SOLE PROPRIETORSHIP:
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Sole Proprietorship: indiv carrying on business (not incorporated, no partnership)
Sole owner w/dec-making power – no one else has ownership int in the bus
Indiv and sole proprietorship are one person legally for all purposes (i.e. the assets, income, liabilities,
losses of SP are that indiv’s assets, etc.)
advs: small local enterprises, avoid corp reporting and tax reqs, if no need to acquire capital, no real
reason to incorporate
disadvs: difficult to grow, diff to raise capital (banks like to deal w/corps that are separate bus entities),
Legal Implications for SP: indiv SP is solely and personally liable for the debts and liabilities of the business
they carry on
1. Contractual liability: indiv SP is exclusively respons for performing all K obligs for the bus (e.g. sales,
lease payments, insurance, etc.)
2. Personal non-contractual liability: indiv SP is personally liable for tort committed in the course of
carrying on the business
3. SP is not a separate tax payer: income or loss generated by the business is the income or loss, for
tax purposes, of the SP (file one tax rtn)
4. GST: indiv SP has to register for, charge and collect GST on the goods and services they provide (if
meet threshold of $30k global gross income/yr)
Legal Requirements to Register SP:
*purpose of registration is to prevent SP from pretending to be bigger org/entity than they really are or use
confusing names
*Offence Act s.5 makes it an offence not to register
PARTNERSHIP ACT Part 4:
88(1)
SP req’d to register if operating under a bus name other than their own name, or a name that
implies they aren’t an SP
*req’d to register b/c name does not indicate who owner is, or is misleading in indicating a plurality
of ownership
*register is used to find out who is the entity behind the name
89(1)
SP cannot register or use a name that belongs to another corp, or that is so close that it may be
confused
*applies to corps and their depts – including trade name used by corp (e.g. McDonald’s)
*exceptions: if corp consents, or if bus name was used by applicant prior to corp
90
Registrar to keep two indices – enables you to search under either firm or personal name
90(2)
firm index – styles of registered firms
90(4)
90.3
90.4(1)
indiv index – names of mems of each firm
Anyone can search the register – (a) search name, (b) inspect records, (c) obtain copies
It is an offence to file a misleading statement w/registrar that is:
(a) false or misleading statement that relates to material fact, or
(b) omits any material fact that makes the statement false or misleading
90.4(2)
director or officer of the corp who knowingly authorized, permitted or acquiesced in the commission
of the offence under (1) is guilty
90.4(3)
person not guilty if they didn’t know the statement was false or misleading, and could not have
known that w/exercise of due diligence
Person who commits offence under 90.4 is liable to a fine, if an indiv of not more that $2000, and if
a non-person, not more than $5000
90.5
BC RULES OF COURT: (govern actions in the BCSC)
Rule 7: deals w/how to sue a partnership
7(10): a person carrying on a business under a name or style other than their own name can be sued in that
name (can be sued under trade name whether or not it is reg)
1
AGENCY:
Agency: relationship that exists btw two persons in which the principal expressly or impliedly consents that the
other should act on his behalf, and the other, the agent, who similarly consents, acts in such a way as to affect
the principals rels w/3rd parties
o
Pr and A deter how broad or narrow their rel is – rel governed by agmt express or implied and may
be varied by K
o
A cannot do on behalf of Pr anything the Pr cannot do for himself (e.g. if Pr is mentally incompetent,
Pr can’t K, thf. A can’t K)
o
Pr is liable for A’s tortious conduct when acting in course of auth as agent (policy: Pr in best
position to avoid loss – hire carefully, Pr most likely to benefit from A’s actions, compensation
concern)
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Characteristics: consensual (express or implied), contractual, may be gratuitous, fiduciary
Effect of agency rel: Pr is bound by A’s actions (A is granted auth and pwr to enter into legal rels on behalf
of Pr)
person involved in agency rel may be indiv, corp, or any other entity w/personhood at law
o
partners who are agents of each other
o
directors or officers acting as agents of corporation
deter agency rel:
o
governed primarily by CL (no clear cohesive body of law, broad legal and equitable rules)
o
commercial custom of the trade/practice often important in deter whether an agency rel exists, and
the extent of it
 what is the std in the particular factual situation, consider expert evid
 EXAM, pt out that it is ques of fact not law as to whether an agency rel exists, and require
an evid basis to deter whether and what kind of agency rel exists (e.g. implied terms of
agency)
agent v. employee:
o
Employment does not imply agency per se, as ability to bind ER does not flow from employment rel
o
Es have varying capacities to act as agents on behalf of their ER (e.g. broad auth to bind corp, or
req specific approval)
agent v. trustee:
o
Trustee’s role is to hold legal title to the property and hold it according to the instructions of the
settlor, for the benefit of the beneficiary (not acting primarily on behalf of Pr)
o
trustee has pwr to deal w/property as legal owner, but only w/in terms of trust deed
o
trustee owes fiduciary duty to beneficiary – greater FD than agents
o
beneficiary can only give instructions to trustee in rare circs (e.g. bare trust)
o
Agents don’t own, legally or equitably, the Pr’s property
o
Can be both agent and trustee (e.g. lawyers)
AUTHORITY: agency rel exists if A had either ACTUAL or OSTENSIBLE authority
- Actual Authority:
o
Express authority: auth agreed to orally or in writing (but be careful about what the actual authority
is – e.g. REA has auth to find buyer for your house, not to actually sell your house)
o
Implied, incidental, usual or customary authority: auth associated w/the rel, goes w/commercial
context/circs; auth that is not spelled out, but is understood to go along with the particular rel
(importance of expert evid)
 Incidental: auth to carry out actions which are incidental to attaining principal obj of agency
 Usual/customary: auth which is normal/customary in a particular rel
 Wiltshire v. Simms: stockbroker sold shares on credit; crt held stockbrokers normally have
authority to sell shares, but not on credit (expert evid would have been presented to est
what normal practice was)
 Healy v. Hutchinson: there may be express auth, but there may also be implied auth
based on the conduct of those involved (e.g. appt as managing director implies giving some
auth)
2

Railway case: station mgr was both agent and EE; railway co. is Pr and mgr is agent;
railway refused to indemnify mgr for cost of calling an ambulance when worker injured; crt
held that mgr was acting as agent for station and thf station was req’d to indemnify him for
actions completed in the normal course of his job
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Ostensible Authority: A does not have actual authority to act on behalf of P; issue is whether A had
authority to bind Pr to 3rd party
o
To recover from Pr, 3rd party has to establish that it was reasonable to believe that A was acting as
the Pr’s agent (i.e. had ostensible auth)
o
P will be bound by K if the 3rd party can establish that A had ostensible authority
o
Test for ostensible authority:
 Alleged Pr must make a representation, or permit a representation to be made (express or
implied orally, or by conduct/circs) that the alleged A had auth to act as his agent; and
 The 3rd party reasonably relied on the representation to his/her detriment
 Lloyd v. Grace: clerk fraudulently convinced widow to sign property over to him; law firm
liable to widow as Pr on principle of ostensible auth; law firm permitted a representation
that the law clerk had authority and the public would reasonably believe that he had
authority
o
Agency by Estoppel: Pr didn’t authorize the agent, but acted in such a way that he is estopped by
his conduct (i.e. in allowing agent to hold himself out as having auth) from denying that the A was
acting on his behalf and will be bound by acts of A
o
Policy justification for liability of Pr under doctrine of ostensible auth:
 Protect 3rd party reliance (conflicts w/unfair surprise to Pr, mediated by req that 3 rd party’s
reliance be reasonable)
 Least cost avoidance (Pr has best opportunity to prevent someone from holding
themselves out as Pr’s agent)
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Breach of warranty of authority: if A acts beyond both actual and ostensible auth, then the 3rd party may
have a cause of action against A
o
Test:
 A represented that s/he had actual authority
 Representation was false
 3rd party acted on the representation to his/her detriment
**sue the Pr, alleging A had ostensible auth and join A in action on basis of breach of warranty
of authority
DUTIES
- General implied terms in agency rel: are implied and thus can be varied by agmt or implication
o
Performance: duty to perform obligs of agency rel, follow instructions of Pr, act in best ints of Pr
(liability for failure to perform – not if unable to perform but made reas attempts (ins ex), or perf is
illegal)
 In gratuitous agency, A is not liable for failure to perform (not clear whether he has a
duty to advise he will not perform)
 P can recover from gratuitous agent if he is neg
o
Authority: duty not to exceed auth (A liable to client if client can prove loss)
o
Reas care: duty to act w/reas care (w/degree of skill and diligence usually exercised in those circs)
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4 Fiduciary Duties of the Agent:
o
Armstrong v. Jackson: FD arises b/c A has so much pwr to bind the Pr and can cause him so
much harm that crts insist that the FD be complied with
o
Delegation: specific fiduciary duty not to delegate perf to another (Pr chose A specifically b/c they
had confidence in them, Pr shouldn’t have 3rd parties they don’t know or trust acting for them)
 Exceptions:
 Normal course of business is to delegate
 Task is so simple and involves no confidence or direction, such that P will not
care who completes it
 Statutory permissions (e.g. BC and Fed corp laws auth directors to delegate
tasks in managing corp to offiers – 121, 115)
 Remedy: damages, injunction against future delegation
3
o
o
o
Conflict of int: duty to avoid conflict of int
 Aberdeen Railway: if Pr asks A to buy goods, A should not sell goods to Pr herself; A
must always act putting Pr’s ints above their own
 Remedy: accounting for profit, K made by A void, damages, injunction against future
transactions
Secret profits: it is a breach of FD for A to take secret profits earned in dealings on Pr’s behalf
 Thompson v. Meade: A should not take secret profit (breach of FD); stockbroker
instructed to sell shares for $10, sold for $12 and kept diff for himself
 Remedy: equitable remedy of accounting for profits (person in breach has to account
for any gain)
Accounts: A has duty to keep proper accounts, incl keeping personal property separate from Pr’s
property (rtn all Pr’s property when agency rel ends)
 Must provide records at Pr’s request
 Evidentiary presumption that property belongs to Pr if A fails to keep proper records
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Principal’s Duties to the Agent:
o
Remuneration: Pr has duty to pay remuneration as agreed
 Remuneration may only be payable if A was effective cause of sale, deal, K, etc.
(unless agency is exclusive)
 Quantum meriut: remuneration owed to A where it is clear that agent wouldn’t have
acted gratuitously (based on custom of the trade)
 A becomes disentitled to remuneration when they act outside actual authority but within
ostensible authority (unless P ratifies)
o
Expenses: P must reimburse A for expenses incurred in acting on Pr’s behalf (expenses must be
reasonable and necessary, must not be incurred in perf of illegal act)
 Indemnification of agent against loss incurred in carrying out Pr’s instructions
 A must be acting w/in scope of actual auth to be entitled to reimbursement and
indemnification
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Termination of Agency:
o
Naturally ends when agency oblig is performed
o
May be terminated early by consent, or notice of one party to the other (some rels req certain notice
period)
o
May be terminated by operation of law where:
 Bankruptcy of Pr or A
 Frustration
 Death or incapacity of Pr or A
 Campanari v. Woodburn: Pr asked A to sell painting and agreed to pay
commission; Pr died before the sale, but A didn’t know and sold painting;
awarded compensation in form of quantum meriut, but not commission b/c
agency rel term upon death of Pr; Pr’s executor would have to ratify the agency
agmt after death of Pr for A to be entitled to commission
o
Effect of termination: A’s authority ceases; but all rights against Pr which had arisen before
termination survive
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Agency by Ratification: a person can ratify a K entered into during a period when there was no agency
agmt after the fact and accept the benefit and the burden of the K (retroactive acknowledgement of the
agency)
o
A must have purported to act on behalf of Pr
o
The Pr must be in existence at the time the agent acted and the Pr ratifies (e.g. make K on
behalf of corp before it exists – can’t ratify if corp didn’t exist) – modified by statute CBCA s.14
o
Ratification affects the validity of the K retroactively:
 Must be express, by conduct or acquiescence
 P obtains both the rights and obligs under the K
 A can no longer be held liable for BWA b/c the ratification clothed the A w/retro auth
 A can no longer be held liable by Pr for exceeding auth (unusual consequence of
ratification)
 Pr will have to reimburse A for their expenses and will be liable to pay them reas amt
for services
4
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Undisclosed Principal: agent w/auth to act on behalf of Pr does not disclose that they are acting as agent
o
Undisclosed P can disclose the agency rel and obtain the benefits (must assume obligs),
unless 3rd party would have been unwilling to K with Pr (either b/c 3rd party’s intention was to K
w/A personally, or the P is an unacceptable co-contractor)
o
3rd party can either enforce K against P, enforce K against A or refuse to perform K obligs
o
Said v. Butt (1919): P had A (friend) purchase theatre ticket for him b/c P knew theatre would
never sell him a ticket on account of his past behaviour; P showed up for the show but D
theatre refused to admit him; P claimed damages against D for breach of K; P was undisclosed
Pr of the A who purchased the ticket; D successful in arguing they would never have K’d with P
and thf P was not entitled to rely on the K b/c he knew they wouldn’t have K’d with him
personally and couldn’t make them liable for him as undisclosed principal
5
PARTNERSHIPS
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legis in Cad and BC based on Eng PA passed in 1890 – cases in other juris are very persuasive b/c the
legis is virtually identical and there is very little distinction in terms of the principles that apply in each juris
s.91 of BCPA: equity and CL cont in force, except where they conflict w/the act
GENERAL PARTNERSHIP
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common bus form for small, local enterprises and some professions
flexible, easy to form
based on consensual contractual rel amongst partners
partners have broad ability to deter the rules governing the partnership rel
advs:
o
avoid corp tax reqs
o
useful for short-term venture
o
attain ltd liability by using a corp as one of the partners
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Defn of partnership in s.2 BCPA: relation which subsists btwn persons carrying on business in
common w/a view of profit (Backman v. Canada)
o
carrying on business: can be either short- or long-term organized commercial activity (single
transaction v. ongoing); can be either new or existing, active or passive, but there must be
some form of business
 “bus” broadly defn’d in s.6 – “every trade, occupation or profession”
 occupation of time, attention and labour, and the incurring of liabilities to other persons
o
in common: partners have to act together, whether by oral, written or express agmt/consent in
a common enterprise (each partner contributes, though not necessarily equally, each is entitled
to share in profits)
 **presumption of equality unless a clear agmt to the contrary**
 contribution of skill, knowledge or assets to a common undertaking
 joint property int in the subject-matter of the venture
 sharing of profits and losses (Volzke)
 filing of income tax rtns as partnership, joint financial statements/bank accounts
(Volzke)
 holding themselves out as partners (Lansing Building Supplies, Volzke)
o
view of profit: obj must be commercial in nature (i.e. not charitable or social), must at least be
the intention to profit (partnership that loses money is still a partnership)
 ancillary profit-making purpose will be sufficient (Spire Freezers)
 e.g. having a primary tax motive won’t mean you aren’t partners, you just must be able
to show ancillary motive of profit-making (OBJ test)
 deter intention by looking at the K and obj evid
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Indicia of partnership: s.4(a)-(c)(iii)
o
Ownership of property jointly or as tenants in common don’t create presumption of partnership
(4(a))
o
Sharing in net profits and losses – in the absence of evid to the contrary, sharing in profits is an
indicator of partnership (4(c))
o
Mutual agency (indicator and effect of partnership) (7(1))
o
Areas of confusion:
 Partnership v. co-ownership of property (mere co-ownership does not make co-owners
partners) (4(a))
 Lender v. partner (lending money to partnership doesn’t make you a partner) (4(c)(i),
(iv))
o
Implications of sharing in net profits and losses, and mutual agency – personal assets of each
partner are avail to the creditors of the partnership (11)
o
A.E. LePage v. Kamex
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Partnerships are NOT separate legal entities from the partners (Thorne v. Robichaud)
6
o
o
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Distinguish Lee – sole shareholder and director, but able to arrange for the corp to K w/himself,
making him an employee (corporation)
Disadvs of this: law ignores the firm and looks to the person composing it (liability), any change
amongst the partners can destroy a firm, partner can’t be debtor or creditor, or EE of the firm
Characteristics of Partnerships:
o
Equality: all partners share equally in profits (27(a)) and losses and partake in mgmt of
business (27(e))  subject to the PA
 s.27: subject to an agmt, express or implied, this section sets out the rights and duties
of the partners (where agmt is silent, this section sets out the default position)
 signif of PA is that it can vary any of the rules set out in s.27
o
Consensualism: rights and obligs amongst partners are agreed to by consent
 21: mutual rights and duties may be varied by the consent of all partners (orally, in
writing or by conduct)
 27(g): consent of all partner’s req’d to intro new partner
 27(h): maj rule in ordinary matters
 28: maj can’t expel partner w/o express auth in PA and only if acting in good faith
(Dockerill – linked to fid duty and J&S liability)
 29(1): any partner can end a partnership w/no set term by giving notice (cease to be
liable once notice given)
 34: assignee of P’s int not entitled to participate in mgmt (Kamex)
 30: partnership conts after expiry date w/consent of all partners
 Dockrill v. Coopers & Lybrand
o
Good faith (fiduciary charac): Partner must act w/utmost good faith and fairness towards other
partners, and duties imposed by s.22 are in addition to those imposed by law and equity
 22: partner must act in utmost good faith towards other mems of firm
 31: partners must render true accounts and full info of all things affecting partnership to
all partners
 32(1): partner must account to the firm for any benefit derived w/o consent of other
partners from: any transaction concerning the partnership, of from use of partnership
property, name or bus connection (Rochwerg)
 33: if partner w/o consent carries on competing bus, must account for and pay over to
firm all profits made
 91: rules of equity and CL apply to partnerships
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Dissolution of Partnerships:
o
29: Partnerships w/no set term can be term at any time w/notice of one partner (gives rise to
unstable rel critique)
o
35: subject to K, a partnership is dissolved by expiry of set term, by term of single
adventure/undertaking, or by notice of partner
o
36: dissolution by bankruptcy, death, dissolution of partner or changing order – in BC, only a
partnership of 2 partners dissolves on bankruptcy, death or dissolution (unless PA of
partnership w/ >2 partners so provides)
o
good idea to have set term re: notice in PA (e.g. give sufficient time to partners to prepare,
notify clients, etc)
o
86: single partner can file notice of dissolution w/registrar (don’t need consent, not acting on
behalf of other partners)
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Liabilty of Partners: (Volzke, Lansing, Falconi, Tower Cabinets)
o
14 joint and severally liability of partners  for the actions of partners in carrying out the
ordinary business of the firm
o
7(2): acts of partners are binding on firm
o
11(1): partners are liable for all debts incurred while partners
o
12: liability of firm for wrongful acts/omissions of partner (Falconi – liable for fraud of partner)
o
holding out  person who is not a partner can make partners liable
 16(1): those who appear to be partners, or hold themselves out as partners (by words
or conduct), or knowingly allow themselves to be rep’d as partner, are liable as partner
7
 e.g. using firm letterhead, business card, etc. (Tower Cabinet)
16(2): a general holding out is sufficient, it does not have to be made directly to the
person relying on it
 partners will still be liable (doesn’t have to be direct communication – all 3P
must show is that they heard about it and relied on it)
 partner will only have a defence if can show 3P knew that the person w/whom
he was dealing had no auth to bind the firm on the particular matter or did not
know or belief him to be a partner (7(2))
 Someone who has lent $$ to the firm relying on the person who has held themselves
out can sue the partnership, in addition to the non-partner
 s.17 & 18 discuss how partnership is dealt with in a lawsuit
o 17: admiss or rep by partner in ord course of bus is evid against firm
o 18: notice to partner is notice to firm
s. 19(1) and (2): New partner is not liable for debts/obligations incurred prior to joining firm;
when partner leaves firm, conts to be liable for debts/obligs incurred while s/he was there
39(1): 3P is entitled to treat all apparent partners of old firm until person has notice of change
 39(2): notice in gazette is sufficient
 39(3): retired partner not liable unless 3P knew, at the time of dealing with the
partnership, that s/he was a partner (Tower Cabinets)
85(2): a partner not reg will still be liable as partner
87: can’t escape liability by failing to register

o
o
o
o
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Bringing Action Against Partnership:
o
RULE 7: suing a partnership, and collecting damages
 7(1): partners can sue or be sued in the firm name
 7(2): to serve firm – serve partner at the place of business who appears to manage or
control the partnership business there
 7(3): appearances shall be in the name of the firm, but a partner who has served as a
partner can file their own appearance if they like
 7(4): partners have to disclose who the partners are (related to s.17)
 7(6): you can enforce your order against any property of the firm (s.24)
 7(7): lists who is considered a partner and thf. who an order can be enforced against
 7(8): once you have judgement against firm, can seek an order that someone other
than those listed under 7(7) is liable (e.g. show evid that they are a partner)
 7(9): alleged partner under 7(8) can defend in crt
 7(10): application to sole proprietors – a person carrying on a business in a name or
style other than their own name, may be sued in that name as if it were the name of the
firm (rule applies as though SP were a P)
o
Law and Equity Act:
 s.53 – joint and several liability
 s.53(1): must serve just one partner; if there are 2 or more partners, serve and obtain
an order that can be executed against that person (even if others who are jointly liable
haven’t been served)
 s.53(2): you can start a new action if you haven’t been able to recover against first
partner
 s.53(3): J&S liability amongst partners – if one partner satisfies the judgement, s/he
can then go to the other partners for recovery
REGISTRATION OF PARTNERSHIPS: BCPA 80.1-87, 90.3-90.5
o
Purpose of registration is to provide some public record of who is a partner in a partnership
o
81(1): reg is required as a matter of law, unless reg as LLP under Part 6
o
81(2): any partner may reg on behalf of other partners, with their consent
o
81(3): registrar must (a) maintain RS, (b) send notice of RS to partners identified therein, (c)
acknowledge receipt
o
82: must reg w/in 3 months of formation
o
83: must file notice of any change in mems of partnership w/registrar
o
84: reg is evid, but not conclusive evid, of (a) existence of firm, (b) who the partners are and (c) any
other info
o
90.4: offence to file false or misleading statement, or omit a material fact
8
o
o
o
90.5: penalty for offence under 90.4
Offence Act, s.5: makes it an offence not to comply (contravene or omit) with any act (thf it is an
offence not to register)
Offence Act, s.4: sets out general penalty for offences
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General principles of partnerships flow through to ltd partnerships (LPs) and ltd liability partnerships (LLPs)
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Partnership, not being a legal person, can’t register title to land – commonly create a corp that holds legal
title and then enters into trust rel w/partners to hold legal title in trust for them
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Joint ventures: a partnership for a ltd period of time (ltd undertaking, one-off deal btw two or more people)
o
e.g. could have charac’d rel btw B and WF in Volzke as a joint venture, b/c both had outside
bus activities that were not related to the partnership
o
35(1)(b) – legal defn of “joint venture” is a “partnership for a single undertaking”
RELEVANT CASES:
Backman v. Canada:
Facts: Cads purchased appt bldg from US partnership and promptly resells it to a new partnership composed of
same original US partners for a loss of $6m; CRA argues this does not meet defn of partnership
- never carried on bus w/a view to profit (no intention to carry on bus or make profit)
- never engaged in any mgmt, etc
- immediately disposed of assets of partnership and realized a loss– everything they did made it only
possible to realize a one-time loss
- nothing left from which they could in the future record a profit
Issue: was there a partnership?
- issue was whether 30 Cad taxpayers had formed a partnership such that they could claim the losses of
the partnership against their other bus income
Held: Tax Crt, FCA and SCC agreed w/CRA
Reasons:
- To be a partnership for tax purposes, you have to meet the defn of partnership under law of juris you
are in (essential elements of a partnership that exist under Cad law must be present)
- Sets out three elements of partnership and defines each (see above under defn of partnership)
- Applies defn to facts and finds that there was no intention to profit (motivation was income tax
deduction, there was no business carried on beyond the P&S transactions)
Spire Freezers: similar fact scenario as Backman; buyer had two properties, one w/a big loss and one small
one that was profitable; only sold the losing one; crts found there was a partnership b/c, despite evid of primary
tax motivation, there was ancillary profit motivation associated w/profit-making property
A.E. LePage v. Kamex: D is a corp that holds legal title to a large appt bldg in trust for the beneficial owners in
accordance w/their proportion of interest; co-owners entered into open listing agmt to sell appt bldg (REA who is
effective cause of sale gets commission); one co-owner then signed an exclusive listing w/P; bldg sold and P
claiming, as exclusive agent, a share of $45k commission, even though they weren’t the effective cause of the
sale; co-owners refused to pay P, arguing M acted w/o auth thf. they are not bound
- P argued that the co-owners were partners and thf. bound by s.7 and 11 to pay commission (not
making agency argument, under which they would have to show reas reliance on M’s auth)
Issue: were the co-owners w/beneficial int in the appt bldg co-owners and partners, such that they were bound
to pay the realtor’s commission
- was LePage an agent of the co-owners
- was March the agent of the co-owners, i.e. could M act on behalf of co-owners to enter into agency rel
w/Lepage
o
mutual agency of partners s.7(2)
 did M have auth?
 Did P know M had no such auth (only have to show no knowledge that he lacked auth,
don’t have to show reasonable reliance as in agency)
- If P can show that co-owners were partners, can sue all partners, not just M (s.11)
9
details of co-ownership:
o
written agmt to share profits in proportion to int in property
o
each co-owner could sell int in bldg to someone outside the group, but had to give right of first
refusal to group members
o
dec to sell whole bldg would be made by majority
o
regular monthly meetings
o
not involved in actual mgmt of the building
Held: didn’t meet defn of “partnership”
- intention was not to be partners – each indiv co-owner had right to sell int to stranger (not typically
allowed in partnership – partners not allowed to w/draw from partnership by selling their int to someone
else and making them a partner w/o consent of other partners)
Comments: LePage should have made alt argument of BWA against M
-
Lansing Building Supply (Ontario) Ltd. v. Ierullo (1989: distinguished from Kamex; one of the indiv D’s
ordered building materials from P and held himself out as a partner w/the other indiv D’s; P sued Ds for balance
owing on the premise that they were in fact partners; agmt signed by Ds purported to be a co-owernship agmt
and disclaimed any intention to enter into a partnership; indiv Ds were carrying out bus under a collective name
to dev some property into condos
- Kamex distinguished on two points:
o
The terms of the co-ownership agmt had many attributes of a partnership (e.g. property to be
held as tenants in common, profits to be distr, right of co-owners to deal w/the land restricted)
o
Conduct of the parties was severely restricted
Volzke Construction: V was construction contractor; V sued Westlock Foods, arguing it was a engaged in a
general partnership with Bonel Properties, which had engaged V as a contractor to construct a shopping centre
connected to existing mall owned by Bonel
- V succeeded in proving oral K btw itself and Bonel under which Bonel owed V $77k
Facts: WF and Bonel worked out deal to have a WF IGA in Bonel’s expanded mall – agreed that WF would
purchase an undivided 20% int in Bonel’s mall
- V sought construction K for expansion from WF – WF said that he would intro V to his partners, Bonel
- V awarded K by Bonel
Trial: there was no intention to enter into a partnership, and WF couldn’t be a partner w/Bonel, since it had no
control over the business; Bonel and WF held to be mere co-owners, not partners, so V was not able to recover
against WF
Evid of partnership:
- WF and Bonel agreed to share the costs and profits of the mall 80-20 (4(c))
- Spoke of each other as partners - WF intro’d Bonel as partner to V
- WF and BP opened joint bank account in their corporate names (but only principals of Bonel had
signing authority)
- Bills paid on cheques in the joint names of Bonel and WF
- jointly liable for mtg debt - Interim financing debenture for expansion of mall and mtg were signed by
both WF (20%) and Bonel (80%)
- worked together to find tenants
- Disagreement btw WF and Bonel as to WF’s int – 20% int comprise of the land on which IGA store was
located, or 20% int in entire shopping centre (WF successfully sued Bonel based on evid of WF that
there was either a partnership or joint venture)
Contra-evidence:
- All accounts submitted to Bonel
- When owner of WF died and his wife took over, she was not given signing auth on the bank account,
and referred all potential renters to Bonel, complaints were also passed along to Bonel
CA: this was a partnership; there is nothing in the defn of partnership which requires each partner to have
control over the business (e.g. silent partners, etc)
- Went outside the agmt, which was written like a co-ownership agmt, to see what the real intentions of
the parties were
- WF held liable as partner of Bonel to pay the amt owing on the construction K to V (all assets of
partners are avail to the creditor) (s.7)
- Even though only held partnership int of 20%, still liable for full amt to V (joint and several liability – WF
left to recover from Bonel)
10
Thorne v. New Brunswick: leading case in CL
Facts: oral K btw T and R to conduct lumbering operation as partners; agmt for each to work and be paid
weekly wages; registered w/WCB and paid premiums; T was injured and made claim for worker’s comp on
basis that he was a workman who suffered injury during course of employ; to be eligible for worker’s comp, had
to be an EE
Issue: was T both an EE and a partner?
- T argued CL recog’s partnerships as separate legal entities from the partners, such that he could be
both EE and partner (cited a number of cases where entities that were not at CL separate legal entities
that have become so under legis)
Held: T was working as a partner and his “wages” were merely an advance on his share of the profits
- Partner cannot enter into K for employ w/partnership
- Law of Eng knows nothing of the firm – the firm is merely the aggregation of the people themselves, it
doesn’t have a separate legal identity
Ratio: a partnership is not a separate legal entity or a person at law (partners are not separated from the
partnership at law, law ignores the firm and looks to the partners)
Lee v. Lee Air Farming: Lee was sole shareholder and director, was able to arrange for the corp to K with
himself, making him an EE
Rochwerg v. Truster (OCA): fiduciary obligs of partners
Facts: partnership of CA’s; P entered partnership w/D; P brought long-term client T w/him to the partnership;
July 1995 T going public and moved all audit work to big firm
- T wants to maintain rel w/P, so invite him to join Bd of Directors ($1000/meeting, plus expenses,
$10k/yr general fee, plus stock options)
- P also invited to sit on audit committee; P discloses appt to D, as well as salary, expenses and meeting
fees (as essential fee received from a client of the partnership for work done for the client), but does not
disclose stock options
- partnership dissolves, D finds out about stock options and claim right to share in them
Issue: are stock options part of profits of partnership, such that all partners should share equally
- P claimed they were a personal investment dec, purchased w/his own money and have nothing to do
w/partnership bus
- But they were a benefit that flowed directly from his position as director for T, which in turn was
connected to partnership
- No written PA, thf. crt referred to Ont PA, CL and equity to deter rules of partnership
- CL rules of utmost good faith and fair dealing are part of law of partnership
- D claimed:
o
P breached duty of good faith
o
Breached s.31 duty to render true accounts
o
Breach s.32(1) duty to account for any profit made through partnership
o
Breached s.33 by carrying on competing business w/o consent of partners
Held: even though P’s activities as director for T were outside scope of partnership and he wasn’t carrying on
the core partnership bus, he had become director by reason of his connection to one of his client thus the
directorship concerned the partnership – had duty to account for the benefits of that transaction based o the
connection to the partnership
o
P knew he had to disclose – knew his rel w/T had a connection to partnership
o
Acquired the rights while he was still a partner in the firm
o
Shares and options were part of his compensation in the same way that his fees were and
having not disclosed, he had received a secret benefit
o
Received a benefit through a transaction that concerned the firm and that involved a firm
connection – only defence was full disclose, not having done that, he loses
Dockrill v. Coopers & Lybrand:
Facts: P was partner in Halifax office of D; co-managing partners decided there were too many partners and P
had to go; D got approval from head office as well as in-house legal counsel on how to proceed
- Sept 1992 – P told to resign and leave by end of month (s.28 of BCPA – equiv in NS – can be varied
by K); P brought action against firm for wrongful expulsion
- P demanded list of docs pertaining to the issue, but partners refused to release privileged docs
11
Issue: right to access to the firm books and records, including communications w/in house legal counsel
- P argued that privileged docs had to be released b/c at the time they were written, he was a partner and
entitled to access to all books and records (BCPA equiv s.27(i), 31)
Held: D have to disclose the priv docs; distinguished btw employees and partners – partners are in a fiduciary
rel, are agents of each other, jointly and severally liable for debts, etc.
- The knowledge of one partner is at least prima facie deemed to be the knowledge of all partners
- Leaves no room for the exclusion of one partner from info re: firm bus, incl. their own pending expulsion
Ernst & Young v. Falconi:
Facts: F was rogue partner in law firm; conspired w/ and assisted clients to dispose of their assets fraudulently;
EY was trustee in bankruptcy for creditors of F’s clients, trying to get access to assets; EY obtained judgement
against F, but F couldn’t satisfy entire judgement; F’s partner, K died; EY seeking to recover against K’s estate
(no suggestion K was aware of fraudulently activity)
Issue: was law firm liable for judgement against F; who was going to pay?
- Earlier ruling that K was at all times partner of F; F’s wrongful acts were carried out in the normal
course of business (fact that he was doing it fraudulently didn’t take it outside ordinary course of bus)
Held: K’s estate liable for the fraudulent action of F (K’s estate forced to pay creditors of clients of F)
o
Clients carrying out fraudulent activity were clients of the firm, and the firm had been used as a
mechanism to carry out the fraud
Tower Cabinet v. Ingrahm: leading case on liabilities of partners who have retired
Facts: Jan 1946 I and C form partnership under name “Merry’s” and register PA under Bus Names Act;
dissolve PA after 1yr;
- I notifies bank that he is no longer a partner
- C agrees to notify customers that I has left the partnership, but doesn’t put a notice in Gazette
- new letterhead ordered but C uses old letterhead w/I’s name on it to order supplies from TC
- TC had never dealt w/Merry’s when I was a partner
- TC sues Merry’s as a firm (even though it’s really a sole proprietorship) and gets judgement against
Merry’s and seeks to recover from I
Issue: is I liable for judgement against Merry’s?
- s.16: a person who reps himself, or knowingly allows himself to be rep’d as partner is liable as partner
- s.39: retired partner not liable for debts incurred after date of retirement if person dealing with firm did
not know he was a partner at the time of dealing
Held:
- no evid that I held himself out as partner, nor did he knowingly allow himself to be held out as partner,
thf. not liable under s.16(1)
- there was no notice of retirement as req’d for person who has never dealt w/partnership before person
retired
- but, s.39 applies b/c I was not know to TC, thf. I was not liable for debt to TC K’d for w/C after he retired
Comment:
- TC tried to argue that b/c I’s name was on the letterhead, he was an “apparent partner”
- Crt considered what an “apparent partner” was – if it is apparent to the world and the persons having
dealt with the firm, then notice must be given under s.29(1) before the liability of the partner ceases
(means apparent at the time the person was a partner)
- But, to be an “apparent partner” to TC, I must have been an actual partner at the time of TC’s first
dealings w/Merry’s
- If the person dealing w/the firm didn’t know that the particular partner was a partner, and that partner
then retired, then as of the date of retirement, he ceases to be liable for any further debts incurred
- Partner has to be known to the person dealing with the firm at the time of dealing, or else he won’t be
liable after he retires – thf. to recover against I, TC would have had to know that he was partner at the
time that he was a partner
- Tacit rep of I as partner on the letterhead was not sufficient, b/c I didn’t know he was being rep’d as
partner
- It is sufficient notice of change in constitution for those w/o previous dealings with the firm to put a
notice in the Gazette – even though there was no notice, doesn’t help TC
- TC would have had a cause of action if they had dealt w/Merry’s when C and I were partners, and knew
that I was a partner
12
LIMITED PARTNERSHIP (LP):
-
popular for their tax attributes (but only 74 registered in BC in 2004)
commonly used in RE devt, high tech industry, film production, energy exploration/mining
covered by Part III of BCPA – BCPA applies except where varied in this section
LP is a partnership (Robinson Trust)
combines flexibility of partnerships in general and some of their tax attributes, with ltd liability
useful if starting a speculative venture, expect losses – able to use losses to personal tax adv
ideal vehicle for sleeping/silent partners
80: LPs formed outside BC may carry on bus in BC if reg under PA
CRITERIA:
- 50(1): LP may be formed to carry on any bus that a partnership w/o LPs carries on
- 50(2): Composition – LP consists of one or more GPs, and one or more LPs
- 51(1): Registration – LP is formed when GP files cert w/registrar signed by each GP
o
registration is necessary but not sufficient to form LP  must also meet defn of partnership in
s.2 (carrying on bus w/a view to profit)
o
(2): reg cert must contain:
a. bus name under which LP will operate
b. general nature of the buse
c. full name and address of each GP
d. term for which LP is to exist
e. aggregate amt of case and the nature and fair value of any other property to be contrib
by all the LPs
f. aggregate amt of any add’l contributions agreed to be made by LPs and the times at
which or events on the happening of which the add’l contribs are to be made
g. the bases on which LPs are entitled to share in profits or receive other compensation
o
(3): LPs themselves do not have to register
 public can look at register to see what is behind LP, but registry may not list all LP’s
(just GPs)
o
(4): if PA contains provisions respecting any of the following, the certificate must also contain
those provisions:
a. the times when contribs of LPs are to be rtnd
b. the right of a LP to substitute an assignee as contributor in his or her place, and the
terms and conds of the substitution
c. the right to admit add’l LPs
d. the extent to which one or more of the LPs has greater rights than the others
e. the right of a remaining GP to cont the bus on thebankruptcy, death, retirement, metnal
incompetence, or dissolution of a GP
f. the right of a LP to demand and receive property other than cash in rtn for his
contribution
g. the right of the LPs or ay of them to admit an add’l general partner to the partnership or
to permit or req a GP to retire from the partnership
- 56: GP has all the rights and pwrs of GP in gen partnership, subj to limitations (unless written consent of
LPs):
a. can’t do an act which makes it imposs to carry on the bus of the LP
b. can’t consent to judgement against the LP
c. can’t hold LP property or dispose of any rights in LP property, for other than partnership
purpose
d. can’t admit a person as a GP or LP unless right to do so is given in the cert
e. can’t cont the bus of the LP on the bankruptcy, death, retirement, mental incompetence or
dissolution of a GP, unless the right to do so is given in the cert
- 53(1): bus name of each LP must end w/words “Ltd Parntership”
- s.77: how to sue an LP – don’t have to name all LPs (Rule 7 – sue in firm name)
LIABILITY:
13
-
57: ltd liability  LP is only liable for partnership obligs to the extent of his contribution (personal assets
are protection from execution – creditors have no access)
Exceptions from ltd liability:
- 64: LP is not liable as GP, unless s/he or it takes part in the mgmt of the bus (Haughton, Nordile)
- if person who invests as LP is also dir/officer taking part in mgmt of bus of LP on behalf of
GP corp, crt will likely look at motivations (i.e. is person trying to avoid liability, or
legitimately acting in capacity as dir/officer)  obiter in Haughton likely too broad
- there may be situations where creditor is estopped from claiming against LP who took part
in mgmt of bus (Nordile)
- don’t have to show reliance on the part of the creditor to make LP liable as GP (Nordile)
a. 55(1): LP may contribute money or other propery but not services (confusing w/prohibition
from involvement in mgmt)
b. 60(1): LP may lend $$ to, borrow $$ from and trade w/LP
-
52(1): can be both GP and LP at same time (serves purpose of increasing share in bus = profits), but as
GP, will always be fully liable – can’t limit liability by simultaneously investing as LP
-
53(2), (3), (4): LP should ensure name is not included in firm name otherwise will be liable as GP
(would have to show that creditor had actual knowledge that wasn’t GP)
-
75: if partner thinks they are investing as LP, but no one ever registers LP, as a matter of law that
partner will be treated as GP, BUT:
 (a): a person is not, by exercising the rights of an LP, a GP
 (b): as long as you stay out of mgmt you don’t become liable for partnership obligs
IF: on ascertaining the mistaken belief, s/he promptly renounces his/her ints in profits or
other compensation by way of income from the bus (escape liability by immediately
renouncing share of profits)
**not an effective sanction – gives someone a relatively easy way of avoiding liability
**sleeping partner who never mistakenly believed themselves to be LP doesn’t have right to
renounce profits and become protected
**avoid liability by make GP a corp that has essentially no assets (get same effect as having a corp, but
w/certain tax advs)
**BC has made it optional for LP to register b/c it is trying to attract business (if you register, then you have to
meet all stat reqs)
RELEVANT CASES:
Robinson Trust: stands for principle that LPs are partnerships (though they have similar attributes to corps)
Facts: one of the LPs was the trustee of Robinson Trust; M & E Robinson were trustees of Percy’s estate –
held legal title to his assets, converted some to cash and invested as LP in retirement home for benefit of
beneficiaries of trust; GPs were 2 corps
Issue: was income from carrying on business or not (higher tax rate if deemed more than passive investor)
Tax Crt: distinguished btw the trust, and the LPs as though they were separate entities – found trust was not
carrying on business
Held: Trust is LP in a partnership, must meet defn of partnership (“carrying on business in common with a view
to profit)
- Will be deemed partners even if not taking part in active mgmt
- LPs and GPs are both partners carrying on bus in common – this is a partnership, trust simply agreed
not to be involved in daily mgmt
- Defn of partnership clearly contemplates that all partners carry on the bus of the partnership (engage in
common undertaking even if not actively involved)
Haughton Graffix v. Zivit: Alta case
Facts:
- Z was majority shareholder and Pres of Lifestyle Magazine Inc (LMI) – controlled LMI
- LMI was GP of LP “Printcast”
14
Z and M were LPs of Printcast
Z admitted to introducing himself as Pres of Printcast (misleading – he was Pres of LMI and LMI was
GP of Printcast)
- N, Pres of HG, claimed against Z for balance owing on printing done for Printcast (which is now
bankrupt)
- But, as a matter of law, LMI was the GP, not Z (LMI was separate entity from Z)
- N testified that he knew Z was an LP, but that he didn’t understand the legal implications of that, or the
structure/rels btw Z, LMI and Printcast (could have found out by asking or checking LP cert)
- HG trying to find someone w/assets to recover against – LMI is GP and thf. liable, but likely doesn’t
have many assets (Z is primary shareholder, but probably didn’t pay much for shares)
- Z structured it this way to protect his personal assets (all he intended to put at risk was his contribution
to Printcast as LP, and his investment in LMI)
- Z testified that he took care of the bus of Printcast
Issue: did Z take part in the mgmt of the bus of Printcast, such that he should be deemed a GP? Or is he
protected as Pres of LMI
- In what capacity were Z and M managing the bus of Printcast
- Z argued HG couldn’t bring action against him b/c one exec of HG knew Z wasn’t GP of Printcast (what that
exec knows binds GP)  Argument fails b/c crt finds Z was intentionally vague about the structure
- Equivalent of s.64 of BCPA applies – LPs are only liable if they take part in the mgmt of the bus of the LP
- If HG establishes that Z took part in the control and mgmt of Printcast, he will be considered a GP
Held: Z personally liable for debts of Printcast b/c he is an LP that took part in the mgmt/control of the bus
- Z held himself out as Pres of Printcast and was vague and evasive about the real structure –
appropriate to apply equivalent of s.64
- Two lines of authority:
o
LP won’t be liable as GP unless Plaintiff can show reliance on that person being a GP
o
All Plaintiff has to show is LP taking part in the mgmt/control of the bus (not necessary to show
reliance)
Comments:
- Crt goes on to say in obiter that it would have reached the same result even if Z hadn’t misrep’d himself
- Obiter suggests that if you invest as LP and at the same time act as mgmt for GP, you have essentially
waived your ltd liability
- As a result, if you are an LP and you act as an exec of the GP, you will always be liable as GP
- There may be unusual circs where creditor may be estopped from recovering against LP who takes part
in control/mgmt
-
Nordile v. Breckenrigdge (1992 BCCA): more authoritative for BC partnerships
Facts:
- Creditor of LP suiting two LPs personally for debts of LP
- N sold land to LP Arman and took a 2nd mtg back (LP owes former owner of land $600k on mtg debt)
- N looking for someone to pay default in mtg – sues B and R on grounds that they are LPs that have
taken part in the mgmt of the bus and thf. liable as GPs
- B & R were execs and minority shareholders in Arbutus Mgmt Ltd – didn’t control AM w/their votes
- AM is GP in LP Arman
- B & R are also, along with others, LPs in Arman
- Key agreed facts:
o
N agreed B & R had participated in mgmt of Arman solely in their capacity as officers in AM
(their role was to manage GP)
o
N signed an acknowledgement that no LP would be liable for the debts of the LP (written agmt
that LPs have ltd liability)
Held: CA found that acting as human reps of GP is acting as mgmt in a diff capacity than that contemplated by
s.64 of BCPA
- To become GP, had to be acting in capacity as LPs on their own behalf, rather than on behalf of the GP
Comments:
- Creditor is estopped from claiming against LP  b/c of signed statement re: LP liability
- CA agreed w/trial judge and Haughton  don’t have to show reliance on the part of the creditor (there
does not have to be reliance to make LP acting as GP liable)
- s.64 not meant to incorporate the kind of “control” or “dec-making” that goes on at LP meetings (e.g.
make big decs)
- Cases (H and N) are disting on the facts (on same facts, the BCCA would probably follow Haughton)
15
LIMITED LIABILITY PARTNERSHIPS (LLPs):
-
new to BC – Legis came into force January 17, 2005
Distinct from LPs b/c no restriction on participation in mgmt of the business
Relevant provisions in Part VI of BCPA
BC much more flexible, bus-friendly:
96(2): MUST register  otherwise will be treated as GP
o
107: must provide NOTICE of reg as LLP to clients in writing
97: professional partnerships can’t register as LLP unless (a) the act regulating the profession permits it,
and (b) have complied w/pre-req’s in that Act
129(5): cancellation of reg as LLP  partnership converts back to GP (s. 11, 12 and 14 now apply)
Liability
- 104(1): Ltd liability affords protection to partners against anything (not just neg on part of other partner)
o
partnership obligs
o
oblig under agmt btw partnership and another person
o
obligation to which (a) or (b) applies
- 104(2): Ltd liability doesn’t extend to your own NEG, OR that which you new about AND failed to prevent
o
106: will be liable for obligs that arose prior to reg as LLP
- 95(2): the following sections of the BCPA don’t apply to LLPs
11: liability of the firm – partners jointly liable for debts and obligs of firm
12: firm liable for loss, injury or penalty arising out of any wrongful act or ommission of any partner
14: joint and several liability
**13 not excluded (liability for misapplication of funds)
Liability as Directors:
- 105(1): Partners are liable for obligs of partnership as if they were dirs of corp
- 105(2): but partners do not owe a fiduciary duty or duty of care to LLPs
o
thf. this means partners are liable for obligs of the partnership where, under an Act of the BC
Leg, personal liability is imposed on dirs of a corp
o
e.g. under ESA, environmental protection leg,
 104(1) may open door to liability of partner, as a dir would, under s.96 of ESA for up to
2 months unpaid wages
16
BC PARTNERSHIP ACT (BCPA):
1
Defns:
“business name” – name under which a business is carried on
“firm” – collective term for persons who have entered into a partnership w/one another
“firm name” – style or name under which the bus of a firm is carried on
“principal place of business” – principal premises in BC where the business is to be carried on
“registrar” – registrar of companies
2
Defn of partnership: “relation which subsists btwn persons carrying on business in common w/a
view of profit”
3
Rel btwn mems of a company or assoc that is incorp’d is not a partnership (corporations can be
partners, but not partnerships)
INDICIA OF PARTNERSHIP
4(a)
Ownership of property jointly or as tenants in common, etc. doesn’t automatically make you partners
4(b)
Sharing of gross rtns does not itself create a partnership
4(c)
Receipt of share of profits of a bus is proof in the absence of evid to the contrary of partnership, but
the receipt of a share or payment contingent on or varying w/profits of a bus does not of itself make
him/her partner
4(c)(i)
Being repaid by instalments or otherwise out of profits does not make lender a partner
4(c)(ii)
K for remuneration of EE or agent of partner by a share of the profits does not make them a partner
4(c)(iii) Spouse or child of a deceased partner who receives a portion of the profits is not partner
4(c)(iv) If you’ve loaned money, the fact that you are being repaid out of share of profits doesn’t mean you
are a partner as long as there is a K in writing (rarely argued)
6
Defines “business” inclusively to incl any trade, occupation or profession (broad, expansive, unltd
defn of bus)
CHARACTERISTICS
7(1)
Liability of partners - Partner is an agent of the firm (mutual agency among partners)
7(2)
9
10
11
12
13
14
16(1)
16(2)
17
18
Actions to carry on the business of the partnership binds firm and his/her partners, unless the partner
has in fact no such authority, and the 3rd party either knows the partner has no authority, or does not
know or believe him/her to be a partner
Not liable for nonfrim bus - If borrowing not connected w/bus of firm – partners not liable for the
loan (outside auth of partner if loan is not connected to bus of the firm)
Restrictions on Powers - Partners can agree to restrict the power of any one or more of the
partners to bind the firm; an act done in contravention of the agmt is not binding wrt persons having
notice of the agmt (binding only if 3rd party has notice of the agmt)
Liabilty of partners for firm debts - Partners are all liable for debts and obligations incurred while a
partner
Liability of Firm - Firm is liable for wrongful acts of partners acting in course of bus of the firm or
with auth of partners (liable for acts/omission that result in losses, injury or penalty) (Ernst & Young
v. Falconi)
Liability for Misapplication - Firm is liable to make good an loss a client incurs as a result of
misapplication of funds or other property
J&S Liabilty - Liability under ss.12 and 13 is joint and several
- joint - P can sue one partner and recover the full claim against that partner
- several – P can sue each partner and recover from each partner their share)
**combined w/Rule7, and Law and Equity Act – no longer precluded from going after one partner
even after obtaining judgement against another
Person Representing Self as Partner - Those who appear to be partners, or hold themselves out to
be partners, by words or conduct, or knowingly allows himself to be re’d as a partner, is liable as a
partner to anyone who relies on that representation (essentially the creation of ostensible authority)
(Tower Cabinet v. Ingrahm; Volzke)
The representation doesn’t have to be made directly to the person relying on it – it is binding even if it
is indirect (e.g. 3rd party relying on it only has to show that they heard about it and relied on it)
Partner’s Evid - An admission or representation made by any partner concerning the partnership
affairs, if made in the ordinary course of business, is evidence against the firm
Notice to Partner - Notice to a partner is notice to the firm, unless there is fraud.
17
19(1)
Liability of Partners - New partner not liable for liabilities or obligs incurred before s/he became
partner.
19(2)
A partner who retires from a firm does not cease to be liable for partnership debts or obligs incurred
before his/her retirement.
19(3)
Retiring partner and continuing mems and creditors can make agmt as to what retiring partner’s
liabilities are.
19(4)
21
That agmt can be express or inferred from course of dealings.
Variation of rights and duties by consent - Mutual rights and duties may be varied by the consent
of all partners, orally, in writing or inferred from course of dealings
Fairness and good faith - Partner must act w/utmost good faith towards other mems of the firm;
duties of this section are in addition to any enactment or rule of law or equity
Property bought w/firm money - Property bought w/money belonging to the firm is deemed to
belong to the firm, unless contrary intention appears.
Rules for deter rights and duties of partners - Core of the partnership rel (rules can be varied by
K)
Share equally in profits, capital, losses
Indemnification – partner who incurs personal liabilities in carrying out the bus of the partnership is
entitled to indemnification
Partner entitled to int on any capital contributed over and above agreed amt
Partner not entitled to int on his/her capital prior to ascertainment of profits (there is a diff btw
partners’ contribution of capital and a loan under 27(c))
Every partner may partake in mgmt of business (may, not must)
Partner not entitled to remuneration for acting in the partnership business – entitled to profits, but not
wages per se
Person may not be introduced as partner w/o consent of all existing partners
Majority rule in ordinary matters
Books to be kept at place of business, ever partner shall have access to them
Disputes over partnership agmt may be referred to arbitration (right to arbitration)
Maj Can’t Expel Partner - Majority of partners can’t expel another partner unless a pwr to do so has
been conferred by express agmt btw the partners and the pwr is exercised in good faith
Ending Partnership - If not set term has been agreed upon for the duration of the partnership, any
partner may end it by giving notice to all other partners of his intention to do so
Continuation of Partnership After Expiry - Provides for partnership to be continued after expiry
date (deemed to continue if the partners cont to behave as though still under express agmt) – cont by
consent
Partner must account for benefits - Partner must account for any benefits accrued w/o consent of
other partners in course of partnership business, or from the use of the partnership name, property or
business connection
Profits of partner carrying on similar business - If a partner, w/o consent of other partners, carries
on any business in competition w/that of the firm, the partner must account for and pay over to the
firm all profits earned in that business
Assignmeny by partner of a share - Assignment of partner’s int, either absolute or by way of mtg or
redeemable charge, does not entitle the assignee, during the continuance of the partnership, to
interfere in the mgmt or admin of partnership business (basically don’t acquire rights of partners
beyond sharing of profits)
Partnership is dissolved:
(a) if entered into for a set term, by the expiration of that term
(b) if entered into for a single adventure or undertaking, by the termination of that adventure or
undertaking, or (JOINT VENTURE)
(c) if entered into for an undefined time, by any partner giving notice to the other or others of his
or her intention to dissolve the partnership
Dissolution by bankruptcy, death, dissolution of partner or charging order - On the death,
bankruptcy or dissolution of a partner, a partnership of 2 partners automatically dissolves; partnership
of more than 2 may carry on by agmt among the partners
Change in Firm - Person who had previous dealings with the firm, and who deals with it after a
22
24
27
27(a)
27(b)
27(c)
27(d)
27(e)
27(f)
27(g)
27(h)
27(i)
27(j)
28
29(1)
30
32(1)
33
34
35(1)
36
39(1)
18
change in constitution (i.e. a partner has left) is entitled to rely on the former composition until given
actual notice of the change
39(2)
An advertisement in the Gazette is sufficient notice for persons who have had no dealings with the
firm. (constructive notice)
39(3)
The estate of a partner who dies or becomes insolvent, or of a partner who, not having been known
to the person dealing with the firm to be a partner, retires from the firm, is not liable for partnership
debts K’d for after the date of death, insolvency or retirement (Tower Cabinets)
Part III – Limited Partnerships  ss.48-80
48
Defn of “certificate” – cert filed under s.51 and incls all amends
49
Application of Part - BCPA in general applies to LPs, except where Part III has an inconsistent rule
50(1)
LP – LP may be formed to carry on any bus that a partnership w/o ltd partners can carry on
50(2)
52(1)
LP consists of one or more GPs and one or more LPs
Formation - LP is formed when GP files cert w/registrar signed by each GP (LPs don’t have to file
anything) – filing cert if necessary but not sufficient to form LP (also need to meet defn of
“partnership”)
51(2)
Sets out what info is req’d in the cert
a. bus name under which LP will operate
b. general nature of the buse
c. full name and address of each GP
d. term for which LP is to exist
e. aggregate amt of case and the nature and fair value of any other property to be contrib by all the
LPs
f. aggregate amt of any add’l contributions agreed to be made by LPs and the times at which or
events on the happening of which the add’l contribs are to be made
g. the bases on which LPs are entitled to share in profits or receive other compensation
51(3)
LPs themselves do not have to register (cert may state name and last known address of LP but
doesn’t have to)
51(4)
if PA contains provisions respecting any of the following, the certificate must also contain those
provisions:
a. the times when contribs of LPs are to be rtnd
b. the right of a LP to substitute an assignee as contributor in his or her place, and the terms and
conds of the substitution
c. the right to admit add’l LPs
d. the extent to which one or more of the LPs has greater rights than the others
e. the right of a remaining GP to cont the bus on thebankruptcy, death, retirement, metnal
incompetence, or dissolution of a GP
f. the right of a LP to demand and receive property other than cash in rtn for his contribution
g. the right of the LPs or ay of them to admit an add’l general partner to the partnership or to permit
or req a GP to retire from the partnership
52(1)
GP and LP - Indiv or corp can be both GP and LP – but as GP is fully liable
52(2)
Person who is both GP and LP is has same rights and pwrs as GP but in respect of contribution as
LP, the person has the rights against the other partners that the person would have had if he or she
werenot also a GP
Name of partnership – Bus name of each LP must end with words “Ltd Partnership”
53(1)
53(2)
Surname of LP cannot appear in firm name unless that surname is also the surname of one of the
GPs, or the bus had been carried on in that name before the admission of that LP
53(3)
The names of LPs which are corps must not appear in the firm name, unless the LP was in existence
19
and carrying on bus in that name prior to the corp becoming an LP
53(4)
55(1)
56
57
60(1)
64
75
77
80(1)
80(2)
Effect of breach of (2) or (3) can be catastrophic to that LP – will be held liable as a GP to any
creditor of the LP who has extended credit w/o actual knowledge that the LP is not a GP (LP would
have to show creditor had actual knowledge to get out of liability)
Contribution of LP – LP may contribute money or other property, but not other services (risk of
confusion that person providing service is actually participating in the bus of the firm; ensure value of
contribution is readily ascertainable)
Rights of GPs – GP has all the rights and pwrs, subject to certain limitations in an LP (unless has
written consent)
a. can’t do an act which makes it imposs to carry on the bus of the LP
b. can’t consent to judgement against the LP
c. can’t hold LP property or dispose of any rights in LP property, for other than partnership purpose
d. can’t admit a person as a GP or LP unless right to do so is given in the cert
e. can’t cont the bus of the LP on the bankruptcy, death, retirement, mental incompetence or
dissolution of a GP, unless the right to do so is given in the cert
Liability of LP – LP is only liable for the obligs of the LP to the extent of his/her contribution to the
capital of the partnership
Bus dealings by partner w/partnership – LP may lend money to, borrow money from and trade
w/LP, but be careful it doesn’t involve participating in mgmt of the business
Liability to creditors – LP is not liable as GP unless s/he or it takes part in the mgmt of the bus; ltd
liability is contingent on not being involved day to day
Liability of person mistakenly believing he or she is a LP – if LP mistakenly believes they are LP,
but no cert is ever filed registering LP, LP at law would be considered GP – provides escape from
liability if mistaken LP immediately renounces share in profits
Parties to proceedings – When suing LP, not necessary to name all LPs
LPs formed outside BC may carry on bus in BC if reg under PA, sets out reqs for reg the name of
the bus; same rights/liabilities as LPs formed under s.31
Reg requirements – file w/register
80(3)
Have same rights as LP reg under s.51
REGISTRATION OF PARTNERSHIPS
80.1
“registration statement” (RS) means
(a) a registration statement in the prescribed form, or
(b) prescribed information submitted to the registrar in the prescribed manner.
81(1)
Duty of GP to file RS - All persons assoc in a partnership for trading, manufacturing or mining
purposes must file a registration statement (issue is whether list is inclusive of professions)
81(2)
Any partner who has the approval of the other partners may register on their behalf
.
Responsibilities of the registrar.
(a) maintain the information contained in the registration statement,
(b) send, by mail, fax or electronic means, to each of the persons identified in the registration
statement as partners of the firm, a notice setting out the information contained in the
registration statement, and
(c) acknowledge receipt and filing of the registration statement, and the date it was filed, by
sending an acknowledgment by mail, fax or electronic means to the person who submitted the
registration statement for filing.
81(3)
82
83
84
Time - Must register w/in 3 months of formation of the firm.
RS must be filed on change and alteration of firm - Must file w/registrar an change in the
membership of the firm
Allegations in RS as Evidence - The allegations contained in a registration statement filed under
section 81 or 83 are evidence
(a) of the existence of the firm referred to in the registration statement,
20
85(2)
(b) that the persons identified as partners in the registration statement are partners of the firm,
and
(c) of any other information contained in those allegations.
(not conclusive, but you would have to rebut it, relates to s.17; is not notice – but rather evid of a
state of affairs)
Rights and liabilities of partners – if you are actually a partner, you will be liable as a partner
regardless of whether you are reg on RS
85(3)
The person who isn’t identified as a partner can be sued w/the others or sued alone (Rule 7 and Law
& Equity Act apply)
85(4)
86
Nothing in this part is construed to affect the rights of any partners wrt each other
Notice of dissolution - Allows a single former partner to file the notice of dissolution with Dir, as
there is no partnership at that point
Actions - A partnership doesn't have to be registered to be sued as such, because a partnership
doesn't have to be registered to come into existence  can’t escape liability by not registering.
87(1)
87(2)
89
90.3
90.4(1)
Liability is joint and several btw partners.
Names similar to corp - Can’t file cert registering an SP, GP or LP using the name of an existing
corp., or a name that is confusing w/that corp (unless under ss.2 the corp consents in writing, or the
SP, GP or LP had the name first)
Search of the register - Any person may, in the manner and to the extent permitted by the
regulations,
(a) conduct a search of the information maintained by the registrar under this Act according to
(i) the name of a firm, or
(ii) the name of a partner,
(b) inspect the records and information maintained by the registrar under this Act,
(c) obtain a copy of all or any part of a record maintained by the registrar under this Act, and
(d) require that a copy of all or part of a record maintained by, or provided or issued by, the
registrar under this Act be certified by the registrar or by a person designated by the registrar
as a signing officer.
**applies to GPs and LPs
Misleading statements an offence - Subject to subsection (3), a person who makes or assists in
making a statement in a registration statement, a notice of dissolution or any other record filed with
the registrar under this Act commits an offence if the statement
(a) is, at the time and in light of the circumstances under which it is made, false or misleading in
respect of any material fact, or
(b) omits any material fact, the omission of which makes the statement false or misleading.
90.4(2)
If a corporation commits an offence under subsection (1), any director or officer of the corporation
who knowingly authorized, permitted or acquiesced in the commission of the offence is party to and
guilty of the offence.
90.4(3)
Defence: A person is not guilty of an offence under this section if that person
(a) did not know that the statement was false or misleading, and
(b) with the exercise of reasonable diligence, could not have known that the statement was
false or misleading.
90.5(1)
90.5(3)
**applies to GPs and LPs
Penalty - Subject to subsection (3), a person who makes or assists in making a statement in a
registration statement, a notice of dissolution or any other record filed with the registrar under this Act
commits an offence if the statement
(a) is, at the time and in light of the circumstances under which it is made, false or misleading in
respect of any material fact, or
(b) omits any material fact, the omission of which makes the statement false or misleading.
If a corporation commits an offence under subsection (1), any director or officer of the corporation
who knowingly authorized, permitted or acquiesced in the commission of the offence is party to and
21
guilty of the offence.
90.5(3)
91
A person is not guilty of an offence under this section if that person
(a) did not know that the statement was false or misleading, and
(b) with the exercise of reasonable diligence, could not have known that the statement was
false or misleading.
**applies to GPs and LPs
Rules of equity and common law apply to partnerships, except insofar as they are inconsistent with
this act
LIMITED LIABILITY PARTNERSHIPS
94**
"delivery address" means a unique and identifiable location in British Columbia that is accessible to
the public during normal business hours for the delivery of records, but does not include a post office
box;
"distribution" means a transfer by a partnership of some or all of the partnership property to a
partner or to an assignee of a partner's share in the partnership;
“LLP” – means a partnership registered as such (if not registered as LLP and meet defn of
partnership – you are GP --- status of LLP comes w/registration)
“GP” – means a partnership w/BC as its governing juris and is not an LP or LLP
“governing juris” – juris to which the interp of partnership agmt is subject to (people forming LLP
can choose governing juris, state in partnership agmt and register in that juris, provided that you can
comply with all the laws of that juris and the juris where you are carrying on bus)
**no req of residence – have to have a registered office, but don’t nec have to live or work here
“Foreign partnership” means one formed under the law of a juris other than BC
“Extra-prov LLP” means a foreign partnership registered as an extraprov LLP (e.g. big nat’l law
firms registering in BC as LLPs)
"mailing address" includes the correct postal code or equivalent, if any;
"partnership" includes "firm" unless the context otherwise requires;
“Partnership Obligation” means any debt, oblig or liability of a partnership, other than debts, obligs
or liabilities of partners as among themselves, or as among themselves and the partnership (e.g.
liabilities incurred by partners as partners doing the bus of the partnership – not ltd to liability for
neg acts)
“Profession” – a profession or occupation that is governed or regulated by an act (BC Interp Act defn
of “act” – means under a BC statute) – (e.g. in BC lawyers are governed by Legal Profession Act, so
a profession includes lawyers)
"professional partnership" means a partnership through which one or more persons carry on the
practice of a profession;
"register" means the information that is maintained by the registrar from records filed or registered
with the registrar;
95(1)
95(2)
"registered GP" means a general partnership in relation to which a registration statement is filed
under Part 4.
Application of part: subj to 95(2), Parts 1, 2, 4 and 5 apply to LLPs
- Parts 1 and 2 are the rules for GPs – in general the rules for GPs apply, e.g. fid duties amongst
partners, etc.
- Part 4 is registration – generally applies to LLPs
- Part 5 is miscellaneous – rules of equity and CL apply
KEY: Subject to s.129(5), the following don’t apply:
11: liability of the firm – partners jointly liable for debts and obligs of firm
12: firm liable for loss, injury or penalty arising out of any wrongful act or ommission of any partner
22
14: joint and several liability
Other exceptions – 80.1 – 88, 90.3(1)(ii)
96(1)
96(2)
**liability for misapplication of funds – s.13 – is not excluded
Formation – file registration as LLP
Formation – in order to be reg as a LLP, must file statement w/registrar, otherwise it’s a GP if it
meets defn of GP in s.2
96(3)
A registration statement may be filed on behalf of the partnership under subsection (2) by
(a) a person who has received the approval of all of the partners to do so, or
(b) if the partnership agreement authorizes the filing of a registration statement for the
partnership under subsection (2), any person.
96(4)
A registration statement referred to in subsection (2) must
(a) set out
(i) the business name of the partnership, and
(ii) the name that is to be the business name of the partnership after it is registered as a
limited liability partnership,
(b) set out the mailing address and delivery address of the office that is to be the registered
office of the partnership after it is registered as a limited liability partnership,
(c) if the partnership is a professional partnership,
(i) indicate that fact, and
(ii) confirm that the partnership is authorized, within the meaning of section 97, to
register as a limited liability partnership,
(d) if the partnership is a LP or a registered GP, indicate that fact,
(e) contain a statement that
(i) the person submitting the registration statement for filing has received the approval of
all of the partners to file that registration statement, or
(ii) the partnership agreement authorizes the filing of a registration statement for the
partnership under subsection (2), and
(f) set out any other information required by the regulations.
96(5)
The allegations contained in a registration statement filed under this section are evidence of the
information contained in those allegations.
97
Professional partnerships can’t register as an LLP unless (a) the act regulating the profession
permits mems of the profession to carry on bus as LLP and (b) have complied with the pre-req’s in
the Act (on exam – might have to look at reqs in the profession act – e.g. Veterinarians Act)
Registration of LLP – Registrar must, on receiving satisfactory RS, (a) file the RS, (b) publish notice
of the reg of the LLP, (c) acknowledge receipt and filing of the RS to the person who submitted it and
the reg office of the partnership
98(1)
98(2)
On filing of RS, the partnership becomes an LLP
99
Registration as LLP doesn’t dissolve GP (don’t have to file as if they were a dissolved partnership
for income tax purposes) – partnership conts, just converted from one type to another
100
101
Name of partnership - Req to have words “LLP” in name
Evid of registration - Notation in register that partnership has been reg as LLP is conclusive evid for
the purposes of this Act and all other purposes that the partnership has been duly reg as LLP 
regardless of whether reqs precedent and incidental to reg have been complied with
Change in partnership doesn’t affect the partnership’s status as a LLP
Effect on other registrations – Registration as a LLP cancels (2) ltd partnership and (3) general
partnership
Ltd liability for partners
(1) Except as provided in this Part, in another Act, or in a partnership agmt, a partner in LLP
a. Is not personally liable for a partnership obligation merely b/c that person is a
partner,
102
103
104*
23
105*
106
107
129**
b. Is not personally liable for an oblig under an agmt btw the LLP and another person
(ltd liability applies to contractual liability),
c. Is not personally liable to the partnership or another partner for an oblig to which (a)
or (b) applies
(2) ss.(1) doesn’t relieve a partner in a LLP from personal liability
a. For the partner’s own neg or wrongful act or omission, or
b. For the neg, wrongful act or omission of another partner or an EE of the partnership
if the partner seeking relief
i. Knew of the act or omission, and
ii. Didn’t take the actions that a reas person would to prevent it
(3) ss.(1) doesn’t protect a partner’s int in the partnership property from claims against the
partnersip respecting a partnership obligation
Partners subject to same obligations as corporate directors –
(1) Partners in LLP are personally liable for a partnership oblig if and to the same extent that
they would be liable for the oblig if
a. The oblig was an oblig of a corp, and
b. They were dirs of that corp
(2) Nothing in ss.(1) imposes on partners the duties imposed on dirs of corps at CL or under 142
of BC BCA (equiv of 122 CBCA)  FD/duty of care is not imposed on partners of LLP
(3) If corp is a partner in a LLP, the dirs of the corp are jointly and severally liable for any liability
imposed on the corp under ss.(1) or 104(2)
(4) ss.(3) doesn’t apply to a dir who dissented to, or took the actions a reas person would take to
prevent the act or ommision that resulted in the liability.
Previous obligations – liability of LLP partners not ltd wrt partnership oblig that arose (a) before
partnership became an LLP or (b) out of a K entered into before partnership became an LLP
Notice to clients – after reg as LLP, must provide written notice to existing clients of the registration
and the changes, resulting from that reg, in the liability of the partners
Cancellation of registration – what happens when you have cancellation of LLPs registration
(1) registrar may cancel LLP if
a. LLP – (i) failure to file annual report for 2 consec years, (ii) submit request for
cancellation signed by all partners, (iii) is prof llp no longer auth under 97
b. extraprov LLP – (i) failure to file annual report for 2 consec yrs, (ii) submit request
signed by all partners, (iii) prof llp no long auth under 116
(2) registrar must give notice
(3) registrar may cancel 30 days after giving notice unless default remedied or reas steps to
remedy default have been taken
(4) cancellation does not dissolve the LLP, but only removes LLP status
(5) on cancellation – converts it back to GP (s.11, 12, 14, etc. now apply)
(6) must reg as GP, and for purposes of s.82, “formation of the firm” is deemed to be reference
to cancellation of reg as llp (must reg as GP w/in 30 days of cancellation)
(7) cancellation doesn’t affect the liability of a partner for a partnership obligation that (a) arose
before cancellation or (b) out of a k that was entered into prior to cancellation
24
BCSC Rule 7 – Partnerships
7(1)
7(2)
7(3)
7(4)
7(5)
7(6)
7(7)
Partners may sue or be sued in firm name - Two or more persons claiming to be entitled, or
alleged to be liable, as partners may sue or be sued in the name of the firm in which they were
partners at the time when the alleged right or liability arose.
Service on firm - Service is effected upon a firm by leaving a copy of the document to be served
either with a person who was a partner at the time the alleged right or liability arose or with a person
at a place of business of the firm who appears to manage or control the partnership business there.
Appearance - An appearance by a partnership shall be in the name of the firm, but a partner or a
person served as a partner may file an appearance and defend in the person’s own name, whether
or not named in the originating process.
Affidavit naming partners - Where a partnership is a party to a proceeding, any other party may
deliver a notice requiring one of the partners to deliver within 10 days an affidavit setting out the
names and addresses of all persons who were partners when the alleged right or liability arose.
Idem - Where the affidavit requested under subrule (4) is not delivered, the court may order delivery.
Execution against partnership or partners - Where an order is made against a firm, execution to
enforce the order may issue against any property of the firm.
Idem - Subject to subrule (8), where an order is made against a firm, execution to enforce the order
may issue against any person who
(a) entered an appearance in the person’s own name in the proceeding as a partner,
(b) having been served with the originating process as a partner, failed to enter an appearance in
the proceeding,
(c) admitted in a pleading or affidavit that the person is a partner, or
7(8)
7(9)
7(10)
(d) was adjudged to be a partner.
Idem - Where a party who has obtained an order against a firm claims that a person, who is not a
person described in subrule (7), is liable to satisfy the order as being a member of the firm, the party
may apply to the court for leave to issue execution against that person.
Idem - Where the person against whom an application under subrule (8) is made disputes liability,
the court may order that the liability of the person be determined in any manner in which an issue or
question in an action may be determined.
Action against person carrying on business in a name other than the person’s own - A person
carrying on business in a name or style other than the person’s own name may be sued in that
name or style as if it were the name of a firm, and this rule applies as though the person were a
partner and the name in which the person carries on business were the name of that firm.
B.C. Law and Equity Act
53 (1)
53(2)
53(3)
Proceeding and order against one of several persons jointly liable
If a party has a demand recoverable against 2 or more persons jointly liable, it is sufficient if any of
those persons is served with process, and an order may be obtained and execution issued against
the person served even if others jointly liable may not have been served or sued or may not be
within the jurisdiction of the court.
The obtaining of an order against any one person jointly liable does not release any others jointly
liable who have been sued in the proceeding, whether the others have been served with process or
not.
Every person against whom an order has been obtained who has satisfied the order is entitled to
demand and recover in the court contribution from any other person jointly liable with the person.
25
CORPORATIONS
Canada Business Corporations Act (CBCA) – model/reference act which most provs have followed
BC Business Corporations Act (BC BCA) – came into force Jan 05, more complex and more permissive than
CBCA (favours flexibility in corp formation and reorg)
INTRODUCTION
- Key issue: whether to incorporate under fed or prov law
- Historical background: Cad corp law influenced by Eng corp law (while Cad academics tend to look at US
corp law, Cad courts have not followed US law)
- Since 1960s/70s – rapid reform of corp law in Cad, mostly w/view to harmonization
- Corps came into existence by: royal prerogative (royal charter corps), or by special/private act of govt
(usually for large capital projects, still exist today, but inefficient)
- English Company Act, 1862
o
Incorp by registration
o
Ltd liability for shareholders
- 1973 – first enactment of CBCA, following Dickerson Report – fed incorp by registration
- 2005 – BC BCA replaced BC Companies Act
o
K model of incorporation (SH seen as parties K’ing w/each other)
o
Rel of K btw SH puts them in closer proximity w/each other than SH in non-K system
-
Corp law:
o
Deals w/rights and obligs of the mems of the corp (SH) and mgmt, and how things operate w/in the
corp, plus the interface of the corp w/other entities in society
o
Status of the corp
o
Effect of incorp
o
Financing
o
Internal governance of the corp
o
The obligs of those groups towards each other in the carrying out of corp bus
-
Securities law:
o
Aim is to provide a transparent, informed market in issue of publicly traded securities (shares or
bonds of issuers)
 Ensure no fraud in the public markets, that info becomes avail to entire market at once,
proper disclosure is made, etc.
o
Fills many of the gaps not dealt w/by corp law
o
While Director under CBCA has power to investigate corp wrong-doing – that role is usually carried
out by the Securities Commission
BASIC ATTRIBUTES OF CORPORATIONS
- Corporation: incorporated, profit-oriented entity (carry on bus w/a view to profit, maximize SH value)
-
Separate legal existence: 15
o
corp is a legal person, recog’d as having personhood
o
corp has capacity to act for itself
o
SH/mgrs are distinct from the corps in which they participate (e.g. Nordile – B & R were SH and
execs, but were not the GP, the corp was the GP)
o
Corp’s property is not the SH’s property – SH own a share (bundle of rights that entitle them to
share in profits of corp)
-
Ltd liability of SH: effect of separate legal existence of corp 45, 87
o
SH not liable for corp’s liabilities (most they will lose is value of shares)
o
SH can participate in mgmt of corp w/o losing shield of ltd liability (distinct from LPs, LLPs)
o
Become SH either by: subscribing for shares (buy shares from corp itself at first issue), or by
acquiring existing shares (secondary market – TSX, gift, private transaction, etc.)
-
Perpetual existence: corp can live forever
o
Shares can be traded forever to whomever (corp doesn’t die upon death of SH – unlike SP, GP)
26
o
Can cease to exist on neglect (e.g. failure to file w/Director) or by design (SH can vote to dissolve
corp) (Part 18  211, 212)
-
Agency & corps: corps are legal fiction, must act through human agents (no body to kick, no soul to damn)
o
Agents not usually liable for actions on behalf of principal, so directors will not be personally liable
for acts or neg in course of carrying on corp’s bus
o
Corp alone will be fixed w/liability
o
Corps deemed to have rights, incl Ch rights (freedom of expression, right to be free from
unreasonable search and seizure, but not s.7)
o
Amendments to CC to make it easier to convict corp execs of criminal acts (CL test made it too diff
to hold people at fault for neg)
o
Aberdeen Railway
-
Separation of ownership and mgmt:
o
SH own ints in a corp – they own property rights relative to the corp, but don’t own the corp’s
property
o
Mgmt means, at its broadest, the Bd of Dirs and Officers – but more commonly refers just to the
exec (high level officers – Pres, VP, CEO, COO, CFO, etc.)
o
Neither dirs or officers are necessarily SH – SH status carries no entitlement to participate in mgmt,
may overlap but not necessarily
o
SH are passive, mgmt makes the decs (either Bd of Dirs 102, or Bd of Dirs delegates 115)
-
Transferability of shares:
o
Shares are freely tradeable, subj to agmt among SH (e.g. right of first refusal, etc.), or restriction
w/in corp ch 6
-
Purpose:
o
Incorporation provides means to organize an entity that is efficient in providing goods and services
to consumers
o
vehicle for capital formation/accumulation (amassing capital wealth in a single enterprise)
o
encourage investment in commercial business activities (efficient use of existing capital)
o
employment
o
concerns: envir destruction, inappropriate control of pol process (corp patronage), corruption
 how much should we control who can sit on Bd of Dirs, or what the composition of such
Bds should be?
o
Corp tax is important source of income for govts
o
Stakeholders: SH, mgrs, EEs, creditors, customers, society, govt – how do you keep corp execs
honest? What obligs do they have to consider the ints of persons other than SH?
CONSTITUTIONAL JURISDICTION:
- Prov:
o
s.92(11): provs have exclusive power over “companies w/prov objects” (what does that phrase
mean?)
o
what limitations does this interp of prov pwr put on corps incorp’d provincially?
o
Bonanza Creek: Ont corp incorp’d by letters patent wanted to operate in Yukon; question - does it
have the capacity, as an Ont corp, to acquire and exercise pwrs and rights outside Ont?
 JCPC: Ont corp law can’t give Ont corp the right to carry on bus in the Yukon, but it can
give the corp the capacity to do so (e.g. if other juris says ok) – extra-terr capacity, no
extra-terr rights
- Fed:
o
Constit itself is silent on any specific fed power over incorp
o
1865-1881 – is fed incorp valid? Is there any fed juris over incorp?
o
Parsons: fed power wrt corps is POGG residual power; 92(11) restricts exclusive prov pwr to corps
w/prov objects, thf. companies w/objects that weren’t purely prov fall w/in fed juris
o
Ancillary powers for particular types of corps (e.g. banks/banking)
27
EXTRA-JURISDICTIONAL CAPACITY
CBCA s.15: Capacity of a Corp
(1) capacity of a corp – subj to the act, the corp has capacity, rights, powers and privs of a natural
person
(2) Corp may carry on bus throughout Cad
(3) Extra-terr capacity – corp has capacity to carry on its bus, conduct its affairs and exercise its
powers in any juris outside Cad to the extent that the laws of such juris permit
BC BCA s.32: unless restricted by its Charter or by an act, each BC corp has the capacity to carry on
its bus, conduct its affairs, exercise its powers, to the extent that the laws of that juris permit (goes a
little further than CBCA – says company incorp’d under BC BCA has this capacity given by statute)
**juris typically require extra-prov corps to register to carry on bus in the prov (once they register they
are validly carrying on bus in the prov)
-
Provincial authority over fed incorp’d entities:
o
Fed incorp’d corps (FICs) have quasi-priority – constit’l right to carry on bus in any prov (capacity
and right b/c of fed status)
o
Prov auth can’t refuse to register FIC
o
Right to carry on bus under its fed registered name throughout the country (priority to its name)
o
Examples of fed immunity: 28 – names, 398 – cancellation of FICs
o
BC BCA:
 28: the registrar of companies in BC has juris over the name of a company; prov gives
registrar auth to refuse a particular name applied for by a company
 398: Registrar has ability to cancel incorp of extra-prov incorp’d company, but not FIC
o
Cad Indemnity Co. v. AG BC (1973 SCC): extent to which provs can restrict bus ops of FICs
 Creation of ICBC as crown corp w/monopoly on car insurance effectively destroyed
business of fed & prov incorp’d insurance co’s
 FIC (P) challenged BC law arguing the effect of it was to sterilize the status and essential
capacities of a fed corp
 Held: provs have the capacity to enact laws of general application wrt enum grounds under
s.92 which effectively sterilize FIC’s, provided they don’t enter the field of company law
(e.g. can’t affect SH liability, fundamentally alter what FIC is or its gov process, but can
effectively ban FIC from carrying on bus in prov)
-
Overlapping Fed & Prov Jurisdiction:
o
Fed corp law and prov securities law often overlap (i.e. FIC’s reg’d to large degree by prov sec law)
o
92(13): prov sec law
o
POGG: fed corp power
o
Prov laws will stand as long as they are not inconsistent w/fed law, and do not sterilize an essential
function of the FIC
o
Multiple Access:
 D accused of insider trading (use of confid, non-public info to make a profit); argued Ont
Securities Act ultra vires, and CBCA provisions ultra vires the fed govt; prov legis shouldn’t
apply to FIC
 Held: prov law can stand if not inconsistent w/fed law; prov legis doesn’t sterilize an
essential function of FIC, but rather duplicates fed legis (not inconsistent), thf. the 2 can coexist
 CBCA intra vires under POGG fed corp pwr
 Prov legis intra vires under s.92(13)
 Note: insider trading is almost always prosecuted by Sec Comm, rather than fed Dir
-
Provincial authority over foreign entites: Registration under BC BCA
o
Foreign entity must be registered to carry on business in the prov, but the corp law under which it is
incorp’d governs its structure, capacities, internal governance, etc.
o
Prov could deny registration (unlikely)
28
o
o
o
o
o
o
o
o
o
o
“foreign entity” = foreign corp (foreign corp or ltd liability corp) not incorp’d under this act (includes
corps from outside Cad and FICs)
s.375 Reg requirement: foreign corp must register as extra-prov company w/in 2 months of
carrying on bus in BC – want to know who is operating in the juris
s.375(2): foreign entity is “deemed” to be carrying on bus if meet (a) – (d)
 “carrying on bus” hasn’t been heavily litigated – advise client to register (it’s an offence not
to, and it’s not an onerous process)
 once registered, the foreign entity becomes an extra-provincial company
s.375(3): foreign entity is not deemed to be carrying on bus if (a) a bank, (b) a railway, or (c) merely
because it has an interest as a limited partner in a limited partnership carrying on business in British
Columbia.
s.375(4): a foreign entity need not be registered if it’s principle business is the operation of ships
and it doesn’t maintain warehouse, office or place of bus
s.376(1): specifics of what you have to do to register as a foreign entity (skim it over)
s.376(2): req to reserve name under 376(1)(a) doesn’t apply to FIC (FIC gets priority)
s.377: Once foreign entity has complied with all terms, the registrar must if it is a fed corp, and may
if it is a foreign corp, file the registration (rarely says no – registration is not really a control
mechanism, more a means of keeping track of who’s operating, where and when)
s.378(1): proof of registration of foreign entity is cert as an extra-provincial company
s.378(2): sets out powers, rights, etc. of extra-provincial company – recognition of the incorporation
power of the foreign juris, subject to general laws of BC (e.g. environ laws, safety regs, employ
stds, consumer protection, etc.) – issue becomes to what extent prov laws can apply to fed incorp’d
companies
-
Canada Business Corporations Act/ BC Business Corporations Act
15(1)
Capacity of a corp – subj to the act, the corp has capacity, rights, powers and privs of a natural person
15(2)
Corp may carry on bus throughout Cad
15(3)
Extra-terr capacity – corp has capacity to carry on its bus, conduct its affairs and exercise its powers in
any juris outside Cad to the extent that the laws of such juris permit
30
A company has the capacity and the rights, powers and privileges of an individual of full capacity.
BC Business Corporations Act
“foreign entity” = foreign corp or limited liability corp
2
28(1)
“foreign corporation” – a corp that was not incorp’d under BC law (corp incorp’d under CBCA or law
of any other prov)
If a name applied for by company contravenes any of the prescribed reqs, or any other reqs of the
Act, the registrar may order the company to change its name (control over companies name in BC)
28(2)
Registrar has same authority over the name of extra-provincial companies
28(3)
375
This section doesn’t apply to FIC (constit’l rule that fed corp has right to use it’s name throughout
Cad)
unless restricted by its Charter or by an act, each BC corp has the capacity to carry on its bus,
conduct its affairs, exercise its powers, to the extent that the laws of that juris permit
Foreign corp must register as extra-prov company w/in 2 months of carrying on bus in BC
375(2)
Foreign entity is deemed to be “carrying on bus” if:
32
(a)
If’s name or bus name is in phonebook in BC and that listing shows a BC phone # or address
(b)
Its name or any name under which it carries on bus appears in an ad in BC, giving BC phone # or
address
29
(c)
If corp has a resident agent in BC, or a warehouse, office or place of bus
(d)
It otherwise carries on bus in BC (lots of room for interp)
375(3)
It is not a foreign entity carrying on bus if it is (a) a bank, (b) a railway, or (c) merely because it has an
interest as a limited partner in a limited partnership carrying on business in British Columbia.
375(4)
A foreign entity need not be registered if it’s principle business is the operation of ships and it doesn’t
maintain warehouse, office or place of bus
Specifics of what you have to do to register as a foreign entity (skim it)
376(1)
376(2)
377
387(1)
Req in 376(1)(a) to reserve corp name as part of registration process does not apply to fed
corporation (fed corp gets name and registrar will require prov corp to change their name)
Once foreign entity has complied with all terms, the registrar must if it is a fed corp, and may if it is a
foreign corp, file the registration (rarely says no – registration is not really a control mechanism, more
a means of keeping track of who’s operating, where and when)
Proof of registration of foreign entity is cert as an extra-provincial company
378(2)
Sets out powers, rights, etc. of extra-provincial company – recognition of the incorporation power of
the foreign juris, subject to general laws of BC (e.g. environ laws, safety regs, employ stds, consumer
protection, etc.) – issue becomes to what extent prov laws can apply to fed incorp’d companies
398
Registrar has ability to cancel incorp of extra-prov incorp’d company, but not FIC
30
SUBSIDIARIES:
-
Subsidiary (s.2(5)) v. Holding Body Corporate (HBC, s.2(4)) – parent co. and HBC are the same thing
Relates to who can be a director of what, who owes duties to whom, etc.
Subsidiary examples:
X co
Y is a subsidiary of X b/c X has control (more than 50% of votes) – s.2(5)(a)(i)
55%
Y co
60%
X co
Z co
Y is a subsidiary of X b/c X and Z together have 70% control of Y – s.2(5)(a)(ii)
Z is subsidiary of X b/c X has control – s.2(5)(a)(i)
Y is not a subsidiary of Z b/c Z does not have control & Z doesn’t control X –
s.2(5)(a)(i)
30%
Y co
40%
Y is a subsidiary of X b/c X has control – s.2(5)(a)(i)
Z is a subsidiary of Y b/c Y has control - s.2(5)(a)(i)
A is a subsidiary of X b/c chain of control goes back to X (X controls Y, which
controls Z – A is subsidiary of Z, which is a subsidiary of Y, which is a
subsidiary of X) – s.2(5)(b)
Z is a subsidiary of X b/c – 2(5)(b)
B is not a subsidiary of A b/c it is not controlled by A, nor is it controlled by Z or
A and Z together (not a subsidiary of A or Z, so 2(5)(b) doesn’t apply)
X co
51%
Y co
51%
Z co
60
%
20%
A co
B co
20%
X co
>50%
>50%
A co
30%
To control Z, A&B together must have >50% of votes in Z
Even though X has no shares of Z, it is still a parent company of subsidiary Z
under s.2(5)(a)(iii)
B co
Z co
60%
31
AFFILIATED BODIES CORPORATE EXAMPLES
32
SUBSIDIARIES and AFFILIATES
2
“body corp” (BC) – incls a company or other body corp wherever or however incorp’d (broad defn –
means a corp incorp’d under any legis in any juris)
“corp” – a company incorp’d or continued under this Act and not discontinued under this Act
2(2)
“person” – means an indiv, partnership, assoc, BC or personal rep (NOT a corp)
Affiliated bodies corporate – **all subsidiaries are affiliates of their parent corps and vice versa
(a)
One BC is affiliated w/another body corp if one of them is the subsidiary of the other or both are
subsidiaries of the same BC or each of them is controlled by the same person
(b)
If two bodies corp are affiliated w/the same BC at the same time they are deemed to be affiliated w/each
other
2(3)
Control –defn of legal control for the purposes of this act (v. de facto control – you may have only 510% of the shares, but the other SH are too disparate to challenge you)
Body corp is controlled by a person (“person” is broadly defined), or 2 or more BCs if:
(a)
The person or BC(s) hold securities w/more than 50% of the vote to elect dirs (50% + 1 test – actual
majority) AND
(b)
The votes attached to those securities, if exercised, have to be sufficient to elect a maj of dirs of the BC
(if you can’t control the Bd, you don’t control the corp)
2(4)
Holding Body Corporate (HBC): a BC is the HBC of another BC if that other BC is its subsidiary
2(5)
BC is a subsidiary of another BC if:
(a)
It is controlled by:
(i) that other BC
(ii) that other BC and one or more BCs, each of which is controlled by that other BC
(iii) 2 or more BCs, each of which is controlled by that other BC
(b)
it is a subsidiary of a BC that is a subsidiary of that other BC
33
PROCESS OF INCORPORATION UNDER BC BCA
BC BCA: **know ss.30 and 87 for exam
s.3(1): a “company” is recog’d under the act if:
(a) it is incorp’d under this Act
(b) it is the result of conversion (2004-06 – lawyers busily converting companies from old act – not all made
it by the deadline)
(c) it is the result of amalgamation of corps under this Act
(d) it results from the continuation into BC of a foreign corp under this Act
s.10(1): one or more persons may form a company by:
(a) entering into an incorp agmt,
(b) filing w/the registrar an incorp application, and
(c) complying with this Part.
**diff theory from fed CBCA – corp is formed by agmt (K amongst SH)
s.10(2): specified requirements for agmt, each incorporator must also be a SH and have signed the incorp agmt
s.10(3): reqs for incorp agmt:
(a) be in form est by registrar
(b) contain a completing party statement referred to in s.15
(c) set out the full names and mailing addresses of the incorporators
(d) set out
a. the name reserved for the company under s.22, and the reservation number given for it, or
b. if a name is not reserved, a statement that the name by which the co. is to be incorp’d is the
name created by adding “BC Ltd.” after the incorp # of the company, and
(e) contain a notice of articles that reflects the information that will apply to company on its incorporation
**corresponds to fed articles – articles contain the core of the company, public doc anyone can access
**if fed and most other system –
1. articles
2. by-laws (equiv of articles under BC BCA)
s.17: after incorp SH of the co., so long as they remain SH, are a co. w/the name set out in the notice of
articles, capable of exercising the functions of an incorp’d co. w/the powers and with the liabilities provided in
the Act
**reminiscent of PA – the SH are the company (though, this doesn’t affect liability)
s.19(3): articles are a K amongst SH and the co., co. comes into existence when it is incorp’d – co. and SH are
in a K rel (diff theory of what a corp is from fed context)
s.30: Capacity and Powers of Co. – company has the capacity and the rights, powers and privileges of an
indiv of full capacity
s.87(1): Liability of SH – no SH is personally liable for debts, obligs, defaults or acts of co.
(2): SH is not, in respect of the shares held by that SH, personally liable for more than the lesser of:
(a) the unpaid portion of the issue price of the shares, and
(b) the unpaid portion of the amt actually agreed to be paid for those shares
**liability is ltd to the amt you agreed to pay for the shares
**unlike CBCA s.45, there are no exceptions to ltd liabilty under BC BCA
34
PROCESS OF INCORPORATION UNDER CBCA
-
-
-
important provisions Part 2 – ss.5-12
o
there may be no SH at the time of incorp
 articles of incorp must name the first dirs (106(1))
 dirs not required to hold shares in corp (105(2))
o
in BC, there will be SH at time of incorp b/c incorporation involves SH signing agmt
Process:
o
5(1): who can incorp - any person who is 18, of sound mind and not bankrupt
o
5(2): incorp by signing articles of incorp and complying with s.7
o
6(1): articles of incorp must include
a. name
b. prov where reg office is located
c. classes and any max # of shares corp is auth to issue
d. any restrictions on shares
e. the number of dirs, or min-max of dirs
f. any restrictions on the bus the corp may carry on
o
6(2): articles may set out any add’l provisions permitted by the act
o
6(3): special majorities
o
6(4): articles may not req more than a simple majority to remove a dir
o
7: Send articles of incorp, notice of registered office (19) and notice of dirs (106) to Dir
o
8: Dir issues certificate of incorporation
o
10-12: Name requirements
o
263: Public can inspect records
Result:
o
o
-
15: Corp has capacity, rights, powers and privileges of individual
45: SH not liable for any liability, defaults or acts of corp, subject to exceptions
Getting up and running:
Meeting: was it held in time? Did dirs act w/in their powers?
o
104(1): First meeting of dirs of corp – dirs shall hold meeting after issuance of cert of incorp (give 5
days notice – 104(3))
 Most important powers of dirs at meeting “may” – (a) make by-laws, (c) issue shares
 Influence of agency law – meeting is held after cert of incorp issued b/c A (dirs) can’t do
anything on behalf of Pr (corp) until the Pr exists (Pr has to be in existence at the time the A
purported to act in order to later ratify the acts of the A)
o
133(1)(a): first meeting must be called w/in 18 months of corp coming into existence
Directors: are there enough dirs? Have they met residency req?
o
102(1): Statutory duty of dirs to manage or supervise the management of the business and affairs
of the corp
o
102(2): Every corp must have at least one dir
o
102(2): Corps that have issued shares to the public must have at least 3 directors, at least 2 of
whom are not officers or EEs of the corp or its affiliates
o
105(1): Qualifications of dirs
 Corp cannot act as dir of another corp (105(1)(c))
 Dir not required to hold shares (105(2))
o
Restrictions on dirs:
 Residency requirement: at least ¼ of dirs must be resident Cads; if there are less than 4
dirs, at least one must be resident in Cad (105(3)) – make sure you have enough Cad
citizens on your board (landed immigs and perm res don’t qualify)
 “Res Cad” defined in Reg 13 – people who, though they may not reside in Cad, have
otherwise close connections
 Defn of “res Cad” will prevent someone from forming one-person corp (if you are perm res
but not citizen, can’t incorp under CBCA, but could under BC BCA)
o
106(3): Term of dirs: max term for dirs is 3 yrs
 Articles or by-laws may impose specified term (1-3yrs) (106)
 If no specified term, dirs must be re-elected at next SH meeting (106(5))
35
o
o
 Terms may be staggered – expire at diff times (106(4))
106(9): Dir must acquiesce to be dir by
a. being present at the meeting when election or appt took place and didn’t refuse to
hold office
b. was not present and,
i. consent to hold office in writing before the elect or appt, or w/in 10 days
ii. acted as dir pursuant to the elect or appt
Annual meeting of SH must be held (133(1))
CBCA
5(1)
Who can incorporate – one of more indiv, none of who is under 18yrs, of unsound mind or bankrupt
5(2)
BC may incorporate a corp by signing articles of incorp and complying w/s.7
6(1)
Articles of Incorp – most important fed incorp doc (FORM 1)
- must be in form Dir fixes (“Dir” is defined term, appt’d under s.260)
- set out:
- the name
- province where reg office is situated
- classes and any max # of shares that the corp is authorized to issue (authorized
capital of the co.; auth capital may be unltd)
- if there is more than one class of shares, have to set out the rights, privs,
restricts and conds attaching to each
- not really important
- restrictions on issue, tsf or ownership of shares (uncommon in large corps; more
likely to be included in SH agmt)
- # of dirs (set #, or min/max  affects quorum)
- restrictions on bus the corp may carry on (rare, doc of UV)
6(2)
Additional provisions in articles – you can put more things in the articles, subj to by-laws or this
Act
6(3)
Special Majorities – special majority reqs must be included in the articles (e.g. if articles or SH agmt
require a greater # of votes of dirs or SH than that req’d by the act)
6(4)
You can’t require a greater % of votes to turf a director than set out in s.109 (pure maj) – can’t write in
protection for a director
7
Incorporator req’d to send Dir articles of incorp and docs required by s.19 (notice of registered office)
and s.106 (notice of dirs)
8(1)
Dir shall issue certificate of incorporation in accordance w/s.206
10(1)
*reflects theory that Dir’s role isn’t to deter who should be incorp’d – as long as you comply w/stat
reqs you are entitled to incorp
Corp must have indicator of corp status in their name (“Ltd.”)
10(5)
10(6)
Requirement that every corp put its corp name on all Ks, notices, invoices, negotiable instruments
and orders for goods and services issued or made by or on behalf of the corp
*have to disclose corp status when doing business
Allows a corp to use a name other than its official corp name – if using trade name, can’t include
“Ltd.” (can only use “Ltd.” w/official corp name)
*s.88 BCPA – have to register to use trade name
11(2)
Corp name can be a #
36
12
Dir controls the name you use – cannot use a name (a) that is, as prescribed, prohibited or
deceptively misdescriptive; or (b) that is reserved for another corp or intended corp under s.11
263
Provision which allows public to inspect records
15
Corp has the capacity and, subj to this Act, the rights, powers and privileges of a natural person
45
SH immunity – SH are not liable for any liability, act or default of the corp, subject to following
exceptions:
38(4): credit can apply to crt for an order compelling a SH to pay to the corp an amt equal to any
liability of the SH that was extinguished or reduced contrary to his section; or (b) to pay corp any
money or property that was paid to the SH or other recipient as a consequence of a reduction in
capital
118(4):
118(5):
146(5)
226(4)
226(5)
104(1)
*compare to s.87 of BC BCA – no exceptions
After issuance of cert of incorp, dirs shall hold a meeting, at which dirs may:
a. make by-laws;
b. adopt forms of security certificates and corporate records;
c. authorize the issue of securities;
d. appoint officers;
e. appoint an auditor to hold office until the first annual meeting of SH;
f. make banking arrangements; and
g. transact any other business
**(a) and (c) are most important
104(3)
Tells how the first meeting is called – by either incorporator or director, w/5 days notice to each dir
102(1)
Duty to manage or supervise mgmt – subject to any unanimous SH agmt, dirs shall manage or
supervise the mgmt of the bus and affairs of the corp
“bus” – profit-making activity of the corp
“affairs” – rel among corp, its affiliates and the SH, dirs, officers of such BCs but does not include the
bus carried on by such BCs (defn’d in s.2(1))
102(2)
BC BCA equivalent: 136(1) – the dirs of co. must, subject to this act, articles or memorandum,
manage or supervise the affairs or business of a co.
Every corp must have at least 1 dir; corps that have issued shares publicly must have at least 3 dirs,
2 of which are not officers or EEs of the corp or its affiliates
105(1)
Qualifications of dirs (sim to incorporators) – have to be a natural person, corp can’t act as dir
105(2)
Dir not requires to hold shares in corp
105(3)
Residency requirement: at least ¼ of dirs must be resident Cads; if there are less than 4 dirs, at
least one must be resident in Cad
**BC BCA no longer has this requirement – more attractive to incorporators
s.2
“resident Canadian” means an indiv who is
(a) a Cad citizens ordinarily resident in Canada,
(b) a Cad citizen not ordinarily resident in Cad who is a member of a prescribed class of persons,
37
or
(c) a permanent resident w/in the meaning of ss.2(1) of the Immigration and Refugee Protection
Act and ordinarily resident in Canada, except a permanent resident who has been ordinarily
resident in Canada for more than one year after the time at which he or she first became
eligible to apply for Cad citizenship
**requires actual citizenship – landed immigrants or permanent residents don’t qualify
Reg 13: persons prescribed for purposes of s.2(1) of the Act – the following are Cad Residents
(a) FT fed or prov govt EEs whose employ w/govt agency or crown corp requires them to live
outside Cad
(b) FT EEs who live outside Cad b/c of employ with body corporate:
i. Of which more than 50% of the voting shares is beneficially owned, or over which
control or direction is exercised by resident Cads
ii. A majority of the directors of which are resident Cads, or
iii. That is a subsidiary of a BC described in (i) or (ii)
(c) FT students at university or edu instit recog’d by edu authorities of a majority of provs and
who have been resident outside Cad for fewer than 10 consecutive yrs
(d) FT EEs of an international association or organization of which Cad is a member;
(e) Snowbirds – persons who when they turned 60 were ordinarily resident in Cad and who have
been resident outside Cad for fewer than 10 consecutive years
106(1)
Notice of dirs – at time of sending articles of incorp, the incorporators shall send to Dir notice of dirs
106(2)
Term of office – dirs named in notice hold office from issuance of cert of incorp until first meeting of
SH
106(3)
Election of dirs – max term of 3yrs, elected by SH by ordinary resolution at annual meeting of SH
106(4)
Staggered terms – not nec for dirs elected at SH meeting to hold office for same term
106(5)
No stated terms – where no stated term, dir holds office until next annual SH meeting
106(6)
Incumbent dirs – if dirs are not elected at meeting of SH the incumbent dirs continue in office until
their survivors are elected
106(7)
Vacancy among Candidates – if meeting of SH fails to elect the # or the min # of dirs req’d by
articles, by reason of lack of consent, disqualification, incapacity or death of any candidates, the dirs
elected may exercise all the powers of the dirs if the # of dirs elected constitutes a quorum
106(8)
Dirs may, if articles provide, appt add’l dirs who hold office until next SH meeting, but total # cannot
exceed 1/3 of the dirs elected at previous SH meeting
106(9)
Election or appointment as dir – indiv must acquiesce to be a dir – if elec, not a dir and not deemed
a dir unless:
(a) s/he was present at the meeting when the election or appt took place and didn’t refuse to
hold office as dir; OR
(b) s/he was not present at the meeting and
i. s/he consented to hold office as dir in writing before the election or appt, or w/in 10
days of it; OR
ii. s/he acted as a dir pursuant to the elec or appt
Calling annual meetings – dirs shall call an annual meeting of SH
(a) not later than 18 months after corp came into existence
(b) subsequently, not later than 15 months after holding the last preceding annual meeting but no
later than 6 months after the end of the corp’s preceding financial year
133(1)
133(2)
Calling special meetings – dirs of a corp may at any time call a special meeting of SH
133(3)
Order to delay calling of annual meeting – despite (1), the corp may apply to the crt for an order
extending the time for calling an annual meeting
38
BY-LAWS:
2. By-laws are 3rd level of corp regulation –
i. CBCA
ii. Articles
iii. By-laws
iv. Unanimous SH agmt (USA)
3. Internal admin and procedural rules for running the co.
i. Est quorum (139)
ii. How to give notices
iii. How offices are appt’d
4.
5.
6.
7.
Binding
Easily changed
Must conform to act and articles, but some flexibility (not all CBCA rules can be varied)
247: gives interested party the right to apply to crt for an order dir compliance w/, or restraining someone
from acting in breach of CBCA, regs, articles, bylaws or USA
8. BC - a lot of this stuff is contained in articles
9. Process under CBCA  two processes – Dirs 103(1), SH proposal (103(5))
i. 104(1)(a): after the corp comes into being, first dirs meeting held and by-laws made
ii. 103(1): subj to articles, by-laws or USA, dirs may, by resolution, make, amend or repeal any bylaws that reg the bus and affairs of corp
iii. 103(2): once dirs have adopted by-laws, must be put to SH at next meeting who may, by ordinary
resolution, confirm, reject, amend or repeal by-law
iv. 103(3): by-laws are effective once passed by resolution of dirs until first SH meeting (could be
provisionally in force for up to 18 months – when first SH meeting req’d 133(1)(a))
v. 103(4): if a by-law, amendment or repeal is rejected by SH, or not put to SH as req’d under (2), it
ceases to be effective and no subsequent resolution of the dirs to make, amend or repeal a by-law
having substantially the same purpose or effect is effective until confirmed by SH
1. SH have ultimate control over by-laws that are typically drafted by dirs
2. not provisionally effective the second time until SH pass it
vi. 103(5): SH may propose by-law (treated as SH proposal, subj to 137)
vii. by-laws don’t have to be sent to Dir (unlike articles not public docs, but must be avail to SH and
dirs)
247
104(1)(a)
Restraining or compliance order – if a corp or any dir, officer, EE, agent, trustee, etc… does not
comply w/CBCA, regs, articles, by-laws or USA, a complainant (238) or creditor may, in addition to
any other right they have, apply to a court for an order directing any such person to comply with, or
restraining any such person from acting in breach of, any provisions thereof
Organization meeting – one of the powers of the dirs at first dirs meeting is to make by-laws
103(1)
By-laws – subj to articles, by-laws or USA, dirs may, by resolution, make, amend or repeal any bylaws that reg the bus or affairs of the corp
103(2)
SH approval – dirs shall submit a by-law, or amend or repeal, to SH for approval at next SH
meeting; SH may confirm, reject or amend the by-law by ordinary resolution
103(3)
103(4)
Effective date – effective from date of dirs resolution until confirmed or rejected by SH under (2), or
until it ceases to be effective under (4)
If a by-law, amendment or repeal is rejected by SH, or not put to SH as req’d under (2), it ceases to
be effective and no subsequent resolution of the dirs to make, amend or repeal a by-law having
substantially the same purpose or effect is effective until confirmed by SH
103(5)
SH proposal – a SH entitled to vote at an annual meeting of SH may, in accordance w/s.137, make
a proposal to make, amend or repeal a by-law
39
OFFICERS:
CBCA – statutory req that dirs shall manage the bus and affairs of the corp (102)
Officers may be appt’d by dirs (121(a))
Can be both dir and officer (121(b))
Two or more offices can be held by same person (121(c))
Powers of Officers – powers delegated to officers by dirs ltd by 115(3)
Officer owe corp
a. Fiduciary duty – duty to act honestly and in good faith (122(1)(a))
b. Duty of care – duty to exercise the care, diligence and skill that a reas prudent person would in
comparable circs (122(1)(b))
c. Duty to comply w/Act, articles, regs, by-laws or USA (122(2))
d. No provision in any K, arts, by0laws or res relieves officer from duty to comply (122(3))
7. Officer does NOT have access to defences in 123(4) or (5)
1.
2.
3.
4.
5.
6.
121
115(3)
Officers – subj to articles, by-laws or USA,
(a) dirs may designate the offices of the corp, appoint as officers persons of full capacity,
specify their duties and delegate to them the power to manage the bus and affairs of the
corp, expcetion powers to do anything referred to in s.115(3)
(b) a dir may be appt to any office of the corp; and
(c) two or more offices can be held by same person
Limits on Auth - No managing director and no committee of dirs has auth to:
(a) submit to the SH any question or matter requiring the approval of the SHs
(b) fill a vacancy among the dirs or in the office of auditor, or appt add’l dirs
(c) issue securities except as auth by dirs
(c.1) issue shares of a series under s.27 except as auth by dirs
(d) declare dividends
(e) purchase, redeem or otherwise acquire shares issued by the corp
(f) approve a mgmt proxy circular referred to in Part XIII
(i) approve any financial statements referred to in s.155
(j) adopt, amend or repeal by-laws
40
CORPORATE PERSONALITY – Separate Legal Personality
Fed Interp Act:
21(1) Words establishing a corp shall be construed as:
(a) vest in the corp the power to sue and be sued, K and be K’d with, to have common seal (and change it),
to have perpetual successorship, to acquire and hold personal property for the purpsoees for which the
corp is est and to alienate that property
(b) to use both Eng and French name, or combination of both
(c) as vesting in a maj of the mems of the corp the power to bind the others by their acts; and
(d) as exempting from personal liability for its debts, obligs or acts indiv mems of the corp who don’t
contravene the provisions of the enactment est the corp
SEPARATE LEGAL PERSONALITY:
1. Salomon principle: corps are separate entities from their SH, dirs, officers – SH are not liable for the
acts of corps (Salomon, 15, 45, 87)
i. A legally incorp’d company has a separate legal personality from it’s SH and accordingly the
SH are not personally liable for the liabilities, debts and obligs of the co.
ii. Applies in de facto one man companies (where one person controls the co.) (Salomon)
iii. Indiv may be sole SH, dir, officer and EE of a company at the same time – acts in diff
capacities in each role (Lee)
iv. SH has no legal or equitable ownership of corp’s assets, only right to share in profits and
distribution of assets (Macaura)
2. Piercing the Corp Veil: disregard the concept of the corp as a separate legal person or separate legal
entity to assign liability to indiv SH, dirs or officers for debts of corp
i. Although probably incorrect, often used to refer to tortious liabilities of SH, dirs, officers v.
corp (whether they are liable as agents or principals)
3. Test: only lifted where the result would not be too unjust (Kosmopoulos)
i. Corp veil should not be lifted for benefit of SH
ii. “separate entities principle is not enforced when it would yield a result “too flagrantly opposed
to justice, convenience or the ints of the Revenue” (Wilson J.)
4. Exceptions to Salomon principle: corp veil lifted only in rare situations (BG Preeco)
i. Where co. has been used as an instrument of fraud (intent to deceive or mislead) (Big Bend)
ii. Where company has been used to effect a purpose the SH couldn’t legally achieve
personally (Guildford Motors)
iii. Where the company was really the “mere agent” or alter ego of the SH
5. Tax Cases & Corp Veil – looks like lifting of the veil, but not really
i. e.g. imputing intention to subsidiary from intentions of parent corp is not lifting the veil (not
making parent corp liable for subsidiary) (DeSalaberry)
ii. crts likely to pierce corp veil where sole purpose of corp is to avoid taxes
6. Alternative: make claim in tort under neighbour principle – SH should be able to disregard the
existence of the corp if the person that wronged the SH knew or ought to have known they were
harming the SH, they will be liable (Houle SCC 1990)
7. Corp Name: failure to use proper name may be basis upon which to find SH personally liable
i. s.10(1): requires that a corp use a legal phrase in its name that indicates it is an incorp’d corp
ii. s.10(5): corp is oblig to use that full name in all bus docs
iii. breach of 10(5) isn’t a situation where crt will lift corp veil, unless there is some element of
fraud or dishonesty (Wolfe v. Moir, H&D Hobby v. Svatos)
1. 10(5) is not an exception to 45
2. failure to comply with the Act is an offence under 251 –likely to be dealt with here
iv. BC – strict liability for failure to use appropriate corp identity (27, 158, 384)
41
Reality that ltd liability for small companies is illusory – creditors (e.g. banks, investors) will want a
personal guarantee from primary SH as security for their investment, thus SH has K oblig rendering their
personal assets security avail to creditors of the corp
CBCA and BC BCA
15
45(1)
45(2)
45(3)
87(1)
87(2)
87(3)
27
158
384
Capacity of a Corp - Corp has the capacity and, subj to this Act, the rights, powers and privs of a
natural person
SH Immunity – SH are not, as SH, liable for any liability, act or default of the corp except under
s.38(4), 118(4) and (5), 146(5) or 226(4) or (5)
Lien on Shares – subj to ss.49(8), the articles may provide that the corp has a lien on a share reg in
the name of a SH or the SH’s personal rep for a debt of that SH to the corp, incl an amt unpaid in
respect of a share issued by a body corp on the date it was continued under this Act
Enforcement of Lien – a corp may enforce a lien referred to in (2) in accordance w/its by-laws
No SH of a company is personally liable for the debts, obligs, defaults or acts of the company
A SH is not, in respect of the shares held by that SH, personally liable for more than the lesser of
(a) the unpaid portion of the issue price for which those shares were issued by the company;
and
(b) the unpaid portion of the amt actually agreed to be paid for those shares
Money payable by a SH to the company under the memorandum or articles is a debt due from the
SH to the company as if it were a debt due or acknowledged to be due by instrument under seal
A company (i.e. corp incorp’d under BC BCA) or extra-prov company (corp reg in BC) must display
its name and assumed name on all docs assoc w/the bus (more extensive list than 10(5))
A dir or officer who knowingly permits the co. to contravene s.27 is personally liable to indemnify any
of the following persons who suffer loss (not applicable to SH, thf. not akin to lifiting veil)
Imposes liability if an extra-prov co. knowingly permits a contravention of s.27 (know it’s a
contravention of the act, or that the name isn’t being displayed??) – has to result in reliance on
misleading info
STATUTORY EXCEPTIONS TO s.45: not true examples of lifting corp veil
**taking back funds improperly distributed is not really lifting the veil
**liability is ltd to the amt the SH originally contributed to the corp’s capital, plus an add’l amt received from the
corp on a distribution of corp’s property to its shareholders
s.45: confirmation of limited liability of SH, subj to exceptions: (BC BCA equivalent is s.87)
38(4): Recovery – creditor can apply to crt for order compelling SH to repay an amount received as
payment from the company on a reduction of capital (i.e. a portion or all of the amt SH paid for share)
- 38(3): can’t return capital to SH if doing so would render corp insolvent and unable to meet obligs to
creditors
118: Dirs’ Liability – dirs who vote or consent to resolutions auth a number of specified transactions (e.g.
paying a dividend, redeeming shares) which reduce the assets of the corp such that it cannot pay its
liabilities as they become due may become personally liable to reimburse the corp (joint and several liability
of dirs)
- (4) and (5) allow a dir who has been held liable to obtain a crt order compelling a SH who has received
a payment under the resolution to repay that amt (broad remedial powers of the court)
146(5): SH may be liable as a dir when s/he acts in the place of a dir under a USA (not strictly a statutory
lifting of the veil, but an exception to 45)
226(4) and (5): where a corp has been dissolved (ceased to have legal existence) and a creditor has taken
action against the corp either before it was dissolved or w/in two yrs of its dissolution:
- (4) makes a SH to whom any property of the corp was distributed liable to the creditor to the extent of
the property distributed 9but not for any amt of the liability in excess of such property)
- (5) provides for the action which may be taken by the creditor against the SH as a class to ensure the
amts received by them from the corp are avail to pay the creditor’s claim
42
CREDITOR PROTECTIONS:
1. Corp’s must identify themselves as ltd liability companies: 10(5)
a. Dir or officer of corp may be held personally liable for non-discolsure of the fact that s/he was
contracting on behalf of a corp, esp where there were previous dealings btw that corp and the
3rd party (H&D Hobby)
b. To rely on protections of incorporation, have to show that at least the formalities were complied
with (Wolfe v. Moir)
2. Rules Concerning Raising and Maintenance of Capital
a. statutory provisions require corp to preserve its capital and assets for the benefit of its creditors
35 and 36: corp is prohibited from repurchasing or redeeming its shares (i.e. buying the shares
back from SH so that SH receive $$ from the corp) if this action would make the corp unable to
pay its creditors (right of corp to demand that money back)
42: corp is prohibited from paying dividend if, after doing so, it is unable to pay its creditors
44: a corp is prohibited from making a loan, or giving other financial assistance to its SH, dirs or
related corps if it would be unable to pay its creditors
226(4) and (5): creditor can recover from SH who received property after dissolution of corp
251: contravention of CBCA is a strict liability offence
3. Publicity
a. Must file certain info w/Dir: 19, Forms 3, 6 (registered office) and 263, Form 22 (annual rtn)
b. Prescribed records must be maintained and avail to SH and creditors to examine: 21, 42
4. Director’s liability:
a. Generally: dirs and officers are liable for failing to exercise reas care, diligence and skill in the
discharge of their obligs, and for breach of FD: 122, 142
b. Specific prohibitions: 118, 123(4), 154(1)
c. Exceptional liability for unpaid wages owing to corps EEs: 119
d. Liability in tort
5. Relief under oppression remedy: 241, 227
43
RELEVANT CASES:
Salomon:
- Facts: bus starts as SP, sons were EEs, incorp bus under 1862 Companies Act to give sons stake in the
bus
- Act req’d 7 incorporators – S, 2 sons, 4 daughters and wife all subscribed for one share each and
signed memorandum of incorporation
- $40,000 of authorized capital (40,000 shares @ $1 each)
- S tsfs assets in the bus to the corp for $39k, takes back 20k shares (now owns 20,001 shares = control)
- S then receives debenture as security for $19k loan to corp (S is first secured creditor)
- Company goes bankrupt
- Trade creditors seeking to recover – but there are insufficient assets to pay them
- Issue: is S entitled to take as first secured creditor, or is this fraud? Was the company a mere agent or alias
of S such that S was liable to indemnify the co. against the claims of ordinary creditors?
- Creditors arguing S used company as his agent
- Trial judge and CA found this was fraud – lifted corp veil to hold S liable to creditors
- HL: corp’s legal personality is separate and independent from SH
- Formal compliance w/Companies Act (i.e. 7 incorporators willing to take at least one share)
- When the memorandum is duly signed and registered, though there be only 7 shares taken, the
subscribers are a body corporate capable of exercising the powers and capabilities of a corp
- Though the bus may be the same after incorp as before, doesn’t matter – still and corp and still ltd
liability of SH (strong statement of separation of SH from the corp)
- If you comply w/Companies Act, no fraud
- As long as SH acting in good faith, they can take security in the company
- Authority confirming the validity of one-person or closely held corps, and that taking a single share was
adequate (one person could be in complete control)
Lee v. Lee’s Air Farming
- Facts: L’s widow sued to obtain worker’s comp b/c L killed while working for the company formed by him
- L held all shares but one, was appt’d by SH (i.e. himself) the governing dir for life, then appt’d himself an
officer and EE (chief pilot paid a salary)
- Articles provided that his rel w/company was EE/ER
- NZCA: not entitled to compensation b/c he wasn’t properly an EE (as gov dir, K’d w/himself when he
employed himself as chief pilot)
- Held: K is valid b/c when he was making the K he was acting in diff capacities
- Logical conclusion from Salomon – one person can function in diff capacities
- Underscoring distinction btw corp and dir, officer and corp, etc.
- L’s special position as gov dir didn’t preclude him from being a servant of the co.
- Indiv may be sole SH, dir, officer and EE of a company at the same time (one person may function in
dual capacities)
- Indiv acts in diff capacity in each role, and as an EE has diff, separate ints from the corp, and from
corp’s mgmt
Kosmopoulos v. Constitution Insurance Co.
- Salomon firmly upheld
- Facts: K came to Cad from Greece, started leather goods store in TO using the name “Spring Leather
Goods”
- K was the SP, his wife the EE
- Lawyer incorp’d bus as “Kosmopoulos Leather Goods” to protect K’s personal assets
- K saw the bus as his own, and was sole SH and dir
- Bank account remained in name of “Spring Leather Goods” – but bank knew it was incorp’d
- Commercial lease for the store was always in K’s personal name, never in name of corp
- Landlord refused to put lease in corp name b/c he wanted to deal w/K personally (i.e. have access to
personal assets)
- As matter of law, K and corp are two separate legal persons
- Insurance policy issued in K’s name, though ins co. aware that bus was owned and operated by corp.
- Fire damages the building, ins. co. denies claim – argues they insured K, not the corp, and none of K’s
assets were destroyed in the fire (only corp’s assets were)
- OCA: looks at insurance law
44
Lucena v. Crawford (1806 HL): you can have an “insurable int” w/o actual ownership if you are so
circumscribed in relation to the property as to benefit from its existence and be detrimented by its
destruction
- Macuara (1929 HL): M owned estate in Ireland, tsf’d estate and all timber on it to a corp of which he
was sole SH; acquired in his own name insurance; huge fire then destroyed the timber and ins. co.
denied the claim (insured M, whereas timber belonged to company)
- Crt sided w/ins. co.  M didn’t have insurable int in the timber b/c no SH has any right to
property of the company, is only entitled to share in profits and distribution of surplus assets
(M owned shares, not the property of the co.)
- SH int in the property of the co. is too indirect to be an insurable int
- Confirming Salomon principle – separate legal identities of SH and corp
- Even though M was prejudiced by the destruction of the timber, that was not sufficient to give
him an insurable int
- Macaura is too strict a rule – follow Lucena
- Willing to treat SH and corp as the same entity in this situation  pierce the corp veil
SCC: refused to lift corp veil to find in favour of K
- no consistent principle on when crt may disregard the Salomon principle by lifting the corp veil and
regarding the company as a mere puppet of the controlling SH or parent corp.
- Best that can be said of the principle at law is that the separate entities principle is not enforced when to
do so would be unjust
- To lift the veil here would not be just – shouldn’t be lifting the veil at the instance of the SH b/c the SH
has chosen the corp form (shouldn’t be allowed to blow hot or cold – willingly entered the legal
situation, enjoy benefits but also bear the corresponding burdens)
- If the corp veil were to be lifted in this case, then a very arbitrary and indefensible distinction might
emerge btw companies w/more than one SH and companies w/only one SH
- McIntyre in dissent – in the case of a sole SH, that person has an insurable int (very narrow)
Comments:
- Strongly affirms Salomon principle
- The only category of cases where veil will be lifted is when it would not be too unjust (i.e. when corp is
instrument of fraud)
- Confirms that SH has no int in the property of the corp (SH’s int is the right to share in profits and
distribution of surplus assets)
- Insurable int can be found even where there is no ownership (Lucena)
-
-
-
Big Bend Hotel Ltd.
- Facts: fire damages a hotel and its contents; claim was brought against ins. co.; hotel company had failed
to disclose in its application for insurance that its principal SH had previously suffered a fire loss and that a
fire insurance policy issued to him had been cancelled; ins. co. denied claim arguing that had proper
disclosure been made they wouldn’t have issued the policy
- BB sued to enforce policy, arguing that the hotel and the SH were separate legal entities and BB was not
obliged to disclose prior losses of a separate entity
- Ins co. argued SH had run both hotels and that was material to assessing the risk
- SH admitted knowing he had oblig of full disclosure re: previous fires, and that he knew his ability to get ins
would be affected by previous loss
- Held: fraud on SH’s part in failing to disclose prior fires – his intent was to deceive or mislead
- Lift corp veil – crt will not allow wrongdoer to use the corp form as an instrument of fraud
- Can’t hide behind the veil if your purpose is fraudulent
Guildford Motors v. Horne:
- Facts: D was EE of GM and became managing dir; 2yrs later he was terminated; immediately set up bus in
his own name in direct competition with GM; had signed non-compete agmt that he wouldn’t solicit, interfere
w/ or endeavour to entice away any of its customers for 5yrs after ceasing to be its managing dir
- Incorp’d new company in his son’s initials, w/202 shares issued (101 held by an EE and 101 held by
his wife)
- Clear that D was really running the company
- GM sought injunction against the company for competing in contravention of the K
- Held: company de facto controlled by the D was the “channel through which the D carried on his business”
- The purpose of it was to try to enable him, under what is a cloak or a sham, to engage in business
contrary to his contractual obligation
45
-
Company was formed as device/stratagem to mask the carrying on of a business in B of K
In law, the corp is a separate entity from D, but in this case D is trying to hide behind corp veil (acting
deceitfully)
BG Preeco v. Bon Street Holdings (1989 BCCA)
- Facts: P agreed to sell land to BSDL for $4.2m; BSDL repudiated before closing, then offered to buy it for
$3.3m
- BSDL known as successful company (owner and dev of successful retail property)
- REA for P met w/ officers of BSDL (K, M)
- Bus cards of K and M showed them as officers of BSDL, as did letterhead, telephone book, etc.
- At this time, dealing w/original BSDL
- BSDL then changed name to #’d co. and a new co. was incorp’d that took over name BSDL (BSDL2)
- New company had no assets and was separate from old BSDL
- BSDL1 kept its assets, bus cards, telephone directory listing, etc. and cont’d to operate as “BSDL” –
later changed name to BSH
- BSH carried on devt feasibility study and paid the deposit of $100k on P’s property
- BSDL then made offer to buy and paid deposit of $100k on pp of $4.2m (BSDL1 came up w/money for
the offer)
- P made enquiries about BSDL of Ds and others, searched title of other property owned by BSDL1 (but
title hadn’t been changed)
- Based on these enquiries – accept the offer (wanted firm commitment from purchaser who couldn’t
repudiate only to be found judgement proof)
- Not clear whent P searched corp registry – if had, would have noticed change
- BSDL2 refused to complete
- K & M trying to protect existing assets of BSDL1 from risk of loss in other projects, but benefit from it’s
reputation (shell company can abandon any deal w/impunity b/c it has no assets, and SH have ltd
liability)
- P arguing:
- BSDL1 should be held liable for B of K of BSDL2
- Corp veil should be lifted to make officers and SH of BSDL2 liable on basis that the separate
legal personality of 2 companies shouldn’t protect SH, dirs and officers of a company who acted
fraudulently
- Issue: should corp veil be lifted and BSDL1 held liable on basis that separate legal personality was being
exploited (BSDL2 was a cloak/sham)
- Trial: K & M and BSDL1 committed fraud – deceived P into K w/a purchaser w/o assets by making it look
like Preeco was dealing w/a company w/substantial assets
- BSDL2 held liable for B of K - $1.7m in damages but no assets to recover
- refused to lift corp veil – Companies Act had been complied with
- awarded reliance measure of damages for fraud against K, M and BSDL1 for $400k (amt of the add’l
non-refundable deposit P would have demanded if it had been dealing w/an unknown purchaser w/o
assets)
- not going to lift veil unless P can bring it within est line of cases
- distinguish Big Bend and Guildford – these cases apply to situations where co. didn’t have
capacity to K with itself
- CA Held: corp dirs personally liable in fraud, but not liable in the place of the co. for B of K
- P was not deceived as to the identity of the party w/which in K’d, but as to its assets
- If P has succeeded in proving that it has been deceived as to identity through use of shell company, it
may have been successful in arguing the corp veil should be lifted (i.e. to make BSDL1 liable for K of
BSDL2)
- Rejected “Deep Rock” doctrine, which allowed the corp veil to be lifted to prevent unfairness (US cases)
– unfairness is too vague a basis on which to depart from Salomon
- Hardline – fraud was proven and corp was used to commit fraud, but CA not willing to lift corp veil
- Limiting lifting corp veil to those circs already est:
- Fraud, improper conduct: corp used to effect an improper or fraudulent prupose, or commit an act
which SH could not legally achieve himself
- Group enterprise theory: refused to extend this to make one company in a group liable for Ks of
another
- Comments:
46
-
-
Strong restatement of the conservatism of BC courts relative to others – ltd situations in which crt will lift
corp veil
No doubt the purpose deceitful, but crt unwilling to lift corp veil
Policy o flimiting circs where corp veil may be lifted to decide cases: i.e. fraud or improper conduct
cases ltd to those where corp is used to effect a purpose or commit an act which the SH couldn’t legally
achieve himself
Group enterprise theory doesn’t extend to making other mems of the corp group liable for B of K of one
mem of the group
DeSalaberry Realties:
- Facts: incorp’d new subsidiary to do each deal – ltd risk; used new names and new companies and anyone
could find out who they were dealing with (subsidiary wholly controlled by parent corp)
- Issue: tax issues re: intention of the subsidiary in the group – did it intend to hold the property in the long
term, develop it and earn income, or did it intend to flip it (diff tax implications)
- Held: crt willing to impute the intention of the group to the intentions of the company at issue (use group’s
intentions to deter what the intention of the corp was – earn a quick profit)
- Where it is proven that there was a common intention of a group of companies, all controlled by the
same people, the common intention will be imputed to a mem of the group
- Didn’t make any other company in the group liable for tax liability of DeSalaberry (didn’t lift corp veil in
this sense)  merely imputed intention (not true lifting of the veil)
Westbank Property Mgmt:
- argued that corp should be exempt from tax b/c all SH were Indians and personally exempt from tax
- but SH are not the corp and corp is not an Indian, thf. not exempt
Meredith v. The Queen:
- Facts: Meredith incorp’d his own company, Stem; Stem K’d with variety of clients around the world;
Meredith is sole SH and EE, and person w/the expertise; Meredith claims overseas tax credit in respect of
salary earned while working on behalf of Stem in US
- Issue: is he an EE such that he is entitled to tax credit?
- FCA: can’t lift veil to deny tax benefit
- Will recog the legal rels created by the parties unless it falls under the general anti-avoidance rule
(stinks too much)
- The fact that Meredith controlled Stem and used it to carry on the business did not make the business
Meredith’s
- No basis on which to lift veil here and hold M was the corporation – everything was set up legally and
above board (no fraud or deceit)
- Closely held, as well as widely held, corps are separate legal entities from their SH
Wolfe v. Moir:
- Facts: boy injures himself at roller-rink, sued for compensation for negligence; D was secretary of Chinook,
which was the corp that owned the rink; hwr, had advertised rink in a diff name
- Issue: was D personally liable?
- Held: Alta equiv of 10(5) made D personally liable for the obligs of the corp that owned the rink b/c he
hadn’t properly used the corp’s name in operation of the rink
- Salomon principle that draws the corp veil doesn’t apply if you have contravened the CBCA
- B/c Moir had held himself out as owner of the corp, crt wouldn’t let him escape liability
- “if a person chooses to advertise and hold himself out to the public w/o identifying the name of a
company w/which he is assoc, he runs the risk of being held personally liable”
- Comments:
- Doubtful, despite this case, that failing to use official corp name on docs would justify lifting corp veil
and making SH liable (CBCA doesn’t suggest this as 10(5) is not an exception to s.45)
H&D Hobby Stores v. Svatos (1998 AQB):
- Facts: D was EE of co. P had dealings with; set up his own toy shop incorp’d under #’d name, but used
docs in name of “Edmonton Hobby”
- cheques had #’d company and “Edmonton Hobby” on them
- D was sole SH and dir; never registered “EH” as bus name
- Bus gets into trouble and can’t pay P
47
D writes to P explaining how he will pay $$ owing, if P conts to supply it (letter in name of EH and
signed by D, corp name not indicated on the letter)
- P accepted proprosal, believing they were relying on D personally
- D then gives inventory to satisfy other creditors (to whom he had given personal guarantee) and can’t
pay P
- P seeks payment of debt, but D says it is co’s debt and co is broke
Issue: is D personally liable?
Held: D held liable for operating debts of corp for failure to comply w/Alta equiv of s.10(5)
- D was carrying on bus personally and rep himself as sole proprietor (letterhead in name of EH, no
indication of corp status)
- If you don’t strictly comply w/Act, crt will remove your protection as SH
- dishonesty – D was trying to keep inventory coming in in order to pay off creditor he had given personal
guarantee to (fraudulently preferred creditor)
-
-
48
JURISDICTION OF INCORPORATION
-
distinction btw juris in which corp is incorp’d, and juris in which it carries on bus (reg) – not the
same thing
- keep registration distinct from jurisdiction of incorporation
- e.g. CBCA corp is regulated by that act wrt carrying on bus, but governed by BC BCA wrt
registration in BC
-
continuance under law of another juris  changing the juris in which corp is incorp’d (“continue as a
CBCA corp”)
- facilitate amalgamation (most common situation)
- 181: two or more corps, incl holding and subsidiary corps, may amalgamate
- “corp” is defn’d in s.2 narrowly to incl corps incorp’d under CBCA, thf. if Ont corp wants to
amalgamate w/CBCA corp, will have to move to CBCA
- nothing to do with tax b/c you are taxed where you are carrying on bus
- incorp in juris you are practicing in if you are a professional subj to regulatory legis
- small closely held corp likely to incorp where carrying on bus
- likely to incorp under CBCA if carrying on bus nationally or internationally (priority to name)
- large nat’l/int’l corp that can’t satisfy resid req, might want to incorp in BC
-
two step process: always looking at laws of two jurisdictions
- Export: emigrating corp must obtain consent of auths in juris of its incorp
- Import: corp must meet reqs of the fed or prov Act under which it seeks to be cont’d
-
IMPORT: Process for re-incorporating under CBCA: 187
- 187(1): body corp applies to Dir for cert of continuance (if auth by laws of juris in which incorp’d)
- 187(2): at the time of the move, the corp can use its arts of continuance to amend its Act of Incorp,
arts, etc. w/o specifying that it is doing so
- 187(3): draft and send articles of continuance (Form 11), notice of office (19) and notice of dirs
(106) to Dir
- 187(4): Dir SHALL issue cert of continuance (if all reqs met and fees paid)
- 187(5): effect of cert of continuance – foreign body corp becomes CBCA corp
(a) articles of continuance are deemed to be articles of incorp,
(b) cert of continuance treated like cert of incorp
- 187(6): Dir SHALL send copy of cert of continuance as notice of continuance to official in orig juris
- 187(7)(a)-(e): rights preserved – can’t change ownership of corp property, or escape liability for any
debts/causes of action, pending proceedings or convictions to be enforced by moving to another
juris
- 187(8): nothing about SH changes either – shares are deemed to have been issued in compliance
w/the Act; doesn’t relieve anyone of liabilities wrt shares, nor does it deprive anyone of their rights
wrt shares
*now a CBCA corp, so have to register in former prov of incorp to carry on bus, and notify other juris of
the change (BC BCA s.375-378)
-
EXPORT: Continuing CBCA in another juris: 188
- More onerous b/c it is a “fundamental change” – changing the statute and juris that fundamentally
governs the status and capacity of the corp
- 188(1): (a) as long as SH agree by spec res and (b) the change won’t adversely affect creditors or
SH, a CBCA corp can apply to official in another juris to be cont’d in that juris, unless prohib by (10)
- 188(3): notice of meeting must be provided to SH
- notice must be in compliance w/s.135(5) and (6) b/c this is spec bus, special notice
provisions apply (notice must provide sufficient info about the proposed resolution that the SH
can form an opinion; text of the res; 190 rights of dissenting SH must be in the notice – failure
re: dissent rights doesn’t invalidate the discontinuance)
- 188(4): ALL SH are entitled to vote re: continuance
- 188(5): application for continuance must be approved by special resolution (2/3rds maj) of SH; bylaws or will set out quorum (or 139 –holders of maj of shares), special maj has to be of SH who
attend and vote
49
188(6): can include a clause in the res allowing the dirs to abandon the application w/o further
approval
- 188(7): on receipt of notice satisfactory to Dir that the corp has been cont’d under the laws of
another juris, the Dir SHALL file the notice and issue a cert of discontinuance
- 188(8): notice in (7) deemed to be arts
- 188(9): CBCA ceases to apply on date shown on cert of discont
- 188(10)(a) – (e): prohibits export unless rights are preserved
**to leave the juris you HAVE to have SH approval by special maj
-
-
50
CBCA: Import and Export
187(1)
187(2)
187(3)
187(4)
187(5)
187(6)
187(7)
187(8)
187(9)
187(10)
187(11)
187(12)
188(1)
188(2)
CONTINUANCE (IMPORT) – body corp incorp under another act may, if so auth by the laws of
the juris where it is incorp’d, apply to Dir for cert of continuance
Amendments in articles of continuance – body corp that applies for continuance may, w/o so
stating in its articles of continuance, effect by those articles any amendment to its Act of incorp,
articles, letters patent or memorandum or articles of assoc if the amend is one a corp incorp’d
under this Act may make to its articles
Articles of Continuance – articles of continuance in the form that the Dir fixes shall be sent to Dir
along w/docs req’d by s.19 and 106
Certificate of Continuance – on receipt of articles of continuance, Dir shall issue a cert of
continuance in accordance w/s.262.
Effect of certificate – on date shown in the cert of continuance
(a) the body corp becomes a corp to which CBCA applies as it had been incorp’d under this act
(b) articles of continuance are deemed to be articles of incorp; and
(c) the cert of continuance is deemed to be the cert ofincorp of the continued corp
Dir shall send copy of cert of continuance to the appropriate official or public body in the juris in
which continuance was authorized
Rights Preserved – when a body corp is continued as a corp under the CBCA,
(a) the property of the body corp conts to be the property of the corp;
(b) the corp continues to be liable for the obligs of the body corp;
(c) an existing cause of action, claim or liability to prosecution is unaffected;
(d) a civil, criminal, or administrative action or proceeding pending by or against the body corp
may be cont’d to be prosecuted by or against the corp; and
(e) a conviction against, or ruling, order or judgement in favour of or against the body corp may
be enforce by or against the corp
Issued Shares – Subject to subsection 49(8), a share of a body corporate issued before the body
corporate was continued under this Act is deemed to have been issued in compliance with this Act
and with the provisions of the articles of continuance irrespective of whether the share is fully paid
and irrespective of any designation, rights, privileges, restrictions or conditions set out on or
referred to in the certificate representing the share; and continuance under this section does not
deprive a holder of any right or privilege that the holder claims under, or relieve the holder of any
liability in respect of, an issued share.
Exception in cases of convertible shares - Where a corporation continued under this Act had,
before it was so continued, issued a share certificate in registered form that is convertible to
bearer form, the corporation may, if a holder of such a share certificate exercises the conversion
privilege attached thereto, issue a share certificate in bearer form for the same number of shares
to the holder.
Defn of “share” - For the purposes of subsections (8) and (9), "share" includes an instrument
referred to in subsection 29(1), a share warrant as defined in the Canada Corporations Act,
chapter C-32 of the Revised Statutes of Canada, 1970, or a like instrument.
Where continued reference to par value shares permissible - Where the Director determines,
on the application of a body corporate, that it is not practicable to change a reference to the
nominal or par value of shares of a class or series that the body corporate was authorized to issue
before it was continued under this Act, the Director may, notwithstanding subsection 24(1), permit
the body corporate to continue to refer in its articles to those shares, whether issued or unissued,
as shares having a nominal or par value.
Limitation - A corporation shall set out in its articles the maximum number of shares of a class or
series referred to in subsection (11) and may not amend its articles to increase that maximum
number of shares or to change the nominal or par value of those shares.
CONTINUANCE (EXPORT) – other juris - Subj to (10), corp may apply to Dir of other juris to be
continued as if it had been incorp’d under the laws of that other juris if the corp
(a) is auth by the SH in accordance with this section to make the application; and
(b) establishes to the satisfaction of the Dir that its proposed continuance in the other juris will
not adversely affect the creditors or SH of the corp.
Continuance – other federal Acts – A corp that is authorized by the SH in accordance w/this
section may apply to the appropriate Minister for it’s continuance under other fed acts
51
188(3)
Notice of meeting – notice of meeting of SH complying w/s.135 shall be sent in accordance
w/that section to each SH and shall state that a dissenting SH is entitled to be paid the fair value
of their shares in accordance w/s.190, but failure to make that statement does not invalidate a
discontinuance under this Act
188(4)
Right ot vote – each share of the corp carries the right to vote in respect of a continuance
whether or not it otherwise carries the right to vote
188(5)
SH approval – an application for continuance becomes authorized when the SH voting thereon
have approved of the continuance by a special resolution
188(6)
Termination – the dirs of a corp may, if auth by the SH at the time of approving the application for
continuance, abandon the application w/o further approval of the SH
188(7)
Discontinuance – on receipt of a notice satisfactory to the Dir that the corp has been cont’d under
the laws of another jurisdiction or under one of the Acts referred to in s.(2.1), the Dir shall file the
notice and issue a certif. of discontinuance in accordance w/s.262
188(8)
Notice deemed to be articles – For the purpose of s.262, a notice referred to in s.(7) is deemed
to be articles that are in the form that Dir fixes
188(9)
Rights preserved – This Act ceases to apply to the corp on the date shown in the cert of
discontinuance
188(10)
Prohibition – a corp shall not be cont’d as a body corp under the laws of another juris unless
those laws provide in effect that
(a) the property of the corp conts to be the property of the body corp
(b) the body corp conts to be liable for the obligs of the corp
(c) an existing cause of action, claim or liability to prosecution is unaffected ;
(d) a civil, criminal or admin action or proceeding pending by or against the corp may be
cont’d ot be prosecuted by or against the body corp; and
(e) a conviction against or rule, order or judgement in favour of or against the corp may be
enforced by or against the body corp
190(1)(d)
Right to Dissent - Subj to s.191 and 241, a holder of shares of any class of a corp may dissent if
the corp is subj to an order under paragraph 192(4)(d) that affects the holder or if the corp
resolves to
(d) be cont’d under s.188
**subj to solvency test 190(2)(b)
52
PRE-INCORPORATION CONTRACTS
-
Problem: K made on corp’s behalf before it is incorp’d
-
CL Rule: K made by A is not binding on corp when it comes into existence and may not be ratified by the
company or enforced by the company (basic agency and ratification law)
- Agent may not act on behalf of non-existent Pr
- Pr who wants to ratify the K must have been in existence and capable of making the K at the time
the K was made
- Solution: enter new K after company is incorp’d to have binding K in existence
- Liability of person who purported to K on behalf of corp for K obligs:
- Turns on intentions of the parties – both parties must know the corp is not in existence at
the time the K was made and they must have intended promoter to be personally liable
(Kelner, Black)
- NOT liable: both parties think corp is incorp’d
- LIABLE: knew not incorp’d and thf. intended A to be liable
- Damages: Breach of Warranty of Authority:
- Where the A is not personally liable, an action for breach of warranty of authority only
produces nominal damages when the company has no existence and no funds; any
effective liability would have to be in deceit or negligence
- If you have an insolvent Pr, breach of warranty of auth is valueless (Wickberg v. Shatsky)
-
Statute: CBCA s.14
- 14(1): Starting point: the promoter (A) is going to be personally liable for written pre-incorp K
- 14(2): corp can adopt pre-incorp K by any action or conduct signifying it’s intent to be bound (overrules
CL position), promoter no longer liable
(a) corp is bound by K as if had been in existence on date of K and had been a party to it
(b) promoter ceases to be bound by K and not entitled to its benefits
- 14(3): whether or not pre-incorp K is adopted, a party may apply to court for an order deciding what the
obligs and liabilities are btw the corp (whether or not it has adopted the K), the party and others
- e.g. can’t get out of pre-incorp obligs by incorp company w/no assets which then ratifies the K –
just b/c corp adopted the K doesn’t mean the promoter has no obligs
- if promoter received some sort of deposit or benefit, likely req’d to rtn it
- 14(4): can K out of personal liability  must be express in written K (overrides 14(3))
-
Statute: BC BCA s.20
- 20(2): facilitator is (a) deemed to warrant to the parties that the company will come into existence, (b)
that if this doesn’t happen it is a breanch of warranty, and (c) the measure of damages is that avail for
BWA
- distinct from s.14 – doesn’t say that promoter will be liable, just but rather that s/he warrants
certain things will happen in reas amt of time
- 20(3): permits the new company to validly adopt the pre-incorp K (overrules CL)
- 20(4): if the company adopts and is bound, the facilitator ceases to be bound by the warranty
- 20(5): if the company doesn’t adopt the K, the facilitator can seek an order that any benefit received by
the co. can be recovered by the applicant (3rd party) (you can seek any benefit you’ve conferred on the
company on the assumption they would adopt the K)
- 20(6): whether or not pre-incorp K adopted, either party may apply to Crt for order apportioning liability
- 20(7): crt may make any order it deems appropriate (e.g. discretionary order to do justice) – can crt
award damages for B of K, or is it confined to damages for BWA?
- 20(8): if there’s an express agmt to that effect in the written K, facilitator won’t be liable
-
Problems:
- If no corp ever incorp’d then we don’t know what statute applies (promoter liable under 14(1) or
20(2))?? Crt likely to apply CL
- Weakness of BC BCA – nothing actually makes facilitator liable for the K, as 14(1) does  only liable
for BWA (20(2))
53
CBCA and BC BCA
14(1)
A person who enters into, or purports to enter into a written K in the name of or on behalf of a
corporation before it comes into existence is personally bound by the K and is entitled to its benefits
14(2)
The corporation, within a reasonable time after it comes into existence, can adopt a K made before it
came into existence by any action or conduct signifying it’s intention to be bound, and on such
adoption
(a) corp becomes a party to the K, bound by its obligs and entitled to its benefits
(b) promoter ceases to be bound to the K, or entitled to its benefits
Whether or not a pre-incorp K is adopted, a party may apply to court for an order deciding what the
obligs and liabilities are btw the corp, the party and others
14(3)
14(4)
20(1)
If expressly provided In the written K, a person who purported to act on behalf corp before it came
into existence is not in any even bound by the K or entitled to the benefits thereof
Pre-incorporation contracts - In this section:
"facilitator" means a person referred to in subsection (2) who, before a company is
incorporated, purports to enter into a contract in the name of or on behalf of the company;
"new company" means a company incorporated after a pre-incorporation contract is entered
into in the company's name or on the company's behalf;
"pre-incorporation contract" means a purported contract referred to in subsection (2).
20(2)
Promoter - Subject to subsections (4) (b) and (8), if, before a company is incorporated, a person
purports to enter into a contract in the name of or on behalf of the company,
(a) the person is deemed to warrant to the other parties to the purported contract that the
company will
(i) come into existence within a reasonable time, and
(ii) adopt, under subsection (3), the purported contract within a reasonable time after the
company comes into existence,
(b) the person is liable to the other parties to the purported contract for damages for any breach
of that warranty, and
(c) the measure of damages for that breach of warranty is the same as if
(i) the company existed when the purported contract was entered into,
(ii) the person who entered into the purported contract in the name of or on behalf of the
company had no authority to do so, and
(iii) the company refused to ratify the purported contract.
20(3)
Adoption - if, after a pre-incorporation contract is entered into, the company in the name of which or
on behalf of which the pre-incorporation contract was purportedly entered into by the facilitator is
incorporated, the new company may, within a reasonable time after its incorporation, adopt that preincorporation contract by any act or conduct signifying its intention to be bound by it.
On the adoption of a pre-incorporation contract under subsection (3),
(a) the new company is bound by and is entitled to the benefits of the pre-incorporation contract
as if the new company had been incorporated at the date of the pre-incorporation contract and
had been a party to it, and
(b) the facilitator ceases, except as provided in subsections (6) and (7), to be liable under
subsection (2) in respect of the pre-incorporation contract.
If the new company does not adopt the pre-incorporation contract under subsection (3) within a
reasonable time after the new company is incorporated, the facilitator or any party to that preincorporation contract may apply to the court for an order directing the new company to restore to
the applicant any benefit received by the new company under the pre-incorporation contract.
20(4)
20(5)
20(6)
Whether or not the new company adopts the pre-incorporation contract under subsection (3), the
new company, the facilitator or any party to the pre-incorporation contract may apply to the court for
an order
(a) setting the obligations of the new company and the facilitator under the pre-incorporation
contract as joint or joint and several, or
(b) apportioning liability between the new company and the facilitator.
54
20(7)
20(8)
On an application under subsection (6), the court may, subject to subsection (8), make any order it
considers appropriate.
A facilitator is not liable under subsection (2) in respect of the pre-incorporation contract if the parties
to the pre-incorporation contract have, in writing, expressly so agreed.
RELEVANT CASES:
Kelner v. Baxter:
- Facts: P was wine merchant and was to be mgr of proposed co.; prior to corp coming into existence, D
purchased wine that was consumed in the course of the business; at dirs meeting, ratified agmt for
purchase of wine; company collapsed and P brought action to recover price of goods
- Held: parties personally liable
- Crt examined doc to see if, in the circs, an intention could be imputed to the Ds to bind themselves
personally
- Crt concluded that writing disclosed intention for Ds to be bound
- Purported ratification by the company treated as a nullity
- thought to stand for the principle that A will be personally bound – but this proposition is based on the facts
of the case, in and particular the intention of the parties at time K was made
- the parties all knew there was no corp, so their intentions must have been to be personally bound
- CL rule – confirms agency law that corp cannot ratify pre-incorp K
Black v. Smallwood:
- Agmt for sale of land – purchasers identified as corp that was not yet incorp’d (though neither party aware
of that)
- V sought spec perf of the K – alleging written K was enforceable and seeking to impose liability in
accordance w/the terms of the K upon the respondents as agents
- Held: K was nullity b/c neither of the parties knew the corps were not in existence at the time the K was
made
- Purchasers thought the company existed and they were in fact dirs
- Must prove intention and knowledge of parties at time of K formation
- Kelner does not est that person who k’s on behalf of corp entity not yet in existence will always be
personally liable
Wickberg v. Shatsky: measure of damages for BWA
- Facts: P was hired as a mgr, asked for written K (provided on letterhead of company “Rapid Data” and
signed by Shatsky)
- P starts work and is subsequently told to stop using “Ltd.” at end of “Rapid Data” – doesn’t question this
- Rapid Data had never been incorp’d, and the bus P was employed by was owned by a diff incorp’d
company owned by Shatskys
- Co. using name “Rapid Data” w/o registering it
- Bus failes, P is dismissed in part b/c they can’t pay him
- P brought action for unpaid wages against Shatsky’s personally – arguing personal liability relying on
Kelner, or that Shatsky was liable for breach of warranty of authority (BWA)
- Held:
- No intention on the part of P or Shatsky that the latter would be personally liable (P expected to be paid
by the business) – weak b/c P didn’t know corp didn’t exist
- Shatsky held liable for BWA (warranty that he had auth to act on behalf of Rapid Data)
- Damages: nominal
o No causation btw BWA and the loss –
 even if RD had existed, and Shatsky had had auth to K on its behalf, P would still have
lost his job (loss was the result of the failure of the bus, not the BWA)
 under BWA you are only entitled to recover against the agent that which you would
recover from the Pr (but Pr had no money, so P out of luck)
Landmark Inns v. Horeak:
- Considering Sask equiv to s.14
- Facts: H signs offer to lease space in shopping centre owned by L; lease was signed by H on behalf of corp
not yet in existence (signed as chairman and affixed seal); L did renos for H that were part of deal; H then
55
-
repudiated the lease; L accepted repudiation and found another tenant; L brought action against H for lost
rent and cost of renos
To avoid personal liability, H incorp’s the corp (but doesn’t have any assets) – corp then adopts the lease
Held: nice try, but at the time the corp purported to adopt the lease it was already dead
- repudiated by H, repudiation accepted by L – no longer a living K that corp could adopt
- can’t escape liability under 14(4) either – merely signing on behalf of the corp is not sufficient
expression in the written K that promoter is not intended to be liable (has to be an actual statement)
56
DOCTRINE OF ULTRA VIRES, CONSTRUCTIVE NOTICE and INDOOR
MANAGEMENT RULE
**CL doctrines overruled by statutes – overturn the doctrines of ultra vires and CN, and enact Turquand’s
rule (put corps’ in weaker position to deny liability, either for lack of capacity (UV) or lack of authority)
ULTRA VIRES:
- Problem: does corp have capacity to engage in this activity or enter this K?
- CL assumption that corp could only do things specified in articles
- An act that was outside the corp’s obj and pwrs was a complete nullity and thf. couldn’t be ratified after
the fact (Ashbury)
- Obj of doctrine: protect investors in the corp (ensure corp’s activities stayed w/in defn’d parameters)
- Effect: persons who K’d with corp couldn’t enforce K’s that were ultra vires (protects investors, but not
3rd parties)
- Only applies to CBCA or BC BCA corps if corp voluntarily restricts its objs/powers/capacities
-
Statute: s.15 – corp has full capacities, powers and privileges of natural person (reverses CL presumption)
- Exceptions: restrictions are the exception
o
Corp may restrict its objs and powers in articles  look to articles to ensure corp hasn’t
restricted its pwrs (6(1)(f))
o
Statutory restrictions (e.g. 3(4) – no corp should carry on bus as bank, etc.)
o
Special Act corps (Canadian Pickles)
-
Saving Provision:
o
16(1): no by-law needs to be passed to give a corp a particular power
o
16(2): corp must abide by any restrics it sets out
o
16(3): no act of a corp is invalid by reason only that it is contrary to its arts or the CBCA (is
there any way to invalidate corp act – 247, 251)
-
Remedies when corp acts contrary to CBCA:
o
247: seek order from crt restraining the contravention of the articles
o
251: contravention of CBCA is an offence
o
252(3): civil remedies  a contravention of the CBCA, if it harms you, could provide you
w/some kind of action against the company
o
Oppression
-
Statute: BC BCA s.30, 33
o
30: company has capacity, powers, rights and privs of person of full capacity
o
33(1): mustn’t exercise powers it doesn’t have
o
33(2): even if it contravenes 33(1), act isn’t invalid (less broad that CBCA s.16(3))
57
3(4)
3(5)
15(1)
16(1)
16(2)
16(3)
247
No corporation shall carry on the business of (a) a bank, (b) an insurance company, (c) a trust or loan
granting company
No corporation shall carry on business as a degree-granting education institution unless expressly
authorized
A corporation has the capacity and, subject to the CBCA, the rights, powers and privileges of a natural
person
BC BCA – s.30
It is not necessary for a by-law to be passed in order to confer any particular power on the corporation
or its directors
Restricted business or powers – a corp shall not carry on any bus or exercise or any power that it is
restricted by the articles from carrying on or exercising, nor shall the corp exercise any of its powers in
a manner contrary to the articles
BC BCA s. 33(1)
No act of a corporation, including any transfer of property to or by a corporation, is invalid by reason
only that the act or transfer is contrary to its articles or this Act
BC BCA s.33(2)
Sh and others may seek to restrain the contravention of the CBCA or articles (apply for crt order)
251
Contravention of the CBCA is an offence – every person who without reas cause contravenes a
provision of this Act or the regs for which no punishment is provided is guilty of an offence punishable
on summary conviction
252(3)
33(1)
No civil remedy for an act or omission is suspended or affected by reason that the act or omission is
an offence under this Act
Capacity and powers of a company - A company has the capacity and the rights, powers and
privileges of an individual of full capacity.
CBCA s.15
Restricted businesses and powers – (1) A company must not
(a) carry on any business or exercise any power that it is restricted by its memorandum or articles from
carrying on or exercising, or
(b) exercise any of its powers in a manner inconsistent with those restrictions in its memorandum or
articles.
CBCA s.16(2)
33(2)
No act of a company, including a transfer of property, rights or interests to or by the company, is invalid
merely because the act contravenes subsection (1).
CBCA s.16(3)
30
RELEVANT CASES:
Ashbury: company exceeded its powers; 3rd party sought to recover; company refused arguing that b/c K was
outside company’s powers the K was a nullity
Communities Economic Devt Fund v. Canadian Pickles (SCC 1991):
- Fund incorp’d in Manitoba, restricted to financing econ devt for projects in remote and isolated communities
- Fund loaned $150k to CP
- Dir of CP personally agrees to repay loan
- CP goes bankrupt and doesn’t repay
- Fund looked to Dir to repay – he argued that loan is void and guarantee can’t be enforced b/c it was outside
the mandate of the fund (CP was not in a remote or isolated community)
- Held: K null and void
- Act under which company incorp’d only auth loans to bus in remote and isolated communities
- Loan a nullity, thf. guarantee not enforceable
58
CORPORATE AGENCY:
-
Problem: who are the agents of the corp and how do they obtain actual or ostensible auth?
o Important b/c corps can only act through human agents
-
Actual Authority:
o Express: eg. passed res
 102(1): dirs are the agents of the corp, SHALL manage or supervise the mgmt of the
corp
 115: committees, managing dirs
 121: officers
o Implied: what is normal in the commercial context (deter according to expert evid)
o Usual
-
Ostensible Authority: (apparent authority, agency by estoppel)
o Principal allowing A to represent themselves as having auth they don’t in fact have; ep, when
acted upon by 3rd party, is binding
o Freeman v. Lockyear
o In theory, A w/o actual auth could delegate to sub-agents, thf. giving them ostenaible auth
RELEVANT CASES:
Freeman v. Lockyear (BCCA 1964):
- Facts: Ka and H form corp, become dirs (nominate and vote each other in, nominate 2 other dirs)
o
Articles contained power to appt managing director, but this was never done
o
Ka starts carrying on the bus of acquiring and developing the property w/o ever being
delegated actual auth to do so
o
Ka K’s with firm of architects to prepare zoning permission
o
Architects seek payment for their work
o
Corp refuses to pay
o
Architects sue to enforce K
o
3 other dirs take position that Ka didn’t have auth to enter the K, thf. corp isn’t bound
- Issue: if A doesn’t have actual auth, in what circs can they still bind the corp?
- Held:
o
No actual auth  dirs had never passed a resolution that Ka would be managing dir to carry on
the bus of the corp
o
Ostensible auth  arises most commonly from conduct of Pr (acquiescence, permission,
allowing indiv agent to go out there and K), created by representation by Pr to contractor that A
had auth to enter into Ks on his behalf, binding on Pr (representation, when acted upon by 3 rd
party, is binding)
 3rd party relies on either the representation of the Pr, or the warranty of the A
 Pr must themselves have had auth to make the K that the A made
 Where act of A is ultra vires (rare), the ostensible auth won’t bind the corp (only option
for 3rd party is to bring action against A for BWA, otherwise the assump is that A was
intended to be personally bound, thf. it’s a nullity and losses lie where they fall)
o
Dirs allowed Ka to represent themselves as their A
o
Representation by corp can be as simple/passive as allowing someone to be out there carrying
on bus
o
Representation from the Pr, the corp, through its agents, the dirs, that Ka had auth to bind the
corp
- Doctrine of undisclosed Pr: Pr can in equity compel the agent to lend his name in an action to enforce the K
against the contractor, and would at CL be liable to identify the A in respect of the perf of the obligs
assumed by the A under the K
59
INDOOR MANAGEMENT RULE:
-
CONSTRUCTIVE NOTICE:
o
Doctrine: a person dealing w/a corp was deemd to be aware of the contents of all docs filed in
public office (e.g. articles which disclose restrictions on corp’s powers)
 Deemed to have notice of restrictions on corp’s powers
 Deemed to have notice of restrictions on A’s auth as well (e.g. limitation on amt agent
can prove)
o
Statute:
 s.17 abolishes doctrine of CN
 s.18(1): enacts Turquand’s Rule in diff lang – indoor mgmt rule
-
INDOOR MANAGEMENT RULE: person K’ing with a corp and dealing in good faith may assume that acts
w/in its constit and powers have been properly and duly performed and are not bound to inquire whether
acts of internal mgmt have been regular
18(1): prohibits corp from relying on specified defences in arguing K unenforceable
o
Can’t assume that corp had power to enter K, but can assume that the person they are dealing
w/has been properly appt’d
o
Person dealing w/corp doesn’t need to satisfy herself that the necessary corp procedure has
been complied with – K will be enforceable even where this is not the case
 e.g. if K needs approval of dirs, can assume that approval has been given
18(2): rule doesn’t not preclude the corp Pr from arguing that the 3rd party had, or ought to have
had, actual notice of the restriction on the A’s auth ONUS
o
confines application of CN to restrictions on the corp agent’s auth which are set out in the
public docs and allows the 3rd party to assume that any action the corp could take privately to
override those restrictions has been taken (so rather than 3rd party being deemed to have
notice, the corp must prove actual notice)
17
18(1)
18(2)
143
No Constructive Notice – no person is affected by or is deemed to have notice or knowledge of the
contents of a doc concerning a corp by reason only that it has been filed by the Dir or is avail for
inspection at an office of the corp
Auth of dirs, officers and agents – no corp and no guarantor of an oblig of a corp may assert against
a person dealing with the corp or against a person who acquired rights from the corp that
(a) the articles, by-laws and any USA have not been complied with; (can’t argue irregularity or lack
of capacity against 3rd party)
(b) the persons named in the most recent notice sent to the Dir under s.106 or 113 are not dirs of
the corp; (if you filed notice, can’t deny you’re a dir)
(c) the place named in the most recent notice sent to the Dir under s.19 is not the registered office
of the corp;
(d) a person held out by a corp as a dir, officer or agent of the corp has not been duly appt’d or
has no auth to exercise the pwrs and perform the duties that are customary in the bus of the
corp or usual for a dir, officer or agent; (can’t deny agency of person held out by corp, Freeman
– what is holding out?)
(e) a doc issued by any dir, officer or agent of a corp w/actual or usual auth to issue the doc is not
valid or not genuine; or
(f) a sale, lease or exchange of property referred to in 189(3) was not authorized.
BC BCA 146(1)
Exception – subsection (1) doesn’t apply in respect of a person who has, or ought to have, knowledge
of a situation described in that subsection by virtue of their rel to the corp
BC BCA 146(2)
Validity of acts of directors and officers – An act of a director or officer is not invalid merely because
of an irregularity in the election or appointment or a defect in the qualification of that director or officer.
(even an invalid/inappropriate appt of dir/officer won’t give an argument to the corp to say that that
person isn’t acting as their agent)
CBCA s.116
60
146
Persons may rely on authority of companies and their directors, officers and agents – (1)
Subject to subsection (2), a company, a guarantor of an obligation of a company or a person claiming
through a company may not assert against a person dealing with the company, or dealing with any
person who has acquired rights from the company, that
(a) the company’s memorandum or notice of articles, as the case may be, or articles, have not been
complied with,
(b) the individuals who are shown as directors in the corporate register are not the directors of the
company,
(c) a person held out by the company as a director, officer or agent
(i)
is not, in fact, a director, officer or agent of the company, as the case may be, or
(ii)
has no authority to exercise the powers and perform the duties that are customary in the
business of the company or usual for such director, officer or agent,
(d) a record issued by any director, officer or agent of the company with actual or usual authority to
issue the record is not valid or genuine, or
(e) a record kept by or for the company under section 42 is not accurate or complete.
(2) Subsection (1) of this section does not apply in respect of a person who has knowledge, or, by
virtue of the person’s relationship to the company, ought to have knowledge, of a situation described in
paragraphs (a) to (e) of that subsection.
421
CBCA s.18
No constructive notice – No person is affected by or is deemed to have notice or knowledge of the
contents of a record concerning a corporation or limited liability company merely because the record
has been filed with the registrar or is available for examination at an office of the corporation or limited
liability company.
CBCA s.17
RELEVANT CASES:
Sherwood Designs: deals w/pre-incorp K, which have been partly overruled by s.14
- Facts: Sherwood agreed in pre-incorp K to sell all its assets to K, M and P – who signed on behalf of a corp
to be incorp’d
- purchaser’s incorp’d shell corp a couple weeks later
- P’s lawyer wrote to Sherwood informing them that the shell corp was incorp’d and assigned as the corp that
would complete the asset purchase
- P then repudiated K and agmt wasn’t completed
- Corp had no assets
- Shell corp was put back on shelf and used for another deal to purchase a commercial building – became a
corp w/assets to answer any liability earlier transaction had attracted
- Sherwood sues corp, but current owners had nothing to do with original deal
- Current corp now has assets
- Held: even though all the organizational necessities hadn’t been done, there was sufficient stuff done for
the corp to be liable for pre-incorp K (surprise to new SH who ended up with corp)
o
solicitor’s letter speaks both as an agent for the corp and as reflecting instructions from the indiv
client – irrelevant b/c IMR prevents corp from disputing the ostensible auth held out by the letter
o
lawyer’s letter was sufficient to constitute adoption by the corp of the K
o
recipients were entitled to adopt the terms in the letter at face value and approach the closing of the
transaction expecting to deal with the corp
o
solicitor held out the auth to speak on behalf of the corp when he referred to it as the creature of his
legal firm, and also had ostensible auth to speak for his clients
o
company thf. cannot dispute the authority of the solicitor to write the letter and is bound by whatever
legal implications arise
- Comments:
o
CBCA 18: Sherwood was a person dealing with the corp when it received the letter from the corp’s
lawyer, who held himself out as having auth to rep that the corp would carry out the transaction
(18(1)(d))
o
Corp thf. cannot assert against Sherwood that lawyer had no ostensible auth
o
The act or conduct can be not nearly as direct to indicate adoption – can be done through a
statement of intention by an agent w/ostensible authority
61
SHARES and SHAREHOLDERS
-
-
“Share” – bundle of rights wrt to the corp and other SH
o
not defn’d in CBCA, incl in term “security”
o
statutory SH rights v. CL SH rights
o
procedural and remedial rights – rules the act provides that allow SH to enforce the Act
“share cert” – evid of the share
“share register” – primary evid of ownership of shares
Act applies equally to all corps, regardless of size  doesn’t address differing needs of SH (but statutory
line would be arbitrary)
16(3): provisional validity - an act contrary to the act or articles is not invalid by that reason alone
o
permits acts by a corp that are contrary to articles or CBCA to have provisional validity, insofar
as they have to be challenged by someone before crt will make dec to allow the invalid act to
have force, or to unwind the transaction (Jacobsen)
o
complainant can seek order from crt declaring the act invalid under 247
Access to Information about SH:
- 49: each SH has right to share cert (but too cumbersome, inefficient for large corps to issue)
- 50: ever corp is req’d to keep “share register” – kept w/minute book
- 20(1) and (2): reqs re: keeping of records, including (1)(d) “share register” - kept at registered office of the
corp or at a place designated by the dirs
- 21(1): who has right to examine records  SH, creditors, Dir
o
(1.1) anyone can review the share register of a distr corp and take copies, for a fee
- 21(1.1): person seeking access to share register must sign an affidavit swearing it will only be used in
accordance w/(9)
o
21(7) – what needs to be in affidavit  name, address, use
o
21(9) – approved purposes for use of share register
(a) an effort to influence the voting of SHs of corp;
(b) an offer to acquire securities of the corp; or
(c) any other matter relating to the affairs of the corp
- 21(2): Sh of all corps are entitled to copy of articles, by-laws, USA for free
- 241(3): SH can apply to have error in SH register rectified
Issuing and Paying for Shares:
- 25(1): dirs have power to issue shares, but subj to articles, by-laws or USA
o
includes power to set terms and conds of shares (e.g. price), subj to articles, by-laws, USA
o
gives dirs great deal of control (e.g. to prevent hostile takeover bid by issuing shares)
- 115: dirs can create a managing dir or committee of dirs and delegate some of their powers
o
115(3)(c): managing dir or committee of dirs, hwr, may not delegate the power to issue
securities except as auth by dirs
o
dirs themselves can’t delegate except expressly (e.g. strike a committee of dirs to deter issue of
shares – to whom and how many)
- 121(a): dirs can create the officers and delegate auth to them, but can’t give them general powers to do
anything mentioned in 115(3)
- 118(1): if dirs vote for or issue a share for consideration other which is less than fair value, the dirs will be
personally liable to make up the diff to the corp
o 118(3): dirs can recover against other dirs
o 123(4): defence of due diligence
- 45: SH only liable for cost of shares
- 25(3): shares can’t be issued unless fully paid ($, property, services), otherwise misreps actual amt the corp
has in capital
Share Rights and Restrictions:
- equity shares – good if corp is successful
- preferred shares – more upside if company is only marginally successful
- common shares
- reading 24(3) and 140 together – all shares of a class must have same rights (Jacobsen, Bowater)
- 6(1)(c): corps can issue diff classes of shares w/diff rights attached to them (e.g. voting, div, redemption)
o
rights generally deter value of shares (entitlements vis a vis the corp)
62
-
-
-
o
rights must be stated in the articles
24(3): where a corp only has one class of shares, the rights of the holders thereof are equal
o
sets out what those rights are, but not limited to these three rights
 right to vote
 right to receive div
 right to share in property on dissolution
o
Jacobsen v. United Canso, Bowater v. Craine
o
Voting rights affirmed as matter of corp law in R. v. McClure
24(4): if you have more than one class of shares, must set out the rights, privs and conds
o
each of the rights listed in (3) have to be attached to at least one class of shares– if there is
only one class of shares, that class must have all these rights
o
popular when small, closely held corps go public – family wants to retain control (i.e. 3% of
shares have 62% of voting rights), SH seem willing to buy non-voting shares
o
common for voting power to be concentrated in small group of people  multiple voting shares
140(1): unless varied by the articles, presumption is one share = one vote
Dividends:
- see handout
- 25(1), 104(1)(c): pwr of dirs to issue security under what section do they (dirs??) get the power to auth
dividends? (Westfair)
- 42: restricts payment of dividends; prevents dirs from favour SH over creditors (123(4) defence)
o
solvency test: assets - liabilities
 assets = cash, term deposits, assets receivable, land, IP
 liabilities = bank loans, trade creditors, EE wages and benefits, shares
o
stated capital test: total assets – (liabilities + total of all amts paid up on shares)
 stated capital: amt paid up on shares, doesn’t change if market price changes
- 115(3)(d): managing dir or committee of dirs w/auth delegated from dirs don’t have auth to declare
dividends
- 118(2)(c): dirs liable for div paid contrary to s.42
- 118(3): dir is who has satisfied a judgement can recover against other dirs
- 118(4): dirs can apply to crt compelling SH or other recipient to pay or deliver any monies or property
deliver contrary to s.42
- 118(5): order of crt
- 123(4): if dirs can est they met the requisite std of care, they will not be liable (defence to dir liability) – there
have to be reasonable grounds for believing they could still meet obligs of corp (e.g. reliance on financial
statements or professional report)
Rights on Liquidation or Winding Up:
- dissolution is the end point/death of corp – in advance of dissolution, process of winding up takes place
- fundamental change thf. special rights of SH to participate
- 211(1)-(7)(d) describes process of voluntary winding up and dissolution
o
(1): dir or SH w/voting rights may propose voluntary liquidation and dissolution of a corp
o
(2): notice of any SH meeting at which voluntary liquidation and dissolution is to be proposed
shall set out the terms thereof
o
(3): corp may liquidate and dissolve by special resolution of the SH, or by special resolution of
each class of shares whether or not they are otherwise entitled to vote (must be approved by
each class)
o
(4): corp must file statement of intent to dissolve (send to Dir)
o
(5): on receipt of statement of intent to dissolve, Dir shall issue cert of intent to dissolve in
accordance w/262
o
(6): on issue of cert of intent to dissolve, the corp shall cease to carry on bus, except to extent
necessary for liquidation (corp existence conts until the Dir issues a cert of dissolution)
o
(7): after issue of cert of intent to dissolve, corp shall:
(a) notify creditors
(b) notify Dirs in juris in which it is reg to carry on bus
(c) dispose of property
(d) distribute remaining property among SH (“corp surplus”)
- 212: involuntary winding up by Dir – dissolve corp for failure to comply (e.g. failure to file annual reports)
63
213: Crt ordered involuntary dissolution
214: Crt ordered dissolution on application of SH (extreme remedy) **wording similar to oppression clause
-
The nature of a share, the share register and access to the list of SHs:
2(1)
20(1)
20(2)
21(1)
“security” means a share of any class or series of shares or a debt obligation of a corp and
includes a certificate evidencing such a share or debt obligation
Corp shall prepare and maintain, as its registered office or at any other place in Cad desig by the
dirs, records containing:
(a) the articles and by-laws, and all amendments thereto, and a copy of any unanimous SH
agmt
(b) minutes of meetings and resolutions of SHs
(c) copies of all notices required by s.106 or 113
(d) a securities register that complies w/s.50
Corp shall, in addition to subsection (1), prepare and maintain adequate accounting records and
records containing minutes of meetings and resolutions of the dirs and any committee thereof
SH and creditors of corp, their personal reps and the Dir may examine the records described in
s.20(1) during the usual business hours and may take extracts from the records
21(1.1)
To examine securities register of distributing company, any person described in (1) must make a
request to the corporation or its agent, accompanied by an affidavit referred to in ss.(7); on
receipt of the affidavit, the corp shall allow the applicant access to the securities register during
usual bus hrs and for reas fee provide extracts
21(2)
SH is entitled on request and w/o charge to one copy of the articles and by-laws and of any
unanimous SH agmt
21(7)
Contents of affidavit – name and address of applicant, or if body corporate, the name and
address for service of the body corporate; that the info contained in the securities register will not
be used except as permitted by ss.(9)
21(9)
List of SH or info from a securities register obtained under this section shall not be used by any
person except in connection with:
(a) an effort to influence the voting of SHs of the corp;
(b) an offer to acquire securities of the corp; or
(c) any other matter relating to the affairs of the corp
Every security holder is entitled at their option to a security certificate that complies with this Act
or a non-transferable written acknowledgment of their right to obtain such a security cert from a
corp in respect of the securities of that corp held by them
A corp shall maintain a securities register in which it records the securities issued by it in
registered form, showing wrt each class or series of securities:
(a) the names, alphabetically, and the latest know address of each person who is or has
been a security holder;
(b) the # of securities held by each security holder;
(c) the date and particulars of the issue and tsf of each security
49(1)
50
Issuing and paying for shares
25(1)
115(3)(c)
121(a)
Dirs, subj to articles, by-laws and any unanimous SH agmt, deter what shares may be issued at
what time, to whom and at what consideration
Limits on authority – subj to ss.(1), no managing dir and no committee of dirs has auth to (c)
issue securities except as authorized by the dirs
Subj to articles, by-laws, or unanimous SH agmt, (a) the dirs may designate the offices of the
corp, appoint as officers persons of full capacity, specify their duties and delegate to them
powers to manage the bus and affairs of the corp, except powers to do anything referred to in
s.115(3) (issue shares)
Share rights and restrictions
6(1)(c)
24(3)
Restrictions on shares must be stated in the articles
Where there is only one class of shares, the rights of the holders thereof are equal in all respects
64
24(4)
140(1)
and include the rights:
(a) to vote at any meeting of SH of the corp;
(b) to receive any dividend declared by the corp; and
(c) to receive the remaining property of the corporation on dissolution.
Articles may provide for more than one class of shares, and if they so provide,
(a) the rights, privs, restrics and conds attaching to the shares of each class shall be set out
therein; and
(b) the rights set out in s.(3) shall be attached to at least one class of shares but all such
rights are not required to be attached to one class
Right to vote – unless the articles otherwise provide, each share of a corp entitles the holder
thereof to one vote at a meeting of SH
Dividends
42
Corp should not declare or pay a dividend if there are reasonable grounds for believing that
(a) the corp is, or would after the payment be, unable to pay its liabilities as they become
due; or (solvency test)
(b) the realizable value of the corp’s assets would thereby be less than the aggregate of its
liabilities and stated capital of all classes (stated capital test)
115(3)(d)
Limits on authority – subj to ss.(1), no managing dir and no committee of dirs has auth to (d)
declare dividends
118(1)
Dirs who vote for or consent to a resolution authorizing the issue of a share under s.25 for a
consideration other than money are jointly and severally liable to the corp to make good any
amount by which consideration received is less than the fair equivalent of the money that the
corp would have received if the share had been issued for money on the date of the resolution
118(2)(c)
(c) div paid contrary to s.42
118(3)
A dir who has satisfied the judgement rendered under this section is entitled ot a contribution
from the other dirs who voted for or consented to the nlawful act on which the judgement was
founded
118(4)
Dir can apply to curt for an order compelling a SH or other recipient to pay or deliver to the dir
any money or property that was paid or distr to the SH or other recipient contrary to s.42, etc.
118(5)
Order of Crt – in connection w/an application under (4), crt may, if it is satisfied it is equitable to
do so,
(a) order a SH, or other recipient to pay or deliver to a dir any money or property that was
paid or distr to the SH or other recipient contrary to s 34, 35, 36, 41, 42, 124, 190 or 241;
(b) order a corp to return or issue shares to a person from whom the corp has purchased,
redeemed, or otherwise acquired shares; or
(c) make any further order it thinks fit.
123(4)
Dir is not liable under s.118 (joint and several liability) or 119, and has complied w/his or her
duties under s.122(2) if the dir exercised the care, diligence and skill that a reasonably prudent
person would have exercised in comparable circs (std of care), including reliance in good faith
on:
(a) financial statements of the corp rep’d to the dir by an officer of the corp or in a written
report of the auditor of the corp fairly to reflect the financial cond of the corp; or
(b) a report of a person whose profession lends credibility to a statement made by the
professional person
Dissolution and Winding-Up
211(1)
Proposing liquidation and dissolution – dirs may propose, or a SH who is entitled to vote
at an annual meeting of SH may, in accordance w/s.137 (“proposals”), make a proposal for
the voluntary liquidation and dissolution of a corp
*begins w/proposal by dir or SH
65
211(2)
Notice of meeting – notice of any meeting of SH at which voluntary liquidation and dissolution
is to be proposed shall set out the terms thereof
211(3)
SH resolution – a corp may liquidate and dissolve by special resolution of the SH or, where
the corp has issued more than one class of shares, by special resolutions of the holders of
each class whether or not they are otherwise entitled to vote
211(4)
211(5)
211(6)
211(7)
214
*SH has to approve by special resolution (2/3rds of votes cashed), and approved by each
class of SH
Statement of intent to dissolve – a statement of intent to dissolve in the form that the Dir fixes
shall be sent to the Dir
*Corp files statement of intent to dissolve
Cert of intent to dissolve – on receipt of a statement of intent to dissolve, the Dir shall issue a
cert of intent to dissolve in accordance w/s.262
Effect of cert – on issue of a cert of intent to dissolve, the corp shall cease to carry on bus
except to the extent necessary for the liquidation, but its corp existence conts until the Dir
issues a cert of dissolution
Liquidation – after issue of a cert of intent to dissolve, the corp shall:
(a) immediately cause notice thereof to be sent to each known creditor of the corp;
(b) w/o delay take reas steps to give notice of it in each prov in Cad where the corp was
carrying on bus at the time it sent the statement of intent to dissolve to the Dir;
(c) proceed to collect its property, to dispose of properties that are not to be distributed in
kind to its SH, to discharge all obligs and to do all other acts required to liquidate its
bus; and
(d) after giving the notice req’d under paragraphs (a) and (b) and adequately providing
for the payment or discharge of all its obligs, distribute its remaining property either in
money or in kind, among its SH according to their respective rights
Court may order the liquidation and dissolution of a corp or any of its affiliated corps on the
application of a SH:
(a) if the crt is satisfied that in respect of a corp or any of its affiliates
i. any act or omission of the corp or any o fits affiliates effects a result
ii. the bus or affairs of the corp or any of its affiliates are or have been carried on
or conducted in a manner, or
iii. the powers of the dirs of the corp or any of its affiliates are or have been
exercised in a manner
that is oppressive or unfairly prejudicial to or that unfairly disregards the ints of any
security holder, creditor, dire or officer; or
(b) if the crt is satisfied that,
i. a unanimous SH agmt entitles a complaining SH to demand dissolution of the
corp after the occurrence of a specified event and that event has occurred, or
ii. it is just and equitable that the corp should be liquidated and dissolved.
66
RELEVANT CASES:
Jacobsen v. United Canso:
- Facts: UC became CBCA corp by continuance in 1979; 15,000 SH, 12m shares outstanding, publicly
traded
o
P was mem of SH committee who was unhappy w/mgmt and trying to get control of corp
o
SH committee – 11 indivs who held 6% of shares; trying to take control
o
Bd of Dirs – same dirs for 16yrs, hold 1/3 of 1% of issued shares, but have voting control b/c of
restrictions on shares
o
One class of shares
o
Articles – no SH may have more than 1,000 votes no matter how may shares that SH holds
o
Committee brings application to have articles declared invalid and unenforceable (would now move
under s.247 b/c 16(3) says non-compliance w/Act doesn’t invalidate the act)
o
Corp continued in NS (188(5) – approved by special resolution SH, didn’t impose voting restr)
- Issue: is the voting rule valid, given there is only one class of shares?
- Held: voting rule invalid – effect is to give greater voting rights to some shares in single class
o
CL presumption – it is only when a company divides its share capital into diff classes w/diff rights
attached to them that the prima facie presumption of equality of shares is displaced
o
If vote rights attached to shares vary, must have diff classes of shares – when you read 140 and
24(3) together
o
s.140 – presumption is one share, one vote
o
s.24(3) – where there’s only one class of shares, the rights of the SH thereof are equal in all
respects
o
doesn’t matter if all SH are treated the same, rather all “shares” must be treated the same
o
if you are going to vary the rights according to how many shares the SH holds, then you have to
split them into diff classes (popular when family companies go public)
- Comments:
o
When action brought, corp was CBCA corp, but by time dec made, had been continued in NS, thf.
dec was moot
Bowater v. Craine:
- Facts: class of special common shares that have 10 votes per share, so long as they are held by the
person who originally acquired them
o
Step-down provision: subsequent persons who acquire these special common shares don’t get 10
votes per share, only 1
o
Diff voting rights attached to same class of shares
- Held: step-down provision was invalid, but severable
o
On tsf, the special common shares kept their 10 votes (relying on s.24(3) and (4))
o
This kind of provision present op for fraud (though no finding of fraud in this case)
o
If corp has more than one class of shares, the rights of holders of any one class of shares are equal
in all respects
R v. Mclure:
- tax case, but important for corp law b/c it approves Bowater and thus the general proposition that all SH w/a
certain class of shares have to have the same rights
- Facts: 2 classes of common shares, one voting, one non-voting (separate b/c diff rights)
o
Wrt dividend rights, each class could receive dividends to the exclusion of others (dirs could look at
profits and declare a dividend on either voting or non-voting shares – “sprinkling dividend”)
o
D and partner held all voting shares, wives held all non-voting shares
o
scheme to split profits by giving dividends to wives – declared dividend on non-voting shares, but
not voting shares ($10,000 tax free to wives)
o
Govt argued – these are both common shares and thf. you can’t have a dividend paid to some
common shares and not others
 This was an attempt by husbands to redirect profits to their wives and avoid taxes
- Held: no violation of CBCA – these are two separate classes of shares, thf. okay to have diff rights
o
They are both called common shares, but you can have more than one class of common shares
o
Crt refuses to answer question of whether it is fair to pay dividends to one class to the exclusion of
other
67
Westfair Foods v. Watt:
- Facts: CBCA corp w/2 classes of shares: Class A preferred shares, common shares
o
Class A shares entitled to $2 per share in priority to dividends on common shares (noncumulative dividend thf. not entitled every year regardless of how corp performs)
o
Common shares – entitled to dividend at dirs’ discretion
o
Classes were to share equally in surplus on liquidation
o
All but one of the dirs of W were also dirs of KD
o
Dirs then instituted new policy to pay pref share their dividend, then pay all surplus to common
shares
o
By this time, Westfair was almost wholly-owned subsidiary of Kelly Douglas, whose dirs held all
common shares
o
Class A shares get dividend, but common shares get all profits
o
Kelly Douglas then lending money back to corp at high rate (and took security over the assets
of the corp)
o
Effect of dividends paid to common shares, and borrowing from KD was reduction in surplus
capital avail to Class A SH upon dissolution
- Issue: Class A SH sought order that Westfair be dissolved under 214 (crt may order dissolution where the
corp’s affairs are being carried on in a manner which is oppressive, unfairly prejudicial or that unfairly
disregards the ints of a security holder), or alt under 241
o
SH sought winding-up of corp – get a piece of the pie before it all went to KD
o
Corp argued Class A SH shouldn’t be able to wind-up successful bus
- Held: order denied – liquidation not an appropriate remedy
o
Considering all the evid, the ints of the Class A SH had been unfairly disregarded
o
But Class A SH didn’t have reasonable expectation of a continuing policy of increasing the
surplus
o
The dividend policy of a corp is to be deter by discr of dirs
o
Ordered that the Class A shares be purchased by the company after a hearing to deter their
FMV (241(2) alt order)
68
APPOINTMENT, MEETINGS and POWERS of DIRECTORS and OFFICERS
-
-
-
focus on interaction btw CBCA and articles/by-laws
which rules can be varied by articles, and which can’t?
amendments to articles v. by-laws
distinction btw dirs and officers (deter obligs wrt capacity they were acting in at the time)
“officers” – appt’d under 121
16(3): provisional validity - an act contrary to the act or articles is not invalid by that reason alone
o permits acts by a corp that are contrary to articles or CBCA to have provisional validity, insofar
as they have to be challenged by someone before crt will make dec to allow the invalid act to
have force, or to unwind the transaction (Jacobsen)
o complainant can seek order from crt declaring the act invalid under 247
2(1): Defns:
o “director” – person occupying the pos’n of dir
o “officer” – indiv appt’d as an officer under s.121 (by dir)
115(3): limits on auth that can be delegated to officers by dirs
Appointment and Removal of Dirs:
Who can be appt’d dir:
- 102(2): req for at least 3 dirs for a public company, at least 2 of which can’t be officers or EEs of company
or its affiliates (“outside” dirs)
- 105(1): qualifications of dirs – 18yrs, sound mind, indiv (not corp), not bankrupt
- 105(2): subj to articles, dirs not req’d to hold shares
- 105(3): at least 25% of dirs must be res Cads; if corp has less than 4 dirs, at least one must be res Cad
- 105(4): not more than 1/3 of dirs of holding corp need to be resident Cads if the holding corp earns in Cad
directly or through its subsidiaries less than 5% of gross revenues
- 106(9): Person has to consent or acquiesce to be a dir
Term of office:
- 106(1): First dirs are namend at time of sending articles of incorp to Dir
- 106(2): Term of office – if named in notice of dirs, until first SH meeting
- 106(3): Term of office – max 3 yrs
- 106(4): Terms of office can be staggered
- 106(5): Presumption that dir is elected for one year (until next annual SH meeting), unless otherwise stated
- 106(6): Incumbent dirs hold office until successors are elected
- 106(7): if SH fail to elect the # or min # of dirs required by articles, elected dirs can exercise all pwrs of dirs
if the # elected constitutes quorum
- 106(8): Dirs may, if articles provide, appt one or more dirs who shall hold office until next annual SH
meeting, but the total # of appt’d dirs may not exceed 1/3 of the dirs elected at previous SH meeting
(Repap)
Removal:
- 108(1): Ceasing to hold office – resignation, removal by ord SH resolution, disqualification under 105(1)
- 108(2): Resignation takes effect at time written resignation is sent to corp, or at specified time
- 109(1): Removal of dirs by ordinary SH resolution (6(4) – articles may NOT require a greater # of votes of
SH to remove a dir than simple majority)
- 109(2): Exception – where specific class or series of shares has exclusive right to elect one or more dirs,
that dir can only be removed by an ordinary resolution of that class of SH
Vacancies:
- 109(3): filling a vacany – at meeting of SH or under 111
- 109(4): If all dirs have resigned or been removed, a person who manages or supervises the mgmt of the
bus and affairs of the corp is deemd to be a dir for the purposes of this Act (imposition of liability)
o
officer managing under control of SH
o
lawyer, notary, etc. providing professional services
o
trustee in bankruptcy, receiver, secured creditor
- 109(5): exceptions to (4)
69
-
What resulted in vacancy? – deters whether dirs can fill it or not
111(1): dirs power to fill vacancy – subj to 114(3) and ss.(3) and (4), quorum of dirs may fill vacancy, except
one resulting from an increase in the #, or min or max # of dirs, or a failure to elect the #, or min # of dirs
provided for in the articles
Is there quorum of dirs?
111(2): if there is no quorum of dirs, or failure to elect the # or min # of dirs provided for in the articles, dirs
shall call special meeting of SH (or, if there are no dirs, SH shall call meeting) to fill the vacancy
Who was dir elected by – all SH, or class of SH?
111(3): filling vacancy in situation where holders of class or series of shares have an exclusive right to elect
one or more dirs
What do arts provide?
111(4): articles may provide that a vacancy among dirs shall only be filled by a vote of SH, or class of SH
111(5): dir who fills vacancy holds officer for unexpired term of predecessor
-
Notice to Dir
113(1): Notice of change of dir or dir’s address must be set to Dir w/in 15 days
-
-
-
General:
- 6(2): articles may set out any provisions permitted by this Act or by-law to be set out in the by-laws of the
corp
- 6(3): subj to (4), if the articles or USA require a greater # of votes of dirs or SH than the Act to effect any
action, the provisions of the articles or USA prevail
- 6(4): articles may not require a greater # of votes of SH to remove dir than the # req’d by 109 (simple maj)
 doesn’t apply to USA
- 18(1)(b): Corp can’t deny that people listed in notices as dirs are their dirs
Appointment, Removal, Meetings of Directors
102(2)
105(1)
105(2)
105(3)
105(4)
106(1)
Requirement for at least 3 dirs for a public company, at least two of which can’t be officers or EEs
of company or its affiliates (have to be “outside” dirs – can’t have a job at the corp as well)
Qualifications of directors: excluded persons:
(a) Person less than 18yrs
(b) Person who is of unsound mind and has been so found by a court in Cad or elsewhere
(c) A person who is not an indiv
(d) A person who has the status of bankrupt
Unless articles provide otherwise, dir is not req’d to hold shares issued by the corp
Subj to ss.(3.1), at least 25% of the dirs of a corp must be resident Cads; if corp has less than 4
dirs, at least one must be resident Cad
Not more than 1/3 of the dirs of a holding corp need to be resident Cads if the holding corp earns
in Cad directly or through its subsidiaries less than 5% of its gross revenues
First dirs are named at time of sending articles of incorp to Dir (req’d to send notice of dirs to Dir at
time of sending in articles of incorp)
106(2)
Each dir named in the notice under ss.(1) holds office from the issue of the cert of incorp until the
first meeting of SH
106(3)
Dir can’t be elected for more than 3yrs (no similar limit under BC BCA)
106(4)
Dirs terms don’t have to expire at same time
106(5)
Presumption that dir is elected for one year (until next annual meeting of SH) – if no stated term,
term lasts until next annual SH meeting
106(6)
Incumbent dirs cont in office until their successors are elected (despite ss.(2), (3) and (5)).
106(7)
If SH fail to elected the # or min # of dirs required by articles by reason of lack of consent,
disqualification, incapacity or death of any candidates, the dirs elected at that meeting may
exercise all powers of the directors if the # of dirs so elected constitutes a quorum
70
106(8)
Dirs may, if articles so provide, appt one or more dirs, who shall hold office for a term expiring not
later than the close of the next annual meeting of SH, but the total # of dirs so appointed may not
exceed 1/3 of the number of dirs elected at the previous annual meeting of SH
106(9)
An indiv who is elected or appt’d to hold office as a dir is not a dir and is deemed not to have been
elected or appt’d to hold office as a dir unless:
(a) he or she was present at the meeting when the election or appt took place and he or she
did not refuse to hold office as a dir; or
(b) he or she was not present at the meeting when the election or appt took place and
i. he or she consented to hold office as a dir in writing before the election or appt or
within 10 days after it; or
ii. he or she has acted as a dir pursuant to the election or appt
108(1)
Ceasing to hold office – a dir of a corp ceases to hold office when the dir:
(a) dies or resigns;
(b) is removed in accordance with s.109 (ordinary SH resolution);or
(c) becomes disqualified under s.105(1)
108(2)
Resignation of dir becomes effective at the time a written resignation is sent to the corp, or at the
time specified in the resignation, whichever is later
109(1)
Removal of dirs – subj to 107(g), the SH of a corp may by ordinary resolution at a special
meeting remove any dir or dirs from office
Note s.6(4) – articles may not require a greater # of votes of SH to remove a dir than simple
majority
109(2)
Exception – where the holders of any one class or series of shares of a corp have an exclusive
right to elect one or more dirs, a dir so elected may only be removed by an ordinary resolution at
a meeting of the SH of that class or series
109(3)
Vacancy – subj to 107(b) and (e), a vacancy created by the removal of a dir may be filled at the
meeting of the SH at which the dir is removed or, if not so filled, may be filled under s.111
109(4)
Resignation (or removal) – if all the dirs have resigned or have been removed w/o replacement, a
person who manages or supervises the mgmt of the bus and affairs of the corp is deemed to be a
dir for the purposes of this Act
109(5)
ss.(4) doesn’t apply to:
(a) an officer who manages the bus or affairs of the corp under the direction or control of a
SH or other person (e.g. where maj/sole SH is giving dir to the officer carrying on normal
obligs as officer)
(b) a lawyer, notary, accountant or other professional who participates in the mgmt of the corp
solely for the purpose of providing professional services; or
(c) a trustee in bankruptcy, receiver, receiver-mgr, or secured creditor who participates in the
mgmt of the corp or exercises control over its property solely for the purpose of the
realization of security or the administration of a bankrupt’s estate, in the case of a trustee
in bankruptcy
The articles may set out any provisions permitted by this Act or by law to be set out in the by-laws
of the corp
Subj to ss.(4), if the articles or a unanimous SH agmt require a greater # of votes of dirs or SH
than that req’d by this Act to effect any action, the provisions of the articles or of the unanimous
SH agmt prevail
The articles may not require a greater # of votes of Sh to remove a dir than the # req’d by s.109
(simple maj)
Subj to s.114(3) and ss.(3) and (4), quorum of dirs may fill a vacancy among the dirs, except a
vacancy resulting from an increase in the # or the min or max # of dirs or a failure to elect the # or
min # of dirs provided for in the articles
6(2)
6(3)
6(4)
111(1)
71
111(2)
Calling meeting – if there is not a quorum of dirs, or if there has been a failure to elect the # or
min # of dirs provided for in the articles, the dirs then in office shall w/o delay call a special
meeting of SH to fill the vacancy, and if they fail to call a meeting or if there are no dirs then in
office, the meeting may be called by any SH
111(3)
If the holders of any class or series of shares of a corp have an exclusive right to elect one or
more dirs and a vacancy occurs among those dirs,
(a) subj to ss.(4), the remaining dirs elected by the holders of that class or series of shares
may fill the vacancy except a vacancy resulting from an increase in the # or min or max #
of dirs for that class or series or from a failure to elect the # or min # of dirs provided for in
the articles for that class or series; or
(b) if there are no such remaining dirs any holder of shares of that class or series may call a
meeting of the holders of shares of that class or series for the purpose of filling the
vacancy
(when would there otherwise be a vacancy??)
The articles may provide that a vacancy among the dirs shall only be filled by a vote of the SH, or
by a vote of the holders of any class or series of shares having an exclusive right to elect one or
more dirs if the vacancy occurs among the dirs elected by that class or series
111(4)
111(5)
113(1)
18(1)(b)
Unexpired term – a dir appointed or elected to fill a vacancy holds office for the unexpired term of
their predecessor
Notice of change of dir or dir’s address – a corp shall, w/in 15 days after
(a) a change is made among the dirs, or
(b) it receives a notice of change of address of a dir referred to in ss.(1.1)
send to the Dir a notice, in the form that the Dir fixes, setting out the change, and the Dir shall file
the notice
Corp can’t deny info in the notices kept at office of Dir – e.g. can’t deny that people listed in
notices as dirs are their dirs
72
Meetings of Dirs:
-
-
-
-
-
-
-
-
-
102(1): subj to USA, dirs shall manage, or supervise the mgmt of the business and affairs of the corp
110(1): dir is entitled to receive notice of and to attend and be heard at every meeting of SH
114(1): Subj to articles or by-laws, dirs can meet anywhere, anytime, w/notice as req’d by by-laws
Quorum
114(2): subj to articles or by-laws, quorum = a majority of the # of dirs, or min # of dirs req’d by articles
(quorum may exercise all the powers of the dirs)
o
if arts specify # of dirs, quorum = maj of dirs elected
o
if arts specify range of min-max # of dirs, quorum = maj of min # of dirs
o
if by-law is silent as to quorum, the min of the range of dirs will be held to be quorum
o
by-law could say corp is req’d to have 5-10 dirs, but quorum is 3
o
by-law could say corp is req’d to have 5-10 dirs, but quorum is maj of elected dirs, and 7 are
elected, so quorum is 4
114(3)(a): dirs shall not transact bus at a meeting unless at least 25% of dirs present are res Cads
114(4): exceptions if (3) not met – (a) res Cad dir approves bus in writing, AND (b) req’d # of res Cad dirs
would have been present had that dir been present
114(8): where corp only has one dir, that dir may constitute a meeting
114(9): participation by electronic means permitted in accordance w/regs and if all dirs consent, dir will be
deemed present (e.g. satisfy req for res Cad)
Notice
114(5): notice of meeting only req’d to specifiy any matter in 115(3) that is to be dealth with, unless by-laws
provide otherwise (in general, need not specify purpose or bus to be transacted)
114(6): if they don’t waive notice, dir can argue the meeting wasn’t properly called and challenge the validity
of the bus transacted (attendance at meeting is waiver of notice unless purpose of attendance is to obj to
the transaction of any bus on grounds that the meeting is not lawfully called)
Validity of Acts:
116: act of dir is valid, notwithstanding an irregularity in their election or appt, or defect in their qualification
(won’t undue everything done by dir)
Resolution in Lieu of Meeting:
117(1): resolution in writing signed by all dirs entitled to vote on that resolution at a meeting of dirs or
committee of dirs, is as valid as if it had been passed at the meeting (quorum isn’t enough – has to be
unanimous)
o
all dirs are entitled to vote on resolution at dirs meeting
o
only dirs designated mems of a committee are entitled to vote on a resolution of that committee
117(2): keep a copy of the resolution w/minute book
117(3): minutes are evid of whether resolution was carried or defeated, unless a ballot is demanded
Consent:
123(1): dir present at meeting is deemed to have consented to any resolution passed or action taken,
unless actively dissents according to procedures set out in (a) through (c)
o
no process for abstaining, thf. important to have clear process for dissenting
o
relevant b/c of potential for personal liability - 118
123(2): can’t change your mind – dir who votes for or consents to a resolution is not entitled to dissent
123(3): dir who is absent from meeting is deemed to have consented unless he actively dissents
20(1)(b): Corp must retain records of minutes of meetings and resolutions of SH
20(2): req to keep dirs records
20(4): records in (2) shall be kept at registered office of corp or elsewhere, and must be open to inspection
by dirs (access ltd to dirs – security, confidentiality)
73
MEETINGS
110(1)
114(1)
Attendance at meeting: dir is entitled to receive notice of and to attend and be heard at every
meeting of SH
Unless articles or by-laws otherwise provide, the dirs may meet at any place and on such notice
as the by-laws require
114(2)
Subj to articles or by-laws, quorum = a majority of the # of dirs, or min # of dirs required by the
articles (quorum may exercise all the powers of the dirs)
114(3)
Canadian dirs present at meetings – dirs, other than dirs of a corp referred to in s.105(4), shall
not transact bus at a meeting of dirs unless,
(b) if the corp is subj to 105(3), at least 25% of the dirs present are res Cads, or, if the corp
has less than 4 dirs, at least one of the dirs present is a res Cad (stiffer req for res Cad
dirs to show up at bd meeting)
114(4)
Despite ss.(3), dirs may transact bus at a meeting of dirs where the # of res Cad dirs, req’d under
that subsection is not present if,
(a) a res Cad dir who is unable to be present approves in writing, or attends by telephone,
electronic or other communication facility, the bus transacted at the meeting; and
(b) the required # of res Cads dirs would have been present had the dir been present at the
meeting
114(5)
Notice of meeting - A notice of a meeting of dirs shall specify any matters referred to in s.115(3)
that is to be dealt with at the meeting but, unless the by-laws otherwise provide, need not specify
the purpose of or the bus to be transacted at the meeting
114(6)
Waiver of notice - A dir may in any manner waive a notice of a meeting of dirs; and attendance of
a dir at a meeting of dirs is a waiver of notice of the meeting, except where a dir attends a meeting
for the express purpose of objecting to the transaction of any bus on the grounds that the meeting
is not lawfully called
114(7)
Adjournment – notice of an adjourned meeting of dirs is not req’d to be given if the time and
place of the adjourned meeting is announced at the original meeting.
114(8)
One dir meeting – where a corp only has one dir, that dir may constitute the meeting
114(9)
Participation – subj to the by-laws, a dir may, in accordance with the regs, if any, and if all the
dirs of the corp consent, participate in a meeting of dirs or of a committee of dirs by means of a
telephonic, electronic or other communication facility that permits all participants to communicate
adequately with each other during the meeting. A dir participating in such a meeting by such
means is deemed for the purposes of this Act to be present at that meeting.
Validity of acts of dirs and officers - An act of a dir or officer is valid, notwithstanding an
irregularity in their election or appointment, or defect in their qualification
116
117(1)
Resolution in lieu of meeting – A resolution in writing, signed by all the dirs entitled to vote on
that resolution at a meeting of dirs or committee of dirs, is as valid as if it had been passed at a
meeting of dirs or committee of dirs
117(2)
Filing resolution – a copy of every resolution referred to in ss.(1) shall be kept w/the minutes of the
proceedings of the dirs or committee of dirs
117(3)
Evidence – unless a ballot is demanded, an entry in the minutes of a meeting to the effect that the
chairperson of the meeting declared a resolution to be carried or defeated is, in the absence of
evid to the contrary, proof of the fact w/o proof of the # or proportion of the votes recorded in
favour of or against the resolution
Dissenting – a dir who is present at a meeting of dirs or committee of dirs is deemed to have
consented to any resolution passed or action taken at the meeting unless
123(1)
74
(a) the dir requests a dissent to be entered in the minutes of the meeting, or the dissent has
been entered in the minutes;
(b) the dir sends a written dissent to the secretary of the meeting before the meeting is
adjourned; or
(c) the dir sends a dissent by registered mail or delivers it to the registered office of the corp
immediately after the meeting is adjourned
123(2)
123(3)
102(1)
20(1)
Loss of right to dissent – a director who votes for or consents to a resolution is not entitled to
dissent under ss.(1)
Dissent of absent dir – dir who is not present at a meeting is deemed to have consented to
resolutions or actions taken unless within 7 days after becoming aware of the resolution, the dir
(a) causes a dissent to be placed w/the minutes of the meeting; or
(b) sends a dissent by registered mail or delivers it to the registered office of the corp
Subj to USA, dirs shall manage, or supervise the mgmt of the business and affairs of the corp
Corp Records – a corp shall prepare and maintain, at its registered office or at any other place in
Cad designated by the dirs, records containing
(a) the articles and the by-laws, and all amendments thereto, and a copy of any unanimous
SH agmt
(b) minutes of meetings and resolutions of SH
(c) copies of all notices required by s.106 or 113; and
(d) a securities register that complies w/s.50
20(2)
Dirs records – in addition to the records describe in ss.(1), a corp shall prepare and maintain
adequate accounting records and records containing minutes of meetings and resolutions of the
dirs and any committee thereof
20(4)
Place of dirs records – records described in (2) shall be kept at the registered office of the corp
or at such other place as the dirs think fit and shall at all reas times be open to inspection by the
dirs (access to records ltd to dirs – security, confidentiality issues)
75
Powers of Directors:
-
-
102(1): power to manage, or supervise mgmt of bus and affairs of corp
103: power to make by-laws; req to submit by-laws to SH for resolution
104: meeting of dirs after cert of incorp issued, and powers of dirs at that meeting
115(1): dirs power of delegation to managing dir or committee of dirs
115(3): limits on auth dirs may delegate to managing dir or committee of dirs
121: power of dirs to designate offices and appt officers
123: pwrs of dissent
125: dirs set their own remuneration (as well as that of officers and EEs), unless articles, by-laws or USA fix
remuneration
o
usually set their own remuneration, but delegate deter of remuneration of officers, EEs to HR
dept
133(1): reqs to call annual meeting 18 months after coming into existence, and 15 months after last meeting
133(2): can call special meeting at any time
133(3): corp may apply to crt for an order extending the time for calling an annual meeting
189(1): borrowing powers – subj to articles, by-laws, USA – dirs have extremely broad borrowing powers
189(2): subj to articles, by-laws or USA, dirs may delegate borrowing pwrs by resolution to a dir, committee
of dirs or an officer
Powers of Directors
102
103(1)
Subj to USA, dirs shall manage, or supervise the mgmt of the business and affairs of the corp
By-laws – subj to articles, by-laws or USA, dirs may, by resolution, make, amend or repeal any
by-laws that reg the bus or affairs of the corp
103(2)
SH approval – dirs shall submit a by-law, or amend or repeal, to SH for approval at next SH
meeting; SH may confirm, reject or amend the by-law by ordinary resolution
103(3)
Effective date – effective from date of dirs resolution until confirmed or rejected by SH under (2),
or until it ceases to be effective under (4)
If a by-law, amendment or repeal is rejected by SH, or not put to SH as req’d under (2), it ceases
to be effective and no subsequent resolution of the dirs to make, amend or repeal a by-law having
substantially the same purpose or effect is effective until confirmed by SH
103(4)
103(5)
104(1)
SH proposal – a SH entitled to vote at an annual meeting of SH may, in accordance w/s.137,
make a proposal to make, amend or repeal a by-law
After issuance of cert of incorp, dirs shall hold a meeting, at which dirs may:
a. make by-laws;
b. adopt forms of security certificates and corporate records;
c. authorize the issue of securities;
d. appoint officers;
e. appoint an auditor to hold office until the first annual meeting of SH;
f. making banking arrangements; and
g. transact any other business
**(a) and (c) are most important
104(2)
Subsection (1) doesn’t apply to a body corp to which a cert of amalgamation has been issued
under 185(4), or to which a cert of continuance has been issued under 187(4)
104(3)
Calling a meeting – an incorporator or a dir may call the meeting of dirs referred to in (1) by
giving not less than five days notice thereof by mail to each dir, stating the time and place of the
meeting
Delegation – dirs of a corp may appoint from their # a mgr dir who is res Cad or a committee of
dirs and delegate to such managing dir or committee any of the powers of the dirs
Repealed
Limits on Auth - No managing director and no committee of dirs has auth to:
(a) submit to the SH any question or matter requiring the approval of the SHs
(b) fill a vacancy among the dirs or in the office of auditor, or appt add’l dirs
115(1)
115(2)
115(3)
76
121
123
125
(c) issue securities except as auth by dirs
(c.1) issue shares of a series under s.27 except as auth by dirs
(d) declare dividends
(e) purchase, redeem or otherwise acquire shares issued by the corp
(f) approve a mgmt proxy circular referred to in Part XIII
(j) approve any financial statements referred to in s.155
(j) adopt, amend or repeal by-laws
Officers – subj to the articles, by-laws or USA,
a. the dirs may designate the offices of the corp, appoint as officers, persons of full capacity,
specify their duties and delegate to them powers to manage the bus and affairs of the corp,
except powers to do anything referred to in subsection 115(3)
b. a dir may be appointed to any office of the corp; and
c. two or more offices of the corp may be held by same person
Dissent – a dir who is present at a meeting of dirs or committee of dirs is deemed to have
consented to any resolution passed or action taken at the meeting unless
(a) the dir requests a dissent to be entered in the minutes of the meeting, or the dissent has
been entered in the minutes
(b) the director sends a written dissent to the secretary of the meeting before the meeting is
adjourned; or
(c) the dir sends a dissent by registered mail or delivers it to the registered officer of the corp
immediately after the meeting is adjourned.
Remuneration - Dirs set their own remuneration (as well as that of officers and EEs) unless the
articles, by-laws or USA fix remuneration
133(1)
Calling annual meetings – dirs of corp shall call annual meeting of SH
(a) not later than 18 months after coming into existence
(b) not later than 15 months since the last meeting
133(2)
Dirs may at any time call a special meeting of SH
133(3)
Order to delay calling of annual meeting – corp may apply to crt for an order extending the time for
calling an annual meeting
Borrowing powers – subj to articles, bylaws, USA, dirs may, w/o authorization of the SH
(a) borrow money on the credit of the corporation;
(b) issue, reissue, sell, pledge or hypothecate debt obligs of the corp
(c) give a guarantee on behalf of the corp to secure perf of an obligation of any person; and
(d) mtg, hypothecate, pledge or otherwise create a security int in all or any property of the
corp, owned or subsequently acquired, to secure any obligation of the corporation.
189(1)
189(2)
Delegation of borrowing powers - Dirs may delegate these powers, subj to articles, bylaw, USA,
by resolution to a dir, committee of dirs or an officer
**explicitly overrides s.115(3) and 121(a)
77
Duties of Directors and Officers:
122(2): duty to comply with the law
122(3): no exculpation
FIDUCIARY DUTY:
122(1) Duty of care of dirs and officers – every director and officer in exercising their powers and discharging
their duties shall
(a) act honestly and in good faith w/a view to the best ints of the corp; (fiduciary duty) and
**broad and equitable duty that dirs/officers owe to the Corp (Canaero)**
Theory:
- SH “primacy” – dirs operate corp for benefit of SH only
- Oblig of dirs and officers is to take into account ints of all SH groups
- Fiduciary duty expanded – dirs can take into account ints of broader stakeholders (Teck)
TYPICAL BREACHES: transactions w/the corp, taking corp ops/competition
- not closed categories  evolving area of the law (Canaero – FD is those equitable norms that evolve
w/case law)
-
1. TRANSACTING WITH THE CORP:
-
-
Self-dealing: Ks or transactions concluded btw the dirs and officers of a corp, either directly or through
their int in another entity, and the corp itself (e.g. sale of an asset to the corp for more than FMV)
- at CL the std was high b/c corps can only act through agents
Risk: diversion of corp wealth
Crts: moving from categorical prohibition on self-dealing to more flexible rules that consider the
procedural and substantive fairness of self-interested transactions (Aberdeen, Transvaal, s.120)
s.120 – Codification of the law– overrules Aberdeen Railway
- sets out when, what and how dirs must disclose (intro’s some flexibility for corps, reverses CL
rule that fairness of the deal was irrelevant)
- process to allow certain Ks or transactions to go forward despite dir’s or officer’s int (saves K
that would otherwise be unfair dealing)
Disclosure of Interest – a dir or an officer of a corp shall disclose to the corp, in writing or
requesting to have it entered in the minutes of meetings of dirs or committee of dirs, the nature
and extent of any interest that s/he has in material K or material transaction, whether made or
proposed, w/the corp, if the dir or officer
(a) is a party to the K or transaction;
(b) is a dir or an officer, or an indiv acting in a similar capacity, of a party to the K
or transaction, or
(c) has a material interest in a party to the K or transaction
-
-
Material interest: anything approaching control (but 120 doesn’t say material int –lesser ints
must be disclosed)
 Actual control: maj of voting shares
 De facto control: having influence, being part of influential group (e.g family group), div
of shares btw other SH
 Holding shares as trustee was considered a material int (Transvaal)
Remedies:
o
K or transaction may be saved under 120(7) or (7.1)
o
Personal liability of dirs/officers to account for profits
o
Set aside K – invalid/unenforceable (Repap)
o
Oppression remedy  breach of FD as evid of oppression
78
STATUTE: Transacting w/the Corp
Dislcosure:
- 120(1): dir or officer shall disclose in writing the nature and extent of any interest that s/he has in a material
K or material transaction in circs set out in (a) to (c)
o
what “int” must be disclosed? consider anything ranging from int in your RRSP to controlling int
o
important that “nature” and “extent” be disclosed – w/o this info dirs don’t have sufficient info to
deter whether it is fair and equitable to enter into the K
o
transaction is broader than K
o
(b) might include partner in a partnership
- 120(2): time of disclosure for dir
- 120(3): time of disclosure for officer
- 120(4): if material K or transaction is not one that would normally require approval by Bd or SH, dir or officer
shall disclose the nature and extent of her interests immediately upon becoming aware of the K or
transaction (req’d to disclose int even if not voting on it)
- 120(6): continuing disclosure – general notice to dirs declaring that a dir is to be regarded as interested, for
any of the reasons set out in (a) to (c) is sufficient declaration of int in K or transaction
o
does this defeat the requirement that dir disclose the nature and extent of the int under (1)??
Voting:
- 120(5): dir req’d to disclose under (1) shall not vote on any resolution to approve the K or transaction, subj
to exceptions in (a) to (c)
o
officer doesn’t necessarily have a vote, unless they are also a dir
o
(c) addresses common situation where dir or officer is dir or officer of parent corp and also of
subsidiary (too cumbersome to require them to disclose int in every K or transaction)
Access to Records of Disclosures:
- 120(6.1): gives SH access to minutes that contain disclosures under this section, and any other
documentation containing disclosures
o
exception to 20(4): SH not usually allowed access to dirs records, not incl in 21(1)
Saving Provisions:
- 120(7): Director’s ratification - if proper disclosure is made, dir can attend meeting at which resolution will
be voted on (but can’t vote), can be counted to deter quorum, and the K or transaction will not be declared
invalid and dir will not be accountable, if conds in (a) to (c) are met, including reasonable and fairness req
(overrides Aberdeen)
- 120(7.1): SH ratification – Even if (7) not met, a dir or officer, acting honestly and in good faith, is not
accountable to corp or its SH for any profit realized from K or transaction and K or transaction not invalid by
reason only of the int of the dir or officer, if meets (a) to (c) (special resolution, full disclosure, and
reasonable and fair)
o
not sure whether int dir can vote as SH on resolution
- 120(8): corp, SH may apply to to crt for order if dir or officer fails to comply w/this section, crt may set aside
K or transaction, order dir or officer to account for profits, or both
o
rely on this section if you are going to challenge reas and fairness of K or transaction (e.g.
minority SH who was beaten at the SH meeting; probably have action under oppression
remedy as well)
- two possibilities for approve of K or transaction where dir or officer has an int:
o
proper disclosure, approved by dirs, reas and fair (120(7))
o
SH confirmation by special resolution, sufficient disclosure, reas or fair (120(7.1))
o
Reas and fair = procedural and substantive fairness (Repap)
79
RELEVANT CASES
Aberdeen Railway v. Blakely Bros:
- Facts: A entered K w/B for chairs; one of partners of D was dir of A; company repudiated K for chairs
- Held: D partnership unable to enforce K
o
Strict CL rule of universal application: corp body can only act by its agents, and it is the duty of those
agents to act to best promote the ints of the corp (agent owes FD to Pr corp)
o
Forbidden to enter into Ks in which ints conflict (potential or actual conflict)
o
Fairness or reasonableness of the K or transaction is irrelevant
o
If there’s a COI, the K is automatically voidable at the instance of one of the parties
o
K btw fiduciary and person whose ints are affected is a potential COI and K is potentially voidable
o
COI: dir had oblig to both company and partnership to get best price for chairs
Transvaal Lands Co. v. New Belgium:
- Facts: two companies, TL and NB; 3 dirs of TL – Young, Harvey and Samuel; Samual was dirs of both
companies
o
Samuel advises TL to buy shares of third company, Lydenberg, from NB (conflict: S owned ½ of
those shares)
o
Harvey was dir of TL, but as trustee was SH of NB (trustee of a trust that held 1,000 shares in NB)
o
When it came up for resolution at TL dirs meeting – S abstained from voting, saying he was a dir of
NB as well so couldn’t vote (but didn’t declare personal int)
o
Harvey did vote on the resolution, as did Young – voted in favour of purchasing the shares
o
But H was trustee of shares in NB  conflict
- Issue – can a dir of a company, on behalf of the company, buy shares or other property from himself, or
from a company in which he is pecuniarily interested
- Held: H should not have been able to vote, hadn’t disclosed it, and had voted on the resolution
o
H was dir of TL, owed it an FD to get lowest price poss for shares; but as trustee, had a duty to
beneficiaries of the trust to get the highest price  conflict of fiduciary duties (fiduciary in two
capacities)
o
Rel falls w/in rule against self-dealing
o
No consideration of fairness of the deal
o
p.380 – if H had complied with that – there wouldn’t have been a quorum of dirs b/c both H and were
in conflict of int
o
122(3) – no longer poss to put in articles what rules of dirs and officers transacting with the corp, as it
was at this time
- Comments:
o
different from Aberdeen wrt type of personal int - in first case, it was direct interest, in second case it
dealt with trustee issues; what is a material interest?
80
2. TAKING CORPORATE OPPORTUNITIES / COMPETITION
TAKING CORP OPPORTUNITIES
i. Problem: dirs or officers independently invest in a project that could have been acquired by the corp;
abuse corp assets or loot corp
ii. Rule: misappropriation of corp op by person in FD rel to corp is breach of FD (Cook v. Deeks)
- whether dir or officer has usurped the auth granted by SH in order to acquire some
“unbargained for” benefit
- dirs will be liable to account for profits earned by reason only of the fact that they were dirs of
the corp and in the course of the execution of that office (Regal)
- if corp wants the op but can’t take adv of it for financial reasons, dirs can’t take adv of it (Regal)
- if corp considers and rejects the op, dirs can then take adv of it (must be bona fide dec,
reasonable and based on full disclosure) (Peso)
iii. Questions: when does an opportunity “belong” to corp?
- does that opportunity have to be in corp’s usual line of bus?
- does the opportunity “belong” to the corp b/c dir or officer heard about it by reason of their
position with the corp
- must corp be in position to take adv of opportunity for it to belong to the corp? (Regal)
- what if corp expressly rejected the opportunity? (Peso)
iv. Factors to consider in deter stds of loyalty, good faith and avoidance of COI: (Canaero)
- Position or office held
- Nature of the corp op, its ripeness, specificness
- Dir or officer’s relation to the op
- The amt of knowledge possessed
- The circs in which it was obtained
- Whether it was special or private
- Duration of time since termination from corp
- Circs under which the rel was terminated (retirement, resignation, discharge)
v. SH cannot ratify the taking of a corp op (Cook v. Deeks)
- s.120 does not apply to stealing
- s.122(3) prohibits articles or by-laws from permitting ratification in this situation
vi. Remedy: accounting for profits (Regal, Canaero)
Recent Examples: using corp funds but benefit seems to flow primarily to person
- Conrad Black used Hollinger to purchase archival material about Roosevelt while he was writing his
book (does it matter that invesment was a good one for the company; is it an appropriate investment;
was Black sharing Royalties/personal benefit from the purchase?)
- Frank Stronach’s gift using $8m of Magna Funds to build the “Frank Stronach Regional Health Centre
(Magna Building)” – corp gets tax credit, Stronach gets reputational boost, SH get nothing
COMPETITION
- GR: FD and reqs of loyalty, good faith and avoidance of conflict of int likely prohibits dirs from sitting on
competing Bds
o common situation: dir sits on bd of both parent corp and subsidiary
o Dirs have oblig to give full knowledge and experience to the Bd (Aberdeen Railway)
o Indivs can sit on multiple Bds so long as they are not competing corps
o In recruiting new Bd mems, due diligence done to ensure dir wouldn’t be acting at cross
purposes (e.g. dir of Glaxo and Imperial Tobacco example)
o Dirs can sit on bds of affiliates, but prob arises where there is COI (SH v. parent corp) –
solution is to get independent, external advice and follow it (KeepRite)
-
Factors set out in Canaero apply
81
Duties of Directors and Officers
122(1)
Duty of care of dirs and officers – every director and officer in exercising their powers and
discharging their duties shall
(a) act honestly and in good faith w/a view to the best ints of the corp; (fiduciary duty) and
(b) exercise the care, diligence and skill that a reasonably prudent person would exercise in
comparable circs
122(2)
Duty to comply - duty to comply with the law (i.e. Act, regs, articles, bylaws and USA)
122(3)
No exculpation - no provision in a K, the articles, bylaws or a resolution relieves the dir or officer
of the duty to act in accordance w/the Act and regs, or relieves them from liability for breach
thereof
*subj to 146(5): dirs may be relieved of liability if SH, by USA, remove their usual powers
120(1)
BC BCA: s.142 – FD and duty of care are expressed in identical lang, except that “resolution is
left out (in theory, a resolution could relieve dir or officer of liability)
Disclosure of Interest – a dir or an officer of a corp shall disclose to the corp, in writing or
requesting to have it entered in the minutes of meetings of dirs or committee of dirs, the nature
and extent of any interest that s/he has in material K or material transaction, whether made or
proposed, w/the corp, if the dir or officer
(a) is a party to the K or transaction;
(b) is a dir or an officer, or an indiv acting in a similar capacity, of a party to the K or
transaction, or
(c) has a material interest in party to the K or transaction
120(2)
Time of disclosure for director –
(a) at the meeting at which a proposed K or transaction is first considered
(b) if the dir was not , at the time of the meeting in (1), interested in a proposed K or
transaction, at the first meeting after he becomes so interested;
(c) if the dir becomes int after a K or transaction is made, at the first meeting after he
becomes so interested;
(d) if an indiv who is interested in a K or transaction later becomes a dir, at the first meeting
after he becomes dir
120(3)
Time of disclosure for officer who is not a dir –
(a) immediately after he becomes aware the K or transaction is to be considered
(b) if the officer becomes interested after a K or transaction is made, immediately after he
becomes so interested; or
(c) if an indiv who is interested in a K later becomes an officer, immediately after he becomes
an officer
120(4)
Time of disclosure for officer or dir – if a material K or material transaction, whether entered
into or proposed, is one that in the ordinary course of the corp’s bus, would not require approval
by SH or Bd, a dir or officer shall disclose, in writing to the corp or request to have it entered into
the minutes, the nature and extent of his/her int immediately after s/he becomes aware of the K or
transaction
120(5)
Voting – dir required to disclose under (1) shall not vote on any resolution to approve the K or
transaction unless the K or transaction
(a) relates primarily to his or her remuneration as a dir, officer, EE or agent of the corp (can
vote on own remuneration package)
(b) is for indemnity or insurance under s.124; or
(c) is with an affiliate
120(6)
Continuing disclosure – general notice to the dirs declaring that a dir or officer is to be regarded
as interested for any of the following reasons in a K or transaction made with a party is sufficient
82
declaration of interest in relation to the transaction:
(a) the dir or officer is a dir or officer, or acting in a similar capacity, of a party referred to in
para 1(b) or (c)
(b) the dir or officer has a material int in the party; or
(c) there has been a material change in the nature of the dir’s or the officer’s int in the party
120(6.1)
120(7)
Access to disclosures – SH of the corp may examine the portions of any minutes of meetings of
dirs or of committees of dirs that contain disclosures under this section, and any other
documentation that contain those disclosures, during the usual bus hours of the corp
**exception to 20(4) (right not provided under 21(1))
Avoidance standards – K or transaction for which disclosure is req’d under ss.(1) is not invalid,
and the dir or officer is not accountable to the corp or its SH for any profit realized from the K or
transaction, b/c of the dir’s or officer’s int in the K or transaction or b/c the dir was present or was
counted to deter whether quorum existed at the meeting of dirs or committee of dirs that
considered the K or transaction if:
(a) disclosure of the int was made in accordance with ss.(1) to (6)
(b) the dirs approved the K or transaction; and
(c) the K or transaction was reasonable and fair to the corp when it was approved.
120(7.1)
Confirmation by SH – even if the conds of ss.(7) are not met, a dir or officer, acting honestly and
in good faith, is not accountable to the corp or to its SH for any profit realized from a K or
transaction for which disclosure is req’d under ss.(1), and the K or transaction is not invalid by
reason only of the int of the dir or officer in the K or transaction, if:
(a) the K or transaction is approved or confirmed by special resolution (2/3rds of SH who
vote, provided there is a quorum) at a meeting of the SH;
(b) disclosure of the int was made to SH in a manner sufficient to indicate its nature before
the K or transaction was approved and confirmed; and
(c) the K or transaction was reasonable and fair to the corp when it was approved or
confirmed.
120(8)
Application to the crt – if a dir or officer fails to comply with this section, a crt may, on application
of the corp or SH, set aside the K or transaction on any terms it thinks fit, or require the dir or
officer to account to the corp for any profit or gain realized on it, or do both those things
83
RELEVANT CASES:
Cook v. Deeks (JCPC 1916):
- Facts: P dir and SH in of TTC of which D were dirs brought action against Ds for K they entered into
o
CPR past dealings w/D as dirs and officers of TTC (dev special rel)
o
TTC owned by P and D (each had 25% shares and each were dirs on Bd)
o
Ds fed up with P and told CPR in middle of project that they would do next deal w/CRP on their own,
cutting out TTC
o
CPR negot new K w/Ds – never mentioned TTC not involved, acted as if they were still acting on
behalf of TTC but @ end of negots said they would sign in their personal capacities
o
P finds out he is left w/holding an inactive corp and brought action against D
o
P brought derivative action (suing on behalf of corp for wrong done to corp – this K should have been
signed by corp) – derivative actions now more or less supplanted by oppression actions (easier,
faster, wider range of remedies)
- Held: Deceit and breach of FD
o
classic case of maj SH/dirs appropriating opportunity that has been offered to company as a whole for
their personal benefit
o
Breach of FD:
 While entrusted w/the conduct of the affairs of the corp, they deliberately designed to
exclude, and used their influence and position to exclude, the corp whose int it was their
first duty to protect
 Intentionally concealed what they were doing
 Not entitled to, while ostensibly acting for the company, divert in their own favour bus which
should properly belong to the corp
o
Misappropriation of corp opportunity:
 Ds had control and used position to benefit themselves
 Negot K w/CPR in same manner they always had for TTC, but for their own benefit
 Ds directly benefited from association w/company
o
Can company claim benefit of K? Yes.
 Ds breached FD thf. deemed to hold the benefit of the K on behalf of the corp
o
Can the maj of the SH ratify and approe the K, thereby releasing claim against dirs? No.
 Taking a corp opportunity cannot be ratified – is essentially stealing from the corp (can’t
vote your shares in favour of you stealing from corp)
 120(7.1) provision for SH ratification doesn’t apply
 122(3) precludes articles or by-laws from permitting ratification
- Remedy: benefit of the K was held in constructive trust for the company thf. any profit resulting must be
accounted for
- Comments: what could they have done to sever rel w/P?
o
Wind up the company (but would require full disclosure to P)
o
Buy out P (would also require full disclosure)
o
If Ds know about K w/CPR and offer a price for P’s shares that reflect it – action for deceit?
Regal (Hastings) Ltd. v. Gulliver (HL 1942): (approved and followed by SCC)
- Facts: Regal wants to sell cinemas, deters that to get best price it should acquire two other cinemas and
sell them as a package
o
R forms subsidiary, Amalgamated (A), to acquire the other cinemas – puts $2000 in and takes 2000
shares back (all held by R)
o
R tries to negotiate lease in favour of subsidiary, but landlord wants personal guarantees from dirs or
stated capital of $5000
o
Dirs meet and some are unwilling to give personal guarantees, so A must come up with another
$3000
o
G (dir) found 3 other people to invest, other dirs contributed their own money, as did solicitor
o
A no longer a subsidiary of R – no longer has controlling int (60% of shares are now held by others)
o
At same meeintg, Bd accepted offer for all 3 cinemas (R’s theatre and 2 leases held by A)
o
Originally an asset deal (purchaser’s buying the assets), but subsequently purchaser’s said they
would buy the shares of R and A
o
Value of shares held by dirs had increased – so they made a profit
o
Transaction was entered into in good faith (dirs had no alterior motive)
o
New dirs bring action seeking to recoup profit made by former dirs on sale of shares in A
84

-
-
Arguing dirs took opportunity belonging to R to own all shares in A and benefited personally (R
should have gotten whole benefit)
o
Dirs argue that shouldn’t have to account for profit b/c R didn’t have money to purchase shares in A
and deal wouldn’t have been done if dirs hadn’t personally purchased shares
Issue: new owners brought action against former dirs and solicitor to recoup profit they earned on sale of
shares
Held: 4 dirs had acquired their shares in A due to their rel w/Regal and, despite acting in good faith, must
account for personal profit
o
Strict rule that those who, by standing in position of FD and by use of position as dirs/officers, make a
profit are liable for that profit – fraud or absence of bona fides not nec
o
Elements P must est:
 Were profits made  yes
 Did the D’s acquire the profit b/c of role as dirs/officers  yes – were acting in course of their
office
 Effect of their profit was to deprive R of controlling int in A, and reduce profits to R upon
sale of A
 Were the dirs in fid rel to the corp  yes
o
That the corp was not in a position to take adv of the opportunity itself was not relevant (applying trust
law rules – just b/c beneficiary can’t take adv of op, doesn’t mean trustee can)
o
Dir who didn’t personally benefit was found not liable
o
Solicitor not liable b/c he entered the transaction on his own behalf but at request of his client
o
Windfall concern: SH of R would get windfall from dirs investment (new SH paid price for shares that
were worth more than they would have been had dirs not invested)
o
It is not a defence to say that they would have been in breach had they promised more funds from R
– at all material times they were dirs in FD rel, they used knowledge acquired b/c of position to make
personal profit
o
Test: dirs will be accountable for profits earned “by reason and by reason only of the fact that they
were dirs of R and in the course of the execution of that office”
Comments:
o
Could have protected themselves by obtaining a resolution at SH meeting
Peso Silver Mines v. Cropper (1966 SCC):
- Facts: P is public BC mining co. holding silver claims in Yukon
o
C was dir and managing dir (had auth to carry on the bus of the corp)
o
P was offered add’l claims, contiguous to the claims they already held
o
Offer was made to C and another dir to take to Bd
o
Bd discussed offer and rejected it – didn’t feel they were necessary or affordable
o
6wks later, 3 indiv dirs (Walker, Verity and Aho) formed a new co., CB, and purchased the claims P
had turned down
o
CB then went public
o
W told regulator of distr co’s that CB had purchased the claims to ensure that nobody else got them
(CB’s first int was to protect P by ensuring claims didn’t go to others)
o
Charter Oil then acquires P and asked W to turn over claims to P
o
W agrees, but C refuse
o
Charter brings action against C for accounting and declaration of trust
o
C gets fired, sues for wrongful dismissal
- Held: C not liable to account for profits
o
While C was owed P FD, C acted in good faith and had no intent to profit at expense of P
o
Dirs owe a duty of FD to corp and must account for profits obtained in conflict of int
o
P did have an int in the claims while they were under consideration (at this point the opportunity
belonged to P)
o
But, when P made bona fide dec to reject the offer, the claims no longer “belonged” to them and it
was legit for C and assoc to acquire them
 P’s dec was bona fide and had sought independent advice
o
C’s dec to acquire the claims was not breach of FD
o
Distinguish Regal – Regal as a corp wanted all shares of A, the plan was for R to acquire all 3
cinemas and profit from the sale of them, thf. dirs took something R wanted
- RATIO: if you have a bona fide dec of the Bd, based on full disclosure and good and reas basis to
refuse an opportunity, then a dir not liable to account for profits s/he makes on their own
85
Canadian Aero Services Ltd. v. O’Malley (SCC 1974):
- leading case on competition with corps
- Facts: Canaero (C) sent dirs, O and Z, to prepare bid and obtain K for mapping in Guyana
o
O and Z never properly appt’d dirs (irregularity or defect in their election/appt) – hwr they served as
Pres and exec VP for 2 yrs prior to resigning  held to be senior mgmt
o
O/Z quit and incorp new company, which then bids on same job and gets it
o
C brings action against O/Z for accounting of profits they earned on K
- Issue: were they senior enough to owe a FD?
- Held: liable to account for profits
o
Crt expanding scope of FD
o
Irregularity in appt doesn’t matter, the duty applies to formally elec dirs, as well as officers or senior
mgmt
o
122(1) applies to dirs and officers
o
As officers, owe FD – thf. can’t take bus op from company w/o full disclosure and consent from dirs
acting bona fide (esp not when their duties incl negot the K for the corp)
o
O/Z arguments:
 they were neither directors or mgrs, but rather EEs
 Even though they were supervised by parent corp, they acted as senior officers
w/respons far removed from those of servants
 had resigned, thf. no longer senior mgmt
 can’t just resign and turn around and take corp op (that was motivation for
resignation)
 the knowledge they had belonged to them – brought it w/them to Canaero
 fact that final K differed slightly from original tender was irrelevant – it was
substantially the same and O/Z were privy to insider information b/c of position
w/Canaero
 Terra shouldn’t be liable – innocent corp separate and distinct from O/Z
 No honesty of purpose defence – Terra was the instrument O/Z used to achieve their
goal (almost lifting the veil – Guildford Motors)
o
Given the position of the corp in current econ and social life of the country, high stds of FD will be
imposed on those who control corps (statement of policy)
- Also a competition case – new company competing w/old company
86
DUTY OF CARE:
*dirs may be found liable for neg
122(1): Every dir and officer of a corp in exercising their powers and discharging their duties shall
(b) exercise the care, diligence and skill that a reasonably prudent person would exercise in
comparable circs
Defence: 123(4) (avail only to dirs)
Std of Care: obj test of the reasonably prudent person in comparable circs (Peoples)
- dirs have a duty to adequately inform themselves to make reas bus decs (Repap)
- did they have the right info and did they consider it carefully enough? (Peoples)
- can’t just rely on the recommendation of a committee (Repap)
- do not take into account subj characs of indiv dirs – or their lack of ability (Peoples)
- in order to meet the requisite std of care, corp has to put in place better governance structures – the
right people w/the right knowledge and skill to advise
- dirs must ensure there are adequate committees staffed by dirs w/adequate skill and knowledge
- if you want to avoid liability under 122(1)(b), make sure you get the right advice, read the
documentation, etc.
Owed To: duty is owed to the corp
- duty is also owed to “another” (Peoples) – spec to Que, unclear whether it would apply elsewhere
- Peoples would have been first time dirs would have been held liable for neg to other than corp/SH
- Tax cases – dirs consistently held personally liable for failure to pay taxes
-
few dirs have ever been found neg  oppression remedy is preferred approach
Look For:
- dirs paying out divs
- wages not paid
- making decs based on inadequate information
Who is brining the action:
- Corp
- SH
- Creditor – unclear whether they have an action (People’s may not apply outside Que)
o
Duty doesn’t shift to creditors in the vicinity of bankruptcy, BUT is broader than just SH (Teck,
People’s)
87
DEFENCES TO BREACH OF DUTY:
OFFENCE:
251: any breach of the Act is an offence
251(3): you can sue civilly even if person is being pursued criminally
STATUTORY DEFENCES:
123(4): defence to dir’s liability under 118 or 119, if dir complied w/122(2) and met std of care, including relying
on (a) financial statements prepared by professional, or (b) report of professional
- dir has a defence if it met the std of care
123(5): defence to dir in action for breach of FD under 122(1)(a) or (b) if acted in good faith, i.e. relied on docs
in (a) and (b)
- O’Brien thinks it really applies to 122(1)(b)
- Only a defence to dirs (e.g. wouldn’t have applied in Canaero)
118: Dir’s liability
119: Dir’s liability for wages
BUSINESS JUDGEMENT RULE and DEFENSIVE TACTICS:
- issue of dir’s FD often arises in context of corp take-overs b/c dirs are in inherent conflict of int  if
hostile bid is successful, they lose their jobs
- dirs have to exercise discretion in deter whether or not to recommend the bid to SH (duty to
recommend bid if it is in best ints of corp)
- b/c of this inherent conflict, corp and securities law regulate takeover bids
-
-
defensive tactics are no longer ipso facto breach of FD (Teck)
Test: dirs must be acting bona fide in best ints of corp – honeslty & in good faith in best ints of corp
(Teck)
 Must act honestly and w/a genuine belief that what they are doing is in the best ints of the
corp (subj test of reasonable, honest belief)
 Have to show that there are reas grounds for the belief that they were acting in best ints of
company (obj proof that it was a reas position that they took in the circs)
 Onus??
Dirs no longer required to consider only SH ints in deter best ints of corp (Teck)
Ints of maj SH may differ from best ints of corp as a whole (Teck)
Bus Judgement Rule: crts should not substitute their opinion in matters of bus for that of the dirs
o
Crts should be reluctant to substitute their own opinion for that of the dirs where the bus dec
was made in reasonable and informed reliance on the advice of financial and legal advisors
appropriately retained and consulted in the circs (CW Shareholdings)
o
Crts look to see whether dirs made a reas dec, not a perfect dec (Repap)
o
Crts are entitled to consider the content of their dec and the extent of the info on which it was
based and to measure this against the facts as they existed at the time the dec was made
(Repap, Peoples)
o
123(4) is a codification of the BJR, though is more specific in application
o
Look for: dec of dirs, conflicting SH ints, breach of std of care
 Most commonly arises where dir is making dec btw 2 groups of SH w/conflicting ints, or
where there is allegation of breach of std of care
88
DEFENCES TO BREACH OF FIDUCIARY DUTY
122(1)(b)
Duty of care of dirs and officers – ever dir and officer of a corp in exercising their powers and
discharging their duties shall
(b) exercise the care, diligence and skill that a reasonably prudent person would exercise in
comparable circs
122(2)
Duty to comply – every dir or officer of a corp shall comply with the Act, the regs, the articles or
the by-laws and any USA
122(3)
No Exculpation – Subj to 146(5), no provision in a K, the articles, the by-laws or a resolution
relieves a dir or officer from the duty to act in accordance with this Act or the regs or relievs them
for liability thereof
123(1)
123(2)
123(3)
123(4)
123(5)
Dir’s Dissent – dir who was present at a meeting of dirs is deemed to have consented unless
meets (a) through (c)
Loss of right to dissent – a dir who votes for or consents to a resolution is not entitled to dissent
under (1)
Dissent of absent dir – a dir who was not present at a meeting at which a resolution was passed
or action taken is deemd to have consented thereto unless within 7 days after becoming aware of
the resolution, the dir
(a) casues a dissent to be placed w/the minutes of the meeting; or
(b) sends a dissent by registered mail or delivers it to the registered office of the corp
Defence – reasonable diligence – a dir is not liable under s.118 (dir’s liability) or 119 (dir’s
liability for wages) and has complied with his or her duties under 122(2), if the dir exercised the
care, diligence and skill that a reasonably prudent person would have exercised in comparable
circs, including reliance in good faith on:
(a) financial statements of the corp rep’d to the dir by an officer of the corp or in a written
report of the auditor of the corp fairly to reflect the financial cond of the corp
(b) a report of a person whose profession lends credibility to a statement made by the
professional person
Defence – good faith – A dir has complied w/his or her duties under 122(1) if the dir relied in
good faith on
(a) financial statements of the corp rep’d to the dir by an officer of the corp or in a written
report of the auditor of the corp fairly to reflect the financial cond of the corp
(b) a report of a person whose profession lends credibility to a statement made by the
professional person
RELEVANT CASES:
Teck Corp. v. Millar (BCSC 1973):
- Facts: Millar incorps small mining company, Afton, w/valuable claims
o
Afton too small to do feasibility study and dev mine on its own, so seeking ultimate deal w/major
mining corp
o
M approached Canex, but rejected their offer
o
At same time, Canex purchased a bunch of Afton shares – cash infusion of $300k to become signif
SH
o
Teck became int in Afton’s claim – wanted ultimate deal, offered to buy Millar and assoc’s shares at
higher price than Canex
o
Miller wanted to deal w/Canex b/c they had better rep in industry wrt devt and profits
o
Teck starts acquiring Afton shares in mktplace – getting close to being maj SH
o
Millar playing Teck, Canex and others against each other for ultimate deal
o
Millar realizes Teck is getting close, so offers Canex 70/30 deal (Canex pays for feasibility study,
exploration and devt in exchange for 30% of Afton shares)  good deal for Afton
o
Bd approves deal and Canex starts developing
o
Teck warned Afton not to sign deal b/c as maj SH it doesn’t want op to go to Canex
89
Teck requisitions SH meeting – w/>50% of shares will try to force vote and depose Millar, cancel K
w/Canex
o
Teck finds out deal already signed – so goes to crt instead, arguing dirs breached FD
o
Issue of shares to Canex would have made it much more expensive for Teck to acquire enough
shares to have control
Held: declined to set K aside
o
Old rule: even if you truly and honestly believe that the deal is in best ints of corp, the issue of shares
to defeat a takeover bid is considered an improper purpose and breach of FD (Hogg)
o
Overturnes this rule
o
Test: dirs must be acting bona fide in best ints of corp – honeslty and in good faith in best ints of corp
 Must act honestly and w/a genuine belief that what they are doing is in the best ints of the
corp (subj test of reasonable, honest belief)
 Have to show that there are reas grounds for the belief that they were acting in best ints of
company (obj proof that it was a reas position that they took in the circs)
o
Expanding on classical theory of dirs duty
 Historically - dirs’ duty is to the corp, the corp is the SH thf. only their ints can legit be
considered by dirs
 Modern interp – dirs can consider ints of EEs, community, environ, etc. – dirs, although they
have to act bona fide in the best ints fo corp, can also take into consideration the ints of
broader stakeholders and not just SH
 It would be a breach of their duty to disregard entirely the ints of a company’s SH in order to
confer a benefit on its EEs (Parke v. Daily News)
o
Dirs may exercise their powers, even if it involves issuing a large block of shares, if they are acting
bona fide in best ints of corp
o
In this case – Millar was acting bona fide – had reas grounds to believe Canex, on the basis of past
experience and reputation, was better corp to deal with; clear that his obj was to obtain best deal
poss (acting in good faith and on basis of reas grounds; purposes were honest and beliefs reas held)
 Not motivated by desire to prevent Teck gaining control
o
Maj SH’s ints aren’t nec the best ints of the corp as a whole
o
-
Hogg v. Clamphorn: dirs sniffed hostile bid and in response created a trust for the EEs, made themselves the
trustees and then issued a bunch of shares to the trust; the bidder is never going to get those shares and there
are enough shares in the trust that are being voted by the trustees that the bidder will never get control
Repap (OCA 2004): OPPRESSION ACTION – breach of FD and std of care = evid of oppression
- Facts: corp is struggling, Berg is maj SH and brings in 3rd Ave Investments, who becomes maj SH and
recommends Berg be made Chairman of the Bd
o
Berg is appt’d to BD, though is not supposed to have any active role
o
Berg almost immediately retains new legal counsel (w/o advising Bd) and has it draft a
compensation K for him
o
Compensation K is outrageous – stock options, salary, bonus linked to market capitalization, etc.
o
K is presented to Bd, over concerns of CEO and CFO  dirs decide to get second opinion and
refer K to compensation committee and independent consultant
o
One of long-serving dirs resigns and others contact chair of comp comm. to voice concerns
o
Chair of comp comm. writes to 3rd Ave advising them to distance themselves from Berg and K, and
then resigns himself
o
Berg gets copy of memo and other letters expressing concerns, but doesn’t share them w/Bd
o
Berg fills vacancy on Bd w/cronies w/no experience or knowledge of the corp or the K at issue
o
Berg then sends out new version of K (w/changes that sweetened deal for him – but no notice of
these changes)
o
Berg stacks the compensation comm., who meets for 5 mins prior to Bd meeting and approves K
w/no discussion
o
Consultant gives general report b/c lawyers refused her request for detailed info
o
Dir who opposed K missed comp comm. meeting, but was at Bd meeting – abstained
o
Bd passed the K, dir resigned
o
Berg didn’t vote on K
o
Berg deposed at next SH meeting – terminates EE and sues for $27m
90
TD Asset Mgmt – dissenting SH – suing: (UPN purchased all shares in Repap, incl TDs shares –
took an assignment of the cause of action)
 Repap for breach of FD and neg for approving K
 Berg for breach of FD
 Oppression action – act of dir was oppressive to corp
120 comes into play – K btw dir and corp
Held: appeal dismissed
o
Claim against Berg: breach of FD b/c failed to disclose as req’d by s.120
 120 applies b/c Berg is in conflict of int (presented his employ K to Bd for approval)
 he is entitled to vote on the K but only w/full disclosure of the nature and extent of his int in
the K (120(5)(a))
 Berg owed FD to corp – act honestly and in good faith w/view to act in best ints of corp
 Breached FD:
 Overall duty to disclose any relevant info that might affect the jdugement/dec of the
dirs (retained and instructed new counsel w/o advising Bd, withheld info about the
agmt, stacked the Bd w/cronies, etc.)
 Breach of std of care  no BJR defence
 Invalid K: s.120
 disclosure reqs not met
 K not reas or fair to corp
o
Substantively unfair  created enormous liability for corp w/no benefit
o
Procedurally unfair  no arms length negots, inadeq info, approved w/undue
haste
o
Claim against Dirs: breached std of care and FD  oppression action
 Oppression action – question of whether dirs met std of care went to whether BJR afforded
a defence
 Didn’t take steps to properly inform themselves about the corp, the opinion of mgmt, or the
details of the agmt
 Didn’t consider consultant’s report
 Owed duty to SH to educate themselves before making a dec
 Dec was neither informed nor reasoned
 W/min effort, dirs could have discovered that Repap didn’t need and couldn’t afford Berg
 Each dir had oblig to understand the T&C of the agmt and it’s impact on Repap
 Dirs who disagreed had oblig to dissent, which they failed todo
o
Business judgement rule doesn’t save the K:
 Dirs were not scrupulous in examining the evid obtained – dec was not reas in the circs
 Dec cannot be protected when made w/o understanding the terms and meaning of the
agmt and the situation of the company
o
Oppression remedy: 241(3)(h) – set aside the K
 241: crt can act where conduct is oppressive, unfairly prejudicial or unfairly disregards the
ints of SH, even if the conduct is lawful
 agmt unfairly disregarded the ints of the SH
 also had grounds to set aside K under 120
 no judgement against indiv dirs (remedy was to set aside K)
o
-
People’s Department Store v. Wise (SCC 2004):
- Facts:
o
Wise: CBCA corp, 75% of shares held by Wise family (all publicly traded shares together can’t block
special resolution)
o
1992 – Wise purchases all shares of Peoples from M&S for $27m (fully leveraged buyout - $5m
borrowed from TD, $22m in instalments over 8yrs)
o
deal prohibited Wise and Peoples from amalgamating in first 8yrs – M&S protecting security
o
but can combine mgmt and operations
o
Wise owns 100% of peoples, Wise family owns 75% of Wise
o
Wise bros are 3 of 5 dirs of Wise
o
Problem: inventory and warehousing fell apart b/c of incompatible systems
 VP of finance advises Wise bros (not entire bd) to div purchasing btw Wise and Peoples
 Result was that Wise became greatly indebted to Peoples
91
1994 – both Wise and Peoples go bankrupt, trustee in bankruptcy for People’s brings action against
Wise bros and their insurer personally, alleging that they breached FD and breached std of care in
adopting the inventory policy
o
TD and M&S recover fully from sale of assets
o
No oppression action
o
Trustee argued: in the vicinity of insolvency (when corp can see itself on the brink), the dirs FD shifts
from SH to creditors – best ints of corp really means best ints of creditors
 TJ bought it, CA didn’t (inventory policy satisfied BJR and 122(1)(b))
Issue:
o
Breach of FD (122(1)(a))
o
Breach of duty of care (122(1)(b))
Held: SCC dismissed appeal
o
CBCA doesn’t provide for direct remedy for creditors against dirs for breach of their duties
To whom is the duty owed?
o
Duty to act in best ints of corp doesn’t shift in vicinity of insolvency to the creditors (you can take their
ints into account, but doesn’t shift per se)
 Rejected SH primacy – dirs can look more long-term, beyond max SH profits, in making decs
 Adopts Teck – in deter the best ints of the corp, it may be legit, given all the circs, for the dirs to
consider the ints of SH, EEs, creditors, consumers, govt, etc.
Was there a breach of FD? No  acted honestly and in good faith
o
FD satisfied if dirs use their skill and judgement honestly and in good faith in attempt to create a
better corp
 Wise bros acted honestly and in good faith in adopting the inventory policy
Was there a breach of std of care? No  BJR
o
122(1)(b) doesn’t state to whom the duty of std of care is owed – SH? Creditors?
 SCC uses 8.1 of Interp Act and Que Civil Code to find general duty of care owed to anyone
who could be injured by dir’s neg
 8.1: CBCA must be interp’d to be augmented by Que general law (duty of care under civil law –
std is owed to “another,” which may include creditors)
 so, under CBCA and Civil Code – duty is owed to creditors
 not sure about application of this in BC
o
Test: reasonably prudent person in circs of the corp at the time
 Obj, not the subj test of the reasonably prudent person in the subj circs of the dir itself
 Decs of dirs and officers must be reas bus decs in light of all the circs, including the prevailing
socio-econ conds, about which they knew or ought to have known
o
Wise bros met the test – reas exercise of bus judgement (BJR defence)
 Implementation of inventory policy was a reas bus dec made w/a view to correct the problem
o
No 123(4) defence b/c VP was not a professional – didn’t need it b/c didn’t breach FD or std of care?
Oppression Action
o
Invited creditors to bring oppression action under 241
 remedy equally avail to SH and creditors – 238(d) (but defn of “complainant” does not expressly
include creditors; in BC creditors have never been given standing in oppression action)
 lower std (doesn’t require dishonesty)
 avail of this remedy undermines perceived need to extend 122(1)(a) to creditors
 oppression action likely to be unsuccessful – not same kind of conduct as in HD Hobby or
Sidaplex
o
Crt didn’t address whether Wise bros were acting as dirs or officers when made dec to implement
inventory policy (didn’t call meeting of dirs or pass resolution)
 If acting as officers, no defence under 123(5)
o
-
-
92
RATIFICATION:
CL:
-
SH can ratify transaction where there is conflict of int (Aberdeen Railway, Northwest)
SH can’t ratify taking of a corp opportunity (Cook v. Deeks)
CBCA:
- 120(7.1): SH can ratify a transaction or contract for which disclosure is req’d under (1) if dir or officer
was acting honestly and in good faith:
(a) the K or transaction is approved or confirmed by special resolution at a meeting of the SH,
(b) sufficient disclosure was made, AND
(c) the K or transaction was reasonable and fair to the corp
i. procedural fairness
ii. substantive fairness
- nothing to suggest dir can’t vote his shares
-
BUT: 120(8): disgruntled person (e.g. min SH) can apply to crt to have K or transaction set aside
o
Would likely have to show one of (7.1)(a) through (c) was violated
-
122(3): resolution of SH or dirs cannot approve any other breach of duty, other than one specifically
allowed under 120(7.1)
-
242(1): SH ratification is not conclusive, crt can still find oppression  crt’s juris not outsed by
ratification
o
SH ratification will be evid that there was no oppression
93
OPPRESSION ACTION
General:
- can bring action under 214 (ltd to SH) or 241 – depends on what remedy you want
- if you want winding up – might bring action under 214 (although crt still has auth to make any order
provided for under 241)
- easier, faster and provides wider range of options that the derivitive action
Brought in Conjunction with Breach of FD and DOC  try to show that breach of FD or DOC amt’d to
oppressive conduct
- Repap – crt relied on breach of FD and breach of std of care as evid of oppression
OPPRESSION
1. Does the party have status to bring oppression action  238 defn of “complainant”
a. Security holder or former security holder (e.g. SH, debenture holder, bond holder)
i. SH who has dissented still has access to oppression remedy b/c “complainant” includes
“former SH” (KeepRite)
b. dir or officer, or former dir or officer of corp or its affiliates
c. the Dir
d. any other person at crt’s discretion (proper person)
i. creditors would have to show they were a “proper person” (read creditor in b/c grounds in
(2) includes conduct that is O, UP or UD to ints of creditor) (Sidaplex creditor successful,
Prime Computers)
ii. BC crts have denied creditors leave under 241??
iii. Peoples – SCC noted trade creditor should have brought oppression action
2. Apply to crt for order under 241(1) (BC – petition to BCSC, proceed on affidavit)
a. Summary application to crt, expedites process as confirmed by s.248
b. Crt may order trial on specific issues (e.g. credibility)
3. 241(2) Est GROUNDS that act or omission of corp, bus or affairs have been carried on or conducted in
manner, or pwrs of dirs have been exercised in a manner that is oppressive or unfairly prejudicial or that
unfairly disregards the ints of any SH, C (Sidaplex), D or O
Conduct by the following can constitute oppression:
a. act or omission by corp or its affiliates effects a result
b. carrying on or conducting bus and affairs of corp in a manner
c. pwrs of dirs of corp or affiliate are or have been exercised in a manner
**crt will be cautious in scrutinizing actions of the bd  careful not to usurp pwr of bd (KeepRite)
4. Crt has remedial pwr to make an order to rectify the matters under 241(3) (non-exhaustive)
**broad discretion to deter what is fair
a. Order restraining the conduct complained of (247) (Ferguson)
b. Order appointing receiver/receiver manager
c. Order to amend articles, by-laws, or USA (subj to 241(4), (5))
d. Order directing an issue or exchange of securities
e. Order appointing dirs to replace or in addition to dirs
f. Order directing corp or other person to purchase shares of SH (241(6)) (Westfair, Naneff)
g. Order directing corp or other person to pay SH what they paid for their shares (241(6))
h. Order varying or setting aside a transaction or K to which a corp is a party and compensating the
corp or any other party to the transaction or K (Repap)
i. Order requiring corp to produce financial records pursuant to s.155
j. Order compensating aggrieved person (Sidaplex, Naneff)
k. Order directing rectification of registers or other corp records (243)
l. Order liquidating or dissolving corp (214)
i. Remedy of last resort  reluctance where another remedy would provide adequate or
effective relief
94
ii. Not ordered where no evid of mismgt or corp is successful/profitable
m. Order directing an investigation to be made
n. Order requiring the trial of any issue
5. 241(4) Dirs must comply and implement and order to amend articles or by-laws
a. must send notice of amendment to Dir
b. dirs can’t then amend articles w/o crts approval (can’t just amend back)
6. 241(5) SH cannot dissent under s.190 if order is made under this section to (c) amend articles
7. 241(6) Corp can’t make payment under 3(f) or (g) to SH if doing so would render the corp insolvent
8. 241(7) SH may alternatively seek order for liquidation or dissolution under 214
9. Crts juris not ousted by ratification by SH 242(1) – but evid of such approval will be taken into account in
consideration action under 214, 240 and 241 (and esp wrt remedy) (Ferguson)
REMEDY:
- relief should only be granted where claimant has est she has suffered a detriment
- reasonable expectations – remedy should reflect them
o
Westfair: SH could not reas expect crt to wind up functioning corp in order to max their share
values; have shares bout at fair market value
o
Naneff: son could not reas expect to take over corp SO no reason to allow him to buyout entire
corp; entitled to what he contribute, shares bough out and WD damages for loss of employ
- BJR defence: crt should not interfere w/bus decs that were honestly made
o
Mgmt is entitled to make decs that are honest and in best ints of corp, even if they alter power
balance w/in the corp
- Finding oppression gives broadest remedies; unfairly prejudicial and unfair disregard are broader
categories, but fewer remedies
-
potential alt to lifting corp veil – make sole SH/dir liable personally to creditor/SH (avoid undermining
separate legal personality of corp) (Sidaplex)
o
elements: person you are seeking compensation from was in position of pwr, made dec to
favour own ints over creditor’s ints, and did so in an inappropriate way (personal benefit)
INVOLUNTARY WINDING-UP AND DISSOLUTION: (Westfair, Ebrahimi)
1. 214(1): SH may apply for crt to order liq and diss of corp or affiliate (action ltd to SH)
a. if crt is satisfied – see (a) through (c) of 241 – conduct that is oppressive, unfairly prejudicial or
unfairly disregards the ints of any SH, creditor, dir or officer
b. if crt is satisfied that
i. a USA agmt entitles the complaining SH to demand diss of the corp after the occurrence of
a specified event, and the event has occurred, or
ii. it is just and equitable that the corp should be liq and diss
1. loss of confidence, deadlock, partnership analogy (Ebrahimi)
2. 214(2): crt may order winding up and diss, OR make any order under 241(3)
3. 214(3): crts juris not ousted by SH ratification of conduct complained of  242(1) applies to application
under this section
95
DETERMINING WHICH ACTION TO ARGUE
-
Gives crt power to intervene in affairs of corp
-
Corp activities need not be contrary to law as in 247  basis in equity
-
Includes not just legal rights, but also complainant’s reasonable expectations (RE deserving of
protection)
o
May be gleaned from long-term rels (Ebrahimi)
o
SH reas expects deter by rights, restrictions, privs attached to each class of shares (Westfair)
o
May be gleaned from notices, mgmt circulars, prospectus, etc.
-
complainant doesn’t have to show bad faith or want of probity – it’s the effect on the complainant
that matters, not the motivation of the actor (KeepRite)
o
benefits: general presumption of good faith hard to rebut, easier to prove oppression than
breach of FD
o
If there is bad faith  points in direction of oppression (Ferguson)
-
balancing: unfair treatment of min SH v. legit exercise of control by mgmt, right of bd to make bus decs
for corp (link to BJR)
o
crts role is not to direct mgmt, but to step in and scrutinize when unfair (KeepRite)
o
no intervention when dividend policy is specific and deter through correct channels (Westfair)
OPPRESSION: (Ferguson, Repap, Naneff)
- “burdensome, harsh and wrongful” conduct which may fall short of actual illegality, but can be
described as “reprehensible” (Scottish Cooperative Wholesale)
-
visible departure from stds of fair dealing, or conds of fair play SH entitled to rely on (Elder)
-
complainant doesn’t have to show bad faith or want of probity – it’s the effect on the complainant
that matters, not the motivation of the actor (KeepRite)
o
but defn suggests might have to show some dishonesty, malice, bad faith, etc.
o
must be some element of misconduct or wrongfulness/injustice  relief won’t be granted just
be/c min SH doesn’t like the way bus is being run
UNFAIRLY PREJUDICIAL (Ferguson, Sidaplex)
- broader than “oppression”  unjust and inequitable
- complainant doesn’t have to show bad faith or want of probity – it’s the effect on the complainant
that matters, not the motivation of the actor (KeepRite)
- policy that harms int of SH, denies them a benefit, etc. (Ferguson)
- denial of payment to creditor (Sidaplex)
- breach of FD, std of care (Repap)
UNFAIRLY DISREGARDS (Westfair, Sidaplex, Repap)
- broader than “oppression”  unjust and w/o cause, ignore or treat as of no importance, the ints of SH
or other complainant
o
corp may not disregard ints of someone interested in it – “ints” given broad interp and
encompasses all reas expecs of the SH
o
conduct whch pays no attention to, ignores or treats as of little importance the interests of that
person
o
callous indifference
o
insensitivity to SH ints – policies which, while not violating SH rights/reas expecs, may have
detrimental impact on them (Westfair)
- disregard for creditor ints (Sidaplex)
- breach of FD, std of care (Repap)
96
INDICIA:
** court will consider:
1. nature of transaction
2. manner in which it was carried out
3. cumulative effect/pattern of conduct when deter whether there has been oppression
Likely Oppressive Conduct:
- serious departure from normal bus practice
-
lack of valid corp purpose to action/transaction(Arthur)
-
failure on part of corp to take reas steps to simulate an arm’s length transaction
-
breach of FD and std of care as evid of oppression (Repap)
o
misappropriating corp opportunity resulting in oppression to other dir/SH
-
misuse control over the payment of divs to force min SH to sell shares
o
plan or design to elim min SH (Ferguson)
-
removal of dir/officer
o
closely held-corps
o
stripping family mem of role as D and O simply b/c didn’t like his lifestyle (Naneff) or mgmt style
(Ebrahimi)
o
exclusion of SH or removal of dir is not in itelf oppressive, but rather turns on whether
there exists an underlying obligation to allow the complainant to participate in mgmt
-
discrim btw SH w/effect of benefiting maj to detriment of min
o
classic case of corp acting to confer a benefit on one group of SH to the exclusion of others
o
imposing excessive costs or risk on one group rather than another
o
restructuring that dilutes min ints in the corp
-
failure to adequately or appropriately disclose material info to min SH
o
e.g. not calculating share price on basis set out in circulars (remedy: top-up to proper amt)
o
persistent and serious failure to notify min SH of meetings or other material info (e.g. failure to
provide info was part of plan to conceal financial situation from SH and thf. oppressive)
-
using a mistake to your advantage to preference one C over another AND personally benefits in that no
longer personally on the hook for $$ (Sidaplex)
-
preference SH by paying huge mgmt fees over trade Cs (Prime Computers)
-
in deciding whether to wind up –fair to maj of SH? Corp profitable? Corp in business for awhile?
Likely Unfair Disregard: categories are not watertight and will overlap; at best distinction is uncertain
- failure to notifiy a specific SH class of material info (ie. delisting from TSX) (Westfair)
-
ignoring class of SH by never referring to them (Westfair)
-
making decs that disregard a specific SH class (Westfair)
97
INVOLUNTARY LIQUIDATION AND DISSOLUTION
214
Court may order the liquidation and dissolution of a corp or any of its affiliated corps on the
application of a SH:
a) if the crt is satisfied that in respect of a corp or any of its affiliates
i. any act or omission of the corp or any of its affiliates effects a result
ii. the bus or affairs of the corp or any of its affiliates are or have been carried on or
conducted in a manner, or
iii. the powers of the dirs of the corp or any of its affiliates are or have been exercised in a
manner
that is oppressive or unfairly prejudicial to or that unfairly disregards the ints of any security
holder, creditor, dir or officer; or
b) if the crt is satisfied that,
i. a USA entitles a complaining SH to demand dissolution of the corp after the occurrence
of a specified event and that event has occurred, or
ii. it is just and equitable that the corp should be liquidated and dissolved.
OPPRESSION
238
Defn’s:
“action” means an action under the CBCA
241(1)
“complainant” means
(a) a registered holder or beneficial owner, and a former registered holder or beneficial owner, of
a security of a corp or any of its affiliates (bond holder or SH – doesn’t have to be registered,
just have to be beneficial holder)
(b) a dir or an officer or a former dir or officer of a corp or any of its affiliates;
(c) the Dir, or
(d) any other person who, in the discretion of a court, is a proper person to make an application
under this Part
Application to court re oppression – a complainant may apply to court for an order under this
section
241(2)
Grounds – the crt is satisfied that in respect of a corp or any of its affiliates
(a) any act or omission of the corp or any of its affiliates effects a result,
(b) the bus or affairs of the corp or any of its affiliates are or have been carried on or conducted
in a manner, or
(c) the powers of the dirs of the corp or any of its affiliates are or have been exercised in a
manner
that is oppressive or unfairly prejudicial to or that unfairly disregards the ints of any security holder,
creditor, director or officer, the crt may make an order to rectify the maters complained of
241(3)
Powers of court – in connection w/an application under this section, the court make may any interim
or final order it thinks fit including, w/o limiting the generality of the foregoing,
(a) an order restraining the conduct complained of;
(b) an order appointing a receiver or receiver-mgr;
(c) an order to regulate a corp’s affairs by amending the articles or by-laws or creating or
amending a USA;
(d) an order directing an issue or exchange of securities;
(e) an order appointing dirs in place of or in addtion to all or any of the dirs then in office;
(f) an order directing a corp, subj to (6) or any other person, to purchase securities of a security
holder;
(g) an order directing a corp, subj to (6) or any other person, to pay to a security holder any part
of the monies that the security holder paid for securities;
(h) an order varying or setting aside a transaction or K to which a corp is a party and
compensating the corp or any other party to the transaction or K;
(i) an order requiring a corp w/in a time specified by the court, to produce to the court or an
interested person financial statements in the form req’d by section 155 or an accounting in
such other form as the crt may determine
98
(j) an order compensating an aggrieved person
(k) an order directing rectification of the registers or other records of a corp under 243
(l) an order liquidating and dissolving the corp
(m) an order directing an investigation under Part XIX to be made; and
(n) an order requiring the trial of any issue.
241(4)
Duty of dirs – if an order made under this section directs amendment of the articles or by-laws of a
corp
(a) the dirs shall forthwith comply with 191(4); and
(b) no other amendment to the articles or by-laws shall be made w/o the consent of the crt, until
a crt orders otherwise
241(5)
Exclusion – a SH is not entitled to dissent under 190 if an amendment to the articles is effected
under this section
Limitation – a corp shall not make a payment to a SH under para 3(f) or (g) if there are reas grounds
to believe that
(a) the corp is or would after that payment be unable to pay its liabilities as they become due
(b) the realizable value of the corp’s assets would thereby be less than the aggregate of its
liabilities
Alternative order – an applicant under this section may apply in the alternative for an order under
214 (order for liquidation/dissolution)
Evid of SH approval not decisive – an application made or an action brought or intervened in under
this Part shall not be stayed or dismissed by reason only that it is shown that an alleged breach of a
right or duty owed to the corp or its subsidiary has been or may be approved by the SH of such body
corp, but evid of approval by the SH may be taken into account by the court in making an order under
214 (further orders), 240 (powers of court) or 241 (oppression)
241(6)
241(7)
242(1)
Compliance and Restraining Orders
247
Restraining or compliance order - If a corp or any dir, officer, EE, agent, auditor, trustee, receiver,
receiver-mgr or liquidators of corp doesn’t comply with this Act, the regs, articles, by-laws, or USA, a
complainant or a creditor of the corp may, in add to any other right they have, apply to a court for an
order directing any such person to comply with, or restraining any such person from acting in breach
of, any provisions thereof, and on such application the court may so order and make any further
order it thinks fit
248
Summary Application to Court – where this Act states that a person may apply to a crt, the
application may be made in a summary manner by petition, originating notice of motion, or otherwise
as the rules of the crt provide, and subj to any order respecting notice to interested parties or costs,
or ay other order the court sees fit.
Rectification of Corp Records
243(1)
Application to crt to rectify records – if the name of a person is alleged to be or to have been
wrongly entered or retained in, or wrongly deleted or omitted form, the registers or other records of a
corp, the corp, a security holder of the corp or any aggrieved person may apply to a court for an order
that the registers or records be rectified.
243(2)
Notice to Dir – an applicant under this section shall give notice to the Dir and the Dir is entitled to
appear and be heard in person or by counsel.
243(3)
Powers of court – in connection w/an application the court may make any order it thinks fit incuding,
w/o limiting the generality of the foregoing:
(a) an order requiring the registers or other records of the corp be rectified;
(b) an order restraining the corp from calling or holding a meeting of SH or paying a dividend
before such rectification;
(c) an order deter the right of a party to the proceedings to have their name entered or retained
in, or deleted or omitted from, the registers or records of the corp, whether the issue arises
btw two or more SH or alleged SH, or btw the corp and any SH or alleged SH; and
(d) an order compensating a party who has incurred a loss
99
RELEVANT CASES:
Ebrahimi v. Westbourne Gallaries Ltd:
Facts: E & N had been in bus as partnership; incorp’d company w/ 500 shares each; each then tsf’d 100 shares
to N jr
- company was profitable, but profits were distr as dir’s remuneration rather than dividends (received nothing
as SH – received profits as dirs)
- 11yrs after incorp, N and N jr remove E as dir (ord res) – won’t receive share of profits, can’t sell shares b/c
of restrictions on tsf of shares
- no written agmt thf. no contractual right to sue
- E brought action under equiv of 214, asking crt to order winding-up of corp on J&E grounds
- Defence: N acted in good faith and in best ints of company
Held: winding-up order granted
- “J&E” clause allows crt to recog that a corp is not simply a judicial/legal construct
- there was an ongoing rel and an understanding of good faith/right to participate in mgmt like a partnership
 underlying considerations that help deter what is just and equitable (incorp’d on understanding that
charac of company would remain the same)
o
reas expecs of E: entitled to more than strict legal rights as SH, was entitled given the ongoing
rel to expect a cont’d role in mgmt
o
N and N jr using their legal rights to the prejudice of E
- can’t act so unfairly to someone just b/c it is in best ints of corp – reject defence
- two incidents of wrongful treatment:
o
N purported to treat E as an employee, rather tha a dir or partner (in sense of maj SH)
o
Effective loss of right to remuneration
- J&E – fairness requires winding up of the corp and distr of assets according to SH entitlements
Brant Investments v. KeepRite Inc. (OCA 1991):
Facts:
- ICG control  owned all shares in ICM and Energy Products, and 65% of shares of KeepRite (2(4))
- ICG wanted to merge the 3 subsidiaries  asked KeepRite to purchase assets of other two
- KeepRite set up independent committee of dirs to investigate the fairness of the merger – was it a fair price
for KeepRite to pay for assets of other 2 corps?
o
Use of independent committee is common when divergent SH ints
- Appraiser for KeepRite recommends a reduction in pp proposed by ICG from $24m to $20m
o
Transaction approved at lower price by full board of KeepRite
- To finance the deal, KeepRite made a “rights offering – purchaser of “right” entitled to share
o
Req’d amendment to articles to increase the authorized capital (173(1)(d), (f))
- Min SH dissented on resolution to increase authorized capital and claimed right to have shares purchased
at fair value (190(1)(a))
Issue: min SH brought oppression action alleging the transaction was oppressive
Held: no oppression  indep comm. adequately ensured that KeepRite didn’t overpay
- despite dissenting and losing their rights as SH under 190(11), SH were entitled to continue action under
241 b/c “complainant” includes former SH
- maj SH owe no FD to min SH – only dirs and officers owe FD (241 makes broadening categories of FD
unnec and inappropriate, b/c SH have access to oppression action for redress in broad range of circs)
- no oblig on complainant to show bad faith or want of probity on the part of the dirs whose conduct is alleged
to be unfairly prejudicial or to unfairly disregard the complainant’s int
- to est oppression per se, probably need to show some kind of dishonesty, malice, bad faith or want of
probity (Scottish Cooperative defn)  but don’t need to show this for oppression remedy (b/c it is broader
than oppression)
- juris of crt under 241 must be exercised w/care  BJR
o
crt must not usurp function of bd in managing the company, nor should it elim or supplant the
legit exercise of control by the maj (crt’s role is to rectify unfairness, not direct mgmt)
o
crt should scrutinize in a detailed and careful manner the nature of the transaction and the
manner in which it was executed
100
Westfair Foods Ltd. v. Watt (ACA 1991):
Facts: Class A SH brought action under 214 for crt order to wind up company b/c they wanted their shares
purchased before entire surplus went to Kelly Douglas
- dirs implemented dividend policy that Class A shares would be paid $2 preferred dividend, and rest of
profits would be paid to common SH (all held by KD)
- Class A SH had preferred dividend but shared equally in winding up
- SH concerned that b/c all profits being paid to common SH, who was then lending money back to corp and
effectively depleating the surplus, there would be nothing left over for them
Issue: whether the conduct of the dirs in implementing this policy was oppressive
- Alleged that div policy didn’t maintain a fair balance btw the competing ints of the common and Class A
SH
Held: corp unfairly disregarded the ints of Class A SH
- No oppression – SH didn’t have a reasonable expectation , or an expectation deserving of protection, that
the corp would maintain a permanent policy of accumulating a surplus
o
102(1) gives dirs power to manage corp and it is not for crts to interfere to find that div policy
violates reas expecs (BJR)
o
reas expecs = rights and restrics attached to shares (haven’t been violated)
- Unfair disregard for Class A SH – policy ensured maj of benefit of corp’s profitability went to KD
o
Failure to notify SH of delisting from TSX
o
Referring to corp as wholly-owned subsidiary of KD
o
Totality of circs suggested KD considered Class A SH to be a nuisance
Remedy: ordered that the shares be purchased for fair value (under 214(2)  241(3))
o
Problem: there is no market for the shares (would have gotten more if had shared in what
surplus was left on winding up)
Ferguson v. Imax (OCA 1983):
Facts: three couples started IMAX company; husband held voting common shares, wives held non-voting Class
B preferred shares
- Class B SH entitled to $0.05 per share div  after which both classes of shares shared equally in divs
- Mrs F participated actively in bus of the company, but received little or no remuneration
- F’s separate – Mrs. F discharged from company
- Mr F influencing dirs, officers and SH to ensure Mrs F receives no benefit of increasing success of company
o
Prevents payment of divs other than $0.05 per Class B share
o
Other investors agitating to receive dividends
o
Plan: Class B shares would be converted to Class A shares, which for 5yrs would receive 9%
cumulative divs, then be redeemed for $175
o
Mrs F only has 24% of Class B shares, thf. not enough to block the resolution (other Class B
SH – wives – support the res)  separate class vote 176(1)(c)
- Mrs. F left with 2 choices:
o
Dissent from class vote and have shares bought at current value
o
Vote in favour and be bought out in 5yrs for set price (regardless of what shares are worth on
the market at that point)
Issue: application under 241 by Mrs F alleging oppression and seeking order prohibiting the vote from taking
place (241(3)(a))
Held: oppression
- the resolution was a culminating event in a lengthy course of oppressive and unfairly prejudicial conduct
- restraining order granted – company prohibited from implementing the resolution
Naneff v. Con-Crete Holdings Ltd (OCA 1995)
Facts: NN has family bus, tsf the equity in the bus to his sons, A and B equally, while retaining complete control
through voting shares
- A and B worked for the bus – as officers and dirs
- A’s std of performance good – worked hard
- NN doesn’t like A’s lifestyle of fiancée
- NN throws A out, removes him as dir and officer and reduces his income from the bus
Issue: what were reas expecs of son vis a vis father?
TJ: NN’s actions found to be oppressive and unfairly prejudicial to A
- remedy: orderd family bus to be publicly sold, with NN, A and B entitled to bid for it
101
Held: oppression but remedy inappropriate
- remedy sought to punish NN, rather than ocmpensate A
- inappropriate b/c it gave A more than he could have reasonably expected, given the structure of the
shareholding and the understanding that NN would cont to control the bus until his death or retirement
- A’s reas expecs were that, as long as he maintained good rels w/Dad, he would be entitled to inherit control
w/his brother
- Remedy sought to protect A’s ints not just as SH and former officer, but as son and heir
Remedy: ordered NN and B to purchase A’s shares at FMV, without minority discount (241(3)(f))
- A had right to receive fair compensation for his contribution
- Wrongful dismissed damages of $200k pursuant to 241(3)(j) b/c his dismissal from employ was part of
overall pattern of oppression
Sidaplex-Plastic Suppliers Inc. v. The Elta Group (OCA 1998):
Facts: EG acknowledged $100k debt to SPS for which SPS had judgement
- EG agreed to provide a letter of credit to SPS to secure payment of the debt, but letter of credit lapsed and
was not renewed
- EG sold all of its assets at arm’s length to K and used all proceeds of sale to pay off other debts, some of
which L (sole dir/SH of EG) had personally guaranteed
- No security left for SPS
Issue: action by SPS alleging EG acted oppressively and in a manner that was unfairly prejudicial to SPS’s ints
Held: oppression
- Oppression action under Ont equiv to 241 allowed by trade creditor
- No bad faith or lack of probity by EG, the circumstances amounted to an unfair prejudice or an unfair
disregard of SPS’s ints  L personally benefited from EG’s actions
- Proper case for lifting corp veil  sole SH personally benefited from unfairly prejudicial act (closely held
corp)
Remedy: L ordered to personally pay the debt owed
102
OTHER DUTIES:
118: JOINT AND SEVERAL LIABILITY OF DIRS
1. jointly and severally liable to the corp if they vote for or consent to resolution to issue shares under
s.25 for consideration other than $$
2. (c)Dirs J&S liable if they vote/consent to res auth payment of dividend contrary to s.42
(e) payment of a SH contrary to 190 or 241
3. Dir can recover against other dirs who voted/consented to the unlawful act
4. Dir can apply to crt to recover $$ paid to SH contrary to s.42
5. Crt may (a) order SH to repay dir, (b) order corp to rtn or issue shares to person from whom it has
purchased/redeemed, or (c) make any further order it thinks fit.
6. Dir not liable under (1) if he proves that he didn’t know and could not reas have known that the
share was issued for consideration less than the fair equiv in $$
7. Action must be brought against dir w/in 2yrs of the res being authorized
Who can bring action:
- corp
- trustee in bankruptcy or receiver  step into shoes of corp to recover debts owed to corp
- new control SH  recover amts improperly paid by dirs
Solvency test: can’t pay divs that would render corp insovlent (42) – 118, 190(26), 241(6)
- dirs personally liable to restore those amts to corp – 118(4)
123(4): defence if you exercised the care, diligence and skill that a reasonably prudent person would
have in comparable circs, including reliance in good faith on (a) financial statements or (b) professional
advice
**dirs at risk if they don’t meet std of care
119: JOINT AND SEVERAL LIABILITY OF DIRS FOR WAGES
(1) joint and several liability to EEs of corp for all debts not exceeding 6 months wages, payable to
each EE for services performed for the corp while they were dirs (Barrett, Proulx)
(2) conditions precedent – dir not liable unless
a. EE has sued corp and corp is unable to pay
b. Corp has gone into liq and diss, and action for wages was commenced w/in 6 months of
earlier of date of commencement and dissolution
c. Claim made w/in 6 months of assignment or bankruptcy
(3) Have to sue while they are a dir or w/in 2yrs of ceasing to be a dir
(4) Amt recoverable from dir is amount left outstanding by corp
(5) Subrogation – dir can step into shoes of EE and recover whatever is left after bankruptcy
(6) Dir who has satisfied a judgement is entitled to recover against other dirs who were liable
123(4): defence if you exercised the care, diligence and skill that a reasonably prudent person would
have in comparable circs, including reliance in good faith on (a) financial statements or (b) professional
advice
-
-
Policy: (Barrett)
1. EEs are in most vuln position – wages are usually sole source of income
2. EEs don’t have good access to mgmt info – unlikely to be aware of financial state of company
EEs usually paid bi-weekly or once a month, so unlikely dir would ever be liable for full six months
If company can’t make payroll  good sign it is going down and smart dir will resign
103
-
Statutory liability forces dir, when exercising their duties, to take into accoun the ints of EEs (as Teck
said they should)  specific statutory protection for at least one stakeholder
Other small creditors of corp don’t have this protection
3. 122(2): DUTY TO COMPLY W/ACT, REGS, ARTICLES, BY-LAWS, USA
- 251: failure to comply is an offence
- 123(4): defence of reas diligence (BJR, reliance on financial statements or professional advice)
4. Employment Standards Act:
- s.95: allows dirs of ESA to impose liability on any corp and the dirs in the corp
- s.96: a person who is a dir or officer of a corp at the time wages were earned or should have been paid
is personally liable for up to 2 months of unpaid wages
- (a) not liable for termination pay or (b) any wages if corp is subj to action under Bank Act or Insolvency
Act
-
EEs can go after officers as well, for wages per se
Applies to CBCA corps
5. Criminal Liability: doctrine of reasonable share
- Bata Shoes: 2 of 3 dirs held criminally liable for an offence committed by the corp; charged w/offences
under prov regulatory leg
- 251(1): dirs and officers liable for civil or criminal wrongs?
- Idea is to impose liability on dirs to encourage them to take into account ints of other stakeholders
DIVIDENDS
42
Dividends – corp shall not declare or pay a dividend if there are reasonable grounds for believing
that
(a) the corp is or would after the payment be, unable to pay its liabilities as they become due;
or
(b) the realizable value of the corp’s assets would thereby be less than the aggregate of its
liabilities and state capital of all classes.
* don’t pay dividends that will render corp insovlent
DIRECTOR’S LIABILITY
118(1)
Director’s liability – Dirs who vote for or consent to a resolution authorizing the issue of a share
under s.25 for a consideration other than money are jointly and severally liable to the corp to make
good any amount by which consideration received is less than the fair equivalent of the money that
the corp would have received if the share had been issued for money on the date of the resolution
118(2)
Further directors’ liabilities – dirs of a corp who vote for or consent to a resolution authorizing
any of the following are jointly and severally liable to restore to the corp any amounts so distributed
or paid and not otherwise recovered by the corp:
(a) a purchase, redemption or other acquisition of shares contrary to s34, 35 or 36;
(b) a commission contrary to s.41;
(c) a payment of a dividend contrary to s.42;
(d) a payment of an indemnity contrary to s.124; or
(e) a payment of a SH contrary to s.190 or 241
118(3)
Contribution - A dir who has satisfied the judgement rendered under this section is entitled to a
contribution from the other dirs who voted for or consented to the unlawful act on which the
judgement was founded
118(4)
118(5)
Recovery - Dir can apply to crt for an order compelling a SH or other recipient to pay or deliver to
the dir any money or property that was paid or distr to the SH or other recipient contrary to s.42,
190, 241.
Order of Crt – in connection w/an application under (4), crt may, if it is satisfied it is equitable to do
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so,
(c) order a SH, or other recipient to pay or deliver to a dir any money or property that was
paid or distr to the SH or other recipient contrary to s 34, 35, 36, 41, 42, 124, 190 or 241;
(d) order a corp to return or issue shares to a person from whom the corp has purchased,
redeemed, or otherwise acquired shares; or
(e) make any further order it thinks fit.
190(26)
Limitation – a corp shall not make a payment to a dissenting SH under this section if there are
reasonable grounds for believing that
(a) the corp is or would after the payment be unable to pay its liabilities as they become due;
or
(b) the realizable value of the corp’s assets would thereby be less than the aggregate of its
liabilities.
**190(3) liability of corp to purchase shares of dissenting SH when that SH requests it as a remedy
OPPRESSION
241(1)
Application to court re oppression – a complainant may apply to court for an order under this
section
241(2)
Grounds, the crt is satisfied that in respect of a corp or any of its affiliates
(d) any act or omission of the corp or any of its affiliates effects a result,
(e) the bus or affairs of the corp or any of its affiliates are or have been carried on or
conducted in a manner, or
(f) the powers of the dirs of the corp or any of its affiliates are or have been exercised in a
manner
that is oppressive or unfairly prejudicial to or that unfairly disregards the ints of any security holder,
creditor, director or officer, the crt may make an order to rectify the maters complained of
241(3)
Powers of court – in connection w/an application under this section, the court make may any
interim or final order it thinks fit including, w/o limiting the generality of the foregoing,
(f) an order directing a corp, subj to (6) or any other person, to purchase securities of a
security holder;
(g) an order directing a corp, subj to (6) or any other person, to pay to a security holder any
part of the monies that the security holder paid for securities;
241(6)
** crt may order purchase of shares of security holder
Limitation – a corp shall not make a payment to a SH under para 3(f) or (g) if there are reas
grounds to believe that
(c) the corp is or would after that payment be unable to pay its liabilities as they become due
(d) the realizable vale of the corp’s assets would thereby be less than the aggregate of its
liabilities
LIABILITY FOR WAGES
119(1)
Liability of dirs for wages – dirs of a corp are jointly and severally liable to EEs of the corp for all
debts not exceeding six months wages payable to each such EE for services performed for the
corp while they are such dirs respectively
119(2)
Conds precedent to liability – a dir is not liable under (1) unless
(a) the corp has been sued for the debt w/in 6 months after it has become due and execution
has been returned unsatisfied in whole or in part;
(b) the corp has commenced liquidation and dissolution proceedings or has been dissolved
and a claim for the debt has been proved w/in 6 months after the earlier of the date of
commencement of the liquidation and dissolution proceedings and the date of dissolution;
or
(c) the corp has made an assignment or a bankruptcy order has been made against it under
the BIA and a claim for the debt has been proved w/in 6 months after the date of the
assignment of bankruptcy order.
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119(3)
Limitation – a dir, unless sued for a debt referred to in (1) while a dir or w/in two years after
ceasing to be a dir, is not liable under this section.
119(4)
Amount due after execution – where execution referred to in para 2(a) has issued, the amt
recoverable from a dir is the amt remaining unsatisfied after execution.
119(5)
Subrogation of dir – where a dir pays a debt referred to in (1) that is proved in liquidation and
dissolution or bankruptcy proceedings, the dir is entitled to any preference that the EE would have
been entitled to, and where a judgement has been obtained, the dir is entitled to an assignment of
the judgement.
119(6)
Contribution – a dir who has satisfied a claim under this section is entitled to contribution from the
other directors who were liable for the claim.
122(2)
Duty to comply - duty to comply with the law (i.e. Act, regs, articles, bylaws and USA)
123(4)
Defence – reas diligence – Dir is not liable under s.118 (joint and several liability) or 119, and has
complied w/his or her duties under s.122(2) if the dir exercised the care, diligence and skill that a
reasonably prudent person would have exercised in comparable circs (std of care), including
reliance in good faith on:
a) financial statements of the corp rep’d to the dir by an officer of the corp or in a written
report of the auditor of the corp fairly to reflect the financial cond of the corp; or
b) a report of a person whose profession lends credibility to a statement made by the
professional person
RELEVANT CASES:
Barrett v. Crabtree (SCC):
- Facts: Wabasso Inc. goes bankrupt, plant closes and all EEs laid off; former EEs bring successful action for
WD and are awarded damages in lieu of notice of $300k; trying to recover damages against dirs personally
under 119
- Held: dirs not liable
o
To be entitled to recover under 119, EEs must est that the debt is “for services performed for the
corp”
o
Damages for RN are not for “services performed”, but rather compensation for B of K
o
Not every debt owed by corp to EEs will fall to dirs to pay
o
Remedy ltd in quality (services performed) and duration (6 months)
o
If dirs know that the corp is in financial diff and cont to utilize the services of EEs who they know
won’t be paid, as a matter of fairness the dirs should be liable w/in reas limits
Proulx v. Sahelian Goldfields
- Facts: EEs working in Africa for corp; employ K provides for salaries, vacation pay and reimbursement of
expenses; corp goes under, EEs bring action for back wages, vacation pay and reimbursement
- Issue: can EEs recover expenses under 119?
- Held:
o
Dirs argued expenses weren’t wages, thf. they weren’t liable
o
Crt says doesn’t have to be wages to be recoverable – just has to be debts for services performed
for the corp
o
Max amt is the equiv of 6 months wages
R. v. Bata Industries Ltd.
Facts: charges brought against the corp and 3 dirs after chemical waste spill into river
- Unsafe storage - dirs had consulted w/Tricel to remove containers, but didn’t happen for six yrs, despite
knowing of concerns about degrading integrity of containers
- Corp and dirs charged w/failing to take all reas care to prevent a discharge contrary to s.75(1) of the Ont
Water Resources Act and s.147(a) of the Environmental Protection Act
- dirs argued they had met the prescribed due diligence std
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Issue: was the prescribed std of due diligence met?
Held: 2 liable and fined
- Did each dir ensure that the corp officers had been instructed to set up a system sufficient w/in the terms
and practises of its industry of ensuring compliance w/environ laws…
- Dirs responsible for reviewing environ compliance reports provided by officers, but are justified in placing
reas reliance on reports provided to them by corp officers, consultants, counsel or other informed parties
- Dirs should be aware of the stds of their industry
- Dirs should immediately and personally react when they have notice the system has failed
- One would hope to find remedial and contingency plans for spills, a system of ongoing environ audit,
training progs, sufficient auth to act and other indices of a pro-active environ policy
- Applies doctrine of reasonable share: role of each dir, how close they were to the events and what respons
they had to prevent it
- Thomas Bata: est due diligence
o
Dir w/least personal contact w/plant, no evid he was aware of the environ prob – was aware of his
environ respons and had written directions to that effect, personally reviewed the operation and
didn’t allow himself to be wilfully blind or orchestrated in his movt; took action immediately upon
learning of the situation; placed an experienced dir on site and was entitled to rely upon him
- Douglas Marchant:
o
Chemical storage problem was brought to his personal attention; for six months, had personal
knowledge of the problem, but no evid he took any steps to address it; had a responsibility not only
to give instruction, but also to see to it that those instructions were carried out to min damage
o
Delay in clean-up showed a lack of due diligence
- Keith Watson
o Responsibilities as “on-site dir” make him more vuln to prosecution; was aware of chemicals used
and environ hazard; dismissed quote out of hand w/o further investigating it, and accepted second
quote solely on basis of price – can’t rely on bus judgement rule b/c dec was not reasonable
o Failed to meet respons to inspect premise – thf. couldn’t rely on delegating powers to officers
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INDEMNIFICATION AND INSURANCE
**subj to by-laws
1. 124(1): Corp MAY indemnify a dir or officer, etc. against all costs, charges, expenses or judgement
REASONABLY incurred by reason of assoc w/the corp (e.g. position as dir, officer)  discretionary and
must meet (3) (CEC)
2. 124(2): Corp MAY advance money to officer of dir for costs of proceeding, but must repay if doesn’t meet
conditions of (3).
3. 124(3): Corp MAY NOT indemnify unless person: (limit on corp pwr to indemnify)
(a) acted honestly and in good faith w/a view to best ints of corp (onus on corp to disprove
presumption of good faith – CEC) AND
(b) had reasonable grounds for believing conduct was lawful
4. 124(5): dir or officer has RIGHT to be indemnified wrt all reas costs inccured by reason of assoc w/corp if:
(a) indiv was acquitted or not liable, AND
(b) acted honestly and in good faith, w/reas grounds for believing conduct was lawful
5. 124(6): corp may purchase INSURANCE for benefit of dir or officer against any liability inccured by the indiv
- most dirs won’t take the job unless they have liability ins
6. 124(7): corp, indiv or entity may apply to a court for an order approving an indemnity
- dirs may choose this route b/c if they vote for/consent to pay an indemnity that is unlawful they
become liable (118(2)(d))
- crt will review circs and deter whether indemnity should be paid
7. 124(8): must notify Dir of application under (7)
8. 124(9): may have to give notice to other interested persons and the person is entitled to appear and be
heard in person or by counsel
Policy:
- indemnification is to encourage reasonable, good faith behaviour (cost of mistakes made while acting in
good faith w/view to best ints of corp shouldn’t be visited upon the indiv)
- Most corps have by-laws making indemnity a right – most dirs and officers would ask for contractual
commitment to indemnify
- The other option is insurance under 124(6) – an indiv would particularly want to make sure there is
insurance in place in situations not just where there is conflict, but where there is the possibility that the
corp will fail (if corp can’t pay, indemnity is useless)
INDEMNIFICATION AND INSURANCE
124(1)
A corporation may indemnify a director or officer of the corporation, a former director or officer of the
corporation or another individual who acts or acted at the corporation's request as a director or officer,
or an individual acting in a similar capacity, of another entity, against all costs, charges and expenses,
including an amount paid to settle an action or satisfy a judgment, reasonably incurred by the
individual in respect of any civil, criminal, administrative, investigative or other proceeding in which the
individual is involved because of that association with the corporation or other entity.
124(2)
Advance of costs - A corporation may advance moneys to a director, officer or other individual for the
costs, charges and expenses of a proceeding referred to in subsection (1). The individual shall repay
the moneys if the individual does not fulfil the conditions of subsection (3).
124(3)
Limitation - A corporation may not indemnify an individual under subsection (1) unless the individual
a) acted honestly and in good faith with a view to the best interests of the corporation, or, as the
case may be, to the best interests of the other entity for which the individual acted as director
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or officer or in a similar capacity at the corporation's request; and
b) in the case of a criminal or administrative action or proceeding that is enforced by a monetary
penalty, the individual had reasonable grounds for believing that the individual's conduct was
lawful.
124(5)
Right to indemnify - Despite subsection (1), an individual referred to in that subsection is entitled to
indemnity from the corporation in respect of all costs, charges and expenses reasonably incurred by
the individual in connection with the defence of any civil, criminal, administrative, investigative or other
proceeding to which the individual is subject because of the individual's association with the
corporation or other entity as described in subsection (1), if the individual seeking indemnity
a) was not judged by the court or other competent authority to have committed any fault or
omitted to do anything that the individual ought to have done; and
b) fulfils the conditions set out in subsection (3).
124(6)
Insurance - A corporation may purchase and maintain insurance for the benefit of an individual
referred to in subsection (1) against any liability incurred by the individual
a) in the individual's capacity as a director or officer of the corporation; or
b) in the individual's capacity as a director or officer, or similar capacity, of another entity, if the
individual acts or acted in that capacity at the corporation's request.
124(7)
Application to court - (7) A corporation, an individual or an entity referred to in subsection (1) may
apply to a court for an order approving an indemnity under this section and the court may so order and
make any further order that it sees fit.
124(8)
Notice to Director - An applicant under subsection (7) shall give the Director notice of the application
and the Director is entitled to appear and be heard in person or by counsel.
124(9)
Other notice - On an application under subsection (7) the court may order notice to be given to any
interested person and the person is entitled to appear and be heard in person or by counsel.
118(2)(d)
Further directors’ liabilities – dirs of a corp who vote for or consent to a resolution authorizing any of
the following are jointly and severally liable to restore to the corp any amounts so distributed or paid
and not otherwise recovered by the corp:
(d) a payment of an indemnity contrary to s.124
RELEVANT CASES:
Consolidated Enfield Corp v. Blair:
- OBCA case –equivalent to CBCA 124(1)
- By-law of corp said dirs “shall be entitled to indemnification”
- At its core is a FD case –argument that Blair breached FD and had not acted in best ints of corp
- Blair was dir, CEO and substantial SH (14%) in CEC
- Cad Exp was largest SH – pwr struggle w/Blair, but indicated it would support his nomination for dir
- Blair acted as chair of the annual SH meeting, as per by-laws
- Blair sought legal advice as to whether proxies had to be voted in favour of the mgmt slate, or if they could
be voted for someone nominated from the floor
- Just before the meeting, Cad Exp changed its mind and decided to nominate Price instead of Blair
- Cad Exp purported to vote their proxies in favour of Price (proxy  essentially like a POA that SH gives to
another SH)
- Had their votes been counted, would have defeated Blair
- On the basis of legal advice, Blair declared that a # of the proxies had been held invalid and declared the
mgmt slate, including himself, elected
- Blair then immediately requisitioned a new SH meeting – allowing voters who had given proxies and
couldn’t have foreseen nomination from the floor to vote
- Cad Exp sued both Blair and CEC seeking a declaration that Price, not Blair, had been validly elected as dir
o Successful in showing that Blair didn’t acting in best ints of corp (breach FD)
o Blair appealed that – total cost $165k for CEC and Blair to defend action
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-
-
-
o When Blair lost, Cad Exp now controls CEC and decides to collect costs from Blair
o Blair seeks indemnity b/c he acted in good faith as dir and CEO – by-laws entitle him to indemnity
Issue: is Blair entitled to indemnification (appeal of order that he be indemnified)
o Only by-law entitles him to indemnification
o Terms of equiv of 124(1) being interp’d in entitlement situation (under CBCA – only entitled if also
meets terms of 124(5))
Blair: his costs were reasonably incurred; he was brought into the action not personally but b/c of rel as dir
and CEO; acted reasonably and in good faith, sought legal counsel; just b/c legal counsel wrong doesn’t
mean he shouldn’t be indemnified; immediately called new SH meeting
HELD: The appeal was dismissed.
o Note the diff btw the by-law and the statute – 124(1) action w/by-law saying entitlement
o Presumption of good faith, i.e. until there is demonstrated evid of bad faith, Blair must be
considered to have acted in good faith
o The respondent was successful in establishing three conditions required by by-laws in order to be
indemnified:
 He was made a party to the litigation by reason of being a dir or officer of the corp
 He acted in his capacity as CEO, not personal capacity
 CEC tried to argue he was seeking indemnification for his own personal wrong
(attempt to protect his own position on the bd)
 the costs were reasonably incurred
 not excessive in the circs – counsel was retained for both CEC and Blair together
which minimized costs
 there had been a considered dec by Bd of Dirs as to whether Blair should have had
indep counsel – decided no, it was appropriate that he had the same counsel (he
added nothing to the cost of litigation personally)
 couldn’t have his costs of the appeal of the original ruling – that was unreas
 the respondent acted honestly and in good faith with a view to promoting the best
interests of the corporation
 best ints are ensuring that proper voting procedure was maintained – Blair did
everything he could to ensure that (e.g. sought legal counsel)
 in the circs, he did everything he could to come to the right conclusion to deter that
his election was legal
 inherent conflict of interest and duty b/c of position as CEO and dir – but that
wasn’t his fault, by-laws req’d him to play that role (entitled to be pres, chairman of
sh meeting, and SH)
 once he was in that position, he looked for the best solution, asking for the best
advice he could get
 although the dec was found to be wrong, it was not made in bad faith
 having acted in accordance with his duty to the corp, he was entitled to
indemnification under the by-law
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GENERAL POWERS OF SHAREHOLDERS:
1. No unusual mgmt power
- 102: dirs shall manage and supervise mgmt of bus and affairs of corp
- Automatic Self-Cleansing Filter Syndicate
- 189: spec res req’d to sell assets of company (if dirs don’t put offer to SH, SH can requisition a
meeting and dump the dirs)
2. Resolutions:
- special v. ordinary SH res (no dirs’ counterpart in CBCA, may be req’d by by-laws) (quorum – 139)
- 142(1): (a) resolution signed by ALL SH entitled to vote is valid as if passed at a meeting, and (b)
may substitute a SH meeting w/a resolution signed by ALL SH entitled that deals w/all matters req’d
by the Act to be dealt with at a meeting
- if SH wants a meeting – simply has to refuse to sign the resolution
- 142(2): copy of every resolution shall be kept w/minutes
- 142(3): note in minutes that chairperson declared resolution to be carried or defeated is sufficient
evid of that (prima facie chairperson’s dec governs)
3. Election and Removal of Dirs:
- 106(3): dirs elected by ordinary resolution
- 109(1): dirs removed by ordinary resolution
4. Amendment of By-Laws:
- 103(1) and (2): dirs, subj to articles, by-laws or USA, can amend by-laws, but this must be put to
SH for approval by ordinary resolution at next SH meeting (confirm, amend, reject, repeal)
- 103(3): by-law is effective during the interim after passed by dirs and before approved by SH
- 103(4): if rejected by SH, amendment ceases to be effective; dirs can try again but a by-law
w/substantially the same purpose will not be interimly effective
- 103(5): SH entitled to vote may, in accordance w/137, make a proposal to make, amend, or repeal
a by-law
5. Review of Financial Statements:
- foundation of SH’s ability to participate in the control and mgmt of the corp
- strict oblig on dirs to provide info about the financial situation of the corp (disclose assets, liabilities,
capital, shares issued, profit/loss, cash flow, etc.)
- 155(1): dirs shall provide SH at every annual meeting:
(a) comparative financial statements,
(b) report of the auditor, if any, and
(c) any further info (e.g. if req’d by articles, by-laws or USA)
- 155(2): docs required by (1) must be delivered to SH at least 21 days before the annual meeting or
before the signing of a resolution (142) (chance to review, get professional advice, prepare
questions)
- 155(3): OFFENCE: failure to comply w/(1) w/o reason is an offence punishable on summary
conviction to a fine of $5000
6. Appoint an Auditor
- 161(1): auditor must be independent from the corp – i.e. in a position to make an obj review of
corp’s financials, protection for SH (“do the statements fairly and accurately rep the financial
situation of the corp?”)
- 161(2): disqualified if person is
(a) bus partner, dir, officer or EE of the corp or its affiliate, or bus partner of a perons who is;
(b) signifanct SH;
(c) has been a receiver, liquidator, or trustee in bankruptcy for the corp or its affiliate w/in 2yrs
-
162(1): auditor appt’d by ordinary res of SH at first and each annual meeting
162(2):auditor appt’d by dirs until first SH meeting (104) is eligible to be appt’d by SH
162(3): incumbent auditor conts in office until a successor is appt’d
162(4): auditor’s remuneration may be fixed by ord res of SH, or by res of dirs
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-
163(1): unless distr corp, SH may resolve not to appt auditor
163(2): res under (1) is only valid until next annual meeting
163(3): res under (1) not valid unless has unanimous consent of all SH
RESOLUTIONS
2(1)
“ordinary resolution” – resolution passed by a maj of the votes cast by the SH who voted in respect
of that resolution (quorum – 139)
142
142(2)
142(3)
“special resolution” – resolution passed by a maj of not less than 2/3rds of the votes cast by SH who
voted in respect of that resolution or signed by all the SH entitled to vote on that resolution
Resolution in Lieu of Meeting – Except where a written statement is submitted by a dir under 110(2)
or by an auditor under 168(5),
(a) a resolution in writing by all the SH entitled to vote on that res at a meeting of the SH is valid
as if it had been passed at a meeting of the SH; AND
(b) a resolution in writing dealing w/all the matters req’d by this Act to be dealt with at a meeting
of SH, and signed by all the SH entitled to vote at that meeting, satisfies all the reqs of this Act
relating to meetings of SHs.
**if SH wants a meeting, simply has to refuse to sign the resolution
Filing Resolution – a copy of every resolution referred to in (1) shall be kept w/the minutes of the
meeting of SH
Evidence – unless a ballot is demanded, an ordinary entry in the minutes of a meeting to the effect
that the chairperson of the meeting declared a resolution to be carried or defeated is, to the absence
of evid to the contrary, proof of the fact w/o proof of the number or proportion of votes recorded in
favour of or against the resolution
REVIEW OF FINANCIAL STATEMENTS
155(1)
Annual Financial Statements – subj to 156 (dir’s discretion to omit), the dirs shall place before SH
at every annual meeting
(a) comparative financial statements as prescribed relating to
i. the period that began on the date the corp came into existence and ended not more
than 6 mos before the annual meeting or, if the corp has completed a financial year,
the period that began immediately after the end of the last completed financial year
and ended not more than six months before the annual meeting, and
ii. the immediately preceding financial year;
(b) the report of the auditor, if any; and
(c) any further info respecting the financial position of the corp and the results of its operations
req’d by the articles, the by-laws or any USA.
155(2)
Exception – Notwithstanding para (1)(a), the financial statements referred to in 1(a)(ii) may be
omitted if the reason for the ommision is set out in the financial statements, or in a note thereto, to be
placed before the SH at an annual meeting
159(1)
Copies to SH: corp shall, not less than 21 days before each annual meeting of SH or before the
signing of a resolution under 142(1)(b) in lieu of the annual meeting, send a copy of the docs referred
to in 155 to each SH, except to a SH who has informed the corp in writing that s/he doesn’t want a
copy
159(2)
Offence – a corp that w/o reas cause fails to comply w/(1) is guilty of an offence an dliable on
summary conviction to a fine not exceeding $5000
AUDITOR
161(1)
Qualification of auditor – subj to (5), a person is disqualified from being an auditor of a corp if the
person is not indep of corp, any of its affiliates or the dirs or officers of any such corp or its affiliates
161(2)
Independence – for the purposes of this section,
(a) indep is a ques of fact; and
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(b) a person is deemed not to be indep if he or his bus partner
i. is a bus partner, dir, officer or EE of the corp or any of its affiliates, or a bus partner of
any dir, officer or EE of any such corp or its affiliates
ii. beneficially owns or controls, directly or indirectly, a material int in the securities of the
corp or any of its affiliates, or (signif SH)
iii. has been a receiver, receiver-mgr, liquidator or trustee in bankruptcy of the corp or
any of its affiliates w/in 2yrs of his proposed appt as auditor of the corp
162(1)
162(2)
162(3)
162(4)
163(1)
163(2)
163(4)
Appt of auditor – subj to 163, SH of a corp shall, by ord res, at the first annual meeting of SH and at
each subsequent annual meeting, appt an auditor to hold office until the close of the next annual
meeting
Eligibility – an auditor appt’d under 104 (dirs power to appt audit until first SH meeting) is eligible for
appt under (1)
Incumbent auditor – notwithstanding (1), if an auditor is not appt’d at a meeting of SH, the
incumbent auditor conts in office until a successor is appt’
Remuneration – the remuneration of an auditor may be fixed by ord res of the SH or, if not so fixed,
may be fixed by the dirs.
Dispensing w/auditor – the SH of a corp that is not a distributing corp may resolve not to appt an
auditor
Limitation – a resolution under (1) is valid only until the next annual meeting of SH
Unanimous consent – a resolution under (1) is not valid unless it is consented to by all SH, incl SH
not otherwise entitled to vote
RELEVANT CASES:
Automatic Self-Cleansing Filter Syndicate
- Articles: dirs shall manage and control the corp subj to any regs passed by special res (3/4’s of votes) 
articles delegate pwr to the dirs (SH are residual mgrs and they delegate pwrs to dirs in articles)
- Dirs called SH meeting at which resolution to approve a sale of the corp’s assets was passed by a simple
majority
o
Offer had been brought forward by signif SH
- Dirs believed the sale was not in best ints of corp and refused to carry out the transaction
- The SH who had voted in favour of the sale brought action seeking crt to compel the dirs to carry out the
sale as approved
- General limitation on dirs’ auth – “subj to such regs as may from time to time be made by extraordinary res”
- Thf. to alter the dirs powers, must have resolution passed by special maj (not simple maj)
- Dirs are not the agent of the maj SH – the pwr to manage was given to dirs under the articles and to take it
away, the SH have to act in accordance w/articles by either:
o
Amending articles (such that ordinary res can approve sale)
o
Or get spec res to approve sale
- Maj SH can’t simply tell dirs what to do –they are subject to articles
- Dirs are in the position to make these decs – and it is only when sale approved by special maj that dirs
would be compelled to implement the dec
o
Dirs had power of mgmt subj to special maj of SH
o
If SH want sale approved, have to amend the articles such that an ordinary res was sufficient to
approve the sale – but that would also require a spec res
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SHAREHOLDER MEETINGS
1. GENERALLY:
i. Was it held w/in time limits?
ii. Was it held in right place?
iii. Was proper notice given (ord v. spec bus)?
iv. Was their quorum?
v. Who has right to vote?
vi. Was voting conducted properly?
vii. Is resolution in lieu of meeting valid?
When
- 133(1): dirs have to call annual meeting each yr ((a) first w/in 18 months, (b) subsequent w/in 15 months)
- 133(2): special meetings can be called by dirs anytime
- 133(3): corp may apply to crt for an order extending the time for calling a meeting
Where:
- 132(1): in Cad at place provided in by-laws or where dirs deter, unless
- 132(2): all SH agree to hold meeting outside Cad, or the place outside Cad is provided for in by-laws
- 132(3): attendence at meeting outside Cad is taken to be agmt to such meeting unless attended w/express
purpose of protesting it
- 132(4): participation by electronic means permitted, but all participants must be able to communicate
adequately w/each other
- 132(5): dirs or SH who call meeting may deter that it will be held entirely by electronic means
Notice: special bus v. ordinary bus deters type of notice req’d
- 135(1): notice of the time and place of meeting shall be sent to (a) each SH entitled to vote; (b) each dir; (c)
auditor AT LEAST 21 days in advance (Reg 44)
- 135(1.1): notice may be sent less than 21 days in advance if not a distr corp
- 135(2): notice of meeting not req’d to be sent to SH who isn’t registered, but failure to receive notice doesn’t
deprive SH of right to vote
- 135(5): all bus transacted at special meeting, and all bus transacted at an annual meeting, subj to 4
excpetions, is deemed special bus
- exceptions: consideration of financial statements, auditor’s report, election of dirs and re-appt of
incumbent dir
- important b/c reqs for disclosure in advance of meeting are diff
- 135(6): special notice  notice of meeting at which special bus is to be transacted shall state (a) the
nature of the bus in sufficient detail, (b) the text of any spec res to be submitted at the meeting
- must be specific enough for SH to decide whether to attend, give their proxy to someone or just
stay home
- if fund change proposed – go back to 135(6) and ensure notice provisions complied with
- 136: waiver of notice is implied by attendence at the meeting, unless attending w/express purpose of
protesting the meeting
Who:
- 139(1): subj to by-laws, quorum is met if a maj of the holdlers of shares entitled to vote at the meeting are
present in person or rep’d by proxy
- must have quorum to have valid meeting that conducts valid bus
- one person w/51% of voting shares is sufficient
- by-laws may impose special rules re: quorum (e.g. certain # of people, certain class of SH present)
- 139(2): if you have quorum at the opening of the meeting, that is sufficient – proceed w/bus notwithstanding
that quorum isn’t present throughout
- 139(4): if corp only has one SH – can have a one SH meeting
- wouldn’t do this – 142 resolution instead
Right to vote:
- 140(1): subj to articles, each share entitles the holder to one vote (one share/one vote)
114
-
140(2): if body corp of assoc is a SH of a corp, the corp shall recog any indiv auth by res of the dirs or
governing body of the body corp or assoc to rep it at SH meetings
140(3): rep of corp can exercise all power avail to indiv SH
140(4): if shares are held jointly and only one owner attends meeting, he may vote the share; if more than
one owner attends meeting the vote jointly (vote is attached to share, not person)
Voting:
- 141(1): subj to by-laws, voting may be by show of hands, except where ballot is demanded by a SH or
proxholder entitled to vote at the meeting
- 141(2): SH or proxyholder may demand a ballot either before or after any show of hands
- 141(3): vote may be held electronically, if corp makes avail a communication facility
- Reg 45(1): communication facility must enable (a) votes to be verified and (b) tallied votes to be
presented to the corp w/o being able to identify voter
- 141(4): person attending meeting by electronic means is entitled to vote by electronic means
- Reg 45(2): voting by electronic means when participating by electronic means must enable (a)
votes to be verified and (b) tallied votes to be presented to the corp w/o being able to identify voter
Resolution in lieu:
- 142(1)(a): can pass resolution in writing, valid as if passed at meeting, if ALL SH entitled to vote sign
- 142(1)(b): can hold meeting in writing if all req’d bus is incl in resolution and ALL SH entitled to vote sign
the resolution
2. REQUISITION OF MEETING BY SH:
-
-
important b/c this is how SH get meeting if they have lost confidence in dirs and want to remove them
(valuable pwr to intervene in mgmt in btw annual meetings)
143(1): holders of not less than 5% of issued shares that carry the right to vote may requisition dirs to call a
meeting
143(2): requisition, signed by one or more SH, must state the bus to be transacted at the meeting and shall
be sent to each dir
143(3): on receiving the requisition, dirs shall call meeting to transact the bus, unless (a) record date has
been fixed under 134(1)(c); (b) dirs have called a meeting of SH and given notice thereof; (c) the bus of the
meeting stated in requisition incls matters described in 137(5)(b) to (e)
143(4): if dirs fail to call meeting w/in 21 days, SH may do so
143(5): sets out procedures (must comply with this Part (s.132-146) and Part XIII (proxies)
- where, notice, quorum, right to vote, voting, crt order, USA
143(6): SH entitled to reimbursement for requisitioning, calling and holding a meeting
3. COURT MAY: ORDER MEETING, REVIEW ELECTION OF DIRS:
-
arises when bad blood btw SH (e.g. one group of SH can block meeting b/c they hold enough shares to
prevent quorum)
144(1): on application of dir, SH entitled to vote, or Dir, crt may order meeting to be called
144(2): crt may order that quorum req’d by the by-laws or this Act be varied or dispensed with at a meeting
144(3): meeting called and held pursuant to this section is a valid meeting of SH
145(1): crt may, on application of corp, SH or dir, deter any controversy wrt election or appt of dir or auditor
145(2): crt may make any order it sees fit – broad discretion (lists orders)
115
WHERE
132(1)
Place of Meetings – meetings of SH shall be held at the place w/in Cad provided in the by-laws or, in
the absence of such provision, at the place w/in Cad where the dirs deter
132(2)
Meeting outside Cad – Despite (1), a meeting of SH may be held at a place outside Cad if the place is
specified in the articles or all SH entitled to vote at the meeting agree that the meeting is to be held at
that place.
132(3)
Exception – a SH who attends a meeting of SH held outside Cad is deemed to have agreed to it being
held outside Cad except when the SH attends the meeting for the express purpose of objecting to the
transaction of any bus on grounds that the meeting is not lawfully held.
132(4)
Participation in meeting by electronic means – unless the by-laws otherwise provide, any person
entitled to attend a SH meeting may participate in the meeting, in accordance w/the regs, if any, by
electronic means that permits all participants to communicate adequately w/each other during the
meeting; a person attending by such means is deemed for the purposes of this Act to be present at the
meeting.
**no regs, would be reg’d in by-laws of the corp
**Reg 45 – covers voting by electronic means
**base req: all participants must be able to communicate adequately with each other
132(5)
WHEN:
133(1)
Meeting held by electronic means – if the dirs or SH call a meeting of SH pursuant to this Act, those
dirs or SH may deter that the meeting shall be held, in accordance w/any regs, entirely by electronic
means that permit all participants to communicate adequately w/each other during the meeting if the
by-laws so provide.
Calling annual meetings – dirs shall call an annual meeting of SH
(c) not later than 18 months after corp came into existence
(d) subsequently, not later than 15 months after holding the last preceding annual meeting but
no later than 6 months after the end of the corp’s preceding financial year
133(2)
Calling special meetings – dirs of a corp may at any time call a special meeting of SH
133(3)
Order to delay calling of annual meeting – despite (1), the corp may apply to the crt for an order
extending the time for calling an annual meeting
Notice of Meeting – notice of the time and place of SH meeting shall be sent w/in the prescribed
period to
(a) each SH entitled to vote at the meeting;
(b) each dir; and
(c) the auditor of the corp.
Reg 44 – not less than 21 days in advance, not more than 60 days
Exception – not a distr corp - if it is not a distr corp, notice may be sent w/in a shorter period if so
specified in articles or by-laws.
Exception – SH not registered – a notice of meeting is not req’d to be sent to SH who were not
registered on the records of the corp or its tsf agent on the record date deter under 134(1)(c) or
134(2), but failure to receive notice doesn’t deprive SH of right to vote at the meeting.
Adjournment – If a SH meeting is adjourned for less than 30 days it is not nec, subj to by-laws, to
give notice of the adjourned meeting, other than by announcement at the earliest meeting that is
adjourned. (not covering)
Notice of Adjourned Meeting – if a SH meeting is adjourned by one or more adjournments for an
aggregate of 30 dyas or more, notice of the adjourned meeting shall be given as for an original
meeting but, unless the meeting is adjourned by one or more adjournments for an aggregate of more
than 90 days, 149(1) doesn’t apply.
(not covering)
Business – all bus transacted at a special SH meeting and all bus transacted at an annual meeting
of SH, except consideration of the financial statements, auditor’s report, election of dirs and re-appt
of incumbent auditor, is deemed to be special bus.
135(1)
135(1.1)
135(2)
135(3)
135(4)
135(5)
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135(6)
Notice of bus – notice of a meeting of SH at which special bus is to be transacted shall state
(a) the nature of that bus in sufficient detail to permit the SH to form a reasoned judgement
thereon; and
(b) the text of any special resolution to be submitted to the meeting.
136
WHO
139(1)
Waiver of notice – implied by showing up at the meeting, unless you came just to protest
Quorum – subj to by-laws, a quorum of SH is present at a meeting of SH, irrespective of the # of
persons present, if the holders of a maj of the shares entitled to vote at the meeting are present in
person or rep’d by proxy.
139(2)
Opening quorum sufficient – if a quorum is present at the opening of a meeting of SH, the SH
present may, unless the by-laws otherwise provide, proceed w/the bus of the meeting, notwithstanding
that a quorum is not present throughout the meeting.
139(3)
Adjournment – if a quorum is not present at the opening of the SH meeting, the SH present may
adjourn the meeting to a fixed time and place but may not transact any other bus. (not covering)
One SH meeting – if a corp only has one SH, or only one holder of any class or series of shares, that
SH present in person or by proxy constitutes a meeting.
139(4)
RIGHT TO VOTE
140(1)
Right to vote – subj to articles, each share of a corp entitles the holder thereof to one vote at a SH
meeting
140(2)
Representative – if a body corp or assoc is a SH of a corp, the corp shall recog any indiv auth by
resolution of the dirs or governing body of the body corp or assoc to represent it at SH meetings.
140(3)
Powers of representative – an indiv auth under (2) may exercise on behalf of the body corp or assoc
all the powers it could exercise if it were an indiv SH.
140(4)
Joint SH – subj to by-laws, if two or more persons hold shares jointly, one of those holders present at a
meeting of SH may in the absence of the others vote the share, but if two or more of those persons
who are present, in person or by proxy, they shall vote as one on the shares jointly held by them.
VOTING
141(1)
Voting – subj to by-laws, voting at a SH meeting shall be by show of hands except where a ballot is
demanded by a SH or proxyholder entitled to vote at the meeting.
141(2)
Ballot – SH or proxyholder may demand a ballot either before or after any show of hands
141(3)
Electronic Voting – despite (1), subj to by-laws, any vote referred to in (1) may be held, in accordance
w/regs (45(1)), if any, entirely by electronic means, if the corp make avail such a communication facility
Voting while participating electronically – subj to by-laws, any person participating in a meeting of
SH under 132(4) or (5) and entitled to vote at that meeting may vote, in accordance w/regs (45(2)), if
any, by electronic means the corp has made avail for that purpose
RESOLUTION IN LIEU OF MEETING
142(1)
Resolution in Lieu of Meeting – Except where a written statement is submitted by a dir under 110(2)
or by an auditor under 168(5),
(a) a resolution in writing by all the SH entitled to vote on that res at a meeting of the SH is valid as
if it had been passed at a meeting of the SH; AND
(b) a resolution in writing dealing w/all the matters req’d by this Act to be dealt with at a meeting of
SH, and signed by all the SH entitled to vote at that meeting, satisfies all the reqs of this Act
relating to meetings of SHs.
142(2)
Filing resolution – a copy of every resolution referred to in (1) shall be kept w/minutes of SH meetings
142(3)
Evidence – unless a ballot is demanded, an entry in the minutes of a meeting to the effect that the
chairperson of the meeting declared a resolution to be carried or defeated is, in the absence of evid to
the contrary, proof of the fact w/o proof of the number or proportion of the votes recorded in favour of or
against the resolution.
141(4)
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Regulations
44
Notice of Meetings – for the purposes of 135(1), the prescribed period for the dirs to provide notice of
the time and place of a meeting of SH is not less than 21 days and not more than 60 days before the
meeting.
45(1)
Communication Facilities – for the purposes of 141(3), when a vote is to be taken at SH meeting, the
voting may be carried out by means of a telephonic, electronic or other communication facility, if the
facility
(a) enables the votes to be gathered in a manner that permits their subsequent verification; and
(permits verification)
(b) permits the tallied votes to be presented to the corp w/o it being poss for the corp to identify
how each SH voted (permits anonymity)
45(2)
**electronic voting becoming more common
For the purposes of 141(4), a person who is entitled to vote at a meeting of SH may vote by means of a
telephonic, electronic or other communication facility, if the facility
(a) enables the vote to be gathered in a manner that permits is subsequent verification; and
(b) permits the tallied vote to be presented to the corp w/o it being poss for the corp to identify how
the SH voted.
REQUISITION OF MEETING BY SH
143(1)
Requisition of meeting – the holders of not less than 5% of the issued shares that carry the right to
vote at a meeting sought to be held may requisition the dirs to call a meeting of SH for the purposes
stated in the requisition.
143(2)
143(3)
143(4)
143(5)
143(6)
Form – the requisition, which may consist of several docs of like form each signed by one or more SH,
shall state the bus to be transacted at the meeting and shall be sent to each dir and to the registered
office of the corp.
Dirs calling meeting – on receiving the requisition, the dirs shall call a SH meeting to transact the bus
stated in the requisition, unless
(a) a record date has been fixed under 134(1)(c) and notice of it has been given under 134(3)
(a) the dirs have called a meeting of SH and have given notice thereof under 135; or
(b) the bus of the meeting as stated in the requisition includes matters described in 137(5)(b) to (e)
SH calling a meeting – if the dirs do not w/in 21 days after receiving the requisition referred to in (1)
call a meeting, any SH who signed the requisition may do so
Procedure – a meeting called under this section shall be called as nearly as possible in the manner in
which meetings are to be called pursuant to the by-laws, this Part and Part XIII.
Reimbursement – unless the SH otherwise resolve at a meeting called under (4), the corp shall
reimburse the SH the expenses reasonably incurred by them in requisitioning, calling and holding the
meeting.
MEETING ORDERED BY COURT
144(1)
Meeting called by court – a crt, on the application of a dir, SH entitled to vote at a meeting of SH, or
Dir, may order a meeting of a corp to be called, held and conducted in the manner that the crt directs, if
(a) it is impracticable to call the meeting w/in the time or in the manner in which those meetings
are to be called;
(b) it is impracticable to conduct the meeting in the manner req’d by this Act or the by-laws; or
(c) the crt thinks that the meeting should be called, held and conducted w/in the time or in the
manner it directs for any other reason
144(2)
Varying Quorum – w/o restricting the generality of (1), the crt may order that quorum req’d by the bylaws of this Act be varied or dispensed w/at a meeting called, held and conducted pursuant to this
section.
144(3)
Valid meeting – a meeting called, held and conducted pursuant to this section is for all purposes a
meeting of SH of the corp duly called, held and conducted.
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4. Court Review of Elections:
COURT REVIEW OF ELECTIONS
145(1)
Court review of election – a corp or a Sh or dir may apply to a crt to deter any controversy wrt an
election or appt of a dir or auditor of the corp.
145(2)
Powers of court – on an application under this section, the crt may make any order it thinks fit,
including, w/o limiting the generality of the foregoing,
(a) an order restraining a dir or auditor whose election or appt is challenged from acting pending
determination of the dispute;
(b) an order declaring the result of the disputed election or appt;
(c) an order requiring a new election or appt, and incl in the order directions for the mgmt of the
bus and affairs of the corp until a new election is held or appt made; and
(d) an order determining the voting rights of SH and of persons claiming to own shares.
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SHAREHOLDER CONTROL OF FUNDAMENTAL CHANGES
-
Statutory scheme: balance rights of maj SH to control fundamental changes against rights (expecs) of min
SH that corp they invested in will cont to be governed by same rules and carry on same or sim bus
Fund changes must be approved by special resolution
- May even have to get spec res w/in class of shares (even if not usually entitled to vote)
190: dissenting SH have right to have shares purchased at FV
135(6): special notice rules apply b/c fund changes are “special bus”
FOUR FUNDAMENTAL CHANGES:
a) Amendment of articles of incorp – 173, 175(1), 176, 177(1), 178, 179
i. 173(1): articles must be amended by special resolution
1. (a) – (o): fundamental changes
2. 6(3): if articles or USA require greater # of votes than req’d by the act, that is permitted
(i.e. req in articles unanimous support for fund change – internal way of ensuring no SH
rights could be affect w/o their consent)
ii. who is proposing amendment: corp, dir, SH? (affects notice)
iii. exceptions: dirs can amend articles w/o spec res of SH
1. 27: creating a new series of shares
2. 173(3): changing #’d name to verbal name
iv. 175(1): dir or SH entitled to vote may, in accordance w/s.137 (spec notice req’d), propose to amend
articles
v. 175(2): special notice provisions apply (SH needs to be informed)
1. notice must set out the proposed amend, and state that a dissenting SH is entitled to be
bought out under 190
2. failure to make that statement doesn’t invalidate amend
3. **135(1) notice must be sent to SH entitled to vote, thf. must deter what SH will be
entitled to vote as they are the only ones who are req’d to receive notice
vi. 176(1): amend of arts must be approved by separate vote of each class of shares affected by the
proposed amend (entitled to vote separately unless articles otherwise provide)
1. articles may provide that notwithstanding 176(1), a change set out in (a), (b) or (e)
doesn’t give separate class the right to vote
2. sets out circs in which SH, incl non-voting shares, may be entitled to vote as a class
3. see list of changes
vii. 176(5): special class of SH may have right to vote separately on amend regardless of whether that
class normally has right to vote (if they can bring themselves w/in the circs set out in (1))
1. each SH presumptively gets one vote (140)
viii. 176(6): where a separate class vote is held, amend must be approved by special res of each class
entitled to vote (2/3rds maj)
ix. 177-179: sim to process after incorp; anyone searching directorate can find changes to articles
1. 177: articles of amend must be sent to Dir
2. 178: Dir shal issue cert of amend
3. 179(1): amend effective on date shown on cert
4. 179(2): rights preserved (amend doesn’t affect existing cause of action)
**may get separate class vote, may have right to dissent (if the fundamental change is incl in 190)
b) Continuation of CBCA corp to another juris (“export”) – 188(1), (3)-(10)
i. 188(1): continuance requires authorization of SH
ii. 188(3): special notice to SH required (must comply w/135)
iii. 188(4): every SH is entitled to vote on the proposal to cont in another juris, even when their shares
don’t normally carry the right to vote
iv. 188(5): approval is by special resolution
**importing doesn’t have strict rules, but originating juris is likely to have strict rules
**one exam question asked students to assume reqs in one juris were same as in CBCA
**every SH votes (no class votes); SH have right to dissent
120
c) Extraordinary sale, lease or exchange of all or substantially all of a corp’s assets – 189(3)-(9)
i. Applies to sale, lease, or exchange (e.g. exchange a building for a hotel)
ii. Fundamental change b/c the SH would have invested in the corp b/c it held certain kinds of assets
and carried on certain kinds of bus
iii. “all or substantially all”  well over 50%, no clear test, look at both relative value of assets left
after disposal, AND signif of assets to corps bus (i.e. can it still carry on the same bus??)
iv. look for fact pattern where almost everything is being sold, tsf’d, or leased
v. 189(3): requires special approval of SH (special notice, all classes entitled to vote, spec res)
vi. 189(4): special notice must be given to SH(135(5) and (6)) must include:
1. copy or summary of the sale, lease, etc. agmt
2. notice that dissenting SH has access to 190 (failure to make this statement doesn’t
invalidate the transaction)
vii. 189(5): SH have pwr to authorize the transaction, and to fix or auth the dirs to fix the terms and
conds of the transaction
1. SH can approve diff terms than are in the draft – pwr to change terms of agmt (3rd party
might not accept changes)
viii. 189(6): each share carries right to vote
ix. 189(7): a class or series is entitled to vote separately if it is affected by the transaction differently
than another class or series
x. 189(8): approval by spec res
xi. 189(9): dirs, if auth by SH approving proposed sale, lease or exchange, and subj to rights of 3 rd
parties, can abandon the transaction w/o further approval of SH
1. dirs have auth to abandon the deal w/o going back to SH
**may get separate class vote; entitled to dissent under 190
d) Voluntary liquidation and dissolution – 211(1)-(3)
i. Voluntary liquidation and dissolution is distinct from involuntary or crt order one under ss.213-214
1. Westfair Foods – SH seeking crt ordered dissolution
ii. 211(1) and (2): dir or SH entitled to vote at any annual meeting may propose liq and diss, and
special notice must be sent to each SH (special bus – 135(5))
iii. 211(3): the proposal must be approved by spec res, and where a corp has more than one class of
shares, each class must separately approve the proposal by spec res
iv. dissent and appraisal remedy is not avail wrt voluntary liq and diss (are going to be paid anyways)
**separate class vote req’d
AMENDMENT OF ARTICLES
173(1)
Amendment of articles - Subject to sections 176 and 177, the articles of a corporation may by
special resolution be amended to
(a) change its name;
(b) change the province in which its registered office is situated;
(c) add, change or remove any restriction on the business or businesses that the corporation
may carry on;
(d) change any maximum number of shares that the corporation is authorized to issue; (change
capital)
(e) create new classes of shares;
(f) reduce or increase its stated capital, if its stated capital is set out in the articles;
(g) change the designation of all or any of its shares, and add, change or remove any rights,
privileges, restrictions and conditions, including rights to accrued dividends, in respect of all or
any of its shares, whether issued or unissued; (e.g. wipe out cumulative dividends)
(h) change the shares of any class or series of shares, whether issued or unissued, into a
different number of shares of the same class or series or into the same or a different number of
shares of other classes or series; (consolidate shares)
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(i) divide a class of shares, whether issued or unissued, into series and fix the number of shares
in each series and the rights, privileges, restrictions and conditions thereof;
(m) increase or decrease the number of directors or the minimum or maximum number of
directors, subject to sections 107 and 112;
(n) add, change or remove restrictions on the issue, transfer or ownership of shares; or
(o) add, change or remove any other provision that is permitted by this Act to be set out in the
articles. (any other change to arts permitted by act would require spec res)
173(2)
Termination - Dirs may, if authorized by SH in the special resolution effecting an amendment under
this section, revoke the resolution before it is acted on without further approval of the shareholders.
173(3)
Amendment of # name - Notwithstanding (1), where a corporation has a designating number as a
name, the directors may amend its articles to change that name to a verbal name.
175(1)
Proposal to amend - Subject to (2), a dir or SH who is entitled to vote at an annual meeting may, in
accordance with section 137, make a proposal to amend the articles.
176
Class vote - The holders of shares of a class or, subject to (4), of a series are, unless the articles
otherwise provide in the case of an amendment referred to in paragraphs (a), (b) and (e), entitled to
vote separately as a class or series on a proposal to amend the articles to
(a) increase or decrease any maximum number of authorized shares of such class, or increase
any maximum number of authorized shares of a class having rights or privileges equal or
superior to the shares of such class; (common SH prevent more preferred SH)
(b) effect an exchange, reclassification or cancellation of all or part of the shares of such class;
(not covering)
(c) add, change or remove the rights, privileges, restrictions or conditions attached to the shares
of such class and, without limiting the generality of the foregoing,
(i) remove or change prejudicially rights to accrued dividends or rights to cumulative
dividends,
(ii) add, remove or change prejudicially redemption rights,
(iii) reduce or remove a dividend preference or a liquidation preference, or
(iv) add, remove or change prejudicially conversion privileges, options, voting, transfer or preemptive rights, or rights to acquire securities of a corporation, or sinking fund provisions;
(d) increase the rights or privileges of any class of (existing) shares having rights or privileges
equal or superior to the shares of such class;
(e) create a new class of shares equal or superior to the shares of such class;
(f) make any class of shares having rights or privileges inferior to the shares of such class equal
or superior to the shares of such class;
(h) constrain the issue, tsf, ownership of the shares of such class or change or remove such
constraint
**arts may provide NO separate class vote on amend in (a), (b), or (e)
176(2)
Exception - Subsection (1) does not apply in respect of a proposal to amend the articles to add a
right or privilege for a holder to convert shares of a class or series into shares of another class or
series that is subject to a constraint permitted under paragraph 174(1)(c) but is otherwise equal to the
class or series first mentioned.
176(3)
Deeming provision - For the purpose of paragraph (1)(e), a new class of shares, the issue, transfer
or ownership of which is to be constrained by an amendment to the articles pursuant to paragraph
174(1)(c), that is otherwise equal to an existing class of shares shall be deemed not to be equal or
122
superior to the existing class of shares.
176(4)
Limitation - The holders of a series of shares of a class are entitled to vote separately as a series
under subsection (1) only if such series is affected by an amendment in a manner different from other
shares of the same class.
176(5)
Right to vote - Subsection (1) applies whether or not shares of a class or series otherwise carry the
right to vote.
176(6)
Separate resolutions - A proposed amendment to the articles referred to in subsection (1) is
adopted when the holders of the shares of each class or series entitled to vote separately thereon as
a class or series have approved such amendment by a special resolution.
177(1)
Delivery of articles - Subject to any revocation under subsection 173(2) or 174(5), after an
amendment has been adopted under section 173, 174 or 176 articles of amendment in the form that
the Director fixes shall be sent to the Director.
178
Cert of amend - On receipt of articles of amendment, the Director shall issue a certificate of
amendment in accordance with section 262.
179(1)
Effect of cert - An amendment becomes effective on the date shown in the certificate of amendment
and the articles are amended accordingly.
179(2)
Rights preserved - No amendment to the articles affects an existing cause of action or claim or
liability to prosecution in favour of or against the corporation or its directors or officers, or any civil,
criminal or administrative action or proceeding to which a corporation or its directors or officers is a
party.
CONTINUATION
188(1)
Continuance – other jurs - Subject to (10), a corporation may apply to the appropriate official or
public body of another jurisdiction requesting that the corporation be continued as if it had been
incorporated under the laws of that other jurisdiction if the corporation
(a) is authorized by the shareholders in accordance with this section to make the
application; and
(b) establishes to the satisfaction of the Director that its proposed continuance in the other
jurisdiction will not adversely affect creditors or shareholders of the corporation.
188(3)
Notice of Meeting - A notice of a meeting of shareholders complying with section 135 shall be sent
to each SH and shall state that a dissenting shareholder is entitled to be paid the fair value of their
shares in accordance with section 190, but failure to make that statement does not invalidate a
discontinuance under this Act.
188(4)
Right to vote - Each share of the corporation carries the right to vote in respect of a continuance
whether or not it otherwise carries the right to vote.
188(5)
SH approval - An application for continuance becomes authorized when the shareholders voting
thereon have approved of the continuance by a special resolution.
188(6)
Termination - The dirs of a corporation may, if authorized by the SH at the time of approving an
application for continuance under this section, abandon the application without further approval of the
shareholders.
188(7)
Discontinuance - On receipt of a notice satisfactory to the Director that the corporation has been
continued under the laws of another jurisdiction or under one of the Acts referred to in subsection
(2.1), the Director shall file the notice and issue a certificate of discontinuance in accordance with
section 262.
188(8)
Notice deemed to be articles - For the purposes of section 262, a notice referred to in subsection
(7) is deemed to be articles that are in the form that the Director fixes.
188(9)
This Act ceases to apply to the corporation on the date shown in the certificate of discontinuance.
188(10)
Prohibition - A corporation shall not be continued as a body corporate under the laws of another
123
jurisdiction unless those laws provide in effect that
(a) the property of the corporation continues to be the property of the body corporate;
(b) the body corporate continues to be liable for the obligations of the corporation;
(c) an existing cause of action, claim or liability to prosecution is unaffected;
(d) a civil, criminal or administrative action or proceeding pending by or against the corporation
may be continued to be prosecuted by or against the body corporate; and
(e) a conviction against, or ruling, order or judgment in favour of or against, the corporation may
be enforced by or against the body corporate.
EXTRAORDINARY SALE, LEASE OR EXCHANGE OF ASSETS
189(3)
Extraordinary sale, lease or exchange - A sale, lease or exchange of all or substantially all the
property of a corporation other than in the ordinary course of business of the corporation requires the
approval of the SH in accordance with subsections (4) to (8).
189(4)
Notice of meeting - A notice of a meeting of SH complying with section 135 shall be sent in
accordance with that section to each shareholder and shall
(a) include or be accompanied by a copy or summary of the agreement of sale, lease or
exchange; and
(b) state that a dissenting shareholder is entitled to be paid the fair value of their shares in
accordance with section 190, but failure to make that statement does not invalidate a sale, lease
or exchange referred to in subsection (3).
189(5)
SH Approval - At the meeting, the SH may authorize the sale, lease or exchange and may fix or
authorize the dirs to fix any of the terms and conditions thereof.
189(6)
Right to vote - Each share of the corporation carries the right to vote in respect of a sale, lease or
exchange referred to in subsection (3) whether or not it otherwise carries the right to vote.
Class vote - The holders of shares of a class or series of shares of the corporation are entitled to
vote separately as a class or series in respect of a sale, lease or exchange referred to in subsection
(3) only if such class or series is affected by the sale, lease or exchange in a manner different from
the shares of another class or series.
189(7)
189(8)
SH approval - A sale, lease or exchange referred to in subsection (3) is adopted when the holders of
each class or series entitled to vote thereon have approved of the sale, lease or exchange by a
special resolution.
189(9)
Termination - The dirs may, if authorized by the SH approving a proposed sale, lease or exchange,
and subject to the rights of third parties, abandon the sale, lease or exchange without further approval
of the SH.
VOLUNTARY LIQUIDATION AND DISSOLUTION
211(1)
Proposing liq or diss - The dirs or a SH who is entitled to vote at an annual meeting of shareholders
may, in accordance with section 137, make a proposal for, the voluntary liquidation and dissolution of
a corporation.
211(2)
Notice of meeting - Notice of any meeting of SH at which voluntary liquidation and dissolution is to
be proposed shall set out the terms thereof (special bus thf. special notice required – 135(5), (6))
211(3)
SH resolution - A corporation may liquidate and dissolve by special resolution of the shareholders
or, where the corporation has issued more than one class of shares, by special resolutions of the
holders of each class whether or not they are otherwise entitled to vote.
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SHAREHOLDER PROPOSALS  137, Regs 46-53
-
changes to CBCA make it easier for SH to make proposals, and changes to proxy rules makes it easier for
SH to get support
any SH can give their share to PH  essentially makes the PH the agent of the SH to go to the meeting
and vote the shares according to SH wishes (specific instructions or instruct PH to vote at their discr)
broad categories of proposals:
- 175(1): proposal that articles be amended
- 211(1): propose the liquidation and dissolution of the corp
- 103(5): proposal that a by-law be made, amended, or repealed
-
Who can make a proposal:
- 137(1)(a) and (b): registered or beneficial SH of shares w/normal voting rights can make any
proposal and raise discussion
- 137(1.1)(a): to be eligible to make a proposal, must hold min amt of voting shares and have held
them for prescribed period of time
a. Reg 46: 1% of voting shares, or shares w/FMV of $2000, held for 6 months
- 137(1.1)(b): you can meet min reqs as a group
- 137(1.2): info to be provided by proposer – name, address of the person and supporters, and
number of shares held and when acquired
- 137(1.3): info provided under (1.2) is not part of the proposal (doesn’t affect word limit)
- 137(1.4): if requested, proof may be req’d that person meets (1.1)
a. Reg 47: corp must request proof w/in 14 day of receiving proposal; proof must be
provided by SH w/in 21 days of receiving request
- 137(4): SH w/at least 5% of shares, or 5% of class of voting shares may make nominations for
election of dirs (doesn’t preclude nomination at the meeting)
-
Management Circular
- 149(1) and (2): corp must solicit proxies if they are a distr corp or have greater than 50 shares
- 150(1)(a): if the corp must solicit proxies, it MUST also send out a mgmt proxy circular
**onus is on corp to ensure everyone entitled to vote has nec info**
-
137(2): a corp that solicits proxies shall set out the proposal in the mgmt circular req’d by s.150
137(3): proposal may request corp to include a supporting statement in the circular in support of the
proposal (may also include names of person supporting)
a. Reg 48: proposal and statement together max 500 words
-
137(5): Exemptions: corp not req’d to comply with (2) and (3) if (permits mgmt to omit a proposal
that doesn’t relate in a signif way to the bus of affairs of the corp)
a. the proposal is not submitted to the corp w/in 90 days (Reg 49) before the anniversary
date of the notice of meeting that was sent to SH in connection w/previous annual
meeting of SH  give corp time to give notice, etc.
b. if primary purpose of proposal is clearly to enforce a personal claim or redress a personal
grievance against the corp or its dirs, officers or security holders
b.1 it clearly appears that the proposal doesn’t relate in a signif way to the bus or affairs of
the corp
c. if proposing SH failed, w/in last 2 yrs (Reg 50) to attend a meeting, in person or by proxy,
where a proposal at that person’s request had been included in mgmt proxy circular
relating to the meeting
d. substantially the same proposal was submitted to SH in a mgmt or dissident proxy
circular relating to a meeting of SH held not more than 5yrs (Reg 51(2)) before the
receipt of proposal and didn’t received the prescribed min of support
i. Reg 51(1): if at one meeting – 3% of shares voted, if at 2 meetings – 6%, if at 3
meetings – 10%
e. Rights are being used to secure publicity
**motivation no longer relevant – just has to not relate to the ord bus and affairs in a signif way
125
-
-
137(5.1): mgmt may refuse to include proposal if person who submits it fails to continue to hold the
# of shares req’d by (1.1) up to and including the day of the meeting, and may refuse to publish a
proposal by that person for 2yrs (Reg 52)
137(7): if corp refuses to include a proposal in the circular, it must notify the SH in writing w/in 21
days (Reg 53) after receiving the proposal, or after receiving proof under (1.4) and include reasons
137(8): SH may apply to crt for an order restraining the corp from holding the meeting until it
properly prepares the proxy circular
137(9): corp may seek order from crt permitting the corp to omit the proposal from the proxy circular
137(10): Dir shall be given notice of action under (8) or (9)
-
Immunity: 137(6) – no corp or person acting on its behalf incurs any liability by reason only of circulating a
proposal or statement in compliance w/this section
- Might want to go to crt to get ruling re: whether corp must publish proposal (protect themselves
from defamation)
-
Effect of SH Proposal, if passed:
- 137(4) Proposal to nominate dirs if passed has effect of electing dir
- 103(5) proposal to change by-laws likely binding by implication
- 175(1) and (2): imply that a proposal to amend the arts is binding if passed (e.g. (2) makes no
sense – why provide dissenting SH w/right to be bought out if not binding?)
- what if SH proposes change to bus and affairs of corp, which is juris of dirs’ under 102? Are such
proposals binding on dirs, or do they merely have the status of a recommendation?
- Likely not binding on dirs – a matter that is specifically reserved to mgmt is inappropriate for a
vote on a proposal to change mgmt (i.e. dirs remuneration, etc.)
- But, proposal is often led by powerful instit’l investor – enough voting power to influence dirs
to change policy (threat that SH could requisition meeting under 143(1) and remove dirs)
SHAREHOLDER PROPOSALS
103(5)
SH proposal – a SH entitled to vote at an annual meeting of SH may, in accordance w/s.137, make a
proposal to make, amend or repeal a by-law
137(1.1) Proposals - Subj to (1.1) and (1.2), a registered holder or beneficial owner of shares that are entitled
to be voted at an annual meeting of SH may
(a) submit to the corp notice of any matter that the person proposes to raise at the meeting (a
“proposal”); and
(b) discuss at the meeting any matter in respect of which the person would have been entitled to
submit a proposal
137(1.1) Persons eligible to make proposals – to be eligible to submit a proposal, a person
(a) must be, for at least the prescribed period, the registered holder or the beneficial owner of at
least the prescribed # of shares of the corp; or
(b) must have the support of persons who, in the aggregate, and incl or not incl the person that
submits the proposal, have been, for at least the prescribed period, the registered holders, or
the beneficial owners of, at least the prescribed number of outstanding shares of the corp
137(1.2) Information to be provided – a proposal submitted under 1(a) must be accompanied by
(a) the name and address of the person and of the person’s supporters; and
(b) the number of shares held or owned by the person and the person’s supporters, if applicable,
and the date the shares were acquired.
137(1.3) Information not part of the proposal - The information provided under subsection (1.2) does not
form part of the proposal or of the supporting statement referred to in subsection (3) and is not
included for the purposes of the prescribed maximum word limit set out in subsection (3).
137(1.4) Proof may be required - If requested by the corporation within the prescribed period, a person who
submits a proposal must provide proof, within the prescribed period, that the person meets the
requirements of subsection (1.1).
137(2)
Information circular - A corporation that solicits proxies shall set out the proposal in the management
proxy circular required by section 150 or attach the proposal thereto.
137(3)
Supporting statement - If so requested by the person who submits a proposal, the corporation shall
include in the management proxy circular or attach to it a statement in support of the proposal by the
person and the name and address of the person. The statement and the proposal must together not
exceed the prescribed maximum number of words.
126
137(4)
137(5)
Nomination for dir - A proposal may include nominations for the election of directors if the proposal is
signed by one or more holders of shares representing in the aggregate not less than five per cent of
the shares or five per cent of the shares of a class of shares of the corporation entitled to vote at the
meeting to which the proposal is to be presented, but this subsection does not preclude nominations
made at a meeting of shareholders.
Exemptions - A corporation is not required to comply with subsections (2) and (3) if
(a) the proposal is not submitted to the corporation at least the prescribed number of days (49: 90
days) before the anniversary date of the notice of meeting that was sent to shareholders in
connection with the previous annual meeting of shareholders;
(b) it clearly appears that the primary purpose of the proposal is to enforce a personal claim or
redress a personal grievance against the corporation or its directors, officers or security holders;
(b.1) it clearly appears that the proposal does not relate in a significant way to the business or
affairs of the corporation;
(c) not more than the prescribed period (50: 2yrs) before the receipt of a proposal, a person failed
to present, in person or by proxy, at a meeting of shareholders, a proposal that at the person's
request, had been included in a management proxy circular relating to the meeting;
(d) substantially the same proposal was submitted to shareholders in a management proxy circular
or a dissident's proxy circular relating to a meeting of shareholders held not more than the
prescribed period (51(2): 5yrs)before the receipt of the proposal and did not receive the prescribed
minimum amount of support at the meeting; (escalating amts – 51(1) – 3% first time, if don’t get
3%, have to wait five years before submitting substantially the same proposal, unless showing that
support is increasing) or
(e) the rights conferred by this section are being abused to secure publicity.
137(5.1)
Corp may refuse to include proposal - If a person who submits a proposal fails to continue to hold
or own the number of shares referred to in subsection (1.1) up to and including the day of the meeting,
the corporation is not required to set out in the management proxy circular, or attach to it, any proposal
submitted by that person for any meeting held within the prescribed period ( 52: 2yrs) following the
date of the meeting.
137(6)
Immunity - No corporation or person acting on its behalf incurs any liability by reason only of
circulating a proposal or statement in compliance with this section.
137(7)
Notice of refusal - If a corporation refuses to include a proposal in a management proxy circular, the
corporation shall, within the prescribed period (53: 21 days) after the day on which it receives the
proposal or the day on which it receives the proof of ownership under subsection (1.4), as the case
may be, notify in writing the person submitting the proposal of its intention to omit the proposal from
the management proxy circular and of the reasons for the refusal.
137(8)
Person may apply to crt - On the application of a person submitting a proposal who claims to be
aggrieved by a corporation's refusal under subsection (7), a court may restrain the holding of the
meeting to which the proposal is sought to be presented and make any further order it thinks fit.
137(9)
Corp’s application to court - The corporation or any person claiming to be aggrieved by a proposal
may apply to a court for an order permitting the corporation to omit the proposal from the management
proxy circular, and the court, if it is satisfied that subsection (5) applies, may make such order as it
thinks fit.
137(10)
Director entitled to notice - An applicant under subsection (8) or (9) shall give the Director notice of
the application and the Director is entitled to appear and be heard in person or by counsel.
Proposal to amend - Subject to subsection (2), a director or a shareholder who is entitled to vote at
an annual meeting of shareholders may, in accordance with section 137, make a proposal to amend
the articles.
Proposing liquidation and dissolution – dirs may propose, or a SH who is entitled to vote at an
175(1)
211(1)
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annual meeting of SH may, in accordance w/s.137 (“proposals”), make a proposal for the voluntary
liquidation and dissolution of a corp
REGULATIONS
46
For the purpose of subsection 137(1.1) and paragraph 261(1)(c.1) of the Act,
(a) the prescribed number of shares is the number of voting shares
(i) that is equal to 1% of the total number of the outstanding voting shares of the corporation,
as of the day on which the shareholder submits a proposal, or
(ii) whose fair market value, as determined at the close of business on the day before the
shareholder submits the proposal to the corporation, is at least $2,000; and
(b) the prescribed period is the six-month period immediately before the day on which the
shareholder submits the proposal.
47
For the purpose of subsection 137(1.4) of the Act,
(a) a corporation may request that a shareholder provide the proof referred to in that subsection
within 14 days after the corporation receives the shareholder's proposal; and
(b) the shareholder shall provide the proof within 21 days after the corporation's request.
48
For the purpose of 137(3), a proposal and a statement in support of it shall together consist of not
more than 500 words.
For the purpose of 137(5)(a), the prescribed number of days for submitting a proposal to the
corporation is at least 90 days before the anniversary date.
For the purpose of 137(5)(c), the prescribed period before the receipt of a proposal is two years.
(1) For the purpose of paragraph 137(5)(d) of the Act, the prescribed minimum amount of support for a
shareholder's proposal is
(a) 3% of the total number of shares voted, if the proposal was introduced at an annual meeting of
shareholders;
(b) 6% of the total number of shares voted at its last submission to shareholders, if the proposal
was introduced at two annual meetings of shareholders; and
(c) 10% of the total number of shares voted at its last submission to shareholders, if the proposal
was introduced at three or more annual meetings of shareholders.
49
50
51
(2) For the purpose of subsection (1), the prescribed period within which an annual meeting of
shareholders must be held is five years before the receipt of a proposal.
52
53
For the purpose of subsection 137(5.1) of the Act, the prescribed period during which the corporation
is not required to set out a proposal in a management proxy circular is two years.
For the purpose of subsection 137(7) of the Act, the prescribed period for giving notice is 21 days after
the receipt by the corporation of the proposal or of proof of ownership under subsection 137(1.4) of the
Act, as the case may be.
128
ACCESS TO OTHER CORPORATE INFORMATION
Corporate Records:
- 20(2): req that corp prepare and maintain adequate accounting records and records containing minutes of
meetings and resolutions of dirs and any committee thereof (SH have access to these records under 21)
- 21(1)-(10): SH rights to access corp records (see pg.XX)
Oblig to Buy Shares
- 40(1): corp shall fulfill K oblig to buy shares of the corp, unless doing so would breach ss.34-36 (solvency
test)
- 40(2): status of contracting party
Financial Statements:
- 155(1): dirs shall place before SH at annual meeting (a) comparative financial statements, (b) the report of
the auditor, and (c) any further info respecting the financial position of the cor as req’d by the arts, by-laws
or USA
- 159(1): corp must send copies of financial statements to SH not less than 21 days prior to annual meeting
or before signing a resolution in lieu of annual meeting
- 159(2): corp would fails to comply with (1) is guilty of an offence and liable on summary conviction to a fine
up to $5,000
129
VOTE POOLING AGREEMENTS:
-
-
one of the ways CBCA caters to small/closely held corps
- mgmt proxy circs only apply to larger corps (distr, >50 SH)
- USA
145.1: written agmt for vote pooling is valid
K law rather than corp law applies to the actual agmt
Ringuet v. Bergeron (SCC 1960):
- closely held corp  the parties enter an agmt to vote together at all SH meetings, stipulated who would be
elected Pres, VP, etc.
- Ringuet, Pres, had tie-breaking vote so he, the VP and the secretary could control the board
- Hold SH meeting, don’t invite Bergeron, elect themselves dirs but not Bergeron (oust him)
- B brings action arguing breach of K (K provided that a party in breach would have to forfeit shares to
anyone that wasn’t in breach – B would effectively become sole SH)
- Defence: this kind of K was against public order
- Issue: did the agmt fetter the discr of dirs or SH such that it is invalid?
- Held: 3 parties had to forfeit all shares to Bergeron
- The agmt among SH is valid b/c SH are allowed to act in their own int and make valid Ks about how
they will vote
- SH are entitled to combine their ints and voting powers to secure such control of the company and
to ensure the company will be managed by certain people in a certain manner
- Dirs, conversely, cannot make an agmt that would fetter their discr (can’t agree to vote one way
regardless of info provided at the meeting)
- Query: isn’t clause stipulating officer’s positions a fettering of the dir’s discretion?
*today would have an action for oppression – prejudicially affected his position
VOTE POOLING AGMT
145.1
Pooling Agmt – a written agmt btw 2 or more SH may provide that in exercising voting rights the shares
held by them shall be voted as provided in the agmt
130
UNANIMOUS SHAREHOLDER AGREEMENTS:
-
-
-
-
Fundamental variation on normal corp dec-making – tsf’ing from dirs’ residual power to SH under USA
Unanimous – among SH, may add other parties (e.g. the corp itself, investors)
Commonly used in closely held corps, or in parent-subsidiary structures (100% shares – why have another
bd)
- e.g. cont family bus after incorp – carry on as before wrt governance under USA, w/o relying on
Bd of Dirs or officers
146(1): SH can unanimously agree in writing to restrict (take for themselves) the powers of dirs to manage
or supervise the mgmt of the corp under 102(1)
- TEST:
a. otherwise lawful K
b. in writing signed by all SH
c. in some way restricts the dir’s powers, either wholly or partially
i. e.g. take away pwr to deter when divs paid, how much profit should be reserved,
etc.)
146(2): sole SH can make a written declaration that restricts the dirs’ pwrs
- 109(4): where there are no dirs, a person who manages or supervises the mgmt of a corp is
deemed to be a dir
- 109(5): exceptions to (4)  no exception for SH
- 146(5): SH become liable in place of dirs; dirs immune from liability for decs made under pwrs
taken away by USA  to the extent that the USA restricts the dirs pwrs
- if there are no dirs (i.e. USA tsf’s all dirs’ powers to SH – SH assume all dirs’ liabilities and
defences)
146(3): if you purchase shares, you are deemed to be a party to the USA agmt
146(4): if new SH had no notice of USA, then they can rescind the transaction by which they acquired the
shares (either from corp or existing SH) w/in 30 days of becoming aware of the USA
146(6): statutory power of SH to fetter dir’s discr (Duha Printers)
20(1)(a): USA is a corp record that must be kept at reg office
21(1): USA must be made avail to SH who requests copy
comment: could you put in USA that any issue, controversy or dispute must be settled by arbitration?
Effectively ousts the juris of the courts by agreeing to arbitrate, and may oust the oppression remedy.
UNANIMOUS SH AGMTS
2(1)
“director” – means a person occupying the position of dir by whatever name called and “dirs” and
“bd of dirs” includes a single dir
146(1)
“unanimous SH agmt” – means an agmt described in 146(1) or a declaration of SH described in
146(2)
USA – an otherwise lawful written agmt among all SH, or among all the SH and one ore more nonSH, that restricts, in whole or in part, the pwrs of the dirs to manage, or supervise the mgmt of the
bus and affairs of the corp is valid
146(2)
Declaration by single SH – if a person who is the beneficial owner of all the issued shares makes a
written declaration that restricts in whole or in part the pwrs of the dirs to manage, or supervise the
mgmt of the bus and affairs of the corp, the declaration is deemed to be a USA
146(3)
Constructive party – a purchaser or tsfee of shares subj to a USA is deemed to be a party to the
agmt
146(4)
When no notice given – if notice is not given to the purchaser or tsfee of the USA, in the manner
referred to in 49(8) or otherwise, the purchaser or tsfee may, no later than 30 days after they become
aware of the existence of the USA, rescind the transaction by which they acquired the shares
146(5)
Rights to SH – to the extent that a USA restricts the powers of the dirs to manage, or supervise the
management of the bus and affairs of the corp, parties to the USA who are given that power to
manage or supervise the mgmt have all the rights, powers, duties and liabilities of a dir of the corp,
131
whether they arise under this Act or otherwise, including any defences avail to dirs, and the dirs are
relieved of their rights, powers, duties and liabilities, including their liabilities under 119, to the same
extent.
146(6)
Discretion of SH – nothing in this section prevents SH from fettering their discretion when exercising
the powers of dirs under a USA
Duha Printers: (SCC): general guidance on nature of USAs
Issue: is the USA a contract, or does it have constit’l status?
Held:
- USAs are both a K and a constating doc – fundamentally changes the power structure w/in a corp in such a
way as to render it a constit’l doc that affects control
- Constit’l b/c:
o
Role of USAs in overall context of corp govt – broad SH pwr to control corp
o
Numerous provisions of the Act that govern fundamental aspects of the running of a the corp
are expressly made subj to the USA
o
Status equiv to arts, copy must be held at reg office
o
Breach of USA entitles complainant or creditor to seek compliance order or other remedy
o
SH assume all rights, pwrs, duties and liabilities of dirs which are removed by agmt
o
Op for SH in closely held corp to org the enterprise as they see fit
- Dirs general duties: dirs owe a general duty not to invid SH, but to the corp (enlarged under Peoples?)
o
SH don’t normally have power to play mgmt role – can make certain fund changes, but their primary
remedy is to remove dirs
o
At CL, SH could not agree to fetter dirs discretion  modified by statute 146(6)
- Must be an otherwise lawful K, in writing
- Special majorities rule on removal of dirs (6(4)) doesn’t apply to USA (i.e. could provide in USA that a
special maj is req’d to remove a dir)
132
DISSENT AND APPRAISAL REMEDY:
-
relevant to fundamental changes and oppression remedy
right to have corp by your shares at FV
doesn’t apply to voluntary winding-up b/c SH are going to get paid anyway (not going to allow SH to get any
priority)
allows SH who disagrees fundamentally w/big decs being made in the corp to obtain FV for their shares,
even if there is no other market
247: crt may order restraining or compliance order in the event of non-compliance w/this sectin
When is the remedy available:
- 190(1): subj to 191 and 241, SH may dissent if the corp resovles to:
(a) amend arts under 173(1)(n) to add, change or remove any provisions restricting or constraining
the issue, tsf or ownership of shares of that class
(b) amend arts under 173(1)(c) to add, change or remove any restriction on the bus that the corp
may carry on
(c) amalgamate under 184
(d) be cont’d under 188
(e) sell, lease or exchange all or substantially all its property under 189(3)
(f) carry out a going-private transaction or a squeeze-out transaction
Who is entitled to the remedy:
- 190(2): any SH of a class of shares who is entitled to vote under 176 may dissent if the corp resolves to
amend arts in manner described in that section
- 190(2.1): dissent right applies even where there is only one class of shares
Remedy:
- 190(3): dissenting SH has right to be paid the FV of the shares, deter at close of bus day the day before the
vote  right to be paid when action dissented from comes into effect
-
190(4): no partial dissent – have to dissent in respect of all of your shares of a class (keeps people from
taking adv of remedy to get rid of some of their shares)
Process:
- 190(5): process – SH must vote against res, and send written notice of objection either at or before SH
meeting at which spec res is going to be voted on
o
exception: if corp fails to comply w/135(5) notice reqs (purpose of meeting, right to dissent),
the SH doesn’t have to provide notice of dissent
-
190(6): corp has oblig to notify dissenters that the resolution has been adopted w/in 10 days
190(7): SH must demand payment w/in 20 days of getting that notice
-
190(11): when SH sends notice under (7), all their rights attached to their shares cease (e.g. rights to div,
vote, share in surplus, etc.)  only left w/right to receive FV for shares
o
still have right as complainant under oppression remedy (238 – former security holders)
o
exceptions (a) through (c) – rights reinstated
-
190(12): corp must offer to pay the dissenting SH not more than 7 days after res dissented from becomes
effective, or after notice is received (whichever is later); dirs must send dissenting SH:
(a) a written notice of what they consider FV for the shares
(b) notice that the corp is unable to pay (insolvency test)
o
190(26): payment to dissenting SH is subj to insolvency test
o
118(2)(e): dir who votes or consents to payment is liable to restore the amt to the corp (can go
after SH to recover)
o
190(25): if corp can’t pay, then dissenter may w/draw notice OR choose to become secured
creditor, but rank behind existing creditors but ahead of all SH (wee bit of priority – paid as
soon as lawfully able, or out of liquidation)
190(13): all dissenting SH have to get the same offer
-
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-
190(14): payment has to be made w/in 10 days of acceptance of offer, and payment must be accepted w/in
30 days
190(15) and (16): corp or SH amy apply to crt to fix FV
190(20) and (21): crt has auth to fix FV and to order independent appraiser (common practice)
DISSENT AND APPRAISAL REMEDY
190(1)
Right to dissent - Subject to sections 191 and 241, a holder of shares of any class of a corporation
may dissent if the corporation is subject to an order under paragraph 192(4)(d) that affects the holder
or if the corporation resolves to
(a) amend its articles under section 173 or 174 to add, change or remove any provisions
restricting or constraining the issue, transfer or ownership of shares of that class;
(b) amend its articles under section 173 to add, change or remove any restriction on the business
or businesses that the corporation may carry on;
(c) amalgamate otherwise than under section 184;
(d) be continued under section 188;
(e) sell, lease or exchange all or substantially all its property under subsection 189(3); or
(f) carry out a going-private transaction or a squeeze-out transaction.
190(2)
Further right - A holder of shares of any class or series of shares entitled to vote under section 176
may dissent if the corporation resolves to amend its articles in a manner described in that section.
190(2.1)
If one class of shares - The right to dissent described in subsection (2) applies even if there is only
one class of shares.
190(3)
Payment for shares – In addition to any other right the shareholder may have, but subject to
subsection (26), a shareholder who complies with this section is entitled, when the action approved
by the resolution from which the shareholder dissents or an order made under subsection 192(4)
becomes effective, to be paid by the corporation the fair value of the shares in respect of which the
shareholder dissents, determined as of the close of business on the day before the resolution was
adopted or the order was made.
190(4)
No partial dissent - A dissenting shareholder may only claim under this section with respect to all
the shares of a class held on behalf of any one beneficial owner and registered in the name of the
dissenting shareholder.
Objection - A dissenting shareholder shall send to the corporation, at or before any meeting of
shareholders at which a resolution referred to in subsection (1) or (2) is to be voted on, a written
objection to the resolution, unless the corporation did not give notice to the shareholder of the
purpose of the meeting and of their right to dissent.
Notice of resolution - The corporation shall, within ten days after the shareholders adopt the
resolution, send to each shareholder who has filed the objection referred to in subsection (5) notice
that the resolution has been adopted, but such notice is not required to be sent to any shareholder
who voted for the resolution or who has withdrawn their objection.
Demand for payment – A dissenting shareholder shall, within twenty days after receiving a notice
under subsection (6) or, if the shareholder does not receive such notice, within twenty days after
learning that the resolution has been adopted, send to the corporation a written notice containing
(a) the shareholder's name and address;
(b) the number and class of shares in respect of which the shareholder dissents; and
(c) a demand for payment of the fair value of such shares.
190(5)
190(6)
190(7)
190(11)
Suspension of rights – On sending a notice under subsection (7), a dissenting shareholder ceases
to have any rights as a shareholder other than to be paid the fair value of their shares as determined
under this section except where
(a) the SH withdraws that notice before the corporation makes an offer under (12),
(b) the corp fails to make an offer in accordance with (12) and the SH withdraws the notice, or
(b) the directors revoke a resolution to amend the articles under subsection 173(2) or 174(5),
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terminate an amalgamation agreement under subsection 183(6) or an application for
continuance under subsection 188(6), or abandon a sale, lease or exchange under
subsection 189(9),
in which case the shareholder's rights are reinstated as of the date the notice was sent.
190(12)
Offer to pay - A corporation shall, not later than seven days after the later of the day on which the
action approved by the resolution is effective or the day the corporation received the notice referred
to in subsection (7), send to each dissenting shareholder who has sent such notice
(a) a written offer to pay for their shares in an amount considered by the directors of the
corporation to be the fair value, accompanied by a statement showing how the fair value was
determined; or
(b) if subsection (26) applies, a notification that it is unable lawfully to pay dissenting
shareholders for their shares.
190(13)
Same terms - Every offer made under subsection (12) for shares of the same class or series shall
be on the same terms.
190(14)
Payment - Subject to subsection (26), a corporation shall pay for the shares of a dissenting
shareholder within ten days after an offer made under subsection (12) has been accepted, but any
such offer lapses if the corporation does not receive an acceptance thereof within thirty days after
the offer has been made.
190(15)
Corporation may apply to court - Where a corporation fails to make an offer under subsection (12),
or if a dissenting shareholder fails to accept an offer, the corporation may, within fifty days after the
action approved by the resolution is effective or within such further period as a court may allow,
apply to a court to fix a fair value for the shares of any dissenting shareholder.
190(16)
SH application to court - If a corporation fails to apply to a court under subsection (15), a dissenting
shareholder may apply to a court for the same purpose within a further period of twenty days or
within such further period as a court may allow.
190(17)
Venue - An application under subsection (15) or (16) shall be made to a court having jurisdiction in
the place where the corporation has its registered office or in the province where the dissenting
shareholder resides if the corporation carries on business in that province.
190(18)
No security for costs - A dissenting shareholder is not required to give security for costs in an
application made under subsection (15) or (16).
190(19)
Parties - On an application to a court under subsection (15) or (16),
(a) all dissenting shareholders whose shares have not been purchased by the corporation shall be
joined as parties and are bound by the decision of the court; and
(b) the corporation shall notify each affected dissenting shareholder of the date, place and
consequences of the application and of their right to appear and be heard in person or by counsel.
190(20)
Power of court - On an application to a court under subsection (15) or (16), the court may determine
whether any other person is a dissenting shareholder who should be joined as a party, and the court
shall then fix a fair value for the shares of all dissenting shareholders.
190(21)
Appraisers - A court may in its discretion appoint one or more appraisers to assist the court to fix a
fair value for the shares of the dissenting shareholders.
190(22)
Final Order - The final order of a court shall be rendered against the corporation in favour of each
dissenting shareholder and for the amount of the shares as fixed by the court.
190(23)
Interest - A court may in its discretion allow a reasonable rate of interest on the amount payable to
each dissenting shareholder from the date the action approved by the resolution is effective until the
date of payment.
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190(24)
Note that subsection (26) applies - If subsection (26) applies, the corporation shall, within ten days
after the pronouncement of an order under subsection (22), notify each dissenting shareholder that it
is unable lawfully to pay dissenting shareholders for their shares.
190(25)
Effect where subsection (26) applies - If subsection (26) applies, a dissenting shareholder, by
written notice delivered to the corporation within thirty days after receiving a notice under subsection
(24), may
(a) withdraw their notice of dissent, in which case the corporation is deemed to consent to the
withdrawal and the shareholder is reinstated to their full rights as a shareholder; or
(b) retain a status as a claimant against the corporation, to be paid as soon as the corporation is
lawfully able to do so or, in a liquidation, to be ranked subordinate to the rights of creditors of the
corporation but in priority to its shareholders.
190(26)
Limitation - A corporation shall not make a payment to a dissenting shareholder under this section if
there are reasonable grounds for believing that
(a) the corporation is or would after the payment be unable to pay its liabilities as they become
due; or
(b) the realizable value of the corporation's assets would thereby be less than the aggregate of
its liabilities.
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