Quebec Corporate Law Reform In Effect February 2011

The new Quebec Business Corporations Act (QBCA), which was introduced following three years of extensive consultations, will come into force on February 14, 2011.

Major reform of Quebec corporate law

As discussed in our December 2009 bulletin, the QBCA makes major changes to the regime applicable to companies currently governed by the Quebec Companies Act (QCA). These changes will take effect as soon as the QBCA comes into force on February 14, 2011 as the Act will automatically apply to companies constituted, continued or resulting from an amalgamation under Part IA of the QCA without any action required on their part. They will become "business corporations" governed by the new statute, as will insurance companies within the meaning of the Act respecting insurance, to which Part IA of the QCA applies. Companies constituted, continued or resulting from an amalgamation under Part I of the QCA will, for their part, have five years to send articles of continuance to the enterprise registrar in accordance with the new statute, failing which they will be dissolved. The same transition period will apply to companies incorporated under the Mining Companies Act.¹

In the case of insurance companies within the meaning of the Act respecting insurance and trust companies and savings companies within the meaning of the Act respecting trust companies and savings companies, to which Part I of the QCA applies, articles of continuance must be sent to the enterprise registrar by February 14, 2013, failing which the QBCA, with the exception of certain specific provisions (Chapter X, section II of Chapter XII and Chapters XIII, XIV and XVII of the new statute will not apply to such companies), will be deemed to apply to them as of that date with the necessary modifications and subject to the provisions of the Act respecting insurance.

The new statute does not replace Part III of the QCA, which will continue to apply to joint stock companies and not-for-profit legal persons and associations. A complete reform of the law of incorporated associations is also underway although draft legislation is not yet available.

Even before it has come into force, the QBCA has been the subject of a first series of amendments under Bill 87, entitled the Act respecting the legal publicity of enterprises(LPA), assented to in May 2010. Another series of technical amendments to the QBCA was introduced under the Act to enact the Money-Services Businesses Act and to amend various legislative provisions and assented to on December 10.

Reform of the legal publicity rules

The corporate law reform implemented under the QBCA is accompanied by a complementary reform of the legal publicity regime for enterprises in Quebec under Bill 87, which was introduced by the Minister of Revenue, Robert Dutil, in March 2010 and passed and assented to last May. Certain provisions of that statute have been in effect since March 16, 2010 and others since May 19, 2010. Some other provisions came into force on November 17^th while most of the provisions will come into force at the same time as the QBCA, on February 14, 2011.²

The LPA consolidates into a single statute the Act respecting the legal publicity of sole proprietorships, partnerships and legal persons and the Act respecting the enterprise registrar. It contains a significant portion of those two statutes while making certain substantial changes to the legal publicity regime that will have an effect on the reporting requirements for businesses governed by the new statute.

Improved administration of the register

The LPA modernizes the interaction between registrants and the enterprise registrar by setting up a legislative framework for the electronic transmission of documents (s.109-115). Accordingly, it will become possible to file almost all declarations and requests to the registrar online, from incorporation to dissolution.

Formalities for updating information contained in the register will also be simplified. The updating will be possible online and the deadline will generally be 30 days instead of 15 as it now stands, from the date of the change to be reported in an updating declaration (s. 41). Also, registrants will be exempt from the requirement of filing an annual updating declaration if they declare in their fiscal return that the information in the register is up to date (s. 46). This will avoid the need to file declarations with the registrar simply to maintain the status quo.

"Enhancement" of register contents

The new statute "enhances" the enterprise register by broadening the scope of the information that must be reported to the registrar and kept up to date (see the explanatory notes to the LPA). The LPA establishes, among others, the following new requirements:

New information about the term of office of directors will have to be declared, i.e. the date of entry into office and the date of cessation of their office (s. 33, para. 3, subpara. 2, as amended by Bill 128);
A registrant will have to declare that it is a bankrupt within the meaning of the Bankruptcy and Insolvency Act without delay (s. 43)
With respect to partnerships and limited partnerships, the LPA repeals article 2190 of the Civil Code of Québec respecting the content of the declaration that they have to file with the registrar. The content will now be set out in the LPA. Regarding limited partnerships in particular, the LPA will add a new requirement—that of declaring the name and domicile of the three greatest contributors to the partnership among the special partners (s. 34, para. 1), and not only that of the single greatest contributor, as it now stands;
Legal persons must declare the existence of a unanimous shareholder agreement entered into in accordance with the laws of Quebec or a Canadian jurisdiction other than Quebec that restricts the powers of the directors or withdraws all powers from the directors (s. 35, para. 6). If such an agreement withdraws all powers from the board of directors, the registrant will also have to declare the names and domiciles of the shareholders or third persons who have assumed those powers (s. 33, para. 2, subpara. 2);
It will be required to register trusts operating a commercial enterprise in Quebec, other than a trust administered by a registered registrant (s. 378, para. 2 of Bill 128).

Contesting decisions by the registrar before the Administrative Tribunal of Québec

The right to appeal decisions of the enterprise registrar before the Court of Quebec that was provided under sections 90 and following of the Act respecting the legal publicity of sole proprietorships, partnerships and legal persons, will be replaced by access to a remedy before the Administrative Tribunal of Québec (s. 139). The Administrative Tribunal of Québec will only be able to confirm or quash the contested decision (s. 141(1)).

A few changes to bear in mind

As the QBCA will automatically apply to companies governed by Part IA as of the date of its coming into force, it is important for such companies to become familiar with its provisions as soon as possible. Similarly, entities required to register in Quebec will need to consider the new legal publicity rules.

Some changes to be taken into consideration right away include the following:

the content appearing on share certificates for Quebec corporations should be changed;
shares of Quebec corporations may be issued as uncertificated shares;
corporations should review their general by-laws;
new models for corporate documents should be adopted;
it will be possible to indicate a time, in addition to a date, in the articles;
it will no longer be necessary to indicate the judicial district in the articles;
certain stock holdings by some sub-subsidiaries, which are permitted under the current law, will be prohibited when the new statute comes into force and affected corporations will have five years to dispose of such shares;
restrictions relating to a corporation providing financial assistance to its shareholders will be eliminated;
the "accounting test" for the purchase or redemption of shares, payment of dividends and reduction of capital will be eliminated;
minority shareholders will acquire rights they do not have under the current statute;
shareholder proposals will be allowed for any holder or beneficiary of voting shares of a corporation that is a reporting issuer or that has 50 or more shareholders;
new governance rules will apply;
a legal person incorporated under a jurisdiction other than Quebec will be able to continue as a corporation governed by the QBCA, if authorized to do so by its governing act;
corporations governed by the QBCA will be able to continue under the laws of a jurisdiction other than Quebec, if that other jurisdiction allows for it;
the enterprise registrar will have increased powers to ensure compliance of the names declared by a registrant;
registrants will have to declare the existence of unanimous shareholder agreements, as well as the names and domiciles of the shareholders or third persons having assumed the powers of the board of directors, if all powers have been withdrawn from the directors;
trusts operating a commercial enterprise in Quebec will have to be registered, except if their trustee is already a registered registrant.

The author would like to thank Maïté Murray, KM Lawyer and Charles Moulins, student, for their help in drafting this post.

Footnotes

1 See Section 371 of the Act to enact the Money-Services Businesses Act and to amend various legislative provisions.

2 Order-in-Council 928-2010. Furthermore, sections 184 and 185 of the LPA will come into force on the date sections 200.0.9 and 200.0.11 respectively of the Act respecting insurance come into force.