paper copies by prepaid mail, courier or the equivalent; (b) by providing notice-and-access for any meeting that is not a special meeting; or (c) any other delivery method to which the beneficial owner consents. To rely on the notice-and-access option, which is proposed to be available only for non-special meetings, the issuer would be required to send a “notice” informing beneficial owners that proxy-related materials have been posted and explaining how to access them. If the issuer is also seeking voting instructions, the notice must be sent together with a voting instruction form by prepaid mail, courier or the equivalent method, or by any other method previously consented to by the beneficial owner as required under NI 54-101, at least 30 days prior to the meeting date. The issuer would also be required to send a news release at the same time containing the same information as the notice and, if notice-and-access is being used for some but not all beneficial shareholders, an explanation of why. Public electronic access to the information circular and other proxy-related materials must be provided on the same day as the reporting issuer sends the notice to beneficial owners by filing the proxy-related materials on SEDAR and by posting them on a non-SEDAR website. Once posted, the materials must remain posted until the next annual meeting for that issuer. The issuer must also provide a toll-free telephone number that shareholders can call to request a paper copy of the information circular and must fulfill any requests so received within three business days. It should be noted that the responsibility to fulfill requests for paper copies rests with the issuer and not the intermediary. While the notice-and-access option would seem to result in greater efficiency with respect to sending meeting materials and may be employed selectively to communicate with some but not all beneficial owners, it is only proposed in respect of meetings that are not special meetings. The proposed process may also affect the timing of meetings given the requirement to send the notice at least 30 days in advance of the meeting date. 

The proposed amendments also contain certain protective provisions, including prohibitions restricting issuers that are contacted for paper copies from obtaining information other than the name and address to which the material is to be sent and from disclosing or using the name or address for any purpose other than sending the requested material. The issuer must also not use any means to post proxy-related materials that would enable the issuer to identify a person or company that has accessed the website address where the proxy-related materials are located. The proposed amendments make it clear that a beneficial owner may consent to the use of other delivery methods for receiving proxy-related materials. Issuers are reminded, however, that in such cases National Policy 11-201 Delivery of Documents by Electronic Means would apply to such consents being obtained from beneficial owners.

The US Securities and Exchange Commission (SEC) introduced its own notice-and-access process effective January 2009, which, while similar to the CSA process, has some notable differences. Among others, (i) notice-and-access would not be mandatory for reporting issuers under the CSA proposal; (ii) the relevant voting instruction form (Form 54-101F6 or Form 54-101F7) must be sent with the initial notice; and (iii) the reporting issuer is responsible for fulfilling requests for paper copies of information circulars, not the intermediary. The CSA proposal also maintains certain basic differences in beneficial owner communication procedures, including the option for reporting issuers to send proxy-related materials and solicit voting instructions directly from non-objecting beneficial owners (NOBOs) and to choose not to pay for intermediaries to forward proxy-related materials and voting instruction forms to objecting beneficial owners (OBOs). Given these differences, SEC issuers would be able to satisfy their NI 54-101 obligations with respect to beneficial owners by complying with the US notice-and-access process.

Appointment of proxy holders by beneficial owners

In addition to providing a notice-and-access option for distribution of materials, the proposed amendments also aim to simplify the process for appointing proxy holders on behalf of beneficial owners. While intermediaries and reporting issuers would still be required to arrange to appoint the beneficial owner as proxy holder at the beneficial owner’s request, intermediaries and issuers would be given greater flexibility to determine the specific arrangements pursuant to which the appointment may be made. For example, the currently used “appointee system” option would be expressly permitted, allowing the beneficial owner to print the beneficial owner’s name, or the name of its appointee, on the voting instruction form, which would in turn be recorded on a cumulative proxy to be provided to the meeting scrutineer.

New information circular disclosure requirements

The proposed amendments also require additional disclosure to be included in management information circulars in specified circumstances. For example, if the issuer chooses not to pay for intermediaries to send proxy-related materials and a voting instruction form for use by intermediaries to OBOs, the proposed amendments require management of the reporting issuer to disclose this fact in the circular and to disclose that it is the OBO’s responsibility to make arrangements with his or her intermediary to exercise his or her voting rights. This leaves open the possibility of differential treatment of shareholders and, in the absence of payment by the issuer, that OBOs will not receive proxy-related materials. The proposed amendments also require management of the reporting issuer to disclose and discuss why, if applicable, the reporting issuer is using notice-and-access selectively in respect of some but not all beneficial owners.

In addition to the above changes, the proposed amendments also include new prohibitions on the use of NOBO information by third-parties as well as certain technical amendments and, if approved, will result in consequential amendments to National Instrument 51-102 Continuous Disclosure Obligations, Form 51-102F5 Information Circular and National Policy 11-201 Delivery of Documents by Electronic Means. According to the CSA, the proposed amendments are intended to improve the beneficial owner communication procedures, keeping in mind principles of equal treatment among registered and beneficial securityholders, efficiency and equality and clarity of the obligations of all parties involved in the securityholder communication process. The proposals have been published for a 144-day comment period expiring on August 31, 2010.

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