Part 7 Directors and Officers (clauses 159-167)

This Part includes an amendment which reduces the residency requirements applicable to a board of directors from a majority to 25 percent and clarifies that where a cooperative has three directors, at least one must be resident in Canada (s. 78(4)). The provisions regarding a quorum have been adjusted accordingly (s. 97).

An obligation for directors to provide notice of a change of address within fifteen days of the event has been introduced. Once this notice is received, the cooperative would then be obliged to notify the CBCA Director of this change within fifteen days of receiving notice from a director. (s. 91)

The conflict of interest provisions would be amended to provide that a director or officer is not accountable to the cooperative for any profit or gain realized from a transaction in which they have a conflict of interest, so long as certain disclosures are made and the director or officer acted honestly and in good faith (s. 106).

The provisions with respect to directors' wage liability, due diligence defence and unanimous agreements would be clarified and harmonized with the proposed amendments to the Canada Business Corporations Act (s. 102(2), 111 and 115).

This Part also includes amendments which are designed to clarify the language and administration of the Act, as well as some technical changes to French wording.

Briefing Book
An Act to amend the Canada Business Corporations Act and the Canada Cooperatives Act

Bill Clause No. : 168
CCA Section No. :103(7)
Topic : Directors and Officers (Unanimous Agreements)

Sources of Proposed Law
N/A

Changes From Present Law
The current subs. 103(7) is repealed.

Purpose of Change
The current subs. 103(7) would be repealed since a unanimous agreement cannot include a provision dealing with disclosure of directors' and officers' interest in a contract or transaction. [see clause 174]

Similar Provincial Laws
N/A

Current Wording
103. (7) The members and shareholders may, by unanimous agreement, modify the procedural requirements of this section and sections 104 to 107.

Proposed Wording
N/A

Bill Clause No. :169
CCA Section No. :104(1)
Topic :Directors and Officers (Unanimous Agreements)

Sources of Proposed Law
N/A

Changes From Present Law
The words "be present for the vote or" in s. 104(1) are deleted.

Purpose of Change
The words "be present for the vote or" from s. 104(1) are being deleted in order to clarify that an interested director may be present at the meeting of directors where the conflict is being considered and may therefore be counted for purposes of constituting a quorum, although such director must abstain from voting on the resolution to approve the transaction. The equivalent provision in the CBCA is being harmonized.

Similar Provincial Laws
N/A

Current Wording
104. (1) A director who is interested in a contract or transaction referred to

in subsection 103(1) may not be present for the vote or vote on any resolution

to approve the contract or transaction.

Proposed Wording
104. (1) A director who is interested in a contract or transaction referred to

in subsection 103(1) may not vote on any resolution to approve the contract or transaction.

Bill Clause No. :170
CCA Section No. :106, new 106.1 and 107
Topic : Directors and Officers (Interested Directors' and Officers' contracts)

Sources of Proposed Law
N/A

Changes From Present Law
Specify that a director or officer is not accountable to the cooperative for any profit or gain realized from an interested director or officer contract or transaction and the contract is not invalid because of the conflict, provided that the director or officer acts honestly and in good faith and the other conditions of the provision are met.

Harmonize the interested director provisions with the CBCA.

Purpose of Change
These changes would bring the CCA in line with other Canadian corporate statutes and the proposed amendments to the CBCA [clause 48, new s. 120(7.1)].

Similar Provincial Laws
Business Corporations Act (Ontario)

Companies Act (British Columbia)

Business Corporations Act (Alberta)

Civil Code (Québec)

Current Wording
106. A contract or transaction for which disclosure must be made under section 103 is not invalid, and the director or officer is not accountable to the cooperative, its members or its shareholders for any profit realized from the contract or transaction, by reason only of the interest of the director or officer in the contract or transaction, if

(a) disclosure of the interest was made in accordance with this Act; or

(b) disclosure of the interest was not made in accordance with this Act but

(i) disclosure of the interest was made,

(ii) the contract or transaction is approved by a majority of the members of the cooperative or a majority of the members present at a meeting of the members, and

(iii) the contract or transaction was reasonable and fair to the cooperative at the time it was approved.

107. If a director or officer of a cooperative fails to disclose an interest in a material contract or transaction in accordance with section 103, or otherwise fails to comply with sections 103 to 106, a court may, on the application of the cooperative or a member or shareholder, set aside the contract or transaction on any terms that it thinks fit or order that the director or officer account to the cooperative, its members or its shareholders for any profit realized from the contract or transaction.

Proposed Wording
106. A contract or transaction for which disclosure is required under section 103 is not invalid, and the director or officer is not accountable to the cooperative, its members or its shareholders for any profit realized from the contract or transaction because of the director's or officer's interest in it or because the director was present or was counted to determine whether a quorum existed at the meeting of directors or committee of directors that considered the contract or transaction if

(a) disclosure of the interest was made in accordance with sections 103 to 105;

(b) the directors approved the contract or transaction; and

(c) the contract or transaction was reasonable and fair to the cooperative when it was approved.

106.1 Even if the conditions of section 106 are not met, a director or officer, acting honestly and in good faith, is not accountable to the cooperative, its members or its shareholders for any profit realized from a contract or transaction for which disclosure is required under section 103 and the contract or transaction is not invalid by reason only of the interest of the director or officer in the contract or transaction if

( a ) the contract or transaction is approved or confirmed by special resolution at a meeting of the members;

( b ) disclosure of the interest was made to the members in a manner sufficient to indicate its nature before the contract or transaction was approved or confirmed; and

( c ) the contract or transaction was reasonable and fair to the cooperative when it was approved or confirmed.

107. If a director or officer of a cooperative fails to disclose an interest in a material contract or transaction in accordance with section 103, or otherwise fails to comply with sections 103 to 106.1, a court may, on the application of the cooperative or a member or shareholder, set aside the contract or transaction on any terms that it thinks fit or order that the director or officer account to the cooperative, its members or its shareholders for any profit realized from the contract or transaction.

Bill Clause No.: 171
CCA Section No. :109(3)(g) and (j)
Topic : Directors and Officers (Technical Amendments)

Sources of Proposed Law
N/A

Changes From Present Law
(A) Add in s. 109(3)(g) "except as authorized by the directors";

(B) Add new s. 109(3)(j) to preclude delegation of the directors' authority in section 126 [to designate a series of investment shares to be issued and amend the articles] except in the manner and within the limits authorized by the directors.

Purpose of Change
The general thrust of s. 109(3) is to prohibit delegation of matters core to the directors authority and for which liability will arise. These amendments clarify the limits on the power of the full board of directors to delegate their powers.

The proposed amendment to s. 109(3)(g) would allow the delegation of authority relating to commissions.

The proposed amendment to add s.109(3)(j) would ensure that, in keeping with the restraints on delegation, the authority in CCA s. 126 to designate a series of investment shares to be issued and amend the articles would only be exercised by the full board.

Similar Provincial Laws
N/A

Current Wording
109. (3) The directors may delegate to a managing director or a committee composed of at least three directors any powers of the directors, except the power to

…

(g) pay a commission referred to in section 128;

(h) approve a management proxy circular referred to in Part 9;or

(i) issue securities, except in the manner and on the terms authorized by the directors.

Proposed Wording
109 (3) (g) pay a commission referred to in section 128, except as authorized by the directors;

( j ) issue investment shares of a series under section 126 except as authorized by the directors.

Bill Clause No. : 172
CCA Section No. : 111
Topic : Directors and Officers (Directors' Liability)

Sources of Proposed Law

Proposed amendments to the Canada Business Corporations Act (CBCA)

Changes From Present Law
Clarification of the due diligence defense.

Purpose of Change
This change clarifies the wording of the due diligence defence and harmonizes it with the proposed amendments to the CBCA.

Similar Provincial Laws
N/A

Current Wording
111. A director is not liable under this Part if the director exercised the care, diligence and skill that a reasonably prudent person would have exercised in comparable circumstances to prevent the failure to fulfill their duties, including reliance in good faith on financial statements of the cooperative, on the reports of experts and on information presented by officers or professionals

Proposed Wording
111. A director is not liable under this Part if the director exercised the care, diligence and skill that a reasonably prudent person would have exercised in comparable circumstances, including reliance in good faith on

( a ) financial statements of the cooperative represented to the director by an officer of the cooperative or in a written report of the auditor of the cooperative fairly to reflect the financial condition of the cooperative; or

b ) a report of a person whose profession lends credibility to a statement made by the professional person.

Bill Clause No. :173
CCA Section No. :113(2) and (5)(a)
Topic : Directors and Officers (Directors' Liability)

Sources of Proposed Law
N/A

Changes From Present Law
Amend s. 113(2) to add the words "charges and expenses" after "costs" and to remove the words "the court determines that".

Amend par 113(5)(a) to add the words "or the competent authority".

Purpose of Change
To harmonize with proposed amendments to the CBCA.

Similar Provincial Laws
N/A

Current Wording
113. (2) A cooperative may advance moneys to a director, officer or other individual for the costs of a proceeding referred to in subsection (1). The individual must repay the moneys if the court determines that the individual did not fulfil the conditions of subsection (3), unless the members and shareholders decide, by separate resolutions, that the individual need not repay the moneys.

(5) An individual referred to in subsection (1) is entitled to indemnity from the cooperative for the costs, charges and expenses referred to in that subsection if the individual

(a) was not judged by the court to have committed any fault or omitted to do anything that the individual ought to have done; and

Proposed Wording
113. (2) A cooperative may advance moneys to a director, officer or other individual for the costs, charges and expenses of a proceeding referred to in subsection (1). The individual must repay the moneys if the individual did not fulfil the conditions of subsection (3), unless the members and shareholders decide, by separate resolutions, that the individual need not repay the moneys.

(a) was not judged by the court or other competent authority to have committed any fault or omitted to do anything that the individual ought to have done; and

Bill Clause No. :174
CCA Section No. :115(1), (3), (4), (5) and new (6)
Topic :Directors and Officers (Unanimous Agreements)

Sources of Proposed Law
Proposed amendments to the Canada Business Corporations Act (CBCA)

Changes From Present Law
Changes would clarify the rules under a unanimous agreement.

Purpose of Change
In subs. 115(1) and (5), reference to the "discretion" of directors would be removed.

A new subs. 115(6) would be added to deal with this issue (see below).

In subs. 115(3), the phrase "Subject to this section but despite subsection 183(2)" would be removed. These reference are not needed.

A cross-reference to s. 183(2) is added to s. 115(4) in order to highlight that a notice pursuant to s. 183(2) is an example of sufficient notice.

The current subs. 115(6) and (7) would be repealed. By definition, a unanimous agreement has to restrict in whole, or in part, the powers of the directors (see subs. 115(1)). Rules and procedures governing meetings are not in the directors' powers. Consequently, they cannot be included in a unanimous agreement.

A new subs. 115(6) would remove the uncertainty regarding the extent to which a member who enters into a unanimous agreement is bound by common law rules regarding the duties of directors. For instance, at common law, directors who owe a fiduciary duty cannot fetter their discretion; they are required to remain free to make their decisions in the best interests of the cooperative. One of the purposes of a unanimous agreement is to permit members to agree in advance how a particular issue will be decided, for example the allocation of patronage returns. This amendment will achieve this purpose.

Subs. 115(8) of the Act is repealed because a unanimous shareholder agreement is a private arrangement among shareholders and disclosure of the existence of this arrangement may discourage the use of federal incorporations.

Similar Provincial Laws
Business Corporations Act (Ontario)

Companies Act (Québec)

Corporations Act (Manitoba)

Corporations Act (Newfoundland)

Business Corporations Act (Saskatchewan)

Current Wording
115. (1) A provision in the articles of the cooperative or in a unanimous agreement that restricts, in whole or in part, the discretion or powers of the directors to manage, or supervise the management of, the business and affairs of the cooperative or vests, in whole or in part, but only in members and subject to subsection 76(1), that discretion and those powers, is valid.

(3) Subject to this section but despite subsection 183(2), any purchaser or transferee of an investment share that is subject to a unanimous agreement is deemed to be party to the unanimous agreement.

(4) If notice is not given to the purchaser or transferee of the existence of a unanimous agreement, the purchaser or transferee may, no later than thirty days after they become aware of its existence, rescind the transaction by which they acquired the investment shares.

(5) To the extent that a provision in the articles of the cooperative, or in a unanimous agreement, restricts the discretion or powers of the directors to manage, or supervise the management of, the business and affairs of the cooperative, members who are given that power to manage or supervise the management of the business and affairs of the cooperative have all the rights, powers, duties and liabilities of directors, whether they arise under this Act or otherwise, including any defences available to the directors, and the directors are relieved of their rights, powers, duties and liabilities, including their liabilities under section 102, to the same extent.

(6) A unanimous agreement may contain provisions respecting the rules and procedures governing meetings under this Act and provisions that eliminate the need for annual meetings of shareholders and meetings of directors.

(7) If there is to be no annual meeting of shareholders because of a provision in a unanimous agreement, the cooperative must send a copy of the documents referred to in section 247 to any shareholder who requests it.

(8) A notice of the initial execution or the termination of a unanimous agreement, in the form that the Director fixes, must be sent to the Director at the same time as the annual return referred to in section 374.

Proposed Wording
115. (1) A provision in the articles of the cooperative or in a unanimous agreement that restricts, in whole or in part, the powers of the directors to manage, or supervise the management of, the business and affairs of the cooperative or vests, in whole or in part, but only in members and subject to subsection 76(1), those powers, is valid.

(3) A purchaser or transferee of an investment share that is subject to a unanimous agreement is deemed to be party to the unanimous agreement.

(4) If notice is not given to the purchaser or transferee of the existence of a unanimous agreement, in the manner referred to in subsection 183(2) or otherwise, the purchaser or transferee may, no later than thirty days after they become aware of its existence, rescind the transaction by which they acquired the investment shares.

(5) To the extent that a provision in the articles of the cooperative, or in a unanimous agreement, restricts the powers of the directors to manage, or supervise the management of, the business and affairs of the cooperative, members who are given that power to manage or supervise the management of the business and affairs of the cooperative have all the rights, powers, duties and liabilities of directors, whether they arise under this Act or otherwise, including any defences available to the directors, and the directors are relieved of their rights, powers, duties and liabilities, including their liabilities under section 102, to the same extent.

(6) Nothing in this section prevents members from fettering their discretion when exercising the powers of directors under a unanimous agreement.