Analysis of the Changes to the Canada Business Corporations Act

The following new definitions to s. 2(1) are proposed:

distributing corporation
going-private transactions
entity
officer
personal representative
squeeze-out transaction
infant

The purpose of these additions is to clarify the language of the CBCA, to reduce ambiguity, to harmonize with provincial securities legislation and to update the CBCA to reflect current business terminology. These changes are required due to amendments to other parts of the Act.

In addition, a number of technical amendments are proposed to update terminology, to clarify wording 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. 1(1)
CBCA Section No. 2(1)
Topic: Interpretation and Application (Technical Amendments)

Sources of Proposed Law

Changes From Present Law
Amend the definitions of "auditor", "person" and "unanimous shareholder agreement".

Purpose of Change
The purpose of these additions are to clarify the language of the CBCA, to reduce ambiguity, and to update the CBCA to reflect current business terminology. These changes are required due to amendments to other portions of the Act.

The definition of "auditor" is amended to reflect the fact that auditors are allowed to incorporate in some provinces.

Similar Provincial Laws

Current Wording
2. (1) "auditor" includes a partnership of auditors;

"person" includes an individual, partnership, association, body corporate, trustee, executor, administrator or legal representative;

"unanimous shareholder agreement" means an agreement described in subsection 146(2) or a declaration of a shareholder described in subsection 146(3).

Proposed Wording
2. (1) "auditor" includes a partnership of auditors or an auditor that is incorporated;

"person" means an individual, partnership, association, body corporate, or personal representative;

"unanimous shareholder agreement" means an agreement described in subsection 146(1) or a declaration of a shareholder described in subsection 146(2).

Bill Clause No. 1(2)
CBCA Section No. 2(1)
Topic: Interpretation and Application (Technical Amendments)

Sources of Proposed Law

Changes From Present Law
Replace the definition of "mandataire" in the French version with "s'entend notamment de l'ayant cause".

Purpose of Change
The definition of "mandataire" is removed (definition found in the French version only). However, reference to "s'entend notamment de l'ayant cause" should be kept because it is not included in the usual concept of "mandataire".

Similar Provincial Laws

Current Wording
2. (1) "mandataire" Personne qui agit pour le compte d'autrui, y compris l'ayant cause.

Proposed Wording
2. (1) "mandataire" S'entend notamment de l'ayant cause.

Bill Clause No.`1(3) and (4)
CBCA Section No. 2(1) def. of "associate"
Topic: Interpretation and Application (Technical Amendments)

Sources of Proposed Law

Changes From Present Law
The definition of "associate" in subsection 2(1) of the English version is replaced before paragraph (a) with "associate, in respect of a relationship with a person, means";

And "liquidator of the succession" is added in par. (c) of the definition of "associate".

Purpose of Change
The purpose of the changes are to clarify and simplify the language of the Act and to reduce ambiguity.

Similar Provincial Laws

Current Wording
2. (1) "associate" when used to indicate a relationship with any person, means

(c) a trust or estate in which that person has a substantial beneficial interest or in respect of which he serves as a trustee or in a similar capacity,

Proposed Wording
2. (1) "associate", in respect of a relationship with a person, means

(c) a trust or estate in which that person has a substantial beneficial interest or in respect of which that person serves as a trustee or liquidator of the succession or in a similar capacity,

Bill Clause No. 1(5)
CBCA Section No. 2(1)
Topic: Interpretation and Application (Securities Terminology)

Sources of Proposed Law

Changes From Present Law
This change adds the following new definitions to s. 2(1): distributing corporation, going- private transactions, entity, officer, personal representative and squeeze-out transaction.

Purpose of Change
The purpose of these additions is to clarify the language of the CBCA, to reduce ambiguity, and to update the CBCA to reflect current business terminology. These changes are required due to amendments to other portions of the Act.

The definitions of "distributing corporation" and "going private transactions" will be set in the regulations to allow flexibility. This flexibility is necessary given the complexity of/differences in provincial securities law terminology to which these definitions should be matched as closely as possible and because the terminology changes over time.

A definition "squeeze-out transaction" is required because these will be permitted under the Act. The use of the term "going-private transaction" in the CBCA is adequate for distributing corporations because it refers to the same concept as going-private transactions under provincial securities laws/policies. The transactions do not occur within the same context in the case of non-distributing corporations. Further, parties are not the same and the applicable standards of fairness will be different (see clause 97). Accordingly, different terminology is used. The term "squeeze-out transaction" was chosen because it connotes the concept of a shareholder being forced out of the corporation without the shareholder's consent.

Similar Provincial Laws

Current Wording
N/A

Proposed Wording
2. (1) "distributing corporation" means, subject to subsections (6) and (7), a distributing corporation as defined in the regulations;

"entity" means a body corporate, a partnership, a trust, a joint venture or an unincorporated association or organization;

"going-private transaction" means a going-private transaction as defined in the regulations;

"officer" means an individual appointed as an officer under section 121, the chairperson of the board of directors, the president, a vice-president, the secretary, the treasurer, the comptroller, the general counsel, the general manager, a managing director, of a corporation, or any other individual who performs functions for a corporation similar to those normally performed by an individual occupying any of those offices;

"personal representative" means a person who stands in place of and represents another person including, but not limited to, a trustee, an executor, an administrator, a receiver, an agent, a liquidator of a succession, a guardian, a tutor, a curator, a mandatary or an attorney;

"squeeze-out transaction" means a transaction by a corporation that is not a distributing corporation that would require an amendment to its articles and would, directly or indirectly, result in the interest of a holder of shares of a class of the corporation being terminated without the consent of the holder, and without substituting an interest of equivalent value in shares issued by the corporation, which shares have equal or greater rights and privileges than the shares of the affected class;

Bill Clause No. 1(6)
CBCA Section No. 2(4)
Topic: Interpretation and Application (Technical Amendments)

Sources of Proposed Law

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

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

Similar Provincial Laws

Current Wording
2. (4) Est la société mère d'une personne morale celle qui la contrôle.

Proposed Wording
2. (4) Est la personne morale mère d'une personne morale celle qui la contrôle.

Bill Clause No. 1(7)
CBCA Section No. 2(6), (7) and (8)
Topic: Interpretation and Application (Government Administration)

Sources of Proposed Law
United Nations Convention on the Rights of the Child

Changes From Present Law
(A) Update and broaden the Director's individual exemption power in the current s. 2(8) to allow case-by-case exemptions from a corporation being a "distributing corporation" and to permit the Director to grant the exemptions where it would not be prejudicial to the public interest.

This change will also add a broad new blanket exemption power to exempt a class or classes of corporations from being "distributing corporations" where it would not be prejudicial to the public interest.

(B) Include a provision to ensure that the CBCA is interpreted consistently with the definition of "child", as a person who is less than 18 years of age, as proposed by the United Nations Convention on the Rights of the Child.

Purpose of Change
(A) This change adds flexibility to the Act and its application by allowing the Director to exempt corporations from the requirements associated with being "distributing corporations".

(B) This provision was introduced at the suggestion of Mac Harb, M.P.

Similar Provincial Laws
Securities Act (Ontario)

Current Wording
2. (6) For the purposes of this Act, securities of a corporation

(a) issued on a conversion of other securities, or

(b) issued in exchange for other securities

are deemed to be securities that are part of a distribution to the public if those other securities were part of a distribution to the public.

(7) Subject to subsection (8), for the purposes of this Act a security of a body corporate

(a) is part of a distribution to the public where, in respect of the security, there has been a filing of a prospectus, statement of material facts, registration statement, securities exchange take-over bid circular or similar document under the laws of Canada, a province or a jurisdiction outside Canada; or

(b) is deemed to be part of a distribution to the public, where the security has been issued and a filing referred to in paragraph (a) would be required if the security were being issued currently.

(… )

(8) On the application of a corporation, the Director may determine that a security of the corporation is not or was not part of a distribution to the public if he is satisfied that such determination would not prejudice any security holder of the corporation.

Proposed Wording
2. (6) On the application of a corporation, the Director may determine that the corporation is not or was not a distributing corporation if the Director is satisfied that the determination would not be prejudicial to the public interest.

(7) The Director may determine that a class of corporations are not or were not distributing corporations if the Director is satisfied that the determination would not be prejudicial to the public interest.

(8) For the purposes of this Act, the word "infant" has the same meaning as in the applicable provincial law and, in the absence of any such law, has the same meaning as the word "child" in the United Nations Convention on the Rights of the Child, adopted in the United Nations General Assembly on November 20, 1989.

Bill Clause No. 2
CBCA Section No. 3(3)
Topic: Interpretation and Application (Technical Amendments)

Sources of Proposed Law

Changes From Present Law
Make the French and English versions of par. 3(3) equivalent.

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

Similar Provincial Laws

Current Wording
3. (3) Les lois suivantes ne s'appliquent pas à une personne morale :

a) la Loi sur les corporations canadiennes, chapitre C-32 des Statuts revisés du Canada de 1970;

b) la Loi sur les liquidations et les restructurations;

c) les dispositions de la loi spéciale au sens de l'article 87 de la Loi sur les transports au Canada qui sont incompatibles avec la présente loi.

Proposed Wording
3. (3) Les lois suivantes ne s'appliquent pas à une société :

a) la Loi sur les corporations canadiennes, chapitre C-32 des Statuts revisés du Canada de 1970;

b) la Loi sur les liquidations et les restructurations;

c) les dispositions de toute loi spéciale au sens de l'article 87 de la Loi sur les transports au Canada qui sont incompatibles avec la présente loi.

A number of amendments designed to update and improve the efficient administration of the CBCA are included in this Part, including an amendment prescribing the criteria relating to acceptable forms of names of corporations. In addition, the Director would no longer be required to give notice in the Canada Gazette. Information which is required to be made public would be posted on the Corporations Directorate's website.

Finally, a number of technical amendments are proposed to update terminology, to clarify wording 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. 3
CBCA Section No. 6(1)
Topic: Incorporation(Government Administration)

Sources of Proposed Law

Changes From Present Law
The words "in prescribed form" are replaced with "in the form that the Director fixes" whenever "in prescribed form" is used. The words "place within" are replaced with "province in" at s. 6(1)(b).

Purpose of Change
Replacing the words "in prescribed form" with "in the form that the Director fixes" will allow the Director to fix the form of documents to be sent to or by the Director. This amendment will remove the current requirement to have the form of documents prescribed in the regulations and will add flexibility to the Act. The following sections would be amended accordingly: 19, 106(1), 177(1), 180(2), 185(1), 186.1(4), 187(3), 188(8), 191(4), 192(6), 209(2), 210(4), 211(10) and (14), 212(3), 213(4), 262(2) and 263. [see clause 124]

In cases where a corporation wishes to change the location of its registered office, it must file with the Director a Notice of Change of Registered Office (Form 3), Articles of Amendment (Form 4) and cover the costs of filing Form 4. The amendment will give a corporation the flexibility of relocating its registered office anywhere within the province its registered office is situated without having to file Articles of Amendment.

Similar Provincial Laws

Current Wording
6.(1) Articles of incorporation shall follow the prescribed form and shall set out, in respect of the proposed corporation,

(b) the place within Canada where the registered office is to be situated;

Proposed Wording
6. (1) Articles of incorporation shall follow the form that the Director fixes and shall set out, in respect of the proposed corporation,

(b) the province in Canada where the registered office is to be situated;

Bill Clause No. 4
CBCA Section No. 8
Topic: Incorporation Government Administration)

Sources of Proposed Law

Changes From Present Law
The Director would have discretion to refuse to issue a certificate of incorporation in certain circumstances.

Purpose of Change
The Act does not clearly give the Director the discretion to refuse to issue a certificate of incorporation when the articles of incorporation indicate that the corporation to be incorporated would not be in compliance with the Act. This amendment would give the Director the discretion to refuse to incorporate a corporation where the documents indicate that the corporation to be formed is not in compliance with the Act.

The section requires a corporation to indicate compliance with the requirement to have at least one director, for at least twenty-five percent of the directors to be resident Canadians (or a majority if there are ownership restrictions), and for a registered office of the corporation to be located in Canada.

Similar Provincial Laws

Current Wording
8. On receipt of articles of incorporation, the Director shall issue a certificate of incorporation in accordance with section 262.

Proposed Wording
8. (1) Subject to subsection (2), on receipt of articles of incorporation, the Director shall issue a certificate of incorporation in accordance with section 262.

(2) The Director may refuse to issue the certificate if a notice that is required to be sent under subsection 19(2) or 106(1) indicates that the corporation, if it came into existence, would not be in compliance with this Act.

Bill Clause No. 5
CBCA Section No. 10(3)
Topic: Incorporation (Government Administration)

Sources of Proposed Law

Changes From Present Law
Regulations would define what are separate and combined language forms of name.

Purpose of Change
Subsection 10(3) of the CBCA is unclear as to what constitutes the form of the corporate name when corporations have more than one linguistic form of name. It is not clear whether the English and the French form constitute the full name of the corporation or whether either the English form alone or the French form alone may be used. If the English form and the French form of the name have to be used then this can also be interpreted as meaning both forms must appear wherever the corporate name appears. The use of the English form of the name and the French form of the name in every document issued by a corporation is unwieldy and adds to the cost of business administration.

This amendment will clarify the issue of how to properly refer in the articles to separate and combined language names.

Similar Provincial Laws

Current Wording
10. (3) Subject to subsection 12(1), a corporation may set out its name in its articles in an English form, a French form, an English form and a French form or in a combined English and French form and it may use and may be legally designated by any such form.

Proposed Wording
10. (3) Subject to subsection 12(1), the name of a corporation may be set out in its articles in an English form, a French form, an English form and a French form, or a combined English and French form, so long as the combined form meets the prescribed criteria. The corporation may use and may be legally designated by any such form.

Bill Clause No. 6
CBCA Section No. 13(1)
Topic: Incorporation (Government Administration)

Sources of Proposed Law

Changes From Present Law
The reference to publish the required notice in the Canada Gazette would be eliminated.

Purpose of Change
The purpose of requiring public notice of exemption decisions is to ensure that decision making takes place in an open manner. Currently, notification takes place in the Canada Gazette. This publication, however, is not the method which best reaches the public.

This amendment will allow publication in whichever publication that is best suited to the task. The intention is to use the Industry Canada Corporations Directorate website for the publication of required notices. The following sections would be amended accordingly: 151(2), 212(2(b), 213(4)(b), 235(3), 262(2)(b)(v), 265(8) and 267.1.

Similar Provincial Laws

Current Wording
13. (1) When a corporation has had its name revoked and a name assigned to it under subsection 12(5), the Director shall issue a certificate of amendment showing the new name of the corporation and shall forthwith give notice of the change of name in the Canada Gazette or in the periodical referred to in section 129.

Proposed Wording
13. (1) When a corporation has had its name revoked and a name assigned to it under subsection 12(5), the Director shall issue a certificate of amendment showing the new name of the corporation and shall give notice of the change of name as soon as practicable in a publication generally available to the public.

Bill Clause No. 7
CBCA Section No. 14(1) and (3)
Topic: Incorporation (Technical Amendments)

Sources of Proposed Law

Changes From Present Law
Clarify that subs. 14(1) applies to contracts purported to be entered into with a corporation prior to its incorporation.

Purpose of Change
The proposed amendment clarifies the intention of the section, which is to protect third parties who enter into pre-incorporation contracts with as yet unformed corporations. The person who purports to act on behalf of the corporation is personally liable under the contract. The amendment removes a gap with the wording of the provision by adding the wording "purports to enter into a written contract". The 1989 Ontario Divisional Court decision in Westcom Radio Group Ltd. v. MacIsaac confused the law in this area. In that case, the Court held that the pre-incorporation contract was a nullity because the plaintiff intended to contract with a non-existent company. The pre-incorporation contract provision in the Ontario Business Corporation Act, which is similar to CBCA s. 14, did not apply since no contract came into existence. The Westcom decision has been criticized by commentators as narrowly interpreting the legislation, defeating its clear purpose and leading to uncertainty in the law. The 1998 decision of the Ontario Court of Appeal in Szecket v. Huang effectively, although not expressly, overruled this decision and it is now clear that Westcom no longer represents the law in this area. The proposed amendment is consistent with the interpretation given to the provision in Szecket v. Huang.

Similar Provincial Laws
The Business Corporations Act (Saskatchewan)

Current Wording
14. (1) Subject to this section, a person who enters into a written contract in the name of or on behalf of a corporation before it comes into existence is personally bound by the contract and is entitled to the benefits thereof.

(3) Subject to subsection (4), whether or not a written contract made before the coming into existence of a corporation is adopted by the corporation, a party to the contract may apply to a court for an order fixing obligations under the contract as joint or joint and several or apportioning liability between or among the corporation and a person who purported to act in the name of or on behalf of the corporation and on such application the court may make any order it thinks fit.

Proposed Wording
14. (1) Subject to this section, a person who enters into, or purports to enter into, a written contract in the name of or on behalf of a corporation before it comes into existence is personally bound by the contract and is entitled to its benefits.

(3) Subject to subsection (4), whether or not a written contract made before the coming into existence of a corporation is adopted by the corporation, a party to the contract may apply to a court for an order respecting the nature and extent of the obligations and liability under the contract of the corporation and the person who entered into, or purported to enter into, the contract in the name of or on behalf of the corporation. On the application, the court may make any order it thinks fit.

One minor amendment to this part is proposed (s. 18) to reflect the repeal of the financial assistance provisions (see Part 5). In addition, a number of technical changes are proposed to update and clarify the wording of the section.

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

Bill Clause No.: 8
CBCA Section No.: 18
Topic :Capacity and Powers (Technical Amendments)

Sources of Proposed Law
N/A

Changes From Present Law
Reword s. 18 and remove the reference to s. 44.

Purpose of Change
This change amends s. 18 to reflect changes made to other sections of the Act.

Similar Provincial Laws
N/A

Current Wording
18. A corporation or a guarantor of an obligation of the corporation may not assert against a person dealing with the corporation or with any person who has acquired rights from the corporation that

(a) the articles, by-laws and any unanimous shareholder agreement have not been complied with,

(b) the persons named in the most recent notice sent to the Director under section 106 or 113 are not the directors of the corporation,

(c) the place named in the most recent notice sent to the Director under section 19 is not the registered office of the corporation,

(d) a person held out by a corporation as a director, an officer or an agent of the corporation has not been duly appointed or has no authority to exercise the powers and perform the duties that are customary in the business of the corporation or usual for such director, officer or agent,

(e) a document issued by any director, officer or agent of a corporation with actual or usual authority to issue the document is not valid or not genuine, or

(f) financial assistance referred to in section 44 or a sale, lease or exchange of property referred to in subsection 189(3) was not authorized,

except where the person has or ought to have by virtue of his position with or relationship to the corporation knowledge to the contrary.

Proposed Wording
18. (1) No corporation and no guarantor of an obligation of a corporation may assert against a person dealing with the corporation or against a person who acquired rights from the corporation that

(a) the articles, by-laws and any unanimous shareholder agreement have not been complied with;

(b) the persons named in the most recent notice sent to the Director under section 106 or 113 are not the directors of the corporation;

(c) the place named in the most recent notice sent to the Director under section 19 is not the registered office of the corporation;

(e) a document issued by any director, officer or agent of a corporation with actual or usual authority to issue the document is not valid or not genuine; or

(f) a sale, lease or exchange of property referred to in subsection 189(3) was not authorized.

(2) Subsection (1) does not apply in respect of a person who has, or ought to have, knowledge of a situation described in that subsection by virtue of their relationship to the corporation.

This Part would be amended to provide that the articles of a corporation must specify the province, instead of the place, of the registered office together with consequential amendments to give effect to this change where appropriate (s. 19).

An amendment is proposed to permit corporate and accounting records to be kept at a place outside Canada as long as they are accessible electronically at the registered office or any other place in Canada designated by the directors. This amendment, would be subject to any restrictions imposed by the Income Tax Act, the Excise Tax Act, the Customs Act and all other legislation administered by National Revenue, which requires the maintenance of books and records in Canada (s. 20).

Amendments are also proposed to require an affidavit before access to the securities register of a distributing corporation is authorized and allow a reasonable fee to be charged for extracts (s. 21).

In addition, 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. :9
CBCA Section No. :19
Topic : Registered Office and Records (Technical Amendments)

Sources of Proposed Law
N/A

Changes From Present Law
Subs. 19(1), (2) and (3) would be amended to provide that the registered office shall be in the province specified in the articles, that articles changing the province of the registered office shall be sent to the Director and that the directors are authorized to change the place and address of the registered office within the province specified in the articles.

Purpose of Change
Currently, the "place" (city) where the registered office is to be situated must be set out in the articles. The directors can change the office (address/the building) within the city (place), but an amendment to the articles is required if the "place" is changed.

The proposed amendment would permit the directors to change the place and address of the registered office within the province specified in the articles. A consequential amendment would be also made to s. 6(1)(b).

Similar Provincial Laws
N/A

Current Wording
19. (1) A corporation shall at all times have a registered office in the place within Canada specified in its articles.

(2) A notice of registered office in prescribed form shall be sent to the Director together with any articles that designate or change the place of the registered office of the corporation.

(3) The directors of a corporation may change the address of the registered office within the place specified in the articles.

(4) A corporation shall send to the Director, within fifteen days of any change of address of its registered office, a notice in prescribed form and the Director shall file it.

Proposed Wording

19. (1) A corporation shall at all times have a registered office in the province in Canada specified in its articles.

(2) A notice of registered office in the form that the Director fixes shall be sent to the Director together with any articles that designate or change the province where the registered office of the corporation is located.

(3) The directors of a corporation may change the place and address of the registered office within the province specified in the articles.

(4) A corporation shall send to the Director, within fifteen days of any change of address of its registered office, a notice in the form that the Director fixes and the Director shall file it.

Bill Clause No.:10
CBCA Section No.: 20(5) and new (5.1)
Topic : Registered Office and Records (Directors' Residency)

Sources of Proposed Law
N/A

Changes From Present Law

Permit corporate and accounting records referred in subs. 20(1) and (5) to be kept at a place outside Canada as long as they are accessible electronically at the registered office, or any other place in Canada designated by the directors, provided they do not undermine the provisions of the Income Tax Act, the Excise Tax Act, the Customs Act and all other legislation administered by National Revenue, which requires the maintenance of books and records in Canada. Require the corporation to provide reasonable assistance to examine such corporate records held in electronic form and that these records shall be available for inspection during regular office hours.

Subsection 20(5) has been amended so as to replace the words "other office in Canada" with "any other place in Canada designated by the directors."

Purpose of Change
Computer information storage services are now international. The CBCA requires that certain corporate records and adequate accounting records be kept in Canada. Some Canadian corporations, however, want to take advantage of storage services offered outside Canada, particularly in the United States.

Revenue Canada has expressed concerns about allowing corporate records, particularly accounting records, to be kept outside Canada. The Income Tax Act requires that "records and books of accounts" shall be kept in Canada or such other place as may be designated by the Minister of National Revenue (s. 230(1)). The proposed provision would make it clear that the CBCA requirement is subject to the Income Tax Act and any other Act administered by the Minister of National Revenue. Also a requirement is imposed on the corporation to make its records available by means of a computer terminal or other technology and to provide technical assistance to facilitate their inspection.

Similar Provincial Laws
Business Corporations Act (Ontario)

Current Wording
20. (5) Where accounting records of a corporation are kept at a place outside Canada, there shall be kept at the registered office or other office in Canada accounting records adequate to enable the directors to ascertain the financial position of the corporation with reasonable accuracy on a quarterly basis.

Proposed Wording
20. (5) If accounting records of a corporation are kept outside Canada, accounting records adequate to enable the directors to ascertain the financial position of the corporation with reasonable accuracy on a quarterly basis shall be kept at the registered office or any other place in Canada designated by the directors.

(5.1) Despite subsections (1) and (5), but subject to the Income Tax Act, the Excise Tax Act, the Customs Act and any other Act administered by the Minister of National Revenue, a corporation may keep all or any of its corporate records and accounting records referred to in subsection (1) or (2) at a place outside Canada, if

(a) the records are available for inspection, by means of a computer terminal or other technology, during regular office hours at the registered office or any other place in Canada designated by the directors; and

(b) the corporation provides the technical assistance to facilitate an inspection referred to in paragraph (a).

Bill Clause No. : 11
CBCA Section No. : 21(1), new (1.1), (3) (7)(8) and (9)
Topic :Registered Office and Records(Technical Amendments)

Sources of Proposed Law
N/A

Changes From Present Law
Add a new subsection 21(1.1) to require an affidavit under s. 21(1) before access to the securities register of a distributing corporation is authorized and allow a reasonable fee to be charged for extracts.

Amend s. 21(3)(7)(8) and (9) to reflect these changes.

Purpose of Change
(A) Subs. 21(1) grants shareholders (and others) the right to obtain access to the records referred to in s. 20(1). These records include the securities register. Section 50 specifies that the securities register shall show, with respect to each class of securities, the names, alphabetically arranged, and addresses of each person who is or has been a security holder, the number of securities and the particulars of the issue and transfer of securities. Pursuant to s. 21(1), a shareholder or creditor may examine and take extracts from these records free of charge. In the case of a distributing corporation, any other person may do so on payment of a reasonable fee.

(B) Subsection 21(3) authorizes shareholders (and others) to request and receive from the corporation a list of shareholders, their addresses and the number of shares owned. Before the corporation is required to prepare and deliver a list of shareholders, the applicant must send to the corporation a fee and an affidavit stating that the list of shareholders will not be used other than for the purposes specified.

It appears inconsistent to require an affidavit in order to obtain a shareholders list under s. 21(3), but not to obtain access to the securities register under s. 21(1). This is particularly so given that more information is available from the securities register (e.g., all securities, not just shares, and past owners as well as present, and particulars of securities transfers including dates and the consideration). The amendments are designed to address this inconsistency.

The modifications to s. 21(3)(7)(8) and (9) are consequential amendments.

Similar Provincial Laws
N/A

Current Wording
21. (1) Shareholders and creditors of a corporation, their agents and legal representatives and the Director may examine the records described in subsection 20(1) during the usual business hours of the corporation, and may take extracts therefrom, free of charge, and, where the corporation is a distributing corporation as defined in subsection 126(1), any other person may do so on payment of a reasonable fee.

(3) Shareholders and creditors of a corporation, their agents and legal representatives, the Director and, where the corporation is a distributing corporation as defined in subsection 126(1), any other person, on payment of a reasonable fee and on sending to a corporation or its agent the affidavit referred to in subsection (7), may on application require the corporation or its agent to furnish within ten days from the receipt of the affidavit a list (in this section referred to as the "basic list") made up to a date not more than ten days before the date of receipt of the affidavit setting out the names of the shareholders of the corporation, the number of shares owned by each shareholder and the address of each shareholder as shown on the records of the corporation.

(7) The affidavit required under subsection (3) shall state

(a) the name and address of the applicant;

(b) the name and address for service of the body corporate if the applicant is a body corporate; and

(c) that the basic list and any supplemental lists obtained pursuant to subsection (4) will not be used except as permitted under subsection (9).

(8) La personne morale requérante fait établir la déclaration sous serment par un de ses administrateurs ou dirigeants.

(9) A list of shareholders obtained under this section shall not be used by any person except in connection with

(a) an effort to influence the voting of shareholders of the corporation;

(b) an offer to acquire shares of the corporation; or

Proposed Wording
21. (1) Subject to subsection (1.1), shareholders and creditors of a corporation, their personal representatives and the Director may examine the records described in subsection 20(1) during the usual business hours of the corporation, and may take extracts from the records, free of charge, and, if the corporation is a distributing corporation, any other person may do so on payment of a reasonable fee.

(1.1) Any person described in subsection (1) who wishes to examine the securities register of a distributing corporation must first make a request to the corporation or its agent, accompanied by an affidavit referred to in subsection (7). On receipt of the affidavit, the corporation or its agent shall allow the applicant access to the securities register during the corporation's usual business hours, and, on payment of a reasonable fee, provide the applicant with an extract from the securities register.

(3) Shareholders and creditors of a corporation, their personal representatives, the Director and, if the corporation is a distributing corporation, any other person, on payment of a reasonable fee and on sending to a corporation or its agent the affidavit referred to in subsection (7), may on application require the corporation or its agent to furnish within ten days after the receipt of the affidavit a list (in this section referred to as the "basic list") made up to a date not more than ten days before the date of receipt of the affidavit setting out the names of the shareholders of the corporation, the number of shares owned by each shareholder and the address of each shareholder as shown on the records of the corporation.

(7) The affidavit required under subsection (1.1) or (3) shall state

(a) the name and address of the applicant;

(b) the name and address for service of the body corporate, if the applicant is a body corporate; and

(c) that the basic list and any supplemental lists obtained pursuant to subsection (4) or the information contained in the securities register obtained pursuant to subsection (1.1), as the case may be, will not be used except as permitted under subsection (9).

(8) La personne morale requérante fait établir l'affidavit par un de ses administrateurs ou dirigeants.

(9) A list of shareholders or information from a securities register obtained under this section shall not be used by any person except in connection with

(a) an effort to influence the voting of shareholders of the corporation;

(b) an offer to acquire securities of the corporation; or

Bill Clause No. :12
CBCA Section No. :23
Topic :Registered Office and Records(Technical Amendments)

Sources of Proposed Law
N/A

Changes From Present Law
Replace the current section 23 with a new one that provides that a corporation may, but need not, have a corporate seal and that unsealed documents are not invalid merely because a corporate seal is not affixed.

Purpose of Change
This change will clarify that corporate law does not require corporations to have or use seals. This change will overcome the problem that, at common law an unsealed document document is invalid

Similar Provincial Laws
Business Corporations Act (Alberta), Companies Act (Québec)

Current Wording
23. An instrument or agreement executed on behalf of a corporation by a director, an officer or an agent of the corporation is not invalid merely because a corporate seal is not affixed thereto.

Proposed Wording
23. (1) A corporation may, but need not, adopt a corporate seal, and may change a corporate seal that is adopted.

(2) A document executed on behalf of a corporation is not invalid merely because a corporate seal is not affixed to it.

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. : 13
CBCA Section No.: 25(5)
Topic : Corporate Finance(Technical Amendment)

Sources of Proposed Law
N/A

Changes From Present Law
Amend subs. 25(5) to clarify that only promissory notes and promises to pay made by the person to whom shares are issued or a person not dealing at arm's length from such person are to be excluded from the definition of property in s. 25 (and are therefore not valid consideration in determining whether shares are fully paid for).

Purpose of Change
The term "property" is used in subs. 25(3), which prohibits the issuance of a share until the consideration for it is fully paid "in money or in property or in past services that are not less in value than the fair equivalent of the money that the corporation would have received if the share had been issued for money". Subsection 25(4) gives certain directions in the determination of what is a fair equivalent and subs. 118(1) imposes liability on the directors to make good any amount by which the consideration is less than the fair equivalent.

The intention behind subs. 25(5) is not to exclude all promissory notes or promises to pay. However, in some circumstances, such "property" may constitute valid and valuable consideration for shares issued by the corporation. The proposed amendment would not affect the obligation of directors to ensure that the property received as consideration is the fair equivalent of the money that the corporation would have received if the share had been issued for money (subs. 25(3) and subs. 118(1)).

Similar Provincial Laws
Business Corporations Act (Ontario)

Current Wording
25. (5) For the purposes of this section, "property" does not include a promissory
note or a promise to pay.

Proposed Wording
25. (5) For the purposes of this section, "property" does not include a promissory note, or a promise to pay, that is made by a person to whom a share is issued, or a person who does not deal at arm's length, within the meaning of that expression in the Income Tax Act, with a person to whom a share is issued.

Bill Clause No.: 14
CBCA Section No. : 26(3) and (9)
Topic :Corporate Finance (Technical Amendments)

Sources of Proposed Law
N/A

Changes From Present Law
The reference to subsection 25(3) in subsection 26(3) is deleted.

Paragraph 26(3)(a) is amended by adding a new clause (iii) to add flexibility in the adjustment of the stated capital account in respect of arm's length transactions.

Paragraph 26(3)(b) is amended by inserting the preposition "or" between "(c)" and "to".

The reference in subsection 26(9) to subsection 44(1) is removed

Purpose of Change
The principle found in subsection 25(3) is that shares should be fully paid for at the time of their issue. Even if commercial and tax practice favours that the full consideration not be added to the stated capital account, shareholder protection requires that this should not take away from the obligation to ensure that full consideration is received for the shares. The current wording, "notwithstanding subsection 25(3)" found in s. 26(3) might appear to imply that full payment need not be made before the share is issued in a non-arm's length transaction.

New clause 26(3)(a)(iii) would add flexibility in the adjustment of the stated capital account in respect of arm's length transactions.

Inserting in par. 26(3)(b) the preposition "or" adds flexibility in the adjustment of stated capital in respect of ordinary amalgamations and would bring the CBCA into line with provincial statutes

Similar Provincial Laws
Business Corporation Act (Ontario)

Current Wording
26. (3) Notwithstanding subsection 25(3) and subsection (2), where a corporation issues shares

(a) in exchange for

(i) property of a person who immediately before the exchange did not deal with the corporation at arm's length within the meaning of that term in the Income Tax Act, or

(ii) shares of a body corporate that immediately before the exchange or that, because of the exchange, did not deal with the corporation at arm's length within the meaning of that term in the Income Tax Act, or

(b) pursuant to an agreement referred to in subsection 182(1) or an arrangement referred to in paragraph 192(1)(b) or (c) to shareholders of an amalgamating body corporate who receive the shares in addition to or instead of securities of the amalgamated body corporate,

the corporation may, subject to subsection (4), add to the stated capital accounts maintained for the shares of the classes or series issued the whole or any part of the amount of the consideration it received in the exchange.

(9) For the purposes of subsection 34(2), sections 38 and 42, subsection 44(1) and paragraph 185(2)(a), when a body corporate is continued under this Act its stated capital is deemed to include the amount that would have been included in stated capital if the body corporate had been incorporated under this Act.

Proposed Wording
26. (3) Despite subsection (2), a corporation may, subject to subsection (4), add to the stated capital accounts maintained for the shares of classes or series the whole or any part of the amount of the consideration that it receives in an exchange if the corporation issues shares

(a) in exchange for

(i) property of a person who immediately before the exchange did not deal with the corporation at arm's length within the meaning of that expression in the Income Tax Act,

(ii) shares of, or another interest in, a body corporate that immediately before the exchange, or that because of the exchange, did not deal with the corporation at arm's length within the meaning of that expression in the Income Tax Act, or

(iii) property of a person who, immediately before the exchange, dealt with the corporation at arm's length within the meaning of that expression in the Income Tax Act, if the person, the corporation and all the holders of shares in the class or series of shares so issued consent to the exchange; or

(b) pursuant to an agreement referred to in subsection 182(1) or an arrangement referred to in paragraph 192(1)(b) or (c) or to shareholders of an amalgamating body corporate who receive the shares in addition to or instead of securities of the amalgamated body corporate.

(9) For the purposes of subsection 34(2), sections 38 and 42, and paragraph 185(2)(a), when a body corporate is continued under this Act its stated capital is deemed to include the amount that would have been included in stated capital if the body corporate had been incorporated under this Act.

Bill Clause No. : 15
CBCA Section No. : 27(1) and (4)
Topic :Corporate Finance(Technical Amendment)

Sources of Proposed Law
N/A

Changes From Present Law
Amend s. 27 to clarify that articles may not only authorize the issue of any class of shares in one or more series, but also fix the number of shares in, and determine the designation, rights, privileges, restrictions and conditions attaching to the shares of each series.

Purpose of Change
Section 27 states that the articles may "authorize" the issue of shares in a series and may "authorize" the directors to fix the number and determine the designation, rights, privileges, restrictions etc. attaching to each share in a series. Subsection 27(4) requires that before a corporation issues shares in series the directors must send to the CBCA Director articles of amendment to designate the series of shares.

This amendment would clarify that a corporation may designate a series of shares in its articles at the time of incorporation. In that regard, the ability of the incorporators of a corporation to designate shares in series in the original articles has been questioned because of the wording of subs. 27(4). It has been suggested that the current provision prohibits the designating of a series of shares at the time of incorporation

Similar Provincial Laws
N/A

Current Wording
27. (1) The articles may authorize the issue of any class of shares in one or more series and may authorize the directors to fix the number of shares in and to determine the designation, rights, privileges, restrictions and conditions attaching to, the shares of each series, subject to the limitations set out in the articles.

(4) Before the issue of shares of a series authorized under this section, the directors shall send to the Director articles of amendment in prescribed form to designate a series of shares.

Proposed Wording
27. (1) The articles may authorize, subject to any limitations set out in them, the issue of any class of shares in one or more series and may do either or both of the following:

(a) fix the number of shares in, and determine the designation, rights, privileges, restrictions and conditions attaching to the shares of, each series; or

(b) authorize the directors to fix the number of shares in, and determine the designation, rights, privileges, restrictions and conditions attaching to the shares of, each series.

(4) If the directors exercise their authority under paragraph (1)(b), they shall, before the issue of shares of the series, send, in the form that the Director fixes, articles of amendment to the Director to designate a series of shares.

Bill Clause No. : 16
CBCA Section No. :29(1)
Topic :Corporate Finance(Technical Amendments)

Sources of Proposed Law
N/A

Changes From Present Law
Replace in the French version the word "délivrer" with "émettre".

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

Similar Provincial Laws
N/A

Current Wording
29. (1) La société peut délivrer des titres, notamment des certificats, constatant des privilèges de conversion, ainsi que des options ou des droits d'acquérir des valeurs mobilières de celle-ci, aux conditions qu'elle énonce:

Proposed Wording
29. (1) La société peut émettre des titres, notamment des certificats, constatant des privilèges de conversion, ainsi que des options ou des droits d'acquérir des valeurs mobilières de celle-ci, aux conditions qu'elle énonce :

Table of Contents

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.

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.

Table of Contents

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.: 23
CBCA Section No.: 38(6)
Topic :Corporate Finance(Technical Amendments)

Sources of Proposed Law
N/A

Changes From Present Law
Repeal s. 38(6).

Purpose of Change
This technical change clarifies the wording and application of the Act by removing a subsection that is unnecessary.[

Similar Provincial Laws
N/A

Current Wording
38. (6) This section does not affect any liability that arises under section 118.

Proposed Wording
N/A

Bill Clause No.: 24
CBCA Section No.:39(12)
Topic :Corporate Finance(Technical Amendments)

Sources of Proposed Law
N/A

Changes From Present Law
Amend the French version to replace the words "gage pour garantir" with the words "garantie de", and the word "gage" with the word "garantie".

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

Similar Provincial Laws
N/A

Current Wording
39. (12) La société qui acquiert ses titres de créance peut soit les annuler, soit, sous réserve de tout acte de fiducie ou convention applicable, les réémettre ou les donner en gage pour garantir l'exécution de ses obligations existantes ou futures; l'acquisition, la réémission ou le fait de donner en gage ne constitue pas l'annulation de ces titres

Proposed Wording
39. (12) La société qui acquiert ses titres de créance peut soit les annuler, soit, sous réserve de tout acte de fiducie ou convention applicable, les réémettre ou les donner en garantie de l'exécution de ses obligations existantes ou futures; l'acquisition, la réémission ou le fait de donner en garantie ne constitue pas l'annulation de ces titres.

Bill Clause No.: 25
CBCA Section No.: 40
Topic :Corporate Finance(Technical Amendment)

Sources of Proposed Law
N/A

Changes From Present Law
Replace the words "section 34 or 35" with "any of sections 34 to 36" in subsection 40(1).

Subordinate the rights of a shareholder who has contracted with a corporation for the purchase of shares to the rights of any class of shareholders whose rights were in priority to the rights given to the class of shares which he/she contracted to sell to the corporation, but in priority to the rights of the other shareholders.

Section 40 is also reworded to combine s. (2) and (3).

Purpose of Change
(A) & (B) As the law now stands, a corporation can unilaterally redeem or be forced to redeem "redeemable" shares at the request of their holders, without making payment for such shares if it does not meet the solvency tests set out under section 36. The holders of these shares would therefore arguably become ordinary creditors because section 40 does not make reference to s. 36. This could result in the priority of holders of redeemable shares being increased relative to other shareholders, to the detriment of the creditors of the corporation and the holders of shares whose rights were in priority to the rights given to the holders of the class of shares being purchased. The proposed amendment would ensure that s. 36 shareholders are treated in the same manner as s. 34 and 35 shareholders.

Subsection 40(3) currently provides:

Until the corporation has fully performed a contract referred to in subsection (1), the other party retains the status of a claimant entitled to be paid as soon as the corporation is lawfully able to do so or, in a liquidation, to be ranked subordinate to the rights of creditors but in priority to the shareholders. [Emphasis added]

Therefore, in a liquidation, the rights of the shareholder who has contracted with the corporation are subject only to the rights of creditors. The shareholders under subs. 40(3) rank ahead of other shareholders, even shareholders of a class of shares which would normally have priority on liquidation.

The proposed amendment would preserve the rights of higher ranking shareholders. Accordingly, the purchaser would have priority only over shareholders of that class or a class of lower priority. The priority of creditors would remains unaffected.

Similar Provincial Laws
N/A

Current Wording
40. (1) A contract with a corporation providing for the purchase of shares of the corporation is specifically enforceable against the corporation except to the extent that the corporation cannot perform the contract without thereby being in breach of section 34 or 35.

(2) In any action brought on a contract referred to in subsection (1), the corporation has the burden of proving that performance thereof is prevented by section 34 or 35.

(3) Until the corporation has fully performed a contract referred to in subsection (1), the other party retains the status of a claimant entitled to be paid as soon as the corporation is lawfully able to do so or, in a liquidation, to be ranked subordinate to the rights of creditors but in priority to the shareholders.

Proposed Wording
40. (1) A corporation shall fulfil its obligations under a contract to buy shares of the corporation, except if the corporation can prove that enforcement of the contract would put it in breach of any of sections 34 to 36.

(2) Until the corporation has fulfilled all its obligations under a contract referred to in subsection (1), the other party retains the status of claimant entitled to be paid as soon as the corporation is lawfully able to do so or, in a liquidation, to be ranked subordinate to the rights of creditors and to the rights of holders of any class of shares whose rights were in priority to the rights given to the holders of the class of shares being purchased, but in priority to the rights of other shareholders.

Bill Clause No.:26
CBCA Section No.:44
Topic : Corporate Finance(Financial Assistance)

Sources of Proposed Law
N/A

Changes From Present Law
Repeal section 44

Purpose of Change

The CBCA restricts the provision of loans, guarantees and other kinds of financial assistance to directors, officers, employees and shareholders by a CBCA corporation where there are "reasonable grounds for believing that" either the corporation is or would become insolvent or the corporation's assets are or would be less than all of its liabilities and stated capital.

This wording causes legal and accounting practitioners considerable difficulty in providing clients with unqualified opinions. In 1988, the Canadian Institute of Chartered Accountants issued an opinion that accounting practitioners should not provide an opinion on matters related to solvency. As a result, the solvency test and the potential liability that can arise from not meeting it can impede legitimate financial transactions that directors would otherwise be willing to consider and that may be supportive of the competitiveness and long-term viability of CBCA corporations.

Directors approving financial assistance transactions are subject to statutory fiduciary duties to act in the best interests of the corporation, and they can be sued for failure to do so. This provides adequate safeguards.

Similar Provincial Laws
N/A

Current Wording
44. (1) Subject to subsection (2), a corporation or any corporation with which it is affiliated shall not, directly or indirectly, give financial assistance by means of a loan, guarantee or otherwise

(a) to any shareholder, director, officer or employee of the corporation or of an affiliated corporation or to an associate of any such person for any purpose, or

(b) to any person for the purpose of or in connection with a purchase of a share issued or to be issued by the corporation or affiliated corporation, where there are reasonable grounds for believing that

(c) the corporation is or, after giving the financial assistance, would be unable to pay its liabilities as they become due, or

(d) the realizable value of the corporation's assets, excluding the amount of any financial assistance in the form of a loan and in the form of assets pledged or encumbered to secure a guarantee, after giving the financial assistance, would be less than the aggregate of the corporation's liabilities and stated capital of all classes.

Proposed Wording
N/A

Bill Clause No.:27
CBCA Section No.: 45(1) and (2)
Topic :Corporate Finance(Technical Amendments)

Sources of Proposed Law
N/A

Changes From Present Law
Change the cross reference in s. 45(1) by adding a reference to s. 118(4) and (5) and 226(4).

Purpose of Change
Subsection 45(1) limits the liability of shareholders. Certain exceptions to limited liability are specified. Substantive liability is imposed on shareholders under s. 118(4), (5) and 226(4) and therefore s. 45(1) should refer to them.

Similar Provincial Laws
N/A

Current Wording
45. (1) The shareholders of a corporation are not, as shareholders, liable for any liability, act or default of the corporation except under subsection 38(4), 146(5) or 226(5).

(2) Subject to subsection 49(8), the articles may provide that the corporation has a lien on a share registered in the name of a shareholder or his legal representative for a debt of that shareholder to the corporation, including an amount unpaid in respect of a share issued by a body corporate on the date it was continued under this Act.

Proposed Wording
45. (1) The shareholders of a corporation are not, as shareholders, liable for any liability, act or default of the corporation except under subsection 38(4), 118(4) or (5), 146(5) or 226(4) or (5).

(2) Subject to subsection 49(8), the articles may provide that the corporation has a lien on a share registered in the name of a shareholder or the shareholder's personal representative for a debt of that shareholder to the corporation, including an amount unpaid in respect of a share issued by a body corporate on the date it was continued under his Act.

Table of Contents

This Part includes one amendment which is designed to clarify the language and administration of the Act (s. 46), 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.: 28
CBCA Section No.:46(1) and (2)
Topic : Sale of Constrained Shares (Technical Amendments)

Sources of Proposed Law
N/A

Changes From Present Law
Replace the current subsection 46(1) with a redrafted version. Remove the specific references to sections of the Trust and Loan Companies Act (s. 379) and the Insurance Companies Act (s. 411) and allow the appropriate statutes to be prescribed.

In the French version of subsection 46(2), replace the words "de manière à ne pas porter atteinte aux" with the words "et de manière à ne pas se montrer injuste à l'égard des", and replace the words "et à tenir" with the words "soit en leur portant préjudice soit en ne tenant pas".

Purpose of Change
This amendment clarifies the language of the Act. Removing the specific references to the Trust and Loan Companies Act and the Insurance Companies Act and allowing them to be prescribed by regulation allows for easier amendment should the specific section numbers of those acts change and also eases the addition or removal of specified acts as required.

This amendment clarifies the wording of the Act.

Similar Provincial Laws
N/A

Current Wording
46. (1) A corporation that has constraints on the issue, transfer or ownership of its shares of any class or series may,

(a) in order to assist the corporation or any of its affiliates or associates to qualify under any prescribed law of Canada or a province to receive licences, permits, grants, payments or other benefits by reason of attaining or maintaining a specified level of Canadian ownership or control, or

(b) in order to assist the corporation to comply with

(i) section 379 of the Trust and Loan Companies Act, or

(ii) section 411 of the Insurance Companies Act, sell, for that purpose or for the purpose of attaining or maintaining a level of Canadian ownership specified in its articles, under such conditions and after giving such notice as may be prescribed, as if it were the owner thereof, any of those constrained shares that are owned, or that the directors determine in such manner as may be prescribed may be owned, contrary to the constraints.

46. (1) … de se conformer à l'article 379 de la Loi sur les sociétés de fiducie et de prêt ou à l'article 411 de la Loi sur les sociétés d'assurances, comme si elle en avait la propriété et pour atteindre cet objectif …

(2) Les administrateurs doivent choisir les actions à vendre en vertu du paragraphe (1) de bonne foi, de manière à ne pas porter atteinte aux autres détenteurs d'actions de la catégorie ou de la série et à tenir compte de leurs intérêts.

Proposed Wording
46. (1) A corporation that has constraints on the issue, transfer or ownership of its shares of any class or series may, for any of the purposes referred to in paragraphs (a) to (c), sell, under the conditions and after giving the notice that may be prescribed, as if it were the owner of the shares, any of those constrained shares that are owned, or that the directors determine in the manner that may be prescribed may be owned, contrary to the constraints in order to

(a) assist the corporation or any of its affiliates or associates to qualify under any prescribed law of Canada or a province to receive licences, permits, grants, payments or other benefits by reason of attaining or maintaining a specified level of Canadian ownership or control;

(b) assist the corporation to comply with any prescribed law; or

46. (1) La société dont les actions d'une catégorie ou d'une série font l'objet de restrictions quant à leur émission, leur transfert ou leur propriété peut, afin de devenir elle-même et de rendre les sociétés de son groupe, ou celles qui ont un lien avec elle, mieux à même de remplir les conditions de participation ou de contrÔle canadiens auxquelles est subordonné, sous le régime des lois fédérales ou provinciales prescrites, le droit de recevoir certains avantages, notamment des licences, permis, subventions et paiements, afin de se conformer aux lois prescrites ou afin de remplir les conditions de participation ou de contrÔle canadiens qui sont précisées à ses statuts, vendre ces actions comme si elle en avait la propriété et pour atteindre cet objectif lorsque leurs propriétaires les détiennent, ou que les administrateurs estiment, selon les critères réglementaires, que ceux-ci les détiennent, en dépit de ces restrictions. Cette vente se fait selon les conditions prescrites, après préavis réglementaire.

(2) Les administrateurs doivent choisir les actions à vendre en vertu du paragraphe (1) de bonne foi et de manière à ne pas se montrer injuste à l'égard des autres détenteurs d'actions de la catégorie ou de la série soit en leur portant préjudice soit en ne tenant pas compte de leurs intérêts.

This Part includes a number of technical amendments which are designed to clarify the wording and administration of the Act. For example, an amendment would permit signatures on security certificates to be printed or otherwise mechanically reproduced on the certificate (s. 49).

The French version of certain provisions would be amended to reconcile the wording with the English version.

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

Bill Clause No.: 29
CBCA Section No.:48(2)
Topic ;Security Certificates, Registers and Transfers (Technical Amendments)

Sources of Proposed Law
N/A

Changes From Present Law
Amend the definition of "fiduciary" in s. 48 similar to the Bank Act which refers to a personal representative of a deceased person.

Purpose of Change
The purpose of the change is to harmonize the CBCA with other Federal statutes.

Similar Provincial Laws
N/A

Current Wording
48. (2) "fiduciary" means a trustee, guardian, committee, curator, tutor, executor, administrator or representative of a deceased person, or any other person acting in a fiduciary capacity;

Proposed Wording
48. (2)"fiduciary" means any person acting in a fiduciary capacity and includes a personal representative of a deceased person;

Bill Clause No.: 30
CBCA Section No.;49(2), (4), (5),(7)(b), (8), (9) and (10)
Topic :Security Certificates, Registers and Transfers(Corporate Finance)

Sources of Proposed Law
N/A

Changes From Present Law
(A) Provide in subs. 49(2) for the setting by regulation of the maximum fee for the issuance of a security certificate.

(B) Repeal subsections 49(4) and (5) and replace with a new subsection (4) that removes the requirement for a manual signature on security certificates and provides that any signatures required on security certificates may be printed or otherwise mechanically reproduced on the certificate.

(C) Amend par. 49(7)(b) by including the words "or subject to the Canada Business Corporations Act" at the end of the paragraph.

(D) Subsections 49(8) and (9) are reworded.

(E) Remove the specific references to sections of statutes in par. 49(10)(b) and allow the appropriate statutes to be prescribed.

Purpose of Change
(A) Subsection 49(2): The purpose of this change is to allow increased flexibility to deal with changes that are of a frequent and technical nature.

(B) Subsection 49(4): The proposed amendment allows printed or otherwise mechanically reproduced signatures. This would reduce transaction costs through eliminating the need to seek legal advice and the expense and inconvenience of manual signatures.

(C) Paragraph 49(7)(b): Adopting this terminology would harmonize the CBCA with other federal legislation (Bank Act) by making it clear that the designation is linked to the state of the corporation when the statement is made on the share certificate and not at the moment of the corporation's constitution. Some corporations are not incorporated under the CBCA but under the Canada Corporation Act or under laws of other jurisdictions and are continued under the CBCA.

(D) Subsections 49(8) and (9): This technical change will clarify the wording of the Act. The word "agreement" is added to s. 49(8) in order to make the use of this word consistent throughout the provision.

(E) This amendment is consistent with similar amendments made elsewhere in the Act (see s. 46(1)(b)).

Similar Provincial Laws
Business Corporations Act (Alberta)

Business Corporations Act (Saskatchewan)

Current Wording
49. (2) A corporation may charge a fee of not more than three dollars for a security certificate issued in respect of a transfer.

(4) A security certificate shall be signed manually by at least one director or officer of the corporation or by or on behalf of a registrar, transfer agent or branch transfer agent of the corporation, or by a trustee who certifies it in accordance with a trust indenture, and any additional signatures required on a security certificate may be printed or otherwise mechanically reproduced thereon.

(5) Notwithstanding subsection (4), a manual signature is not required on

(a) a security certificate representing

(i) a promissory note that is not issued under a trust indenture,

(ii) a fractional share, or

(iii) an option or a right to acquire a security; or

(b) a scrip certificate.

(7)(b) the words "Incorporated under the Canada Business Corporations Act";

(a) a restriction on its transfer other than a constraint under section 174,

(b) a lien in favor of the corporation,

(d) an endorsement under subsection 190(10), such restriction, lien, agreement or endorsement is ineffective against a transferee of the security who has no actual knowledge of it, unless it or a reference to it is noted conspicuously on the security certificate.

(9) A corporation any of the issued shares of which are or were part of a distribution to the public and remain outstanding and are held by more than one person shall not have a restriction on the issue, transfer or ownership of its shares of any class or series except by way of a constraint permitted under section 174.

(10) Where the articles of a corporation constrain the issue, transfer or ownership of shares of any class or series in order to assist

(a) the corporation or any of its affiliates or associates to qualify under any prescribed law of Canada or a province to receive licenses, permits, grants, payments or other benefits by reason of attaining or maintaining a specified level of Canadian ownership or control, or

(b) the corporation to comply with

(i) section 379 of the Trust and Loan Companies Act, or

(ii) section 411 of the Insurance Companies Act, the constraint, or a reference to it, shall be conspicuously noted on every security certificate of the corporation evidencing a share that is subject to the constraint where the security certificate is issued after the day on which the share becomes subject to the constraint under this Act.

Proposed Wording
49. (2) A corporation may charge a fee, not exceeding the prescribed amount, for a security certificate issued in respect of a transfer.

(4) A security certificate shall be signed by at least one of the following persons, or the signature shall be printed or otherwise mechanically reproduced on the certificate:

(a) a director or officer of the corporation;

(b) a registrar, transfer agent or branch transfer agent of the corporation, or an individual on their behalf; and

(7)(b) the words "Incorporated under the Canada Business Corporations Act" or "subject to the Canada Business Corporations Act";

(8) No restriction, charge, agreement or endorsement described in paragraphs (a) to (d) is effective against a transferee of a security, issued by a corporation or by a body corporate before the body corporate was continued under this Act, who has no actual knowledge of the restriction, charge, agreement or endorsement unless it or a reference to it is noted conspicuously on the security certificate:

(a) a restriction on transfer other than a constraint under section 174;

(b) a charge in favor of the corporation;

(d) an endorsement under subsection 190(10).

(9) A distributing corporation, any of the issued shares of which remain outstanding and are held by more than one person, shall not have a restriction on the transfer or ownership of its shares of any class or series except by way of a constraint permitted under section 174.

(10) Where the articles of a corporation constrain the issue, transfer or ownership of shares of any class or series in order to assist

(b) the corporation to comply with any prescribed law, the constraint, or a reference to it, shall be conspicuously noted on every security certificate of the corporation evidencing a share that is subject to the constraint where the security certificate is issued after the day on which the share becomes subject to the constraint under this Act.

Bill Clause No.:31(1)
CBCA Section No.:51(2)(a) and (b)
Topic :Security Certificates, Registers and Transfers (Technical Amendments)

Sources of Proposed Law
N/A

Changes From Present Law
Replace paragraphs 51(2)(a) and (b) with new paragraphs 51(2)(a) and (b) that use the terminology found in par. 93(2)(a) and (b) of the Bank Act referring to the personal representative definition.

Purpose of Change
The purpose of this change is to harmonize the CBCA with other federal statutes, to clarify the language of the Act and to reduce ambiguity.

Similar Provincial Laws
N/A

Current Wording
51. (2) Notwithstanding subsection (1), a corporation whose articles restrict the right to transfer its securities shall, and any other corporation may, treat a person as a registered security holder entitled to exercise all the rights of the security holder he represents, if that person furnishes the corporation with evidence as described in subsection 77(4) that he is

(a) the executor, administrator, heir or legal representative of the heirs, of the estate of a deceased security holder;

(b) a guardian, committee, trustee, curator or tutor representing a registered security holder who is an infant, an incompetent person or a missing person; or

Proposed Wording
51. (2)(a) the heir of a deceased security holder, or the personal representative of the heirs, or the personal representative of the estate of a deceased security holder;

(b) a personal representative of a registered security holder who is an infant, an incompetent person or a missing person; or

Bill Clause No.:31(2)
CBCA Section No.:51(5)
Topic :Security Certificates, Registers and Transfers (Technical Amendments)

Sources of Proposed Law
Mr. Mac Harb, Private Member Bill C-379

Changes From Present Law
Replace the term "infant" with the phrase "a person who is less than 18 years of age".

Purpose of Change
This change reflects the United Nations Convention on the Rights of the Child and their definition of "child" as "a person who is less than 18 years of age".

Similar Provincial Laws
N/A

Current Wording
51. (5) If an infant exercises any rights of ownership in the securities of a corporation, no subsequent repudiation or avoidance is effective against the corporation.

Proposed Wording
51. (5) If a person who is less than eighteen years of age exercises any rights of ownership in the securities of a corporation, no subsequent repudiation or avoidance is effective against the corporation.

Bill Clause No.31(3)
CBCA Section No.51(8)
Topic Security Certificates, Registers and Transfers (Technical Amendments)

Sources of Proposed Law

Changes From Present Law
Replace the term "legal representative" with the term "personal representative".

Purpose of Change
The purpose of this change is to harmonize the CBCA with other federal statutes, to clarify the language of the Act and to reduce ambiguity.

Similar Provincial Laws

Current Wording
51. (8) Notwithstanding subsection (7), if the laws of the jurisdiction governing the transmission of a security of a deceased holder do not require a grant of probate or of letters of administration in respect of the transmission, a legal representative of the deceased holder is entitled, subject to any applicable law relating to the collection of taxes, to become a registered holder or to designate a registered holder, if he deposits with the corporation or its transfer agent

(a) the security certificate that was owned by the deceased holder; and

(b) reasonable proof of the governing laws, of the deceased holder's interest in the security and of the right of the legal representative or the person he designates to become the registered holder.

Proposed Wording
51. (8) Despite subsection (7), if the laws of the jurisdiction governing the transmission of a security of a deceased holder do not require a grant of probate or of letters of administration in respect of the transmission, a personal representative of the deceased holder is entitled, subject to any applicable law relating to the collection of taxes, to become a registered holder or to designate a registered holder, if the personal representative deposits with the corporation or its transfer agent

(a) the security certificate that was owned by the deceased holder; and

(b) reasonable proof of the governing laws, of the deceased holder's interest in the security and of the right of the personal representative or the person designated by the personal representative to become the registered holder.

Bill Clause No.32
CBCA Section No. 65(1)(d)
TopicSecurity Certificates, Registers and Transfers (Technical Amendments)

Sources of Proposed Law
Mr. Mac Harb, Private Member Bill C-379

Changes From Present Law Remove the reference to "infancy". Replace the term "otherwise" with the words "other incapacity".

Purpose of Change
The concept of "infancy" is included in the notion of "incapacity". With the proposed change, the English version would be equivalent to the French version.

Similar Provincial Laws

Current Wording
65. (1) In this section, "appropriate person" means

…

(d) if a person described in paragraph (a) is an individual and is without capacity to act by reason of death, incompetence, infancy, minority or otherwise, his fiduciary;

Proposed Wording
65. (1)(d) if a person described in paragraph (a) is an individual and is without capacity to act by reason of death, incompetence, minority, or other incapacity, the person's fiduciary;

Bill Clause No. 33
CBCA Section No.75
Topic Security Certificates, Registers and Transfers (Technical Amendments)

Sources of Proposed Law Changes From Present Law
Amend the French version of s. 75 to replace the word "délivré" with "livré".

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

Similar Provincial Laws

Current Wording
75. Le mandataire ou le dépositaire de bonne foi - ayant respecté les normes commerciales raisonnables si, de par sa profession, il négocie les valeurs mobilières d'une société - qui a reçu, vendu, donné en gage ou délivré ces valeurs mobilières conformément aux instructions de son mandant ne peut être tenu responsable de détournement ni de violation d'une obligation de représentant, même si le mandant n'avait pas le droit d'aliéner ces valeurs mobilières.

Proposed Wording
75. Le mandataire ou le dépositaire de bonne foi .* ayant respecté les normes commerciales raisonnables si, de par sa profession, il négocie les valeurs mobilières d'une société .* qui a reçu, vendu, donné en gage ou livré ces valeurs mobilières conformément aux instructions de son mandant ne peut être tenu responsable de détournement ni de violation d'une obligation de représentant, même si le mandant n'avait pas le droit d'aliéner ces valeurs mobilières.

Amendments are proposed to the French version to update terminology and reconcile the wording with the English version.

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

Bill Clause No. 34
CBCA Section No. 82(2)
Topic Trust Indentures (Technical Amendments)

Sources of Proposed Law

Changes From Present Law
Amend the French version of s. 82(2) to replace the words "de souscription publique" with "d'un appel public à l'épargne".

Purpose of Change
This technical change clarifies the wording and application of the Act. This change modernizes the subsection by using the terminology used in the Québec securities legislation.

Similar Provincial Laws

Current Wording
82. (2) La présente partie s'applique aux actes de fiducie prévoyant une émission de titres de créances par voie de souscription publique.

Proposed Wording
82. (2) La présente partie s'applique aux actes de fiducie prévoyant une émission de titres de créances par voie d'un appel public à l'épargne.

There are no proposed amendments to this Part.

There are a number of important amendments included in this Part. First, is the proposed general reduction of the residency requirement for directors of corporations from a majority to 25 percent (s. 105). This amendment would not apply to sectors or corporations that are subject to ownership restrictions as specified in the regulations. Similarly, CBCA corporations that individually are subject to ownership restrictions (e.g., Air Canada and Petro- Canada ) would continue to be required to have a majority of Canadian residents on their boards.

An obligation on directors to provide notice of a change of address within fifteen days of the event has been introduced. Once this notice is received, the corporation would then be obliged to notify the CBCA Director of this change within fifteen days of receiving notice from a director (s. 113).

Second, the Act would be amended to eliminate the director's residency requirement for committees of boards of directors (s. 115(2)).

Third, the good faith reliance defence would be replaced by a due diligence defence whereby a director is not liable if that director exercises the same degree of care, diligence and skill that a reasonably prudent person would have exercised, in comparable circumstances (s. 123).

Fourth, the statutory indemnification rules would be broadened to, among other things, expressly allow the corporation to advance defence costs, provide for indemnification in respect of investigative proceedings, and allow the corporation to indemnify a director or officer (or person acting in a similar capacity) of a body corporate, a partnership, a trust, a joint venture, or other entity (s. 124).

Fifth, the provisions governing the appointment and removal of directors (s. 106 to 115) and the conflict of interest provisions (s. 120) would be updated and clarified.

A number of minor technical amendments to both the English and French versions are also included, as well some amendments which are designed to facilitate the efficient operation and administration of the statute.

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

Bill Clause No. 35
CBCA Section No. 102(1) and (2)
Topic : Directors and Officers (Directors' Liability)

Sources of Proposed Law
TSE report on corporate governance in Canada

Changes From Present Law
Specify in subs. 102(1) that the directors shall manage or supervise the management of the business and affairs of a corporation. Consequential amendments to other provisions would also me made (s.146(2), (3), and (5)).

Purpose of Change
In the case of a small corporation, the board of directors is often composed of the officers/owners of the corporation. In this situation, the board really manages the corporation on a day-to-day basis. However, in the case of a large corporation, the board can supervise, direct or oversee but it cannot manage, at least not in the day-to-day sense.

The TSE report on corporate governance in Canada recommends the elimination of any possible interpretation of the directors' responsibilities as being to manage the business day-to-day and to describe the responsibility as being to supervise the management of the business. The Business Corporations Act (Ontario) defines the general duty of the board as being to "manage or supervise the management of the business and affairs of a corporation."

This change would add flexibility to the Act by clarifying that directors have the power manage and/or supervise the corporation. They can choose to delegate some of their managing powers (s. 121) to officers or keep all powers for themselves. Consequently, it is important to keep "manage" in the directors' duties definition.

Similar Provincial Laws
Business Corporations Act (Ontario)

Current Wording
102. (1) Subject to any unanimous shareholder agreement, the directors shall manage the business and affairs of a corporation.

(2) A corporation shall have one or more directors but a corporation, any of the issued securities of which are or were part of a distribution to the public and remain outstanding and are held by more than one person, shall have not fewer than three directors, at least two of whom are not officers or employees of the corporation or its affiliates.

Proposed Wording
102. (1) Subject to any unanimous shareholder agreement, the directors shall manage, or supervise the management of, the business and affairs of a corporation.

(2) A corporation shall have one or more directors but a distributing corporation, any of the issued securities of which remain outstanding and are held by more than one person, shall have not fewer than three directors, at least two of whom are not officers or employees of the corporation or its affiliates.

Bill Clause No. 36
CBCA Section No. 103(1)
Topic : Directors and Officers (Technical Amendments)

Sources of Proposed Law

Changes From Present Law
Amend the French version of s. 103(1) to replace the words "affaires tant commerciales qu'internes" with "activités commerciales ou les affaires internes".

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

Similar Provincial Laws

Current Wording
103. (1) Sauf disposition contraire des statuts, des règlements administratifs ou de conventions unanimes des actionnaires, les administrateurs peuvent, par résolution, prendre, modifier ou révoquer tout règlement administratif portant sur les affaires tant commerciales qu'internes de la société.

Proposed Wording
103. (1) Sauf disposition contraire des statuts, des règlements administratifs ou de conventions unanimes des actionnaires, les administrateurs peuvent, par résolution, prendre, modifier ou révoquer tout règlement administratif portant sur les activités commerciales ou les affaires internes de la société.

Bill Clause No. 37
CBCA Section No. 105(3), (4) and new (3.1), (3.2) and (3.3)
Topic : Directors and Officers (Directors' Residency)

Sources of Proposed Law

Changes From Present Law
The current requirement that a majority of directors be resident Canadians would be reduced to a requirement that 25 percent be resident Canadians. It would provide that where a corporation has less than four directors at least one director must be a resident Canadian.

The current requirement that a majority of directors be resident Canadians would continue to apply to CBCA corporations in sectors where there are ownership restrictions. It would provide that where a corporation has only two directors, only one of the two must be a resident Canadian.

Purpose of Change
Since 1975, the CBCA has required that a majority of the board of directors of a corporation be resident Canadians. This was intended to specifically promote a Canadian viewpoint at meetings of directors of corporations controlled by non-resident Canadians. However, this requirement is now posing a constraint on Canadian corporations which are growing to global size and expanding their investments. More and more, corporations require a board that reflects the international character of their business.

There are several reasons for why broader international representation on the board of directors may be strategically important for some Canadian businesses. Export-oriented Canadian corporations may wish to appoint foreigners to assist the corporation in developing new export markets. Similarly, a Canadian corporation growing to global size and expanding its investments may require a board that reflects the international character of its business. Under the current situation such corporations are forced to add a Canadian every time a foreign national is appointed to the Board. This has the effect of leading to large unwieldy boards. Reducing the residency requirement would enhance the ability of Canadian firms to develop export markets. Currently, the CBCA may not accommodate the needs of such corporations, sending a wrong message to both Canadian and foreign investors.

In reducing the residency requirement, the CBCA would be structured so as to encourage corporations to rely on Canada as a place of incorporations and site of global headquarters.

The amendment to reduce the directors' residency requirement to 25 percent would not apply to CBCA corporations in sectors where there are ownership restrictions. These sectors will be listed in the regulations. In addition, where a sector has a specific directors' residency requirement that exceeds that found in the CBCA, that requirement would be paramount.

Similar Provincial Laws

Current Wording
105. (3) A majority of the directors of a corporation must be resident Canadians.

(4) Notwithstanding subsection (3), not more than one-third of the directors of a holding corporation need be resident Canadians if the holding corporation earns in Canada directly or through its subsidiaries less than five per cent of the gross revenues of the holding corporation and all of its subsidiary bodies corporate together as shown in

Proposed Wording
105. (3) Subject to subsection (3.1), at least twenty-five per cent of the directors of a corporation must be resident Canadians. However, if a corporation has less than four directors, at least one director must be a resident Canadian.

(3.1) If a corporation engages in an activity in Canada in a prescribed business sector or if a corporation by an Act of Parliament or by a regulation made under an Act of Parliament, is required, either individually or in order to engage in an activity in Canada in a particular business sector, to attain or maintain a specified level of Canadian ownership or control, or to restrict, or to comply with a restriction in relation to, the number of voting shares that any one shareholder may hold, own or control, then a majority of the directors of the corporation must be resident Canadians.

(3.2) Nothing in subsection (3.1) shall be construed as reducing any requirement for a specified number or percentage of resident Canadian directors that otherwise applies to a corporation referred to in that subsection.

(3.3) If a corporation referred to in subsection (3.1) has only one or two directors, that director or one of the two directors, as the case may be, must be a resident Canadian.

(4) Despite subsection (3.1), not more than one third of the directors of a holding corporation referred to in that subsection need be resident Canadians if the holding corporation earns in Canada directly or through its subsidiaries less than five per cent of the gross revenues of the holding corporation and all of its subsidiary bodies corporate together as shown in

Bill Clause No. 38
CBCA Section No. 106(1) (7), (8) and new (9)
Topic : Directors and Officers (Directors' Liability)

Sources of Proposed Law

Changes From Present Law
The word "prescribed" has been replaced with "that the Director fixes".

Addition of the word "additional" in subs. 106(8) after the word "more".

New directors would have to consent to their appointment and a person elected or appointed as a director will not be deemed to hold this position unless they have acted in that capacity subsequent to the election or appointment.

Add "lack of consent" to the list of reasons for director vacancy in s. 106(7).

Purpose of Change
Subsection 106(1): See explanation at clause 3.

The addition of the word "additional" would clarify subs. 106(8) by making it clear that the directors may appoint one or more additional directors only when the shareholders fail to elect the required number of directors under subs. 106(7).

Currently, under the CBCA someone could be listed as a director without his/her consent or knowledge. This has raised concerns that unsuspecting individuals could be exposed to extensive liability as a director. A number of provincial corporations laws presently require written consent of persons acting as directors.

The provision would provide that if a person was present at the meeting where they were elected or appointed as director and did not refuse such election or appointment, then written consent is not required for the election or appointment to be valid. A written consent would be required if the person was not present at the relevant meeting.

Further, a person elected or appointed as a director will not be deemed to hold this position unless they have acted in that capacity subsequent to the election or appointment.

This amendment would reduce exposure to liability and promote harmonization with provincial statutes.

(D) In s. 106(7) the words "lack of consent" are being added as a correlative amendment to the change being made to s. 106(9).

Similar Provincial Laws
Company Act (British Columbia)
Business Corporations Act (Ontario)

Current Wording
106. (1) At the time of sending articles of incorporation, the incorporators shall send to the Director a notice of directors in prescribed form, and the Director shall file the notice.

(7) If a meeting of shareholders fails to elect the number or the minimum number of directors required by the articles by reason of the disqualification, incapacity or death of any candidates, the directors elected at that meeting may exercise all the powers of the directors if the number of directors so elected constitutes a quorum.

(8) The directors may, if the articles of the corporation so provide, appoint one or more directors, who shall hold office for a term expiring not later than the close of the next annual meeting of shareholders, but the total number of directors so appointed may not exceed one third of the number of directors elected at the previous annual meeting of shareholders.

Proposed Wording
106. (1) At the time of sending articles of incorporation, the incorporators shall send to the Director a notice of directors in the form that the Director fixes, and the Director shall file the notice.

(7) If a meeting of shareholders fails to elect the number or the minimum number of directors required by the articles by reason of the lack of consent, disqualification, incapacity or death of any candidates, the directors elected at that meeting may exercise all the powers of the directors if the number of directors so elected constitutes a quorum.

(8) The directors may, if the articles of the corporation so provide, appoint one or more additional directors, who shall hold office for a term expiring not later than the close of the next annual meeting of shareholders, but the total number of directors so appointed may not exceed one third of the number of directors elected at the previous annual meeting of shareholders.

(9) An individual who is elected or appointed to hold office as a director is not a director and is deemed not to have been elected or appointed to hold office as a director unless

(a) he or she was present at the meeting when the election or appointment took place and he or she did not refuse to hold office as a director; or

(b) he or she was not present at the meeting when the election or appointment took place and

(i) he or she consented to hold office as a director in writing before the election or appointment or within ten days after it, or

(ii) he or she has acted as a director pursuant to the election or appointment.

Second, the Act would be amended to eliminate the director's residency requirement for committees of boards of directors (s. 115(2)).

Fifth, the provisions governing the appointment and removal of directors (s. 106 to 115) and the conflict of interest provisions (s. 120) would be updated and clarified.

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

Bill Clause No. 39
CBCA Section No. 107(g) and (h)
Topic : Directors and Officers (Technical Amendments)

Sources of Proposed Law

Changes From Present Law

Clarification of the English version.

Purpose of Change
This technical change clarifies the wording and application of the Act and ensures that the English and French versions have the same interpretation.

Similar Provincial Laws

Current Wording
107. Where the articles provide for cumulative voting,

…

(g) a director may not be removed from office if the votes cast against his removal would be sufficient to elect him and such votes could be voted cumulatively at an election at which the same total number of votes were cast and the number of directors required by the articles were then being elected; and

(h) the number of directors required by the articles may not be decreased if the votes cast

against the motion to decrease would be sufficient to elect a director and such votes could be voted cumulatively at an election at which the same total number of votes were cast and the number of directors required by the articles were then being elected.

Proposed Wording
107. (g) a director may be removed from office only if the number of votes cast in favour of the director's removal is greater than the product of the number of directors required by the articles and the number of votes cast against the motion; and

(h) the number of directors required by the articles may be decreased only if the votes cast in favour of the motion to decrease the number of directors is greater than the product of the number of directors required by the articles and the number of votes cast against the motion.

Bill Clause No. 40
CBCA Section No. new 109(4) and (5)
Topic : Directors and Officers (Directors' Liability)

Sources of Proposed Law

Changes From Present Law
The CBCA is amended to provide that, where all of the directors have resigned or have been removed by shareholders without replacement, any person who manages or supervises the management of the business and affairs of the corporation shall be deemed to be a director. Broad exemptions would be provided for officers, professionals and receivers. Also, the CBCA Director would be allowed to dissolve a corporation where it has no directors.

Purpose of Change
The CBCA requires that a corporation has directors, but directors are entitled to resign. The new provision would deem any person who manages or supervises the management of a directorless corporation to be a director. Potential directors' liability would fall on the deemed directors. As a result, these deemed directors would have an incentive to ask shareholders to nominate new directors. The CBCA Director's new power to dissolve directorless corporations would provide for an added incentive for shareholders to nominate new directors.

Similar Provincial Laws
Business Corporations Act (Ontario)

Current Wording
N/A

Proposed Wording
109. (4) If all of the directors have resigned or have been removed without replacement, a person who manages or supervises the management of the business and affairs of the corporation is deemed to be a director for the purposes of this Act.

(5) Subsection (4) does not apply to

(a) an officer who manages the business or affairs of the corporation under the direction or control of a shareholder or other person;

(b) a lawyer, notary, accountant or other professional who participates in the management of the corporation solely for the purpose of providing professional services; or

(c) a trustee in bankruptcy, receiver, receiver-manager or secured creditor who participates in the management of the corporation or exercises control over its property solely for the purpose of the realization of security or the administration of a bankrupt's estate, in the case of a trustee in bankruptcy.

Bill Clause No. 41
CBCA Section No. 111(1), (2) and (3)
Topic : Directors and Officers (Technical Amendments)

Sources of Proposed Law

Changes From Present Law
Clarification of subs. 111(1) to (3).

Purpose of Change
Clarify that the directors cannot fill a vacancy resulting from an increase in the number or the minimum or maximum number of directors or a failure by the shareholders to elect the number or the minimum number of directors provided for in the articles. Only the shareholders have the ability to elect these directors.

To make the wording consistent throughout the section.

Similar Provincial Laws

Current Wording
111. (1) Notwithstanding subsection 114(3), but subject to subsections (3) and (4), a quorum of directors may fill a vacancy among the directors, except a vacancy resulting from an increase in the number or minimum number of directors or from a failure to elect the number or minimum number of directors required by the articles.

(2) If there is not a quorum of directors or if there has been a failure to elect the number or minimum number of directors required by the articles, the directors then in office shall forthwith call a special meeting of shareholders to fill the vacancy and, if they fail to call a meeting or if there are no directors then in office, the meeting may be called by any shareholder.

(3) Where the holders of any class or series of shares of a corporation have an exclusive right to elect one or more directors and a vacancy occurs among those directors,

(a) subject to subsection (4), the remaining directors elected by the holders of that class or series of shares may fill the vacancy except a vacancy resulting from an increase in the number or the minimum or maximum number of directors for that class or series or from a failure to elect the number or minimum number of directors provided for in the articles for that class or series; or

(b) if there are no remaining directors any holder of shares of that class or series may call a meeting of the holders of shares of that class or series for the purpose of filling the vacancy.

Proposed Wording
111. (1) Despite subsection 114(3), but subject to subsections (3) and (4), a quorum of directors may fill a vacancy among the directors, except a vacancy resulting from an increase in the number or the minimum or maximum number of directors or a failure to elect the number or minimum number of directors provided for in the articles.

(2) If there is not a quorum of directors or if there has been a failure to elect the number or minimum number of directors provided for in the articles, the directors then in office shall without delay call a special meeting of shareholders to fill the vacancy and, if they fail to call a meeting or if there are no directors then in office, the meeting may be called by any shareholder.

(3) If the holders of any class or series of shares of a corporation have an exclusive right to elect one or more directors and a vacancy occurs among those directors,

(a) subject to subsection (4), the remaining directors elected by the holders of that class or series of shares may fill the vacancy except a vacancy resulting from an increase in the number the minimum or maximum number of directors for that class or series or from a failure to elect the number or minimum number of directors provided for in the articles for that class or series; or

(b) if there are no remaining directors any holder of shares of that class or series may call a meeting of the holders of shares of that class or series for the purpose of filling the vacancy.

Bill Clause No. 42
CBCA Section No. 113(1)and new (1.1)
Topic : Directors and Officers (Government Administration)

Sources of Proposed Law

Changes From Present Law
Amend s. 113 to place an obligation on directors to provide notice of a change of address within fifteen days of the event. Once this notice is received, the corporation would then be obliged to notify the CBCA Director of this change within fifteen days of receiving notice from a director.

Purpose of Change
The CBCA reform effort addresses in many substantive ways the changing landscape affecting directors -- residency, liability, USAs, and directorless corporations. Given that there are many statutory requirements for notices sent to directors, it is important to know who they are and where they can be reached. This provision was amended at the Senate Committee stage at the suggestion of the Coalition for CBCA Reform.

Similar Provincial Laws

Current Wording
113. (1) Within fifteen days after a change is made among its directors, a corporation shall send to the Director a notice in prescribed form setting out the change and the Director shall file the notice.

Proposed Wording
113. (1) A corporation shall, within fifteen days after

(a) a change is made among its directors, or

(b) it receives a notice of change of address of a director referred to in subsection (1.1),

send to the Director a notice, in the form that the Director fixes, setting out the change, and the Director shall file the notice.

(1.1) A director shall, within fifteen days after changing his or her address, send the corporation a notice of that change.

Bill Clause No. 43
CBCA Section No. 114(3), (4) and (9)
Topic : Directors and Officers (Technical Amendments)

Sources of Proposed Law

Changes From Present Law
Subsections 114(3) and (4) are amended to reflect changes made to the directors' residency requirements.

Subsection 114(9) is amended to provide that directors may participate in a meeting of directors or of a committee of directors by means of a telephonic, electronic or other communication facility to the extent that such means permit all participants to communicate adequately with each other, in accordance with the regulations, if any.

Purpose of Change
These consequential amendments are needed following the changes made to the directors' residency requirements in s. 105 (see clause 37).

To provide directors with the flexibility in conducting their meetings.

Similar Provincial Laws

Current Wording
114. (3) Directors, other than directors of a corporation referred to in subsection 105(4), shall not transact business at a meeting of directors unless a majority of directors present are resident Canadians.

(9) Subject to the by_laws, a director may, if all the directors of the corporation consent, participate in a meeting of directors or of a committee of directors by means of such telephone or other communications facilities as permit all persons participating in the meeting to hear each other, and a director participating in such a meeting by such means is deemed for the purposes of this Act to be present at that meeting.

Proposed Wording
114. (3) Directors, other than directors of a corporation referred to in subsection 105(4), shall not transact business at a meeting of directors unless,

(a) if the corporation is subject to subsection 105(3), at least twenty-five per cent of the directors present are resident Canadians or, if the corporation has less than four directors, at least one of the directors present is a resident Canadian; or

(b) if the corporation is subject to subsection 105(3.1), a majority of directors present are resident Canadians or if the corporation has only two directors, at least one of the directors present is a resident Canadian.

(4) Despite subsection (3), directors may transact business at a meeting of directors where the number of resident Canadian directors, required under that subsection, is not present if

(a) a resident Canadian director who is unable to be present approves in writing, or by telephonic, electronic or other communication facility, the business transacted at the meeting; (b) the required number of resident Canadian directors would have been present had that director been present at the meeting.

(9) Subject to the by-laws, a director may, in accordance with the regulations, if any, and if all the directors of the corporation consent, participate in a meeting of directors or of a committee of directors by means of a telephonic, electronic or other communication facility that permits all participants to communicate adequately with each other during the meeting. A director participating in such a meeting by such means is deemed for the purposes of this Act to be present at that meeting.

Bill Clause No. 44(1)
CBCA Section No. 115(2)
Topic : Directors and Officers (Directors' Residency)

Sources of Proposed Law
Standing Senate Committee on Banking, Trade and Commerce, Corporate Governance, 1996, Recommendation no. 16.

Changes From Present Law
Repeal the director's residency requirement for committees of boards of directors.

Purpose of Change
Eliminating the residency requirement would provide corporations with the flexibility to appoint directors to committees on the basis of their qualifications and their ability to improve the corporation's performance. The board remains responsible for final decisions.

Similar Provincial Laws

Current Wording
115. (2) If the directors of a corporation, other than a corporation referred to in subsection 105(4), appoint a committee of directors, a majority of the members of the committee must be resident Canadians.

Proposed Wording
N/A

Bill Clause No. 44(2) and (3)
CBCA Section No. 115(3)(b), (c), new c.1 and (f)
Topic : Directors and Officers (Directors' Liability)

Sources of Proposed Law

Changes From Present Law
Concerning s. 115:

(A) prohibit in par. 115(3)(b) delegation of the power to appoint additional directors,

(B) replace in par. 115(3)(c) the words "in the manner and on the terms" with more flexible words such as "as",

(D) amend subs. 115(3) to preclude delegation of the directors' authority in subs. 27(4) to (6) [to designate a series of 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 subs. 115(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.

(A) Subsection 115(3)(b) prohibits the delegation of the power to fill a vacancy among the directors. Subsection 106(8) provides that the articles of a corporation may allow directors to appoint a limited number of additional directors between meetings. As drafted, s. 115(3) may be interpreted not to prohibit the delegation of this appointment power, even though this power is analogous to the power to fill vacancies. This amendment would prohibit the delegation of authority to appoint additional directors.

(B) Paragraph 115(3)(c) prohibits delegation of the power to "issue securities except in a manner and on the terms authorized by the directors". Lawyers are often called upon to make judgments as to whether or not the board of directors has properly set the "terms" of the issue in accordance with par. 115(3)(c). This amendment would increase flexibility by allowing directors to set limits within which the delegated authority can be exercised rather than having to explicitly state how the delegated authority is to be used.

(C) Directors can be liable under subs. 118(2) for paying a commission contrary to s. 41. However, it has been pointed out that par. 115(3)(f) does not permit the same limited delegation permitted under par. 115(3)(c), namely "except in the manner and on the terms authorized by the directors". While a corporation may delegate to a committee or to a managing director the authority to issue shares within the parameters (manner and terms) set by directors, any commission paid in connection with the issue cannot be delegated. This amendment would allow the delegation of authority relating to commissions.

(D) The proposed amendment would ensure that, in keeping with the restraints on delegation in s. 115(3), the authority in CBCA s. 27(4)-(6) to designate a series of shares to be issued and amend the articles would only be exercised by the full board.

Similar Provincial Laws

Current Wording
115.(3) Notwithstanding subsection (1), no managing director and no committee of directors has authority to

…

(b) fill a vacancy among the directors or in the office of auditor;

…

(f) pay a commission referred to in section 41;

Proposed Wording
115. (3)(b) fill a vacancy among the directors or in the office of auditor, or appoint additional directors;

(c.1) issue shares of a series under section 27 except as authorized by the directors;

(f) pay a commission referred to in section 41 except as authorized by the directors;

Second, the Act would be amended to eliminate the director's residency requirement for committees of boards of directors (s. 115(2)).

Fifth, the provisions governing the appointment and removal of directors (s. 106 to 115) and the conflict of interest provisions (s. 120) would be updated and clarified.

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

Bill Clause No. 45
CBCA Section No. new 117(3)
Topic : Directors and Officers (Shareholder Communications)

Sources of Proposed Law

Changes From Present Law
Add new subsection following s. 117(2) specifying that an entry in the minutes of a meeting to the effect that the chairperson declared that a resolution is adopted or rejected is evidence of this decision, without it being necessary to prove the number of votes for or against the resolution. A similar amendment is made in clause 62.

Purpose of Change
The amendment is designed to increase flexibility and ease of record keeping.

Similar Provincial Laws
The Business Corporations Act (Saskatchewan)

Current Wording
N/A

Proposed Wording
117. (3) Unless a ballot is demanded, an entry in the minutes of a meeting to the effect that the chairperson of the meeting declared a resolution to be carried or defeated is, in the absence of evidence to the contrary, proof of the fact without proof of the number or proportion of the votes recorded in favour of or against the resolution.

Bill Clause No. 46
CBCA Section No. 118(1), (2), (4) and (5)(a)
Topic : Directors and Officers (Technical Amendments)

Sources of Proposed Law

Changes From Present Law
Amend s. 118(1) and (2) to add the words "or solidarily".

Amend s. 118(2), (4) and (5)(a) to remove the reference to s. 44.

Purpose of Change

(A) The addition of the words "or solidarily" updates the law to include the civil law concept of apportioning liability.

(B) Removes the reference to s. 44 which is repealed by clause 26.

Similar Provincial Laws

Current Wording
118. (1) Directors of a corporation who vote for or consent to a resolution authorizing the issue of a share under section 25 for a consideration other than money are jointly and severally liable to the corporation to make good any amount by which the consideration received is less than the fair equivalent of the money that the corporation would have received if the share had been issued for money on the date of the resolution.

(2) Directors of a corporation who vote for or consent to a resolution authorizing

(a) a purchase, redemption or other acquisition of shares contrary to section 34, 35 or 36,

(b) a commission contrary to section 41,

(d) financial assistance contrary to section 44,

(e) a payment of an indemnity contrary to section 124, or

(f) a payment to a shareholder contrary to section 190 or 241,are jointly and severally liable to restore to the corporation any amounts so distributed or paid and not otherwise recovered by the corporation.

(4) A director liable under subsection (2) is entitled to apply to a court for an order compelling a shareholder or other recipient to pay or deliver to the director any money or property that was paid or distributed to the shareholder or other recipient contrary to section 34, 35, 36, 41, 42, 44, 124, 190 or 241.

(5)(a) order a shareholder or other recipient to pay or deliver to a director any money or property that was paid or distributed to the shareholder or other recipient contrary to section 34, 35, 36, 41, 42, 44, 124, 190 or 241;

Proposed Wording
118. (1) Directors of a corporation who vote for or consent to a resolution authorizing the issue of a share under section 25 for a consideration other than money are jointly and severally, or solidarily, liable to the corporation to make good any amount by which the consideration received is less than the fair equivalent of the money that the corporation would have received if the share had been issued for money on the date of the resolution.

(2) Directors of a corporation who vote for or consent to a resolution authorizing any of the following are jointly and severally, or solidarily, liable to restore to the corporation any amounts so distributed or paid and not otherwise recovered by the corporation:

(a) a purchase, redemption or other acquisition of shares contrary to section 34, 35 or 36;

(b) a commission contrary to section 41;

(d) a payment of an indemnity contrary to section 124; or

(e) a payment to a shareholder contrary to section 190 or 241.

Bill Clause No. 47
CBCA Section No. 119(1) and (5)
Topic : Directors and Officers (Directors' Liability)

Sources of Proposed Law

Changes From Present Law -
Amend s. 119(1) to add the words "or solidarily" in the English version. Amend the French version of subs. 119(5) to replace "est subrogé aux titres de préférence de" with "a droit à toute priorité qu'aurait pu faire valoir".

Purpose of Change
Subs. (1): This change clarifies the wording of the section and reflects Canada's two legal systems, common law and civil law.

Subs. (5): This technical change clarifies the wording and application of the Act.

Similar Provincial Laws

Current Wording
119. (1) Directors of a corporation are jointly and severally liable to employees of the corporation for all debts not exceeding six months wages payable to each such employee for services performed for the corporation while they are such directors respectively.

(5) L'administrateur qui acquitte les dettes visées au paragraphe (1), dont l'existence est établie au cours d'une procédure soit de liquidation et de dissolution, soit de faillite, est subrogé aux titres de préférence de l'employé et, le cas échéant, aux droits constatés dans le jugement

Proposed Wording
119. (1) Directors of a corporation are jointly and severally, or solidarily, liable to employees of the corporation for all debts not exceeding six months wages payable to each such employee for services performed for the corporation while they are such directors respectively.

(5) L'administrateur qui acquitte les dettes visées au paragraphe (1), dont l'existence est établie au cours d'une procédure soit de liquidation et de dissolution, soit de faillite, a droit à toute priorité qu'aurait pu faire valoir l'employé et, le cas échéant, est subrogé aux droits constatés dans le jugement.

Bill Clause No. 48
CBCA Section No. 120
Topic : Directors and Occiers (Interested Directors' and Officers' contracts)

Sources of Proposed Law

Changes From Present Law
(A) Section 120(1) is amended to cover material contracts or transactions or proposed material contracts or transactions.

(B) Clarifies the timing in par. 120(2)(b) by replacing the word "then" with "at the time of the meeting referred to in paragraph (a)".

(C) Repeal par. 120(5)(a) concerning the interested director's ability to vote on contracts he/she has entered into for the benefit of the corporation.

(D) Amend subs. 120(6) to require that a "material change" in the nature of the interest of a director or officer in a contract or transaction shall be the object of a new declaration.

(E) Permit shareholders to access that part of the directors' meeting minutes, or other documents that disclose interested director or officer contracts or transactions.

(F) Specify that a director or officer is not accountable to the corporation for any profit or gain realized from an interested director or officer contract or transaction so long as the conditions set out in subs. 120(7) are met.

(G) Add a new provision providing for shareholder approval of interested director or officer contracts or transactions as an alternative method of rendering a contract non-voidable notwithstanding non-compliance with the avoidance standards in subs. 120(7), and remove the reference to shareholder approval in subs. 120(7).

(H) Broaden the grounds for a court application in subs. 120(8) to set aside an interested director or officer contract or transaction to include any failure to comply with s. 120 and give the courts the power to make an order directing that the director or officer account to the corporation for any profit or gain realized.
Purpose of Change
(A) Section 120(1): The policy behind s. 120 is to identify those situations in which a director or officer's ability to consider, fairly and effectively, the corporation's interests may be inhibited by self-interest. The addition of the terms "transaction" and "proposed transaction" broadens the coverage of s. 120 and clarifies the extent of the section's application by requiring identification of interests which extend beyond those resulting from material contracts. The additions will also bring the CBCA into line with other Canadian corporate laws.

(B) Par. 120(2)(b): The words "not then interested" do not clearly indicate the timing required for disclosure under the paragraph.

(C) Subsection 120(5): Paragraph 120(5)(a) seems to allow directors to vote on an arrangement for security for money lent to themselves or for obligations undertaken by them which could amount to endorsing a conflict of interest situation. However, the contract must be "for the benefit of the corporation or an affiliate."

S. 120(5)(a) could be interpreted to mean that a director to whom the corporation has lent money will not be precluded from voting on the approval of the arrangement provided the loan is undertaken "for the benefit of the corporation or an affiliate." One of the difficulties with this provision however, is determining when such a loan is made "for the benefit of the corporation" as opposed to for the benefit of the director.

Further, it can be argued that it is unlikely that the approval of a contract that does not offer any benefit to the corporation would withstand the fiduciary duty test set out in s. 122 which requires directors and officers to act with a "view to the best interests of the corporation." Therefore, in accordance with this fiduciary duty, directors should presumably only make loans which benefit the corporation. If all loans benefit the corporation, interested directors would always be entitled to vote on a loan made to them. If a director could always vote what is the necessity of a section which says the director may not vote unless the loan is made for the benefit of the corporation.

Repealing s. 120(5)(a) would disallow interested directors from voting on a contract in which they have a personal interest and therefore are in conflict of interest with the corporation. It would remove the uncertainty around determining whether a contract is in the best interests of the corporation. An interested director shall not vote.

(D) Subsection 120(6): This proposed change would require that the director bring material changes in his/her interest to the attention of the corporation. This information is necessary when a corporation is making decisions about future interested director contracts. The new declaration/information would fairly represent the true nature of the director's interest and would be in line with the fiduciary duties of the director to make disclosure.

(E) Subsection 120(6.1): This proposed change would give shareholders access to information that will help them make fully informed decisions.

(F) Subsection (7): At common law, directors and officers have a fiduciary duty to account to the corporation for any profit they gain from any interested contract or transaction. Furthermore, such contract or transaction would, at common law be void or voidable.

Current s. 120(7) provides that such contract or transaction is neither void nor voidable provided that the director or officer disclosed his interest, the contract or transaction was approved by the directors or shareholders and it was reasonable to the shareholders at the time it was approved. The current wording does not address whether the interested director or officer is accountable to the corporation even where these conditions have been fulfilled.

This amendment would clarify this issue and thereby harmonize the CBCA with other Canadian corporate laws.

(G) Subsection 120(7.1): Subsection 120(7) would provide for director approval and a new subsection would provide for shareholder approval. This change would add flexibility.

(H) Subsection 120(8): This change would clarify that an action may be brought for any breach of this section and would clarify that the courts have the power to order that the director is accountable for any profit. It would also clarify that the effect of a director voting when not allowed is that an action may be brought to void the contract. The CBCA would be brought into line with other Canadian corporate laws.

Similar Provincial Laws
Business Corporations Act (Ontario)
Company Act (British Columbia)
Code civil du Québec
Business Corporations Act (Alberta)
Company Act (New Brunswick)

Current Wording
120. (1) A director or officer of a corporation who

(a) is a party to a material contract or proposed material contract with the corporation, or

(b) is a director or an officer of or has a material interest in any person who is a party to a material contract or proposed material contract with the corporation,

shall disclose in writing to the corporation or request to have entered in the minutes of meetings of directors the nature and extent of his interest.

(2) The disclosure required by subsection (1) shall be made, in the case of a director,

(a) at the meeting at which a proposed contract is first considered;

(b) if the director was not then interested in a proposed contract, at the first meeting after he becomes so interested;

(d) if a person who is interested in a contract later becomes a director, at the first meeting after he becomes a director.

(3) The disclosure required by subsection (1) shall be made, in the case of an officer who is not a director,

(a) forthwith after he becomes aware that the contract or proposed contract is to be considered or has been considered at a meeting of directors;

(b) if the officer becomes interested after a contract is made, forthwith after he becomes so interested; or

(4) If a material contract or proposed material contract is one that, in the ordinary course of the corporation's business, would not require approval by the directors or shareholders, a director or officer shall disclose in writing to the corporation or request to have entered in the minutes of meetings of directors the nature and extent of his interest forthwith after the director or officer becomes aware of the contract or proposed contract.

(5) A director referred to in subsection (1) shall not vote on any resolution to approve the contract unless the contract is

(a) an arrangement by way of security for money lent to or obligations undertaken by him for the benefit of the corporation or an affiliate;

(b) one relating primarily to his remuneration as a director, officer, employee or agent of the corporation or an affiliate;

(d) one with an affiliate.

(6) For the purposes of this section, a general notice to the directors by a director or officer, declaring that he is a director or officer of or has a material interest in a person and is to be regarded as interested in any contract made with that person, is a sufficient declaration of interest in relation to any contract so made.

(7) A material contract between a corporation and one or more of its directors or officers, or between a corporation and another person of which a director or officer of the corporation is a director or officer or in which he has a material interest, is neither void nor voidable by reason only of that relationship or by reason only that a director with an interest in the contract is present at or is counted to determine the presence of a quorum at a meeting of directors or committee of directors that authorized the contract, if the director or officer disclosed his interest in accordance with subsection (2), (3), (4) or (6), as the case may be, and the contract was approved by the directors or the shareholders and it was reasonable and fair to the corporation at the time it was approved.

(8) Where a director or officer of a corporation fails to disclose his interest in a material contract in accordance with this section, a court may, on the application of the corporation or a shareholder of the corporation, set aside the contract on such terms as it thinks fit.

Proposed Wording
120. (1) A director or an officer of a corporation shall disclose to the corporation, in writing or by requesting to have it entered in the minutes of meetings of directors or of meetings of committees of directors, the nature and extent of any interest that he or she has in a material contract or material transaction, whether made or proposed, with the corporation, if the director or officer

(a) is a party to the contract or transaction;

(b) is a director or an officer, or an individual acting in a similar capacity, of a party to the contract or transaction; or

(2) The disclosure required by subsection (1) shall be made, in the case of a director,

(a) at the meeting at which a proposed contract or transaction is first considered;

(b) if the director was not, at the time of the meeting referred to in paragraph (a), interested in a proposed contract or transaction, at the first meeting after he or she becomes so interested;

(c) if the director becomes interested after a contract or transaction is made, at the first meeting after he or she becomes so interested; or

(d) if an individual who is interested in a contract or transaction later becomes a director, at the first meeting after he or she becomes a director.

(3) The disclosure required by subsection (1) shall be made, in the case of an officer who is not a director,

(a) immediately after he or she becomes aware that the contract, transaction, proposed contract or proposed transaction is to be considered or has been considered at a meeting;

(b) if the officer becomes interested after a contract or transaction is made, immediately after he or she becomes so interested; or

(c) if an individual who is interested in a contract later becomes an officer, immediately after he or she becomes an officer.

(4) If a material contract or material transaction, whether entered into or proposed, is one that, in the ordinary course of the corporation's business, would not require approval by the directors or shareholders, a director or officer shall disclose, in writing to the corporation or request to have it entered in the minutes of meetings of directors or of meetings of committees of directors, the nature and extent of his or her interest immediately after he or she becomes aware of the contract or transaction.

(5) A director required to make a disclosure under subsection (1) shall not vote on any resolution to approve the contract or transaction unless the contract or transaction

(a) relates primarily to his or her remuneration as a director, officer, employee or agent of the corporation or an affiliate;

(b) is for indemnity or insurance under section 124; or

(6) For the purposes of this section, a general notice to the directors declaring that a director or an officer is to be regarded as interested, for any of the following reasons, in a contract or transaction made with a party, is a sufficient declaration of interest in relation to the contract or transaction:

(a) the director or officer is a director or officer, or acting in a similar capacity, of a party referred to in paragraph (1)(b) or (c);

(b) the director or officer has a material interest in the party; or

(6.1) The shareholders of the corporation may examine the portions of any minutes of meetings of directors or of committees of directors that contain disclosures under this section, and any other documents that contain those disclosures, during the usual business hours of the corporation.

(7) A contract or transaction for which disclosure is required under subsection (1) is not invalid, and the director or officer is not accountable to the corporation 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 subsections (1) to (6);

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

(7.1) Even if the conditions of subsection (7) are not met, a director or officer, acting honestly and in good faith, is not accountable to the corporation or to its shareholders for any profit realized from a contract or transaction for which disclosure is required under subsection (1), 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 shareholders;

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

(8) If a director or an officer of a corporation fails to comply with this section, a court may, on application of the corporation or any of its shareholders, set aside the contract or transaction on any terms that it thinks fit, or require the director or officer to account to the corporation for any profit or gain realized on it, or do both those things.

Second, the Act would be amended to eliminate the director's residency requirement for committees of boards of directors (s. 115(2)).

Fifth, the provisions governing the appointment and removal of directors (s. 106 to 115) and the conflict of interest provisions (s. 120) would be updated and clarified.

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

Bill Clause No. 49
CBCA Section No. 121(a)
Topic : Directors and Officers (Technical Amendments)

Sources of Proposed Law

Changes From Present Law
The word "affaires" in the French version is replaced with "activités".

Purpose of Change
Clarification of the French wording.

Similar Provincial Laws

Current Wording
121. Subject to the articles, the by-laws or any unanimous shareholder agreement,

a) pour les administrateurs, de créer des postes de dirigeants, d'y nommer des personnes pleinement capables, de préciser leurs fonctions et de leur déléguer le pouvoir de gérer les affaires tant commerciales qu'internes de la société, sauf les exceptions prévues au paragraphe 115(3);

Proposed Wording
121. a) pour les administrateurs, de créer des postes de dirigeants, d'y nommer des personnes pleinement capables, de préciser leurs fonctions et de leur déléguer le pouvoir de gérer les activités commerciales affaires internes de la société, sauf les exceptions prévues au paragraphe 115(3);

Bill Clause No. 50
CBCA Section No. 123(4) and new (5)
Topic : Directors and Officers (Directors' Liability)

Sources of Proposed Law

Changes From Present Law
The good faith reliance defense is replaced with a due diligence defense.

Purpose of Change
The due diligence defense provides more fairness to directors than does the good faith reliance defense. The due diligence defense recognizes that the nature and extent of the expected precaution will vary under each circumstance. These precautions can include such things as relying on financial statements presented to directors by an officer, putting in place appropriate controls and systems to monitor and ensure that policies are being implemented, requiring a proper review or periodic reports, and taking appropriate action when a problem is brought to the directors' attention.

The elements of the good faith reliance defense are kept to make it clear that these elements continue to be part of what constitutes acting with due diligence.

Similar Provincial Laws

Current Wording
123. (4) A director is not liable under section 118, 119 or 122 if he relies in good faith on

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

(b) a report of a lawyer, accountant, engineer, appraiser or other person whose profession lends credibility to a statement made by him.

Proposed Wording
123. (4) A director is not liable under section 118 or 119, and has complied with his or her duties under subsection 122(2), if the director exercised the care, diligence and skill that reasonably prudent person would have exercised in comparable circumstances, including reliance in good faith on

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

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

(5) A director has complied with his or her duties under subsection 122(1) if the director relied in good faith on

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

Bill Clause No. 51
CBCA Section No. 124
Topic : Directors and Officers (Directors' Liability)

Sources of Proposed Law
Model Business Corporations Act
General Corporations Law (Delaware)

Changes From Present Law
Broaden the statutory indemnification rules to:

(A) expressly allow the corporation to advance defense costs,

(B) provide for indemnification and advancement of defense costs in respect of investigative proceedings,

(C) eliminate the reference to a shareholding or other financial interests in the corporation found in the current subs. 124(1),

(D) allow the corporation to indemnify a director or officer, or a person acting in a similar capacity, of a body corporate, a partnership, a trust, a joint venture or other entity,

(E) allow persons to be indemnified if they act in the best interests of such entities,

(F) replace in the current s. 124(3) the words "Notwithstanding anything in this section" with "Notwithstanding subsection (1)", specify that a person is entitled to indemnity from the corporation if he/she was found not to have committed any fault or omitted to have done anything that the person ought to have done,

Permit a corporation to purchase and maintain insurance for the benefit of any person referred to in subs. 124(1) against any liability incurred by reason of the person being or having been a director or officer, or acting in a similar capacity.

Purpose of Change
(A) The current indemnification provision does not provide for the advancement of defense costs to directors. Several years may pass from the start of proceedings against a director until a final adjudication. In the interim, the director may have the burden of financing his or her defense. Legal expenses in complex proceedings can be staggering. It is appropriate for a court to approve the advance of funds in the case of a derivative action since court approval of indemnification in a derivative action is currently required by par. 124(2).

(B) Subsection 124(1) does not mention investigative proceedings and it is not clear under the present rules whether indemnification is permissible in respect of them. Investigative proceedings are regularly used by, for example, securities commissions, and can involve corporate directors. Such proceedings can be costly and lengthy. This change would allow corporations to ensure that directors are adequately protected against the costs of all types of proceedings.

(C) One condition for indemnification (current subs. 124(1)) is that the corporation has a shareholding or other financial interest in the body corporate. Consequently, a corporation cannot indemnify individuals who sit on the boards of subsidiaries of subsidiary corporations ("grandchildren") or on outside boards at the request of subsidiaries. The elimination of the shareholding or other financial interest in the body corporate would permit indemnification by the parent corporation of a director of a subsidiary corporation or of a director sitting on an outside board at the request of the subsidiary.

(D) The indemnification provision applies not only to officers and directors of the corporation but also to officers and directors of a body corporate who act at the corporation's request. As such, it does not apply where a person acts at the corporation's request as a director or officer (or in a similar capacity) of a partnership, a trust or other unincorporated entity. Broadening the definition would enable directors to obtain the benefits of protection of indemnification while they are or were serving at the corporation's request as a director on these entities.

(E) To be indemnified, subs. 124(1) requires an individual acting as a director of another body corporate at the request of the corporation to act honestly and in good faith with a view to the best interests of the corporation. Consequently, in order to be indemnified by the corporation at whose request he/she acts, this director has to act in the best interest of the corporation. He/she can be put in the position of having to breach his/her duty to the other body corporate. The proposed amendment would allow directors to be indemnified by the corporation where they act honestly and in good faith with a view to the best interests of the body corporate, partnership, trust, joint venture or other entity (providing they serve as directors of that body corporate at the corporation's request).

(F) Subsection 124(3) [Bill s. 124(5)] provides for mandatory indemnification of directors and officers by the corporation in specific situations. It is unclear whether s. 124(3) can be read with s. 124(2) to make indemnification mandatory for a substantially successful defense of a derivative action. This uncertainty comes from the first sentence of s. 124(3), which specifies: "Notwithstanding anything in this section". Subsection 124(2) requires court approval of any indemnification paid by the corporation to a director who has been sued by or on behalf of the corporation. The proposed amendment to s. 124(3) would clarify that the mandatory indemnification does not apply in the case of a derivative action.

(G) Section 124(3)(a) includes a test that requires a director or officer "was substantially successful on the merits in his defense of the action or proceeding" before that person is entitled to indemnification from the corporation. This test of whether a person's defense was successful on the merits is no longer be appropriate for anticipated or investigatory matters that do not reach a conclusion with respect to the merits. This proposed change will ensure that directors will be adequately protected against liability arising from all types of proceedings.

(H) Director and officer (D & O) liability insurance provides protection to directors and officers in addition to the rights of indemnification created by s. 124. Subsection 124(4) [Bill s. 124(6)] specifically authorizes the purchase of insurance for the same category of persons named in subsection (1). However, no insurance is permitted for liabilities relating to the "failure to act honestly and in good faith with a view to the best interests of the corporation."

It is not appropriate that the CBCA disallows a corporation from obtaining insurance to cover its directors even in situations where the corporation cannot otherwise indemnify its directors. It should be left up to the market place, i.e. insurance companies, to determine when and under what circumstances they are prepared to provide directors' insurance.

Similar Provincial Laws

Current Wording
124. (1)Except in respect of an action by or on behalf of the corporation or body corporate to procure a judgment in its favor, a corporation may indemnify a director or officer of the corporation, a former director or officer of the corporation or a person who acts or acted at the corporation's request as a director or officer of a body corporate of which the corporation is or was a shareholder or creditor, and his heirs and legal representatives, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by him in respect of any civil, criminal or administrative action or proceeding to which he is made a party by reason of being or having been a director or officer of such corporation or body corporate, if

(a) he acted honestly and in good faith with a view to the best interests of the corporation; and

(b) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, he had reasonable grounds for believing that his conduct was lawful.

(2) A corporation may with the approval of a court indemnify a person referred to in subsection (1) in respect of an action by or on behalf of the corporation or body corporate to procure a judgment in its favor, to which he is made a party by reason of being or having been a director or an officer of the corporation or body corporate, against all costs, charges and expenses reasonably incurred by him in connection with such action if he fulfils the conditions set out in paragraphs (1)(a) and (b).

(3) Notwithstanding anything in this section, a person referred to in subsection (1) is entitled to indemnity from the corporation in respect of all costs, charges and expenses reasonably incurred by him in connection with the defense of any civil, criminal or administrative action or proceeding to which he is made a party by reason of being or having been a director or officer of the corporation or body corporate, if the person seeking indemnity

(a) was substantially successful on the merits in his defense of the action or proceeding; and

(b) fulfils the conditions set out in paragraphs (1)(a) and (b).

(4) A corporation may purchase and maintain insurance for the benefit of any person referred to in subsection (1) against any liability incurred by him

(a) in his capacity as a director or officer of the corporation, except where the liability relates to his failure to act honestly and in good faith with a view to the best interests of the corporation; or

(b) in his capacity as a director or officer of another body corporate where he acts or acted in that capacity at the corporation's request, except where the liability relates to his failure to act honestly and in good faith with a view to the best interests of the body corporate.

(5) A corporation or a person referred to in subsection (1) may apply to a court for an order approving an indemnity under this section and the court may so order and make any further order it thinks fit.

(6) An applicant under subsection (5) shall give the Director notice of the application and the Director is entitled to appear and be heard in person or by counsel.

(7) On an application under subsection (5), the court may order notice to be given to any interested person and such person is entitled to appear and be heard in person or by counsel.

Proposed Wording
124. (1) A corporation may indemnify a director or officer of the corporation, a former director or officer of the corporation or another individual who acts or acted at the corporation's request as a director or officer, or an individual acting in a similar capacity, of another entity, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by the individual in respect of any civil, criminal, administrative, investigative or other proceeding in which the individual is involved because of that association with the corporation or other entity.

(2) A corporation 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 shall repay the moneys if the individual does not fulfil the conditions of subsection (3).

(3) A corporation may not indemnify an individual under subsection (1) unless the individual

(a) acted honestly and in good faith with a view to the best interests of the corporation, or, as the case may be, to the best interests of the other entity for which the individual acted as director or officer or in a similar capacity at the corporation's request; and

(b) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, the individual had reasonable grounds for believing that the individual's conduct was lawful.

(4) A corporation may with the approval of a court, indemnify an individual referred to in subsection (1), or advance moneys under subsection (2), in respect of an action by or on behalf of the corporation or other entity to procure a judgment in its favor, to which the individual is made a party because of the individual's association with the corporation or other entity as described in subsection (1) against all costs, charges and expenses reasonably incurred by the individual in connection with such action, if the individual fulfils the conditions set out in subsection (3).

(5) Despite subsection (1), an individual referred to in that subsection is entitled to indemnity from the corporation in respect of all costs, charges and expenses reasonably incurred by the individual in connection with the defense of any civil, criminal, administrative, investigative or other proceeding to which the individual is subject because of the individual's association with the corporation or other entity as described in subsection (1), if the individual seeking indemnity

(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

(b) fulfils the conditions set out in subsection (3).

(6) A corporation may purchase and maintain insurance for the benefit of an individual referred to in subsection (1) against any liability incurred by the individual

(a) in the individual's capacity as a director or officer of the corporation; or

(b) in the individual's capacity as a director or officer, or similar capacity, of another entity, if the individual acts or acted in that capacity at the corporation's request.

(7) A corporation, an individual or an entity referred to in subsection (1) may apply to a court for an order approving an indemnity under this section and the court may so order and make any further order that it sees fit.

(8) An applicant under subsection (7) shall give the Director notice of the application and the Director is entitled to appear and be heard in person or by counsel.

(9) On an application under subsection (7) the court may order notice to be given to any interested person and the person is entitled to appear and be heard in person or by counsel.

The insider reporting requirements currently in s. 127 to 129 would be repealed.

The civil liability provisions would be completely overhauled to harmonize with provincial securities legislation. In particular, the amendments would expand the definition of "security" for insider trading purposes in order to help deter insider trading by allowing civil actions to be brought based on that broader definition. The definition of "insider" would also be expanded to cover most instances where insider trading might be expected to occur. Finally, new provisions are incorporated, imposing civil liability on persons who communicate undisclosed confidential information. (s. 131).

The insider trading prohibitions (s. 130) would be amended to narrow the application of the penal provisions to prohibit only the purchase of put options and the sale of call options. The maximum fines payable upon conviction would be increased from $5000 to the greater of one million dollars and three times the profit made or loss avoided. The maximum jail term for breach of the penal provisions would remain at six months.

A number of minor technical amendments to both the English and French versions are also included, as well certain amendments which are designed to facilitate the efficient operation and administration of the statute.

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

Bill Clause No.52
CBCA Section No .126(1), (2), (3), and (4)
Topic : Insider Trading

Sources of Proposed Law

Changes From Present Law
Removes the definition of "distributing corporation" found in s. 126(1).

Narrows the definition of "insider" in s. 126 for the purpose of the speculative trading prohibitions and repeals subs. 126(3).

Amends the definition of "officer" to cover officers of other entities and deletes paragraph (b) of the definition.

Broadens the definition of "business combination" to include similar material business combinations and repeals subs. 126(4).

Modifies par. 126(2)(a).

Purpose of Change
The definition of "distributing corporation" will now be located in s. 2(1).

The definition of "insider" in s. 126 would, following repeal of the insider reporting provisions (see clause 53), only apply to the speculative trading provisions of the Act. The policy rationale for maintaining the speculative trading prohibitions is the corporate governance concern over possible conflicts of interest if speculative trades by insiders are allowed. Therefore, for the purpose of the speculative trading prohibitions, only those insiders who can influence corporate decisions and who can be in a conflict of interest position should be included in the definition of "insider". The repeal of ss. 126(3) is a consequential amendment.

The amendment to the definition of "officer" in s. 126 is necessary because the relevant individuals may not necessarily work for a CBCA corporation (e.g., an affiliate of the corporation may be incorporated under the laws of a province). The term "entity" is appropriate because of the interrelationship of the various parties named in the definition of "insider" in ss. 131(1) (see clause 54). The reference to the five highest paid employees of the corporation would be deleted because the amount of remuneration received by an employee has no relationship to whether the employee is a decision-maker or has access to confidential information with respect to their employer (eg., a retail broker at an investment dealer does not necessarily have access to confidential information with respect to the investment dealer employer).

The definition of "business combination" now applies only to amalgamations and acquisitions of all or substantially all of the property of one body corporate by another. Provincial securities laws cover other forms of business combinations which can fundamentally change the corporate structure. This amendment would broaden the definition in order to harmonize with provincial securities legislation. The definition would be moved to s. 126(1) because it applies to the Part. Accordingly, the current definition, which is found in subs. 126(4), would be repealed.

The amendments to s. 126(2)(a) are required because of the elimination of paragraph (d) of the current definition of "insider" in s. 126(1). Proposed paragraph 126(2)(a) would, in effect combine these existing provisions and move the numbers to the regulation for flexibility purposes.

The language of s. 126(2)(a) matches with that which is proposed in respect of s. 131(1)(d) of the CBCA.

Similar Provincial Laws

Current Wording
126. (1) …

"distributing corporation" means a corporation, any of the issued securities of which are or were part of a distribution to the public and remain outstanding and are held by more than one person;

"insider" means, except in section 131,

(a) a director or officer of a distributing corporation,

(b) a distributing corporation that purchases or otherwise acquires, except by means of a redemption under section 36, shares issued by it,

(d) a person who beneficially owns more than ten per cent of the shares of a distributing corporation or who exercises control or direction over more than ten per cent of the votes attached to shares of a distributing corporation, excluding shares owned by an underwriter under an underwriting agreement while those shares are in the course of a distribution to the public;

"officer" means

(a) the chairman, president, vice-president, secretary, treasurer, comptroller, general counsel, general manager, managing director or any other individual who performs functions for a corporation similar to those normally performed by an individual occupying any such office, and

(b) each of the five highest paid employees of a corporation including any individual mentioned in paragraph (a);

(2) For the purposes of this Part,

(a) a director or an officer of a body corporate that is an insider of a distributing corporation is deemed to be an insider of the distributing corporation;

(b) a director or an officer of a body corporate that is a subsidiary is deemed to be an insider of its holding distributing corporation;

(c) a person is deemed to own beneficially shares beneficially owned by a body corporate controlled by him directly or indirectly;

(d) a body corporate is deemed to own beneficially shares beneficially owned by its affiliates; and

(e) the acquisition or disposition by an insider of an option or right to acquire a share is deemed to be a change in the beneficial ownership of the share to which the option or right to acquire relates.

(3) For the purposes of this Part,

(a) if a body corporate becomes an insider of a distributing corporation, or enters into a business combination with a distributing corporation, a director or an officer of the body corporate or a shareholder of the body corporate who is a person referred to in paragraph (d) of the definition "insider" is deemed to have been an insider of the distributing corporation for the previous six months or for such shorter period as he was a director, an officer or such a shareholder of the body corporate; and

(b) if a distributing corporation becomes an insider of a body corporate or enters into a business combination with a body corporate, a director or an officer of the body corporate or a shareholder of the body corporate who is a person referred to in paragraph (d) of the definition "insider" is deemed to have been an insider of the distributing corporation for the previous six months or for such shorter period as he was a director, an officer or such a shareholder of the body corporate.

(4) In subsection (3), "business combination" means an acquisition of all or substantially all the property of one body corporate by another or an amalgamation of two or more bodies corporate.

Proposed Wording
126. (1)

"insider" means, except in section 131,

(a) a director or officer of a distributing corporation;

(b) a director or officer of a subsidiary of a distributing corporation;

(c) a director or officer of a body corporate that enters into a business combination with a distributing corporation; and

(d) a person employed or retained by a distributing corporation;

"officer" means the chairperson of the board of directors, the president, a vice-president, the secretary, the treasurer, the comptroller, the general counsel, the general manager, a managing director, of an entity, or any other individual who performs functions for an entity similar to those normally performed by an individual occupying any of those offices;

"business combination" means an acquisition of all or substantially all the property of one body corporate by another, or an amalgamation of two or more bodies corporate, or any similar reorganization between or among two or more bodies corporate;

(2)(a) a director or an officer of a body corporate that beneficially owns directly or indirectly, shares of a distributing corporation, or that exercises control or direction over shares of the distributing corporation, or that has a combination of any such ownership, control and direction, carrying more than the prescribed percentage of voting rights attached to all of the outstanding shares of the distributing corporation not including shares held by the body corporate as underwriter while those shares are in the course of a distribution to the public is deemed to be an insider of the distributing corporation;

Bill Clause No.53
CBCA Section No .127 to 129
Topic : Insider Trading

Sources of Proposed Law

Changes From Present Law
Removes the reporting requirements from the insider trading provisions of the CBCA by repealing sections 127 to 129 of the Act.

Purpose of Change
These requirements currently exist under the CBCA and under provincial securities legislation in order to deter improper insider trading.

Section 127 of the CBCA requires any insider of a distributing corporation to file a report informing the Director under the CBCA of any trades in the shares of the corporation of which he/she is an insider. These reports are published monthly in the Canada Corporations Bulletin. However, very few reports are actually received because most CBCA corporations are exempt from filing with the Director under the single filing provisions of the CBCA, based on the fact that they file the same or similar information with the provincial securities commissions. Provincial securities acts have specific prohibitions and penal remedies to deal with non-compliance. The securities acts also provide substantial investigatory powers (e.g., compelling witnesses to testify under oath) that the CBCA does not have. The securities commissions are also responsible for regulating stock exchanges and have direct links to the stock exchanges and securities dealers, which are the main sources of data and information in any investigation of insider trading.

The repeal of the insider reporting requirements would eliminate unnecessary costs of regulatory duplication.

Similar Provincial Laws

Current Wording
127. (1) Unless he has filed or has been exempted from filing an insider report under the Canada Corporations Act, chapter C-32 of the Revised Statutes of Canada, 1970, or has been exempted from filing an insider report by the regulations, a person who is an insider of a body corporate on the day on which it is continued as a corporation under this Act shall, if the corporation is a distributing corporation, send to the Director an insider report in prescribed form within ten days after the end of the month in which such day occurs.

(2) A person who becomes an insider shall, within ten days after the end of the month in which he becomes an insider, send to the Director an insider report in the prescribed form.

(3) A person who is deemed to have been an insider under subsection 126(3) shall, within ten days after the end of the month in which he is deemed to have become an insider, send to the Director the insider reports for the period in respect of which he is deemed to have been an insider that he would have been required to send under this section had he been otherwise an insider for such period.

(4) An insider whose interest in securities of a distributing corporation changes from that shown or required to be shown in the last insider report sent or required to be sent by him shall, within ten days after the end of the month in which such change takes place, send to the Director an insider report in the prescribed form.

(5) An insider report of a person that includes securities deemed to be beneficially owned by that person is deemed to be an insider report of a body corporate referred to in paragraph 126(2)(c) and the body corporate is not required to send a separate insider report.

(6) An insider report of a body corporate that includes securities deemed to be beneficially owned by the body corporate is deemed to be an insider report of an affiliate referred to in paragraph 126(2)(d) and the affiliate is not required to send a separate insider report.

(7) An insider report of a person that includes securities deemed beneficially owned by that person shall disclose separately

(a) the number or amount of the securities owned by a body corporate; and

(b) the name of the body corporate.

(8) On an application by or on behalf of an insider, the Director may make an order on such terms as he thinks fit exempting the insider from any of the requirements of this section, which order may have retrospective effect.

(9) A person who, without reasonable cause, fails to comply with this section is guilty of an offence and liable on summary conviction to a fine not exceeding five thousand dollars or to imprisonment for a term not exceeding six months or to both.

(10) Where a body corporate commits an offence under subsection (9), any director or officer of the body corporate who knowingly authorized, permitted or acquiesced in the commission of the offence is a party to and guilty of the offence and is liable on summary conviction to a fine not exceeding five thousand dollars or to imprisonment for a term not exceeding six months or to both, whether or not the body corporate has been prosecuted or convicted.

128. A corporation that proposes to purchase or otherwise acquire its own shares otherwise than by means of a purchase or redemption under section 36 shall, in the prescribed circumstances, give notice to the Director of the proposed purchase or other acquisition in the manner prescribed.

129. The Director shall summarize in a periodical available to the public the information contained in insider reports sent to him under sections 127 and 128 and the particulars of exemptions granted under subsection 127(8) together with the reasons therefor.

Proposed Wording
N/A

Bill Clause No. 54
CBCA Section No .130(1) and (3)
Topic : Insider Trading

Sources of Proposed Law

Changes From Present Law
Replaces the word "share" with the word "security" in s. 130.

Purpose of Change
The speculative trading prohibitions relate to the sale of a "share" and puts and calls in respect of a "share" of the corporation or any of its affiliates. The CBCA defines a "share" as a voting share. However, there is a similar potential for conflict of interest with respect to securities other than voting shares. Thus, the proposal to include in the trading prohibitions securities such as debt obligations issued by the corporation.

This change would promote harmonization with provincial rules regarding insider trading and would more fully encompass those types of transactions that could give rise to a conflict of interest.

Similar Provincial Laws
Securities Act (Ontario)

Current Wording
130. (1) An insider shall not knowingly sell, directly or indirectly, a share of the distributing corporation or any of its affiliates if the insider selling the share does not own or has not fully paid for the share to be sold.

(3) Notwithstanding subsection (1), an insider may sell a share he does not own if he owns another share convertible into the share sold or an option or right to acquire the share sold and, within ten days after the sale, he

(a) exercises the conversion privilege, option or right and delivers the share so acquired to the purchaser; or

(b) transfers the convertible share, option or right to the purchaser.

Proposed Wording
130. (1) An insider shall not knowingly sell, directly or indirectly, a security of a distributing corporation or any of its affiliates if the insider selling the security does not own or has not fully paid for the security to be sold.

(3) Despite subsection (1), an insider may sell a security they do not own if they own another security convertible into the security sold or an option or right to acquire the security sold and, within ten days after the sale, they

(a) exercise the conversion privilege, option or right and deliver the security so acquired to the purchaser; or

(b) transfer the convertible security, option or right to the purchaser.

Bill Clause No.54
CBCA Section No . 130(2)
Topic : Insider Trading

Sources of Proposed Law

Changes From Present Law
Amends subsection 130(2) to prohibit only the purchase of put options and the sale of call options.

Purpose of Change
A put option is the right to sell a specified number of securities at a set price by a certain date. Investors buy puts when they believe the price of a security is going to go down, presumably below the strike price. A call option is the right to buy a specified number of securities at a set price by a specific date. Investors buy call options when they think the price of a security is going up and want to lock in the strike price.

The purchase and sale of put and call options place insiders with the power to influence corporate decisions in a possible conflict of interest situation. These insiders can use their power in the corporation to influence decisions that would affect the value of the corporation's shares. The purchase of a put option or the sale of a call option only profits the insider if the value of the corporation's stock decreases. There is therefore a built in incentive for the insider to use his/her position to negatively influence the share price. This is in direct conflict with the interests of the corporation and its shareholders and, accordingly, these trades would continue to be prohibited.

Insiders who sell a put option or purchase a call option will only profit from the options if the value of the corporation's stock increases. In these cases, the interests of the insider become aligned with the interests of the corporation and the (other) shareholders. The outright prohibition of these trades does not further the objective of eliminating potential conflicts between insiders and the corporation and, accordingly, appears to be unnecessary. Thus the proposal to allow these trades which are currently prohibited under the CBCA. An insider who sells a put option or buys a call option with knowledge of material confidential information would be subject to the civil liability provisions set out in s. 131(4) of the Act.

addition of the word "knowingly" clarifies that the short selling offence is a mens rea offence, requiring proof beyond a reasonable doubt of all the elements of the offence.

Similar Provincial Laws

Current Wording
130. (2) An insider shall not, directly or indirectly, buy or sell a call or put in respect of a share of the corporation or any of its affiliates.

Proposed Wording
130. (2) An insider shall not knowingly, directly or indirectly, sell a call or buy a put in respect of a security of the corporation or any of its affiliates.

Bill Clause No.54
CBCA Section No .130(4)
Topic : Insider Trading

Sources of Proposed Law

Changes From Present Law
Amends subs. 130(4) to increase the fine to a maximum of $1 million or three times the profit made, whichever is greater.

Purpose of Change
Currently, a contravention of the speculative trading prohibitions subjects the insider to a summary conviction offence with a maximum fine of $5,000 and/or imprisonment for up to six months. Given the large profits that can be made by breaching the insider trading prohibitions, this penalty is considered an inadequate deterrent.

While there is no specific prohibition against short selling (the sale of a security not owned by the insider) in provincial securities or corporations legislation, such transactions are covered by the general prohibition against improper insider trading (which prohibit an insider from trading with knowledge of a material fact or material change). Provincial penalties for breach of these provisions varies, but the maximum penalty is two years in jail and/or a fine of the greater of $1 million or three times the profit made or loss avoided.

The words "or loss avoided" are omitted from the provision because no losses can result from the types of transactions covered by this section.

This change would increase the deterrent effect of the penalty provision and provide the flexibility for an even larger fine where the profit made is especially large. It would also promote harmonization with provincial legislation.

Similar Provincial Laws
Securities Act (Ontario)

Current Wording
130. (4) An insider who contravenes subsection (1) or (2) is guilty of an offence and liable on summary conviction to a fine not exceeding five thousand dollars or to imprisonment for a term not exceeding six months or to both.

Proposed Wording
130. (4) An insider who contravenes subsection (1) or (2) is guilty of an offence and liable on summary conviction to a fine not exceeding the greater of one million dollars and three times the profit made, or to imprisonment for a term not exceeding six months or to both.

The insider reporting requirements currently in s. 127 to 129 would be repealed.

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

Bill Clause No.54
CBCA Section No .131(1)
Topic : Insider Trading

Sources of Proposed Law

Changes From Present Law
Broaden the definition of "insider" for civil liability purposes to ensure that all persons who trade while in possession of material confidential information are covered.

Harmonize the definition with provincial securities legislation.

Purpose of Change
Revising the CBCA in the manner proposed would promote greater harmonization and cover most instances where insider trading might be expected to occur.

Similar Provincial Laws
Securities Act (Ontario)
Securities Act (Québec)

Current Wording
131. (1) In this section, "insider" means, with respect to a corporation,

(a) the corporation;

(b) an affiliate of the corporation;

(d) a person who beneficially owns more than ten per cent of the shares of the corporation or who exercises control or direction over more than ten per cent of the votes attached to the shares of the corporation;

(e) a person employed or retained by the corporation; and

(f) a person who receives specific confidential information from a person
described in this subsection or in subsection (2), including a person described in this paragraph, and who has knowledge that the person giving the information is a person described in this subsection or in subsection (2), including a person described in this paragraph.

Proposed Wording
131. (1) In this section, "insider" means, with respect to a corporation,

(a) the corporation;

(b) an affiliate of the corporation;

(d) a person who beneficially owns, directly or indirectly, shares of the corporation or who exercises control or direction over shares of the corporation, or who has a combination of any such ownership, control and direction, carrying more than the prescribed percentage of voting rights attached to all of the outstanding shares of the corporation not including shares held by the person as underwriter while those shares are in the course of a distribution to the public;

(e) a person, other than a person described in paragraph (f), employed or retained by the corporation or by a person described in paragraph (f);

(f) a person who engages in or proposes to engage in any business or professional activity with or on behalf of the corporation;

(g) a person who received, while they were a person described in any of paragraphs (a) to (f), material confidential information concerning the corporation;

(h) a person who receives material confidential information from a person described in this subsection or in subsection (3) or (3.1), including a person described in this paragraph, and who knows or who ought reasonably to have known that the person giving the information is a person described in this subsection or in subsection (3) or (3.1), including a person described in this paragraph; and

(i) a prescribed person.

Bill Clause No.54
CBCA Section No .131(2), (3) and new (3.1)
Topic : Insider Trading

Sources of Proposed Law

Changes From Present Law
Adds a definition of "security" to include puts, calls, options and other securities whose market price varies materially with the market price of the securities of the corporation. Current s. 131(2) is replaced by a revised s. 131(3) and a new s. 131(3.1), deeming offerors and their insiders to be insiders of the corporation.

Purpose of Change
Section 2(1) of the CBCA defines "security" as "a share of any class or series of shares or a debt obligation of a corporation and includes a certificate evidencing such a share or debt obligation."

Provincial securities laws have a much wider definition of "security" for purposes of insider trading. The definition in these statutes include a variety of instruments representing investments based on the underlying shares of the company (puts, calls, options, etc.).

This amendment would adopt this broader definition of "security" for insider trading purposes, in order to deter insiders from circumventing the statute by trading in derivatives or other instruments whose value is linked to the market price of the securities of the corporation.

This provision would be similar to that found in provincial securities acts and would help to harmonize Canadian legislation with respect to insider trading.

The deemed insider provisions set out in s. 131(3) and new (3.1) are designed to broaden the scope of the civil liability regime to harmonize with provincial securities legislation.

Similar Provincial Laws
Securities Act (Ontario)
Securities Act (Québec)
Securities Act (British Columbia)

Current Wording
N/A

Proposed Wording
131. (2) For the purposes of this section, the following are deemed to be a security of the corporation:

(a) a put, call, option or other right or obligation to purchase or sell a security of the corporation; and

(b) a security of another entity, the market price of which varies materially with the market price of the securities of the corporation.

(3) For the purposes of this section, a person who proposes to make a take-over bid (as defined in the regulations) for securities of a corporation, or to enter into a business combination with a corporation, is an insider of the corporation with respect to material confidential information obtained from the corporation and is an insider of the corporation for the purposes of subsection (6).

(3.1) An insider of a person referred to in subsection (3), and an affiliate or associate of such a person, is an insider of the corporation referred to in that subsection. Paragraphs (1)(b) to (i) apply in determining whether a person is such an insider except that references to "corporation" in those paragraphs are to be read as references to "person described in subsection (3)".

Bill Clause No.54
CBCA Section No .131(4) and (5)
Topic : Insider Trading

Sources of Proposed Law

Changes From Present Law

Amends subs. 131(4) to harmonize it with comparable provisions in provincial securities legislation. In particular by:

(1) deleting the term "specific" from the determination of what constitutes insider information;

(2) deleting the "makes use of" requirement and the words "for his own benefit or advantage"; and

(3) providing for defences comparable to those currently available under provincial securities legislation.

Moves the provision regarding accountability of the insider to the corporation (s. 131(4)(b)) to a new section. Provides that an insider shall have a defence if he/she can establish that he/she reasonably believed that the information had been generally disclosed.

Repeals par. 131(5)(b) as a result of the repeal of the reporting requirements.

Purpose of Change

(A) These amendments are designed to clarify the provisions and to harmonize them with the civil liability provisions currently found in provincial securities legislation. In particular,

(1) Subsection 131(4) of the CBCA provides that an insider may be liable if he/she traded on the basis of specific confidential information that, if generally known, might reasonably be expected to affect materially the value of the security. "Specific" is not a defined term nor is it a common term to which a clear interpretation can be attached. It is usually interpreted as the probability of an event's occurrence. Therefore, the information must relate to an event that is at such an advanced stage that it is likely to occur. The civil liability provisions are therefore currently restricted to instances where the information is reliable, precise and relating specifically to the corporation. This bars from consideration confidential information that is general in nature and not sufficiently mature.

(2) Subsection 131(4) of the CBCA provides that an insider who, in connection with a transaction in the securities of a corporation, makes use of any specific confidential material information is liable to compensate any aggrieved person and is accountable to the corporation for any benefit or advantage received. The fact that the insider "makes use of" material confidential information is a required element of the cause of action and therefore must be proved by the plaintiff in a civil action against an insider. This is widely considered an insurmountable evidentiary obstacle. This requirement also allows an insider to avoid liability by showing that, although he/she had knowledge of confidential material information and traded, the trade was not based on this information and the information was not a factor in what he did.

The words "for his own benefit or advantage" found in subs. 131(4) are essentially part of the element of "making use" of the information and would also be removed.

(3) Pursuant to the proposed changes, a plaintiff would only have to demonstrate that the plaintiff purchased or sold securities of the corporation from or to an insider who had knowledge of confidential information that, if generally known, might reasonably be expected to affect materially the value of any of the securities of the corporation. The insider would then be able to avoid liability if he/she is able to establish that either he/she reasonably believed that the information had been generally disclosed (i.e., that it was not confidential information), that the information was known or ought reasonably to have been known by that person or that the purchase or sale of the securities took place in the prescribed circumstances. The latter provision is intended to provide flexibility to the defences harmonized with provincial defences.

(B) Section 131(5) would also be consistent with the treatment of compensation to the corporation under provincial securities legislation, including the provision of the defence.

(C) Paragraph 131(5)(b) only applies to reporting insiders and not to other insiders for liability purposes. It would no longer be relevant if the CBCA's insider reporting provisions are eliminated.

Similar Provincial Laws
Securities Act (Ontario)
Securities Act (British Columbia)

Current Wording
131. (4) An insider who, in connection with a transaction in a security of the corporation or any of its affiliates, makes use of any specific confidential information for his own benefit or advantage that, if generally known, might reasonably be expected to affect materially the value of the security

(a) is liable to compensate any person for any direct loss suffered by that person as a result of the transaction, unless the information was known or in the exercise of reasonable diligence should have been known to that person; and

(b) is accountable to the corporation for any direct benefit or advantage received or receivable by the insider as a result of the transaction.

(5) An action to enforce a right created by subsection (4) may be commenced… …

(b) if the transaction was required to be reported under section 127, only within two years from the time of reporting under that section.

Proposed Wording
131. (4) An insider who purchases or sells a security of the corporation with knowledge of confidential information that, if generally known, might reasonably be expected to affect materially the value of any of the securities of the corporation is liable to compensate the seller of the security or the purchaser of the security, as the case may be, for any damages suffered by the seller or purchaser as a result of the purchase or sale, unless the insider establishes that

(a) the insider reasonably believed that the information had been generally disclosed;

(b) the information was known, or ought reasonably to have been known, by the seller or purchaser; or

(5) The insider is accountable to the corporation for any benefit or advantage received or receivable by the insider as a result of a purchase or sale described in subsection (4) unless the insider establishes the circumstances described in paragraph (4)(a).

Bill Clause No.54
CBCA Section No . new 131(6) and (7) Topic : Insider Trading

Sources of Proposed Law

Changes From Present Law
Amends s. 131 to impose civil liability on insiders who communicate confidential information with respect to the corporation that has not been generally disclosed, subject to specified defences.

Amends s. 131 to provide that an insider is accountable to the corporation for any benefit or advantage received or receivable by the insider as a result of the disclosure of information, subject to specified defences.

Purpose of Change
Unlike provincial securities legislation, the CBCA does not currently impose civil liability on an insider (the tipper) who communicates to another person undisclosed confidential information with respect to the corporation. The concern is that, even if the tippee did not trade, he/she may inform others. These other people could in turn, inform more people and the chain of tippees would grow longer. As this happens it becomes more and more likely that a trade will occur and it becomes more and more difficult to prove that the person who traded knew the information was confidential and originated from an insider. Furthermore, this type of activity creates rumours that may affect trading in the security. If there is unusual trading in a security prior to the public announcement of information, confidence in capital markets is eroded regardless of whether the trading was based on rumour or actual knowledge of inside information.

Provincial legislators have recognized the need to constrain confidential information within authorized business circles. As a result, the provincial securities acts now specifically prohibit the wrongful communication of material confidential information, subject to certain defences. They also contain civil liability provisions which enable a person who suffers damages as a result of a trade made following receipt of the information to claim compensation against all the insiders in the chain of tippees, subject to certain defences. This amendment provides for a comparable civil liability provision. The defences are substantially similar to those provided by provincial securities legislation. For example, the ordinary course of business defence, is a recognition that, in certain circumstances, such as during negotiations to effect a business combination, insiders may be in a position where they must legitimately disclose confidential information which has not been generally disclosed.

Like s. 131(5) (accountability to the corporation for insider trading), s. 131(7) is designed to provide a further clear deterrent to insiders from inappropriately using confidential corporate information.

Similar Provincial Laws

Securities Act (Ontario)
Securities Act (Québec)
Securities Act (British Columbia)

Current Wording
N/A

Proposed Wording
131. (6) An insider of the corporation who discloses to another person confidential information with respect to the corporation that has not been generally disclosed and that, if generally known, might reasonably be expected to affect materially the value of any of the securities of the corporation is liable to compensate for damages any person who subsequently sells securities of the corporation to, or purchases securities of the corporation from, any person that received the information, unless the insider establishes

(a) that the insider reasonably believed that the information had been generally disclosed;

(b) that the information was known, or ought reasonably to have been known, by the person who alleges to have suffered the damages;

(c) that the disclosure of the information was necessary in the course of the business of the insider, except if the insider is a person described in subsection (3) or (3.1); or

(d) if the insider is a person described in subsection (3) or (3.1), that the disclosure of the information was necessary to effect the take-over bid or the business combination, as the case may be.

(7) The insider is accountable to the corporation for any benefit or advantage received or receivable by the insider as a result of a disclosure of the information as described in subsection (6) unless the insider establishes the circumstances described in paragraph (6)(a), (c) or (d).

Bill Clause No.54
CBCA Section No .new 131(8), (9) and 131 (10)
Topic : Insider Trading

Sources of Proposed Law

Changes From Present Law
Amends s. 131 to adopt a specific measure of damages for distributing corporations.

Purpose of Change
The current paragraph 131(4)(a) of the CBCA provides that an insider who improperly trades "is liable to compensate any person for any direct loss suffered by that person as a result of the transaction." In light of the difficulty of assessing damages with respect to impersonal trades in the securities of distributing corporations, some provincial securities acts include provisions to help guide the courts in their assessment of damages. These provincial provisions provide discretion to the court to consider such other measures as may be relevant under the circumstances.

The amendment would accord with provincial securities law, which use an "average market price" test for the securities of distributing corporations. With respect to the securities of non-distributing corporations, where generally no market for securities exists, the court would assess damages in accordance with any measure it considers appropriate in the circumstances.

It should be noted that the measure of damages provision would only apply to damages assessed under the civil liability provisions (e.g., ss. 131(4) and (6)) and not to the "compensation to the corporation" provisions (e.g., ss. 131(5) and (7)). This is because the corporation is not entitled to damages but rather to the disgorgement of the benefits received or receivable by the insider.

Subs. 131(9) is added to clarify that joint and several liability applies to insiders.

A reference to subs. (4) to (7) is added at subs. 131(10) with respect to the limitation regarding insider trading offences.

These changes would further harmonize the CBCA with provincial securities laws.

Similar Provincial Laws
Securities Act (Ontario)
Securities Act (British Columbia)

Proposed Wording

131. (8) The court may assess damages under subsection (4) or (6) in accordance with any measure of damages that it considers relevant in the circumstances. However, in assessing damages in a situation involving a security of a distributing corporation, the court must consider the following:

(a) if the plaintiff is a purchaser, the price paid by the plaintiff for the security less the average market price of the security over the twenty trading days immediately following general disclosure of the information; and

(b) if the plaintiff is a seller, the average market price of the security over the twenty trading days immediately following general disclosure of the information, less the price that the plaintiff received for the security Liability

(9) If more than one insider is liable under subsection (4) or (6) with respect to the same transaction or series of transactions, their liability is joint and several, or solidary.

(10) An action to enforce a right created by subsections (4) to (7) may be commenced only within two years after discovery of the facts that gave rise to the cause of action.

The provisions applicable to shareholders' meetings would be amended to allow persons entitled to attend such meetings to participate in the meeting by electronic means, provided the corporation makes available such means of communication. An amendment would also be introduced to clarify that such meetings may also be held entirely by telephonic, electronic or other communication facility. (s. 132)

Additional amendments would clarify that a vote at a shareholders meeting may be held by electronic means and that any person participating electronically in such a meeting and that is entitled to vote, may exercise their right to vote by electronic means. (s. 141)

A number of amendments repealing the time periods specified and replacing them by time periods prescribed by the Regulations (ss. 134 and 135) are included to allow for greater flexibility to make modifications should the need arise in future.

In addition, many of the mechanisms for individual shareholders to submit proposals would be liberalized, including allowing beneficial shareholders to make proposals. Minimum share ownership and length of ownership requirements will be implemented by regulation (s. 137).

The rules regarding unanimous shareholder agreements would be clarified and updated to reflect current practices (ss. 145.1 and 146).

A number of minor technical amendments are also included, as well as certain amendments which are designed to facilitate the efficient operation and administration of the statute.

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

Bill Clause No. 55
CBCA Section No.132(1) and new (3), (4) & (5)
Topic : Shareholders

Sources of Proposed Law

Changes From Present Law
A) Permit meetings of shareholders to be held outside Canada at any place specified in the articles and continue to allow meetings to be held outside Canada if all the shareholders entitled to vote at the meeting so agree. Subs. 132(2) is split into a modified subs. 132(2) and a new subs. 132(3).

(B) Allow any person entitled to attend the meeting of shareholders to participate by means of telephonic, electronic or other communication facilities that permit all participants to adequately communicate with each other during the meeting, unless the by-laws provide otherwise, and as long as the corporation makes available such means of communication. Provide that a meeting may only be held entirely by electronic means if specifically authorized by the by-laws.

Purpose of Change
(A) The CBCA requires shareholder meetings to be held within Canada unless all the shareholders entitled to vote at that meeting agree to hold the meeting outside Canada (s. 132). A considerable number of Canadian inter-listed public companies have significant U.S. shareholder constituencies. The flexibility of being able to hold meetings from time to time outside of Canada, without requiring unanimous shareholder approval, is important from a shareholder relations point of view.

(B) New technological developments allow parties situated at different geographical locations to easily communicate with each other. These technologies encourage shareholder democracy as they permit more shareholders to participate in meetings. In recognition of the beneficial aspect of these technologies, the CBCA would permit their use subject to the by-laws specifically providing otherwise. However, if the meeting is to be held only by electronic means, shareholders should be given the opportunity to vote on this proposition through the by-law amendment process. This amendment achieves an appropriate balance between the need for shareholder consent and the need for flexibility. An amendment was introduced at the Senate Committee stage at the suggestion of the Coalition for CBCA Reform which clarified the language of these provisions.

Similar Provincial Laws
Business Corporations Act (Ontario)

Current Wording
132. (1) Meetings of shareholders of a corporation shall be held at the place within Canada provided in the by-laws or, in the absence of such provision, at the place within Canada that the directors determine.

(2) Notwithstanding subsection (1), a meeting of shareholders of a corporation may be held outside Canada if all the shareholders entitled to vote at that meeting so agree, and a shareholder who attends a meeting of shareholders held outside Canada is deemed to have so agreed except when he attends the meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully held.

Proposed Wording
132. (2) Despite subsection (1), a meeting of shareholders of a corporation may be held at a place outside Canada if the place is specified in the articles or all the shareholders entitled to vote at the meeting agree that the meeting is to be held at that place.

(3) A shareholder who attends a meeting of shareholders held outside Canada is deemed to have agreed to it being held outside Canada except when the shareholder attends the meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully held.

(4) Unless the by-laws otherwise provide, any person entitled to attend a meeting of shareholders may participate in the meeting, in accordance with the regulations, if any, by means of a telephonic, electronic or other communication facility that permits all participants to communicate adequately with each other during the meeting, if the corporation makes available such a communication facility. A person participating in a meeting by such means is deemed for the purposes of this Act to be present at the meeting.

(5) If the directors or the shareholders of a corporation call a meeting of shareholders pursuant to this Act, those directors or shareholders, as the case may be, may determine that the meeting shall be held, in accordance with the regulations, if any, entirely by means of a telephonic, electronic or other communication facility that permits all participants to communicate adequately with each other during the meeting, if the by-laws so provide.

Bill Clause No. 56
CBCA Section No.133(1), (2) and new (3)
Topic : Shareholders (Shareholder Communcations)

Sources of Proposed Law

Changes From Present Law
Amend s. 133 in order to:

clarify that an annual shareholders meeting must be held within six months of the end of the financial year; and

provide that, notwithstanding s. 133(1), the corporation may apply to the court for an order extending the time in which the annual meeting of the corporation will be held [see Bill s. 133(3)].

Purpose of Change
(A) This amendment is designed to ensure that corporations report to their shareholders in a timely and regular fashion.

(B) This amendment would allow increased flexibility without creating any new risk for shareholders. The amendment is permissive and will not be seen as a requirement. It is designed to provide a method whereby corporations can receive an extension if they do not meet the time provisions found in s. 133.

Shareholders remain protected by a number of provisions which enable them to require the corporation to hold a meeting. Under s. 143, the holders of not less than five per cent of the issued shares of a corporation that carry the right to vote may requisition the directors to call a meeting. Section 144 allows members to apply to the court to have a meeting called. As well, s. 247 allows "complainants" to apply to the court for an order requiring compliance with the Act (for example, to call a meeting in accordance with the Act).

Similar Provincial Laws
Business Corporations Act (Alberta)

Current Wording
133. The directors of a corporation

(a) shall call an annual meeting of shareholders not later than eighteen months after the corporation comes into existence and subsequently not later than fifteen months after holding the last preceding annual meeting; and

(b) may at any time call a special meeting of shareholders.

Proposed Wording
133. (1) The directors of a corporation shall call an annual meeting of shareholders

(a) not later than eighteen months after the corporation comes into existence; and

(b) subsequently, not later than fifteen months after holding the last preceding annual meeting but no later than six months after the end of the corporation's preceding financial year.

(2) The directors of a corporation may at any time call a special meeting of shareholders.

(3) Despite subsection (1), the corporation may apply to the court for an order extending the time for calling an annual meeting.

Bill Clause No. 57
CBCA Section No.134
Topic : Shareholders (Shareholder Communications)

Sources of Proposed Law

Changes From Present Law
Repeal specific time periods set out in subs. 134(1), (2), and (4) and allow them to be made by regulation. Combine subsections 134(1) and (2). Renumber subsections 134(3) and (4).

Purpose of Change
Under the CBCA and provincial corporate legislation, issuers may fix a date for determining which shareholders are entitled to receive notice of shareholder meetings. That date must fall within a period from 21 to 50 days prior to the meeting.

National Policy Statement No. 41 (NP 41), implemented by the Canadian Securities Administrators in 1987, was designed to address complaints by issuers that 21 calendar days is too short a time for proxy material to go through one or more layers of intermediaries and for proxies to be returned to the issuer. Accordingly, NP 41 required issuers to set a record date for shareholder meetings to be 35 to 50 days before the date of the meeting. Subsequently, the maximum time for a record date prior to the meeting was extended to 60 days. However, to be able to comply simultaneously with both the requirements of federal corporations law and NP 41, issuers incorporated under the CBCA have a window of between 35 days and 50 days to set a record date for determining which shareholders are eligible to attend a shareholders meeting.

Extension of the record date periods would effectively resolve any conflicting compliance issues with NP 41. Shareholders would ultimately benefit as issuers would have additional mailing time for proxy-related materials, thereby increasing the likelihood that shareholder voting instructions will be received before the voting deadline. Delegation to the regulations would allow for quicker adjustments to be made if so required.

Similar Provincial Laws
National Policy Statement No. 41

Current Wording
134. (1) For the purpose of determining shareholders

(a) entitled to receive payment of a dividend,

(b) entitled to participate in a liquidation distribution, or

(c) for any other purpose except the right to receive notice of or to vote at a meeting, the directors may fix in advance a date as the record date for such determination of shareholders, but such record date shall not precede by more than fifty days the particular action to be taken.

(2) For the purpose of determining shareholders entitled to receive notice of a meeting of shareholders, the directors may fix in advance a date as the record date for such determination of shareholders, but such record date shall not precede by more than fifty days or by less than twenty-one days the date on which the meeting is to be held.

(3) If no record date is fixed,

(a) the record date for the determination of shareholders entitled to receive notice of a meeting of shareholders shall be

(i) at the close of business on the day immediately preceding the day on which the notice is given, or

(ii) if no notice is given, the day on which the meeting is held; and

(b) the record date for the determination of shareholders for any purpose other than to establish a shareholder's right to receive notice of a meeting or to vote shall be at the close of business on the day on which the directors pass the resolution relating thereto.

(4) If a record date is fixed, unless notice of the record date is waived in writing by every holder of a share of the class or series affected whose name is set out in the securities register at the close of business on the day the directors fix the record date, notice thereof shall, not less than seven days before the date so fixed, be given

Proposed Wording
134. (1) The directors may, within the prescribed period, fix in advance a date as the record date for the purpose of determining shareholders

(a) entitled to receive payment of a dividend;

(b) entitled to participate in a liquidation distribution;

(d) entitled to vote at a meeting of shareholders; or

(e) for any other purpose.

(2) If no record date is fixed,

(3) If a record date is fixed, unless notice of the record date is waived in writing by every holder of a share of the class or series affected whose name is set out in the securities register at the close of business on the day the directors fix the record date, notice of the record date must be given within the prescribed period

Bill Clause No. 58
CBCA Section No.135(1), (2) and new (1.1)
Topic : Shareholders (Shareholder Communications)

Sources of Proposed Law

Changes From Present Law
Repeal the specific time periods set out in s. 135(1) and allow them to be made by regulation. Make technical changes to subs. 135(2) to reflect the renumbering of section 134. Add a new provision following s. 135(1) permitting non-distributing corporations to send out a notice of meeting less than twenty-one days before the meeting, if specified in the articles or by-laws.

Purpose of Change
See clause 57.

Similar Provincial Laws
National Policy Statement No. 41

Current Wording
135. (1)Notice of the time and place of a meeting of shareholders shall be sent not less than twenty-one days nor more than fifty days before the meeting,

(a) to each shareholder entitled to vote at the meeting;

(b) to each director; and

(2) A notice of a meeting is not required to be sent to shareholders who were not registered on the records of the corporation or its transfer agent on the record date determined under subsection 134(2) or (3), but failure to receive a notice does not deprive a shareholder of the right to vote at the meeting.

Proposed Wording
135. (1) Notice of the time and place of a meeting of shareholders shall be sent within the prescribed period to

(a) each shareholder entitled to vote at the meeting;

(b) each director; and

(1.1) In the case of a corporation that is not a distributing corporation, the notice may be sent within a shorter period if so specified in the articles or by-laws.

(2) A notice of a meeting is not required to be sent to shareholders who were not registered on the records of the corporation or its transfer agent on the record date determined under paragraph 134(1)(c) or subsection 134(2), but failure to receive a notice does not deprive a shareholder of the right to vote at the meeting.

Bill Clause No. 59
CBCA Section No.137(1), (3), (5), (7), (8) and new (1.1), (1.2), (1.3), (1.4) and (5.1)
Topic : Shareholders (Shareholder Communications)

Sources of Proposed Law
Verdun v. Toronto-Dominium Bank, [1996] 3 S.C.R. 550.
U.S. Securities and Exchange Commission, Rule 14a-8

Changes From Present Law
A. (1) Amend s. 137(1) to clarify that beneficial owners of shares are entitled to submit proposals and to add the following eligibility requirements so that at the time a shareholder submits a proposal he/she:

(i) is the legal or beneficial owner of at least the prescribed number of the outstanding shares of the corporation; or

(ii) has the support of shareholders who in the aggregate are the legal or beneficial owners of at least the prescribed number of the outstanding shares of the corporation. [see Bill, s. 137(1.1)]

(2) Require that at the time the shareholder submits a proposal he/she must provide the corporation with their name, address, number of registered or beneficial shares owned and the date acquired. Require that this information also be provided in respect of the person's supporters, if applicable. [see Bill, s. 137(1.2)]

(3) State that the information required under subs 137(1.2) shall not be considered part of the proposal and supporting statement for the purposes of the prescribed maximum word limit. [see Bill, s. 137(1.3)]

(4) Require that, where requested by the corporation within the prescribed time period the proponent of the proposal shall provide to the corporation proof that the person meets the requirements under s. 137(1.1) within the prescribed period. [See Bill, s. 137(1.4)]

B. Amend s. 137(3) to require that if requested by a shareholder who submits a proposal, the corporation must include the shareholder's proposal in its management proxy provided that the proposal and its supporting statement do not exceed the prescribed maximum number of words.

C. (1) Replace in s. 137(5)(a) the words "at least ninety days before the anniversary date of the previous annual meeting of shareholders" with "within the prescribed time before the anniversary date of the notice of meeting that was sent to shareholders in connection with the previous annual meeting of shareholders".

(2) Modify the English version of s. 137(5)(b) so that the words "the proposal is submitted by the shareholder primarily for the purpose of…" are replaced with the comparable English version of "la proposition a pour objet principal de faire.…".

(3) Amend s. 137(5) to divide subsection (b) into (b) and a new (b.1), which would replace the second half of (b). Remove the list of general causes by which a corporation can refuse to circulate a shareholder proposal. Pursuant to the revised provision, management could only refuse a proposal if it does not relate in a significant way to the business or affairs of the corporation.

(4) Remove specified time period and allow time period to be prescribed in regulations in subsection 137(5)(c).

(5) Amend s.137(5)(d) to permit the corporation to refuse a proposal where a substantially similar proposal was submitted within the prescribed period and did not receive a prescribed minimum amount of support.

(6) Add a new provision stating that if a shareholder fails to continue to hold or own the amount of shares referred to in s. 137(1.1) up to and including the date of the meeting, the corporation shall not be required to include any proposal submitted by the proponent for any meeting held within the prescribed period of time following the date of the meeting.

D. Remove from s. 137(7) the current 10 day time limit for a corporation to give notice of refusal and allow the number of days to be prescribed by regulation.

Purpose of Change
A. These recommendations all deal with eligibility requirements with respect to a shareholder proposal. Eligibility requirements address the concern raised by corporations that individual shareholders who have not manifested a genuine interest and stake in the affairs of the corporation still have access to this mechanism. The corporations contend that often these non-serious investors use the proposal mechanism to promote a social, economic or personal agenda unrelated to the business of the corporation.

A shareholder proposal is one of two mechanisms in the CBCA that allow a shareholder to cause a corporation to take an action which ultimately imposes a cost on the corporation (and ultimately the shareholders). The second mechanism is the shareholder right to requisition a meeting. When a shareholder requisitions a meeting, the interests of other shareholders are protected by a provision that allows the shareholders to refuse to bear the cost of the requisitioned meeting if they think it was unnecessarily called. However, the current shareholder proposal mechanism does not have an equivalent safeguard.

The eligibility requirements for shareholder proposals are designed to curtail abuse by requiring that those who put the corporation and other shareholders to the expense of including a proposal in its proxy material have had a continuous minimum level of investment in the corporation for a specified period of time.

The pooling of shareholders' holdings to meet the minimum requirements maintains the right of minor shareholders to submit proposals without imposing an unnecessary economic barrier. Minor shareholders who are unable to obtain support from fellow shareholders, however, will no longer be entitled to use the shareholder proposal mechanism.

These amendments will help ensure the quality and relevance of proposals submitted.

The amendment to s. 137(1) clarifying that a beneficial owner of shares is entitled to submit proposals is intended to reverse the Supreme Court's holding in Verdun v. Toronto-Dominion Bank.

B. This amendment would allow shareholders more room to explain proposals to other shareholders than is currently available. The lack of sufficient space may be an issue where proposals deal with complex matters. The amendment provides more opportunity, within reasonable limits, for the shareholder to adequately explain his/her proposal while maintaining reasonable limits and thereby keeping the costs for printing and postage, borne by the corporation, to a minimal level.

C. (1) Under current paragraph 137(5)(a), the deadline for submission is 90 days prior to the anniversary date of the previous year's annual meeting. This limit, coupled with the NP 41 requirement that proxy materials be sent to shareholders at least 33 days before the meeting, leave the corporation with little time to respond to a shareholder proposal. It also leaves little time for the shareholder to work through the court process in the case of a refusal by the corporation to include a proposal. Moving the critical deadline back to the "anniversary date of the notice of meeting that was sent to shareholders in connection with the previous annual meeting of shareholders" allows the corporation sufficient time to deal with the proposal. Permitting the number of days prior to that anniversary date to be prescribed increases flexibility.

(2) The amendment to paragraph 137(5)(b) would harmonize the French and English versions.

(3) As paragraph 137(5)(b) currently reads, the grounds for exclusion of a shareholder proposal are broad and shareholder activists argue that virtually any proposal can be perceived to fall into one of the categories. The amendments address this concern by deleting the grounds for exclusion. A fair balance is struck between the interest of shareholders and the interests of the corporation by providing that the corporation is only obliged to undertake proposals that relate in a significant way to the business or affairs of the corporation. This standard is also used in the U.S. rules.

(4) The amendment to paragraph 137(5)(c) would have the effect of removing the time period reference in the paragraph and replacing it with a time period to be prescribed in the regulations.

(5) The amendment to paragraph 137(5)(d) would have the effect of removing the time period reference in the paragraph and replacing it with a time period to be prescribed in the regulations. Also, if the proposal is defeated, the shareholder must have obtained a prescribed minimum amount of support in order to resubmit a similar proposal in subsequent years. This proposed amendment provides greater flexibility for shareholders to resubmit a similar proposal at subsequent meetings provided a minimum level of support is obtained.

(6) This provision is intended to operate as a deterrent to shareholders who meet the requirements at the time they submit the proposal, but either sell their shares or fail to maintain their support through the date of the meeting.

D. The current 10 day time limit provided in s. 137(7) for a corporation to give notice of refusal is very restrictive. Increasing this time limit will give the corporation sufficient time to review the proposal, give reasonable consideration as to its appropriateness and perhaps also time to communicate with the shareholder who made the proposal before refusing. Allowing the number of days to be prescribed increases flexibility. An amendment was introduced at the Senate Committee stage, at the request of stakeholders, requiring that the notice of refusal include a written statement of the reasons for refusal in order to ensure that shareholders are properly informed.

Similar Provincial Laws

Current Wording
137. (1) A shareholder entitled to vote at an annual meeting of shareholders may

(a) submit to the corporation notice of any matter that he proposes to raise at the meeting, hereinafter referred to as a "proposal"; and

(b) discuss at the meeting any matter in respect of which he would have been entitled to submit a proposal.

(3) If so requested by the shareholder, the corporation shall include in the management proxy circular or attach thereto a statement by the shareholder of not more than two hundred words in support of the proposal, and the name and address of the shareholder.

(5) A corporation is not required to comply with subsections (2) and (3) if

(a) the proposal is not submitted to the corporation at least ninety days before the anniversary date of the previous annual meeting of shareholders;

(b) it clearly appears that the proposal is submitted by the shareholder primarily for the purpose of enforcing a personal claim or redressing a personal grievance against the corporation or its directors, officers or security holders, or primarily for the purpose of promoting general economic, political, racial, religious, social or similar causes;

(c) the corporation, at the shareholder's request, included a proposal in a management proxy circular relating to a meeting of shareholders held within two years preceding the receipt of such request, and the shareholder failed to present the proposal, in person or by proxy, at the meeting;

(d) substantially the same proposal was submitted to shareholders in a management proxy circular or a dissident's proxy circular relating to a meeting of shareholders held within two years preceding the receipt of the shareholder's request and the proposal was defeated; or

(e) the rights conferred by this section are being abused to secure publicity.

(7) If a corporation refuses to include a proposal in a management proxy circular, the corporation shall, within ten days after receiving the proposal, notify the shareholder submitting the proposal of its intention to omit the proposal from the management proxy circular and send to him a statement of the reasons for the refusal.

(8) On the application of a shareholder claiming to be aggrieved by a corporation's refusal under subsection (7), a court may restrain the holding of the meeting to which the proposal is sought to be presented and make any further order it thinks fit.

Proposed Wording
137. (1) Subject to subsections (1.1) and (1.2), a registered holder or beneficial owner of shares that are entitled to be voted at an annual meeting of shareholders may

(a) submit to the corporation notice of any matter that the person proposes to raise at the meeting (a "proposal"); and

(b) discuss at the meeting any matter in respect of which the person would have been entitled to submit a proposal.

(1.1) To be eligible to submit a proposal, a person

(a) must be, for at least the prescribed period, the registered holder or the beneficial owner of at least the prescribed number of outstanding shares of the corporation; or

(b) must have the support of persons who, in the aggregate, and including or not including the person that submits the proposal, have been, for at least the prescribed period, the registered holders, or the beneficial owners of, at least the prescribed number of outstanding shares of the corporation.

(1.2) A proposal submitted under paragraph (1)(a) must be accompanied by the following information:

(a) the name and address of the person and of the person's supporters, if applicable; and

(b) the number of shares held or owned by the person and the person's supporters, if applicable, and the date the shares were acquired.

(1.3) The information provided under subsection (1.2) does not form part of the proposal or of the supporting statement referred to in subsection (3) and is not included for the purposes of the prescribed maximum word limit set out in subsection (3).

(1.4) If requested by the corporation within the prescribed period, a person who submits a proposal must provide proof, within the prescribed period, that the person meets the requirements of subsection (1.1).

(3) If so requested by the person who submits a proposal, the corporation shall include in the management proxy circular or attach to it a statement in support of the proposal by the person and the name and address of the person. The statement and the proposal must together not exceed the prescribed maximum number of words.

(5) A corporation is not required to comply with subsections (2) and (3) if

(a) the proposal is not submitted to the corporation at least the prescribed number of days before the anniversary date of the notice of meeting that was sent to shareholders in connection with the previous annual meeting of shareholders;

(b) it clearly appears that the primary purpose of the proposal is to enforce a personal claim or redress a personal grievance against the corporation or its directors, officers or security holders;

(b.1) it clearly appears that the proposal does not relate in a significant way to the business or affairs of the corporation;

(c) not more than the prescribed period before the receipt of a proposal, a person failed to present, in person or by proxy, at a meeting of shareholders, a proposal that at the person's request, had been included in a management proxy circular relating to the meeting;

(d) substantially the same proposal was submitted to shareholders in a management proxy circular or a dissident's proxy circular relating to a meeting of shareholders held not more than the prescribed period before the receipt of the proposal and did not receive the prescribed minimum amount of support at the meeting; or

(e) the rights conferred by this section are being abused to secure publicity.

(5.1) If a person who submits a proposal fails to continue to hold or own the number of shares referred to in subsection (1.1) up to and including the day of the meeting, the corporation is not required to set out in the management proxy circular, or attach to it, any proposal submitted by that person for any meeting held within the prescribed period following the date of the meeting.

(7) If a corporation refuses to include a proposal in a management proxy circular, the corporation shall, within the prescribed period after the day on which it receives the proposal or the day on which it receives the proof of ownership under subsection (1.4), as the case may be, notify in writing the person submitting the proposal of its intention to omit the proposal from the management proxy circular and of the reasons for the refusal.

(8) On the application of a person submitting a proposal who claims to be aggrieved by a corporation's refusal under subsection (7), a court may restrain the holding of the meeting to which the proposal is sought to be presented and make any further order it thinks fit.

The rules regarding unanimous shareholder agreements would be clarified and updated to reflect current practices (ss. 145.1 and 146).

A number of minor technical amendments are also included, as well as certain amendments which are designed to facilitate the efficient operation and administration of the statute.

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

Bill Clause No. 60
CBCA Section No.138(1) to (3) and new (3.1)
Topic : Shareholders (Shareholder Communications)

Sources of Proposed Law

Changes From Present Law
Amend s. 138 as follows:

Reconcile the time periods for the preparation of the list of shareholders entitled to receive notice of a meeting with the proposed changes to s. 134 (see clause 57); and clarify the voting rights of shareholders (and their transferees) to whom shares have been issued following the fixing of a record date for notice of a shareholders meeting.

Purpose of Change
Under corporate legislation in most Canadian jurisdictions, including the CBCA, the right of a shareholder to vote at a shareholders' meeting may not be restricted to those shareholders registered as of a fixed record date. With the exception of British Columbia, corporate legislation in Canada does not permit the fixing of a record date for voting purposes.

This prohibition on setting a fixed record date for voting has the potential to cause problems for publicly-traded corporations by creating a potential for over-voting. The majority of shares of most corporations are now held in the name of a registrant, usually the Canadian Depositary for Securities Limited, and owned beneficially through a chain of intermediaries. When a new shareholder purchases shares after the record date for notice of meeting, the previous owner may have already received and voted the proxies.

With so many securities now held in non-registered form, the opportunity for over-voting is more likely to occur if both the non-registered holder, as of the record date, and the non-registered holder, post record date, can vote. The corporation does not know which proxies, if any, should be cancelled. Should there be over-voting, the results of the vote may have to be cancelled or some other remedy implemented. This can be costly and time-consuming.

The over-voting of shares has proven to be problematic for many large shareholders, particularly institutional investors. The proposed amendments would help deal with this problem. It would also help to ensure that shareholder democracy is properly exercised by preventing double voting and clarifying the voting rights of shareholders and their transferees.

Similar Provincial Laws

Current Wording
138. (1) A corporation shall prepare a list of shareholders entitled to receive notice of a meeting, arranged in alphabetical order and showing the number of shares held by each shareholder,

(a) if a record date is fixed under subsection 134(2), not later than ten days after that date;

(b) if no record date is fixed

(i) at the close of business on the day immediately preceding the day on which the notice is given, or

(ii) where no notice is given, on the day on which the meeting is held.

(2) Where a corporation fixes a record date under subsection 134(2), a person named in the list prepared under paragraph (1)(a) is entitled to vote the shares shown opposite his name at the meeting to which the list relates, except to the extent that

(a) the person has transferred the ownership of any of his shares after the record date, and

(b) the transferee of those shares

(i) produces properly endorsed share certificates or otherwise establishes that he owns the shares, and

(ii)demands, not later than ten days before the meeting or such shorter period before the meeting as the by-laws of the corporation may provide, that his name be included in the list before the meeting in which case the transferee is entitled to vote his shares at the meeting.

(3) Where a corporation does not fix a record date under subsection 134(2), a person named in a list prepared under paragraph (1)(b) is entitled to vote the shares shown opposite his name at the meeting to which the list relates except to the extent that

(a) the person has transferred the ownership of any of his shares after the date on which a list referred to in subparagraph (1)(b)(i) is prepared,

and

(b) the transferee of those shares

(i) produces properly endorsed share certificates or otherwise establishes that he owns the shares, and

(ii) demands, not later than ten days before the meeting or such shorter period before the meeting as the by-laws of the corporation may provide, that his name be included in the list before the meeting in which case the transferee is entitled to vote his shares at the meeting.

Proposed Wording
138. (1) A corporation shall prepare an alphabetical list of its shareholders entitled to receive notice of a meeting, showing the number of shares held by each shareholder,

(a) if a record date is fixed under paragraph 134(1)(c), not later than ten days after that date; or

(b) if no record date is fixed, on the record date established under paragraph 134(2)(a).

(2) If a record date for voting is fixed under paragraph 134(1)(d), the corporation shall prepare, no later than ten days after the record date, an alphabetical list of shareholders entitled to vote as of the record date at a meeting of shareholders that shows the number of shares held by each shareholder.

(3) If a record date for voting is not fixed under paragraph 134(1)(d), the corporation shall prepare, no later than ten days after a record date is fixed under paragraph 134(1)(c) or no later than the record date established under paragraph 134(2)(a), as the case may be, an alphabetical list of shareholders who are entitled to vote as of the record date that shows the number of shares held by each shareholder.

(3.1) A shareholder whose name appears on a list prepared under subsection (2) or (3) is entitled to vote the shares shown opposite their name at the meeting to which the list relates.

Bill Clause No. 61
CBCA Section No.new 141(3) & (4)
Topic : Shareholders (Shareholder Communications)

Sources of Proposed Law

Changes From Present Law
(A) Add a new provision specifically providing that any vote referred to in s.141(1) may be held by means of a telephonic, electronic or other communication facility, if the by-laws so provide.

(B) Another provision is added to clarify that any person participating electronically in a meeting of shareholders under new s. 132(4) or (5) and that is entitled to vote, may exercise their right to vote by electronic means.

Purpose of Change
(A) To clarify that voting at a shareholders meeting can take place electronically whether shareholders are physically present at that meeting or are participating electronically.

(B) New s. 141(4) was added at the Senate Committee stage at the suggestion of the Coalition for CBCA reform.

Similar Provincial Laws

Current Wording
N/A

Proposed Wording
141. (3) Despite subsection (1), unless the by-laws otherwise provide, any vote referred to in subsection (1) may be held, in accordance with the regulations, if any, entirely by means of a telephonic, electronic or other communication facility, if the corporation makes available such a communication facility.

(4) Unless the by-laws otherwise provide, any person participating in a meeting of shareholders under subsection 132(4) or (5) and entitled to vote at that meeting may vote, in accordance with the regulations, if any, by means of the telephonic, electronic or other communication facility that the corporation has made available for that purpose.

Bill Clause No. 62
CBCA Section No.new 142(3)
Topic : Shareholders (Shareholder Communications)

Sources of Proposed Law

Changes From Present Law
Add a new subsection following s. 142(2) specifying that an entry in the minutes of a meeting to the effect that the chairperson declared a resolution is adopted or rejected is evidence of this decision, without it being necessary to prove the number of votes for or against the resolution. A similar amendment is made in clause 45.

Purpose of Change
This amendment is designed to increase flexibility and ease of record keeping.

Similar Provincial Laws
The Business Corporations Act (Saskatchewan)

Current Wording
N/A

Proposed Wording
142. (3) Unless a ballot is demanded, an entry in the minutes of a meeting to the effect that the chairperson of the meeting declared a resolution to be carried or defeated is, in the absence of evidence to the contrary, proof of the fact without proof of the number or proportion of the votes recorded in favour of or against the resolution.

Bill Clause No. 63
CBCA Section No.143
Topic : Shareholders (Shareholder Communications)

Sources of Proposed Law

Changes From Present Law
Amend par 143(3)(a) so that it is aligned with the proposed changes to s. 134, in particular the changes to s. 134(1)(c) . See clause 57.

Purpose of Change
This amendment is a technical change to reflect the proposed amendments to s.134(1)(c) regarding the establishment of a date for a meeting of shareholders.

Similar Provincial Laws

Current Wording
143. (3) On receiving the requisition referred to in subsection (1), the directors shall call a meeting of shareholders to transact the business stated in the requisition, unless

(a) a record date has been fixed under subsection 134(2) and notice thereof has been given under subsection 134(4);

Proposed Wording
143. (3)(a) a record date has been fixed under paragraph 134(1)(c) and notice of it has been given under subsection 134(3);

Bill Clause No. 64
CBCA Section No.144(1)
Topic : Shareholders (Shareholder Communications)

Sources of Proposed Law

Changes From Present Law
Amend s. 144(1) so that the courts have the power to require the holding of a meeting and clarify the meaning of "impracticable" in the French version.

Purpose of Change
This amendment is a technical change to clarify the circumstances under which the courts have the power to require that a meeting be held.

Similar Provincial Laws

Current Wording
144. (1) If for any reason it is impracticable to call a meeting of shareholders of a corporation in the manner in which meetings of those shareholders may be called, or to conduct the meeting in the manner prescribed by the by-laws and this Act, or if for any other reason a court thinks fit, the court, on the application of a director, a shareholder entitled to vote at the meeting or the Director, may order a meeting to be called, held and conducted in such manner as the court directs.

Proposed Wording
144. (1) A court, on the application of a director, a shareholder who is entitled to vote at a meeting of shareholders or the Director, may order a meeting of a corporation to be called, held and conducted in the manner that the court directs, if

(a) it is impracticable to call the meeting within the time or in the manner in which those meetings are to be called;

(b) it is impracticable to conduct the meeting in the manner required by this Act or the by-laws; or

(c) the court thinks that the meeting should be called, held and conducted within the time or in the manner it directs for any other reason.

Bill Clause No. 65
CBCA Section No.145(2)(c)
Topic : Shareholders (Technical Amendment)

Sources of Proposed Law

Changes From Present Law
Amend the French version of subs. 145(2)(c) by replacing the words "sur la conduite des affaires tant commerciales qu'internes de la société" with "pour la conduite, dans l'intervalle des activités commerciales et des affaires internes de la société".

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

Similar Provincial Laws

Current Wording
145. (2) Sur demande présentée en vertu du présent article, le tribunal peut, par ordonnance, prendre toute mesure qu'il estime pertinente et notamment :

c) ordonner une nouvelle élection ou une nouvelle nomination en donnant des directives sur la conduite des affaires tant commerciales qu'internes de la société en attendant l'élection ou la nomination;

Proposed Wording
145. (2)(c) ordonner une nouvelle élection ou une nouvelle nomination en donnant des directives pour la conduite, dans l'intervalle, des activités commerciales et des affaires internes de la société;

Bill Clause No. 66
CBCA Section No.145.1
Topic : Shareholders (Unanimous Shareholders Agreements)

Sources of Proposed Law

Changes From Present Law
The current subs. 146(1) is moved to a separate section.

Purpose of Change
Moving the pooling agreement provision to a separate section of the Act makes it clear that this kind of agreement cannot be designated as a USA. A pooling agreement does not bind future shareholders (s. 146(3)) and does not transfer any powers from the directors to shareholders (s. 146(5)). It is a private agreement to which general rules of contract law apply.

Similar Provincial Laws

Current Wording
146. (1) A written agreement between two or more shareholders may provide that in exercising voting rights the shares held by them shall be voted as therein provided.

Proposed Wording
145.1 A written agreement between two or more shareholders may provide that in exercising voting rights the shares held by them shall be voted as provided in the agreement.

Bill Clause No. 66
CBCA Section No.146(1) to (5) and new (6)

Topic : Shareholders (Unanimous Shareholder Agreements)

Sources of Proposed Law

Changes From Present Law
Changes would clarify the rules under a unanimous shareholder agreement (USA).

Purpose of Change
Subsection 146(1) would permit the participation of more than one person who is not a shareholder. This would add flexibility.

Under the current s. 146(4), a transferee of shares subject to a unanimous shareholder agreement is deemed to be a party to the agreement provided that the transferee has actual notice of the unanimous shareholder agreement or a reference to it is noted conspicuously on the share certificate (s. 49(8)). The requirement for a note on the stock certificate is likely to be fairly effective as most shareholders in closely-held corporations, as opposed to publicly-traded corporations, do receive actual share certificates. However, s. 146(4) leaves unresolved the status and effect of the unanimous shareholder agreement if neither a note was used nor actual knowledge existed. In this situation, it is not clear whether the unanimous shareholder agreement is still in force since the agreement is no longer "unanimous" and whether transferees without notice have any recourse. Subsection 146(4) also only expressly refers to "transferees" of shares and not to shareholders (purchasers) who purchased shares directly issued by the corporation. The new subs. (4) would clarify the transfer of shares under a USA by permitting the purchaser or transferee who does not know that a USA is in place to cancel the transaction within 30 days. The effect would be to keep the agreement "unanimous".

The addition of a cross-reference to s. 49(8) in s. 146(4) highlights that a notice provided pursuant to s. 49(8) is an example of sufficient notice.

Subsection (5) would clarify that if a person who is not a shareholder is a party to a USA, he/she will also be liable.

An ambiguity in the wording of the USA provisions is the failure of s. 146(5) to expressly state that the shareholders assume the liabilities of which the directors are relieved, as well as their "rights, powers and duties." The amendment would correct that anomaly. It would also clarify that liabilities arising under other acts or the common law are transferred to shareholders and that defences available to directors would be available to shareholders. This would increase certainty for users of USA, the courts and creditors. These changes would harmonize the CBCA with corresponding provincial legislation.

The new subsection (6) would remove the uncertainty regarding the extent to which a shareholder who enters into a unanimous shareholder 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 corporation. One of the purpose of a USA is to permit shareholders to agree in advance how a particular issue will be decided, for example declaration of dividend. The change would make clear that the shareholders are allowed to fetter their discretion when acting in the place of directors, thereby making the USA concept effective.

Similar Provincial Laws
Business Corporations Act (Ontario)
Companies Act (Québec)
Corporations Act (Manitoba)
Corporations Act (Newfoundland)
The Business Corporations Act (Saskatchewan)

Current Wording
146. (1) A written agreement between two or more shareholders may provide that in exercising voting rights the shares held by them shall be voted as therein provided.

(2) An otherwise lawful written agreement among all the shareholders of a corporation, or among all the shareholders and a person who is not a shareholder, that restricts, in whole or in part, the powers of the directors to manage the business and affairs of the corporation is valid.

(3) Where a person who is the beneficial owner of all the issued shares of a corporation makes a written declaration that restricts in whole or in part the powers of the directors to manage the business and affairs of a corporation, the declaration is deemed to be a unanimous shareholder agreement.

(4) Subject to subsection 49(8), a transferee of shares subject to a unanimous shareholder agreement is deemed to be a party to the agreement.

(5) A shareholder who is a party to a unanimous shareholder agreement has all the rights, powers and duties of a director of the corporation to which the agreement relates to the extent that the agreement restricts the powers of the directors to manage the business and affairs of the corporation, and the directors are thereby relieved of their duties and liabilities, including any liabilities under section 119, to the same extent.

Proposed Wording
146. (1) An otherwise lawful written agreement among all the shareholders of a corporation, or among all the shareholders and one or more persons who are not shareholders, 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 corporation is valid.

(2) If a person who is the beneficial owner of all the issued shares of a corporation makes a written declaration 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 corporation, the declaration is deemed to be a unanimous shareholder agreement.

(3) A purchaser or transferee of shares subject to a unanimous shareholder agreement is deemed to be a party to the agreement.

(4) If notice is not given to a purchaser or transferee of the existence of a unanimous shareholder agreement, in the manner referred to in subsection 49(8) or otherwise, the purchaser or transferee may, no later than 30 days after they become aware of the existence of the unanimous shareholder agreement, rescind the transaction by which they acquired the shares.

(5) To the extent that a unanimous shareholder agreement restricts the powers of the directors to manage, or supervise the management of, the business and affairs of the corporation, parties to the unanimous shareholder agreement who are given that power to manage or supervise the management of the business and affairs of the corporation have all the rights, powers, duties and liabilities of a director of the corporation, 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 119, to the same extent.

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

The definition of "registrant" would be repealed and replaced by a new definition of "intermediary", based on the definition in current provincial securities legislation. The proxy solicitation rules would be amended to remove unnecessary regulatory obstacles to shareholders discussing corporate performance and other corporate matters. For example, solicitations made by public broadcast and publication would be exempt from the proxy circular delivery requirements provided certain conditions are fulfilled (s. 147).

A number of consequential amendments are also included as are several minor technical amendments , including amendments designed to facilitate the efficient operation and administration of the statute.

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

Bill Clause No. 67
CBCA Section No. 147
Topic : Proxies (Shareholder Communication)

Sources of Proposed Law
Securities Exchange Act of 1934 (U.S.), Rule 14a

Changes From Present Law
A. Amend the definition "solicit" or "solicitation" in section 147 to incorporate the following changes:

Exempt a public announcement by a shareholder concerning the shareholder's voting intentions, as prescribed;

Exempt a communication made for the purpose of obtaining the shares for a shareholder proposal under the new section 137(1.1) [see clause 59];

(3) Exempt a communication, other than a solicitation by or on behalf of the corporation, that is made to shareholders in any circumstances that may be prescribed;

Renumber paragraphs in the definition of "solicit" or "solicitation".

B. Repeal the definition of "registrant" and replace it with a new definition of "intermediary" based on the definition currently found in National Policy Statement No. 41.

Purpose of Change
A. A major problem for shareholders arises out of possible interpretations of paragraph 147(c) which defines "communication to a shareholder under circumstances reasonably calculated to result in the procurement, withholding or revocation of a proxy" as a solicitation. As a result of this definition, almost any communication could be deemed to be a solicitation. The shareholder could then be held liable, upon summary conviction, to a fine not exceeding $5,000 or imprisonment for up to six months or both, for failing to send the requisite proxy documents to all shareholders.

The need for a new standard of shareholder participation was recognized in the United States, which had a similar definition of solicitation. In 1992, the Securities and Exchange Commission (SEC) amended its proxy rules for the purpose of "promoting free discussion, debate and learning among shareholders and interested persons." In the SEC's view, "the federal proxy rules [had] created unnecessary regulatory impediments to communication among shareholders and others and to the effective use of shareholder voting rights."

The amendments would eliminate unnecessary regulatory obstacles to the exchange of views and opinions by shareholders and others concerning management performance and initiatives presented for a vote of shareholders.

B. Section 147 of the CBCA defines "registrant," whose duties correspond to those of an intermediary, as: "a securities broker or dealer required to be registered to trade or deal in securities under the laws of any jurisdiction". The definition of "intermediary" under NP 41 includes a much wider range of institutions. This amendment would bring the CBCA into harmony with current securities legislation, particularly National Policy Statement No. 41 and with current securities holding practices.

Similar Provincial Laws

Current Wording
147. "solicit" or "solicitation" includes

(a) a request for a proxy whether or not accompanied by or included in a form of proxy,

(b) a request to execute or not to execute a form of proxy or to revoke a proxy,

(c) the sending of a form of proxy or other communication to a shareholder under circumstances reasonably calculated to result in the procurement, withholding or revocation of a proxy, and

(d) the sending of a form of proxy to a shareholder under section 149, but does not include

(e) the sending of a form of proxy in response to an unsolicited request made by or on behalf of a shareholder,

(f) the performance of administrative acts or professional services on behalf of a person soliciting a proxy,

(g) the sending by a registrant of the documents referred to in section 153, or

(h) a solicitation by a person in respect of shares of which he is the beneficial owner;

"registrant" means a securities broker or dealer required to be registered to trade or deal in securities under the laws of any jurisdiction;

Proposed Wording
147. "solicit" or "solicitation"

(a) includes

(i) a request for a proxy whether or not accompanied by or included in a form of proxy,

(ii) a request to execute or not to execute a form of proxy or to revoke a proxy,

(iii) the sending of a form of proxy or other communication to a shareholder under circumstances reasonably calculated to result in the procurement, withholding or revocation of a proxy, and

(iv) the sending of a form of proxy to a shareholder under section 149,

(b) does not include

(i) the sending of a form of proxy in response to an unsolicited request made by or on behalf of a shareholder,

(ii) the performance of administrative acts or professional services on behalf of a person soliciting a proxy,

(iii) the sending by an intermediary of the documents referred to in section 153,

(iv) a solicitation by a person in respect of shares of which the person is the beneficial owner,

(v) a public announcement, as prescribed, by a shareholder of how the shareholder intends to vote and the reasons for that decision,

(vi) a communication for the purposes of obtaining the number of shares required for a shareholder proposal under subsection 137(1.1), or (vii) a communication, other than a solicitation by or on behalf of the management of the corporation, that is made to shareholders, in any circumstances that may be prescribed;

(vii) a communication, other than a solicitation by or on behalf of the management of the corporation, that is made to shareholders, in any circumstances that may be prescribed;

"intermediary" means a person who holds a security on behalf of another person who is not the registered holder of the security, and includes

(a) a securities broker or dealer required to be registered to trade or deal in securities under the laws of any jurisdiction;

(b) a securities depositary;

(d) in respect of a clearing agency, a securities dealer, trust company, bank or other person, including another clearing agency, on whose behalf the clearing agency or its nominees hold securities of an issuer;

(e) a trustee or administrator of a self-administered retirement savings plan, retirement income fund, education savings plan or other similar self-administered savings or investment plan registered under the Income Tax Act;

(f) a nominee of a person referred to in any of paragraphs (a) to (e); and

(g) a person who carries out functions similar to those carried out by individuals or entities referred to in any of paragraphs (a) to (e) and that holds a security registered in its name, or in the name of its nominee, on behalf of another person who is not the registered holder of the security.

Bill Clause No. 68
CBCA Section No. 149(2)
Topic : Proxies (Shareholder Communications)

Sources of Proposed Law

Changes From Present Law
Amend s. 149 to provide that non-distributing corporations with 50 shareholders or fewer (two or more joint holders being counted as one shareholder), are not required to send a form of proxy as required by s. 149(1).

Purpose of Change
The CBCA requires the management of all corporations, distributing and non-distributing, with 15 or more shareholders entitled to vote at the meeting, to formally solicit proxies in preparation for each annual or special meeting. The CBCA provides more onerous obligations on private corporations than do provincial corporate statutes, which do not require private companies to send a form of proxy to their shareholders at all.

Implementation of this amendment would increase the level of harmonization between the CBCA and provincial securities and corporate statutes with respect to differentiating between distributing and non-distributing corporations.

Raising the threshold for mandatory proxy solicitation by management of non-distributing CBCA corporations to 50 shareholders would eliminate the paper burden and legal costs associated with the preparation and distribution of proxy forms by private corporations who now have between 15 and 50 shareholders. It would also reduce the paper burden on government due to the filing requirements of s. 150.

Finally, mandatory solicitation requirements would ensure statutory protection for minority shareholders in private companies with a large number of shareholders. This provision was amended at the Senate Committee stage to change the threshold from "fewer than fifty" to "fifty or fewer" to ensure consistency with provincial securities legislation.

Similar Provincial Laws

Current Wording
149. (1) Subject to subsection (2), the management of a corporation shall, concurrently with giving notice of a meeting of shareholders, send a form of proxy in prescribed form to each shareholder who is entitled to receive notice of the meeting.

(2) Where a corporation has fewer than fifteen shareholders, two or more joint holders being counted as one shareholder, the management of the corporation is not required to send a form of proxy under subsection (1).

Proposed Wording
149. (2) The management of the corporation is not required to send a form of proxy under subsection (1) if it

(a) is not a distributing corporation; and

(b) has fifty or fewer shareholders entitled to vote at a meeting, two or more joint holders being counted as one shareholder.

Bill Clause No. 69
CBCA Section No. new 150(1.1) and (1.2)
Topic : Proxies (Shareholder Communications)

Sources of Proposed Law
Securities Exchange Act of 1934 (U.S.)

Changes From Present Law
Add a new provision allowing proxies to be solicited where 15 or fewer shareholders are solicited.

Provide that a person, other than management of the corporation, may solicit proxies without sending a proxy circular if the solicitation is, in the prescribed circumstances, conveyed by public broadcast, speech or publication.

Purpose of Change
(A) Harmonization with provincial securities rules.

(B) This section is modelled on the SEC rules. See rationale set out under clause 67.

Similar Provincial Laws

Current Wording
N/A

Proposed Wording
150. (1.1) Despite subsection (1), a person may solicit proxies, other than by or on behalf of the management of the corporation, without sending a dissident's proxy circular, if the total number of shareholders whose proxies are solicited is fifteen or fewer, two or more joint holders being counted as one shareholder.

(1.2) Despite subsection (1), a person may solicit proxies, other than by or on behalf of the management of the corporation, without sending a dissident's proxy circular if the solicitation is, in the prescribed circumstances, conveyed by public broadcast, speech or publication.

Bill Clause No. 70
CBCA Section No. 151
Topic : Proxies (Government Administration)

Sources of Proposed Law

Changes From Present Law
Any exemption order made by the Director under the section would not be subject to the Statutory Instruments Act.

This amendment deals with public notice exemptions.

Purpose of Change
Under the Statutory Instruments Act, orders are required to be made by the Governor-in-Council. By removing the word "order", the Act is clarifying that the Director's authority to issue an exemption is not caught by the Statutory Instruments Act. The following sections would also be amended accordingly:156, 171(2) and 258.2.

See explanation in clause 6.

Similar Provincial Laws

Current Wording
151. (1) On the application of an interested person, the Director may make an order on such terms as he thinks fit exempting such person from any of the requirements of sections 149 or subsection 150(1), which order may have retrospective effect.

(2) The Director shall set out in the periodical referred to in section 129 the particulars of exemptions granted under this section together with the reasons therefor.

Proposed Wording
151. (1) On the application of an interested person, the Director may exempt the person, on any terms that the Director thinks fit, from any of the requirements of section 149 or subsection 150(1), which exemption may have retrospective effect.

(2) The Director shall set out in a publication generally available to the public the particulars of exemptions granted under this section together with the reasons for the exemptions.

Bill Clause No. 71
CBCA Section No. 152(3)
Topic : Proxies (Shareholder Communications)

Sources of Proposed Law

Changes From Present Law
Amend s. 152(3) by replacing the words "votes that might be cast at the meeting on such ballot" with the words "votes that might be cast by shareholders personally or through proxy at the meeting on the ballot…".

Purpose of Change
This section now empowers the chairperson of the meeting of shareholders to avoid a ballot where he/she knows that the dissenting votes will represent fewer than five percent of all the votes that might be cast by the shareholders personally or by proxy at the meeting. Its purpose is to avoid wasting time at the meeting conducting futile ballots. However, the current wording is ambiguous as to which votes must be counted. The proposed change would clarify that the chairperson must consider those votes that are actually represented at the meeting by shareholders personally or by proxy.

Similar Provincial Laws
Business Corporations Act (Alberta)

Current Wording
152. (3) Notwithstanding subsections (1) and (2), where the chairman of a meeting of shareholders declares to the meeting that, if a ballot is conducted, the total number of votes attached to shares represented at the meeting by proxy required to be voted against what to his knowledge will be the decision of the meeting in relation to any matter or group of matters is less than five per cent of all the votes that might be cast at the meeting on such ballot, unless a shareholder or proxyholder demands a ballot,

(a) the chairman may conduct the vote in respect of that matter or group of matters by a show of hands; and

(b) a proxyholder or alternate proxyholder may vote in respect of that matter or group of matters by a show of hands.

Proposed Wording
152. (3) Despite subsections (1) and (2), if the chairperson of a meeting of shareholders declares to the meeting that, if a ballot is conducted, the total number of votes attached to shares represented at the meeting by proxy required to be voted against what to the knowledge of the chairperson will be the decision of the meeting in relation to any matter or group of matters is less than five per cent of all the votes that might be cast by shareholders personally or through proxy at the meeting on the ballot, unless a shareholder or proxyholder demands a ballot,

Bill Clause No. 72
CBCA Section No. 153
Topic : Proxies (Consequential Amendment)

Sources of Proposed Law

Changes From Present Law
Amend s. 153 to replace "registrant" with "intermediary".

Amend s. 153(2) to eliminate the prohibition against a registrant appointing a proxyholder to vote shares registered in his name or in the name of his nominee and clarify that the voting instructions from the beneficial owner must be written.

Amend s. 153(5) to clarify that the beneficial owner must provide the intermediary with appropriate documentation to support a request under that provision.

Purpose of Change
(A) The definition of "registrant" is replaced in s. 147 with a definition of "intermediary". The amendments to s. 153 are consequential amendments.

The current legislation would preclude an intermediary from appointing a proxyholder to vote securities without first obtaining voting instructions from the beneficial owner of the shares. This drafting does not accord with how the industry currently operates. Where there are multiple layers of ownership, only the last intermediary in the chain actually knows the identity of the beneficial owner of the shares - therefore only that intermediary is in a position to obtain voting instructions from the beneficial owner. The objective of s. 153(2) is to prevent securities being voted by anyone other than the beneficial owner without first obtaining the voting instructions from the beneficial owner. The legislation goes too far by also precluding intermediaries from appointing proxyholders. This problem is being corrected. The voting instructions from the beneficial owner must be written in order to ensure that an intermediary is not able to act o the basis of verbal instructions from the beneficial owner of the share.

The amendment to CBCA, s. 153(5) and CCA, s. 169(5) is desirable from an evidentiary point of view.

Similar Provincial Laws

Current Wording
153. (1) Shares of a corporation that are registered in the name of a registrant or his nominee and not beneficially owned by the registrant shall not be voted unless the registrant, forthwith after receipt of the notice of the meeting, financial statements, management proxy circular, dissident's proxy circular and any other documents other than the form of proxy sent to shareholders by or on behalf of any person for use in connection with the meeting, sends a copy thereof to the beneficial owner and, except where the registrant has received written voting instructions from the beneficial owner, a written request for such instructions.

(2) A registrant shall not vote or appoint a proxyholder to vote shares registered in his name or in the name of his nominee that he does not beneficially own unless he receives voting instructions from the beneficial owner.

(3) A person by or on behalf of whom a solicitation is made shall, at the request of a registrant, forthwith furnish the registrant at that person's expense with the necessary number of copies of the documents referred to in subsection (1) other than a copy of the document requesting voting instructions

(4) A registrant shall vote or appoint a proxyholder to vote any shares referred to in subsection (1) in accordance with any written voting instructions received from the beneficial owner.

(5) If requested by a beneficial owner, a registrant shall appoint the beneficial owner or a nominee of the beneficial owner as proxyholder.

(6) The failure of a registrant to comply with this section does not render void any meeting of shareholders or any action taken thereat.

(7) Nothing in this section gives a registrant the right to vote shares that he is otherwise prohibited from voting.

(8) A registrant who knowingly fails to comply with this section is guilty of an offence and liable on summary conviction to a fine not exceeding five thousand dollars or to imprisonment for a term not exceeding six months or to both.

(9) Where a registrant who is a body corporate commits an offence under subsection (8), any director or officer of the body corporate who knowingly authorized, permitted or acquiesced in the commission of the offence is a party to and guilty of the offence and is liable on summary conviction to a fine not exceeding five thousand dollars or to imprisonment for a term not exceeding six months or to both, whether or not the body corporate has been prosecuted or convicted.

Proposed Wording
153. (1) Shares of a corporation that are registered in the name of an intermediary or their nominee and not beneficially owned by the intermediary must not be voted unless the intermediary, without delay after receipt of the notice of the meeting, financial statements, management proxy circular, dissident's proxy circular and any other documents other than the form of proxy sent to shareholders by or on behalf of any person for use in connection with the meeting, sends a copy of the document to the beneficial owner and, except when the intermediary has received written voting instructions from the beneficial owner, a written request for such instructions.

(2) An intermediary, or a proxyholder appointed by an intermediary, may not vote shares that the intermediary does not beneficially own and that are registered in the name of the intermediary or in the name of a nominee of the intermediary unless the intermediary or proxyholder, as the case may be, receives written voting instructions from the beneficial owner.

(3) A person by or on behalf of whom a solicitation is made shall provide, at the request of an intermediary, without delay, to the intermediary at the person's expense the necessary number of copies of the documents referred to in subsection (1), other than copies of the document requesting voting instructions.

(4) An intermediary shall vote or appoint a proxyholder to vote any shares referred to in subsection (1) in accordance with any written voting instructions received from the beneficial owner.

(5) If a beneficial owner so requests and provides an intermediary with appropriate documentation, the intermediary must appoint the beneficial owner or a nominee of the beneficial owner as proxyholder.

(6) The failure of an intermediary to comply with this section does not render void any meeting of shareholders or any action taken at the meeting.

(7) Nothing in this section gives an intermediary the right to vote shares that the intermediary is otherwise prohibited from voting.

(8) An intermediary who knowingly fails to comply with this section is guilty of an offence and liable on summary conviction to a fine not exceeding five thousand dollars or to imprisonment for a term not exceeding six months or to both.

(9) If an intermediary that is a body corporate commits an offence under subsection (8), any director or officer of the body corporate who knowingly authorized, permitted or acquiesced in the commission of the offence is a party to and guilty of the offence and is liable on summary conviction to a fine not exceeding five thousand dollars or to imprisonment for a term not exceeding six months or to both, whether or not the body corporate has been prosecuted or convicted.

A number of consequential amendments required as a result of amendments to other parts of the Act are made in this Part. In addition, several minor technical amendments, amendments to the French version and amendments designed to facilitate the efficient operation and administration of the statute are also included.

A provision would be added specifying that in the case of a proposed replacement of an auditor, the corporation must make a statement regarding the reasons for the proposed replacement. Also, the new auditor will be allowed to make a statement on the corporation's statement

(s. 168(5.1)).

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

Bill Clause No. 73
CBCA Section No. Heading before s. 155
Topic : Financial Disclosure (Technical Amendments)

Sources of Proposed Law

Changes From Present Law
The heading "Présentation de renseignements financiers" before section 155 of the French version of the Act is replaced by "Présentation de renseignements d'ordre financier"

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

Similar Provincial Laws

Current Wording
Présentation de renseignements financiers

Proposed Wording
Présentation de renseignements d'ordre financier

Bill Clause No. 74
CBCA Section No. 156
Topic : Financial Disclosure (Government Administration)

Sources of Proposed Law

Changes From Present Law
Any exemption made by the Director under the section would not be subject to the Statutory Instruments Act.

Similar Provincial Laws

Current Wording
156. A corporation may apply to the Director for an order authorizing the corporation to omit from its financial statements any item prescribed, or to dispense with the publication of any particular financial statement prescribed, and the Director may, if he reasonably believes that disclosure of the information therein contained would be detrimental to the corporation, permit such omission on such reasonable conditions as he thinks fit.

Proposed Wording
156. The Director may, on application of a corporation, authorize the corporation to omit from its financial statements any item prescribed, or to dispense with the publication of any particular financial statement prescribed, and the Director may, if the Director reasonably believes that disclosure of the information contained in the statements would be detrimental to the corporation, permit the omission on any reasonable conditions that the Director thinks fit.

Bill Clause No. 75
CBCA Section No. 157(2)
Topic : Financial Disclosure (Consequential Amendment)

Sources of Proposed Law

Changes From Present Law
Replace the phrase "legal representative" with the phrase "personal representative".

Purpose of Change
This amendment is consequential to the addition of the definition of "personal representative" in clause 1(5).

Similar Provincial Laws

Current Wording
157. (2) Shareholders of a corporation and their agents and legal representatives may on request therefor examine the statements referred to in subsection (1) during the usual business hours of the corporation and may make extracts therefrom free of charge.

Proposed Wording
157. (2) Shareholders of a corporation and their personal representatives may on request examine the statements referred to in subsection (1) during the usual business hours of the corporation and may make extracts free of charge.

Bill Clause No. 76
CBCA Section No. 8(1)
Topic : Financial Disclosure (Technical Amendment)

Sources of Proposed Law

Changes From Present Law
Allow facsimiles of directors' signatures to be used as evidence of their approval of the corporation's financial statements.

Purpose of Change
The flexibility of the CBCA would be increased by allowing the use of a facsimile of the director's signature on the financial statements.

Similar Provincial Laws

Current Wording
158. (1) The directors of a corporation shall approve the financial statements referred to in section 155 and the approval shall be evidenced by the signature of one or more directors.

Proposed Wording
158. (1) The directors of a corporation shall approve the financial statements referred to in section 155 and the approval shall be evidenced by the manual signature of one or more directors or a facsimile of the signatures reproduced in the statements.

Bill Clause No. 77
CBCA Section No. 160
Topic : Financial Disclosure (Technical Amendment)

Sources of Proposed Law

Changes From Present Law
(A) Clarify s. 160(1)(b) by replacing the phrase "after the last date when the last preceding annual meeting should have been held" with the wording found in s. 133. (See clause 56).

(B) Repeal subsection (4).

Purpose of Change
(A) Subsection 160(1)(b): This amendment is designed to harmonise the CBCA "securities" terminology with the provincial securities legislation.

(B) Subsection (4): This section is repealed to reduce the filing burdens of corporations. Should the Director have occasion to need a corporation's interim financial statements, they are available as public documents through the securities commissions.

(C) Subsections (5) and (6): Renumbering is a consequence of the 1994 repeal of subsections (2) and (3) and the present repeal of subsection (4).

Similar Provincial Laws

Current Wording
160. (1) A corporation any of the securities of which are or were part of a distribution to the public, remain outstanding and are held by more than one person shall send a copy of the documents referred to in section 155 to the Director

(a) not less than twenty-one days before each annual meeting of shareholders or forthwith after the signing of a resolution under paragraph 142(1)(b) in lieu of the annual meeting; and

(b) in any event not later than fifteen months after the last date when the last preceding annual meeting should have been held or a resolution in lieu of the meeting should have been signed.

(2) and (3) [Repealed, 1994, c. 24, s. 17]

(4) If a corporation referred to in subsection (1)

(a) sends to its shareholders, or

(b) is required to file with or send to a public authority or a stock exchange interim financial statements or related documents, the corporation shall forthwith send copies thereof to the Director.

(5) A subsidiary corporation is not required to comply with this section if

(a) the financial statements of its holding corporation are in consolidated or combined form and include the accounts of the subsidiary; and

(b) the consolidated or combined financial statements of the holding corporation are included in the documents sent to the Director by the holding corporation in compliance with this section.

(6) A corporation that fails to comply with this section is guilty of an offence and liable on summary conviction to a fine not exceeding five thousand dollars.

Proposed Wording
160. (1) A distributing corporation, any of the issued securities of which remain outstanding and are held by more than one person, shall send a copy of the documents referred to in section 155 to the Director

(a) not less than twenty-one days before each annual meeting of shareholders, or without delay after a resolution referred to in paragraph 142(1)(b) is signed; and

(b) in any event within fifteen months after the last preceding annual meeting should have been held or a resolution in lieu of the meeting should have been signed, but no later than six months after the end of the corporation's preceding financial year.

(2) A subsidiary corporation is not required to comply with this section if

(a) the financial statements of its holding corporation are in consolidated or combined form and include the accounts of the subsidiary; and

(b) the consolidated or combined financial statements of the holding corporation are included in the documents sent to the Director by the holding corporation in compliance with this section.

(3) A corporation that fails to comply with this section is guilty of an offence and is liable on summary conviction to a fine not exceeding five thousand dollars.

Bill Clause No. 78
CBCA Section No. new 161(2.1) and 161(5)
Topic : Financial Disclosure (Technical Amendments)

Sources of Proposed Law

Changes From Present Law
A) Add a new subsection immediately following 161(2) providing that a person's business partner includes a shareholder of that person.

B) Amend the French version of subsection (5) to replace the words "de ne causer aucun préjudice aux actionnaires" with the words " pas causer un préjudice injustifié aux actionnaires", and the word "pertinentes" with the word "indiquées".

Purpose of Change
A) To reflect the new definition of "auditor" in clause (1) of the Bill, which includes incorporated auditors.

B) subsection (5): This technical change clarifies the wording and application of the Act.

Similar Provincial Laws

Current Wording
161. (2) For the purposes of this section,

(a) independence is a question of fact; and

(b) a person is deemed not to be independent if he or his business partner

(i) is a business partner, a director, an officer or an employee of the corporation or any of its affiliates, or a business partner of any director, officer or employee of any such corporation or any of its affiliates,

(ii) beneficially owns or controls, directly or indirectly, a material interest in the securities of the corporation or any of its affiliates, or

(iii) has been a receiver, receiver-manager, liquidator or trustee in bankruptcy of the corporation or any of its affiliates within two years of his proposed appointment as auditor of the corporation.

161. (5) Le tribunal, s'il est convaincu de ne causer aucun préjudice aux actionnaires, peut, à la demande de tout intéressé, dispenser, même rétroactivement, le vérificateur de l'application du présent article, aux conditions qu'il estime pertinentes.

Proposed Wording
161. (2.1) For the purposes of subsection (2), a person's business partner includes a shareholder of that person.

161. (5) Le tribunal, s'il est convaincu de ne pas causer un préjudice injustifié aux actionnaires, peut, à la demande de tout intéressé, dispenser, même rétroactivement, le vérificateur de l'application du présent article, aux conditions qu'il estime indiquées.

Bill Clause No. 79
CBCA Section No. 163(1)
Topic : Financial Disclosure (Consequential Amendment)

Sources of Proposed Law

Changes From Present Law
Amend subsection 163(1) to refer to "a distributing corporation".

Purpose of Change
This change reflects the new definition of "distributing corporation" added by clause 1(5).

Similar Provincial Laws

Current Wording
163. (1) The shareholders of a corporation that is not required to comply with section 160 may resolve not to appoint an auditor.

Proposed Wording
163. (1) The shareholders of a corporation that is not a distributing corporation may resolve not to appoint an auditor.

Bill Clause No. 80
CBCA Section No. new 168(5.1) and 168(6)
Topic : Financial Disclosure (Shareholder Communications)

Sources of Proposed Law

Changes From Present Law
(A) Add a provision following s. 168(5) to:

(1) require the corporation to prepare a statement setting out the reason for changing auditors, and

(2) provide the new auditor with the right to comment on the reason for changing auditors.

(B) Amend s. 168(6) to give effect to the above changes.

Purpose of Change
The proposed changes are designed to address the concerns of auditors that they should not be summarily dismissed. Auditors play an important role in protecting shareholder interests. In the context of privately-held corporations, shareholders have the right to pass a resolution dispensing with the expense of having an auditor (see s. 163). In a situation where the auditor is not dispensed with, shareholders should be entitled to a formal explanation for the auditor's proposed replacement.

Similar Provincial Laws

Current Wording
168. (6) The corporation shall forthwith send a copy of the statement referred to in subsection (5) to every shareholder entitled to receive notice of any meeting referred to in subsection (1) and to the Director unless the statement is included in or attached to a management proxy circular required by section 150.

Proposed Wording
168. (5.1) In the case of a proposed replacement of an auditor, whether through removal or at the end of the auditor's term, the following rules apply with respect to other statements:

(a) the corporation shall make a statement on the reasons for the proposed replacement; and

(b) the proposed replacement auditor may make a statement in which he or she comments on the reasons referred to in paragraph (a).

(6) The corporation shall send a copy of the statements referred to in subsections (5) and (5.1) without delay to every shareholder entitled to receive notice of a meeting referred to in subsection (1) and to the Director, unless the statement is included in or attached to a management proxy circular required by section 150.

Bill Clause No. 81
CBCA Section No. new 170(3)
Topic : Financial Disclosure (Directors' Liability)

Sources of Proposed Law

Changes From Present Law
Provide in s. 170 that a person who in good faith makes an oral or written communication to the auditor is exonerated from civil liability.

Purpose of Change
This change will help protect individuals who make an oral or written communication to the auditor.

Similar Provincial Laws
Bank Act

Current Wording
N/A

Proposed Wording
170. (3) A person who in good faith makes an oral or written communication under subsection (1) or (2) is not liable in any civil proceeding arising from having made the communication.

Bill Clause No. 82
CBCA Section No. 171(2)
Topic : Financial Disclosure (Government Administration)

Sources of Proposed Law

Changes From Present Law
Any exemption made by the Director under the section would not be subject to the Statutory Instruments Act.

Similar Provincial Laws

Current Wording
171. (2) A corporation may apply to the Director for an order authorizing the corporation to dispense with an audit committee, and the Director may, if he is satisfied that the shareholders will not be prejudiced by such an order, permit the corporation to dispense with an audit committee on such reasonable conditions as he thinks fit.

Proposed Wording
171. (2) The Director may, on the application of a corporation, authorize the corporation to dispense with an audit committee, and the Director may, if satisfied that the shareholders will not be prejudiced, permit the corporation to dispense with an audit committee on any reasonable conditions that the Director thinks fit.

A number of consequential amendments required as a result of amendments to other parts of the Act are included in this Part. In addition, several minor technical amendments, amendments to the French version and amendments designed to clarify and facilitate the efficient operation and administration of the statute are included.

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

Bill Clause No. 83
CBCA Section No. 173(1)(b) and (c)
Topic : Fundamental Changes (Technical Amendments)

Sources of Proposed Law

Changes From Present Law
Amend par. 173(1)(b) to provide for amendment to the articles where there is a change in the province in which the corporation's registered office is located.

Amend par. 173(1)(c) by replacing, in the French version, the word "apporter" by "ajouter".

Purpose of Change
See explanation: clause 9.
This technical change clarifies the wording and application of the Act.

Similar Provincial Laws

Current Wording
173. (1) Subject to sections 176 and 177, the articles of a corporation may by special resolution be amended to

…

(b) change the place in which its registered office is situated;

c ) d'apporter, de modifier ou de supprimer toute restriction quant à ses activités commerciales;

Proposed Wording
173. (1)( b ) change the province in which its registered office is situated;

(c ) d'"ajouter", de modifier ou de supprimer toute restriction quant à ses activités commerciales;

Bill Clause No. 84
CBCA Section No. 174(1) and (1)(d)
Topic : Fundamental Changes: (Technical Amendments)

Sources of Proposed Law

Changes From Present Law
(A) The reference in the portion of subsection 174(1) before paragraph (a) is update to refer to "distributing" corporation.

(B) Specific references to sections of the Trust and Loan Companies Act (s. 379) and the Insurance Companies Act (s. 411) are removed.

Purpose of Change
(A) The proposed amendment in subs. 174(1) reflects the new definition of "distributing corporation" found in subsection 2(1).

(B) Removing the specific references to the Trust and Loan Companies Act and the Insurance Companies Act and allowing them to be prescribed by regulation allows for easier amendment should the specific section numbers of those acts change and also eases the addition or removal of specified acts as required.

Similar Provincial Laws

Current Wording
174. (1) Subject to sections 176 and 177, a corporation any of the issued shares of which are or were part of a distribution to the public and remain outstanding and are held by more than one person may by special resolution amend its articles in accordance with the regulations to constrain

(1)(d) the issue, transfer or ownership of shares of any class or series in order to assist the corporation to comply with

(i) section 379 of the Trust and Loan Companies Act , or

(ii) section 411 of the Insurance Companies Act ; or

Proposed Wording
174. (1) Subject to sections 176 and 177, a distributing corporation, any of the issued shares of which remain outstanding and are held by more than one person, may by special resolution amend its articles in accordance with the regulations to constrain

(1)( d ) the issue, transfer or ownership of shares of any class or series in order to assist the corporation to comply with any prescribed law.

Bill Clause No. 85
CBCA Section No. 177(1)
Topic : Fundamental Changes (Government Administration)

Sources of Proposed Law

Changes From Present Law

The words "prescribed form" would be replaced with "in the form that the Director fixes".

Purpose of Change
See explanation: clause 3.

Similar Provincial Laws

Current Wording
177. (1) Subject to any revocation under subsection 173(2) or 174(5), after an amendment has been adopted under section 173, 174 or 176 articles of amendment in prescribed form shall be sent to the Director.

Proposed Wording
177. (1) Subject to any revocation under subsection 173(2) or 174(5), after an amendment has been adopted under section 173, 174 or 176 articles of amendment in the form that the Director fixes shall be sent to the Director.

Bill Clause No. 86
CBCA Section No. 180(1) and (2)
Topic : Fundamental Changes (Government Administration)

Sources of Proposed Law

Changes From Present Law
(A) Remove the words "as amended" in subsection (1).

(B) The words "prescribed form" in subsection (2) would be replaced with "in the form that the Director fixes".

Purpose of Change
(A) Subsection (1): This amendment clarifies the wording of the Act by removing words that had indicated that the subsection required articles to be amended before they are restated.

(B) Subsection (2): See explanation: clause 3.

Similar Provincial Laws

Current Wording
180. (1) The directors may at any time, and shall when reasonably so directed by the Director, restate the articles of incorporation as amended.

(2) Restated articles of incorporation in prescribed form shall be sent to the Director.

Proposed Wording
180. (1) The directors may at any time, and shall when reasonably so directed by the Director, restate the articles of incorporation.

(2) Restated articles of incorporation in the form that the Director fixes shall be sent to the Director.

Bill Clause No. 87
CBCA Section No. 183(3) and (4)
Topic : Fundamental Changes (Technical Amendments)

Sources of Proposed Law

Changes From Present Law
Addition of the word "agreement" after the word "amalgamation" in the English version and a corresponding amendment to the French version (subs. 183(3)).

The words "in respect of an amalgamation" are replaced with "in respect of the amalgamation agreement", and the word "an" with "each" before "amalgamating corporation" in the English version.

Addition of the words "de chaque société fusionnante" after the word "série" in the French version.

Purpose of Change
These technical changes clarify the wording and application of the Act and ensure that the English and French versions have the same interpretation.

Similar Provincial Laws

Current Wording
183. (3) Each share of an amalgamating corporation carries the right to vote in respect of an amalgamation whether or not it otherwise carries the right to vote.

(4) The holders of shares of a class or series of shares of an amalgamating corporation are entitled to vote separately as a class or series in respect of an amalgamation if the amalgamation agreement contains a provision that, if contained in a proposed amendment to the articles, would entitle such holders to vote as a class or series under section 176.

(3) Chaque action des sociétés fusionnantes, assortie ou non du droit de vote, emporte droit de vote quant à la fusion.

(4) Les détenteurs d'actions d'une catégorie ou d'une série sont habiles à voter séparément sur la convention de fusion si celle-ci contient une clause qui, dans une proposition de modification des statuts, leur aurait conféré ce droit en vertu de l'article 176.

Proposed Wording
183. (3) Each share of an amalgamating corporation carries the right to vote in respect of an amalgamation agreement whether or not it otherwise carries the right to vote.

(4) The holders of shares of a class or series of shares of each amalgamating corporation are entitled to vote separately as a class or series in respect of an amalgamation agreement if the amalgamation agreement contains a provision that, if contained in a proposed amendment to the articles, would entitle such holders to vote as a class or series under section 176.

183. (3) Chaque action des sociétés fusionnantes, assortie ou non du droit de vote, comporte un droit de vote quant à la convention de fusion.

(4) Les détenteurs d'actions d'une catégorie ou d'une série de chaque société fusionnante sont habiles à voter séparément au sujet de la convention de fusion si celle-ci contient une clause qui, dans une proposition de modification des statuts, leur aurait conféré ce droit en vertu de l'article 176.

Bill Clause No. 88
CBCA Section No. 184(1)(b)(ii) and (2)(b)(ii)
Topic : Fundamental Changes (Technical Amendments)

Sources of Proposed Law

Changes From Present Law
Amend clauses 184(1)(b)(ii) and (2)(b)(ii) by replacing "articles of incorporation" with "articles".

Purpose of Change
The purpose of the change is to clarify the wording of the CBCA. The use of phrase "articles of incorporation" is limiting. The phrase does not include amended articles or articles of a previous amalgamation. The intent of the provision is to refer to "articles" in its broad sense, as it is defined in s. 2 of the CBCA. This amendment would broaden the wording of the CBCA.

Similar Provincial Laws

Current Wording
184. (1)(b)(ii) except as may be prescribed, the articles of amalgamation shall be the same as the articles of incorporation of the amalgamating holding corporation, and

(2)(b)(ii) except as may be prescribed, the articles of amalgamation shall be the same as the articles of incorporation of the amalgamating subsidiary corporation whose shares are not cancelled, and

Proposed Wording
184. (1)(b)(ii) except as may be prescribed, the articles of amalgamation shall be the same as the articles of the amalgamating holding corporation, and

(2)(b)(ii) except as may be prescribed, the articles of amalgamation shall be the same as the articles of the amalgamating subsidiary corporation whose shares are not cancelled, and

Bill Clause No. 89
CBCA Section No. 185(1)
Topic Fundamental Changes (Government Administration)

Sources of Proposed Law

Changes From Present Law
The Director would be allowed to set the form of the articles of amalgamation.

Purpose of Change
See explanation: clause 3.

Similar Provincial Laws

Current Wording
185. (1) Subject to subsection 183(6), after an amalgamation has been adopted under section 183 or approved under section 184, articles of amalgamation in prescribed form shall be sent to the Director together with the documents required by sections 19 and 106.

Proposed Wording
185. (1) Subject to subsection 183(6), after an amalgamation has been adopted under section 183 or approved under section 184, articles of amalgamation in the form that the Director fixes shall be sent to the Director together with the documents required by sections 19 and 106.

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

Bill Clause No. 90
CBCA Section No. 186.1(4)
Topic Fundamental Changes (Government Administration)

Sources of Proposed Law

Changes From Present Law
The Director would be allowed to set the form of the articles.

Purpose of Change
See explanation: clause 3.

Similar Provincial Laws

Current Wording
186.1. (4) For the purposes of section 262, a notice referred to in subsection (3) is deemed to be articles that are in the prescribed form.

Proposed Wording
186.1. (4) For the purposes of section 262, a notice referred to in subsection (3) is deemed to be articles that are in the form that the Director fixes .

Bill Clause No. 91
CBCA Section No. 187(3) and (11)
Topic : Fundamental Changes (Technical Amendments)

Sources of Proposed Law

Changes From Present Law
(A) The Director would be allowed to set the form of the articles.

(B) Clarification in the French version of the meaning of "impracticable."

Purpose of Change
(A) Subsection (3): See explanation: clause 3.

(B) Subsection (11): This technical change clarifies the wording and application of the Act.

Similar Provincial Laws

Current Wording
187. (3) Articles of continuance in prescribed form shall be sent to the Director together with the documents required by sections 19 and 106.

187. (11) Au cas où le directeur, saisi par une personne morale, décide qu'il n'y a pas lieu de supprimer la référence aux actions à valeur nominale ou au pair d'une catégorie ou d'une série qu'elle était autorisée à émettre avant sa prorogation en vertu de la présente loi, il peut, par dérogation au paragraphe 24(1), autoriser la personne morale à maintenir, dans ses statuts, la désignation de ces actions, même non encore émises, comme actions à valeur nominale ou au pair.

Proposed Wording
187. (3) Articles of continuance in the form that the Director fixes shall be sent to the Director together with the documents required by sections 19 and 106.

187. (11) Au cas où le directeur, saisi par une personne morale, décide qu'il est pratiquement impossible de supprimer la référence aux actions à valeur nominale ou au pair d'une catégorie ou d'une série que celle-ci était autorisée à émettre avant sa prorogation en vertu de la présente loi, il peut, par dérogation au paragraphe 24(1), l' autoriser à maintenir, dans ses statuts, la désignation de ces actions, même non encore émises, comme actions à valeur nominale ou au pair.

Bill Clause No. 92
CBCA Section No. 188(1), (2), (2.1) and (8)
Topic : Fundamental Changes (Technical amendment)

Sources of Proposed Law

Changes From Present Law
Subs. 188(1) and (2.1) would be replaced with new subsections 188(1) and (2) as a result of the repeal of the Investment Companies Act on July 31, 1996; The word "prescribed" is replaced with "that the Director fixes"in s. 188(8).

Purpose of Change
This technical change would clarify the wording and application of the Act and remove a reference to a statute that was repealed in 1996. Subsection 2.1 is renumbered as (2).

Subsection 188(8): See explanation at clause 3.

Similar Provincial Laws

Current Wording
188. (1) Subject to subsections (2) and (10), a corporation

(a) that is authorized by the shareholders in accordance with this section, and

(b) that establishes to the satisfaction of the Director that its proposed continuance in another jurisdiction will not adversely affect creditors or shareholders of the corporation may apply to the appropriate official or public body of the other jurisdiction requesting that the corporation be continued as if it had been incorporated under the laws of that other jurisdiction.

(2) A corporation to which the Investment Companies Act applies shall not apply for continuance in another jurisdiction without the prior consent of the Minister of Finance.

(2.1) A corporation that is authorized by the shareholders in accordance with this section may apply to the appropriate Minister for its continuance under the Bank Act, the Canada Cooperative Associations Act, the Insurance Companies Act or the Trust and Loan Companies Act.

(8) For the purposes of section 262, a notice referred to in subsection (7) is deemed to be articles that are in the prescribed form.

Proposed Wording
188. (1) Subject to subsection (10), a corporation may apply to the appropriate official or public body of another jurisdiction requesting that the corporation be continued as if it had been incorporated under the laws of that other jurisdiction if the corporation

( a ) is authorized by the shareholders in accordance with this section to make the application; and

( b ) establishes to the satisfaction of the Director that its proposed continuance in the other jurisdiction will not adversely affect creditors or shareholders of the corporation.

(2) A corporation that is authorized by the shareholders in accordance with this section may apply to the appropriate Minister for its continuance under the Bank Act , the Canada Cooperatives Act , the Insurance Companies Act or the Trust and Loan Companies Act .

(8) For the purposes of section 262, a notice referred to in subsection (7) is deemed to be articles that are in the form that the Director fixes .

Bill Clause No. 93
CBCA Section No. 89(1), (b) and (c)
Topic : Fundamental Changes (Technical Amendments)

Sources of Proposed Law

Changes From Present Law
The words "the articles of a corporation are deemed to state" in s. 189(1) are no longer necessary. Reference to "hypothec" is added in s. 189(1)(b) and reference to s. 44 is removed in 189(1)(c).

Purpose of Change
These technical changes clarify the wording and application of the Act and update the CBCA to match the terminology used in the new Civil Code of Québec regarding debt obligations. Reference to s. 44 is removed because this section is being repealed.

Similar Provincial Laws

Current Wording
189. (1) Unless the articles or by-laws of or a unanimous shareholder agreement relating to a corporation otherwise provide, the articles of a corporation are deemed to state that the directors of a corporation may, without authorization of the shareholders,

(b) issue, reissue, sell or pledge debt obligations of the corporation;

(c) subject to section 44, give a guarantee on behalf of the corporation to secure performance of an obligation of any person;

Proposed Wording
189. (1) Unless the articles or by-laws of or a unanimous shareholder agreement relating to a corporation otherwise provide, the directors of a corporation may, without authorization of the shareholders,

( b ) issue, reissue, sell, pledge or hypothecate debt obligations of the corporation;

( c ) give a guarantee on behalf of the corporation to secure performance of an obligation of any person; and

Bill Clause No. 94
CBCA Section No. 190(1)(b), new (f) and (2.1)
Topic : Fundamental Changes (Going-Private Transactions)

Sources of Proposed Law

Changes From Present Law
(A) Amend par. 190(1)(b) by replacing, in the French version, the words "étendre" by "ajouter" and "certaines restrictions" by "toute restriction".

(B) Provide that the right to dissent under s. 190 is also available to shareholders of a corporation that carries out a going-private transaction.

(C) Provide that the right to dissent is also available to shareholders under s. 190(2) even where there is only one class of shares. This amendment applies to all situations where the right to dissent is or should be given.

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

(B) This amendment provides a shareholder who is being forced out of the corporation pursuant to a going-private transaction (in the case of a distributing corporation) or a squeeze-out transaction (in the case of a non-distributing corporation) with the same rights as shareholders undergoing other fundamental changes in the affairs of the corporation. (Going-private transaction and squeeze-out transaction - see clauses 1(5) and 97.)

(C) While the CBCA does not deal expressly with this issue, class votes under s. 176 may not be available to shareholders of a corporation with only one class of shares. Subsection 190(2) provides that a holder of shares of any class or series of shares entitled to vote under section 176 may dissent if the corporation resolves to amend its articles in a manner described in that section. The "manners" of amending the articles described in section 176 are very broad, including share consolidations and the creation of a new class of shares with equal or superior rights. Thus, shareholders entitled to vote under s. 176 have a broad right to dissent. If shareholders of a corporation with one class of shares cannot vote under s. 176, they have a much more limited right to dissent. This amendment addresses this imbalance by providing shareholders with a right to dissent even where there is only one class of shares.

Similar Provincial Laws
Business Corporations Act (Ontario )

Current Wording
190. (1) Subject to sections 191 and 241, a holder of shares of any class of a corporation may dissent if the corporation is subject to an order under paragraph 192(4)( d ) that affects the holder or if the corporation resolves to …

( b ) amend its articles under section 173 to add, change or remove any restriction on the business or businesses that the corporation may carry on; …

Proposed Wording
190. (1) b) de modifier ses statuts, conformément à l'article 173, afin d' ajouter , de modifier ou de supprimer toute restriction à ses activités commerciales;

( f ) carry out a going-private transaction or a squeeze-out transaction.

190. (2.1) The right to dissent described in subsection (2) applies even if there is only one class of shares.

Bill Clause No. 95
CBCA Section No. 191(4)
Topic : Fundamental Changes (Government Administration)

Sources of Proposed Law

Changes From Present Law
The Director would be allowed to set the form of the articles.

Purpose of Change
See explanation: clause 3.

Similar Provincial Laws

Current Wording
191. (4) After an order referred to in subsection (1) has been made, articles of reorganization in prescribed form shall be sent to the Director together with the documents required by sections 19 and 113, if applicable.

Proposed Wording
191. (4) After an order referred to in subsection (1) has been made, articles of reorganization in the form that the Director fixes shall be sent to the Director together with the documents required by sections 19 and 113, if applicable.

Bill Clause No. 96
CBCA Section No. 192(1), new (f.1) and 192(3) and (6)
Topic : Fundamental Changes (Going-Private Transactions)

Sources of Proposed Law

Changes From Present Law
(A) Expand the definition of "arrangement" set out in s. 192(1) to include going-private transactions and squeeze-out transactions.

(B) Clarification in the French version of the meaning of "impracticable".

Purpose of Change
(A) Paragraph 192(1)(f.1): This amendment will allow a corporation to carry out a going-private transaction pursuant to terms and conditions prescribed by the court (see s. 192(4)), where it is not practicable to do so under any other provision of the Act (see clause 97).

(B) Subsection (3): This technical change clarifies the wording and application of the Act.

Similar Provincial Laws

Current Wording
192. (1) In this section, "arrangement" includes…

( f ) an exchange of securities of a corporation held by security holders for property, money or other securities of the corporation or property, money or securities of another body corporate that is not a take-over bid as defined in section 194;

(3) Lorsque la société, qui n'est pas insolvable, n'est pas en mesure d'opérer, en vertu d'une autre disposition de la présente loi, une modification de structure équivalente à un arrangement, elle peut demander au tribunal d'approuver, par ordonnance, l'arrangement qu'elle propose.

(6) After an order referred to in paragraph (4)(e) has been made, articles of arrangement in prescribed form shall be sent to the Director together with the documents required by sections 19 and 113, if applicable.

Proposed Wording
192. (1)( f ) an exchange of securities of a corporation for property, money or other securities of the corporation or property, money or securities of another body corporate;

( f .1) a going-private transaction or a squeeze-out transaction in relation to a corporation ;

(3) Lorsqu'il est pratiquement impossible pour la société qui n'est pas insolvable d'opérer, en vertu d'une autre disposition de la présente loi, une modification de structure équivalente à un arrangement, elle peut demander au tribunal d'approuver, par ordonnance, l'arrangement qu'elle propose.

(6) After an order referred to in paragraph (4)( e ) has been made, articles of arrangement in the form that the Director fixes shall be sent to the Director together with the documents required by sections 19 and 113, if applicable.

The provisions respecting prospectus qualification would be repealed (s. 193).

Going-private transactions (GPTs), in relation to distributing corporations, would be expressly permitted, subject to compliance with applicable provincial securities legislation.

A GPT must comply with prescribed requirements (i.e., fairness criteria parallel to the protections adopted from time to time by provincial securities legislation).

A squeeze-out transaction must be approved by an ordinary resolution of the majority of the minority of the shareholders.

Provisions are also included enabling the Director to grant individual and blanket exemptions from the prescribed requirements applicable to GPTs.

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

Bill Clause No. 97
CBCA Section No. 193(1)
Topic Going-private Transactions and Squeeze-out Transactions (Going-Private Transactions)

Sources of Proposed Law

Changes From Present Law
Expressly permits going-private transactions, as defined by the regulations (see clause 1(5) - definition of "going-private transaction"). However, if there are any applicable provincial securities laws, the corporation must comply with those laws.

Purpose of Change
GPTs refer to amalgamations, arrangements, consolidations or any other transaction that would result in the termination of shareholder interests with compensation, but without consent and without a replacement of equivalent value in a participating security. There is a concern that the CBCA only sets out rules for one type of GPT (compulsory acquisitions) and that other forms of GPT may not be permitted. This uncertainty can cause CBCA corporations considering a GPT to continue into another jurisdiction in order to ensure that the desired transactions can legally be carried out. The amendment would define a GPT in the regulations and specify that such transactions are allowed to the extent that such transactions comply with the applicable provincial securities laws, if any.

This provision was substantially changed as a result of an amendment introduced at the Senate Committee stage. Bill S-11 originally proposed to expressly allow GPTs and to incorporate by reference - in the regulations - standards of fairness for minority shareholders mandated by provincial securities regulators. The proposed amendment was predicated on Ontario and Quebec harmonizing their GPT requirements. Before the Bill went to print, Industry Canada was informed by both Ontario and Québec that they had agreed to harmonize their requirements. Bill S-11 was therefore tabled with a GPT regime that incorporated by reference a harmonized set of rules. It was later learned that although the Ontario rule and the Quebec policy are harmonized in substance, there are technical differences of application which makes incorporation by reference difficult, if not impossible. As a result, under Bill S-11, a corporation would in practice be required to comply with inconsistent provincial requirements, which was not the intent of the provision and would cause great confusion in the marketplace.

Another issue is that the Québec requirements are contained in a policy statement rather than in legislation, regulations or rules. Policy statements do not have the force of law. It would therefore be inappropriate for federal legislation to mandate compliance with a provincial policy statement since this would have the effect of elevating its legal status beyond that intended by its province of origin. In order to avoid these problems, the incorporation by reference has been removed. The CBCA would now permit GPTs subject to compliance with applicable provincial securities legislation.

Similar Provincial Laws

Current Wording
N/A

Proposed Wording
Going-Private Transactions and Squeeze-Out Transactions
193. A corporation may carry out a going-private transaction. However, if there are any applicable provincial securities laws, a corporation may not carry out a going-private transaction unless the corporation complies with those laws.

Bill Clause No. 97
CBC Section No. 194
Topic Going-private Transactions and Squeeze-out Transactions (Going-Private Transactions)

Sources of Proposed Law

Changes From Present Law
(A) Expressly permits squeeze-out transactions, as defined by the regulations (see clause 1(5) - definition of "squeeze-out transaction")

(B) Provides that a squeeze-out transaction (relating to a non-distributing corporation) shall be approved by an ordinary resolution of the majority of the minority of the shareholders.

Purpose of Change
(A) See Clause 97, s. 193 - Purpose of Change (introduction)

(B) Private company minority shareholders are as deserving of protection as their public company counterparts. However, this fact must be balanced against the high costs to offerors of providing the full panoply of procedural safeguards. For example, having to obtain valuations or fairness opinions for a corporation with only five minority shareholders may be unnecessary where the shareholders are intimately aware of the financial situation and prospects of the corporation. In addition, difficulties may be encountered valuing the minority shares of a private corporation given the general absence of a market in those circumstances. Accordingly, the safeguards adopted preserve the majority of the minority approval also found in the requirements relating to going-private transactions, but does not mandate any requirements respecting valuations or enhanced disclosure. In addition, aggrieved shareholders would also be entitled to exercise their dissent and appraisal rights pursuant to s. 190 (see clause 94(2)) and the oppression remedy under s. 241.

Similar Provincial Laws
Business Corporations Act (Ontario )

Current Wording
N/A

Proposed Wording
194. A corporation may not carry out a squeeze-out transaction unless, in addition to any approval by holders of shares required by or under this Act or the articles of the corporation, the transaction is approved by ordinary resolution of the holders of each class of shares that are affected by the transaction, voting separately, whether or not the shares otherwise carry the right to vote. However, the following do not have the right to vote on the resolution:

(a) affiliates of the corporation; and

(b) holders of shares that would, following the squeeze-out transaction, be entitled to consideration of greater value or to superior rights or privileges than those available to other holders of shares of the same class.

The provisions with respect to take-over bids would be repealed and the definitions amended to reflect this.

The compulsory acquisition section would be amended to include a new provision requiring that a corporation which offers to repurchase its own shares (i.e., an issuer bid) must hold the payment owing to dissenting offerees in trust and deposit the money in a separate account in a bank, within the same time period currently required with respect to other offerors (s. 206(7.1)). In addition, a provision is included which requires a dissenting offeree to elect to transfer their shares on the terms of the take-over bid or to demand fair payment (s. 206(5)(b)).

The amendments would include a new right of compelled acquisition enabling a minority shareholder of a distributing corporation to force the majority shareholder to purchase their shares in certain circumstances. (s. 206.1).

A number of consequential amendments required as a result of amendments to other parts of the Act are also included in this Part. In addition, several minor technical amendments, amendments to the French version and amendments designed to clarify and facilitate the efficient operation and administration of the statute, are also made.

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

Bill Clause No. 97
CBCA Section No. 194 to 205
Topic Take-Over Bids

Sources of Proposed Law

Changes From Present Law
Repeal s. 194 to 205, inclusive

Purpose of Change
A takeover bid under the CBCA is an offer to purchase any class of shares of the corporation that, if combined with the shares already owned by the offeror, would be more than 10 per cent of the total outstanding shares of that class.

Offerors who want to make a take-over bid for a CBCA corporation now are subject to the CBCA's takeover bid provisions and to the applicable takeover bid requirements under provincial securities legislation. The CBCA provisions apply to all corporations whose shares are publicly traded or that have more than 15 shareholders.

The repeal of the CBCA's takeover bid provisions would eliminate duplication in an area that is regulated by the provinces.

Similar Provincial Laws
N/A

Current Wording
194. In this Part,

"exempt offer" means an offer

(a) to fewer than fifteen shareholders to purchase shares by way of separate agreements,

(b) to purchase shares through a stock exchange or in the over-the-counter market in such circumstances as may be prescribed,

(c) to purchase shares of a corporation that has fewer than fifteen shareholders, two or more joint holders being counted as one shareholder,

(d) exempted under section 204, or

(e) by a corporation to repurchase its own shares to be held under section 32;

"offer" includes an invitation to make an offer;

"offeree" means a person to whom a take-over bid is made;

"offeree corporation" means a corporation whose shares are the object of a take-over bid;

"offeror" means a person, other than an agent, who makes a take-over bid, and includes two or more persons who, directly or indirectly,

(a) make take-over bids jointly or in concert, or

(b) intend to exercise jointly or in concert voting rights attached to shares for which a take-over bid is made;

"share" means a share carrying voting rights under all circumstances or by reason of the occurrence of an event that has occurred and that is continuing, and includes

(a) a security currently convertible into such a share, and

(b) currently exercisable options and rights to acquire such a share or such a convertible security;

"take-over bid" means an offer, other than an exempt offer, made by an offeror to shareholders at approximately the same time to acquire shares that, if combined with shares already beneficially owned or controlled, directly or indirectly, by the offeror or an affiliate or associate of the offeror on the date of the take-over bid, would exceed ten per cent of any class of issued shares of an offeree corporation and includes every offer, other than an exempt offer, by an issuer to repurchase its own shares.

195. Where a take-over bid is for all the shares of any class,

(a) shares deposited pursuant to the take-over bid, if not taken up by the offeror, may be withdrawn by or on behalf of an offeree at any time after sixty days following the date of the take-over bid;

(b) the offeror shall not take up shares deposited pursuant thereto until ten days after the date of the take-over bid; and

(c) the offeror, if he so intends, shall state in the take-over bid circular that he intends to invoke the right under section 206 to acquire the shares of offerees who do not accept the take-over bid and that the offeree is entitled to dissent and to demand the fair value of his shares.

196. (1) Where a take-over bid is for less than all the shares of any class,

(a) the offeror shall not take up shares deposited pursuant thereto until twenty-one days after the date of the take-over bid;

(b) the period of time within which shares may be deposited pursuant to the take-over bid or any extension thereof shall not exceed thirty-five days from the date of the take-over bid; and

(c) if a greater number of shares is deposited pursuant to the take-over bid than the offeror is bound or willing to take up and pay for, the shares taken up by the offeror shall be taken up rateably, disregarding fractions, according to the number of shares deposited by each offeree.

(2) Where a take-over bid for all the shares of any class is converted by amendment or otherwise to a bid for less than all the shares of a class, the take-over bid is deemed to be a take-over bid to which subsection (1) applies.

197. Whether a take-over bid is for all or less than all the shares of any class,

(a) shares deposited pursuant to the take-over bid may be withdrawn by or on behalf of an offeree at any time within ten days after the date of the take-over bid;

(b) shares deposited pursuant to the take-over bid shall, if the terms stipulated by the offeror and not subsequently waived by him have been complied with, be taken up and paid for within fourteen days after the last day within which shares may be deposited pursuant to the take-over bid;

(c) the period of time within which shares may be deposited pursuant to a take-over bid shall not be less than twenty-one days after the date of the take-over bid;

(d) if the terms of the take-over bid are amended by increasing the consideration offered for the shares, the offeror shall pay the increased consideration to each offeree whose shares are taken up pursuant to the take-over bid whether or not such shares have been taken up by the offeror before the amendment of the take-over bid;

(e) if the offeror intends to purchase shares to which the take-over bid relates in the market during the period of time within which shares may be deposited pursuant to the take-over bid, the offeror shall so state in the take-over bid circular; and

(f) if the offeror purchases shares to which a take-over bid relates other than pursuant to the take-over bid during the period of time within which shares may be deposited pursuant to the take-over bid,

(i) the payment other than pursuant to the take-over bid of an amount for a share that is greater than the amount offered in the take-over bid is deemed to be an amendment of the take-over bid to which paragraph (d) applies,

(ii) the offeror shall immediately notify the offerees of the increased consideration being offered for the shares,

(iii) the shares acquired other than pursuant to the take-over bid shall be counted to determine whether a condition as to minimum acceptance has been fulfilled, and

(iv) the shares acquired other than pursuant to the take-over bid shall not be counted among the shares taken up rateably under paragraph 196(1)(c).

198. (1) A take-over bid, including a copy of the take-over bid circular in prescribed form and any amendment of the take-over bid, shall be sent concurrently to each director of the offeree corporation, to each shareholder of the offeree corporation resident in Canada and to the Director.

(2) A take-over bid is deemed to be dated as of the date on which it is sent.

(3) For the purposes of this section and section 201, a shareholder of an offeree corporation is deemed to be resident in Canada if his latest address as shown in the securities register of the offeree corporation is an address within Canada.

199. Where a take-over bid states that the consideration for the shares deposited pursuant thereto is to be paid in money or partly in money, the offeror shall make adequate arrangements to ensure that funds are available to make the required money payment for such shares.

200. Where a take-over bid states that the consideration for the shares of the offeree corporation is to be, in whole or in part, securities of the offeror or any other body corporate, the take-over bid circular shall be in prescribed form.

201. (1) The directors of an offeree corporation shall send a directors' circular in prescribed form to each director of the offeree corporation, to each shareholder of the offeree corporation resident in Canada, to the offeror and to the Director.

(2) Unless the directors of an offeree corporation send a directors' circular under subsection (1) within ten days of the date of the take-over bid, the directors shall forthwith notify the offerees and the Director that a directors' circular will be sent and may recommend that the offerees do not tender their shares pursuant to the take-over bid until they receive the directors' circular.

(3) The notice required by subsection (2) shall be in prescribed form.

(4) The directors shall send the directors' circular required by subsection (1) to each offeree and to the Director at least seven days before the date the take-over bid terminates or before the sixtieth day of the take-over bid, whichever is earlier.

(5) Where a director of an offeree corporation is of the opinion that a take-over bid is not advantageous to the shareholders of the offeree corporation or where a director disagrees with any statement in a directors' circular, he is entitled to indicate his opinion or disagreement in the directors' circular required by subsection (1) and, if he indicates his opinion or disagreement, he shall include in that circular a statement setting out the reasons for his opinion or disagreement.

202. (1) A report, opinion or statement of a solicitor, auditor, accountant, engineer, appraiser or other person whose profession lends credibility to a statement made by him shall not be included in a take-over bid circular or a directors' circular unless that person has consented in writing to the use of the report, opinion or statement.

(2) On the demand of the Director, a person referred to in subsection (1) shall forthwith send to the Director a copy of any report, opinion or statement referred to in that subsection that is made by that person together with a copy of his consent.

203. (1) When a take-over bid is made by or on behalf of a body corporate, the directors of the body corporate shall approve the take-over bid and the take-over bid circular, and the approval shall be evidenced on the circular by the signature of one or more directors.

(2) The directors of an offeree corporation shall approve a directors' circular that contains the recommendations of a majority of the directors, and the approval shall be evidenced by the signature of one or more directors.

204. (1) Any interested person may apply to a court having jurisdiction in the place where the offeree corporation has its registered office for an order exempting a take-over bid from any of the provisions of this Part, and the court may, if it is satisfied that an exemption would not unfairly prejudice a shareholder of the offeree corporation, make an exemption order on such terms as it thinks fit, which order may have retrospective effect.

(2) An applicant under subsection (1) shall give the Director notice of the hearing of an application under that subsection, and the Director is entitled to appear and be heard in person or by counsel.

(3) The Director shall set out in the periodical referred to in section 129 the particulars of exemptions granted under this section.

205. (1) An offeror who, without reasonable cause, fails to comply with this Part or the regulations is guilty of an offence and liable on summary conviction to a fine not exceeding five thousand dollars or to imprisonment for a term not exceeding six months or to both.

(2) Where an offeror who is a body corporate commits an offence under subsection (1), any director or officer of the body corporate who knowingly authorized, permitted or acquiesced in the commission of the offence is a party to and guilty of the offence and is liable on summary conviction to a fine not exceeding five thousand dollars or to imprisonment for a term not exceeding six months or to both, whether or not the body corporate has been prosecuted or convicted.

(3) Where in connection with a take-over bid a person does not comply with this Act or the regulations, the Director or any interested person may apply to a court and on such application the court may make any order it thinks fit, including, without limiting the generality of the foregoing,

(a) an order restraining the distribution of a take-over bid circular, a directors' circular or other document used in connection with the take-over bid;

(b) an order, if the take-over bid is to continue, requiring correction of the take-over bid circular, directors' circular or other document and distribution of the corrected document to each offeree;

(d) an order requiring any person to comply with this Act or the regulations;

(e) an order compensating an aggrieved person;

(f) an order rescinding a transaction;

(g) an order requiring an offeror to dispose of shares acquired pursuant to the take-over bid; and

(h) an order prohibiting an offeror from voting shares acquired pursuant to a take-over bid.

(4) For the purposes of subsection (3), "interested person" includes

(a) an offeree whether or not he deposits shares pursuant to a take-over bid;

(b) an offeree corporation;

(d) a rival offeror.

Proposed Wording
N/A

The provisions with respect to take-over bids would be repealed and the definitions amended to reflect this.

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

Bill Clause No. 98 & 99
CBCA Section No. 206(1)
Topic Compulsory and Compelled Acquisitions

Sources of Proposed Law

Changes From Present Law
Keeps and redefines appropriate definitions in s. 194 and subs. 206(1) as follows:

Adds a new heading before s. 206.

(B) redefines take-over bids in s. 206 to include any offer to acquire all the shares of any class of shares;

(B) redefines the term "share" to include voting and non-voting shares; and

(C) moves the following definitions now found in s. 194: "offer", "offeree", "offeree corporation" and "offeror" into subs. 206(1).

Purpose of Change
If sections 194 to 205, which regulate take-over bids are repealed, several definitions in s. 194, which are necessary for the proper interpretation of s. 206, need to be transferred to s. 206(1). In addition, the definitions of share and take-over bid need to be modified to reflect that the CBCA no longer regulates take-over bids. Therefore, any bid for all the shares of a class, whether or not the shares are voting, could be followed up by a compulsory acquisition (where the bid is accepted by the holders of 90% or more of the relevant class of shares, excluding shares held by the offeror or related party). These definitions are now found in the compulsory acquisition sections of other corporate laws.

The definition of "offeree corporation" would be amended to clarify that the compulsory acquisition provisions are only applicable to distributing corporations.

Similar Provincial Laws
Business Corporations Act (Saskatchewan)

Current Wording
194. In this Part,

…

"offer" includes an invitation to make an offer;

"offeree" means a person to whom a take-over bid is made;

"offeree corporation" means a corporation whose shares are the object of a take-over bid;

"offeror" means a person, other than an agent, who makes a take-over bid, and includes two or more persons who, directly or indirectly,

"share" means a share carrying voting rights under all circumstances or by reason of the occurrence of an event that has occurred and that is continuing, and includes

(a) a security currently convertible into such a share, and

(b) currently exercisable options and rights to acquire such a share or such a convertible security;

206. (1)"take-over bid" includes

(a) an offer to purchase shares of a class of shares to which no voting rights are attached if the offer complies with sections 195 to 203, and

(b) an offer to purchase shares, including shares to which no voting rights are attached, of a corporation having fewer than fifteen shareholders if the offer is made to all shareholders in the prescribed form and manner.

Proposed Wording
Part XVII

Compulsory and Compelled Acquisitions

206. (1) The definitions in this subsection apply in this Part.

"take-over bid" means an offer made by an offeror to shareholders of a distributing corporation at approximately the same time to acquire all of the shares of a class of issued shares, and includes an offer made by a distributing corporation to repurchase all of the shares of a class of its shares.

"offer" includes an invitation to make an offer.

"offeree" means a person to whom a take-over bid is made.

"offeree corporation" means a distributing corporation whose shares are the object of a take-over bid.

"offeror" means a person, other than an agent, who makes a take-over bid, and includes two or more persons who, directly or indirectly,

(a) make take-over bids jointly or in concert; or

(b) intend to exercise jointly or in concert voting rights attached to shares for which a take-over bid is made.

"share" means a share, with or without voting rights, and includes

(a) a security currently convertible into such a share; and

(b) currently exercisable options and rights to acquire such a share or such a convertible security.

Bill Clause No. 99(4)
CBCA Section No. 206(3)(a)
Topic Compulsory and Compelled Acquisitions

Sources of Proposed Law

Changes From Present Law
Replaces the word "more" with the words "not less" in par. 206(3)(a).

Purpose of Change
Subsection 206(2) indicates that a compulsory acquisition may occur where "not less than ninety percent of the shares of any class of shares to which the take-over bid relates, …" are tendered to the offer. Subsection 206(3) indicates that an offeror may send a notice to dissenting offerees and the (CBCA) Director advising, among other things, that ",… the offerees holding more than ninety percent of the shares, to which the bid relates, …" The language appears to be inconsistent as subsection (2) which refers to a threshold of 90% or more whereas subsection (3) refers to a threshold of more than 90%.

This clarification would amend what appears to be inadvertence in statutory drafting.

Moreover, s. 206(2) is the substantive subsection whereas subsection 206(3) is procedural. Deference should therefore be paid to subsection (2).

Similar Provincial Laws
N/A

Current Wording
206. (3) An offeror may acquire shares held by a dissenting offeree by sending by registered mail within sixty days after the date of termination of the take-over bid and in any event within one hundred and eighty days after the date of the take-over bid, an offeror's notice to each dissenting offeree and to the Director stating that

(a) the offerees holding more than ninety per cent of the shares to which the bid relates accepted the take-over bid;

Proposed Wording
206. (3)(a) the offerees holding not less than ninety per cent of the shares to which the bid relates accepted the take-over bid;

Bill Clause No. 99(5), (6) and (10)
CBCA Section No. 206(3)(d), (5), new (5.1), (6), (9), (13) and (14)(a)
Topic Compulsory and Compelled Acquisitions

Sources of Proposed Law

Changes From Present Law
(A) Amends s. 206(5) to provide that the dissenting offeree:

(1) is required to elect to transfer shares on terms of the take-over bid or to demand fair payment (repeating same language now found in s. 206(3)(c) concerning offeror's notice); and

(2) is deemed to have elected to transfer shares on the terms of the take-over bid if he/she does not give the required notice in s. 206(5) that he/she wishes to demand fair value (repeating same language now found in s. 206(3)(d) concerning offeror's notice).

(B) Amends s. 206(3)(d), 206(6), 206(9), and 206(14)(a) to reflect the revision of subsection 206(5). S. 206(13) of the French version is amended to effect a grammatical change.

Purpose of Change
(1) Currently, the obligation on the dissenting offeree to elect to transfer shares on terms of take-over bid or to demand fair payment is only inferred in the notice requirement set out in s. 206(3). Under that provision, the offeror is required to send to dissenting offerees a notice that they must make the election. However, there is no actual requirement for the dissenting offeree to make the election. S. 206(5) now requires the dissenting offeree to forward shares to the corporation and this seems like the logical place to add in the requirement to make the election.

This change would clarify the section.

(2) The section does not expressly set out the consequences for the dissenting offeree not having chosen between the take-over bid price and demanding fair value. Rather, the effect of paragraphs 206(3)c) and (d) is that if the dissenting offeree does not demand payment of the fair value, the dissenting offeree is deemed to have elected to transfer his shares at the take-over bid price. However, since subsection 206(3) deals only with the notice that must be given, it is not clear that dissenting offerees would be aware that this subsection has implications for their rights. By clearly outlining the effects for dissenting offerees of not making an election, this change clarifies this section.

(B) The revisions to s. 206(3)(d), 206(9) and 206(14)(a) are consequential amendments.

Similar Provincial Laws
N/A

Current Wording
206. (3)(c) a dissenting offeree is required to elect

(i) to transfer his shares to the offeror on the terms on which the offeror acquired the shares of the offerees who accepted the take-over bid, or

(ii) to demand payment of the fair value of his shares in accordance with subsections (9) to (18) by notifying the offeror within twenty days after he receives the offeror's notice;

(3)(d) a dissenting offeree who does not notify the offeror in accordance with subparagraph (c)(ii) is deemed to have elected to transfer his shares to the offeror on the same terms that the offeror acquired the shares from the offerees who accepted the take-over bid; and

(5) A dissenting offeree to whom an offeror's notice is sent under subsection (3) shall, within twenty days after he receives that notice, send his share certificates of the class of shares to which the take-over bid relates to the offeree corporation.

(6) Within twenty days after the offeror sends an offeror's notice under subsection (3), the offeror shall pay or transfer to the offeree corporation the amount of money or other consideration that the offeror would have had to pay or transfer to a dissenting offeree if the dissenting offeree had elected to accept the take-over bid under subparagraph (3)(c)(i).

(9) If a dissenting offeree has elected to demand payment of the fair value of his shares under subparagraph (3)(c)(ii), the offeror may, within twenty days after it has paid the money or transferred the other consideration under subsection (6), apply to a court to fix the fair value of the shares of that dissenting offeree.

(13) Dans le cadre d'une demande visée aux paragraphes (9) ou (10), les pollicités dissidents ne sont pas tenus de fournir caution pour les frais.

(14) On an application under subsection (9) or (10)

(a) all dissenting offerees referred to in subparagraph (3)(c)(ii) whose shares have not been acquired by the offeror shall be joined as parties and are bound by the decision of the court; and

(b) the offeror shall notify each affected dissenting offeree of the date, place and consequences of the application and of his right to appear and be heard in person or by counsel.

Proposed Wording
206. (3) (d) a dissenting offeree who does not notify the offeror in accordance with subparagraph (5)(b)(ii) is deemed to have elected to transfer the shares to the offeror on the same terms that the offeror acquired the shares from the offerees who accepted the take-over bid; and

(5) A dissenting offeree to whom an offeror's notice is sent under subsection (3) shall, within twenty days after receiving the notice,

(a) send the share certificates of the class of shares to which the take-over bid relates to the offeree corporation; and

(b) elect

(i) to transfer the shares to the offeror on the terms on which the offeror acquired the shares of the offerees who accepted the take-over bid, or

(ii) to demand payment of the fair value of the shares in accordance with subsections (9) to (18) by notifying the offeror within those twenty days.

(5.1) A dissenting offeree who does not notify the offeror in accordance with subparagraph

(5)(b)(ii) is deemed to have elected to transfer the shares to the offeror on the same terms on which the offeror acquired the shares from the offerees who accepted the take-over bid.

(9) If a dissenting offeree has elected to demand payment of the fair value of the shares under subparagraph (5)(b)(ii), the offeror may, within twenty days after it has paid the money or transferred the other consideration under subsection (6), apply to a court to fix the fair value of the shares of that dissenting offeree.

(13) Dans le cadre d'une demande visée aux paragraphes (9) ou (10), les pollicités dissidents ne sont pas tenus de fournir de cautionnement pour les frais.

(14)(a) all dissenting offerees referred to in subparagraph (5)(b)(ii) whose shares have not been acquired by the offeror shall be joined as parties and are bound by the decision of the court; and

Bill Clause No. 99(7) and (11)
CBCA Section No. new 206(7.1) and 206(18)(a)
Topic Compulsory and Compelled Acquisitions

Sources of Proposed Law

Changes From Present Law
(A) Amend s. 206 by adding a new provision dealing with issuer bids and payments in trust. In particular, require a corporation that offers to repurchase its own shares to hold the payment owing to dissenting offerees in trust, and to deposit the money in a separate account in a bank, within twenty days after a notice is sent under subs. 206(3).

(B) Amends s. 206(18)(a) to reflect the addition of subs. 7.1.

Purpose of Change
While the definition of "take over bid" in s. 194 expressly includes an issuer bid, it is not clear that the rules in s. 206(7) concerning holding money in trust and paying it into a separate bank account also apply to the case where the offeror is the offeree corporation (the intention of s. 206 is to apply to both situations).

As a matter of fairness and protection for dissenting shareholders, a corporation making an issuer bid should not be entitled to cancel shares under s. 206(8) until the consideration has been put aside and protected.

This change would clarify the section and ensure that dissenting shareholders are protected. It would also further harmonize the CBCA with the Ontario Business Corporations Act.

Similar Provincial Laws
Business Corporations Act (Ontario)

Current Wording
206. (18) In connection with proceedings under this section, a court may make any order it thinks fit and, without limiting the generality of the foregoing, it may

(a) fix the amount of money or other consideration that is required to be held in trust under subsection (7);

Proposed Wording
206. (7.1) A corporation that is an offeror making a take-over bid to repurchase all of the shares of a class of its shares is deemed to hold in trust for the dissenting shareholders the money and other consideration that it would have had to pay or transfer to a dissenting offeree if the dissenting offeree had elected to accept the take-over bid under subparagraph (5)(b)(i), and the corporation shall, within twenty days after a notice is sent under subsection (3), deposit the money in a separate account in a bank or other body corporate any of whose deposits are insured by the Canada Deposit Insurance Corporation or guaranteed by the Quebec Deposit Insurance Board, and shall place the other consideration in the custody of a bank or such other body corporate.

(18)(a) fix the amount of money or other consideration that is required to be held in trust under subsection (7) or (7.1);

Bill Clause No. 99(8)
CBCA Section No. 206(8)
Topic Compulsory and Compelled Acquisitions

Sources of Proposed Law

Changes From Present Law
Amends s. 206(8) to make the issuance of a share certificate by the offeree corporation expressly conditional on the offeror complying with the payment obligation set out in s. 206(6).

Purpose of Change
This change would clarify that a share certificate cannot be issued until payment has been made in accordance with s. 206(6).

Similar Provincial Laws
N/A

Current Wording
206. (8) Within thirty days after the offeror sends an offeror's notice under subsection (3), the offeree corporation shall

(a) issue to the offeror a share certificate in respect of the shares that were held by dissenting offerees;

(b) give to each dissenting offeree who elects to accept the take-over bid terms under subparagraph (3)(c)(i) and who sends his share certificates as required under subsection (5) the money or other consideration to which he is entitled, disregarding fractional shares, which may be paid for in money; and

(c) send to each dissenting shareholder who has not sent his share certificates as required under subsection (5) a notice stating that

(i) his shares have been cancelled,

(ii) the offeree corporation or some designated person holds in trust for him the money or other consideration to which he is entitled as payment for or in exchange for his shares, and

(iii) the offeree corporation will, subject to subsections (9) to (18), send that money or other consideration to him forthwith after receiving his shares.

Proposed Wording
206. (8) Within thirty days after the offeror sends a notice under subsection (3), the offeree corporation shall

(a) if the payment or transfer required by subsection (6) is made, issue to the offeror a share certificate in respect of the shares that were held by dissenting offerees;

(b) give to each dissenting offeree who elects to accept the take-over bid terms under subparagraph (5)(b)(i) and who sends share certificates as required by paragraph (5)(a) the money or other consideration to which the offeree is entitled, disregarding fractional shares, which may be paid for in money; and(c) if the payment or transfer required by subsection (6) is made and the money or other consideration is deposited as required by subsection (7) or (7.1), send to each dissenting shareholder who has not sent share certificates as required by paragraph (5)(a) a notice stating that

(i) the dissenting shareholder's shares have been cancelled,

(ii) the offeree corporation or some designated person holds in trust for the dissenting shareholder the money or other consideration to which that shareholder is entitled as payment for or in exchange for the shares, and

(iii) the offeree corporation will, subject to subsections (9) to (18), send that money or other consideration to that shareholder without delay after

Bill Clause No. 100
CBCA Section No. new 206.1
Topic Compulsory and Compelled Acquisitions

Sources of Proposed Law

Changes From Present Law
Provides for a limited compelled acquisition right applicable to shareholders of distributing corporations, giving such shareholders the right to compel the acquisition of their shares from the offeror, where a take-over bid has been accepted by 90% of shares or shares of a class, other than those held by the offeror, on the same terms under which the offeror acquired the shares of those who accepted the take-over bid.

Purpose of Change
The purpose of this change is to balance the rights of minority shareholders with the rights of the offeror. It is also structured to place the financial costs of a takeover bid on the offeror rather than the corporation.

By setting the exit price at the take-over bid price accepted by 90% of shares held by third parties, the exit mechanism is both fair for a shareholder that wants out of the corporation (and provides equal treatment) and the offeror who may have to pay that amount to a large number of shareholders.

This provision was amended at the Senate Committee stage to clarify the time period within which shareholders, who wish to exercise their right to compel the acquisition of their shares by the offeror following a take-over bid, must require the offeror to acquire those shares.

Similar Provincial Laws
Business Corporations Act (Ontario)

Current Wording
N/A

Proposed Wording
206.1 (1) If a shareholder holding shares of a distributing corporation does not receive an offeror's notice under subsection 206(3), the shareholder may

(a) within ninety days after the date of termination of the take-over bid, or

(b) if the shareholder did not receive an offer pursuant to the take-over bid, within ninety days after the later of

(i) the date of termination of the take-over bid, and

(ii) the date on which the shareholder learned of the take-over bid,

require the offeror to acquire those shares.

(2) If a shareholder requires the offeror to acquire shares under subsection (1), the offeror shall acquire the shares on the same terms under which the offeror acquired or will acquire the shares of the offerees who accepted the take-over bid.

This Part includes a number of amendments designed to update and improve the efficient administration of the CBCA. In that regard, the revival procedure is being modified to clarify that a revival of a corporation is retroactive. Further, the Director would have the ability to attach conditions to a revival (s. 209). The dissolution powers of the Director would be expanded to provide the Director with the power to immediately dissolve a corporation which fails to pay the incorporation fee without having to wait one year to do so (s. 212(3.1)). In addition, the Director would be able to dissolve insolvent corporations (s. 208(1).

The good faith reliance defence available to liquidators would be replaced by a due diligence defence whereby a liquidator is not liable if that liquidator exercises the same degree of care, diligence and skill that a reasonably prudent person would have exercised in comparable circumstances (s. 222(2)). This is comparable to the due diligence defence proposed in respect of directors (Part 10).

A number of consequential amendments required as a result of amendments to other parts of the Act are also included in this Part. In addition, several minor technical amendments and amendments to the French version are made.

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

Bill Clause No. 101
CBCA Section No. 208
Topic Liquidation and Dissolution (Technical Amendments)

Sources of Proposed Law

Changes From Present Law
Sections 209 and 212 would be applicable to an insolvent corporation.

Purpose of Change
By making ss. 209 and 212 applicable to insolvent corporations, the proposed amendment would permit the Director to dissolve insolvent corporations. In most cases, these corporations are either insolvent with no assets (proceeding under the Bankruptcy and Insolvency Act (BIA) has been completed, leaving a "shell corporation") or insolvent without sufficient assets to warrant a BIA proceeding. If the Director dissolves an insolvent corporation where the trustee in bankruptcy has not yet been discharged, it would be possible for the trustee to apply to the Director to have the corporation revived (see new definition of "interested person" in s. 209(6)(e)).

Similar Provincial Laws

Current Wording
208. (1) This Part does not apply to a corporation that is insolvent within the meaning of the Bankruptcy and Insolvency Act or that is a bankrupt within the meaning of that Act.

(2) Any proceedings taken under this Part to dissolve or to liquidate and dissolve a corporation shall be stayed if the corporation is at any time found, in a proceeding under the Bankruptcy and Insolvency Act, to be insolvent within the meaning of that Act.

Proposed Wording
208. (1) This Part, other than sections 209 and 212, does not apply to a corporation that is an insolvent person or a bankrupt as those terms are defined in subsection 2(1) of the Bankruptcy and Insolvency Act.

(2) Any proceedings taken under this Part to dissolve or to liquidate and dissolve a corporation shall be stayed if the corporation is at any time found, in a proceeding under the Bankruptcy and Insolvency Act, to be an insolvent person as defined in subsection 2(1) of that Act.

Bill Clause No. 102
CBCA Section No. 209 (2), (3), new (3.1), (4), new (5) and new (6)
Topic Liquidation and Dissolution (Government Administration)

Sources of Proposed Law

Changes From Present Law
Clarification of the revival provisions in the Act.

Purpose of Change
The amendment to subs. (3) would clarify that the Director has the discretion to decide whether to issue a certificate of revival. Currently, the CBCA is not clear. There is a right to appeal from the Director's decision which suggests that there is a discretion. The real purpose of the discretion is to impose terms and conditions of revival. The discretion gives leverage to oppose a revival but also allows the Director to assist in the revival and to consider terms which may protect shareholders.

Proposed subs. (3.1) would clarify the date upon which the corporation is revived.

The proposed amendment to subs. (4) would clarify the current wording in the CBCA which is ambiguous as to whether a revival is intended to have retroactive effect. The amendment makes a revival retroactive by expressly providing that the corporation can benefit from and is bound and liable for all acts of the corporation taken while the corporation was dissolved and by validating any changes to the internal affairs of the corporation. It would make the revived corporation liable for the contracts and torts/faults occurring between dissolution and revival, something which is not explicit in the current provision. Par. (4)(a) and (b) clarifies that the rights, liabilities, privileges and obligations, arising before and after the dissolution, are restored to the revived corporation.

An amendment was introduced at the Senate Committee stage removing the reference to "property" from par. 4(a) in response to the submission of the Barreau du Québec that such reference together with the reference to "rights and privileges" in the same provision, creates an inference with respect to the amalgamation and continuance sections (ss. 186 and 187) that the word "property" referred to there does not include rights and privileges.

Proposed subs. (5) would clarify that legal actions respecting the affairs of a revived corporation taken between the time of dissolution and its revival are valid and effective.

Subs. (1) authorizes "any interested person" to apply to the CBCA Director for revival of a CBCA corporation which has been dissolved. The expression "interested person" is not defined, leaving it to the courts to develop the law. The proposed definition of "interested person" would add certainty to the law. An amendment was introduced at the Senate Committee stage at the request of the Barreau du Québec clarifying this definition.

Similar Provincial Laws
Business Corporations Act (Ontario)
Corporations Act (British Columbia)
Corporations Act (Northwest Territories)
Business Corporations Act (Alberta)

Current Wording
209. (2) Articles of revival in prescribed form shall be sent to the Director.

(3) On receipt of articles of revival, the Director shall issue a certificate of revival in accordance with section 262.

(4) A body corporate is revived as a corporation under this Act on the date shown on the certificate of revival, and thereafter the corporation, subject to such reasonable terms as may be imposed by the Director and to the rights acquired by any person after its dissolution, has all the rights and privileges and is liable for the obligations that it would have had if it had not been dissolved.

Proposed Wording
209. (2) Articles of revival in the form that the Director fixes shall be sent to the Director.

(3) On receipt of articles of revival, the Director shall issue a certificate of revival in accordance with section 262, if

(a) the body corporate has fulfilled all conditions precedent that the Director considers reasonable; and

(b) there is no valid reason for refusing to issue the certificate.

(3.1) A body corporate is revived as a corporation under this Act on the date shown on the certificate of revival.

(4) Subject to any reasonable terms that may be imposed by the Director, to the rights acquired by any person after its dissolution and to any changes to the internal affairs of the corporation after its dissolution, the revived corporation is, in the same manner and to the same extent as if it had not been dissolved,

(a) restored to its previous position in law, including the restoration of any rights and privileges whether arising before its dissolution or after its dissolution and before its revival; and

(b) liable for the obligations that it would have had if it had not been dissolved whether they arise before its dissolution or after its dissolution and before its revival.

(5) Any legal action respecting the affairs of a revived corporation taken between the time of its dissolution and its revival is valid and effective.

(6) In this section, "interested person" includes

(a) a shareholder, a director, an officer, an employee and a creditor of the dissolved corporation;

(b) a person who has a contractual relationship with the dissolved corporation;

(c) a person who, although at the time of dissolution of the corporation was not a person described in paragraph (a), would be such a person if a certificate of revival is issued under this section; and

(d) a trustee in bankruptcy for the dissolved corporation.

Bill Clause No. 103
CBCA Section No. 210(3)(b) and (4)
Topic Liquidation and Dissolution (Technical Amendments)

Sources of Proposed Law

Changes From Present Law
Replace in the French version par. 210(3)(b) the word "ou" with "et".

The Director would be allowed to set the form of the articles of dissolution.

Purpose of Change
This technical change makes the French and English version equivalent.

See explanation clause 3.

Similar Provincial Laws

Current Wording
210. (3) La société, qui a des biens ou des dettes ou les deux à la fois, peut être dissoute par résolution spéciale soit des actionnaires soit, en présence de plusieurs catégories d'actions, des détenteurs d'actions de chaque catégorie assorties ou non du droit de vote, pourvu que :

b) d'autre part, la société ait effectué une répartition de biens ou un règlement de dettes avant d'envoyer les clauses de dissolution au directeur conformément au paragraphe (4).

(4) Articles of dissolution in prescribed form shall be sent to the Director.

Proposed Wording
210. (3)b) d'autre part, la société ait effectué une répartition de biens et un règlement de dettes avant d'envoyer les clauses de dissolution au directeur conformément au paragraphe (4).

(4) Articles of dissolution in the form that the Director fixes shall be sent to the Director.

Bill Clause No.104
CBCA Section No. 211(7)(b), (10) and (14)
Topic Liquidation and Dissolution (Government Administration)

Sources of Proposed Law

Changes From Present Law
The requirement found in par. 211(7)(b) that a corporation shall publish notice of its intention to liquidate or dissolve in a local newspaper, would be removed.

Subsections 211(10) and (14) are amended by replacing the word "prescribed" by the words "that the Director fixes".

Purpose of Change
A corporation would still be required to give notice in each province in Canada where it is carrying on business. However, the removal of this requirement would increase the flexibility afforded to corporations by allowing them to use the most appropriate means of conveying notice to the public. As well, it removes the necessity of giving notice in the province where the corporation has its head office if the corporation did not carry on business in that province.

Subsections (10) and (14): See explanation at clause 3.

Similar Provincial Laws

Current Wording
211. (7) After issue of a certificate of intent to dissolve, the corporation shall

…

(b) forthwith publish notice thereof once a week for four consecutive weeks in a newspaper published or distributed in the place where the corporation has its registered office and take reasonable steps to give notice thereof in each province in Canada where the corporation was carrying on business at the time it sent the statement of intent to dissolve to the Director;

(10) At any time after issue of a certificate of intent to dissolve and before issue of a certificate of dissolution, a certificate of intent to dissolve may be revoked by sending to the Director a statement of revocation of intent to dissolve in the prescribed form, if such revocation is approved in the same manner as the resolution under subsection (3).

(14) Articles of dissolution in the prescribed form shall be sent to the Director.

Proposed Wording
211. (7)(b) without delay take reasonable steps to give notice of it in each province in Canada where the corporation was carrying on business at the time it sent the statement of intent to dissolve to the Director;

(10) At any time after issue of a certificate of intent to dissolve and before issue of a certificate of dissolution, a certificate of intent to dissolve may be revoked by sending to the Director a statement of revocation of intent to dissolve in the form that the Director fixes, if such revocation is approved in the same manner as the resolution under subsection (3).

(14) Articles of dissolution in the form that the Director fixes shall be sent to the Director.

Bill Clause No. 105
CBCA Section No. new 212(1)(iv), (2)(b), (3) and new (3.1)
Topic Liquidation and Dissolution (Government Administration)

Sources of Proposed Law

Changes From Present Law
(A) The Director may dissolve a corporation that does not have any directors or is in the situation described in proposed subs.109(4).

(B) The reference to publish the required notice in the Canada Gazette would be eliminated.

Purpose of Change
Subsection 212(1)(iv): This new provision would provide an administrative means of quickly dissolving directorless corporations. Currently, under the CBCA, the earliest that the Director can start dissolution proceedings against a corporation is one year after the corporation is in default of paying a required fee. This amendment is linked with the new provision (s. 109(3), (4)) regarding directorless corporations (see clause 40).

Paragraph 212(2)(b): See explanation in clause 6.

Subsection (3): See explanation in clause 3.

Subsection 212(3.1): This provision would permit the Director to dissolve a corporation that fails to pay its incorporation fees without having to wait one year. Currently, under the CBCA, the Director can only start dissolution proceedings against that corporation when the corporation has been in default of paying a required fee for a period of one year.

Similar Provincial Laws

Current Wording
212. (1) Subject to subsections (2) and (3), where a corporation

(a) has not commenced business within three years after the date shown in its certificate of incorporation,

(b) has not carried on its business for three consecutive years, or

the Director may dissolve the corporation by issuing a certificate of dissolution under this section or he may apply to a court for an order dissolving the corporation, in which case section 217 applies.

(2)(b) published notice of that decision in the Canada Gazette and in the periodical referred to in section 129.

(3) Unless cause to the contrary has been shown or an order has been made by a court under section 246, the Director may, after the expiration of the period referred to in subsection (2), issue a certificate of dissolution in prescribed form.

Proposed Wording
212. (1) Subject to subsections (2) and (3), the Director may

(a) dissolve a corporation by issuing a certificate of dissolution under this section if the corporation

(i) has not commenced business within three years after the date shown in its certificate of incorporation,

(ii) has not carried on its business for three consecutive years,

(iii) is in default for a period of one year in sending to the Director any fee, notice or document required by this Act, or

(iv) does not have any directors or is in the situation described in subsection 109(4); or

(b) apply to a court for an order dissolving the corporation, in which case section 217 applies.

(2)(b) published notice of that decision in a publication generally available to the public.

(3.1) Despite anything in this section, the Director may dissolve a corporation by issuing a certificate of dissolution if the required fee for the issuance of a certificate of incorporation has not been paid.

Bill Clause No. 106
CBCA Section No. 213(4)
Topic Liquidation and Dissolution (Government Administration)

Sources of Proposed Law

Changes From Present Law
(A) Eliminate the reference to publish the required notice in the Canada Gazette.

(B) The contents of the form would be fixed by the Director

Purpose of Change
See explanation: clauses 6 and 3.

Similar Provincial Laws

Current Wording
213. (4) On receipt of an order under this section, section 212 or 214, the Director shall

(a) if the order is to dissolve the corporation, issue a certificate of dissolution in prescribed form; or

(b) if the order is to liquidate and dissolve the corporation under the supervision of the court, issue a certificate of intent to dissolve in prescribed form and publish notice of such order in the Canada Gazette and in the periodical referred to in section 129.

Proposed Wording
213. (4) On receipt of an order under this section, section 212 or 214, the Director shall

(a) if the order is to dissolve the corporation, issue a certificate of dissolution in the form that the Director fixes; or

(b) if the order is to liquidate and dissolve the corporation under the supervision of the court, issue a certificate of intent to dissolve in the form that the Director fixes and publish notice of the order in a publication generally available to the public.

Bill Clause No. 107 CBCA Section No. 214(1)(a) and (1)(a)(ii)
Topic Liquidation and Dissolution (Technical Amendments)

Sources of Proposed Law

Changes From Present Law
(A) The concept of "unfairly" found in the English version would be included in the French version.

(B) Amend the French version of subs. 214(1)(ii) by replacing the words "ses affaires tant commerciales qu'internes" with "ses activités commerciales ou ses affaires internes,".

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

Similar Provincial Laws

Current Wording
214. (1)a) il constate qu'elle abuse des droits des détenteurs de valeurs mobilières, créanciers, administrateurs ou dirigeants, qu'elle porte atteinte à leurs intérêts ou n'en tient pas compte :

214. (1)(a)(ii) soit par la façon don't elle conduit ou a conduit ses affaires tant commerciales qu'internes,

Proposed Wording
214. (1)a) il constate qu'elle abuse des droits de tout détenteur de valeurs mobilières, créancier, administrateur ou dirigeant, ou se montre injuste à leur égard en leur portant préjudice ou en ne tenant pas compte de leurs intérêts :

214. (1)(a) (ii) soit par la façon dont elle conduit ou a conduit ses activités commerciales ou ses affaires internes,

Bill Clause No. 108
CBCA Section No. 217(b)
Topic Liquidation and Dissolution (Technical Amendments)

Sources of Proposed Law

Changes From Present Law
Replace in the French version of s. 217(b) the word "caution" with the word "cautionnement" where the provision incorrectly uses this term in relation to the security mechanism (as opposed to the person who provides the security, which is the correct use of the word "caution"). Also, the English version is amended to be gender-neutral.

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

Similar Provincial Laws

Current Wording
217. À l'occasion de la dissolution ou de la liquidation et de la dissolution, le tribunal peut, s'il constate la capacité de la société de payer ou de constituer une provision pour honorer ses obligations, rendre les ordonnances qu'il estime pertinentes et en vue, notamment :

…

b) de nommer un liquidateur, avec ou sans caution, de fixer sa rémunération et de le remplacer;

(b) an order appointing a liquidator, with or without security, fixing his remuneration and replacing a liquidator;

Proposed Wording
217. b) de nommer un liquidateur, avec ou sans cautionnement, de fixer sa rémunération et de le remplacer;

(b) an order appointing a liquidator, with or without security, fixing the liquidator's remuneration and replacing a liquidator;

Bill Clause No. 109
CBCA Section No. 221(b)
Topic Liquidation and Dissolution (Government Administration)

Sources of Proposed Law

Changes From Present Law
The reference to publish the required notice in the Canada Gazette in the portion of the section immediately before subparagraph (i) would be eliminated.

Purpose of Change
See explanation: clause 6

Similar Provincial Laws

Current Wording
221. A liquidator shall

…

(b) forthwith publish notice in the Canada Gazette and in the periodical referred to in section 129 and by insertion once a week for two consecutive weeks in a newspaper published or distributed in the place where the corporation has its registered office and take reasonable steps to give notice thereof in each province where the corporation carries on business, requiring any person

Proposed Wording
221. (b) without delay publish notice by insertion once a week for two consecutive weeks in a newspaper published or distributed in the place where the corporation has its registered office and take reasonable steps to give notice of the appointment in each province where the corporation carries on business, requiring any person

Bill Clause No. 110
CBCA Section No. 222(2)
Topic Liquidation and Dissolution (Directors' Liability)

Sources of Proposed Law

Changes From Present Law
A due diligence defence is provided for liquidators.

Purpose of Change
This amendment would allow liquidators to rely on the same due diligence defence as directors. It will ensure that defences are consistent throughout the act.

Similar Provincial Laws

Current Wording
222. (2) A liquidator is not liable if he relies in good faith on

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

(b) an opinion, a report or a statement of a lawyer, an accountant, an engineer, an appraiser or other professional adviser retained by the liquidator.

Proposed Wording
222. (2) A liquidator is not liable if the liquidator 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 corporation represented to the liquidator by an officer of the corporation or in a written report of the auditor of the corporation fairly to reflect the financial condition of the corporation; or

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

Bill Clause No. 111
CBCA Section No. 223(4)
Topic Liquidation and Dissolution (Government Administration)

Sources of Proposed Law

Changes From Present Law
Clarification of the application of the section.

Purpose of Change
The purpose of this amendment is to help clarify the Act and its application.

Similar Provincial Laws

Current Wording
223. (4) A liquidator shall give notice of his intention to make an application under subsection (2) to the Director, each inspector appointed under section 217, each shareholder and any person who provided a security or fidelity bond for the liquidation, and he shall publish the notice in a newspaper published or distributed in the place where the corporation has its registered office or as otherwise directed by the court.

Proposed Wording
223. (4) A liquidator shall give notice of their intention to make an application under subsection (2) to the Director, to each inspector appointed under section 217, to each shareholder and to any person who provided a security or fidelity bond for the liquidation, and shall publish the notice in a newspaper published or distributed in the place where the corporation has its registered office, or as otherwise directed by the court.

Bill Clause No.112
CBCA Section No. 226(1)
Topic Liquidation and Dissolution (Technical Amendments)

Sources of Proposed Law

Changes From Present Law
Replace the term "legal representative" with the term "personal representative".

Purpose of Change
The purpose of this change is to harmonize the CBCA with other federal statutes, to clarify the language of the Act and to reduce ambiguity.

Similar Provincial Laws
Bank Act

Current Wording
226. (1) In this section, "shareholder" includes the heirs and legal representatives of a shareholder.

Proposed Wording
226. (1) In this section, "shareholder" includes the heirs and personal representatives of a shareholder.

This part includes a number of amendments to the French version of the Act to clarify the wording and to reconcile it with the English version. Consequential amendments required as a result of changes to other parts of the statute are also included.

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

Bill Clause No. 113
CBCA Section No. 229(1)(2) and (4)
Topic Investigation (Technical Amendments)

Sources of Proposed Law

Changes From Present Law
The expression "personne morale du même groupe" is replaced with the more accurate term "société du même groupe".

The words "affaires tant commerciales qu'internes" is replaced with "activités commerciales ou ses affaires internes", and "porte atteinte à leurs intérêts ou n'en tient pas compte" with "ou se montre injuste à leur égard en leur portant préjudice ou en ne tenant".

Replace in the French version of s. 229(4) the word "caution" with the word "de cautionnement".

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

The provision incorrectly uses "cautionnement" in relation to the security mechanism as opposed to the person who provides the security, which is the correct use of the word "caution".

Similar Provincial Laws

Current Wording
229. (1) Tout détenteur de valeurs mobilières ou le directeur peut demander au tribunal du ressort du siège social de la société, ex parte ou après avoir donné l'avis que celui-ci peut exiger, d'ordonner la tenue d'une enquête sur la société et sur toute personne morale du même groupe.

(2) Le tribunal peut ordonner la tenue de l'enquête demandée conformément au paragraphe (1), s'il lui paraît établi, selon le cas :

a) que la société ou des personnes morales de son groupe exercent ou ont exercé leurs activités commerciales avec une intention de fraude ;

b) que la société ou toute autre personne morale de son groupe, soit par la façon don't elle conduit ou a conduit ses affaires tant commerciales qu'internes, soit par la façon don't ses administrateurs exercent ou ont exercé leurs pouvoirs, abuse des droits des détenteurs de valeurs mobilières, porte atteinte à leurs intérêts ou n'en tient pas compte ;

c) que la constitution ou la dissolution soit de la société soit des personnes morales de son groupe répond à un but frauduleux ou illégal ;

d) que des personnes ont commis des actes frauduleux ou malhonnêtes en participant à la constitution soit de la société soit de personnes morales du même groupe, ou dans la conduite de leurs affaires tant internes que commerciales.

(4) La personne qui intente une action en vertu du présent article n'est pas tenue de fournir caution pour les frais.

Proposed Wording
229. (1) Tout détenteur de valeurs mobilières ou le directeur peut demander au tribunal du ressort du siège social de la société, ex parte ou après avoir donné l'avis que celui-ci peut exiger, d'ordonner la tenue d'une enquête sur la société et sur toute société du même groupe.

(2) Le tribunal peut ordonner la tenue de l'enquête demandée conformément au paragraphe (1), s'il lui paraît établi, selon le cas :

a) que la société ou des sociétés de son groupe exercent ou ont exercé leurs activités commerciales avec une intention de fraude;

b) que la société ou toute autre société de son groupe, soit par la façon dont elle conduit ou a conduit ses activités commerciales ou ses affaires internes, soit par la façon dont ses administrateurs exercent ou ont exercé leurs pouvoirs, abuse des droits des détenteurs de valeurs mobilières ou se montre injuste à leur égard en leur portant préjudice ou en ne tenant pas compte de leurs intérêts;

c) que la constitution ou la dissolution soit de la société soit des sociétés de son groupe répond à un but frauduleux ou illégal;

d) que des personnes ont commis des actes frauduleux ou malhonnêtes en participant à la constitution soit de la société soit de sociétés du même groupe, ou dans la conduite de leurs activités commerciales ou de leurs affaires internes.

(4) La personne qui intente une action en vertu du présent article n'est pas tenue de fournir de cautionnement pour les frais.

Bill Clause No. 114 CBCA Section No. 235(1) and (3) Topic Investigation (Technical Amendments)

Sources of Proposed Law

Changes From Present Law
(A) Amend the French version of subsection (1) to replace the words "personnes morales" with the more accurate term "sociétés".

(B) Replace the word "periodical" in subsection (3) with the words "publication generally available to the public".

Purpose of Change
(A) Subsection 235(1): This change will clarify the wording and interpretation of the French version of the section.

(B) Subsection (3): This technical amendment will clarify the language and application of the Act.

Similar Provincial Laws

Current Wording
235. (1) S'il est convaincu, pour l'application des parties XI, XIII ou XVII ou de tout règlement d'application de l'article 174, de la nécessité d'enquêter sur la propriété ou le contrÔle de valeurs mobilières d'une société ou de personnes morales de son groupe, le directeur peut demander à toute personne dont il a de bonnes raisons de croire qu'elle détient ou a détenu un droit sur ces valeurs, ou agit ou a agi pour le compte de telle personne de lui fournir, ou à la personne qu'il désigne :

235. (3) The Director shall publish in the periodical referred to in section 129 the particulars of information obtained by him under this section, if the particulars

Proposed Wording
235. (1) S'il est convaincu, pour l'application des parties XI, XIII ou XVII ou de tout règlement d'application de l'article 174, de la nécessité d'enquêter sur la propriété ou le contrÔle de valeurs mobilières d'une société ou de sociétés de son groupe, le directeur peut demander à toute personne dont il a de bonnes raisons de croire qu'elle détient ou a détenu un droit sur ces valeurs, ou agit ou a agi pour le compte de telle personne de lui fournir, ou à la personne qu'il désigne :

235. (3) The Director shall publish in a publication generally available to the public the particulars of information obtained by the Director under this section, if the particulars

These amendments would provide that every defendant and third party found responsible for a financial loss arising out of an error, omission or misstatement in financial information that is required under the Act or the regulations would be liable to the plaintiff only for the portion of the damages corresponding to the defendant's and third party's degree of responsibility. Allocation of responsibility among the parties is provided for in the event one or more defendants/third parties are insolvent or unavailable. The joint and several liability regime would continue to apply to the Crown, charitable organizations, unsecured trade creditors and individual plaintiffs whose investment in the corporation is worth less than a prescribed amount.

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

Bill Clause No. 115
CBCA Section No. 237.1 Definitions
Topic: Apportioning Award of Damages

Sources of Proposed Law
Reports of the Standing Senate Committee on Banking, Trade and Commerce on Modified Proportionate Liability, dated March and September 1998

Changes From Present Law
New regime

Purpose of Change
The definition of "financial interest" in a corporation would include a "security" as defined in s. 2 of the CBCA in addition to other instruments traditionally regarded as financial interests. The definition is not exclusive.

Definition of "financial loss" - The modified liability regime is applicable only to claims for economic (i.e., financial) loss arising out of an error, omission or misstatement in respect of financial information that is required under the Act or the Regulations. Neither personal injury claims nor claims involving professionals and other professional services will be affected.

Definition of "third party" - The definition is necessary in the English version in order to clarify that the modified proportionate liability regime applies even if there is only one defendant, provided that other parties are subsequently joined to the action. The regime should be applicable to defendants and any subsequent party that is joined in proceedings before a court. It is not necessary to include a comparable definition of the term "mise en cause" in the French version because the term "mise en cause" is broad enough to cover defendants and third parties.

Similar Provincial Laws
Securities Act (Ontario)

Current Wording
N/A

Proposed Wording
237.1 The definitions in this section apply in this Part:

"financial interest", with respect to a corporation, includes

( a ) a security;

( b ) a title to or an interest in capital, assets, property, profits, earnings or royalties;

( c ) an option or other interest in, or a subscription to, a security;

( d ) an agreement under which the interest of the purchaser is valued for purposes of conversion or surrender by reference to the value of a proportionate interest in a specified portfolio of assets;

( e ) an agreement providing that money received will be repaid or treated as a subscription for shares, units or interests at the option of any person or the corporation;

( f ) a profit-sharing agreement or certificate;

( g ) a lease, claim or royalty in oil, natural gas or mining, or an interest in the lease, claim or royalty;

( h ) an income or annuity contract that is not issued by an insurance company governed by an Act of Parliament or a law of a province;

( I ) an investment contract; and

( j ) anything that is prescribed to be a financial interest.

"financial loss" means a financial loss arising out of an error, omission or misstatement in financial information concerning a corporation that is required under this Act or the regulations.

"third party" includes any subsequent party that is joined in proceedings before a court.

Bill Clause No. 115
CBCA Section No. 237.2(1)
Topic: Apportioning Award of Damages

Sources of Proposed Law
Reports of Standing Senate Committee on Banking, Trade and Commerce on Modified Proportionate Liability, dated March and September 1998

Changes From Present Law
To provide for a regime of modified proportionate liability applicable to all claims for economic (financial) loss arising by reason of any error, omission or misstatement in financial information required under the CBCA. The regime applies after a court has found more than one defendant responsible for a financial loss (see s. 237.1 - definition of "financial loss").

Purpose of Change
Currently, each defendant is jointly and severally liable for damages arising from any error, omission or misstatement in financial information issued by a CBCA corporation. Pursuant to the proposed amendments, each defendant and third party would be liable only for the portion of a plaintiff's loss that corresponds to the degree of responsibility of that defendant and/or third party, subject to certain exceptions (see ss. 237.4 and 237.5). For example, if a defendant and/or third party is 10 percent liable for a loss of $100,000, they would be liable for $10,000. The court would establish the amount of the loss and the degree of responsibility.

Similar Provincial Laws
none

Current Wording
N/A

Proposed Wording
237.2 (1) This Part applies to the apportionment of damages awarded to a plaintiff for financial loss after a court has found more than one defendant or third party responsible for the financial loss.

Bill Clause No. 115
CBCA Section No. 237.2(2)
Topic: Apportioning Award of Damages

Sources of Proposed Law
Reports of Standing Senate Committee on Banking, Trade and Commerce on Modified Proportionate Liability, dated March and September, 1998

Changes From Present Law
New regime

Purpose of Change
To ensure that certain classes of claimants, namely, the government, charitable organizations and unsecured trade creditors are unaffected by the implementation of the proposed modified proportionate liability regime, with the result that such claimants would continue to be governed by the rules respecting joint and several liability.

The effect of the exclusion applicable to government is that joint and several liability will continue to apply to all claims brought by the government as plaintiff, except where the plaintiff is a Crown agent or Crown corporation where a substantial part of its activities involves making investments in securities or other financial instruments. This approach is designed to ensure that the regime will not have the effect of shifting the risk to the Canadian taxpayer (i.e., as a result of moving from a joint and several liability regime to a modified proportionate liability regime in which a plaintiff will generally not recover all its losses), except where the government entity is operating as an investor. Such entities will be subject to the modified proportionate liability regime and therefore will be on a "level playing field" with all other sophisticated market players.

Unsecured trade creditors and charitable organizations are excluded from the regime because these plaintiffs would normally not be expected to scrutinize the affairs of CBCA corporations in the same manner as large investors, and therefore merit the stronger protection provided by a joint and several liability regime.

Similar Provincial Laws
none

Current Wording
N/A

Proposed Wording
237.2 (2) This Part does not apply to an award of damages to any of the following plaintiffs:

a ) Her Majesty in right of Canada or of a province;

( b ) an agent of Her Majesty in right of Canada or of a province or a federal or provincial Crown corporation or government agency, unless a substantial part of its activities involves trading, including making investments in, securities or other financial instruments;

( c ) a charitable organization, private foundation or public foundation within the meaning of subsection 149.1(1) of the Income Tax Act ; or

( d ) an unsecured creditor in respect of goods or services that the creditor provided to a corporation.

Bill Clause No. 115
CBCA Section No. 237.3(1) - (4)
Topic: Apportioning Award of Damages

Sources of Proposed Law
Reports of the Standing Senate Committee on Banking, Trade and Commerce on Modified Proportionate Liability, dated March and September 1998;
US Securities and Exchange Act of 1934, s. 21(D)g).

Changes From Present Law
New regime

Purpose of Change
Each defendant or third party would be liable for the portion of a plaintiff's loss that corresponds to the degree of responsibility of that defendant, subject to reallocation of any uncollectible amount.

This provision attempts to reallocate the amount owed by an insolvent or unavailable defendant or third party amongst all of the remaining parties. It divides the risk of insolvency between the plaintiffs and the defendants/third parties and enables plaintiffs to recover more than they would without the reallocation. Because the amount reallocated to a defendant/third party is based upon their respective percentage of fault, marginal defendants/third parties are protected from liability for the total loss.

In order for the reallocation to occur, the plaintiff would have to bring a motion to the courts, within 1 year of the judgment becoming enforceable, requesting that this reallocation be effected by the court. Example :

Defendant X is liable for 50 percent of the damage, defendant Y is responsible for 30 percent, and defendant Z is responsible for 20 percent.

If Y is insolvent, X will be responsible for his/her 50 percent plus 50 percent of Y's 30 percent, for a total of 65 percent of the total liability. Defendant Z would be responsible for his/her 20 percent plus 20 percent of Y's 30 percent, for a total of 26 percent of the total liability. The remaining amount of defendant Y's liability (9 percent of the total) will be borne by the plaintiff.

A key feature of the reallocation regime is a 50 percent cap on reallocated liability. Under the cap, the reallocation which takes place as a result of the existence of an insolvent or unavailable defendant/third party is limited to 50 percent of the solvent or available party's original proportionate liability. In the above case, this cap did not affect either party. It is triggered only when there are multiple defendants or third parties, a large defendant is insolvent and other defendants/third parties are responsible for only a small portion of the fault. The intent of the cap is to make sure that a defendant/third party that is only 5 percent responsible for the fault is not held liable for the entire negligence of another person who is 95 percent responsible for the fault and who happens to go bankrupt.

Similar Provincial Laws none

Current Wording
N/A

Proposed Wording
237.3 (1) Subject to this section and sections 237.4 to 237.6, every defendant or third party who has been found responsible for a financial loss is liable to the plaintiff only for the portion of the damages that corresponds to their degree of responsibility for the loss.

(2) If any part of the damages awarded against a responsible defendant or third party is uncollectable, the court may, on the application of the plaintiff, reallocate that amount to the other responsible defendants or third parties, if the application is made within one year after the date that the judgment was made enforceable.

(3) The amount that may be reallocated to each of the other responsible defendants or third parties under subsection (2) is calculated by multiplying the uncollectable amount by the percentage that corresponds to the degree of responsibility of that defendant or third party for the total financial loss.

(4) The maximum amount determined under subsection (3), in respect of any responsible defendant or third party, may not be more than fifty per cent of the amount originally awarded against that responsible defendant or third party.

Bill Clause No. 115
CBCA Section No. 237.4
Topic: Apportioning Award of Damages

Sources of Proposed Law
Reports of the Standing Senate Committee on Banking, Trade and Commerce on Modified Proportionate Liability, dated March and September 1998;
U.S. Securities and Exchange Act of 1934, s. 21(D)g).

Changes From Present Law
New regime

Purpose of Change
This provision preserves the status quo in cases of fraud or dishonesty. Plaintiffs who are victims of fraud or dishonesty will continue to be compensated fully for their loss.

Similar Provincial Laws
none

Current Wording
N/A

Proposed Wording
237.4 (1) The plaintiff may recover the whole amount of the damages awarded by the court from any defendant or third party who has been held responsible for a financial loss if it was established that the defendant or third party acted fraudulently or dishonestly.

(2) The defendant or third party referred to in subsection (1) is entitled to claim contribution from any other defendant or third party who is held responsible for the loss.

Bill Clause No .115
CBCA Section No. 237.5
Topic: Apportioning Award of Damages

Sources of Proposed Law
Reports of the Standing Senate Committee on Banking, Trade and Commerce on Modified Proportionate Liability, dated March and September 1998

Changes From Present Law
New regime

Purpose of Change
This section provides that joint and several liability is applicable to individual plaintiffs and personal bodies corporate (see s. 237.5(2)) who have a financial interest in the corporation of less than the prescribed amount. Personal bodies corporate are included in order to provide personal investment vehicles with the same benefit as individuals.

This approach is aimed at providing full compensation to plaintiffs who are least able to absorb the loss. While large creditors or investors normally take the possibility of loss into consideration before making an investment decision and should therefore assume the risk associated with the insolvency of one or more of the defendants/third parties, small investors may not necessarily be aware of the risks.

Similar Provincial Laws
none

Current Wording
N/A

Proposed Wording
237.5 (1) Defendants and third parties referred to in subsection 237.2(1) are jointly and severally, or solidarily, liable for the damages awarded to a plaintiff who is an individual or a personal body corporate and who

( a ) had a financial interest in a corporation on the day that an error, omission or misstatement in financial information concerning the corporation occurred, or acquired a financial interest in the period between the day that the error, omission or misstatement occurred and the day, as determined by the court, that it was generally disclosed; and

( b ) has established that the value of the plaintiff's total financial interest in the corporation was not more than the prescribed amount at the close of business on the day that the error, omission or misstatement occurred or at the close of business on any day that the plaintiff acquired a financial interest in the period referred to in paragraph ( a ).

(2) In subsection (1), "personal body corporate" means a body corporate that is not actively engaged in any financial, commercial or industrial business and that is controlled by an individual or a group of individuals, each member of which is connected by blood relationship, adoption or marriage or by cohabiting with another member in a conjugal relationship.

(3) Subsection (1) does not apply when the plaintiff brings the action as a member of a partnership or other association or as a trustee in bankruptcy, liquidator or receiver of a body corporate.

Bill Clause No. 115
CBCA Section No. 237.6
Topic: Apportioning Award of Damages

Sources of Proposed Law
Reports of the Standing Committee on Banking Trade and Commerce on Modified Proportionate Liability, dated March and September 1998

Changes From Present Law
New regime

Purpose of Change
The application of the threshold could in some cases bring unnecessary hardship to individuals who fall on the "wrong side of the line" by denying joint and several liability protection to those who need it. The courts would, therefore, be permitted to apply the rule of joint and several liability where it is just and reasonable to so.

Section 237.6(2) permits the Governor in Council to establish factors that the court must take into account in making its determination. Such factors would be required to be published in Part I of the Canada Gazette .

Similar Provincial Laws
none

Current Wording
N/A

Proposed Wording
237.6 (1) If the value of the plaintiff's total financial interest referred to in subsection 237.5(1) is greater than the prescribed amount, a court may nevertheless determine that the defendants and third parties are jointly and severally, or solidarily, liable if the court considers that it is just and reasonable to do so.

(2) The Governor in Council may establish factors that the court shall take into account in deciding whether to hold the defendants and third parties jointly and severally, or solidarily liable.

(3) The Statutory Instruments Act does not apply to the factors referred to in subsection (2), but the factors shall be published in Part I of the Canada Gazette

Bill Clause No. 115
CBCA Section No. 237.7, 237.8 and 237.9
Topic: Apportioning Award of Damages

Sources of Proposed Law
Reports of Standing Senate Committee on Banking, Trade and Commerce on Modified Proportionate Liability, dated March and September 1998

Changes From Present Law
New regime

Purpose of Change
It is necessary to establish the value of the financial interest in order to determine whether it falls above or below the threshold prescribed pursuant to paragraph 237.5(1) and section 237.7 provides a mechanism for doing so.

Subsection 237.7(2) provides the court with the discretion to adjust the value of the security that has been determined under subsection (1) when the court considers it reasonable to do so. The rationale for this provision is to cover off those situations where the closing price, the highest and lowest prices, or relevant bid prices, as the case may be, do not reflect the true value of the security. For example, this could occur where a security is thinly traded.

Section 237.8(1) provides that for financial interests subject to resale restrictions or in respect of which there is no organized market, the court will determine the value. The Governor in Council will establish factors that the court may take into account.

Pursuant to section 237.9, the plaintiff may, at any time before or during the course of the proceedings, bring a motion to determine the value of the plaintiff's financial interest. This provision was included in order to avoid a situation where the plaintiff goes through the entire proceeding only to find out that it will be subject to modified proportionate liability.

Similar Provincial Laws
Securities Act , (Ontario)
Securities Act , (Ontario) General Regulation

Current Wording
N/A

Proposed Wording
237.7 (1) When, in order to establish the value of the total financial interest referred to in subsection 237.5(1), it is necessary to determine the value of a security that is traded on an organized market, the value of the security is, on the day specified in subsection (3),

( a ) the closing price of that class of security;

( b ) if no closing price is given, the average of the highest and lowest prices of that class of security; or

( c ) if the security was not traded, the average of the bid and ask prices of that class of security.

Court may adjust value

(2) The court may adjust the value of a security that has been determined under subsection (1) when the court considers it reasonable to do so.

(3) The value of the security is to be determined as of the day that the error, omission or misstatement occurred. If the security was acquired in the period between that day and the day, as determined by the court, that the error, omission or misstatement was generally disclosed, the value is to be determined as of the day that it was acquired.

(4) In this section, "organized market" means a recognized exchange for a class of securities or a market that regularly publishes the price of that class of securities in a publication that is generally available to the public.

237.8 (1) The court shall determine the value of all or any part of a financial interest that is subject to resale restrictions or for which there is no organized market.

(2) The Governor in Council may establish factors that the court may take into account in determining value under subsection (1).

(3) The Statutory Instruments Act does not apply to the factors referred to in subsection (2), but the factors shall be published in Part I of the Canada Gazette .

237.9 The plaintiff may, by application made at any time before or during the course of the proceedings, request the court to determine the value of the plaintiff's financial interest for the purpose of subsection 237.5(1).

The section dealing with appeals from the Director's decision would be amended to clarify the right of appeal of a person who feels aggrieved by a decision made by the Director. In addition, the list of appealable decisions would be expanded (s. 246).

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

Bill Clause No. 116
CBCA Section No. 239(2)(a)
Topic Remedies, Offences and Punishment (Technical Amendments)

Sources of Proposed Law

Changes From Present Law
Replace paragraph 239(2)(a) with a new paragraph that replaces the reasonable notice requirement with a 14 day notice requirement and gives the courts the discretion to order otherwise.

Purpose of Change
Under the current version of paragraph 239(2)(a), the court will not grant leave to commence a derivative action without first being satisfied that "reasonable notice" was given to the directors. This adds an element of uncertainty to the proceedings. The amendment will add clarity and certainty. One disadvantage is that if an emergency situation arises and the shareholders feel they must act quickly, 14 days notice may not be possible. For this reason, some discretion is given to the courts to order a shorter notice period if necessary.

Similar Provincial Laws
Business Corporations Act (Ontario)

Current Wording
239. (1) A security holder or the Director may apply, ex parte or on such notice as the court may require, to a court having jurisdiction in the place where the corporation has its registered office for an order directing an investigation to be made of the corporation and any of its affiliated corporations.

(2) If, on an application under subsection (1), it appears to the court that

(a) the complainant has given reasonable notice to the directors of the corporation or its subsidiary of his intention to apply to the court under subsection (1) if the directors of the corporation or its subsidiary do not bring, diligently prosecute or defend or discontinue the action;

Proposed Wording 239. (2)(a) the complainant has given notice to the directors of the corporation or its subsidiary of the complainant's intention to apply to the court under subsection (1) not less than fourteen days before bringing the application, or as otherwise ordered by the court, if the directors of the corporation or its subsidiary do not bring, diligently prosecute or defend or discontinue the action;

Bill Clause No. 117
CBCA Section No. 241(2) and 241(2)(b)
Topic Remedies, Offences and Punishment (Technical Amendments)

Sources of Proposed Law

Changes From Present Law
Include in the French version of s. 241 the concept of "unfairly" found in the English version.

Amend the French version of subs. 241(2)(b) by replacing the words "affaires tant commerciales qu'internes" with "ses activités commerciales ou ses affaires internes".

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

Similar Provincial Laws

Current Wording
241. (2) Le tribunal, saisi d'une demande visée au paragraphe (1), peut, par ordonnance, redresser la situation provoquée par la société ou l'une des personnes morales de son groupe qui, à son avis, abuse des droits des détenteurs de valeurs mobilières, créanciers, administrateurs ou dirigeants, ou porte atteinte à leurs intérêts ou n'en tient pas compte :

…

b) soit par la façon don't elle conduit ses affaires tant commerciales qu'internes

Proposed Wording
241. (2) Le tribunal saisi d'une demande visée au paragraphe (1) peut, par ordonnance, redresser la situation provoquée par la société ou l'une des personnes morales de son groupe qui, à son avis, abuse des droits des détenteurs de valeurs mobilières, créanciers, administrateurs ou dirigeants, ou, se montre injuste à leur égard en leur portant préjudice ou en ne tenant pas compte de leurs intérêts :

b) soit par la façon dont elle conduit ses activités commerciales ou ses affaires internes;

Bill Clause No. 118
CBCA Section No. 242(3)
Topic Remedies, Offences and Punishment (Technical Amendments)

Sources of Proposed Law

Changes From Present Law
Replace in the French version of s. 242(3) the word "caution" with the word "cautionnement" where the provision incorrectly uses this term in relation to the security mechanism (as opposed to the person who provides the security, which is the correct use of the word "caution").

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

Similar Provincial Laws

Current Wording
242. (3) Les plaignants ne sont pas tenus de fournir caution pour les frais des demandes, actions ou interventions visées à la présente partie.

Proposed Wording
242. (3) Les plaignants ne sont pas tenus de fournir de cautionnement pour les frais des demandes, actions ou interventions visées à la présente partie.

Bill Clause No. 119
CBCA Section No. 246
Topic Remedies, Offences and Punishment (Government Administration)

Sources of Proposed Law

Changes From Present Law -
Clarification of the right of appeal of a person who feels aggrieved by a decision made by the Director. Addition of new decisions to the list of decisions that are appealable.

Purpose of Change
The general purpose of these changes is to ensure that justice is served. The proposed changes are made to clarify the decisions that may be appealed:

- subs.(c): Currently, only the decision to refuse an exemption is appealable. However, the CBCA Director may impose reasonable terms as a condition for the exemption, to protect interested parties. These terms may be onerous, or perhaps in the eyes of a third party who may be prejudiced, not onerous enough. A third party might even feel that the exemption should not be granted on any terms.

- subs. (e): Allows a right of appeal concerning decisions made in respect of the new s. 263.1 (clause 129), which allows the Director to issue certificates attesting to a corporations existence at a particular date.

- subs.(f): Currently, only the decision to refuse a revival is appealable. However, the CBCA Director may impose reasonable terms as a condition for the revival of the corporation, to protect interested parties. These terms may be onerous, or perhaps in the eyes of a third party who may be prejudiced, not onerous enough. A third party might even feel that the revival should not be granted on any terms.

- subs. (f.1) and (f.2): Add new decisions which may be appealed under this section.

Similar Provincial Laws

Current Wording
246. A person who feels aggrieved by a decision of the Director

(a) to refuse to file in the form submitted to him any articles or other document required by this Act to be filed by him,

(b) to give a name, to change or revoke a name, or to refuse to reserve, accept, change or revoke a name under section 12,

(c) to refuse to grant an exemption under subsection 2(8), 10(2), 82(3), 127(8), 151(1), section 156, subsection 163(4) or 171(2) or subsection 160(3) and any regulations under that subsection,

(d) to refuse under subsection 187(11) to permit a continued reference to shares having a nominal or par value,

(e) to refuse to issue a certificate of discontinuance under section 188,

(f) to refuse to revive a corporation under section 209, or

(g) to dissolve a corporation under section 212,

may apply to a court for an order requiring the Director to change his decision, and on such application the court may so order and make any further order it thinks fit.

Proposed Wording
246. A person who feels aggrieved by a decision of the Director referred to in any of paragraphs (a) to (g) may apply to a court for an order, including an order requiring the Director to change the decision

(a) to refuse to file in the form submitted any articles or other document required by this Act to be filed;

(b) to give a name, to change or revoke a name, or to refuse to reserve, accept, change or revoke a name under section 12;

(d) to refuse under subsection 187(11) to permit a continued reference to shares having a nominal or par value;

(e) to refuse to issue a certificate of discontinuance under section 188 or a certificate attesting that as of a certain date the corporation exists under subsection 263.1(2);

(f) to issue, or to refuse to issue, a certificate of revival under section 209, or the decision with respect to the terms for revival imposed by the Director;

(f.1) to correct, or to refuse to correct, articles, a notice, a certificate or other document under section 265;

(f.2) to cancel, or to refuse to cancel, the articles and related certificate under section 265.1; or

(g) to dissolve a corporation under section 212.

The Court may make any order it thinks fit.

Bill Clause No. 120
CBCA Section No. 249(1) and new (2)
Topic Remedies, Offences and Punishment (Government Administration)

Sources of Proposed Law

Changes From Present Law
Clarification that only final court orders are appealable as of right. Further clarification that a judge of the court of appeal may grant leave to appeal any order by a lower court.

Purpose of Change
Section 249 provides that "An appeal lies to the court of appeal from any order made by a court under this Act." Generally, under provincial rules of court, only final orders are appealable so that litigants cannot tie up the court process and use procedural delays to prevent timely hearing of cases. The proposed change will prevent improper appeals of interim orders made under this Act and unnecessary use of court time.

Similar Provincial Laws

Current Wording
249. An appeal lies to the court of appeal from any order made by a court under this Act.

Proposed Wording
249. (1) An appeal lies to the court of appeal of a province from any final order made by a court of that province under this Act.

(2) An appeal lies to the court of appeal of a province from any order other than a final order made by a court of that province, only with leave of the court of appeal in accordance with the rules applicable to that court.

These amendments would help to ensure that communications between the corporation and stakeholders are as facilitative as possible. Although the CBCA permits corporations to communicate electronically with government, it allows only paper-based communications with shareholders and other stakeholders. This restricts corporations from using modern and emerging technologies to reduce costs and speed up information flows to many of the parties with whom they communicate.

The amendments would facilitate and encourage corporations (and other parties with whom corporations interact) to employ new and emerging communications technologies. All shareholders would still have a right to receive everything in paper based form. The regime is structured in terms of general principles that would permit corporations and others to employ new and emerging communications technologies as they are developed.

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

Bill Clause No. 121
CBCA Section No. 252.1: Definition of "electronic document"
Topic Documents in Electronic or Other Form

Sources of Proposed Law
Bill C-6: Personal Information Protection and Electronic Documents Act.

Changes From Present Law
New

Purpose of Change
The definition of electronic document is central to Part XX.1 since it encompasses all of the different types of documents, notices and information referred to throughout the CBCA. Mirroring the policy underlying all of Part XX.1, the definition of electronic document is intended to be enabling, technology-neutral, and expansive. It is enabling and flexible in that the parties will be able to choose the technology that best suits their purpose. It is technology-neutral in that it does not impose particular technologies on the parties subject to the CBCA. It is expansive since it is intended to encompass future technological developments. The use of the term "electronic" is not intended to be read in a literal manner and is not intended to exclude optical, digital and other technologies.

Similar Provincial Laws
None

Current Wording
N/A

Proposed Wording
252.1 The definitions in this section apply in this Part.

"electronic document" means, except in section 252.6, any form of representation of information or of concepts fixed in any medium in or by electronic, optical or other similar means and that can be read or perceived by a person or by any means.

Bill Clause No. 121
CBCA Section No. 252.1: Definition of "information system"
Topic Documents in Electronic or Other Form

Sources of Proposed Law
Commonwealth of Australia: Electronic Transactions Act 1999, No. 162, 1999.

Changes From Present Law
New

Purpose of Change
One of the conditions for an informed consent is that the recipient must designate an information system for receiving information by electronic means. In practice, this means that the party indicates the electronic address at which they will access this information. This provision clarifies that this term encompasses all types of technologies that may be used to create and deliver information.

Similar Provincial Laws

Current Wording
N/A

Proposed Wording
252.1 The definitions in this section apply in this Part.

"information system" means a system used to generate, send, receive, store, or otherwise process an electronic document.

Bill Clause No. 121
CBCA Section No. 252.2: Application
Topic Documents in Electronic or Other Form

Sources of Proposed Law
None

Changes From Present Law
New

Purpose of Change
The Corporations Directorate utilises specific technologies. The general use of electronic documents may expose it to a variety of formats and mediums that may not be compatible with its technologies and which they may not have the capacity to handle. As such, this provision clarifies that Part XX.1 will not apply to any information sent to or issued by the CBCA Director.

Moreover, a number of policy considerations dictate that certain activities continue to be accomplished on paper. These provisions will allow these to be identified in the regulations. For example, Part XX.1 will not apply to the provisions pertaining to the share certificates (s. 48-81).

Similar Provincial Laws
None

Current Wording
N/A

Proposed Wording
252.2 This Part does not apply to a notice, document or other information sent to or issued by the Director pursuant to this Act or to any prescribed notice, document or other information.

Bill Clause No. 121
CBCA Section No. 252.3: (1) Use not mandatory; (2) Consent and other requirements; (3) Revocation of consent
Topic Documents in Electronic or Other Form

Sources of Proposed Law
Bill C-6: Personal Information Protection and Electronic Documents Act;

Uniform Law Conference of Canada: Uniform Electronic Commerce Act;

Ontario Securities Commission, National Policy 11-201 - Delivery of Documents by Electronic Means;

Securities and Exchange Commission: Use of Electronic Media for Delivery Purposes, Release No. 32-7233;

Commonwealth of Australia: Electronic Transactions Act 1999, No. 162, 1999.

Changes From Present Law
New

Purpose of Change
This Part is being enacted so as to permit parties to communicate with each other through efficient and economical means available to them. However, this Part is structured such that the paper-based and technology-based regime will co-exist. This provision ensures that no individual will be compelled to utilize electronic documents. Individuals can continue to operate in the paper-based environment.

The most significant safeguard included in this Part is the provision dealing with consent. No information may be provided via electronic means of communication unless the consent of the recipient is obtained. The requirement for revoking consent will be detailed in the regulations.

Similar Provincial Laws
Saskatchewan: Bill 11: An Act respecting Electronic Information and Documents

Current Wording
N/A

Proposed Wording
252.3 (1) Nothing in this Act or the regulations requires a person to create or provide an electronic document.

(2) Despite anything in this Part, a requirement under this Act or the regulations to provide a person with a notice, document or other information is not satisfied by the provision of an electronic document unless

(a) the addressee has consented, in the manner prescribed, and has designated an information system for the receipt of the electronic document; and

(b) the electronic document is provided to the designated information system, unless otherwise prescribed.

(3) An addressee may revoke the consent referred to in paragraph (2)(a) in the manner prescribed.

Bill Clause No. 121
CBCA Section No. 252.4: Creation and Provision of Information
Topic Documents in Electronic and Other Form

Sources of Proposed Law
Bill C-6: Personal Information Protection and Electronic Documents Act;

Uniform Law Conference of Canada: Uniform Electronic Commerce Act;

Securities and Exchange Commission: Use of Electronic Media for Delivery Purposes, Release No. 33-7233;

Ontario Securities Commission, National Policy 11-201 - Delivery of Documents by Electronic Means;

Commonwealth of Australia: Electronic Transactions Act 1999, No. 162, 1999.

Changes From Present Law
New

Purpose of Change
This is the general provision that enables parties to create and provide information through technological means. Provided that their by-laws or articles do not impose limitations, corporations will be able to use the technologies that they choose. The consent provision in 252.3 will ensure that this freedom to use any technologies is not imposed on the recipients of the information.

Similar Provincial Laws
Saskatchewan: Bill 11: An Act respecting Electronic Information and Documents

Current Wording
N/A

Proposed Wording
252.4 A requirement under this Act or the regulations that a notice, document or other information be created or provided, is satisfied by the creation or provision of an electronic document if

(a) the by-laws or the articles of the corporation do not provide otherwise; and

(b) the regulations, if any, have been complied with.

Bill Clause No. 121
CBCA Section No. 252.5: (1)Creation of information in writing; (2) Provision of information in writing; (3) Copies; (4) Registered Mail
Topic Documents in Electronic and Other Form

Sources of Proposed Law
Bill C-6: Personal Information Protection and Electronic Documents Act;

Uniform Law Conference of Canada: Uniform Electronic Commerce Act;

Securities and Exchange Commission: Use of Electronic Media for Delivery Purposes, Release No. 33-7233;

Ontario Securities Commission, National Policy 11-201 - Delivery of Documents by Electronic Means;

Commonwealth of Australia: Electronic Transactions Act 1999, No. 162, 1999.

Changes From Present Law
New

Purpose of Change
Certain sections of the CBCA explicitly require that documents be in writing. The policy underlying this requirement is to provide for a durable record of the information. This policy is achieved in the technological environment by requiring that an electronic document be accessible for future use.

In a number of sections, the CBCA explicitly requires that documents be provided to the intended recipient in written form. The policy underlying such a requirement is that the recipient receive the document in a manner that gives him or her some control over the document. This policy is achieved in the technological environment by requiring that the electronic document in question is not only accessible for future use but also that the recipient be capable of retaining it.

Certain provisions of the CBCA require that multiple copies be provided. In a paper-based environment, this would imply that the person would have to provide the required number of copies. However, in the technological environment, an electronic document may easily be copied a number of times or provided to a number of recipients simultaneously. Therefore, sending one copy of an electronic document that can be copied numerous times will achieve the same result.

The CBCA requires that certain information be sent by registered mail. In the paper-based environment this is accomplished through the postal or other mail delivery system. However, in the technological environment, there is no universally-accepted system for sending registered mail. Therefore, the regulations will stipulate the requirements that must be fulfilled in order to have registered mail effectively delivered electronically.

Similar Provincial Laws
Saskatchewan: Bill 11: An Act respecting Electronic Information and Documents

Current Wording
N/A

Proposed Wording
252.5 (1) A requirement under this Act or the regulations that a notice, document or other information be created in writing is satisfied by the creation of an electronic document if, in addition to the conditions in section 252.4,

(a) the information in the electronic document is accessible so as to be usable for subsequent reference; and

(b) the regulations pertaining to this subsection, if any, have been complied with.

(2) A requirement under this Act or the regulations that a notice, document or other information be provided in writing is satisfied by the provision of an electronic document if, in addition to the conditions set out in section 252.4,

(a) the information in the electronic document is accessible by the addressee and capable of being retained by the addressee, so as to be usable for subsequent reference; and

(b) the regulations pertaining to this subsection, if any, have been complied with.

(3) A requirement under this Act or the regulations for one or more copies of a document to be provided to a single addressee at the same time is satisfied by the provision of a single version of the electronic document.

(4) A requirement under this Act or the regulations to provide a document by registered mail is not satisfied by the sending of an electronic document unless prescribed.

Bill Clause No. 121
CBCA Section No. 252.6: Statutory Declaration and Affidavits
Topic Documents in Electronic and Other Form

Sources of Proposed Law
Bill C-6: Personal Information Protection and Electronic Documents Act

Changes From Present Law
New

Purpose of Change
In a number of sections, the CBCA requires that parties provide an affidavit or a statutory declaration. In the paper-based regime, these are governed by the rules enacted in the Canada Evidence Act. Bill C-6 (Personal Information Protection and Electronic Documents Act) provides a detailed regime for the electronic creation of these types of documents. Moreover, the regime enacted in Bill C-6 is applicable to the Canada Evidence Act, which governs the admissibility of these types of documents in court proceedings. For these reasons, the regime created in Bill C-6 will be applicable to affidavits and statutory declarations required under the CBCA.

Similar Provincial Laws
None

Current Wording
N/A

Proposed Wording
252.6 (1) A statutory declaration or an affidavit required under this Act or the regulations may be created or provided in an electronic document if

(a) the person who makes the statutory declaration or affidavit signs it with his or her secure electronic signature;

(b) the authorized person before whom the statutory declaration or affidavit is made signs it with his or her secure electronic signature; and

(2) For the purposes of this section, "electronic document" and "secure electronic signature" have the same meaning as in subsection 31(1) of thePersonal Information Protection and Electronic Documents Act.

(3) For the purpose of complying with paragraph (1)(c), the references to an "electronic document" in sections 252.3 to 252.5 are to be read as references to an "electronic document" as defined in subsection 31(1) of thePersonal Information Protection and Electronic Documents Act.

Bill Clause No. 121
CBCA Section No. 252.7: Signatures
Topic Documents in Electronic and Other Form

Sources of Proposed Law
Bill C-6: Personal Information Protection and Electronic Documents Act;
Uniform Law Conference of Canada: Uniform Electronic Commerce Act.

Changes From Present Law
New

Purpose of Change
A number of provisions of the CBCA require that documents be signed or executed. Enacted when documents were solely in paper format, such requirements may be an impediment to the use of technological means for creating or sending documents. The proposed amendment effectively allows for the use of technological means to communicate information by permitting signatures through these means.

Generally, signatures are personal to the signatory, evidence that the person intended to be associated with the document that they have signed and identify the person signing. These premises are maintained in the technological context. First, in a technological environment, a signature will not have to "look like" a handwritten signature, provided it is distinguishable from other signatures. Second, in a technological environment, a signature will not necessarily be attached to an electronic document in the same manner that an ink signature is placed onto paper. The person's signature may be "associated" with the document by mathematical logic or otherwise. Third, in a technological environment, the "physical appearance" of the signature may not permit the immediate identification of the signatory, provided that verification of the signature is subsequently possible.

Similar Provincial Laws
Saskatchewan: Bill 11: An Act respecting Electronic Information and Documents

Current Wording
N/A

Proposed Wording
252.7 A requirement under this Act or the regulations for a signature or for a document to be executed, except with respect to a statutory declaration or an affidavit, is satisfied if, in relation to an electronic document, the prescribed requirements pertaining to this section, if any, are met and if the signature results from the application by a person of a technology or a process that permits the following to be proven:

(a) the signature resulting from the use by a person of the technology or process is unique to the person;

b) the technology or process is used by a person to incorporate, attach or associate the person's signature to the electronic document; and

The correction provisions would be expanded to enable corporations or other interested persons to request a correction to articles, certificates or other documents. The Director would be permitted to correct the document provided no shareholders or creditors of the corporation are prejudiced. A new provision is included enabling the Director or any interested party to apply to the court for a correction order in the event the applicant is of the view that a correction would be prejudicial to a shareholder or creditor (s. 265). Similarly, a new cancellation provision would allow the Director to cancel the articles and related certificate of a corporation (s. 265.1).

The following amendments would also be made:

The Director would be permitted to establish the requirements for the content and fix the form of notices and documents sent to or issued by the Director pursuant to the Act (s. 258.1).

The regulation making power would be broadened to reflect amendments made elsewhere in the statute (s. 261).

A new provision would be added requiring that the requisite fee must be paid before the Director performs the service requested (s. 261.1).

The number of people authorized to sign forms 3, 6 and 22 would be expanded to those with authority and knowledge of the corporation. The execution of a document by several persons in several documents of like form would be permitted (s. 262.1(2) and (3)).

The Director would be permitted to refuse to issue a certificate of existence if the Director has knowledge that the corporation has not sent a document required to be sent under the Act or has not paid a required fee (s. 263.1(2)).

A number of consequential amendments required as a result of amendments to other parts of the Act are also included in this Part, as are several minor technical amendments, amendments to the French version and amendments designed to clarify and facilitate the efficient operation and administration of the statute.

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

Bill Clause No.122
CBCA Section No. 253(4)
Topic General (Shareholder Communications)

Sources of Proposed Law

Changes From Present Law
Amend s. 253(4) to require that if a notice or document is returned to the corporation twice, the corporation is not required to send further notices and documents to the shareholder until the shareholder informs the corporation in writing of his/her new address.

Purpose of Change
Section 253 addresses the issue of how to give notice to directors and shareholders. In s. 253(4) a corporation is relieved of the obligation to send further notices or documents to a shareholder if a notice or document, sent in accordance with s. 253, is returned to the corporation three times because the shareholder cannot be found.

It seems unnecessary to require a corporation to mail the same document three times to the same address and to keep the necessary records of returned mail over a substantial period of time.

By reducing the number of returned mailings to two, the proposed change would lighten the administrative burden and lessen the costs faced by corporations. Two returns lessens the risk of human error being responsible for misdelivery.

Similar Provincial Laws

Current Wording
253. (4) If a corporation sends a notice or document to a shareholder in accordance with subsection (1) and the notice or document is returned on three consecutive occasions because the shareholder cannot be found, the corporation is not required to send any further notices or documents to the shareholder until he informs the corporation in writing of his new address.

Proposed Wording
253. (4) If a corporation sends a notice or document to a shareholder in accordance with subsection (1) and the notice or document is returned on two consecutive occasions because the shareholder cannot be found, the corporation is not required to send any further notices or documents to the shareholder until the shareholder informs the corporation in writing of the shareholder's new address.

Bill Clause No. 123
CBCA Section No. 257(3)
Topic General (Technical Amendments)

Sources of Proposed Law

Changes From Present Law
Replace in the French version the word "délivrés" with "émis".

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

Similar Provincial Laws

Current Wording
257. (3) Les mentions du registre des valeurs mobilières et les certificats de valeurs mobilières délivrés par la société établissent, à défaut de preuve contraire, que les personnes au nom desquelles les valeurs mobilières sont inscrites sont propriétaires des valeurs mentionnées dans le registre ou sur les certificats.

Proposed Wording
257. (3) Les mentions du registre des valeurs mobilières et les certificats de valeurs mobilières émis par la société établissent, à défaut de preuve contraire, que les personnes au nom desquelles les valeurs mobilières sont inscrites sont propriétaires des valeurs mentionnées dans le registre ou sur les certificats.

Bill Clause No. 124
CBCA Section No. 258.1 and 258.2
Topic General (Government Administration)

Sources of Proposed Law

Changes From Present Law
The current sections 258.1 and 258.2 would be replaced with new sections that retain and update the contents of the current subsections 261(1)(c.1) and (d).

Purpose of Change
(A) Section 258.1 would permit the Director to establish the requirements for the content and fix the form, including electronic or other forms, of notices and documents sent to or issued by the Director pursuant to this Act.

(B) Section 258.2 would allow the Director to grant exemptions in prescribed circumstances.

The current section makes reference to orders. Under the Statutory Instruments Act, orders are required to be made by the Governor-in-Council. By removing the words "as are specified in the order" and replacing it with the words "as the Director specifies", the Act is clarifying that the Director's authority to issue an exemption does not fall under the Statutory Instruments Act.

Similar Provincial Laws

Current Wording
258.1. (1) Subject to the regulations, notices and documents that are sent to or issued by the Director pursuant to this Act may be sent or issued in electronic or other form in any manner specified by the Director.

(2) For the purposes of this Act, any notice or document that is sent or issued in accordance with subsection (1) is deemed to have been received at the time and date provided by the regulations.

258.2. In the prescribed circumstances, the Director may, by order made subject to any conditions that the Director considers appropriate, exempt from the application of any provision of this Act requiring notices or documents to be sent to the Director such notices or documents or classes of notices or documents containing information similar to that contained in notices or documents required to be made public pursuant to any other Act of Parliament or to any Act of the legislature of a province as are specified in the order.

Proposed Wording
258.1 The Director may establish the requirements for the content and fix the form, including electronic or other forms, of notices and documents sent to or issued by the Director pursuant to this Act, including

(a) the notices and documents that may be transmitted in electronic or other form;

(b) the persons or classes of persons who may transmit the notices and documents;

(c) their signature in electronic or other form, or their execution, adoption or authorization in a manner that is to have the same effect for the purposes of this Act as their signature;

(d) the time and circumstances when electronic notices and documents are to be considered to be sent or received, and the place where they are considered to have been sent or received; and

(e) any matter necessary for the purposes of the application of this section.

258.2. In the prescribed circumstances, the Director may, on any conditions that the Director considers appropriate, exempt from the application of any provision of this Act requiring notices or documents to be sent to the Director any notices or documents or classes of notices or documents containing information similar to that contained in notices or documents required to be made public pursuant to any other Act of Parliament or to any Act of the legislature of a province as the Director specifies.

Bill Clause No. 125
CBCA Section No. 261
Topic General (Government Administration)

Sources of Proposed Law

Changes From Present Law
Clarification of the Governor in Council's authority to make regulations.

Purpose of Change
(A) Subs. (1)(a.1): Clarifies that the Governor in Council may make regulations regarding the definition of anything that is to be defined by regulation.

(B) Subs. (1)(b): Allows fees and/or the manner of determining fees.

(C) Subs. (1)(c): Clarifies the Governor in Council's authority to make regulations regarding the payment of fees, additional fees for late charges and the refunding of fees.

(D) Subs. (1)(d): In accordance with clause 59(3), this amendment clarifies that the Governor in Council has the authority to make regulations regarding the minimum amount of support required in relation to the number of times the shareholder has submitted substantially the same proposal and to prescribe the period of time during which the re-submissions may be considered.

(E) Subs. (1)(g): Authorizes the Governor in Council to make regulations regarding the new Part XX.1, Documents in Electronic or Other Form (clause 121). Allowing these matters to be prescribed in the regulations will increase flexibility by allowing the requirements to adapt as technology changes.

(F) Subs. (1)(h): Authorizes the Governor in Council to make regulations that allow meetings held by telephonic, electronic or other communicative means to satisfy the statutory requirements for participation at meetings.

(G) Subs. (1)(i): Authorizes the Governor in Council to make regulations for voting at a meeting of shareholders by means of a telephonic, electronic or other means of communication, for the purposes of new s. 141(3).

Subs. (2): This amendment increases flexibility by authorizing the Governor in Council to reference outside documents.

(I) Subs. (3): This amendment clarifies that material incorporated into regulations by reference does not become "regulation" itself for the purposes of the Statutory Instruments Act.

Similar Provincial Laws

Current Wording
261. (1) Subject to subsections (2) and (3), the Governor in Council may make regulations

(a) prescribing any matter required or authorized by this Act to be prescribed;

(b) requiring the payment of a fee in respect of the filing, examination or copying of any document, or in respect of any action that the Director is required or authorized to take under this Act, and prescribing the amount thereof;

(c) prescribing the contents and electronic or other forms of notices and documents required to be sent to or issued by the Director;

(c.1) respecting the sending or issuance of notices and documents in electronic or other form, including

(i) the notices and documents that may be sent or issued in electronic or other form,

(ii) the persons or classes of persons by whom they may be sent or issued,

(iii) their signature in electronic or other form or their execution, adoption or authorization in a manner that pursuant to the regulations is to have the same effect for the purposes of this Act as their signature, and

(iv) the time and date when they are deemed to be received;

(d) prescribing rules with respect to exemptions permitted by this Act; and

(e) prescribing that, for the purpose of paragraph 155(1)(a), the standards as they exist from time to time, of an accounting body named in the regulations shall be followed.

(2) Subject to subsection (3), the Minister shall publish in the Canada Gazette and in the periodical referred to in section 129 at least sixty days before the proposed effective date thereof a copy of every regulation that the Governor in Council proposes to make under this Act and a reasonable opportunity shall be afforded to interested persons to make representations with respect thereto.

(3) The Minister is not required to publish a proposed regulation if the proposed regulation

(a) grants an exemption or relieves a restriction;

(b) establishes or amends a fee;

(c) has been published pursuant to subsection (2) whether or not it has been amended as a result of representations made by interested persons as provided in that subsection; or

(d) makes no material substantive change in an existing regulation.

Proposed Wording
261. (1) The Governor in Council may make regulations

(a) prescribing any matter required or authorized by this Act to be prescribed;

(a.1) defining anything that, by this Act, is to be defined by regulation;

(c) respecting the payment of fees, including the time when and the manner in which the fees are to be paid, the additional fees that may be charged for the late payment of fees and the circumstances in which any fees previously paid may be refunded in whole or in part;

(c.1) prescribing, for the purposes of subsection 137(1.1), a manner of determining the number of shares required for a person to be eligible to submit a proposal, including the time and manner of determining a value or percentage of the outstanding shares of the corporation;

(d) prescribing, for the purposes of paragraph 137(5)(d), the minimum amount of support required in relation to the number of times the shareholder has submitted substantially the same proposal within the prescribed period;

(e) prescribing rules with respect to exemptions permitted by this Act;

(f) prescribing that, for the purpose of paragraph 155(1)(a), the standards as they exist from time to time, of an accounting body named in the regulations shall be followed;

(g) prescribing any matter necessary for the purposes of the application of Part XX.1, including the time and circumstances when an electronic document is to be considered to have been provided or received and the place where it is considered to have been provided or received;

(h) prescribing the manner of, and conditions for, participating in a meeting by means of a telephonic, electronic or other communication facility that permits all participants to communicate adequately with each other during the meeting; and

(i) prescribing, for the purposes of subsection 141(3), the manner of, and conditions for, voting at a meeting of shareholders by means of a telephonic, electronic or other communication facility.

(2) The regulations may incorporate any material by reference regardless of its source and either as it exists on a particular date or as amended from time to time.

(3) Material does not become a regulation for the purposes of the Statutory Instruments Act because it is incorporated by reference.

Bill Clause No. 126
CBCA Section No. new 261.1
Topic General (Government Administration)

Sources of Proposed Law

Changes From Present Law
Requires that fees be paid before the Director takes the action in respect to which the fee is payable.

Purpose of Change
The CBCA amendments will allow the Director to fix many fees in accordance with the Department of Industry Act (DIA) and the CBCA. There may be a potential problem arising out of setting fees under the DIA. The distinction between fees for mandatory actions required to be taken by the Director pursuant to the Act (denoted by words such as "must" and "shall") and fees for discretionary or service-oriented actions creates a potential problem stemming from the ability to enforce payment of fees in an efficient manner. It appears that the Crown cannot withhold the provision of services on the sole basis of non-payment of fees. Therefore, where mandatory duties are prescribed by the Act and the DIA is used as the fee making authority, the service mandated by the Act must be performed regardless of whether or not a fee is paid.

This amendment will make the payment of the required fee a prerequisite to any mandatory act by the Director. In essence, no action by the Director is mandatory unless the required fee has been paid. This amendment allows effective enforcement of payment for services when the DIA is used to set fees.

Similar Provincial Laws

Current Wording
N/A

Proposed Wording
261.1 The fee in respect of the filing, examination, or copying of any document, or in respect of any action that the Director is required or authorized to take, shall be paid to the Director on the filing, examination, or copying or before the Director takes the action in respect of which the fee is payable.

Bill Clause No. 127
CBCA Section No. 262(2)(b)
Topic General (Government Administration)

Sources of Proposed Law

Changes From Present Law
Consequential changes to amendments related to a) the content of the form that the CBCA Director will fix, b) the payment of fees and, c) the publication generally available to the public.

Purpose of Change
(A) see explanation: clause 3

(B) see explanation: clause 126

Similar Provincial Laws

Current Wording
262 (2) Where this Act requires that articles or a statement relating to a corporation be sent to the Director,

…

(b) on receiving the articles or statement in the prescribed form, any other required documents and the prescribed fees, the Director shall

…

(iv) send the certificate and the articles or statement, or a copy, image or photographic, electronic or other reproduction of the certificate and of the articles or statement, to the corporation or its representative, and

(v) publish a notice of the issuance of the certificate in the Canada Gazette or in the periodical referred to in section 129.

Proposed Wording
262 (2)(b) on receiving the articles or statement in the form that the Director fixes, any other required documents and the required fees, the Director shall

(iv) send the certificate, or a copy, image or photographic, electronic or other reproduction of the certificate, to the corporation or its agent, and

(v) publish a notice of the issuance of the certificate in a publication generally available to the public.

The following amendments would also be made:

The Director would be permitted to establish the requirements for the content and fix the form of notices and documents sent to or issued by the Director pursuant to the Act (s. 258.1).

The regulation making power would be broadened to reflect amendments made elsewhere in the statute (s. 261).

A new provision would be added requiring that the requisite fee must be paid before the Director performs the service requested (s. 261.1).

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

Bill Clause No. 128
CBCA Section No. new 262.1(2) and (3)
Topic General (Technical Amendments)

Sources of Proposed Law

Changes From Present Law
Renumber s. 262.1 as s. 262.1(1) and add new subsections 262.1(2) and (3) to specify that forms 3, 6 and 22 may be signed by an individual who has knowledge of the corporation and who is authorized to do so by the directors and to provide for execution of a document by several persons in several documents of like form.

Purpose of Change
Currently, most administrative forms must be signed by a director or an authorized officer and not by a solicitor or other person acting on behalf of a director or officer. The proposed amendment would permit individuals who have the relevant knowledge of the corporation and who are authorized to do so by the directors to sign the notice of registered office or of change of address of registered office (form 3), notice of directors or change of directors (form 6) and the annual return (form 22). The extended authorization is limited to these forms because they are forms in the nature of "information" - the filing thereof does not affect the status of the corporation, as would the filing of articles of amendment.

At the present time, there is no provision which expressly states that a document that is required to be executed by more than one person will be considered properly executed even if the required signatories each signs a separate copy. Addition of a provision that expressly states this would only be a codification of the common law principle of "counterparts". This addition would clarify the existence of this concept under the CBCA and provide administrative flexibility to CBCA corporations.

Similar Provincial Laws

Current Wording
N/A

Proposed Wording
262.1 (2) The notices referred to in subsections 19(2) and (4) and subsections 106(1) and 113(1), and the annual return referred to in section 263, may be signed by any individual who has the relevant knowledge of the corporation and who is authorized to do so by the directors, or, in the case of the notice referred to in subsection 106(1), the incorporators.

(3) Any articles, notice, resolution, requisition, statement or other document required or permitted to be executed or signed by more than one individual for the purposes of this Act may be executed or signed in several documents of like form, each of which is executed or signed by one or more of the individuals. The documents, when duly executed or signed by all individuals required or permitted, as the case may be, to do so, shall be deemed to constitute one document for the purposes of this Act.

Bill Clause No. 129
CBCA Section No. 263 and 263.1
Topic General (Government Administration)

Sources of Proposed Law

Changes From Present Law
This amendment would split the current s. 263 into two parts to clarify the intention of the current section. The first part would deal with annual returns, while the second would deal with the issuance of certificates.

Purpose of Change
The purpose of a certificate of compliance is to act as a verification from the CBCA Director that certain basic statutory filings, such as annual returns, have been made and therefore the corporation has not been, and is not about to be, dissolved for such a failure. In some instances however, it is not possible for the Director to know if a corporation is in complete compliance with the Act. For example, a change of directors may have occurred, but no notice of change of directors has been filed.

Certificates of compliance are most often used as a tool to facilitate corporate transactions where assurances are made to a financial institution or other commercial parties that the corporation is in compliance with the statute. From this perspective, it is important to make it clear that only certain filings are being attested to in the certificate of compliance and that the issuance of the certificate does not certify complete statutory compliance. This amendment would clarify the matters which may be attested to in the certificate.

Similar Provincial Laws

Current Wording
263. (1) Every corporation shall, on the prescribed date, send to the Director an annual return in prescribed form and the Director shall file it.
(2) The Director may furnish any person with a certificate that a corporation has sent to the Director a document required to be sent to him under this Act.

Proposed Wording
263. Every corporation shall, on the prescribed date, send to the Director an annual return in the form that the Director fixes and the Director shall file it.

263.1 (1) The Director may provide any person with a certificate stating that a corporation

(a) has sent to the Director a document required to be sent under this Act;

(b) has paid all required fees; or

(2) For greater certainty, the Director may refuse to issue a certificate described in paragraph (1)(c) if the Director has knowledge that the corporation is in default of sending a document required to be sent under this Act or is in default of paying a required fee.

Bill Clause No. 130
CBCA Section No. 265
Topic General (Government Administration)

Sources of Proposed Law

Changes From Present Law
The change would replace the current sections 265 and 266 while providing for a new correction provision.

Similar Provincial Laws

Purpose of Change
The proposed new section 265 deals with the correction of a document (articles, notice, certificate) containing an error. It is not clear under the current CBCA if the only correction possible is of an error caused by the Director. This change would make explicit the Director's authority to request changes in any document which contains an error. This amendment would increase flexibility by clarifying the method of correcting the documents listed.

The new provision would require that the Director be satisfied that corrections will not prejudice the corporation's shareholders or creditors. This is designed to protect shareholders and creditors.

Also, the proposed amendment would increase flexibility by allowing corporations to request changes.

A new provision would entitle the Director, the corporation or any interested party, to apply for a court order directing the Director to make a correction to a document and determining the rights of the shareholders or creditors, when the applicant is of the view that a correction would prejudice a shareholder or creditor.

Current Wording
265. (1) If a certificate containing an error is issued to a corporation by the Director, the directors or shareholders of the corporation shall, on the request of the Director, pass the resolutions and send to him the documents required to comply with this Act, and take such other steps as the Director may reasonably require, and the Director may demand the surrender of the certificate and issue a corrected certificate.

(2) A certificate corrected under subsection (1) shall bear the date of the certificate it replaces.

(3) If a corrected certificate issued under subsection (1) materially amends the terms of the original certificate, the Director shall forthwith give notice of the correction in the Canada Gazette or in the periodical referred to in section 129.

266. (1) A person who has paid the prescribed fee is entitled during usual business hours to examine a document required by this Act or the regulations to be sent to the Director, except a report sent to him under subsection 230(2), and to make copies of or extracts there from.

(2) The Director shall furnish any person with a copy or a certified copy of a document required by this Act or the regulations to be sent to the Director, except a report sent to him under subsection 230(2).

Proposed Wording
265. (1) If there is an error in articles, a notice, a certificate or other document, the directors or shareholders of the corporation shall, on the request of the Director, pass the resolutions and send to the Director the documents required to comply with this Act, and take such other steps as the Director may reasonably require so that the Director may correct the document.

(2) Before proceeding under subsection (1), the Director must be satisfied that the correction would not prejudice any of the shareholders or creditors of the corporation.

(3) The Director may, at the request of the corporation or of any other interested person, accept a correction to any of the documents referred to in subsection (1) if

(a) the correction is approved by the directors of the corporation, unless the error is obvious or was made by the Director; and

(b) the Director is satisfied that the correction would not prejudice any of the shareholders or creditors of the corporation and that the correction reflects the original intention of the corporation or the incorporators, as the case may be.

(4) If, in the view of the Director, of the corporation or of any interested person who wishes a correction, a correction to any of the documents referred to in subsection (1) would prejudice any of the shareholders or creditors of a corporation, the Director, the corporation or the person, as the case may be, may apply to the court for an order that the document be corrected and for an order determining the rights of the shareholders or creditors.

(5) An applicant under subsection (4) shall give the Director notice of the application, and the Director is entitled to appear and to be heard in person or by counsel.

(6) The Director may demand the surrender of the original document, and may issue a corrected certificate or file the corrected articles, notice or other document.

(7) A corrected document shall bear the date of the document it replaces unless

(a) the correction is made with respect to the date of the document, in which case the document shall bear the corrected date; or

(b) the court decides otherwise.

(8) If a corrected certificate materially amends the terms of the original certificate, the Director shall without delay give notice of the correction in a publication generally available to the public.

Bill Clause No. 130
CBCA Section No. new 265.1
Topic General (Government Administration)

Sources of Proposed Law

Changes From Present Law
The proposed amendment provides for a new cancellation provision.

Purpose of Change
The CBCA does not have a provision that specifically allows the Director to cancel articles and related certificates. This amendment would provide an efficient way to deal with certificates that have been incorrectly issued. To add flexibility, the circumstances under which a cancellation can occur would be prescribed in the regulations.

As with correction orders (s. 265), the section includes provisions to protect shareholders and creditors. It requires that cancellations not prejudice shareholders or creditors (s. 265.1(2)). To balance the interests of shareholders and creditors with the interests of the Director and the corporation, the section allows the Director or any interested party to make an application to the court for an order canceling the articles and the certificate and determining the rights of the creditors and shareholders (s. 265.1(4)).

Similar Provincial Laws

Current Wording
N/A

Proposed Wording
265.1 (1) In the prescribed circumstances, the Director may cancel the articles and related certificate of a corporation.

(2) Before proceeding under subsection (1), the Director must be satisfied that the cancellation would not prejudice any of the shareholders or creditors of the corporation.

(3) In the prescribed circumstances, the Director may, at the request of a corporation or of any other interested person, cancel the articles and related certificate of the corporation if

(a) the cancellation is approved by the directors of the corporation; and

(b) the Director is satisfied that the cancellation would not prejudice any of the shareholders or creditors of the corporation and that the cancellation reflects the original intention of the corporation or the incorporators, as the case may be.

(4) If, in the view of the Director, of the corporation or of any interested person who wishes a cancellation, a cancellation of articles and a related certificate would prejudice any of the shareholders or creditors of a corporation, the Director, the corporation or the person, as the case may be, may apply to the court for an order that the articles and certificate be cancelled and for an order determining the rights of the shareholders or creditors.

(5) An applicant under subsection (4) shall give the Director notice of the application, and the Director is entitled to appear and to be heard in person or by counsel.

(6) The Director may demand the surrender of a cancelled certificate.

Bill Clause No. 130
CBCA Section No. 266
Topic General (Government Administration)

Sources of Proposed Law

Changes From Present Law
Clarification that the Director shall furnish a certified extract.

Purpose of Change
Subsection 266(1): This technical amendment makes minor wording changes.
Subsection 266(2): This subsection provides that the Director is required to furnish any person with a copy or a certified copy of a document that is required by the CBCA or the regulations to be sent to the Director. It is not possible under the current provision to obtain only an extract of a document certified to be a true copy by the Director and signed by the Director or by a Deputy Director. This amendment would correct this situation.

Similar Provincial Laws

Current Wording
266. (1) A person who has paid the prescribed fee is entitled during usual business hours to examine a document required by this Act or the regulations to be sent to the Director, except a report sent to him under subsection 230(2), and to make copies of or extracts there from.

Proposed Wording
266. (1) A person who has paid the required fee is entitled during usual business hours to examine a document required by this Act or the regulations to be sent to the Director, except a report sent to the Director under subsection 230(2), and to make copies of or extracts from it.
(2) The Director shall furnish any person with a copy, extract, certified copy or certified extract of a document required by this Act or the regulations to be sent to the Director, except a report sent under subsection 230(2).

Bill Clause No. 131
CBCA Section No. 267(3)
Topic General (Government Administration)

Sources of Proposed Law

Changes From Present Law
The Director's retention period found in the CBCA is moved to the regulations.

Purpose of Change
This will add flexibility to the Act by allowing Director's retention period to be more easily amended from time-to-time.

Similar Provincial Laws

Current Wording
267. (3) The Director is not required to produce any document, other than a certificate and attached articles or statement filed under section 262, after six years from the date he receives it.

Proposed Wording
267. (3) The Director is not required to produce any document, other than a certificate and attached articles or statement filed under section 262, after the expiration of the prescribed period.

Bill Clause No. 132
CBCA Section No. 267.1
Topic General (Technical Amendments)

Sources of Proposed Law

Changes From Present Law
Replace the word "periodical" with the words "publication generally".

Purpose of Change
This technical amendment will clarify the language and application of the Act.

Similar Provincial Laws

Current Wording
267.1 Information or notices required by this Act to be summarized in a periodical available to the public or published by the Director may be made available to the public or published by any system of mechanical or electronic data processing or by any other information storage device that is capable of reproducing any required information or notice in intelligible form within a reasonable time.

Proposed Wording
267.1 Information or notices required by this Act to be summarized in a publication generally available to the public or published by the Director may be made available to the public or published by any system of mechanical or electronic data processing or by any other information storage device that is capable of reproducing any required information or notice in intelligible form within a reasonable time.

Bill Clause No. 133
CBCA Section No. 268(6), (7) and (11)
Topic General (Technical Amendments)

Sources of Proposed Law

Changes From Present Law
Full citation for the Canada Corporations Act is provided and subs. 268(11) of the English version is amended by adding the words "by or" immediately preceding the phrase "under any Special Act as defined".

Purpose of Change
These technical amendments will clarify the language and application of the Act while reducing ambiguity. The changes to subsections 268(7) and (11) will match the wording in the English version with that found in the French version of the Statute.

Similar Provincial Laws

Current Wording
268. (6) The Governor in Council may, by order, require that a body corporate incorporated by or under an Act of Parliament to which Part I or II of the Canada Corporations Act does not apply, other than

(a) a bank,

(b) a company or society to which the Insurance Companies Act applies, or

shall apply for a certificate of continuance under section 187 within such period as may be prescribed.

(7) A body corporate to which Part IV of the Canada Corporations Act applies, other than a body corporate that carries on a business referred to in paragraph (6)(b) or (c), may apply for a certificate of continuance under section 187.

(11) A body corporate that is incorporated under a Special Act, as defined in section 87 of the Canada Transportation Act, may apply for a certificate of continuance under section 187.

Proposed Wording
268. (6) The Governor in Council may, by order, require that a body corporate incorporated by or under an Act of Parliament to which Part I or II of the Canada Corporations Act, chapter C-32 of the Revised Statutes of Canada, 1970, does not apply, apply for a certificate of continuance under section 187 within such period as may be prescribed except for the following:

a) a bank;

(b) a company or society to which the Insurance Companies Act applies; and

(7) A body corporate to which Part IV of the Canada Corporations Act, chapter C-32 of the Revised Statutes of Canada, 1970, applies, other than a body corporate that carries on a business referred to in paragraph (6)(b) or (c), may apply for a certificate of continuance under section 187.

(11) A body corporate that is incorporated by or under a Special Act, as defined in section 87 of the Canada Transportation Act, may apply for a certificate of continuance under section 187.

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

Bill Clause No. 134
CBCA Section No. 6(1)(d), 173(1)(n), 174(1)(c), 174(2), (3) and (4), 174(6), 176(1)(h), 176(3), and 190(1)(a)
Topic Technical Amendments

Sources of Proposed Law

Changes From Present Law
The French version of the Act is amended by replacing the word "appartenance" with the words "droit de propriété".
This change will be made in the following sections:6(1)d), 173(1)n), 174(1)c), 174(2), (3) et (4), 174(6), 176(1)h), 176(3) and 190(1)a).

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

Similar Provincial Laws

Current Wording
6. (1)d) éventuellement les restrictions imposées à l'émission, au transfert ou à l'appartenance de ses actions;

Proposed Wording
6. (1)d) éventuellement les restrictions imposées à l'émission, au transfert ou au droit de propriété de ses actions;

Bill Clause No. 135 and Schedule
CBCA Section No. schedule
Topic Gender Neutralization (Technical Amendments)

Sources of Proposed Law

Changes From Present Law
Amend the English version of the CBCA, to the extent possible, to remove gender specific language and replace it with gender neutral language.

Purpose of Change
There are over 100 references in the statute to "he", "him" and "his", particularly in relation to the CBCA Director. This amendment would remove this gender bias and incorporate language that represents both genders.

Similar Provincial Laws

Current Wording
N/A

Proposed Wording
N/A

Bill Clause No. 136
CBCA Section No. Unknown
Topic Review by Parliament

Sources of Proposed Law
1996 Report of the Standing Senate Committee on Banking, Trade and Commerce on Corporate Governance

Changes From Present Law
This amendment would require a committee of the Senate, of the House of Commons, or of both Houses of Parliament to undertake a review of the provisions and operations of the CBCA and to table a report of the findings of such a committee before both Houses of Parliament within five years of the coming into force of this section, and within ten years thereafter.

Purpose of Change
This amendment was introduced by Senator Oliver in the Senate prior to third reading of Bill S-11. Senator Oliver was of the view that Parliament should review the CBCA on a periodic basis given the importance of the statute to Canadian corporations and the rapid pace of change in the business world, both from a domestic and international point of view.

Similar Provincial Laws

Current Wording
N/A

Proposed Wording
136. A committee of the Senate, of the House of Commons or of both Houses of Parliament that is designated or established for the purpose shall, within five years after the coming into force of this section, and within every ten years thereafter, undertake a review of the provisions and operations of the Canada Business Corporations Act, and shall, within a reasonable period thereafter, cause to be laid before each House of Parliament a report thereon.

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