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If your association has ever encountered an unhappy member or member group, you should be aware of the enhanced member rights under the Canada Not-for-profit Corporations Act ("CNCA"). Unhappy association members now have some new tools at their disposal. In many ways, they now have rights similar to those of shareholders of for-profit corporations. (Many of these rights are also present in the Ontario Not-for-Profit Corporations Act, 2010 which is not yet in force.)
Members can now bring claims, called derivative actions, on behalf of the association, if they feel that the association has not responded to certain matters appropriately.
The CNCA allows "complainants" to apply to a court for leave to bring an action in the name of and on behalf of the association. This means that someone other than the association itself could bring an action on behalf of the association. Note that derivative actions are meant to deal with harm done to the association, not to the complainant.
For example, a claim that directors have breached their fiduciary duties to the association might be a basis for a derivative action because fiduciary duties are owed to the association and not to the complainant. This could mean that a member who feels that the association wasn't taking appropriate action around an alleged breach of fiduciary duty could apply to a court to allow the member to bring an action against that director.
The term "complainants" is defined broadly and includes former or present members, debt obligation holders, directors, officers or any person who, in the discretion of the court, is a "proper person" to make an application.
Note that the court will not grant leave to commence a derivative action unless it is satisfied that (1) the complainant has given sufficient notice, (2) the complainant is acting in good faith and (3) the action appears to be in the interests of the association, not simply the complainant as an individual. As noted above, a derivative action can only be brought by a complainant to enforce the rights of the association when the association is itself unwilling to act. The prejudice must be suffered by the association directly; the complainant cannot use a derivative action to enforce their own personal rights. In other words, there are a lot of things a complainant would need to establish before the court will grant leave.
In connection with a derivative action brought by a member, a court has broad discretion and may issue any order that it thinks fit.
Of course, there is law around the use of derivative actions in the for-profit context and it will be interesting to see how a court will react to requests made by complainants in the not-for-profit context.
In our next corporate governance post we will discuss oppression remedies.
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.
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