Canada: How The Forfeited Corporate Property Act, 2015 Affects Ontario Corporations And Not-For-Profit Corporations

On December 10, 2016, the Forfeited Corporate Property Act, 2015 (the "FCPA") came into force in Ontario. This statute addresses what happens to property that is not distributed by an Ontario corporation prior to its dissolution. It also amends the Business Corporations Act (Ontario) (the "OBCA") and the Corporations Act (Ontario) (the "OCA") to include a requirement for corporations to maintain a register of ownership interests in land in Ontario. Corresponding amendments were also made to the Not-for-Profit Corporations Act (Ontario) (the "ONCA"), which has not yet come into force. 1

What is Forfeited Corporate Property and Why Do We Need the FCPA?

When a corporation determines to dissolve, its owners will usually use the corporation's assets to satisfy its liabilities and then distribute any remaining assets in the manner provided in the corporation's governing documents. This distribution of assets should be completed prior to filing articles of dissolution so that the corporation does not own any property at the time it is dissolved.

In some cases, however, a corporation is dissolved without taking any steps to deal with its assets and liabilities. This most often happens where a corporation is dissolved involuntarily – for example, as a result of failing to file corporate annual returns – and the owners are unaware of the dissolution. In such cases, the corporation's property is forfeited to the Crown. The Ontario Ministry of Finance stated that the FCPA was enacted, and the related amendments to the OBCA, the OCA and the ONCA were introduced, to:

  1. Mitigate risks to Ontario taxpayers that may arise when corporate property is forfeited and becomes Crown property when a company is dissolved.
  2. Reduce the number of corporate properties that are forfeited to the Crown.
  3. Increase corporate accountability for costs associated with forfeited corporate property.
  4. Increase transparency and certainty in the management and disposition of forfeited corporate property.
  5. Return forfeited property to productive use as quickly and efficiently as possible.

The FCPA does not apply to all forfeited corporate property. Rather, its application is limited to forfeited real property and real property interests (including mortgage receivables and buildings), and certain personal property that is located in, on or under, or is related to, forfeited real property. There are also exceptions for certain mining properties and public lands.

For charities, the enactment of the FCPA and the new Ontario Escheats Act, 2015 marks a change in the responsibility for forfeited charitable property within the Ontario government. Previously, the Ontario Public Guardian and Trustee (the "OPGT") was responsible for all forfeited charitable property. Under the new rules, however, the Minister of Economic Development, Employment and Infrastructure (the "Minister") is responsible for forfeited charitable property that is subject to the FCPA, while the OPGT remains responsible for other forfeited charitable property pursuant to the Escheats Act, 2015.

Record-Keeping Requirements

(a) Register of Ownership Interests in Land in Ontario

The first key component of the FCPA regime is a new record-keeping requirement that applies to all Ontario corporations, including charities.

At the corporation's registered office (in the case of an OBCA corporation) or head office (in the case of an OCA corporation), a corporate register that outlines each real property in Ontario in which the entity has an ownership interest (whether legal/registered or beneficial) must be maintained.

Such register must:

(a) identify each property; and

(b) show the date the corporation acquired the property and, if applicable, the date the corporation disposed of it.

In addition, any deeds, transfers or similar documents that contain any of the following with respect to each property listed in the register are required to be kept with the register:

(a) the municipal address, if any;

(b) the registry or land titles division and the PIN;

(c) the legal description; and

(d) the assessment roll number, if any.

Pursuant to the OBCA, the register may be kept in a bound or loose-leaf book or may be entered or recorded by any system of mechanical or electronic data processing or any other information storage device. The OCA does not expressly contemplate the form of register, except to state that loose-leaf registers are permitted where reasonable precautions are taken against the misuse of them.

These rules provide the Crown with an effective tool to determine whether a dissolved corporation owns property that was subject to forfeiture. Previously, the Crown often became aware of forfeited property only when a dispute over the property arose.

(b) Compliance Dates

Corporations incorporated in or continued into Ontario before December 10, 2016 have until December 10, 2018 to comply with the new record keeping requirements, which cover their ownership interests in land held on or acquired after that date. Corporations incorporated in or continued into Ontario on or after December 10, 2016 are required to comply with such requirements, which cover their ownership interests in land on or after incorporation in or continuance into Ontario, immediately (i.e., upon incorporation or continuance, as applicable).

(c) Consequences of Non-Compliance

OBCA corporations that do not adhere to the new registry requirements under the FCPA may be subject to a fine of up to $25,000. In addition, Ontario corporations (both OBCA and OCA) that fail to provide the Crown information relating to forfeited corporate property when requested face possible fines of between $100 and $5,000 per day.

Additionally, corporate borrowers should be mindful of any consequences of non-compliance under their loan agreements. Loan agreements often contain covenants, representations and warranties by a borrower that it is in compliance with all applicable laws. Accordingly, if an Ontario corporation fails to prepare and maintain a real property register as required by the OBCA or the OCA, as applicable, it may be in breach of its loan agreement(s).

What Happens to Forfeited Corporate Property? A New Timeline for Recovering Property of a Dissolved Corporation

The second key component of the FCPA is a new set of rules regarding the recovery and use by the Crown of forfeited corporate property.

Until the introduction of the FCPA, the OBCA and OCA provided that, upon the dissolution of an Ontario corporation, all of its personal and real property was forfeited to and vested in the Crown. The owners of a dissolved corporation had up to 20 years from the date of dissolution to revive the corporation and recover its property. However, the FCPA changes this timeline. While the owners of a dissolved corporation are still able to apply for its revival within 20 years of its dissolution, they will not be entitled to recover forfeited corporate property if the revival takes place more than three years after the date of its dissolution, subject to certain exceptions.

After the three-year deadline has passed, the Crown can use the forfeited property for Crown purposes, dispose of it, remove any encumbrances registered on the title to the property (in the case of real property) and remove any security interests registered against the property under the Personal Property Security Act (Ontario) (in the case of personal property), provided that the Minister provides at least 90 days advance notice to anyone that has a registered interest in the property of his or her intent to cancel encumbrances registered against the corporate forfeited property. Pursuant to the FCPA, a person who intends to bring a claim or enforce an interest in the forfeited corporate property shall respond to the Minister in writing before the date specified in the applicable notice.

The FCPA also codifies the long-held practice of ensuring that charitable property remains in the charitable sector. Under the rules in the FCPA, restrictions are imposed on the Minister's use of forfeited "charitable property", which includes forfeited corporate property that was owned by a charity or by another corporation for a charitable purpose. In general terms, the Minister is required to donate any such property, or the proceeds from its sale, to a charity that the Minister (in consultation with the OPGT) determines to be appropriate in the circumstances.

Conclusion

All Ontario corporations should take note of the new registry requirements and the compliance dates pursuant to the FCPA. Corporations incorporated in or continued into Ontario on or before December 10, 2016 should begin preparing their real property registers in advance of the December 10, 2018 deadline to ensure they are compliant as of such date.

If you have questions regarding the FCPA and the new record keeping requirements pursuant thereto, please contact us.

Footnote

1 The ONCA received Royal Assent on October 25, 2010 but will not come into effect until it is proclaimed into force by the Ontario provincial government. The Ministry of Government and Consumer Services has announced on its website that the ONCA cannot come into force until: (i) technical amendments are passed by the Legislature, and (ii) supporting technology is upgraded. Once these requirements are met, the not-for-profit sector will be given a minimum of 24 months' notice of the ONCA coming into effect, following which there will be a three-year transition period for the new legislation. See https://www.ontario.ca/page/rules-not-profit-and-charitable-corporations#section-1.

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