On November 15, 2021, the Government of Alberta introduced Bill 84 (the Bill) for its first reading. The Bill includes significant changes to the Business Corporations Act (the ABCA). The Alberta Government's goal in introducing the amendments to the ABCA is to "modernize corporate legislation to reduce red tape and administrative burdens so innovators, entrepreneurs and job-creators consider Alberta first when looking to incorporate, invest or grow their business".
The amendments to the ABCA include, among other things, the following:
- amendments clarifying directors' responsibilities and protections
- provisions allowing a corporation to waive certain corporate opportunities
- amendments providing for additional flexibility under the ABCA's plan of arrangement provisions
- updates and revisions to provisions reducing administrative burdens for the functioning of a corporation
The Bill is part of the Alberta Government's aim of ensuring the province is the most competitive and attractive place to do business in Canada. The Bill received Royal Assent on December 2, 2021 and is expected to be proclaimed into force in the near term.
The potential impact of the Bill
Clarify directors' responsibilities and protections
The ABCA currently requires directors to disclose and abstain from voting where they have a material interest in any contracts or transactions. Although there are existing exemptions that allow directors to vote in certain situations despite having an interest in a contract or transaction, the Bill broadens these exemptions. Under the expanded exemptions, directors would be permitted to vote on a contract or transaction that they have an interest in but only to the extent that the director is undertaking the obligation or obligations under the contract or transaction for the benefit of the corporation.
In addition, the Bill will expand circumstances when the due diligence defence is available for directors to include situations where the directors rely on an opinion of an employee of the corporation if that employee's profession or expertise lends credibility to a statement made by that employee. Under the current provisions of the ABCA, while it is clear that the due diligence defence is available to directors who relied on the opinion or report of an outside professional expert (such as a lawyer, accountant, engineer etc.), it is not clear whether the defence is available for opinions of professionals that are also employees of the corporation.
The Bill also expands the scope of when a corporation can indemnify a director or officer of the corporation from not only a situation where a director or officer is a party to a civil, criminal, administrative action or proceeding but to any situation where a director or officer is involved (even if not a party) in such an action or proceeding.
One of the Government's goals of these amendments is to "attract the best and brightest directors to Alberta".
Corporate opportunity waivers
Directors and officers of corporations have to be careful not to exploit opportunities that they become aware of as a result of their position with a corporation or they can potentially be found to have breached their fiduciary duties to the corporation. There has been significant litigation both in Canada and the United States in situations where a director or officer was viewed as breaching the duty of loyalty to a corporation by taking advantage of a business opportunity that they became aware of as a result of their position.
It can be problematic for individuals who serve as directors and/or officers of multiple organizations to ensure that they are not taking advantage of corporate opportunities or perceived to be taking advantage of corporate opportunities. For instance, venture capital and private equity firms commonly finance multiple investments in the same area of activity and require a seat on the board of directors as a condition to their investment. Without the ability to rely on an advance waiver of a corporate opportunity, investors who hold board seats could be liable to the corporation for outside investments falling in the same area of activity.
One of the more unique amendments in the Bill is to address this issue by including provisions allowing corporations the option to waive any interest or expectancy in or to, specific types of corporate opportunities. While provisions providing for corporate opportunity waivers exist under the corporate statutes in certain U.S. states, Alberta is the first jurisdiction in Canada to allow corporations to create "corporate opportunity waivers".
The provisions provide that a corporation may provide an advance waiver of corporate opportunities by including provisions in the articles of the corporation or in a unanimous shareholder agreement. In addition, the provisions relating to the waiver of corporate opportunities include language that the provisions are subject to further regulations which indicates that the legislative framework allowing for the waiver of corporate opportunities may continue to be developed without having to receive full legislative approval.
The new corporate waiver of business opportunity provisions could help avoid the time-consuming process that was previously required to clear specific business opportunities and affords directors' and officers' greater protection from potential liability.
Providing more flexibility under the plan of arrangement provisions
All of the governing statutes in the various provinces of Canada and the federal Canada Business Corporations Act (the CBCA) provide for court approved plan of arrangements to allow corporations to complete certain transactions or reorganizations that cannot otherwise be completed under the respective corporate statutes. A plan of arrangement is a very flexible tool for planning and structuring transactions and as a result most mergers and acquisitions in Canada, especially involving publicly listed companies, are completed by way of plan of arrangement. In recent years, we have seen the rise of the use of plans of arrangements for internal restructurings or reorganizations of the debt securities of corporations. Especially in situations where a corporation is in some financial difficulty as an alternative to seeking creditor protection in insolvency proceedings such as under the federal Companies' Creditors Arrangement Act or Bankruptcy and Insolvency Act. However, as a result of some perceived benefits of the plan of arrangement provisions in the CBCA relative to the plan of arrangement provisions in the ABCA, many companies have chosen to complete these type of debt restructurings under the CBCA rather than under the ABCA. In order to proceed under the CBCA plan of arrangement provisions, many ABCA corporations have actually changed their governing statute (technically referred to as a "continuance") from the ABCA to the CBCA.
The two main perceived benefits of the CBCA's plan of arrangement provisions over the ABCA's provisions are:
- the ability of a court to grant a stay of proceedings right at the outset of the plan of arrangement proceedings, which allows the corporation the time to complete the plan of arrangement while mitigating the risk of a collateral attack in some other legal proceedings; and
- the language in the ABCA explicitly requires shareholder approval of a plan of arrangement even if the transaction is not one that otherwise would require shareholder approval under the other provisions of the ABCA whereas the CBCA language leaves it to the discretion of the court as to whether shareholder approval will be required.
Under the revised language in the Bill, the court would be able to grant "any interim or final order it thinks fit" which would leave it open to a corporate applicant to seek, and for the court to grant, a stay of proceedings similar to the stay of proceedings that are granted under the CBCA. In addition, under the revised language in the Bill, whether shareholder approval is required for the plan of arrangement is left to the discretion of the court so under the right circumstances, where the rights of the shareholders are not impacted, the court may be willing to approve the plan of arrangement without requiring a shareholder vote.
It is expected that these amendments to the plan of arrangement provisions of the ABCA would negate the perceived benefits of the CBCA plan of arrangement provisions and would stop the outflow of corporations seeking a debt restructuring plan of arrangement from the ABCA to the CBCA.
Reducing administrative burdens
The Bill introduces a number of amendments to the ABCA that will help streamline the functioning of corporations incorporated under the ABCA, particularly for private corporations with no securities that are publicly traded. The following is a brief description of some of these amendments:
- Shortening notice period for shareholders' meetings - Under the ABCA, corporations are currently required to provide notice of a shareholders' meeting not less than 21 days before the meeting date. The amendments in the Bill shorten the timeframe for providing notice of a shareholders' meeting from 21 to 7 days for private corporations.
- Lower approval threshold for written shareholder resolutions in lieu of meetings - The ABCA currently allows corporations to obtain shareholder approval through written resolutions, but such written resolutions must be signed by all voting shareholders of the corporation, which can be cumbersome and impracticable. The Bill lowers the threshold of approval for written resolutions of private corporations from unanimity to shareholders holding two-thirds of the shares entitled to vote on the matter. With this lower threshold, it will save private corporations time and expense of having to hold a shareholders' meeting in situations where 100% unanimity is not possible.
- Lower approval threshold for dispensing with audit requirement – All corporations incorporated under the ABCA are required to appoint an auditor to audit the corporation's financial statements unless the shareholders have approved dispensing with that requirement. The ABCA currently requires that 100% of the shareholders, including shareholders holding non-voting shares, need to approve dispensing with the audit requirement. Under the new provisions in the Bill, a private corporation could dispense with the requirement to appoint an auditor by special resolution of the shareholders, which would require approval of shareholders holding two-thirds of the voting shares of the corporation.
- Longer timeframe for revival of dissolved corporations – Currently under the ABCA a corporation can only be revived within five years of dissolving. The Bill extends this timeframe by allowing a corporation to revive within 10 years of dissolution.
- Modernizing by repealing provisions that are repetitive, unnecessary, or addressed by other legislation – The Bill includes a number of other amendments that modernize the ABCA to eliminate or amend provisions that serve little practical purpose or are outdated. As an example, the ABCA currently requires that public companies publish the record date for a shareholders' meeting or the payment of dividend in a National newspaper at least seven days prior to such record date. This served little practical purpose as public companies were already required to follow a number of stock exchange rules and provisions of securities legislation relating to the publication of record dates. This provision also frequently resulted in a delay in a corporation's ability to hold a shareholders' meeting if the corporation was trying to do so on a rush basis. The Bill removes this requirement and many similar outdated or administratively burdensome requirements.
The amendments are a positive development that provide a number of benefits. Some of the more substantial changes, such as the amendments to the plan of arrangement provisions and the addition of corporate opportunity waivers, may only have an impact on corporations in unique situations but such provisions may make a difference when management teams are deciding which jurisdiction to incorporate in. Some of the other changes, although less significant, will reduce the administrative burden of running an Alberta corporation which will save time and costs for management teams and Boards of Directors of Alberta corporations having an ultimate benefit to the shareholders of such corporations.
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