Canada Business Corporations Act Updates as of August 31, 2022

As of August 31, 2022, the Canada Business Corporations Act (the “CBCA”) has been amended with respect to the election and appointment of directors, inter alia. These changes will affect federally incorporated distributing corporations. We have provided five key takeaways below:

Directors can serve for a term of one year, per election.

Until now, directors in federal corporations could hold office for a maximum of three years. Further restrictions have now been placed on directors in distributing corporations. Now, s. 106( s. 106(3.1)3.1) details that directors in distributing corporations may only serve for a term of one year when they are elected. This amendment does not affect non-distributing corporations, whose directors remain permitted to serve for a term of not more than three years.

Action Item: Hold annual elections for directors, for distributing corporations only.

A separate shareholders’ vote must be taken for each candidate nominated for Director.

In the past, a director’s election would entail the shareholders being presented with a list of nominees and they would make their votes on the entire list as a block. Following these amendments,  s. 106 s. 106(3.3)(3.3) now requires shareholders to vote on each nominee individually. Practically speaking, this may result in longer shareholder meetings.

Action Item: Vote for director nominee A, and when finished, repeat the process for nominee B, and so on, for all directors to be elected at the annual general meeting of the corporation.

Directors in uncontested elections will be elected only if the majority of the votes are “for” them.

The amendments to  s.  s. 106(3.4)(3.4) indicate that in an uncontested election there may only be one person nominated as a candidate for director. In the past, shareholders had the option to vote “for” the nominee or “withhold” their vote against the nominee. Now, shareholders must place their votes “for” or “against” the nominee. A nominee will be elected if the numbers of votes “for” them represent the majority of the vote either “for” or “against” them with no option to withhold.

Action Item: Inform the shareholders of the new voting procedures to ensure that all are aware that the withholding of a vote for directors is no longer permitted, they must vote “for” or “against”.

Incumbent Directors may continue in office for a limited time where no nominee is elected.

Now under  s. 106( s. 106(6.1),6.1), where an incumbent director is a nominee in an election for a director, and where further no nominee is elected, then the incumbent director may remain in office until the earlier of (a) the 90th day after the day of the election and (b) the day on which their successor is appointed or elected.

Action Item: No immediate action is required.

Unelected Directors cannot generally be appointed until the next election period.

If an election for a director is held when these amendments came into force on August 31, 2022, and a nominee is not elected, in accordance with  s. 106( s. 106(8.1)8.1), that nominee cannot be appointed until the next election for a director is held, except where the appointment of the nominee is required to meet the minimum number of directors requirement or the residency requirements as outlined in the s.  s. 105(3)(3) of the CBCA.

Action Item: No immediate action is required.

For further clarification or consultation regarding elections and appointments of directors in federal corporations, kindly reach out to Carrie Ritchie, Head of our Corporate Law Practice Group.

This article was prepared with the assistance of  Harman Bath, Articling Student.

This article is not intended to serve as a comprehensive treatment of the topic and is not legal advice. All legal matters are dealt with pursuant to their specific facts and circumstance. Nothing replaces retaining a qualified, competent lawyer.