Have you heard about the amendments to the Canada Business Corporations Act (CBCA) that came into force on June 13, 2019 and the proposed amendments to the CBCA that are currently under consideration? This article provides an overview of the amendments so you can ensure you are in compliance and contemplate what steps to take for potential compliance in the future.
Significant Control Register - New Record Keeping
As of June 13, 2019, private corporations incorporated under the CBCA are required to create and maintain a register of individuals who have "significant control" over the business (the "Significant Control Register"). Reporting issuers, public corporations and corporations listed on a stock exchange are exempt from this requirement.
Among the objectives behind these amendments is to provide increased corporate transparency and to assist governmental authorities with matters related to money laundering. Various provincial and territorial governments are pursuing similar legislative amendments for their corporate statutes.
Who is an individual that has "significant control?"
- a registered and/or beneficial holder of a significant number of the shares. A "significant number of shares" means 25% or more of the voting rights or 25% or more of the shares of the corporation measured by fair market value;
- an individual with direct or indirect control, or direction, over a significant number of shares;
- an individual with influence, direct or indirect, which would result in control in fact of the corporation, whether or not the individual is a shareholder; or
- individuals who hold jointly, or act jointly or in concert, with other individuals who hold, a significant number of shares.
What information must be included on the Significant Control Register?
- the individual's name, latest known address and date of birth;
- the jurisdiction of residence for tax purposes;
- the date on which the individual became and/or ceased to have significant control;
- a description of how the individual meets the definition of an individual with significant control; and
- a description of the steps taken by the corporation to identify individuals with significant control and to update the information.
What is required to remain in compliance?
- The corporation is required to verify and/or update the Significant Control Register at least once a year.
- If during the year, the corporation becomes aware of a change to the Significant Control Register, the corporation needs to record such change within 15 days of becoming aware of the new information.
- Personal information of an individual who ceases to have significant control must be removed from the register within one year after the sixth anniversary of the date on which the individual ceased to have significant control.
Failure to comply
Shareholders are required to provide accurate and complete information in response to a request from the corporation for purposes of completing the Significant Control Register. Shareholders are expected to respond promptly upon receiving a request for information.
Directors, officers and/or shareholders who provide false or misleading information or knowingly fail to comply may risk penalties of up to $200,000 and/or imprisonment for up to six months.
If the corporation fails to meet its obligations to prepare and maintain the register, it could result in penalties of up to $5,000 and/or imprisonment for up to six months.
If an individual contravenes the use of information restrictions, the individual could face penalties of up to $5,000 and/or imprisonment for up to six months.
Who can access the Significant Control Register?
- Shareholders of the corporation and creditors of the corporation, or their personal representatives, may upon an application to the corporation and upon preparation of an affidavit with prescribed requirements, be allowed to access the Significant Control Register.
- Director of Corporations Canada, upon request.
Wording around some of these amendments may raise interpretation and implementation issues in the future. Questions may arise related to:
- concerns regarding the inclusion of personal information on the register particularly as it relates to beneficial shareholders;
- how influence, direct or indirect, that results in control in fact will be determined;
- shareholders who are trustees and whether the trustee alone exercises direct or indirect control; and
- how shareholders and creditors will be permitted to use the information in the register as it relates to the "affairs of the corporation."
Additional regulations to the CBCA may be introduced to assist in the interpretation and implementation of these amendments in the future. Additionally, there may be significant compliance burdens for some corporations both contacting shareholders to request the required information and then understanding the information that is provided to identify questions of direct and indirect control.
Proposed Amendments to the CBCA
Bill C-97 An Act to implement certain provisions of the budget tabled in Parliament on March 19, 2019 and other measures received first reading in the House of Commons on April 8, 2019 and as of May 2, 2019 was referred to the House of Commons Standing Committee on Finance. Bill C-97 introduced several potential amendments to the CBCA. None of these proposed amendments are in force. Bill C-97 must pass the third reading and receive royal assent before it comes into force and at that point certain amendments may not come into force until a future date when the regulations have been drafted and enacted.
Significant Control Register - Further Accessibility
Although the Significant Control Register was intended to assist with transparency and law enforcement, there are no provisions to allow law enforcement officials to access the Significant Control Register.
Bill C-97 proposes a further amendment to the CBCA that would require a private corporation to disclose the Significant Control Register, or certain information within it, to investigative bodies in certain prescribed circumstances, including where the investigative body has reasonable grounds to believe it is relevant to investigating prescribed offences (including fraud, bribery, and theft) and that the corporation or an individual with significant control of the corporation committed the offence or facilitated the commission of the offence.
Investigative bodies include a police force, the Canadian Revenue Agency (or similar provincial body) and any other prescribed body with investigative powers as determined by the federal cabinet. If this amendment comes into force, a director or officer who knowingly authorizes, permits or acquiesces in a contravention of the obligation to disclose may be fined up to $200,000 and/or sentenced to up to six months' imprisonment upon conviction.
Information Disclosure and Say-on-Pay
Under the proposed amendments, certain prescribed corporations, which would likely include public companies, would need to make available to shareholders certain prescribed information at every annual meeting which would include:
- diversity among the corporation's directors and senior management;
- clawback of incentives or other benefits paid to the corporation's directors and senior management;
- the well-being of employees, retirees and pensioners; and
- the approach to remuneration of "members of senior management."
The approach to remuneration of "members of senior management" would be put to an annual, non-binding shareholder vote also known as "say-on-pay" vote. The results of the say-on-pay vote would be required to be disclosed publicly.
The scope and details of these proposed amendments will be set out in the regulations that are still to be published. There will also be a consultation process in connection with these proposed amendments. As a result, implementation of these amendments and related regulations, if Bill C-97 is adopted, could take months or even years to be completed.
The Codification of BCE
Bill C-97 also codifies the decision of the Supreme Court of Canada in BCE Inc v 1976 Debentureholders, 2008 SCC 69, whereby the SCC determined that directors must consider the best interests of the corporation but may also consider the impact of corporate decisions on shareholders and certain stakeholder groups.
The proposed amendments to the CBCA would provide that directors and officers, in satisfying their duty to act in the best interests of the corporation, may consider, but are not limited to considering, the interests of shareholders, employees, retirees and pensioners, creditors, consumers, government, the environment and the long-term interests of the corporation. It is important to note that the BCE decision did not include reference to retirees and pensioners or the long-term interests of the corporation.
Virginia Schweitzer is the Co-Managing Partner of the Fasken Ottawa office and a leading corporate and M&A lawyer. She has provided counsel to technology and mining clients across North America for IPOs, private placements, mergers and acquisitions, and to not-for-profit corporations on corporate governance issues.
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