TSX annual director election rule change begins affecting Australian incorporated issuers

May 6, 2013

On December 31, 2012, the Toronto Stock Exchange made amendments to the Company Manual to require, among other things, that TSX listed issuers elect all directors annually. The TSX subsequently issued Staff Notice 2013-0001 on February 22, 2013 to remind listed issuers of the new obligations. The new Section 461 has now been in effect for approximately four months, and while the changes regarding majority voting policies have attracted greater attention for Canadian domiciled issuers (see our securities posts of October 4 and October 12, 2012), foreign issuers (particularly those from Australia), have been far greater impacted by the annual director election changes.

In Australia, directors are already elected on a “for” or “against” basis, and not on a “for” or “withhold” basis and therefore already have a majority voting “policy” in effect by operation of the Australian Corporations Act 2001. However, the constitution (or articles) for a Corporations Act 2001 company would typically require that 1/3 of the directors resign at each annual general meeting and be re-elected. This means it would take 3 years to turn over the entire board.

In order to comply with the new TSX requirement, we expected that many Australian companies would need to give effect to an amendment to their constating documents – their constitution. As many Australian issuers have June 30 year-ends, these changes will come in the latter half of 2013. However, a number of ASX/TSX inter-listed issuers have December 31 year-ends and several have now made their AGM materials public on SEDAR and on the Australian Securities Exchange website.

An initial survey finds that constitutional changes have been put forward by Mirabela Nickel Ltd., Ivanhoe Australia Limited, Intrepid Mines Limited and Aurora Oil & Gas Limited at their upcoming shareholder meetings. Mawson West Limited has proposed that all of its directors be elected at its upcoming AGM without a constitutional change.

In the comment process associated with these rule changes, several comments were made suggesting these changes not apply to foreign issuers. The TSX responded with the change that if listed company shareholders did not approve, the TSX would not consider the issuer in breach, but the listed company would have to again put and recommend the changes to its articles to its shareholders within three years. The current shareholder meeting season in Australia will be an interesting test to see if foreign shareholders are prepared to approve the constitutional changes needed to comply with the new TSX rules.

The rule change does not affect companies listed on the TSX Venture Exchange.

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