Part 5 Corporate Finance (clauses 17-22)

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The principal amendment proposed in this Part is the repeal of the current financial assistance provisions (s. 44), together with consequential amendments necessary to give effect to this change.

Other amendments include the following:

• The provision relating to stated capital account would be amended to provide for more flexibility in the adjustment of the stated capital account in respect of arm's length transactions (s. 26).
• The section pertaining to the issuance of shares in series (s. 27) would be clarified to provide that the articles may authorize the issue of any class of shares in one or more series and also fix the number of shares in, and determine the designation, rights, privileges, restrictions and conditions attaching to the shares of each series.
• Amendments providing a number of limited exceptions to the general rule prohibiting subsidiaries from acquiring shares of the parent corporation (s. 31(3) to (6)).
• The addition of a new provision prohibiting a corporation which holds shares in itself or in its holding body corporate to vote or permit those shares to be voted, subject to certain conditions.
• An amendment clarifying the financial tests relating to payments to shareholders by way of dividends, acquisition of shares and reduction of stated capital (ss. 35(3) and 36(2)), in order to avoid double counting as a result of changes to section 3860 of the CICA Handbook.
• A number of technical changes are proposed to update and clarify the wording of the Part and to reconcile the English and French versions of the Act.

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

Bill Clause No.: 17
CBCA Section No.:30(1)(a) and (2)
Topic :Corporate Finance(Technical Amendments)

Sources of Proposed Law
N/A

Changes From Present Law 
Amend the French version to replace the expression "société mère" with the more accurate expression "personne morale mère".

Amend subs. 30(2) to provide that it is subject to s. 31.

Purpose of Change 
This technical change clarifies the wording and application of the Act.

This amendment would clarify that s. 31 is an exception to the prohibition found in subs. 30(2).

Similar Provincial Laws 
Business Corporations Act (Ontario)

Current Wording 
30. (1) Sous réserve du paragraphe (2) et des articles 31 à 36, la société ne peut:

a) ni détenir ses propres actions ni celles de sa société mère;

(2) A corporation shall cause a subsidiary body corporate of the corporation that holds shares of the corporation to sell or otherwise dispose of those shares within five years from the date

(a) the body corporate became a subsidiary of the corporation; or

(b) the corporation was continued under this Act.

Proposed Wording 
30.(1) Sous réserve du paragraphe (2) et des articles 31 à 36, la société ne peut:

a) ni détenir ses propres actions ni celles de sa personne morale mère;

(2) Subject to section 31, a corporation shall cause a subsidiary body corporate of the corporation that holds shares of the corporation to sell or otherwise dispose of those shares within five years from the date

Bill Clause No. :18
CBCA Section No.:31 (1), (2) and new (3),(4), (5) and (6)
Topic :Corporate Finance(Technical Amendment

Sources of Proposed Law
N/A

Changes From Present Law 
Add a new subsection to allow a subsidiary body corporate to purchase and hold shares in the corporation in the capacity of a legal representative and by way of security.

Clarification of the French version (subs. 31(1) and (2)).

Add a specific exception that allows a subsidiary to acquire shares of its parent, subject to prescribed conditions.

Purpose of Change 
While s. 31 provides exceptions to the general prohibition in par. 30(1)(a) on corporations holding shares in themselves or a holding corporation (where done as a legal representative or by way of security), no parallel exception is made in respect of the par. 30(1)(b) prohibition on a corporation permitting any of its subsidiary body corporates to acquire shares of the corporation. This change would allow a subsidiary body corporate to purchase and hold shares in the corporation in the capacity of a legal representative and by way of security.

These technical changes clarify the wording and application of the Act.

The CBCA stipulates that a corporation "shall not permit any of its subsidiary bodies corporate to acquire shares of the corporation." This limitation of corporate share ownership, commonly referred to as the "corporate incest" rule, is intended to protect the corporation's stated capital for the benefit of creditors, the prevention of entrenchment by management, and to reduce the potential for market manipulation by directors. Stakeholders have requested Industry Canada to consider amending the CBCA to provide for a specific exception which would allow a foreign subsidiary of a Canadian corporation to acquire and use as "currency" shares of its Canadian parent corporation in order to facilitate the foreign subsidiary acquiring, by merger, takeover or other business combination, a foreign target corporation.

Similar Provincial Laws 
Business Corporations Act (Ontario)

Current Wording 
31. (1) La société peut, en qualité de mandataire, détenir ses propres actions ou des actions de sa société mère, à l'exception de celles sur lesquelles l'une ou l'autre d'entre elles ou leurs filiales ont un droit découlant des droits du véritable propriétaire.

(2) La société peut détenir ses propres actions, ou des actions de sa société mère, à titre de garantie dans le cadre d'opérations conclues dans le cours ordinaire d'une activité commerciale comprenant le prêt d'argent.

Proposed Wording 
31. (1) La société peut, en qualité de mandataire, détenir ses propres actions ou des actions de sa personne morale mère, à l'exception de celles dont l'une ou l'autre d'entre elles ou leurs filiales ont la propriété effective.

(2) La société peut détenir ses propres actions, ou des actions de sa personne morale mère, à titre de garantie dans le cadre d'opérations conclues dans le cours ordinaire d'une activité commerciale comprenant le prêt d'argent.

(3) A corporation may permit any of its subsidiary bodies corporate to acquire shares of the corporation

(a) in the subsidiary's capacity as a legal representative, unless the subsidiary would have a beneficial interest in the shares; or

(b) by way of security for the purposes of a transaction entered into by the subsidiary in the ordinary course of a business that includes the lending of money.

(4) A corporation may permit any of its subsidiary bodies corporate to acquire shares of the corporation through the issuance of those shares by the corporation to the subsidiary body corporate if, before the acquisition takes place, the conditions prescribed for the purposes of this subsection are met.

(5) After an acquisition has taken place under the purported authority of subsection (4), the conditions prescribed for the purposes of this subsection must be met.

(6) If

(a) a corporation permits a subsidiary body corporate to acquire shares of the corporation under the purported authority of subsection (4), and

(b) either

(i) one or more of the conditions prescribed for the purposes of subsection (4) were not met, or

(ii) one or more of the conditions prescribed for the purposes of subsection (5) are not met or cease to be met,

then, notwithstanding subsections 16(3) and 26(2), the prescribed consequences apply in respect of the acquisition of the shares and their issuance.

Bill Clause No. :19
CBCA Section No.: 33(1) and new (2)
Topic :Corporate Finance(Technical Amendment)

Sources of Proposed Law 
N/A

Changes From Present Law 
Add a new subsection to s. 33 to provide that the corporation shall not permit a subsidiary body corporate to vote shares in the corporation, except in same circumstances as now set out in s. 33.

Purpose of Change 
The s. 33 prohibition on voting shares applies only in one direction -- voting by the corporation of its own or holding corporations shares -- and does not provide for prohibitions on a subsidiary body corporate voting shares in a CBCA corporation. The equivalent provision of the Business Corporations Act (Ontario) deals with both situations (subs. 29(8)).

Similar Provincial Laws 
Business Corporations Act (Ontario)

Current Wording 
33. A corporation holding shares in itself or in its holding body corporate shall not vote or permit those shares to be voted unless the corporation

(a) holds the shares in the capacity of a legal representative; and

(b) has complied with section 153.

Proposed Wording 
33. (1) A corporation holding shares in itself or in its holding body corporate shall not vote or permit those shares to be voted unless the corporation

(a) holds the shares in the capacity of a legal representative; and

(b) has complied with section 153.

(2) A corporation shall not permit any of its subsidiary bodies corporate holding shares in the corporation to vote, or permit those shares to be voted, unless the subsidiary body corporate satisfies the requirements of subsection (1).

Bill Clause No. :20
CBCA Section No.: 34(2)
Topic :Corporate Finance(Technical Amendments)

Sources of Proposed Law 
N/A

Changes From Present Law 
Amend the French version of s. 34(2) by replacing the word "acheter" with "faire aucun paiement en vue"

Purpose of Change 
This technical change clarifies the wording and application of the Act.

Similar Provincial Laws
N/A

Current Wording 
34. (2) La société ne peut acheter ou autrement acquérir des actions qu'elle a émises s'il existe des motifs raisonnables de croire que :

Proposed Wording 
34. (2) La société ne peut faire aucun paiement en vue d'acheter ou d'acquérir autrement des actions qu'elle a émises s'il existe des motifs raisonnables de croire que :

Bill Clause No.: 21 and 22
CBCA Section No.: 35(3), (3)(b)(ii), 36(1), (2) and (b)(ii)
Topic : Corporate Finance(Technical Amendment)

Sources of Proposed Law
N/A

Changes From Present Law 
(A) Provide for a way to avoid the double counting of certain elements where the financial tests are calculated following the CICA Handbook, section 3860.

(B) Make the French and English versions of s. 36(1) equivalent.

(C) Amend the French version of ss. 35(3) and 36(2) by replacing the word "acheter" with "faire aucun paiement en vue"M

Purpose of Change 
(A) This amendment is necessary in order to clarify the financial tests (which relate to payments to shareholders by way of dividends, acquisition of shares and reduction of stated capital) and, in particular, to avoid double counting, as a result of changes to section 3860 of the CICA Handbook

(B) and (C) Technical changes which would clarify the wording and application of the Act

Similar Provincial Laws 
N/A

Current Wording  
35. (3) La société ne peut acheter ou autrement acquérir, conformément au paragraphe (1), des actions qu'elle a émises s'il existe des motifs raisonnables de croire que:

(b)(ii) the amount required for payment on a redemption or in a liquidation of all shares the holders of which have the right to be paid prior to the holders of the shares to be purchased or acquired.

36. (1) Nonobstant les paragraphes 34(2) ou 35(3), mais sous réserve du paragraphe (2) et de ses statuts, la société peut acheter ou racheter des actions rachetables qu'elle a émises, à un prix calculé en conformité avec les statuts et ne dépassant pas le prix de rachat qu'ils fixent.

(2) La société ne peut acheter ou racheter des actions rachetables qu'elle a émises s'il existe des motifs raisonnables de croire que:

(b)(ii) the amount that would be required to pay the holders of shares that have a right to be paid, on a redemption or in a liquidation, rateably with or prior to the holders of the shares to be purchased or redeemed.

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