In September 2012, we reported that the Supreme Court of British Columbia had rendered a judgment (the Mundoro affair) confirming that a corporate policy imposing an advance nomination process for a shareholders' meeting was reasonable and did not infringe the shareholders' rights relating to the election of the corporation's directors ("Advance Notice Policy"). We concluded at the time that Advance Notice Policies are a tool that can prevent nominations in cases where they might be enforced by ambush or by proxy contest. Nine months later, we notice that Advance Notice Policies have been adopted by numerous Canadian public corporations and that proxy advisory firms such as Institutional Shareholder Services Inc. have widely supported their implementation.
You can find a copy of a more detailed article on this matter by following this link.
Furthermore, since many Canadian public corporations are still seeking to put in place other responsible defences against proxy contests, we wanted to share with you that Canadian Oil Sands Limited and other Canadian public corporations recently adopted "Enhanced Quorum By-Laws", in addition, to Advance Notice Policies, at their respective annual and special shareholders' meetings. Enhanced Quorum By-Laws require a minimum of two shareholders holding at least a majority of the issued and outstanding common shares (an "Enhanced Quorum") to be present or represented by proxy at any meeting at which a shareholder will be seeking to replace half or more of the board of directors, before the meeting can be held and business validly transacted.
The Enhanced Quorum By-Law that was recently adopted by Canadian Oil Sands Limited can be viewed in the corporation's Management Information Circular by following this link.
This is different from the more standard practice among issuers with respect to quorum at shareholders' meetings, which is generally 10% of the shareholders, represented in person or by proxy. The Enhanced Quorum requirement is intended to ensure the enfranchisement of all the shareholders and that a material number of shares are represented at shareholders' meetings, where such a fundamental change to the business and strategic direction of a corporation may occur. Enhanced Quorum By-Laws have recently been adopted by at least four Canadian public corporations.
An Enhanced Quorum would provide a better framework to shareholders for exercising their fundamental right to make significant changes to the board of directors of a public corporation. In the absence of an Enhanced Quorum for the transaction of business at any meeting where the Enhanced Quorum is required, those present and entitled to vote will constitute a quorum for the purpose of (i) conducting all business other than for the election of directors, and (ii) the adjourning of such meeting. The meeting may be adjourned no more than twice for an aggregate of no more than 65 days. If an Enhanced Quorum is not present at the opening of the second adjourned meeting, if any, those shareholders present and entitled to vote at that adjourned meeting will constitute quorum for the transaction of business, including the election of directors, at the adjourned meeting.
Many mining corporations whose activities are located in the Plan Nord territory were recently found in situations where nominations of directors were made through proxy fights or ambush. Like Advance Notice Policies, Enhanced Quorum By-Laws appear to be yet another answer to shareholder activism, which has been growing and trending in Canada. Similarly to Advance Notice Policies, Enhanced Quorum By-Laws will particularly benefit junior issuers.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
