F. Shareholders

• Author: M.H. Ogilvie
• Profession: LSM, B.A., LL.B., M.A., D.Phil., D.D., F.R.S.C. Of the Bars of Ontario and Nova Scotia Chancellor's Professor and Professor of Law, Carleton University
• Pages: 103-117

Contenidos

• 1) Shareholders’ Meetings.
• 2) Access to Records.
• 3) Shareholders’ Auditors.
• 4) Pre-emptive Rights.
• 5) Approval and Remedial Rights.
• 6) Shareholder Liability.

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Banks derive their assets from customers, such as depositors and borrowers, and from shareholders.¹⁹²

But as with other business corporations, only shareholders enjoy legal rights and powers in relation to the corporate governance of banks, as a return on their investment in the working capital of the bank. Essentially, shareholders appoint the directors in whom the management of the bank is vested and have the power at annual or special business meetings to remove the directors and the management team they have employed. However, as with other large business corporations today, bank shareholders are largely passive investors, taking no active role beyond selling shares when unhappy with share performance. Nevertheless, the Bank Act makes substantial provision for shareholders, again modelled on the CBCA, to participate in the affairs of a bank.

1) Shareholders’ Meetings

The shareholders’ meeting is the main place where shareholders can express their views about the quality of management. Meetings must be held in Canada either at a place stipulated by the by-laws or at some other place chosen by the directors.¹⁹³

Meetings are normally called by the directors, who are required to call the first annual shareholders’ meeting within six months after the end of the first financial year of the bank and to call the annual meeting within six months after the end of each financial year.¹⁹⁴

The directors may also call a special meeting at any time.¹⁹⁵

If the directors fail to call a shareholders’ meeting, shareholders who together hold not less than 5 percent of the issued and outstanding shares may requisition the directors to call a meeting for the purposes stated in the requisition.¹⁹⁶

On receipt of the requisition, the directors

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are required to call the meeting and transact the stated business, but if they do not do so, any shareholder who signed the requisition may do so.¹⁹⁷

The bank shall reimburse the shareholders for reasonable expenses in relation to the requisition unless the meeting resolves otherwise.¹⁹⁸

In addition, a court may call a shareholders’ meeting either where it is impracticable to do so pursuant to the Act or by-laws or where the court thinks it fit to do so, on the application of a director or a shareholder.¹⁹⁹

The court may determine the quorum for such a meeting,²⁰⁰and the meeting is as valid as any other properly called shareholders’ meeting.²⁰¹

For a court called meeting, notice must be given to the Superintendent by the applicant prior to the hearing, and the Superintendent may be heard at the application hearing.²⁰²

The Act permits the directors to set the record date for the determination of the shareholders entitled to receive notice, attend, and vote at the meeting.²⁰³

Notice of the time and place of the meeting is required to be sent to each shareholder so entitled on the record date, director, and auditor, at least twenty-one days prior to the meeting and not more than fifty days prior.²⁰⁴

Notice is also required to be published once a week for four consecutive weeks prior to the meeting, in a newspaper in general circulation in the place of the head office and in each place where the bank has a transfer agent or where a transfer of the bank’s shares may be recorded.²⁰⁵

Failure to receive notice does not deprive a shareholder of the right to vote at the meeting.²⁰⁶

A shareholder may waive notice of a shareholders’ meeting in any way,²⁰⁷and attendance constitutes waiver except where the express purpose of attending is to object to the transaction of business on the ground that the meeting is not lawfully called.²⁰⁸ If a

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meeting is adjourned, announcement of the adjournment at the meeting is notice if for less than thirty days; otherwise, notice of the continuation shall be given as for the original meeting.²⁰⁹

Turning from notice of meetings to the meetings themselves, the Bank Act deems all business at annual meetings and special meetings to be special business except for certain matters required to be considered at every annual meeting, that is, financial statements, auditors’ reports, election and remuneration of directors, and auditors’ appointments.²¹⁰

Notice of special business must be given, together with any special resolution²¹¹to be submitted to the meeting.²¹²

The directors normally determine the agenda for a shareholders’ meeting; however, shareholder proposals, first introduced in the 1980 Bank Act and modelled on the CBCA,²¹³provide one vehicle for shareholders to consider possible matters of considerable concern. A single shareholder may submit to the bank notice of any matter which that shareholder proposes to raise at a meeting and may discuss at a meeting any matter in respect to which the shareholder is entitled to submit a proposal.²¹⁴

A copy of the proposal will be circulated with a management proxy circular,²¹⁵together with any further statement of not more than two hundred words (including the shareholder’s name and address) that the shareholder wishes to circulate.²¹⁶

The proposal may include nomination of directors if signed by one or more shareholders representing at least 5 percent of shareholders or of that class of shareholders.²¹⁷

The Act sets out five conditions to be satisfied before a bank is required to circulate a proposal: (i) the proposal is submitted at least ninety days before the anniversary date of the previous annual meeting; (ii) the proposal is not for the purpose of enforcing a personal claim or redressing a personal grievance or for promoting economic, political, racial, religious, social, or similar causes; (iii) the proposal must not have been circulated within the two previous years and the shareholder have failed to present it, in person or by proxy, at the meeting; (iv) substantially the same proposal was defeated within the previ-

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ous two years; and (v) the proposal is an attempt to secure publicity.²¹⁸

Only registered shareholders may submit a proposal, and banks are not required to circulate proposals from beneficial shareholders.²¹⁹

No liability is incurred by the bank or a person acting on behalf of the bank by reason only of circulating the proposal.²²⁰

When a bank exercises its statutory discretion to refuse to circulate a proposal, it must inform the shareholder of its reasons within ten days.²²¹

A shareholder may ask a court to restrain a meeting at which the proposal is sought to be presented and make such further order as it thinks fit.²²²

Conversely, a bank or any person aggrieved by a proposal may apply for a court order to omit a proposal from a proxy circular.²²³

Any applicant must inform the Superintendent in writing, and the Superintendent may appear and be heard at any hearing.²²⁴

Whether the shareholder proposals are effective mechanisms for redressing shareholder concerns is difficult to discuss. Two reported cases to date are insufficient empirical evidence; in one case²²⁵the court sustained a decision by a bank not to circulate a proposal because it related to the concerns of particular customers, but in the other case²²⁶ the court ordered the bank to circulate several proposals which were designed to increase managerial accountability and reduce executive salaries and which were defeated at the annual meeting.²²⁷

Although highly unlikely, it is possible to have a one-shareholder meeting or a valid shareholder meeting with only one holder of a class or series of shares.²²⁸

Otherwise, the Bank Act provides that in the absence of contrary by-laws, a majority of shareholders in person or by proxy constitute a quorum for a meeting.²²⁹

The quorum need only be present at the start of the meeting,²³⁰and if there is no quorum then,

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the shareholders present may adjourn to a fixed time and place but may not transact other business.²³¹

With certain restrictions,²³²the voting rule is one share-one vote,²³³including situations of jointly owned shares²³⁴and of entities as shareholders who must designate a representative shareholder.²³⁵

Voting is by show of hands unless a shareholder or proxy holder requests a ballot either before or after a vote by show of hands.²³⁶

While shareholders’ meetings are the usual means by which annual and special business is transacted, the Bank Act also makes provision for a written resolution in lieu of a meeting if it is signed by all shareholders entitled to vote at a meeting, and a copy of the resolution is required to be kept with the minutes of meetings of shareholders.²³⁷

Shareholders’ meetings may be the most important opportunity for shareholders to participate in the affairs of a bank, but in reality few attend because of the expense, the large number of shareholders, and the improbability of having much impact on day-to-day decision making by senior management. In any case, unlike other business corporations, banks in Canada are so closely regulated by the state and various state agencies that shareholders have very little influence over their direction.²³⁸

However, shareholders who still wish to vote without incurring the expense and inconvenience of attending may do so by proxy.

At common law, shareholders were only permitted to vote their shares in person at a shareholders’ meeting;²³⁹however, the practice developed of permitting shareholders to appoint representatives, or "proxies," to attend meetings and exercise their voting rights in accordance with the shareholders’ instructions, by virtue of by-laws to that effect. The possibility of directors using by-laws to control the proxy system to procure desired outcomes ultimately resulted in the codification of proxy provisions in business corporations legislation and in the Bank Act, the provisions of which are modelled on those in the CBCA.²⁴⁰

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Any shareholder entitled to...