Québec Finance Minister Raymond Bachand announced yesterday that the new Québec Business Corporations Act would come into force on February 14, 2011. The Business Corporations Act, which replaces the Québec Companies Act, was adopted on December 1, 2009, seeks to modernize and simplify the law and offer more robust protection to shareholders. In this substantial Québec company law reform, the National Assembly also adopted Bill 87, the Act respecting the legal publicity of enterprises on May 18, 2010. This new law will come into force on February 14, 2011 and will effectively merge the Act respecting the legal publicity of sole proprietorships, partnerships and legal persons with the Act respecting the enterprise registrar.
This reform affects some 300,000 companies in Québec and is the first major reform to Québec company law since 1981. The new Québec Business Corporations Act incorporates many standard practices that exist elsewhere in Canada and establishes a regime harmonized with the Canada Business Corporations Act. It will give Québec a more modern and attractive company law. Furthermore, Bill 63 was developed with the ambitious objective of making Québec a national leader in corporate legislative framework.
The following is a brief overview of the principal changes established by the Québec Business Corporations Act.
More Robust Protection For Minority Shareholders
- A minority shareholder who disagrees with a major change made to the structure or the activities of the corporation will be able to require that its shares be repurchased.
- Shareholders will have the opportunity to table a shareholders' proposal at annual meetings. The draft Regulation Respecting Shareholder Proposals setting out the rules applicable to shareholder proposals was published in the Gazette officielle du Québec on July 21, 2010.
- Shareholders will have access to the financial statements of the corporation's subsidiaries.
- Shareholders will have new remedies in the event of abuse or inequity, notably:
- Shareholders will have the right to ask the Court for the authorization to act in the name of the corporation (also known as "representative action" or "derivative action");
- Shareholders may obtain a court order to rectify a situation in the event of abuse of power or inequity; and
- The Court will now have vast remedial powers to deal with cases of abusive or unjust acts on the part of the corporation or its directors.
New Governance Rules
- Codification of the duties of care, diligence, honesty and loyalty.
- A director will now have the right to present a defense of reasonable diligence with respect to acts made in good faith within the framework of his or her office.
- Creation of a new system of disclosure of directors' and officers' interests.
- The absence of a requirement of Canadian residence for the directors is maintained under the new act.
- The articles may provide for cumulative voting for the election of directors.
- If the corporation is a reporting issuer, the board of directors must be composed of at least two directors who are not officers or employees of the corporation or an affiliate of the corporation.
Use of New Technologies
- Shareholders and directors will now be able to participate and vote remotely in their respective meetings by way of technology.
- The constitution and many administrative transactions will be carried out online with the enterprise registrar.
- Possibility of issuance of shares without certificate.
- Clarification of the rules regarding the unanimous shareholder agreement.
- A corporate entity constituted in another jurisdiction will have the right to continue its existence under the new Québec legislation.
- A Québec corporation will have the right to continue its existence in another jurisdiction.
- Removal of the solvency and liquidity tests with respect to granting financial assistance to shareholders.
- The accounting test is abolished (e.g., in cases involving the payment of a dividend by the corporation or the repurchase of shares).
- Removal of the requirements for annual meetings and for the nomination of an auditor in single shareholder corporations.
To ensure that the legislation constantly evolves to reflect the realities of modern corporate practice, the Business Corporations Act provides that the Minister of Finance report to the Government every five years on how the act is being carried out and, if applicable, whether it would be advisable to amend it.
The transition to this new legislative system should be relatively straightforward. A company constituted, continued or resulting from an amalgamation under Part IA of the Québec Companies Act will be automatically continued under the Québec Business Corporations Act on February 14, 2011, the date the law comes into force.
A company constituted, continued or resulting from an amalgamation under Part I of the Québec Companies Act will be required to send, within five years of the law coming into force, articles of continuance to the enterprise registrar. Companies that do not satisfy this requirement will be dissolved as of February 14, 2016.
If you would like additional information, please contact Philippe Johnson (mergers & acquisitions) (514.841.6501), Marie-Andrée Latreille (corporate) (514.841.6405), Sébastien Roy (securities) (514.841.6493), Sandra Mastrogiuseppe or Fred Purkey (tax) (514.841.6458) in our Montréal office.
Davies Ward Phillips & Vineberg LLP, with over 240 lawyers, practises nationally and internationally from offices in Toronto, Montréal and New York and is consistently at the heart of the largest and most complex commercial and financial matters on behalf of its North American and international clients.
The information and comments herein are for the general information of the reader and are not intended as advice or opinions to be relied upon in relation to any particular circumstance. For particular applications of the law to specific situations, the reader should seek professional advice.