New legislation makes the restructuring of not-for-profit
As of October 17, 2014, the period for transitioning to the new
Canada Not-for-profit Corporations Act will expire,
although Corporations Canada will give both notice and a further
grace period before dissolving non-compliant corporations.
This new legislation is intended to modernize the statutory
framework for the governance of not-for-profit corporations, and
does so. One of the ways in which it does this is by revamping the
parts of this statutory framework that govern
"reorganizations" and "arrangements" for the
restructuring of a corporation's capital or membership
We have seen not-for-profit corporations collapse under the
strain of financial legacy issues. Sometimes these issues arise
from "debt" problems – the corporation simply has
incurred too much debt to remain viable without a restructuring.
Other times these issues arise from an inability to alter legacy
rights. For example, some classes of membership may have perpetual
rights that reduce the corporation's revenue and increase its
costs, or restrict the corporation's ability to raise
additional capital. The prior governing legislation did not give
not-for-profit corporations much flexibility in dealing with legacy
The new Canada Not-for-profit Corporations Act contains
provisions similar to the legislation governing other (for-profit)
corporations in Canada, which permits a corporation in financial
distress to propose compromises to creditors and alter
shareholder rights. In cases of severe financial distress, these
rights can be altered by the court without the approval of
shareholders. This approach has for many years given Canadian
for-profit corporations the flexibility to take definitive steps
when those steps are required for the survival of those
Now, with the new statutory framework found in the Canada
Not-for-profit Corporations Act, this flexibility is also
available to not-for-profit corporations in financial distress,
when dealing with creditor, shareholder and member issues.
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