On February 27, 2023, the Toronto Stock Exchange (“TSX”) published Staff Notice 2023-0001 – Voting Agreements (the “Staff Notice”), which formalizes the policy on how it has been addressing voting agreements between TSX-listed issuers and their security holders (“Voting Agreements”) for many years.
The Staff Notice does not contain anything new – rather, it confirms that “positive” Voting Agreements (i.e., those requiring a security holder to vote for management’s recommendations) may require shareholder approval.
An overview of the Staff Notice is set out below.
Voting Agreements Affecting Control
Voting Agreements which materially affect control of an issuer are subject to review and require disinterested security holder approval.
The TSX will review Voting Agreements entered into in the following contexts:
- original listings under Part III – Original Listing Requirements of the TSX Company Manual (the “Manual”) as part of the TSX review of existing material agreements;
- transactions under Part V – Special Requirements for Non-exempt Issuers of the Manual, and more specifically, Section 501(c); and
- transactions under Part VI – Changes in Capital Structure of Listed Issuers of the Manual and, more specifically, Section 604(a)(i).
Note that Voting Agreements entered into apart from an issuance of listed or convertible securities or a reviewable transaction are generally not reviewed by the TSX.
Conditions and Discretionary Considerations for Acceptance
In connection with the review of a transaction, the TSX will accept a Voting Agreement if one of the two following conditions are met:
- the listed issuer has obtained disinterested security holder approval for the Voting Agreement; or
- the Voting Agreement allows a covenanting security holder to abstain, or not participate, in a security holder vote.
If neither condition is met, the TSX will consider the following factors to determine whether the Voting Agreement has a material effect on the control of the issuer:
- the term of the Voting Agreement (including whether it is time-limited or transaction-based);
- whether the Voting Agreement creates a large enough block to influence vote outcome (which could be as low as 10% but is typically more than 20%);
- the context of the Voting Agreement; and
- the consequences if a security holder breaches the Voting Agreement.
The TSX will also consider how the Voting Agreement works in connection with other Voting Agreements or security holders acting jointly and in concert.
Going forward, TSX-listed issuers who plan to enter into Voting Agreements should use the Staff Notice as guidance in determining the required approvals. Where a Voting Agreement is expected to materially affect control of the issuer, the inclusion of voting covenants that allow security holders to abstain or not vote their shares would avoid the requirement to obtain disinterested security holder approval for the Voting Agreement.
The author would like to thank Silas Lee and Julia Won for their significant contribution to this article.