On October 7, 2009, the Minister of Finance tabled Bill 63 (the "Bill") which, when passed, will eventually replace the Québec Companies Act ("QCA") as the primary corporate legislation in Québec, thus creating the Québec Business Corporations Act ("QBCA"). The Bill is the product of over a year of consultations with law firms, legal associations, law faculties and other interested parties1.
The primary objective of the Bill is to rectify the shortcomings of the QCA by modernizing Québec corporate law, following a wave of reforms already undertaken elsewhere in Canada, and by harmonizing the QCA with the legislation of other provinces. The Minister hopes to promote the competitiveness of Québec businesses by offering them an efficient framework for administrative functioning. Given that the QCA has not been substantially amended in nearly thirty years, the reform of Québec corporate law, starting with the tabling of the Bill, is a welcome development for legal practitioners and the business community alike. The QBCA will bring significant changes to Québec corporate law which will have profound impacts on many corporate and legal aspects of Québec businesses.
This bulletin aims to present certain highlights of the Bill, notably additions relating to shareholders' rights and recourses, directors' liability, and the amalgamation and continuance of corporations. We invite you to consult the detailed summary of the Bill in the Technical Paper on the Bill respecting business corporations, published by the ministère des Finances2. Even if the provisions of the Bill can be amended prior to its coming into force, the Bill should be studied now as it provides a good indication as to the positions that the legislator intends on taking, and also as it will result in the adoption of fundamental changes to Québec corporate law.
As a preliminary note, the Bill proposes a major change in terminology. Under the new act, the "company" as we know it today shall henceforth be designated "corporation", following the terminology used in the Canada Business Corporations Act ("CBCA").
Shareholders' Rights and Recourses
The QBCA will substantially change shareholders' rights and recourses, moving closer to the CBCA and away from the current provisions of the QCA. In fact, unlike most other corporate legislation in Canada, including the CBCA, the QCA does not contain an "oppression remedy" for minority shareholders, debt holders and creditors. Pursuant to the QCA, a shareholder is left to appeal to the Superior Court of Québec and its general supervisory powers which has provoked controversies in Québec jurisprudence with respect to remedies and orders available to it in that capacity. The QBCA will introduce a recourse into Québec law similar to that provided under section 241 CBCA, allowing security holders, directors and officers to bring an action against the corporation in which they have an interest to either rectify the situation or request the liquidation and dissolution of the corporation (section 447).
The Bill also includes a new right to demand the repurchase of shares, similar in many respects to the right of dissent under the CBCA. These provisions will allow a shareholder to demand that the corporation repurchase all of its shares in the event of the adoption by the corporation of certain fundamental decisions or decisions which particularly affect the rights of the shares of a given class of shares (sections 372 and following).
The Bill also grants the right for any shareholder of a reporting issuer or of a corporation which has 50 or more voting shareholders, to propose questions to be discussed in a meeting (sections 194 and following).
Directors' Liability
The QBCA will formally allow the defences of reasonable prudence and diligence already recognized by Québec jurisprudence but not codified in the QCA (section 158). The QBCA will also contain provisions outlining the circumstances in which a corporation must indemnify a director or officer for the costs, charges and expenses reasonably incurred in the exercise of his or her functions, including those arising from the person's participation in judicial actions (section 159). However, the QBCA will provide that a corporation is prohibited from indemnifying its directors and officers if these circumstances are not met (section 160). The QBCA will also add the possibility of advancing the necessary funds to a director or officer for the costs, charges and expenses of the person's participation in any investigative or other proceedings, largely in line with the provisions of the CBCA (section 159 in fine, and section 161).
Financial Assistance, Accounting Test and Solvency Test
The legislator did not retain the restrictions relating to financial assistance provided in the QCA (the accounting test and the solvency test) thus harmonizing the QBCA with the majority of other corporate legislation in Canada, including the CBCA. This reorientation will undoubtedly be well received by the legal community and business people.
The Bill makes no reference to the accounting test of the QCA (the fact that the book value of the company's assets are not less than the sum of its liabilities and its issued and paid-up share capital account). On the other hand, the solvency test of the QCA (not having reasonable grounds for believing that the corporation would be unable to pay its liabilities as they become due) is provided, notably, in the event of (a) the purchase or redemption of shares by the corporation (section 95), (b) the reduction in the amount of the issued share capital of the corporation (section 101), (c) the declaration or payment of a dividend (section 104), (d) the amalgamation of corporations (section 287), and (e) the dissolution of a corporation (section 314).
Amalgamation and Continuance
The provisions relating to amalgamation and continuance demonstrate the legislator's intent to take a more open and flexible approach than the approach currently taken in the QCA. Regarding amalgamation, the Bill allows corporations to amalgamate without regard for their respective incorporating statute (section 1 and section 276), whereas amalgamation is allowed only between companies governed by either Part 1 or Part 1A of the QCA. Additionally, the Bill eases the procedures required for both horizontal and vertical amalgamations. The Bill includes a simplified procedure, notably, for horizontal amalgamations between "sub-subsidiaries" (section 281) and vertical amalgamations between a parent corporation and a number of its subsidiaries (section 282). Interesting note: the provisions of the Bill allow the corporation resulting from the amalgamation to take the name of either one of the amalgamating corporations (section 281, para. 2(2)), as opposed to the requirement under the QCA that the said corporation take the name of the corporation of which the shares are not cancelled.
With respect to continuance, the Bill allows corporations governed by the statute of another jurisdiction to be continued under the QBCA (section 288) and vice versa (section 297). Continuance under the QCA is essentially limited to companies governed by Part 1 of the QCA.
Certain Attributes Remain
Although it is often claimed that the QCA is in many respects outdated, the fact remains that several aspects of the QCA are advantageous compared to the CBCA. Many such aspects remain in the Bill, notably (a) the absence of a citizenship requirement for directors, (b) the possibility to hold fractions of shares (section 51), (c) the possibility to issue shares which are not fully paid (section 53), and (d) the possibility to issue shares with par value (section 43).
Transitional Provisions
It is important to get acquainted with the QBCA right away. Indeed, the Bill provides that all companies incorporated, continued or resulting from an amalgamation under Part 1A of the QCA shall become corporations governed by the QBCA upon its coming into force (section 712). Companies governed by Part 1 will have a period of five years to submit articles of continuance to the registrar in conformity with the QBCA (section 711).
The author would like to thank Rachael Golem for her collaboration in preparing this bulletin and would also like to thank Vikki-Ann Flansberry and Mélisa Thibault for their valuable comments on this bulletin.
Footnotes
1.Please see the website of the ministère des Financesfor a list of the various organizations having presented papers in the context of this consultation. The author of this bulletin had the privilege of cosigning the memorandum prepared by the Business Section of the Canadian Bar Association, Québec Division.
2.Click on this link to acess the Technical Paper on the Bill respecting Business corporations.
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.