Canadian corporate law concerns the operation of
corporations
A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and r ...
in
Canada
Canada is a country in North America. Its ten provinces and three territories extend from the Atlantic Ocean to the Pacific Ocean and northward into the Arctic Ocean, covering over , making it the world's second-largest country by tot ...
, which can be established under either federal or provincial authority.
Federal incorporation of for-profit corporations is governed by Corporations Canada under the ''
Canada Business Corporations Act
The ''Canada Business Corporations Act'' (CBCA; french: Loi canadienne sur les sociétés par actions) is an act of the Parliament of Canada regulating Canadian business corporations. Corporations in Canada may be incorporated federally, under t ...
''. All of the Canadian provinces and territories also have laws permitting (and governing) the incorporation of corporations within their area of jurisdiction. Often, the choice of whether to incorporate federally or provincially will be based on many business considerations, such as scope of business and the desire for application of particular rules which may be available under one corporate statute but not another.
History
Prior to
Canadian Confederation
Canadian Confederation (french: Confédération canadienne, link=no) was the process by which three British North American provinces, the Province of Canada, Nova Scotia, and New Brunswick, were united into one federation called the Canada, Dom ...
, companies were organized through several procedures:
:* through contract as a
partnership
A partnership is an arrangement where parties, known as business partners, agree to cooperate to advance their mutual interests. The partners in a partnership may be individuals, businesses, interest-based organizations, schools, governments o ...
or unincorporated company
:* through
royal charter
A royal charter is a formal grant issued by a monarch under royal prerogative as letters patent. Historically, they have been used to promulgate public laws, the most famous example being the English Magna Carta (great charter) of 1215, bu ...
, as was done for the
Hudson's Bay Company
The Hudson's Bay Company (HBC; french: Compagnie de la Baie d'Hudson) is a Canadian retail business group. A fur trading business for much of its existence, HBC now owns and operates retail stores in Canada. The company's namesake business div ...
:* through an
Act of the Parliament of the United Kingdom
In the United Kingdom an act of Parliament is primary legislation passed by the Parliament of the United Kingdom.
An act of Parliament can be enforced in all four of the UK constituent countries (England, Scotland, Wales and Northern Ireland ...
, as for the
Canada Company
The Canada Company was a private British land development company that was established to aid in the colonization of a large part of Upper Canada. It was incorporated by royal charter on August 19, 1826, under an act of the British parliament,, ...
:* by an Act of the local legislature
:* formation as a
joint stock company
A joint-stock company is a business entity in which shares of the company's stock can be bought and sold by shareholders. Each shareholder owns company stock in proportion, evidenced by their shares (certificates of ownership). Shareholders are ...
without limited liability under the laws of the applicable colony (first introduced in
Lower Canada
The Province of Lower Canada (french: province du Bas-Canada) was a British colony on the lower Saint Lawrence River and the shores of the Gulf of Saint Lawrence (1791–1841). It covered the southern portion of the current Province of Quebec an ...
in 1849 for limited purposes, extended to other types of business in the
Province of Canada
The Province of Canada (or the United Province of Canada or the United Canadas) was a British North America, British colony in North America from 1841 to 1867. Its formation reflected recommendations made by John Lambton, 1st Earl of Durham ...
in 1850)
Before 1862,
limited liability
Limited liability is a legal status in which a person's financial liability is limited to a fixed sum, most commonly the value of a person's investment in a corporation, company or partnership. If a company that provides limited liability to it ...
was the exception, being conferred on specific companies through royal charter or special Act. When it was introduced into UK company law by the ''
Companies Act 1862
The Companies Act 1862 (25 & 26 Vict. c.89) was an Act of the Parliament of the United Kingdom regulating UK company law, whose descendant is the Companies Act 2006.
Provisions
*s 6 'Any seven or more persons associated for any lawful purpose may ...
'' as a matter of general application, the Canadian colonies introduced legislation to enable the same locally.
Upon Confederation, s. 92(11) of the ''
Constitution Act, 1867
The ''Constitution Act, 1867'' (french: Loi constitutionnelle de 1867),''The Constitution Act, 1867'', 30 & 31 Victoria (U.K.), c. 3, http://canlii.ca/t/ldsw retrieved on 2019-03-14. originally enacted as the ''British North America Act, 186 ...
'' gave provinces jurisdiction over "Incorporation of Companies with Provincial Objects." The judicial construction of this phrase has been the subject of several significant cases in the courts, and most notably at the
Judicial Committee of the Privy Council
The Judicial Committee of the Privy Council (JCPC) is the highest court of appeal for the Crown Dependencies, the British Overseas Territories, some Commonwealth countries and a few institutions in the United Kingdom. Established on 14 Augus ...
:
:* In 1881, in ''
Citizen's Insurance Co. v. Parsons
''Citizens Insurance Co of Canada v Parsons'' is a major Canadian constitutional case decided by the Judicial Committee of the Privy Council, at that time the highest court of appeal for the British Empire. The case decided a significant issue o ...
'', it was held that the
Parliament of Canada
The Parliament of Canada (french: Parlement du Canada) is the federal legislature of Canada, seated at Parliament Hill in Ottawa, and is composed of three parts: the King, the Senate, and the House of Commons. By constitutional convention, the ...
had authority to incorporate companies with objects of greater scope.
:* In 1914, in ''John Deere'', it was held that the provinces could not interfere with a federally incorporated company by requiring them to be registered locally in order to conduct business.
:* In 1916, in ''Bonanza Creek'', it was held that "provincial objects" did not restrict a company's operations to the province of incorporation, so long as it was licensed or registered to operate in another jurisdiction, and its incorporating Act allowed for that to occur.
The first Federal and Provincial Acts generally provided for incorporation through
letters patent
Letters patent ( la, litterae patentes) ( always in the plural) are a type of legal instrument in the form of a published written order issued by a monarch, president or other head of state, generally granting an office, right, monopoly, titl ...
, but the procedure was excluded federally for certain classes of company (such as railways and banks), which still had to be incorporated by special Act of Parliament. It was in this manner that the
Canadian Pacific Railway
The Canadian Pacific Railway (french: Chemin de fer Canadien Pacifique) , also known simply as CPR or Canadian Pacific and formerly as CP Rail (1968–1996), is a Canadian Class I railway incorporated in 1881. The railway is owned by Canadi ...
was originally formed.
Current Acts (such as the ''
Canada Business Corporations Act
The ''Canada Business Corporations Act'' (CBCA; french: Loi canadienne sur les sociétés par actions) is an act of the Parliament of Canada regulating Canadian business corporations. Corporations in Canada may be incorporated federally, under t ...
'') generally provide for formation by
articles of incorporation
Article often refers to:
* Article (grammar), a grammatical element used to indicate definiteness or indefiniteness
* Article (publishing), a piece of nonfictional prose that is an independent part of a publication
Article may also refer to:
G ...
, but
Prince Edward Island
Prince Edward Island (PEI; ) is one of the thirteen Provinces and territories of Canada, provinces and territories of Canada. It is the smallest province in terms of land area and population, but the most densely populated. The island has seve ...
still retains the letters patent procedure and
Nova Scotia
Nova Scotia ( ; ; ) is one of the thirteen provinces and territories of Canada. It is one of the three Maritime provinces and one of the four Atlantic provinces. Nova Scotia is Latin for "New Scotland".
Most of the population are native Eng ...
provides for incorporation by
memorandum of association.
Corporations Canada
Corporations Canada is Canada's federal corporate regulator, operating under
Innovation, Science and Economic Development Canada
Innovation, Science and Economic Development Canada (ISED; french: Innovation, Sciences et Développement économique Canada; french: ISDE, label=none)''Innovation, Science and Economic Development Canada'' is the applied title under the Federal I ...
. It is responsible for administering laws regarding the incorporation of Canadian businesses as well as "corporate laws governing federal companies, except for
financial intermediaries
A financial intermediary is an institution or individual that serves as a middleman among diverse parties in order to facilitate financial transactions. Common types include commercial banks, investment banks, stockbrokers, pooled investment funds ...
." (Financial institutions are incorporated by the
Office of the Superintendent of Financial Institutions
The Office of the Superintendent of Financial Institutions (OSFI; french: Bureau du surintendant des institutions financières, BSIF) is an independent agency of the Government of Canada reporting to the Minister of Finance created "to contribute ...
.)
It has the authority to
dissolve a corporation that has not filed its
annual returns. Corporations Canada is responsible for the administering the following laws:
* ''
Canada Business Corporations Act
The ''Canada Business Corporations Act'' (CBCA; french: Loi canadienne sur les sociétés par actions) is an act of the Parliament of Canada regulating Canadian business corporations. Corporations in Canada may be incorporated federally, under t ...
''
* ''Canada Cooperatives Act''
* ''Boards of Trade Act''
* ''Canada Not-for-Profit Corporations Act''
Corporate governance
Board of directors
The articles of incorporation can provide for different classes of shares (which may carry the right to elect separate directors).
Like most of the Commonwealth and Europe, the "one share, one vote" principle prevails in public companies, but
cumulative voting
Cumulative voting (also accumulation voting, weighted voting or multi-voting) is a multiple-winner method intended to promote more proportional representation than winner-take-all elections such as block voting or first past the post. Cumulative ...
can occur where the articles of incorporation so provide.
Shareholders must elect directors at each annual meeting, and, where the articles are silent, directors remain in office until the annual meeting after their election.
after incorporation (at which time the initial directors are simply registered). There can be staggered boards, but any director's term is limited to three annual meetings.
Directors elected by a particular class cannot be removed without consent of that class.
All changes in directors have to be filed with the registrar.
Where a company's securities are traded publicly on the
Toronto Stock Exchange
The Toronto Stock Exchange (TSX; french: Bourse de Toronto) is a stock exchange located in Toronto, Ontario, Canada. It is the 10th largest exchange in the world and the third largest in North America based on market capitalization. Based in t ...
, from 31 December 2012, it is required to:
:* elect its directors individually, as opposed to electing a
slate
Slate is a fine-grained, foliated, homogeneous metamorphic rock derived from an original shale-type sedimentary rock composed of clay or volcanic ash through low-grade regional metamorphism. It is the finest grained foliated metamorphic rock. ...
,
:* hold annual elections, as opposed elections for multi-year and/or staggered terms,
:* disclose annually whether it has adopted a
majority voting policy for uncontested director elections, and if not, explain why, and
:* after each meeting at which directors have been elected, notify the TSX if a director has received a majority of "withhold" votes (if it has not adopted such a policy), and promptly issue a press release disclosing the voting results.
In October 2012, the TSX also issued a proposal to require majority voting at uncontested elections.
The larger pension plans and other investment funds have instituted practices relating to the behaviour that is expected of the companies they invest in. Publications in that regard include:
:*
:*
:*
On September 29, 2016 the
Financial Post
The ''Financial Post'' was an English Canadian business newspaper, which published from 1907 to 1998. In 1998, the publication was folded into the new ''National Post'',"Black says Post to merge with new paper". ''The Globe and Mail'', July 23, ...
reported that a "Bill introduced in Parliament would vanquish 'zombie' directors who fail to win majority shareholder votes"
Board structure
Directors set their own remuneration. They have a fiduciary duty to not put their own interests first when setting it. Some case law exists where decisions about remuneration were not reached fairly, or where directors’ fees are unusually high, thus attracting
oppression remedy
In corporate law in Commonwealth countries, an oppression remedy is a statutory right available to oppressed shareholders. It empowers the shareholders to bring an action against the corporation in which they own shares when the conduct of the c ...
claims under the various corporate statutes. Otherwise the remuneration committee should be composed of independent directors. There is no
say on pay
Say on pay is a term used for a role in corporate law whereby a firm's shareholders have the right to vote on the remuneration of executives.
Often described in corporate governance or management theory as an agency problem, a corporation's manag ...
rule in the CBCA. However, a large number of Canadian companies have been having say on pay votes, as a result of shareholder proposals to change company constitutions in order to introduce them.
For publicly traded companies, the
Canadian Securities Administrators
The Canadian Securities Administrators (CSA; , ACVM) is an umbrella organization of Canada's provincial and territorial securities regulators whose objective is to improve, coordinate, and harmonize regulation of the Canadian capital markets.
...
have issued various National Instruments that have been implemented to varying degrees by the provincial and territorial securities regulators in order to assure better-functioning boards. They include:
:
''51-102: Continuous Disclosure Obligations'':
''52-109: Certification of Disclosure in Issuers' Annual and Interim Filings'':
''52-110: Audit Committees'':
''58-101: Disclosure of Corporate Governance Practices'' the Canadian implementation of the practices recommended by the UK
Cadbury Report
The Cadbury Report, titled ''Financial Aspects of Corporate Governance'', is a report issued by "The Committee on the Financial Aspects of Corporate Governance" chaired by Sir Adrian Cadbury, chairman of Cadbury, that sets out recommendations on ...
, made mandatory by the
Toronto Stock Exchange
The Toronto Stock Exchange (TSX; french: Bourse de Toronto) is a stock exchange located in Toronto, Ontario, Canada. It is the 10th largest exchange in the world and the third largest in North America based on market capitalization. Based in t ...
for listed companies.
Shareholder rights
Under s. 140(1) of the ''CBCA'', all shareholders have the right to vote. Shareholders holding the same class of shares must be treated equally, and so, for instance, no voting ceilings are allowed.
With 5% of the voting rights, known as a ''requisition'', shareholders may require directors to call a meeting. Uniquely, under s. 137 of the ''CBCA'':
:* a beneficial holder of shares may submit a proposal (which may include nominations to the board of directors), even though she is not a registered owner of shares. This means a broad group of people who sit behind investment dealers or other intermediaries in the investment chain are now enfranchised.
:* any shareholder can make a proposal, a brief statement of which must be included with notices of meetings, but it can be refused if it "does not relate in a significant way to the business or affairs of the corporation," or "the rights conferred by this section are being abused to secure publicity" and under s. 137(8) the only way to challenge this is by application to a court. The proposal also has to not have been submitted within the last 5 years, if the last time it got less than 3%, 6% or 10% of the votes (depending on how often it had previously been submitted). Before 2001 there was a prohibition on proposals for economic, political, racial, religious or social causes, but this has since been repealed.
:* careful preparation is required in order to succeed in getting a proposal approved at a shareholders' meeting, especially where it calls for the replacement of the existing board
:* otherwise, the directors determine what goes on the meeting and proxy solicitation agenda
While a starting point of Canadian companies is that directors "manage or supervise the management of, the business and affairs of a corporation," shareholders may unanimously agree to do a corporate act, regardless of what directors think. Shareholders can amend the articles with a three-quarters majority vote.
Political donations by corporations (and trade unions) have been prohibited since the ''
Federal Accountability Act
The Federal Accountability Act (full title: "An Act providing for conflict of interest rules, restrictions on election financing and measures respecting administrative transparency, oversight and accountability") (the Act) is a statute introduce ...
'' repealed s. 404.1 of the ''
Canada Elections Act
The ''Canada Elections Act'' (french: Loi électorale du Canada; full title: ''An Act respecting the election of members to the House of Commons, repealing other Acts relating to elections and making consequential amendments to other Acts'', full ...
'' in 2006.
Directors’ duties
The laws in the various jurisdictions governing the duties of directors generally follow that laid out in s. 122 of the ''CBCA'':
Extensive jurisprudence in the Canadian courts have expanded on the matter:
:* In ''
Peoples Department Stores Inc. (Trustee of) v. Wise'' it was held that the duty is not merely owed to the corporation itself, but also to corporate stakeholders, namely "shareholders, employees, suppliers, creditors, consumers, governments and the environment.: This duty is not mandatory. The main directors’ duties under Canadian corporate law is the duty of care, and then avoiding conflicts of interest, which include primarily of engaging in undisclosed self-dealing, taking unauthorized corporate opportunities, competing with the company, and being enriched in a takeover bid.
:* A director has to meet a minimum standard of care, regardless of how clever or incompetent he is. It has also been implied by the case law, that if directors have special skills or qualifications, this will raise the standard expected further above the minimum. In ''UPM-Kymmene Corp v UPM-Kymmene Miramichi Inc'' the board approved a large pay package for the chair and major shareholder, Mr Berg, after a seven-minute meeting of the compensation committee, and a 30-minute discussion on the full board. This was not long enough to consider the issues, properly inform themselves about the package, especially given their own compensation consultants, and the former compensation committee, had expressed serious concerns. Neither was this an issue of "business judgment" because that can logically only apply where some real judgment has in fact been exercised, where the board has "been scrupulous in its deliberations and demonstrated diligence in arriving at decisions."
Within the general duty to avoid conflicts of interest there is a duty for directors and officers to disclose self-dealing. A director has to disclose a material interest in any transaction the company enters into. The same strict standard as in the UK applies to this day, so even having a close friendship with someone that benefits from a company contract counts. They must state any conflict of interest that may result from the conclusion of a contract with a third party, and if they do not respect this obligation any shareholder or interested person may ask for the annulment of the decision taken. If a breach of duty has already taken place, the Canadian rules on ''
ex post'' shareholder approval provide that a shareholder resolution does not affect the invalidity of a transaction and the liability of the director, but it may be taken into account when the court decides whether or not to let a derivative action continue by a minority shareholder. The position on taking corporate opportunities begins with the case of ''
Cook v Deeks
''Cook v Deeks'' 916UKPC 10is a Canadian company law case, relevant also for UK company law, concerning the illegitimate diversion of a corporate opportunity. It was decided by the Judicial Committee of the Privy Council, at that time the court o ...
'', where directors must have authorization by independent directors before they try to make any profit out of their office, when the company itself could possibly have an interest in the same deal.
More modern cases show some differences in the strictness of the courts' approach:
:* In ''
Peso Silver Mines Ltd. (N.P.L.) v. Cropper'' the board, after getting advice, turned down mining claims because it lacked funds. A director, Mr Cropper, formed a company and bought them. Later, the company sued him. The Supreme Court of Canada held that there had been no breach in this case, since the company had positively decided not to take that opportunity, and just because the director found out about the opportunity whilst in his office did not mean the opportunity had to be turned over to the company.
:* Another leading case is ''
Canadian Aero Service Ltd. v. O'Malley'' where two directors, Mr O'Malley and Mr Zarzacki worked for a mapping and exploring business, and got involved in a project to map Guyana. They resigned, started a new company, Terra Surveys, and bid for a government tender to continue the work. The Supreme Court of Canada held that the proper questions to ask were whether the opportunity was closely connected to the company, and what relationship the directors had to the opportunity.
Tripartite Fiduciary Duty and the Principle of Fair Treatment
Corporate litigation
In addition to being initiated by the corporation, litigation can be exercised through either
derivative action A shareholder derivative suit is a lawsuit brought by a shareholder on behalf of a corporation against a third party. Often, the third party is an insider of the corporation, such as an executive officer or director. Shareholder derivative suits are ...
s or the
oppression remedy
In corporate law in Commonwealth countries, an oppression remedy is a statutory right available to oppressed shareholders. It empowers the shareholders to bring an action against the corporation in which they own shares when the conduct of the c ...
(the latter available federally and in all provinces other than
Prince Edward Island
Prince Edward Island (PEI; ) is one of the thirteen Provinces and territories of Canada, provinces and territories of Canada. It is the smallest province in terms of land area and population, but the most densely populated. The island has seve ...
). The two types of action are not mutually exclusive, and the differences between them were noted in 1991:
Access to derivative actions and the oppression remedy is available to any complainant, which in the case of the ''CBCA'' includes current and former shareholders, current and former directors and officers, the Director, and "any other person who, in the discretion of a court, is a proper person to make an application under this Part." In that regard, it can include a creditor of the corporation, but not every creditor will qualify. The court has discretion to dismiss an action where it is found to be frivolous, vexatious, or bound to be unsuccessful.
Shareholders can also bring claims based on breaches for personal rights directly, such as having one's right to vote obstructed.
Derivative actions
Derivative actions may be pursued by a complainant if:
#fourteen days' notice is given to the directors,
#the complainant is acting in good faith, and
#it appears to be in the interests of the corporation or its subsidiary that the action be brought, prosecuted, defended or discontinued.
Oppression remedy
Canadian legislation provides for a broad approach to the oppression remedy. In ''
Peoples Department Stores Inc. (Trustee of) v. Wise'', the
Supreme Court of Canada
The Supreme Court of Canada (SCC; french: Cour suprême du Canada, CSC) is the Supreme court, highest court in the Court system of Canada, judicial system of Canada. It comprises List of Justices of the Supreme Court of Canada, nine justices, wh ...
noted:
In ''
BCE Inc. v. 1976 Debentureholders'', the Supreme Court of Canada stated that, in assessing a claim of oppression, a court must answer two questions:
:* Does the evidence support the reasonable expectation asserted by the claimant? and
:* Does the evidence establish that the reasonable expectation was violated by conduct falling within the terms "oppression", "unfair prejudice" or "unfair disregard" of a relevant interest?
Where conflicting interests arise, 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. There are no absolute rules and no principle that one set of interests should prevail over another. This is defined as a "tripartite fiduciary duty", composed of (1) an overarching duty to the corporation, which contains two component duties — (2) a duty to protect shareholder interests from harm, and (3) a procedural duty of "fair treatment" for relevant stakeholder interests. This tripartite structure encapsulates the duty of directors to act in the "best interests of the corporation, viewed as a good corporate citizen".
Following ''BCE'', the
Court of Appeal of British Columbia
The British Columbia Court of Appeal (BCCA) is the highest appellate court in the province of British Columbia, Canada. It was established in 1910 following the 1907 Court of Appeal Act.
The BCCA hears appeals from the Supreme Court of British ...
noted that "breach of fiduciary duty ... 'may assist in characterizing particular conduct as tending as well to be 'oppressive', 'unfair', or 'prejudicial'". More recently, scholarly literature has clarified the connection between the oppression remedy and the fiduciary duty in Canadian law:
Under the
business judgment rule
The business judgment rule is a case law-derived doctrine in corporations law that courts defer to the business judgment of corporate executives. It is rooted in the principle that the "directors of a corporation... are clothed with hepresumptio ...
, deference should be accorded to the business decisions of directors acting in good faith in performing the functions they were elected to perform, but such deference is not absolute.
The remedy can extend to a wide variety of scenarios:
:* It can be potentially used by any stakeholder to deal with any type of unfair conduct by a corporation
:* It can cover an affiliate not incorporated under the same Act
:* It has been used to enforce unpaid judgments against the corporation's directors, where the corporation had been subject to
asset stripping
Asset stripping is a term used to refer to the practice of selling off a company's assets in order to improve returns for equity investors. In many cases where the term is used, a financial investor, referred to as a 'corporate raider', takes cont ...
:* It has also been used in conjunction with other remedies including the threatened winding up of a company by the court in order to resolve shareholder disputes in closely held companies.
:* The Crown has employed the oppression remedy in its status as a creditor under the ''Income Tax Act'', in order to set aside dividend payments that rendered a corporation unable to pay its tax liability.
:* Where a company has made excessive salary payments to a controlling shareholder, a judgment creditor has been permitted to be a complainant.
:* A wrongfully dismissed employee can make a claim in order to thwart a corporation from conducting asset stripping in order to make itself
judgment proof
In the context of contract law, debt collection and civil litigation, the term judgment proof is commonly used to refer to defendants or potential defendants who are financially insolvent, or whose income and assets cannot be obtained in satisfact ...
.
The court's discretion is not unlimited, as the
Court of Appeal of Newfoundland and Labrador
The Court of Appeal of Newfoundland and Labrador is at the top of the hierarchy of courts for the Canadian province of Newfoundland and Labrador. The Court of Appeal derives its powers and jurisdiction from the Court of Appeal Act.
The independe ...
observed in 2003:
:* The result of the exercise of the discretion contained in subsection 371(3) must be the rectification of the oppressive conduct. If it has some other result the remedy would be one which is not authorized by law.
:* Any rectification of a matter complained of can only be made with respect to the person’s interest as a shareholder, creditor, director or officer.
:* Persons who are shareholders, officers and directors of companies may have other personal interests which are intimately connected to a transaction. However, it is only their interests as shareholder, officer or director as such which are protected by section 371 of the Act. The provisions of that section cannot be used to protect or to advance directly or indirectly their other personal interests.
:* The law is clear that when determining whether there has been oppression of a minority shareholder, the court must determine what the reasonable expectations of that person were according to the arrangements which existed between the principals.
:* They must be expectations which could be said to have been, or ought to have been, considered as part of the compact of the shareholders.
:* The determination of reasonable expectations will also
..have an important bearing upon the decision as to what is a just remedy in a particular case.
:* The remedy must not be unjust to the others involved.
Takeover bids
In takeover situations, Canada gives shareholders no straightforward right to extinguish a frustrating measure. However, ordinary directors' duties regarding conflicts of interest apply.
Rules governing
takeover bid
In business, a takeover is the purchase of one company (the ''target'') by another (the ''acquirer'' or ''bidder''). In the UK, the term refers to the acquisition of a public company whose shares are listed on a stock exchange, in contrast to ...
s come from various sources:
:* provisions in the incorporating statutes,
:* rules found in the provincial and territorial securities laws (where the corporation's shares are publicly traded), and
:* special requirements of the listing exchange (either the
Toronto Stock Exchange
The Toronto Stock Exchange (TSX; french: Bourse de Toronto) is a stock exchange located in Toronto, Ontario, Canada. It is the 10th largest exchange in the world and the third largest in North America based on market capitalization. Based in t ...
or the
TSX Venture Exchange
The TSX Venture Exchange is a stock exchange in Canada. It is headquartered in Calgary, Alberta, with offices in Toronto, Vancouver, and Montreal. All trading through the Exchange is done electronically, so the Exchange does not have a "trading f ...
).
Relatively little litigation has taken place in this matter in the Canadian courts. The current régime (which has been described as being quite lax in comparison to that in the United States) came into effect in 2008. The
Canadian Securities Administrators
The Canadian Securities Administrators (CSA; , ACVM) is an umbrella organization of Canada's provincial and territorial securities regulators whose objective is to improve, coordinate, and harmonize regulation of the Canadian capital markets.
...
issued proposals in 2013 on tightening early warning requirements in their rules, while in Quebec the ''
Autorité des marchés financiers'' issued a proposal favouring an alternative approach concerning all take-over bid defensive tactics.
Corporate reorganizations
Canadian corporate law offers a variety of options in which to conduct
reorganization
A corporate action is an event initiated by a public company that brings or could bring an actual change to the securities—equity or debt—issued by the company. Corporate actions are typically agreed upon by a company's board of directors ...
s, depending on whether the context concerns
mergers and acquisitions
Mergers and acquisitions (M&A) are business transactions in which the ownership of companies, other business organizations, or their operating units are transferred to or consolidated with another company or business organization. As an aspect ...
or
insolvency
In accounting, insolvency is the state of being unable to pay the debts, by a person or company ( debtor), at maturity; those in a state of insolvency are said to be ''insolvent''. There are two forms: cash-flow insolvency and balance-sheet i ...
.
Companies' Creditors Arrangement Act
A unique feature of Canadian law is found in the ''
Companies' Creditors Arrangement Act
The ''Companies' Creditors Arrangement Act'' (CCAA; french: Loi sur les arrangements avec les créanciers des compagnies) is a statute of the Parliament of Canada that allows insolvent corporations owing their creditors in excess of $5 million to ...
'', which provides a scheme for allowing insolvent corporations, which owe in excess of $5 million to their creditors, a method for restructuring their business and financial affairs.
Under the ''CCAA'', the court has broad discretion in administering any issues that may arise. As the Act says,
This has allowed for very creative applications for resolving difficult scenarios, including:
:* the packaging and orderly resolution of holdings of
asset-backed commercial paper
Asset-backed commercial paper (ABCP) is a form of commercial paper that is collateralized by other financial assets. Institutional investors usually purchase such instruments in order to diversify their assets and generate short-term gains.
Stru ...
by multiple investors, which can include the release of claims against third parties who are themselves solvent and not creditors of the debtor company
:* dealing with
limited partnership
A limited partnership (LP) is a form of partnership similar to a general partnership except that while a general partnership must have at least two general partners (GPs), a limited partnership must have at least one GP and at least one limited ...
s managed by an insolvent general partner
:* arranging for disposal of the company through a
stalking horse offer A stalking horse offer, agreement, or bid is a bid for a bankrupt firm or its assets that is arranged in advance of an auction to act as an effective reserve bid. The intent is to maximize the value of its assets or avoid low bids, as part of (or be ...
:* providing a more effective way for arranging
merger and acquisition
Mergers and acquisitions (M&A) are business transactions in which the ownership of companies, other business organizations, or their operating units are transferred to or consolidated with another company or business organization. As an aspect ...
transactions involving distressed companies
:* administering the
liquidation
Liquidation is the process in accounting by which a company is brought to an end in Canada, United Kingdom, United States, Ireland, Australia, New Zealand, Italy, and many other countries. The assets and property of the company are redistrib ...
of the company
:* declining to approve
restructuring plans, either because they are poorly conceived or contrary to the best interests of the parties concerned
Plans of arrangement
The various Canadian statutes also allow for plans of arrangement to be devised for companies that are solvent. In that regard, the ''CBCA'' defines arrangements as including:
:* an amendment to the articles of a corporation;
:* an amalgamation of two or more corporations;
:* an amalgamation of a body corporate with a corporation that results in an amalgamated corporation subject to this Act;
:* a division of the business carried on by a corporation;
:* a transfer of all or substantially all the property of a corporation to another body corporate in exchange for property, money or securities of the body corporate;
:* an exchange of securities of a corporation for property, money or other securities of the corporation or property, money or securities of another body corporate;
:* a
going-private transaction or a
squeeze-out transaction in relation to a corporation;
:* a liquidation and dissolution of a corporation; and
:* any combination of the foregoing.
Plans of arrangement have been employed in cross-border mergers to great success. They have also been used for
debt restructuring
Debt restructuring is a process that allows a private or public company or a sovereign entity facing cash flow problems and financial distress to reduce and renegotiate its delinquent debts to improve or restore liquidity so that it can continue ...
in insolvency situations, which is a recent innovation in Canadian proceedings.
The
Supreme Court of Canada
The Supreme Court of Canada (SCC; french: Cour suprême du Canada, CSC) is the Supreme court, highest court in the Court system of Canada, judicial system of Canada. It comprises List of Justices of the Supreme Court of Canada, nine justices, wh ...
, in its ruling in ''
BCE Inc. v. 1976 Debentureholders'', stated that, in seeking court approval of an arrangement, the onus is on the corporation to establish that
:* the statutory procedures have been met;
:* the application has been put forth in good faith; and
:* the arrangement is "fair and reasonable".
To approve a plan of arrangement as fair and reasonable, courts must be satisfied that
:* the arrangement has a valid business purpose, and
:* the objections of those whose legal rights are being arranged are being resolved in a fair and balanced way.
Courts should refrain from substituting their views of the "best" arrangement, but should not surrender their duty to scrutinize the arrangement. Only security holders whose legal rights stand to be affected by the proposal are envisioned. It is a fact that the corporation is permitted to alter individual rights that places the matter beyond the power of the directors and creates the need for shareholder and court approval. However, in some circumstances, interests that are not strictly legal could be considered. The fact that a group whose legal rights are left intact faces a reduction in the trading value of its securities generally does not constitute a circumstance where non‑legal interests should be considered on an application for an arrangement.
The courts take their duty seriously in assessing such plans, as was evidenced in Ontario in 2014. In determining that a plan of arrangement was fair, no weight was given by the court to the
fairness opinion A fairness opinion is a professional evaluation by an investment bank or other third party as to whether the terms of a merger, acquisition, buyback, spin-off, or privatization are fair. It is rendered for a fee. They are typically issued when ...
obtained by the directors, as:
:* shareholders considering the fairness opinion did not have disclosure of the fees payable to the advisor to assess how much work was performed, and
:* it did not include any of the underlying
financial analysis
Financial analysis (also known as financial statement analysis, accounting analysis, or analysis of finance) refers to an assessment of the viability, stability, and profitability of a business, sub-business or project.
It is performed by profes ...
performed by the advisor, so
:* it could not be considered to comply with procedural requirements for
expert evidence
An expert witness, particularly in common law countries such as the United Kingdom, Australia, and the United States, is a person whose opinion by virtue of education, training, certification, skills or experience, is accepted by the judge a ...
.
However, such concern may not apply where a transaction is not being contested, in which case the opinion may considered as evidence that the board had "considered the fairness and reasonableness of the proposed transaction on the basis of objective criteria to the extent possible."
Liquidation and dissolution
Liquidation
Liquidation is the process in accounting by which a company is brought to an end in Canada, United Kingdom, United States, Ireland, Australia, New Zealand, Italy, and many other countries. The assets and property of the company are redistrib ...
(also known as
winding up
Liquidation is the process in accounting by which a company is brought to an end in Canada, United Kingdom, United States, Ireland, Australia, New Zealand, Italy, and many other countries. The assets and property of the company are redistrib ...
) can occur in several ways:
:* under provisions of the incorporating statute, where the corporation is solvent,
:* under the ''
Bankruptcy and Insolvency Act
The ''Bankruptcy and Insolvency Act'' (BIA; french: Loi sur la faillite et l'insolvabilité) (the ''Act'') is one of the statutes that regulates the law on bankruptcy and insolvency in Canada. It governs bankruptcies, consumer and commercial prop ...
'', where it is insolvent or has committed an act of bankruptcy, or
:* under the ''
Winding-Up and Restructuring Act
The ''Winding-up and Restructuring Ac''t (french: Loi sur les liquidations et les restructurations) ("WURA") (the ''Act'') is a statute of the Parliament of Canada that provides for the winding up of certain corporations and the restructuring of ...
'', where it is an insolvent financial institution or an insolvent corporation incorporated under provincial law (although the latter case is only rarely seen in recent times).
Liquidation under the incorporating statute can occur with or without an accompanying court order that provides for the orderly payment of debts and/or the dissolution of the corporation. Under the ''BIA'', an insolvent corporation exits bankruptcy after the court approves its discharge (but it may not apply for discharge until its debts are paid in full). Under the ''WURA'' the corporation is required to cease business.
Dissolution is a separate process, which may occur:
:* with or without liquidation (although liquidation under court order will extinguish all debts), or
:* where it is not in compliance with the incorporating statute.
Resources by jurisdiction
The following list provides links relating to general Acts of incorporation, other than those relating to
cooperative
A cooperative (also known as co-operative, co-op, or coop) is "an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically-control ...
s,
financial institution
Financial institutions, sometimes called banking institutions, are business entities that provide services as intermediaries for different types of financial monetary transactions. Broadly speaking, there are three major types of financial insti ...
s and organizations incorporated by
special Act
Special or specials may refer to:
Policing
* Specials, Ulster Special Constabulary, the Northern Ireland police force
* Specials, Special Constable, an auxiliary, volunteer, or temporary; police worker or police officer
Literature
* Specials ( ...
:
See also
*
UK company law
The United Kingdom company law regulates corporations formed under the Companies Act 2006. Also governed by the Insolvency Act 1986, the UK Corporate Governance Code, European Union Directives and court cases, the company is the primary legal ...
*
US corporate law
United States corporate law regulates the governance, finance and power of corporations in US law. Every state and territory has its own basic corporate code, while federal law creates minimum standards for trade in company shares and governance ...
*
Australian corporations law
Australian corporations law has historically borrowed heavily from UK company law. Its legal structure now consists of a single, national statute, the Corporations Act 2001. The statute is administered by a single national regulatory authority, ...
*
German company law
German company law (''Gesellschaftsrecht'') is an influential legal regime for companies in Germany. The primary form of company is the public company or ''Aktiengesellschaft'' (AG). A private company with limited liability is known as a ''Gesells ...
*
French company law
French company law is the law governing corporations incorporated in France or under French corporate law.
History
In the wake of the French Revolution in 1791, the right to free registration for all private companies was proclaimed. There was a ...
*
European company law
European company law is a part of European Union law, which concerns the formation, operation and insolvency of companies (or corporations) in the European Union. The EU creates minimum standards for companies throughout the EU, and has its own cor ...
*
List of Acts of Parliament of Canada
This is an incomplete list of the continuing Acts of the Parliament of Canada. Many of these Acts have had one or more amending Acts.
1867 – 1899
* ''Aliens and Naturalization Act'', 1868
* ''Fisheries Act'', 1868
* ''Gradual Enfranchisem ...
*
Unlimited liability corporation An unlimited liability corporation (ULC) within Canadian corporate law is a Canadian corporation designation, wherein shareholders are liable up to unlimited amounts for any liability, act or default of the corporation. By comparison, in most corp ...
*
List of company registers
This is a list of official business registers around the world.
There are many types of official business registers, usually maintained for various purposes by a state authority, such as a government agency, or a court of law. In some cases, ...
References
Further reading
*
*
*
*
*
{{North America topic, Corporate law in
Canadian federal legislation
Types of business entity