Court of Appeal Clarifies TSX Majority Voting Requirement

Aird & Berlis LLP successfully acted on the first case in Canada interpreting the TSX majority voting requirement.

At the 2019 Annual General Meeting for Baylin Technologies Inc., a director of Baylin received more “withhold” votes than votes for. When that director refused to tender his resignation to Baylin’s Board to consider, Baylin and its majority shareholder applied for an order requiring him to do so pursuant to Baylin’s majority voting policy. The TSX generally requires TSX listed companies to have a majority voting policy, with limited exceptions, and requires persons elected as a director who receive less than a majority of the eligible votes at the meeting to tender her/his resignation to the Board to consider. Boards are expected to accept the resignation absent exceptional circumstances. The director argued that he was not required to resign because Baylin’s policy did not include a commercial agreement exception, which TSX guidance had raised as a possible exception to a director having to tender her/his resignation if they receive less than a majority of the votes cast.

Following the lower Court ruling that Baylin’s majority voting policy did not comply with TSX requirements, Baylin appealed to the Ontario Court of Appeal submitting that the application judge misinterpreted the TSX requirements in holding that withheld votes did not qualify as votes cast. The TSX and the Canadian Coalition for Corporate Governance intervened.

The Ontario Court of Appeal in Baylin Technologies Inc. v. Gelerman, 2021 ONCA 45 settled that withheld votes qualify as cast votes for purposes of the TSX majority voting requirement. The Court noted that if the application judge’s interpretation were to be accepted, a director could be elected with a single vote with the rest being withheld, bearing in mind that corporate law provides for only the option to vote for or withhold one’s vote in electing directors. As such, the Court noted that the lower court’s interpretation would undermine the purpose of a majority voting policy, which ensures shareholders have a meaningful way of holding directors accountable and removing underperforming or unqualified directors. 

The Court also determined that the TSX does not mandate that majority voting policies include a commercial agreement exception, or any exceptions at all to the requirement for directors to have received majority support.

As there are well over 1,500 companies listed on the TSX, this case has significant implications and wide-reaching impact.

Aird & Berlis represented Baylin with a team including Steve Tenai, Miranda Spence and Brian Chung.