NIN 97/18 - Proposed Provisions for Shareholder Proposals under the British Columbia Company Act [NIN - Rescinded]

The Commission is publishing for comment, on behalf of the Ministry of Finance and Corporate Relations, proposed new provisions for the British Columbia Company Act to permit shareholder proposals.

Any questions about the proposed new provisions should be directed to Carol Anne Rolf, Director, Financial and Corporate Sector Policy Branch at (250) 387-1269. Comments on the proposed new provisions should be submitted to the Financial and Corporate Sector Policy Branch of the Ministry of Finance and Corporate Relations by September 15, 1997.

DATED at Vancouver, British Columbia, on June 18, 1997

Douglas M. Hyndman
Chair

The Ministry of Finance and Corporate Relations invites comments on proposed new provisions for the British Columbia Company Act to permit shareholder proposals. This consultation is part of the process of revising this statute, following the publication of a discussion paper in 1991 proposing a number of changes to the Company Act.

The draft shareholder proposal provisions outlined below will be revised on the basis of comments received, and included in a consultation draft of a new Company Act, which is scheduled for release in late 1997.

BACKGROUND

The current Company Act does not contain shareholder proposal provisions and none were proposed in the 1991 discussion paper. However, a majority of corporate law statutes in Canada give shareholders the right to make proposals at annual general meetings. According to the Proposals for a New Business Corporations Law for Canada (the Dickerson Report), shareholder proposal provisions are intended to provide shareholders with machinery enabling them, at the expense of the corporation, to communicate with their fellow shareholders on matters of common concern. They help ensure that corporate management is held accountable for a corporation’s economic performance and social policy.

Shareholder proposal provisions in Canada and the U.S. are under review. Provisions in other Canadian statutes have been criticized as allowing corporations to reject legitimate shareholder proposals on subjective grounds and for making it difficult for shareholders to raise broader community or social issues. A number of commentators, including a commissioner of the U.S. Securities Exchange Commission, have argued that shareholders should be able to raise important public policy issues that relate to the business of the corporation. At the same time, because company resources are used to circulate shareholder proposals, companies, and hence their shareholders, should be able to have some confidence that proposals are made by those with a legitimate stake in the company.

Fair, efficient and effective shareholder proposal provisions should balance shareholder rights with company rights to avoid the costs of repetitious or nuisance proposals, and those which are personal in nature. The proposed amendments reflect an attempt to achieve this balance.

For example, to ensure that proposals are raised by those with a genuine stake in the company, it is proposed that shareholders be required to hold a minimum amount of shares for a minimum of two years in order to make a shareholder proposal. Once an issue has been raised in a proposal, the same issue could not be raised for a period of time, unless it had achieved minimum levels of shareholder support. However, to ensure that companies could not reject proposals arbitrarily and capriciously, they would be able to reject shareholder proposals only on limited, and what are intended to be, objective grounds.

Finally, comment is invited, in particular, on two different options proposed to allow shareholders to appeal a company's rejection of a proposal. Under one option shareholders would appeal to the courts, and if the appeal is successful, courts would be required to award shareholders costs for their out-of-pocket expenses. The second option provides for British Columbia Securities Commission review of the rejection of a shareholder proposal. No express provision is proposed for alternative dispute resolution, including mediation of a dispute between the shareholder and the company over rejection of the shareholder's proposal, although these avenues are not precluded. Comments on the applicability and usefulness of mandatory mediation in these circumstances would be especially welcomed.

To be considered in the preparation of the consultation draft of the new Company Act comments must be received by September 15, 1997.

Comment letters should be sent to

Carol Anne Rolf, Director
Financial and Corporate
Sector Policy Branch
Ministry of Finance and
Corporate Relations
P.O. Box 9418 Stn Prov Govt
Victoria, British Columbia
V8W 9V1

Comment letters submitted in response to Request for Comments will be placed in the Ministry of Finance and Corporate Relations Website at:

http://www.fin.gov.bc.ca/FCSPB/sharepro.htm (link no longer operational)

unless confidentiality is requested. Although comment letters requesting confidentiality will not be placed on the website, freedom of information legislation may require the ministry to make comment letters available.

(1) In subsections (1) through (11) [for draft purposes only

(a) "proposal" means a resolution in writing submitted to the company by one or more shareholder for consideration at an annual general meeting of shareholders of the company, and

(b) "submitter" means one or more shareholders submitting a proposal to a company.

(2) One or more shareholders may

(a) submit a proposal, and

(b) discuss the proposal at an annual general meeting of the company

if

(c) the shareholder is, or shareholders are, as the case may be, the beneficial owner or owners of shares issued by the company which

(i) represent in the aggregate not less than 1 per cent or $1000 worth of shares, or 1 per cent or $1000 worth of shares of any class of shares, issued by the company, and

(ii) carry the right to vote at an annual general meeting,

(d) the shareholder has, or shareholders have been, the beneficial owners of the shares referred to in (c) for 2 years or more prior to submitting the proposal, and

(e) the proposal is received by the company not less than 90 days before the annual general meeting.

(3) A proposal submitted under subsection (2) may include nominations for the election of directors if the proposal is signed by one or more shareholders representing in the aggregate not less than 5 per cent of the shares or 5 per cent of the shares of a class of shares of the company entitled to vote at the annual general meeting to which the proposal is to be presented, but this section does not preclude nominations made at an annual general meeting.

(4) Subject to subsection (6) a company that solicits proxies must set the proposal out in, or attach the proposal to, any management proxy circular the company is required to send to its shareholders.

(5) At the request of a submitter, the company must set out in, or attach to, the management proxy circular referred to in subsection (4)

(a) the name of the submitter,

(b) an address at which the submitter may be contacted, and

(c) a statement by the submitter of 500 words or less in support of the proposal.

(6) A company is not required to comply with subsections (4) and (5) if

(a) the company has not received at least 90 days before the annual general meeting the text of the proposal, any statement referred to in subsection (5)(c), and documented evidence that the submitter meets the requirements of subsection (2),

(b) the proposal is submitted by the submitter primarily for the purpose of enforcing a personal claim or redressing a personal grievance against the company or its directors, officers or security holders,

(c) the submitter failed to present a proposal, either in person or by proxy, at a previous annual general meeting for which the company had at the submitters request set out in, or attached to, a management proxy circular a proposal relating to that annual general meeting;

(d) the proposal deals with substantially the same subject matter as a proposal included in the company's management proxy circular

(i) for an annual general meeting held within 2 years preceding the receipt of the proposal, if at the previous annual general meeting, the proposal received less than 3 per cent of the votes cast,

(ii) for two annual general meetings held within 5 years preceding the receipt of the proposal, if at the most recent annual general meeting at which the proposal was considering it received less than 6 percent of the votes cast, or

(iii) for three annual general meetings held within 5 years preceding the receipt of the most recent proposal, if at the most recent annual general meeting at which the proposal was considered the proposal received less than 10 percent of the votes cast,

(e) the proposal deals with substantially the same subject matter as a proposal already submitted to the company by another shareholder and the proposal already submitted is included in the company's management proxy circular relating to the next annual general meeting,

(f) the proposal has been substantially implemented by the company,

(g) the proposal deals with matters beyond the company's powers to implement,

(h) the proposal relates to specific amounts of cash or dividends, or

(i) the proposal is being used by the submitter to secure publicity for a defamatory or personal matter.

(7) No company or person acting on its behalf incurs any liability by reason only of circulating a proposal or statement in compliance with this section.

(8) If a company refuses under section (6) to include a proposal in its management proxy circular, the company must, within 10 days after receiving the proposal,

(a) notify the submitter of the company's decision, and

(b) provide to the submitter written reasons for the company's decision.

REMEDIES:

Option 1

(9) On the application of a submitter who claims to be aggrieved by a company's decision under subsection (6), a court, on finding that the company did not have grounds set out in subsection (6) for its decision, may

(i) restrain the holding of an annual general at which the proposal is sought to be circulated and presented,

(ii) order the company to circulate the proposal and any material relating to the proposal, and

(iii) in addition to section (10), make any further order the court thinks fit.

(10) A court, on making an order under subsection (9), must order the company to pay the full legal costs incurred by the submitter in obtaining the order.

(11) The company, or any person claiming to be aggrieved by a proposal, may apply to a court for an order permitting the company to omit the proposal from the management proxy circular, and the court, if it is satisfied that subsection (6) applies, may make any order it thinks fit.

Option 2

Alternative to subsections (9) to (11):

(9) (a) A submitter who claims to be aggrieved by a company's refusal under subsection (6) may apply in the prescribed manner to the British Columbia Securities Commission for a review of the company's refusal,

(b) A submitter who applies to the British Columbia Securities Commission under subparagraph (a) must immediately serve a copy of the application on the registered office of the company.

(c) The company may respond to an application under subparagraph (a) by delivering an affidavit to the British Columbia Securities Commission within 21 days after the application is served on the company pursuant to subparagraph (b).

(d) If, after reviewing the application referred to in subsection (a), and any affidavit referred to in subsection (c), the Executive Director of the British Columbia Securities Commission is of the opinion that the company did not have proper grounds to refuse to comply with subsection (4) and (5), the executive director of the British Columbia Securities Commission may

(i) order that the holding of an annual general meeting at which the proposal is to be circulated and presented be restrained, and

(ii) order the company to circulate the proposal and any material relating to the proposal.

(e) Any person directly affected by a decision of the executive director may, by notice in writing sent to the commission within 10 days after the date on which the executive director made the order referred to in (d), request and be entitled to a hearing and a review of the decision of the executive director.

(f) On hearing and review, the commission may confirm or vary the decision under review or make another decision it considers proper and may award costs.

(g) If the British Columbia Securities Commission has made an order under subsection (f), the British Columbia Securities Commission may file the decision at any time in a Supreme Court registry by filing a copy of the decision certified by the executive director.

(h) On being filed under subsection (1), a decision of the commission has the same force and effect, and all proceedings may be taken on it, as if it were a judgment of the Supreme Court.