Shareholders of Canadian public companies have in the past devised schemes to remove existing directors by nominating a dissident slate from the floor of a shareholders' meeting to the surprise and prejudice of other shareholders. Advance notice by-laws were designed to prevent such ambushes, and to ensure that all shareholders are treated fairly and provided with timely information in connection with the nomination of directors.
Under applicable corporate legislation in Canada, there are generally only two methods available to shareholders to nominate directors at a meeting without providing ample notice to all shareholders:
- proxy fight. Following the mailing of proxy materials by an issuer relating to the election of directors, any person may solicit proxies, so as to elect their own nominees to the board of the issuer, by delivering a dissident's proxy circular (or by way of public broadcast, speech or publication in circumstances prescribed by the legislation). This type of activity is generally referred to in business parlance as a 'proxy fight'. There is no time restriction as to when one may solicit proxies through these means, subject of course to practical time constraints. As a result, a proxy fight could be commenced with little prior notice to the issuer or its shareholders.
- nominations at a meeting. Shareholders or proxyholders may, at a meeting called for the purpose of electing directors, nominate from the floor of the meeting one or more persons to serve as a director. Since no prior notice of such nomination need be given to the issuer or its shareholders, this type of nomination is often referred to as an 'ambush.'
Advance notice provisions have been designed to prevent shareholders from nominating directors through a proxy fight or an ambush, without in each case providing an issuer with adequate time to consider and respond in an informed way to such proposed nominations. Advance notice provisions benefit shareholders by:
- ensuring that all shareholders – including those participating in a meeting by proxy rather than in person – receive adequate notice of the nominations;
- allowing shareholders to register an informed vote;
- facilitating an orderly and efficient meeting process; and
- preventing an ambush.