Vol. 142, No. 22 — May 31, 2008

Regulations Amending Certain Department of Industry Regulations

Statutory authority

Canada Business Corporations Act and Canada Cooperatives Act

Sponsoring department

Department of Industry

REGULATORY IMPACT
ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Issue and objectives

Ensure that the Canada Business Corporations Regulations, 2001 (CBCR) and Canada Cooperatives Regulations (Coop Regulations) requirements for forms of proxy and proxy circulars are aligned with provincial and territorial corporate and securities law requirements, as set out in the relevant parts of National Instrument 51-102 — Continuous Disclosure Obligations. In addition, correct errors, such as language, in the CBCR and Coop Regulations sections related to forms of proxy and proxy circulars. Further, assist the Government in meeting its target of reducing paper burden on small business by 20%.

Description and rationale

The Canada Business Corporations Act (CBCA) currently requires all distributing corporations and non-distributing corporations with more than 50 shareholders to solicit proxies from their shareholders before each shareholder meeting. The solicitation for proxies must be accompanied by a form of proxy and a management proxy circular that meets the requirements of the CBCR. Similarly, the Canada Cooperatives Act (Coop Act) requires cooperatives that have issued investment shares to solicit proxies from shareholders with an accompanying form of proxy and a management proxy circular that meets the requirements of the Coop Regulations. According to both acts, any person other than the management of the corporation or cooperative must send a dissident proxy circular to shareholders if that person solicits proxies from more than 15 shareholders. Currently, the requirements in the CBCR and Coop Regulations concerning forms of proxy and proxy circulars are based on the provincial and territorial corporate and securities law requirements of the 1980s and 1990s.

However, on March 30, 2004, the National Instrument 51-102 — Continuous Disclosure Obligations was established by the Canadian Securities Administrators (CSA) [the provincial and territorial securities commissions]. Regulators from each province and territory play a role in the CSA, which is primarily responsible for developing a harmonized approach to securities regulation across the country, particularly through the creation of national instruments. By collaborating on rules, regulations and other programs, the CSA helps avoid duplication of requirements and streamlines the regulatory process for companies seeking to raise investment capital and others working in the investment industry. The use of national instruments agreed upon by all members of the CSA ensures that the regulatory requirements spelled out in the instrument are identical in all provinces and territories.

As a result of National Instrument 51-102 — Continuous Disclosure Obligations, the requirements under the CBCR and the Coop Regulations now need to be updated to ensure alignment and harmonization with National Instrument 51-102. National Instrument 51-102 — Continuous Disclosure Obligations updates the disclosure requirements partially in response to changes in global corporate governance standards, including enhancements to transparency and increasing accountability of corporations towards investors and shareholders.

Incorporating the relevant sections of National Instrument 51-102 — Continuous Disclosure Obligations directly into the CBCR and Coop Regulations ensures that the federal and provincial/territorial requirements remain harmonized. Currently, differences in the requirements cause unnecessary burden for corporations resulting in an inefficient use of resources. For distributing corporations, even minor differences can increase the cost of providing the form of proxy and the proxy circular since the corporation must adhere to both federal and provincial/territorial requirements.

In Advantage Canada (November 2006) and in the 2007 and 2008 Budgets, the Government committed to reducing the regulatory and paper burden on business, particularly small- and medium-sized enterprises, by 20% before November 2008. These regulatory amendments to the CBCR and Coop Regulations are part of that reduction. By replacing the current requirements concerning the form of proxy and proxy circulars with references to the relevant portions of National Instrument 51-102 — Continuous Disclosure Obligations the federal corporate law requirements will be harmonized with the provincial and territorial corporate and securities law requirements. This lack of harmonization has a cost for businesses that must adhere to both the federal corporate law rules and the provincial securities law rules. By harmonizing the federal and provincial rules in this area, duplication and regulatory burden on corporations will be reduced.

For non-distributing corporations, the objective is to maintain the high standard of corporate disclosure that is expected of CBCA corporations while reducing the administrative and paper burden on small Canadian businesses. This is accomplished by requiring non-distributing corporations to use the generally accepted corporate governance disclosure rules that are well known for Canadian corporations, but exempting non-distributing corporations from requirements that could be considered too onerous and not required by the marketplace (i.e. Item 8 — Executive Compensation, 9 — Securities Authorized for Issuance under Equity Compensation Plans and 10 — Indebtedness of Directors and Executive Officers of Form 51-102F5 (Information Circular). The benefit of disclosure is seen as minimal and is far outweighed by the cost of that disclosure.

There are also amendments to address errors in the wording and language of the regulations that have been found by various stakeholders and the Standing Joint Committee of the Senate and House of Commons for the Scrutiny of Regulations. These amendments include clearer links to the section of the Act that relates to the regulatory provision; and differences between the English and French language in various sections.

Consultation

In November 2007, approximately 20 letters were sent to a group of corporate lawyers requesting their views on replacing the proxy circular requirements in the CBCR and Coop Act with the relevant requirements in National Instrument 51-102 — Continuous Disclosure. We received five responses, including one from the Canadian Bar Association, all of which supported the proposal. However, the responses suggested that Item 8 — Executive Compensation, 9 — Securities Authorized for Issuance under Equity Compensation Plans (i.e. stock options) and 10 — Indebtedness of Directors and Executive Officers of Form 51-102F5 (Information Circular) should not apply to non-distributing corporations because the requirements would be too onerous on them and there is no marketplace demand for such disclosure. The suggestion has been considered and the proposed amendments exempt non-distributing corporations from the requirements of Items 8 to 10 of Form 51-102F5 (Information Circular).

Implementation and Enforcement

Corporations Canada will inform corporations and their legal counsel about the changes in the requirements for proxy circulars.

There is already a compliance procedure in place to address forms of proxies and proxy circulars. Corporations Canada’s compliance and enforcement strategies are based on rigorous risk-management and resource management. In accordance with this approach, alleged contraventions of proxy solicitation and proxy requirements are considered on a case-by-case basis. The Director appointed under the CBCA exercises his discretion to pursue an allegation of non-compliance by balancing his role in protecting the public interest and preserving the integrity of the Act with his responsibility to ensure that public resources are used appropriately. This is consistent with the self-enforcing principle underlying the CBCA. There will be no need to make changes to these compliance procedures, except that the staff responsible for ensuring compliance will need to be trained about the new requirements.

Contact

Coleen Kirby
Corporations Canada
Industry Canada
Jean Edmonds Tower South, 10th Floor
365 Laurier Avenue W
Ottawa, Ontario
K1A 0C8
Telephone: 613-941-5720
Fax: 613-941-5781
Email: kirby.coleen@ic.gc.ca

PROPOSED REGULATORY TEXT

Notice is hereby given that the Governor in Council proposes to make the annexed Regulations Amending Certain Department of Industry Regulations pursuant to

(a) section 261 (see footnote a) of the Canada Business Corporations Act (see footnote b); and

(b) section 372 (see footnote c) of the Canada Cooperatives Act (see footnote d).

Interested persons may make representations with respect to the proposed Regulations within 30 days after the date of publication of this notice. All such representations must cite the Canada Gazette, Part I, and the date of publication of this notice, and be addressed to Coleen Kirby, Department of Industry, Corporations Canada, Jean Edmonds Tower South, 10th Floor, 365 Laurier Avenue West, Ottawa, Ontario K1A 0C8 (tel.: 866-333-5556 or 613-941-5720; fax: 613-941-5781; e-mail: kirby.coleen@ic.gc.ca).

Ottawa, May 15, 2008

MARY PICHETTE
Assistant Clerk of the Privy Council

REGULATIONS AMENDING CERTAIN DEPARTMENT OF INDUSTRY REGULATIONS

CANADA BUSINESS CORPORATIONS ACT

CANADA BUSINESS CORPORATIONS REGULATIONS, 2001

1. Section 1 of the Canada Business Corporations Regulations, 2001 (see footnote 1) is amended by adding the following in alphabetical order:

“NI 51-102” means National Instrument 51-102 of the Canadian Securities Administrators, entitled Continuous Disclosure Obligations, and known in French as Règlement 51-102 sur les obligations d’information continue, published in both official languages on December 19, 2003, as amended from time to time. (Règlement 51-102)

2. Sections 54 to 62 of the Regulations are replaced by the following:

54. (1) For the purpose of subsection 149(1) of the Act, a form of proxy shall be in the form provided for in section 9.4 (Content of Form of Proxy) of NI 51-102.

MANAGEMENT PROXY CIRCULAR

55. (1) Subject to subsection (3), a management proxy circular shall be in the form provided for in Form 51-102F5 (Information Circular) of NI 51-102, which form, in the circumstances described in Item 8 of Part 2 of that Form, includes the statement referred to in that Item.

(2) A management proxy circular shall also set out the following:

(a) the percentage of votes required for the approval of any matter that is to be submitted to a vote of shareholders at the meeting, other than the election of directors;

(b) a statement of the right of a shareholder to dissent under section 190 of the Act with respect to any matter to be acted on at the meeting and a brief summary of the procedure to be followed to exercise that right;

(c) a statement, signed by a director or an officer of the corporation, that the contents and the sending of the circular have been approved by the directors; and

(d) a statement indicating the final date by which the corporation must receive a proposal for any matter that a person entitled to vote at an annual meeting proposes to raise at the next annual meeting.

(3) A management proxy circular for a non-distributing corporation is not required to set out the information provided for in Part 1(c) or Item 9, 10 or 16 of Part 2 of Form 51-102F5 (Information Circular) of NI 51-102, or the statement referred to in Item 8 of Part 2 of that Form.

56. For the purpose of subsection 150(2) of the Act, the prescribed form of statement that shall accompany the copy of the management proxy circular to be sent to the Director under that subsection is a statement signed by a director or an officer of the corporation, to the effect that a copy of the circular has been sent to each director, to each shareholder whose proxy has been solicited and to the auditor of the corporation.

DISSIDENT’S PROXY CIRCULAR

57. A dissident’s proxy circular shall be in the form provided for in Form 51-102F5 (Information Circular) of NI 51-102, which form, in the circumstances described in Item 8 of Part 2 of that Form, includes the statement referred to in that Item.

3. Subsection 64(2) of the Regulations is replaced by the following:

(2) For the purpose of subsection 150(2) of the Act, the prescribed form of statement that shall accompany the copy of the dissident’s proxy circular to be sent to the Director under that subsection is a statement signed by the dissident or a person authorized by them, to the effect that a copy of the circular has been sent to each director, to each shareholder whose proxy has been solicited, to the auditor of the corporation and to the corporation.

4. Section 65 of the Regulations and the heading before it are repealed.

5. The portion of paragraph 68(1)(c) of the French version of the Regulations before subparagraph (i) is replaced by the following:

c) elle est adressée aux actionnaires en qualité de clients et elle est faite par une personne qui, dans le cours normal de ses activités, dispense des conseils financiers ou des conseils sur la gouvernance d’entreprise ou le vote par procuration, mais elle traite de conseils sur le vote par procuration et la personne :

6. Subsection 69(1) of the Regulations is replaced by the following:

69. (1) For the purpose of subsection 150(1.2) of the Act, the prescribed circumstances are those in which the solicitation conveyed by public broadcast, speech or publication sets out the information provided for in Items 3.2, 3.4, 5(b) and 11 of Part 2 of Form 51-102F5 (Information Circular) of NI 51-102.

7. Schedules 3 and 4 to the Regulations are repealed.

CANADA COOPERATIVES ACT

CANADA COOPERATIVES REGULATIONS

8. Section 1 of the Canada Cooperatives Regulations (see footnote 2) is replaced by the following:

1. The following definitions apply in these Regulations.

“Act” means the Canada Cooperatives Act. (Loi)

“NI 51-102” means National Instrument 51-102 of the Canadian Securities Administrators, entitled Continuous Disclosure Obligations, and known in French as Règlement 51-102 sur les obligations d’information continue, published in both official languages on December 19, 2003, as amended from time to time. (Règlement 51-102)

9. Sections 24 to 31 of the Regulations are replaced by the following:

24. For the purpose of subsection 165(1) of the Act, a form of proxy shall be in the form provided for in section 9.4 (Content of Form of Proxy) of NI 51-102.

MANAGEMENT PROXY CIRCULAR

25. (1) Subject to subsection (3), a management proxy circular shall be in the form provided for in Form 51-102F5 (Information Circular) of NI 51-102, which form, in the circumstances described in Item 8 of Part 2 of that Form, includes the statement referred to in that Item.

(2) A management proxy circular shall also set out the following:

(a) the percentage of votes required for the approval of any matter that is to be submitted to a vote of shareholders at the meeting, other than the election of directors;

(b) a statement of the right of a shareholder to dissent under section 302 of the Act with respect to any matter to be acted on at the meeting and a brief summary of the procedure to be followed to exercise that right; and

(c) a statement, signed by a director or an officer of the cooperative, that the contents and the sending of the circular have been approved by the directors.

(3) A management proxy circular for a non-distributing cooperative is not required to set out the information provided for in Part 1(c) or Item 9, 10 or 16 of Part 2 of Form 51-102F5 (Information Circular) of NI 51-102, or the statement referred to in Item 8 of Part 2 of that Form.

26. For the purpose of subsection 166(3) of the Act, the prescribed form of statement that shall accompany the copy of the management proxy circular to be sent to the Director under that subsection is a statement signed by a director or an officer, to the effect that a copy of the circular has been sent to each director, to each shareholder whose proxy has been solicited and to the auditor of the cooperative.

DISSIDENT’S PROXY CIRCULAR

27. A dissident’s proxy circular shall be in the form provided for in Form 51-102F5 (Information Circular) of NI 51-102, which form, in the circumstances described in Item 8 of Part 2 of that Form, includes the statement referred to in that Item.

10. Subsection 33(2) of the Regulations is replaced by the following:

(2) For the purpose of subsection 166(3) of the Act, the prescribed form of statement that shall accompany the copy of the dissident’s proxy circular to be sent to the Director under that subsection is a statement signed by the dissident or a person authorized by them, to the effect that a copy of the circular has been sent to each director, to each shareholder whose proxy has been solicited, to the auditor of the cooperative and to the cooperative.

11. Section 34 of the Regulations and the heading before it are repealed.

12. The portion of paragraph 35.1(2)(c) of the French version of the Regulations before subparagraph (i) is replaced by the following:

c) elle est adressée aux détenteurs de parts de placement en qualité de clients et elle est faite par une personne qui, dans le cours normal de ses activités, dispense des conseils financiers ou des conseils sur la gouvernance d’entreprise ou le vote par procuration, mais elle traite de conseils sur le vote par procuration et la personne :

13. Subsection 35.2(1) of the Regulations is replaced by the following:

35.2 (1) For the purpose of subsection 166(4.1) of the Act, the prescribed circumstances are those in which the solicitation conveyed by public broadcast, speech or publication sets out the information provided for in Items 3.2, 3.4, 5(b) and 11 of Part 2 of Form 51-102F5 (Information Circular) of NI 51-102.

14. Schedules 1 and 2 to the Regulations are repealed.

COMING INTO FORCE

15. These Regulations come into force on the day on which they are registered.

[22-1-o]

Footnote a
S.C. 2001, c. 14, s. 125

Footnote b
R.S., c. C-44; S.C. 1994, c. 24, s. 1

Footnote c
S.C. 2001, c. 14, s. 227

Footnote d
S.C. 1998, c. 1

Footnote 1
SOR/2001-512

Footnote 2
SOR/99-256

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