Quebec clarifies new shareholder proposal rules

On February 14, 2011 the Quebec Corporations Act (QCA) will come into force. As we have previously noted, the QCA introduces a shareholder right to file proposals for at vote at public company annual meetings for the first time. This right currently exists in the corporate statutes of all other jurisdictions in Canada.

As in those other jurisdictions, many of the specific rules that govern the filing of shareholder proposals are set out in the Regulations under the QCA. The draft Regulation Respecting Shareholder Proposals has been published by the government of Quebec, and it contains many provisions that are also found in the Regulations with respect to shareholder proposals under the Canada Business Corporations Act (CBCA).

Here are selected sections of the QCA draft Regulation that mirror those in force under the CBCA:

1. The shares of the company the filer must hold to submit a proposal: 1% of shares or shares with a market value of $2,000, held for at least 6 months prior to the date the shareholder files the proposal.

2. The maximum number of words in the proposal and supporting statement: 500.

3. The vote support of other shareholders that must be achieved in order to refile a proposal: 3% support to file a proposal again with the company within five years; 6% of votes in favour to file a proposal for a third time within five years from the first filing and 10% of votes ‘for’ to file the proposal for a fourth or fifth time within five years from the first filing.

4. The deadline for filing a shareholder proposal: 90 days before the expiry of 1 year after the date of the notice of meeting for the last annual meeting sent to shareholders.

This last provision, the filing deadline for shareholder proposals, is the only truly unfortunate import from the Regulations under the CBCA. The regulations under all other corporate statutes in Canada fix the filing deadline at a number of days prior to the 1 year anniversary of the date of the previous year’s shareholder meeting. The CBCA and draft QCA filing deadline provisions, thanks to the reference to the notice of meeting instead of the meeting date, are unnecessarily complicated in comparison.

Worthy of note for its uniqueness in Canada is Section 1 of the draft Regulation Respecting Shareholder Proposals: a shareholder may “not…present more than 5 proposals for a shareholders meeting.” Currently, there is no limitation on the number of proposals that a shareholder may file with a company in any other Canadian jurisdiction.

The rules of the Securities and Exchange Commission do impose a limit on the number of proposals that a shareholder may file at U. S. companies. SEC 14a-8(c) provides that “each shareholder may submit no more than one proposal to a company for a particular shareholders meeting”.

Now that we have a complete picture of how the shareholder proposal mechanism under the QCA, we find that from a shareholder perspective, it is both familiar and reasonable.

It will be a happy Valentine’s Day 2011 for active, engaged investors in companies that are incorporated under Quebec corporate law.

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