During this decade of increased standards of corporate
governance, the use and popularity of income trusts has led to
criticism of the absence of good governance practices and
investor rights and remedies from income trusts that are
otherwise applicable to corporate entities under corporate
Critics and regulators, including the Bank of Canada, the
Canadian Securities Administrators (CSA), the Uniform Law
Conference of Canada (ULCC), the Canadian Coalition for Good
Governance (CCGG) and the Public Interest Advocacy Centre, have
observed or expressed concern about these differences.
Consequently, they have made proposals or issued guidelines or
recommendations to address the differences and perceived
shortcomings in governance practices of income trusts.
In early 2006, the CCGG undertook a study that identified
that Canadian public entities structured as trusts (including
income trusts and real estate investment trusts) do not have
uniform provisions in their constating documents (called
declarations of trust) relating to investor rights and
governance. The CCGG noted that, in some cases, these entities,
in its view, have inappropriate provisions or significant gaps
in investor protection. In the CCGG's view, investor rights
and remedies in public trusts should be standardized, as has
long been the case for corporations. The CCGG urged that such
rights and remedies should mirror the governance provisions of
the Canada Business Corporations Act (CBCA) to the
extent legally possible, with the result that, as far as is
practicable, an investor would be indifferent from a governance
perspective whether it purchased units of an income trust or
shares of a CBCA corporation.
On December 10, 2007, the CCGG published for comment draft
model governance provisions for the declarations of trust of
public trusts, based on its prioritization of the most
important investor rights.
At the outset, the model provisions provide for dissent and
appraisal rights and an oppression remedy. Other model rights
and remedies include requisitioning unitholder meetings, making
unitholder proposals, appointing an auditor, fixing the
auditor's remuneration, and removing trustees. The model
provisions address unitholder meetings and voting, including
voting rights, voting of units held by the trust, the
requirement to call unitholder meetings, required notice for
unitholder meetings, right to appoint a proxy, quorum, election
of trustees, fundamental changes, and resolutions that are
ordinary or extraordinary and in writing. Other provisions
cover records of the trust, items that may and may not be
delegated, the qualification and duties of the trustees,
conflicts of interest, unitholder immunity and non-liability,
and compulsory acquisition in the event of a take-over bid.
McCarthy Tétrault Notes:
It is commendable that the CCGG pressed ahead with its
project, notwithstanding the announcement on October 31, 2006
by the Federal Minister of Finance of proposed
changes in the taxation of all income trusts, other than
real estate investment trusts, such that as of January 1, 2011,
income trusts will be taxed like corporations. The CCGG's
model provisions for the declarations of trust address areas
that the ULCC had proposed for coverage in the Uniform
Income Trusts Act, which the ULCC released for discussion
in August 2006, prior to the Finance Minister's Halloween
announcement. To the extent that real estate investment trusts
and other public income trusts will continue to exist after the
implementation of the changed tax treatment in 2011, those
public trusts might consider amending their declarations of
trust by adopting the model provisions.
By virtue of National Policy 41-201 Income Trusts and
Other Indirect Offerings, the CSA does require that trust
issuers provide disclosure in the issuer's annual
information form and any prospectus filed by the issuer that
sets forth the material protections, rights and remedies that
would be afforded to a shareholder under the CBCA, but which
are not available to a unitholder of the trust issuer.
Both the CSA in this National Policy and the CCGG in its
proposal have limited their point of reference to the CBCA,
which overlooks differences available to a corporation that is
unincorporated under a provincial statute.
The content of this article is intended to provide a
general guide to the subject matter. Specialist advice should
be sought about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).