By: Karen Cooper
On September 14, 2017 the Honorable Brad Duguid (irony?), Ontario’s Minister of Economic Development and Growth introduced Bill 154, Cutting Unnecessary Red Tape Act, 2017, (“Bill 154”) as part of a government initiative to reduce red tape – red tape is an idiom that refers to excessive regulation or formal rules. Bill 154 enacts, amends, and/or repeals many Acts, including the Charities Accounting Act, the Ontario Corporations Act (the “OCA”), and the Ontario Not-for-Profit Corporations Act, 2010 (the “ONCA”) (see here for the full text). As of today, Bill 154 has passed second reading and has been referred to the Standing Committee on Justice Policy for hearings on October 19, 2017.
This article focuses on the changes to the OCA, which are the subject of the provisions in Schedule 7 of the Bill. Many of these changes add some important modern provisions, including specifying that meetings of members may be held by telephonic or electronic means, expanding the powers of not-for-profit corporations, clarifying the duties and standard of care of directors and officers, and enabling persons to be directors even if they are not a member. The government notes in the accompanying press release that encourage participation in meetings, provide clarity and reduce burdens and costs for not-for-profit corporations the amendments are intended “ and are intended to increase flexibility, encourage participation in meetings, provide clarity and reduce burdens and costs for not-for-profit corporations.” Once the amendments come into force they will apply until the ONCA applies to OCA corporations.
Use of New Technologies
Even though it has become common practice for organizations to hold members’ meetings by telephone or other electronic means, it has been unclear whether the OCA authorised meetings held by such means since the statute is silent on the issue. Under the proposed new section 125.1, a meeting of members may be held by using new technologies (“telephonic or electronic means”), unless the by-laws of a corporation provide otherwise. A definition of “telephonic or electronic means” has been added to section 1 as follows: ““telephonic or electronic means” means any means that uses the telephone or any other electronic or other technological means to transmit information or data, including telephone calls, voice mail, fax, e-mail, automated touch-tone telephone system, computer or computer networks.”
Further amendments to the OCA will permit the administration of the Act, and not-for-profit corporations governed by the OCA, to be done through such telephonic and electronic means, including the receipt, filing, keeping and searching of documents in electronic format. This will go a long way toward moving the day to day interactions with the Ministry of Government and Consumer Services into the 21st century.
The Bill also amends sections 93, 161 and 296 of the OCA to require that notice of members’ meetings be given “in writing”, which implies a cross-reference to the Electronic Commerce Act, 2000, that allows the notice to be given by electronic means.
Powers of a Natural Person
Currently, corporations created by letters patent issued under the OCA will only have the legal capacity and powers expressly provided for in the letters patent or the statute and, as a result, may be limited in the types of activities they engage in, particularly as they relate to funding and financing. Proposed section 126.1, gives corporations governed by Part III of the OCA the capacity, rights, powers and privileges of a natural person and expressly provides that a corporation’s acts are valid even if the corporation acted contrary to its instrument of incorporation, its by-laws or the OCA. Further, it will not be necessary for a by-law to be passed in order to confer any particular power on a corporation or its directors. Instead, the corporation’s powers will only be restricted if the letters patent (or document amending the letters patent) so provide. A common application of these provisions relates to borrowing money – currently the OCA requires that the members approve a by-law to permit the corporation to borrow, this will no longer be required once the new provision comes into force.
Standard of Care for Directors and Officers
Directors and officers of not-for-profit corporations have duties and obligations to the corporation, the members and to the general public, which give rise to the potential for personal liability relating to the execution of these duties. Whether personal liability will arise depends, in part, on whether director or officer has met the standard of care applicable in the circumstances. Currently, the OCA is one of the few remaining corporate governance statutes that is silent on the issue, thereby imposing by default the common law subjective standard of care: a director is expected to exercise the degree of skill and care that may be reasonably expected of a person with similar knowledge and experience. This means that directors who are sought after for their particular skills and experience, eg. lawyers, accountants, investments advisors, will be held to a higher standard than others on the board, which has been identified by many in the sector as a significant disincentive to volunteering. New section 127.1 will impose a statutory objective standard of care on directors and officers: to “act honestly and in good faith with a view to the best interests of the corporation” and to “exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.” The section also provides that no provision in a contract, instrument of incorporation, by-law or resolution can relieve a director or officer from the duty to act in accordance with the OCA or provide relief from liability for a breach of the OCA.
A detailed review of all of the provisions of Schedule 7 is beyond the scope of this article. However, some other changes worthy of note include:
- special legislation and charity law will prevail over the OCA in the event of a conflict (the OCA is currently silent on this issue;
- the members will be able to remove a director from office (other than an ex officio director) by majority vote rather than two-thirds vote;
- the members may, by an extraordinary resolution (80% of votes cast at a meeting or unanimous consent in writing), decide not to appoint an auditor and not to have an audit in respect of a financial year if the corporation had annual revenue in that financial year not exceeding $100,000;
- the by-laws of the corporation may provide that a person may be a director even though he or she is not a member; and
- if a corporation has no directors or members, the court may make an order appointing the required number of directors.
Schedule 7 of Bill 154 contains 85 sections with varying application and varying effective dates. A very careful of the legislation will have to be undertaken to determine which sections will apply to a corporation if it is a corporation governed by Part V (insurance corporations), social corporations, special Act corporations, and corporations governed by other statutes, such as the Public Hospitals Act. In addition, different sections come into force on different dates, with section 85 listing which sections would come into force on the day when Bill 154 receives Royal Assent; on the day 3 years after proclamation or 60 days or 25 years after it receives Royal Assent; or on the day when the ONCA comes into force; with the balance of sections coming into force on a day named by proclamation of the Lieutenant Governor.
The proposed changes provide some welcome opportunities for Ontario corporations to somewhat modernize their governance structures while waiting for the ONCA to come into force. More importantly, after many years of silence, they provide an indication that the provincial government remains committed to the intent of the ONCA, albeit in incremental stages.
To read about the proposed changes to the ONCA see Sylvie Lalonde’s article “Bill 154 & the ONCA: Two Steps Forward, One Step Back”