No Ordinary Shareholder Meeting - Farris

No Ordinary Shareholder Meeting - Farris




13 th Edition


Reprinted with permission from The 2011 Lexpert®/American Lawyer Guide to the Leading 500 Lawyers in Canada. © Thomson Reuters Canada Limited.

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No Ordinary Shareholder Meeting:

Shareholder Proposals, Requisitions,

Proxy Contests and Stealth Proxy Campaigns

By Trevor R. Scott and Peter M. Roth

Farris, Vaughan, Wills & Murphy LLP

In the normal course of a Canadian public company’s affairs,

the calling and holding of a shareholder meeting and the related

solicitation of proxies is a straightforward process, usually run on

a recurring annual timetable with limited support from legal

counsel. However, once a dissident shareholder seeks to put new

business before a company’s shareholders and solicit proxies in

an attempt to influence the voting at a shareholders’ meeting, it

becomes apparent that the calling and holding of a shareholder

meeting is complex and multifaceted, affording various strategic

opportunities for both the target company and the dissident


This article explores four mechanisms 1 – shareholder

proposals, shareholder requisitioned meetings, full proxy

contests and stealth proxy contests – which a dissident group

can use to force business to be put before a target company’s

shareholders. Before exploring these mechanisms, a brief

overview of the process of calling and holding a shareholder

meeting is discussed.

Overview of Shareholder Meeting Process

The process and timing for calling and holding shareholder

meetings, and related disclosure rules may provide key strategic

and legal advantages when a public company is facing a dissident


Corporate statutes and company articles or bylaws generally

require that notice of a meeting be provided at least 21 days but

not more than two months prior to the date of the shareholder

meeting. Additionally, public companies are subject to

continuous disclosure regulations, which are generally set out in

National Instrument 51-102 – Continuous Disclosure Obligations

(NI 51-102), as well as regulations relating to communications

with beneficial shareholders, which are set out in National

Instrument 54-101 – Communication with Beneficial Holders (NI

54-101). In the normal course, a “vanilla” shareholder meeting

(i.e., uncontested with no extraordinary stock exchange

approvals) that follow the unabridged time periods set out in NI

54-101 take approximately 60 days from the date that

depositories and regulatory bodies are first advised of the

meeting. Within this period, the public company has ample time

to provide various notifications of the meeting, prepare the

meeting materials, seek and obtain any required review or

approvals from stock exchanges, obtain corporate approvals, print

materials, and arrange for the mailing of meeting materials to

registered and beneficial shareholders of the company at least 21

days before the date of the meeting.

With the assistance of experienced counsel, a management

supported shareholder meeting can be held in approximately 35

days (excluding any extraordinary stock exchange approvals). 2

Mathematically, the prescribed time periods (taking advantage

of abridgement provisions) in NI 54-101 add up to as little as 29

days from the date of the first notification to the date of the

meeting. However, practically, a public company will generally

need to be prepared and organized in advance in order to take

advantage of the full abridgement provisions. The ability to take

advantage of legal abridgement provisions and operate outside

of the normal time constraints in which a meeting can be called

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and held may, in addition to allowing management to control the

process, present tactical advantages.

A key timing consideration for the public company is the

selection of the record date. A record date must be chosen in order

to determine the point at which persons holding shares of a

company (which is in constant flux for a publicly traded company)

will be entitled to receive notice of and vote at a meeting. Pursuant

to the abridgement provisions of NI 54-101, a record date can be

selected at a date earlier than the normal minimum 30 days prior

to the meeting date but in any event not less than the number of

days required under corporate laws, which is generally 21. It may

also be advantageous to select a later date to prevent recent

shareholders from voting, and corporate law and NI 54-101 set

two months or 60 days as the outside date at which a record date

may be set. The ability to select the exact date at which

shareholders are entitled to receive notice of and vote at a meeting

may therefore present a tactical advantage to the public company.

For a dissident, a key timing consideration is the request and

receipt of lists of the registered and non-objecting beneficial

shareholders (NOBOs) of the subject company, with the key list

being the non-objecting beneficial owner, or NOBO list.

Corporate legislation requires the delivery of notices and

materials to the company’s registered shareholders as historically,

shares were held and transferred in a direct holding system,

whereby owners of the company’s shares would be registered in

the company’s share register (i.e., the shareholders would be

“registered” shareholders), and the registered shareholders would

hold a physical certificate with their names on it, evidencing

ownership over such shares. As a result of the move to a bookbased

entry (or indirect holding) system, a shareholder’s ownership

of securities is recorded on the books of intermediaries (for

example, brokers) on behalf of the ultimate “beneficial”

shareholder. The book-based system allows the vast majority of

securities transactions of a public company to be settled by

computerized book entries in the records of intermediaries, which

facilitates a modern and efficient means of registering trades in

shares. Most shares of public companies are now held indirectly by

intermediaries on behalf of the ultimate beneficial shareholders. As

a result, NI 54-101 was implemented in order to facilitate

communication between public companies and beneficial

shareholders and allow beneficial shareholders to exercise their

voting rights as if they were registered shareholders. Beneficial

shareholders are divided into two categories: NOBOs and

objecting beneficial owners of shares (OBOs). An OBO is a

beneficial securityholder that has provided instructions to an

intermediary holding securities in an account on behalf of the

beneficial owner that the beneficial owner objects, for that account,

to the intermediary disclosing ownership information about the

beneficial owner while a NOBO consents to the intermediary

disclosing ownership about the beneficial owner.

Any person or company can request the most recently prepared

NOBO list from a public company or depository. The request

must be accompanied by payment of a fee to prepare the list and

an undertaking to use the NOBO list for certain acceptable

purposes, including:

• for the purpose of sending securityholder materials to NOBOs

in accordance with securities laws;

• in an effort to influence the voting of securityholders of the


• in an effort to acquire securities of the company; or

• any other matter relating to the affairs of the company.

Upon receipt of a valid request for a NOBO list, the public

company must send the NOBO list within 10 days of receipt of

the request. Given the 10 day delay under NI 54-101 that a public

company may (and likely will in hostile circumstances) take

advantage of, dissidents that contemplate mailing materials to the

shareholders of a public company commonly request a NOBO list

at the earliest opportunity. Corporate law, for its part, also allows

any person to apply to a company, or the company’s transfer agent,

for a list of the company’s registered shareholders. In a similar

process as with a request for a NOBO list, a company must

provide a list of its registered shareholders in response to a valid

request. As a result, for the public company, a request for a

shareholder list or NOBO list may be the first “warning” that

dissident shareholder action is forthcoming.

In sum, there are a number of strategic opportunities that can

be taken advantage of during the process of calling and holding a

shareholder meeting. This article now explores four methods

which dissidents can put forward their business at a shareholder


Shareholder Proposals

A shareholder proposal is a written notice of not more than

1,000 words in length setting out a matter that the submitter

wishes to have considered and voted on at the next annual general

meeting of a company. A shareholder proposal must be signed by

a registered or beneficial owner of shares that carry the right to

vote at annual general meetings, and the shareholder must have

been a registered or beneficial shareholder for an uninterrupted

period of at least two years prior to the date of signing the

proposal. Additionally, a shareholder proposal is subject to a

number of other requirements, including a requirement that the

proposal be signed by shareholders (or a single shareholder)

holding at least one per cent of the issued and outstanding shares

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of the company or shares having a fair market value in excess of

C$2,000. A shareholder proposal must be received at the

registered office of the company at least three months before the

anniversary date of the company’s previous annual meeting (and

notice of this deadline is typically published in a public company’s

management information circular prepared for annual general

meetings). Upon receipt of a valid proposal, the company must

send the text of the proposal, as well as information on the

submitter and supporters of the proposal, to all persons who are

entitled to notice of the annual meeting. In practice, a company

will include a valid proposal and other required information in the

company’s information circular, along with a recommendation

(and a solicitation for proxies) to vote against the shareholder


There are a number of grounds upon which a company may

refuse to send the proposal to its shareholders, including:

• non compliance with form requirements;

• the company has already called an annual meeting prior to

receiving the proposal;

• substantially the same proposal was submitted to the

shareholders of the company within a prescribed period before

the receipt of the proposal, and the previous proposal did not

garner prescribed support;

• the proposal clearly does not relate in a significant way to the

business or affairs of the company;

• the primary purpose of the proposal is clearly publicity or

enforcing a personal claim;

• the proposal has already been substantially implemented;

• the proposal, if implemented, would cause the company to

commit an offense; and

• the proposal deals with matters beyond the company’s power

to implement.

Due to the fact that a shareholder proposal may only be used

to present dissident business at a company’s annual meeting, the

shareholder proposal mechanisms are less attractive as a means of

removing existing directors and replacing them with a dissident

slate, unless the dissident’s agenda times perfectly with the

company’s schedule for holding an annual meeting. Typically,

shareholder proposals are used to compel a target company to

adopt a course of action without a change in directors or

management. One example of a successful and high profile use of

shareholder proposals is the recent adoption of say on pay, or

advisory votes on compensation, by at least 21 Canadian

companies in response to a bombardment of shareholder proposals

in 2009 and 2010. Nonetheless, once a dissident’s business has

been put on a company’s business to be transacted at an annual

meeting, regardless of whether such business concerns the election

or removal of directors, the company and the dissident shareholder

are engaged in a campaign to solicit proxies with respect to such


Requisitioning a Meeting

A meeting can be requisitioned by a shareholder, or a group of

shareholders, holding at least five per cent of the voting shares of

the company, as determined on the date that the requisition is

received by the company. A requisition must state, in 1,000 words

or less, the business to be transacted at the meeting, and must be

signed by all requisitioning shareholders. Upon receiving a

compliant requisition, the directors of the company must,

regardless of the company’s articles, call a general meeting of the

shareholders to be held not more than four months after the date

the requisition is received by the company. The company must

then send notice of the date, time and location of the requisitioned

meeting within prescribed time periods to each shareholder

entitled to attend the meeting, and to each director of the

company. Additionally, the company must send the text of the

requisition, which may be included in the notice of meeting, but

is typically included in management’s information circular

prepared for the requisitioned meeting.

There are a number of grounds upon which a company may

refuse to call and hold a requisitioned meeting, which are generally

analogous to the reasons set out above for rejecting a shareholder


Due to the ability of dissidents to requisition a meeting at any

time, a requisitioned meeting is a preferred mechanism to remove

and replace a board of directors as opposed to the shareholder

proposal process. Nonetheless, a key consideration in such an

instance is not the five per cent required in order to validly

requisition a meeting, but the percentage of shareholders required

in fact in order to win the day at the requisitioned meeting, which

is normally far in excess of the five per cent threshold required to

compel a requisitioned meeting. Of interest as well is the Ontario

Securities Commission (OSC) recent view on the attempt to

tactically use shareholder requisition provisions to allow the

shareholders of Hudbay Minerals Inc. (which did not have the

right to vote on proposed merger with Lundin Mining

Corporation) to effectively vote on such transaction by the removal

of the board of Hudbay through a shareholder requisitioned

meeting. The OSC concluded that: “If shareholders wish to

challenge a transaction by exercising their fundamental right to

elect or remove directors in accordance with their legal rights to do

so under corporate law, the board of directors should not be

permitted to actively frustrate that objective [by completing the

merger with Lundin]”.

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Proxy Contests

The management of a public company is required to solicit

proxies from registered securityholders at the time notice is given

for a shareholder meeting. Additionally, management is required

to send an information circular, prepared in accordance with a

prescribed form, along with the notice of meeting to each

registered securityholder whose proxy is being solicited.The above

mentioned proxy related materials are also required to be sent to

beneficial holders of securities of the public company, all within the

timeframes specified in applicable constating documents,

corporate statues and securities regulation (see above discussion

on timing for the calling and holding of a meeting).

Dissident shareholders (i.e., not management of a public

company) wishing to challenge management business at a

shareholder meeting in a “full blown” proxy context are also subject

to proxy solicitation rules. A dissident shareholder that solicits

proxies from registered securityholders of a public company must,

concurrently with or before such solicitation, send a dissident

information circular in the prescribed form to each registered

securityholder whose proxy is solicited. Dissidents will also

typically seek to disseminate the above mentioned dissident

circular and proxy to as many of the target company’s

securityholders a possible, and thus, as discussed above, the

dissident may request the company’s most recently prepared

NOBO list in order to mail its materials to the company’s


Stealth Proxy Contests

Dissident shareholders who solicit proxies from not more than

15 securityholders are not required to prepare a dissident

information circular. Dissident shareholders are only required to

file (not mail) a document on SEDAR at the time of the

solicitation containing applicable information, and only if the

dissident solicitation relates to a significant acquisition or

restructuring transaction or the nomination of any individual for

election as a director.

The ability to solicit proxies without having to mail a dissident

information circular (which mailing would be subject to the

timelines set out in NI 54-101, as well as necessitate a request for

a shareholders’ list) effectively allows dissidents, who solicit from

not more than 15 securityholders, to run “stealth” proxy

campaigns. Target management may not become aware of a

stealth campaign until proxies (which are subject to the form of

proxy requirements under NI 51-102) are filed at cut-off time,

typically 48 hours in advance of the meeting, which may be too

late for management to react. Management’s exposure to stealth

proxy campaigns may even be further compounded due to no-vote

or withhold-vote campaigns launched by institutional advisory

firms, which have become common in recent years in instances

where the target company is off-side with the institutional

advisory firm’s acceptable corporate governance or executive

compensation practices.

Finally, a public company may be caught entirely by surprise by

another “stealth” tactic: nominations and voting from the floor of

the meeting itself. Registered shareholders have the right to be

present at shareholder meetings without any advance notice of

intention to be present. Registered shareholders may also

nominate dissident directors from the floor of the meeting for

election to the board, and vote from the floor of the meeting on

any business, all without any advance notice. It is not uncommon

for only 20 to 30 per cent of all shareholders to vote at a

shareholder meeting.Thus, a single dissident shareholder holding

10 to 15 per cent of the shares of a company may have sufficient

shares to successfully pursue its agenda. A dissident registered

shareholder can take a public company entirely by surprise on the

day of the meeting itself, leaving the public company unprepared

and with very limited defensive options.

Preparing for a Proxy Contest

Where public companies and dissident shareholders have

diametrically opposed points of view, there is often little that can

be done, given the mechanisms available to dissidents under

Canadian law, to prevent dissident business and proxy solicitations

from occurring. However, there are a number of measures that can

be taken in order to prepare for such contests, and possibly avoid

a costly and public proxy campaign. First, there is really no

substitute for good governance, good corporate disclosure and a

genuine and proactive shareholder communications program, and

taking such measures provide the right environment to ensure

ongoing shareholder support for management and the incumbent

board. At the very least, the company will be aware of and in

contact with its major shareholders, which will ideally give rise to

opportunities to resolve issues without having to resort to a proxy

contest or be taken by surprise by unexpected “stealth” campaigns.

Secondly, public companies should monitor their shareholdings,

SEDAR filings, requests for shareholder lists, daily proxy

tabulations up to the cut off date prior to a meeting, requests to

register shares directly in the name of a shareholder, and any other

“early warning” indicator that dissident shareholder action is

forthcoming. Third, if dissent shareholder action is known or

suspected at an upcoming meeting, public companies should

consider ensuring that the meeting is run by an experienced

meeting chair (possibly advised by independent counsel). Finally,

as alluded to above, the seemingly straight forward process of

putting business before shareholders and calling and holding a

meeting can give rise to a myriad of strategic variables when

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hostility is introduced into the equation, and companies are not

typically accustomed to dealing with these situations on a regular

basis. In these circumstances, public companies should turn to

their outside counsel for advice, as well as consider engaging

professional proxy solicitation firms and communications

specialists. ■

1. For illustrative purposes, the sections describing the mechanics and requirements of shareholder proposals and requisitions in this article are based on the provisions of the

British Columbia Business Corporations Act.

2. Add another seven days to companies that are subject to requirements to publish advanced newspaper notification of record date.

Trevor R. Scott, Farris, Vaughan, Wills & Murphy LLP

Tel: (604) 661-1732 • Fax: (604) 661-9349 • E-mail:

Trevor Scott has extensive experience advising senior public and private companies, national investment

dealers and boards of directors on debt and equity financings, mergers & acquisitions, commercial

transactions, take-over bids, proxy contests and corporate governance. Trevor is a member of the Securities

Law Advisory Committee, which is a committee of leading lawyers that provides advice to the British

Columbia Securities Commission on legal and policy issues relating to public company regulation. He is

also an Executive of the Canadian Bar Association’s National Business Law Section. Trevor is a past Chair

of the Securities Law Subsection of the Canadian Bar Association (BC). The Canadian Legal Lexpert®

Directory names him among the leading Corporate Commercial lawyers in British Columbia.Trevor is also

named by Best Lawyers for corporate law (finance and mergers & acquisitions). In 2008, he was recognized

by Lexpert® as being one of Canada’s leading lawyers under 40. Trevor has received a “high to very

high” legal ability rating from Martindale-Hubbell. Trevor is also involved in various professional organizations,

including membership in the Vancouver, Canadian and International Bar Associations. Trevor

regularly lectures and authors articles on mergers & acquisitions, corporate finance and other corporate


Peter M. Roth, Farris Vaughan, Wills & Murphy LLP

Tel: (604) 661-9382 • Fax: (604) 661-9349 • E-mail:

Peter Roth acts as a corporate counsel to a number of public and private companies in diverse industries,

providing day to day advice on a broad range of corporate matters and ongoing securities law obligations.

Peter has an extensive transactional practice, having advised on numerous domestic and cross

border acquisitions and divestitures, debt and equity financings, proxy contests, supported and unsupported

take-over bids, plans of arrangement, restructurings, share exchanges and commercial transactions.

Peter is the Chair of the Securities Law Subsection of the Canadian Bar Association (BC), and lectures

and regularly authors articles on corporate, finance and securities matters.

Reprinted with permission from The 2011 Lexpert®/American Lawyer Guide to

the Leading 500 Lawyers in Canada © Thomson Reuters Canada Limited. 122

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