On March 9, 2011, Industry Canada announced that, barring an intervening federal election, the Canada Not-for-profit Corporations Act (the "Act") would be proclaimed into force this spring. As a federal election has been called, we expect the Act's proclamation into force will be delayed to the third or fourth quarter of 2011. Existing federal not-for-profit corporations must comply with the Act within three years of it coming into force.
The Act, which will replace Part II of the Canada Corporations Act, will strengthen and clarify members' rights in the following areas: (i) fundamental changes and class vote; (ii) access to information; (iii) governance; and (iv) remedies.
This bulletin will examine areas (i) and (ii) above; an upcoming bulletin will review governance and remedies.
Fundamental Changes and Class Vote
The Act allows the establishment of different classes or groups of members, with the possibility for rights to vary from class to class.
Under the Act, fundamental corporate changes will require the approval of voting members. Furthermore, in a significant innovation, the Act provides that a corporate change affecting the rights of a particular membership class will require the approval of the members of the affected class, regardless of whether they are otherwise entitled to vote. In each case, membership approval requires a special resolution passed by a two-thirds majority of votes cast.
Section 197 of the Act specifies that an amendment to the corporation's articles or by-laws constitutes a "fundamental change" if its effect is to:
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change the corporation's name (unless the corporation has a designating number as a name, in which case the directors may amend the articles to give it a verbal name per s.197(3));
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change the province in which the corporation's registered office is situated;
- add, change or remove any restriction on the activities that the corporation may carry on;
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create a new class or group of members;
- change a condition required for being a member;
- change the designation of any class or group of members or add, change or remove any rights and conditions of any such class or group;
- divide any class or group of members into two or more classes or groups and fix the rights and conditions of each class or group;
- add, change or remove a provision respecting the transfer of a membership;
- subject to section 133 (which allows the members to amend articles to modify the number of directors), increase or decrease the number of - or the minimum or maximum number of - directors fixed by the articles;
- change the statement of purpose of the corporation;
- change the statement concerning the distribution of property remaining on liquidation after the discharge of any liabilities of the corporation;
- change the manner of giving notice to members entitled to vote at a meeting of members;
- change the method of voting by members not in attendance at a meeting of members; or
- add, change or remove any other provision that is permitted by this Act to be set out in the articles.
As mentioned above, where an amendment to the articles or by-laws would affect the rights of a particular class, such amendment will require approval, by special resolution, of the members of the affected class. The Act specifies that such a class vote is triggered in the case of an amendment that would:
- add, change or remove the rights or conditions attaching to the memberships of the class or group, including:
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- to reduce or remove a liquidation preference, or
- to add, remove or change prejudicially voting or transfer rights of the class or group;
- increase the rights of any other class or group of members having rights equal or superior to those of the class or group;
- increase the rights of a class or group of members having rights inferior to those of the class or group to make them equal or superior to those of the class or group; and
- effect an exchange or create a right of exchange of all or part of the memberships of another class or group into the memberships of the class or group (s.199).
Two additional types of amendment trigger a class vote, unless the articles of the corporation specifically provide otherwise: (a) an amendment to effect an exchange, reclassification, or cancellation of all or part of the memberships of the class in question; and (b) an amendment to create a new class of members having rights equal or superior to those of the class in question (s.199(1)).
In a proposed amalgamation, the amalgamation agreement must be approved by a special resolution (s.206(5)), in which case all members have the right to vote, whether or not they otherwise have the right to vote (s.206(3)). If the terms of the amalgamation would affect the rights of any membership class as contemplated in section 199 (above), then the class voting rights created under section 199 are triggered as well (s.206(4)).
A class vote under section 199 may also be triggered where the rights of a membership class are changed as part of a continuance under section 212. (A full discussion of continuance will be addressed in an upcoming bulletin.)
Access to Information
The Act gives members new access rights to corporate information, including financial statements and membership information. Nonetheless, in the interest of privacy, the Act imposes certain restraints on these rights.
Section 172 of the Act obliges the corporation's directors to present the corporation's financial statements to members at each annual members' meeting, together with any additional financial information that may be required by the articles, by-laws, or any unanimous members' agreement. Meanwhile, outside annual meetings, section 174 grants members and their personal representatives the right to examine and make copies of the corporation's financial statements upon request and free of charge.
Under sections 22 and 23, members and their personal representatives may inspect and take extracts from the corporate records or from the register of members upon the payment of a fee. Certain corporate information is also to be made available to creditors of the corporation and to debt obligation holders, upon similar specified terms (ss.22 and 23(2)).
Certain of the above-described access rights may only be exercised once a year and before a meeting of members. Furthermore, when a member obtains information under section 23, he or she may not use the information for anything but the affairs (which is to say the internal business) of the corporation (s.23(7)). When a debt obligation holder obtains information under section 23, he or she may only use that information to influence the voting of members on an issue on which he or she also has the right to vote (s.23(8)).
Finally, it is worth noting that the Act contemplates a corporation may apply to the director for authorization to refuse to grant access to information per the above provisions. The director may grant such an application where he or she is satisfied that allowing the information to be released would be "detrimental to any member of the corporation" (s.25(1)).
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