As of August 1, 2007, significant amendments to the OBCA have come into effect. The changes, which affect both public and private companies, can be roughly grouped into four types, respectively concerning (i) directors and officers, (ii) shareholders’ rights, (iii) corporate procedures and organization, and (iv) corporate finance. While many of the amendments are intended to bring the OBCA into line with the CBCA, others represent departures from the CBCA that may be relevant to the choice of incorporation jurisdiction.
Directors and officers
The amendments expand the general defence applicable to directors from the previous standard of "good faith reliance" on financial reports or professional advice into the broader "reasonable diligence" standard familiar from the CBCA. In so doing, however, the amendments introduce uncertainty with respect to this provision’s interaction with the OBCA’s fiduciary duty and duty of care provisions. The amendments also follow the CBCA in reducing the resident director requirementresident director requirement to 25% and reducing the potential of directors’ personal exposure to actions on the part of stakeholders while allowing directors to rely with greater confidence on the advice of corporate officers and employees and to use D&O insurance and seek indemnification in a slightly wider range of circumstances. Directors will also face new requirements with respect to conflicts of interest including a prohibition on attending parts of meetings during which a conflicting contract or transaction is discussed.
Beneficial owners of shares will be given the same rights as shareholders in a range of situations. Importantly for shareholders of OBCA offering corporations the definition of "solicitation" will be broadened to include certain types of public announcement, the requirement for a dissident’s circular will be eliminated in certain cases and shareholders will have to "opt in" – not current CBCA practice but in line with proposed securities law changes – if they wish to receive materials relating to annual meetings. Shareholders will be able to vote at a meeting only to the extent that they were shareholders on the record date. Shareholder proposals, together with letters of support, will be subject to a new, though as yet undefined, word limit and there will no longer be a notice requirement for derivative actions in certain situations. Shareholders to whom the powers of directors are delegated under USAs gain certain defences previously reserved for directors.
Corporate procedures and organization
The OBCA’s financial assistance rule will be abolished. There are also some new rules relating to voluntary dissolutions and revivals of OBCA corporations and further provision for electronic notices.
Under the amendments, a subsidiary will be allowed to own shares of its parent under prescribed conditions. There are further exemptions from the rule requiring inclusion of the full value of consideration in stated capital accounts in the case of stock dividends and purchases of property from arm’s-length persons. The permissibility of creating multiple share classes or series with identical rights is clarified, and there are also some clarifications relating to the solvency test applying to share repurchases. Finally, it will now be possible to apply to the OSC for an exemption from the requirement to have an audit committee, just as may be done via application to the Director under the CBCA.
The settlement agreement recently entered into between Staff of the OSC and David Horsley, former CFO of Sino-Forest Corporation, provides meaningful guidance on the responsibilities of senior executives, particularly those serving for issuers with overseas business operations.