CHAPTER 04 True Majority Voting for CBCA Public Companies: Is Your Board Ready?
Must a CBCA Public Company Amend Its Bylaws to Reflect the Change to True Majority Voting? The new CBCA majority voting regime operates automatically by statute. Accordingly, an issuer does not need to amend its current bylaws to account for the change, unless (i) the issuer’s current bylaws conflict with the new process (for example, the bylaws may specify voting mechanics that are out of step with the new rules), or (ii) the issuer wishes to formalize the uninterrupted continuation in office of unelected incumbents as “holdover” directors (discussed below). In the first scenario, the terms of the statute should prevail in the event of a conflict with an issuer’s bylaws. However, an issuer that desires clarity, particularly in the event of contentious circumstances, may nonetheless prefer to make the amendment. Issuers that do not need to amend their bylaws for the aforementioned reasons may of course still replicate the regime in their bylaws simply as a matter of clarity or preferred practice. What Can an Issuer Do to Avoid the Disruption of a “Sudden Death” Election? The new CBCA voting rules permit an unelected incumbent director to remain in office as a holdover director for up to 90 days or the date on which a successor is appointed, whichever is earlier. This grace period was added to the legislation following criticism of the “sudden death” nature of the original draft, which would have terminated such director’s term in office immediately after the meeting. Critics pointed out that a director’s immediate termination would not only be disruptive to boards but would also place corporations at risk of suddenly falling offside regulatory requirements for director independence (such as the requirement for a Canadian issuer to have an audit committee composed of at least three independent and financially literate directors) or material agreements containing change of control or similar clauses that are triggered by changes in board membership. The statutory grace period was added to be just that: an additional period of time in which a board can order its house, transition the work of an unelected incumbent director and avert the issuer suddenly falling offside regulatory or contractual requirements at the close of a meeting. As drafted, however, the CBCA is unclear as to how an issuer may avail itself of the grace period. Certainly,
The new CBCA voting rules permit an unelected incumbent director to remain in office as a holdover director for up to 90 days or the date on which a successor is appointed, whichever is earlier.
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Davies | dwpv.com
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