Prepare for New Amendments to Canadian Business Corporations Act

TAX ALERT

August 2019

Prepare for New Amendments to Canadian Business Corporations Act

The federal government has proposed amendments to the Canadian Business Corporations Act (CBCA), as first announced in the 2019 federal budget. On April 8, 2019, the government introduced Bill C-97, An Act to implement certain provisions of the budget tabled in Parliament on March 19, 2019 and other measures. This bill includes the amendments proposed to the CBCA; the most significant proposed changes are as follows:

Codification of BCE Inc. Ruling

The 2008 Supreme Court of Canada (SCC) ruling in BCE Inc. v 1976 Debenture Holders is the leading decision as to whom is owed the duties of corporate directors. The SCC ruled that “directors owe their duty to the corporation, not to stakeholders, and that the reasonable expectation of stakeholders is simply that the directors act in the best interests of the corporation.” Further, the court asserted that, “…conflicts may arise between the interests of corporate stakeholders inter se and between stakeholders and the corporation. Where the conflict involves the interest of the corporation, it falls to the directors of the corporation to resolve them in accordance with their fiduciary duty to act in the best interests of the corporation, viewed as a good corporate citizen.”

Bill C-97 codifies this decision with new subsection 122(1.1) of the CBCA, providing that when acting with a view to the best interests of the corporation, the directors and officers may consider, but are not limited to, the following factors:

• the interests of shareholders, employees, retirees and pensioners, creditors, consumers and governments;
• the environment; and
• the long-term interests of the corporation

Say on Pay

Bill C-97 includes proposed amendments which would require prescribed corporations to develop a remuneration approach for members of senior management. This approach will be disclosed annually to shareholders and put to a non-binding say-on-pay vote, the results of which will also be disclosed to shareholders.

The parameters surrounding “prescribed corporations” and “members of senior management” have yet to be released; regulations will have to be drafted and enacted, following the date of royal assent.

New Reporting Requirements

Bill C-97 requires that the directors of a prescribed corporation must annually provide information to shareholders with respect to (i) diversity amongst the directors and “members of senior management;” (ii) the well-being of employees, retirees and pensioners; and (iii) the recovery of incentive benefits or other benefits paid to directors and “members of senior management.”

New Record Keeping Requirement

Beginning on June 13, 2019, private CBCA corporations will be required to maintain a register containing information about individuals who, directly or indirectly, have “significant control” over the corporation. Reporting issuers and corporations listed on a designated exchange are exempt from this new requirement.

An individual with “significant control” has been defined as an individual who controls, directly or indirectly, 25 percent or more of either the outstanding number of voting shares of the corporation or the fair market value of the corporation’s shares.

Bill C-97 requires the corporations provide a copy of the register to investigative bodies, including police forces, the Canada Revenue Agency and any other prescribed body investigating an offence involving the corporation or an individual with significant control. Significant fines and penalties will be enforced for non-compliance; any director or officer of a corporation who knowingly authorizes, permits or acquiesces in the corporation’s failure to meet the register requirements may be liable to a fine not exceeding $200,000, to imprisonment for a term not exceeding six months, or to both.

For more information on how these new laws may impact you, contact your local MNP Business Advisor or visit MNP.ca