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TSX Issues Staff Notice in Respect of Director Election Requirements

Posted by: Axium Law · July 22nd, 2013

The Toronto Stock Exchange (“TSX”) released a Staff Notice on July 10, 2013 providing guidance in respect of the director election requirements (the “Requirements”) in sections 461.1 to 461.4 of the TSX Company Manual (the “Manual”) which came into force on December 31, 2012. Please see our original post on the amendments. The Staff Notice provides guidance regarding:

  1. the application of the Requirements to Interlisted International Issuers applying to list on the TSX;
  2. director recommendation requirements where an amendment must be made to the Issuer’s articles of incorporation to meet annual election requirements;
  3. the content of the news release disclosing director election results;
  4. the application of the Requirements where an Issuer has appointment or similar rights for its board of directors; and
  5. compliance with the policy objectives of the Requirements.

Application of the Requirements to Interlisted International Issuers

Interlisted International Issuers will not be required to meet the Requirements at the time of listing. The Requirements will begin to apply when the Interlisted International Issuer mails its materials for its first annual general meeting after listing on the TSX, provided that the Interlisted International Issuer has been listed on the TSX for at least six months at that time. For Interlisted International Issuer who have been listed for a period of less than six months, the Requirements will not come into effect until the next annual general meeting.

Once subject to the Requirements, Interlisted International Issuers wishing to obtain a waiver from the Requirements can make an application to the TSX with information regarding (i) the name of the stock exchange or market on which the Interlisted International Issuer primarily trades (“Home Market”); (ii) the jurisdiction of incorporation or organization; (iii) the level of trading in Canada and on the Home Market; and (iv) the corporate governance regime for director elections in the Interlisted International Issuer’s jurisdiction of incorporation.

If the TSX grants a waiver, the relief granted and the reasons for requesting such relief must be disclosed by the Interlisted International Issuer in its annual information circular. A waiver, once granted, is effective for only one year (or until the Interlisted International Issuer’s next annual general meeting).

Director Recommendation Requirements

The TSX has received questions about the requirement that the board of directors recommend amendments to an Issuer’s articles of incorporation if necessary, in order to implement annual director elections as required by the Manual. If the board of directors of an Issuer concludes that recommending the amendments will be contrary to its fiduciary duties, the TSX will consider that an Issuer has satisfied the requirement if the board states that such amendment is “as required by the TSX”.

News Release Requirement

The Staff Notice clarifies the TSX’s expectations with respect to the requirement that a news release be issued disclosing the detailed results of the vote for the election of directors.

The news release is meant to provide the reader with insight into the level of support received for each director. Issuers should disclose one of the following in their news release: (i) the percentages of votes received ‘for’ and ‘withheld’ for each director; (ii) the total votes cast by proxy and ballot, together with the number that each director received ‘for’; or (iii) the percentages and total number of votes received ‘for’ each director.

If no formal count has occurred that would meaningfully represent the level of support received by each director, the disclosure should at least reflect the votes represented by proxy that would have been withheld from each nominee had a ballot been called, as a percentage of votes represented at the meeting.

Requirements for the Election of All Directors and Appointment Rights

The Manual requires that security holders must be allowed to vote for each director to be elected by such class or series. These provisions do not apply to Issuers with director appointment rights that have been accepted by the TSX at the time of original listing or otherwise.

Compliance with the Policy Objectives of the Requirements

The TSX adopted the Requirements to strengthen the Canadian corporate governance regime and support the integrity and reputation of the Canadian capital markets. Avoidance of the policy objectives through by-law provisions, other than those in the Requirements, or through other means that have the effect of frustrating or avoiding the Requirements will be considered as a failure to comply with the Requirements.


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