Analysis of the Changes to the Canada Business Corporations Act

Part 1 Interpretation and Application (Clause 1-2)

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.

Part 2 Incorporation (clauses 3-7)

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.

Part 3 Capacity and Powers (clauses 8)

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.

Part 4 Registered Office and Records (clauses 9-12)

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.

Part 5 Corporate Finance (clauses 13-16)

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 :

Part 5 Corporate Finance (clauses 17-22)

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.

Part 5 Corporate Finance (clauses 23-27)

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.

Part 6 Sale of Constrained Shares (clause 28)

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.

Part 7 Security Certificates, Registers and Transfers (clauses 29-33)

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

(c) a trustee who certifies it in accordance with a trust indenture.

(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 LawRemove 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.

Part 8 Trust Indentures (clause 34)

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.

Part 9 Receivers and Receivers- Managers (no amendments)

There are no proposed amendments to this Part.

Part 10 Directors and Officers (clauses 35-38)

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.

Part 10 Directors and Officers (clauses 39-44)

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;

Part 10 Directors and Officers (clauses 45-48)

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

(c) has a material interest in a party to the contract or transaction.

(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

(c) is with an affiliate.

(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

(c) there has been a material change in the nature of the director's or the officer's interest in the party.

(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

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

(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

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

(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.

Part 10 Directors and Officers (clauses 49-51)

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

(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 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.

Part 11 Insider Trading (clauses 52-53)

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.

Part 11 Insider Trading (clause 54)

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

(c) the purchase or sale of the security took place in the prescribed circumstances.

(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.

Language selection

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Analysis of the Changes to the Canada Business Corporations Act

Table of contents

Part 1 Interpretation and Application (Clause 1-2)

Part 2 Incorporation (clauses 3-7)

Part 3 Capacity and Powers (clauses 8)

Part 4 Registered Office and Records (clauses 9-12)

Part 5 Corporate Finance (clauses 13-16)

Part 5 Corporate Finance (clauses 17-22)

Part 5 Corporate Finance (clauses 23-27)

Part 6 Sale of Constrained Shares (clause 28)

Part 7 Security Certificates, Registers and Transfers (clauses 29-33)

Part 8 Trust Indentures (clause 34)

Part 9 Receivers and Receivers- Managers (no amendments)

Part 10 Directors and Officers (clauses 35-38)

Part 10 Directors and Officers (clauses 39-44)

Part 10 Directors and Officers (clauses 45-48)

Part 10 Directors and Officers (clauses 49-51)

Part 11 Insider Trading (clauses 52-53)

Part 11 Insider Trading (clause 54)