Québec Introduces Proposals to Reform and Modernize its Corporate Law
December 4, 2009
Bill 63, also known as the Business Corporations Act, was introduced in the Québec National Assembly on October 7, 2009. It constitutes a substantial reform and modernization of the Companies Act (Québec) (QCA) currently in force, while retaining some of its features. Below, we have highlighted some of the differences between Bill 63, the QCA and the Canada Business Corporations Act (CBCA) that we believe are of interest. (Since the time of writing the article, Bill 63 was adopted on December 1st and enacted on December 4th, 2009.)
What Bill 63 Does Not Contain
Bill 63 does not contain any residency requirement for directors — although the company’s head office must be located in Québec. Nor does Bill 63 contain any provision prohibiting or circumscribing the granting of loans or financial assistance. In addition, there is no longer any requirement for a "balance sheet" test, whether in the case of the declaration and payment of dividends, purchase and repurchase of shares, or increase or reduction of share capital or otherwise — though the "solvency" test remains applicable in all of the aforementioned situations. Furthermore, a corporation may not make a payment to purchase or redeem shares if the payment would make the corporation unable, in the event of liquidation, to repay higher or equally ranking shares.
Shareholder Rights and Protections
Bill 63 provides for an array of shareholder rights and protections typically found in most modern corporate statutes — dissent rights, oppression remedy, derivative actions, shareholder proposals — while adding certain enhancements and clarifications, as well as some novel rights. Among the rights in Bill 63, the dissent right provides a specific mechanism for beneficial shareholders to exercise this right; shareholders will be able to inspect ballots and proxies used at shareholders’ meetings; shareholders are explicitly permitted to discuss relevant matters at shareholders’ meetings for a "reasonable period of time"; and companies that are not reporting issuers must notify shareholders of the details of any share buy-back.
Bill 63 provides unique flexibility in the area of capital structure: it retains the possibility of issuing shares without par value as well as shares that are not fully paid, while permitting shares to be uncertificated, classes and series of shares to be identical, and fractional shares to be issued carrying proportionate rights. In addition, an irregular issue of shares (i.e., shares that are issued in a manner inconsistent with the authorized share capital or articles of incorporation or that are irregular for any other reason) may be rectified by the unanimous resolution of the shareholders.
In the area of governance, Bill 63 provides directors with a clear due diligence defence pursuant to which directors are expressly permitted to rely on the report or opinion not only of professional advisors or experts, but also on an officer of the corporation that is "reliable and competent" and a board committee that "merits confidence." In addition, Bill 63 clarifies that directors may generally delegate their powers, but not, inter alia, those which consist in authorizing the issuance of shares or in appointing or determining the remuneration of the president of the corporation, the chair of the board of directors, the CEO, the CFO, and the COO. Bill 63 also clarifies that the quorum of directors at a meeting consists of a majority of directors "in office." Also, it prohibits directors who have an interest in a contract or a matter before the board not only from voting on the matter, but also from being present during deliberations.
Bill 63 contains provisions that allow all typical corporate procedures — amalgamations, plans of arrangement, reorganizations, compulsory acquisitions, dissolutions — that are found in many corporate statutes, though formulated in some cases with certain modifications of interest. For example, in the case of amalgamations, a director or officer will no longer be required to file a declaration regarding the solvency of the amalgamating and amalgamated companies. However, director liability is incurred if the amalgamated company is unable to pay its debts as they become due.
Bill 63 facilitates internal corporate reorganizations, whether for the purpose of simplifying corporate structure or tax planning: certificates of amalgamation and of arrangement (as well as any other certificate) may specify an effective "time," and subsidiaries will be allowed to hold shares of their parent for a period not exceeding 30 days. Bill 63 will also allow corporations governed by foreign laws to be continued under the Québec statute and vice-versa.
The articles of the corporation may be amended by a special resolution of shareholders, and such a resolution may specifically permit the board not to proceed with the amendment notwithstanding its approval by the shareholders. Unlike in the CBCA, but as in the current QCA, stock splits and stock consolidations are not considered to be amendments to the articles and therefore may be carried out by resolution of the board of directors without shareholder approval (except, in the case of a consolidation, if it would result in a shareholder holding less than one share).
McCarthy Tétrault Notes:
Bill 63 keeps some of the advantages of the QCA, while updating Québec corporate law by the addition of certain rights, recourses and procedures — most of which are, but some of which are not, currently available under the CBCA. For all these reasons, if Bill 63 comes into force in its present form, the new Québec legislation on corporations will be an interesting and appealing statute for Canadian businesses, especially those based in Québec.
The transitional provisions of Bill 63 provide that all companies governed by Part IA of the QCA will automatically be governed by Bill 63 once it comes into force. It is not anticipated that Bill 63 will be proclaimed in force before the end of 2011.
It is expected that our clients and other existing Québec companies will require our assistance with the mandatory aspects of the transition on an ongoing basis and that we will present seminars to explain the new opportunities that Bill 63 offers. In particular, it will be important for Québec clients and companies to review their corporate bylaws with legal counsel and to obtain our advice as to where it would be useful or appropriate to modify them in accordance with the new legislation.
For a more detailed discussion of these proposed changes, please see ourLegal Update published on November 6, 2009.