In Vaughan Community Health Centre Corporation v Annibale, 2015 ONSC 2559, the Ontario Superior Court of Justice held that the Ontario Corporations Act, (the "Act") only authorizes directors, and not members, to propose changes to the by-laws or changes requiring special resolution.
Vaughan Community Health Centre Corporation ("Vaughan Health"), a not-for-profit corporation governed by the Act, commenced an application against five voting members of Vaughan Health (the "Voting Members"). The Voting Members were attempting to pass resolutions at a meeting of members to: (i) remove certain directors of Vaughan Health; (ii) amend the by-laws of Vaughan Health (the "By-Laws") to exclude certain persons from membership in Vaughan Health; and (iii) amend the By-Laws to reduce the number of directors on the board. Vaughan Health sought a declaration that the Voting Members' resolutions were contrary to the Act and the By-Laws.
Justice DiTomaso, writing for the Court, agreed with Vaughan Health and granted the relief sought. The Voting Members were held not to have any authority under the Act or the By-Laws to unilaterally amend the By-Laws. Moreover, the proposed resolution dealing with the removal of directors was held to be unlawful as it was inconsistent with the provisions of the Act and the By-Laws.
Of particular interest is the Court's commentary regarding the authority of Voting Members to unilaterally amend the By-Laws to reduce the number of directors on the board. The Court determined that pursuant to section 129 of the Act, the ability to propose and pass by-laws rests solely with directors, subject to confirmation or rejection by the members.
Further, the Court noted that section 285 of the Act stipulates that changing the number of directors on the board requires a special resolution. "Special resolution" is defined in the Act as a resolution passed by the directors and later confirmed by at least two-thirds of the members. Based on this definition, the Court determined that the authority to propose changes to the corporation requiring special resolution rests with directors, and not members. The Court's interpretation of "special resolution" provides clarification on a point of law under the Act that has not been the subject of judicial consideration.
The lesson to be gleaned from this case is clear: the governing legislation matters. An alternative outcome would have likely resulted if Vaughan Health fell under the purview of the Canada Not-for-Profit Act, ("CNCA") or the not-yet-in-force Ontario Not-for-Profit Act, 2010, ("ONCA"). Section 152(b) of the CNCA and section 17(b) of the ONCA permit members of the corporation to directly initiate proposals to amend the by-laws. Further, the definitions of "special resolution" under the CNCA and ONCA strictly govern voting requirements and do not operate to preclude members from directly proposing changes to the corporation that require special resolution.
It would appear then that under the Act, members are encouraged to consult with the directors of the corporation to bring about desired changes to the by-laws or changes requiring special resolution. If faced with a board of directors disinclined to initiate the desired changes, members may be forced to consider replacing current directors with individuals prepared to propose such changes.
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