On April 8, 2019, the federal government introduced Bill C-97 to implement measures from its spring budget. The bill proposes amendments to many federal statutes, including several important amendments to the Canada Business Corporations Act (CBCA) relevant to both private and public companies. Our summary of the proposed changes is set out below, some of which deal with familiar issues, while others would introduce new requirements for companies.
The codification of BCE
The federal government is proposing to codify in the CBCA the Supreme Court of Canada’s landmark ruling in BCE Inc v 1976 Debentureholders. In BCE the Supreme Court made clear that acting “in the best interests of the company” does not mean merely acting in the best interests of shareholders or any particular stakeholder group. Instead, the Supreme Court recognized that
“…conflicts may arise between the interests of corporate stakeholders inter se and between stakeholders and the corporation. Where the conflict involves the interests of the corporation, it falls to the directors of the corporation to resolve them in accordance with their fiduciary duty to act in the best interests of the corporation, viewed as a good corporate citizen.” (BCE, paragraph 81.)
Bill C-97 would codify such a view. The bill would insert a new section in the CBCA that provides that directors and officers, when acting with a view to the best interests of a company, may consider, but are not limited to, certain listed factors, namely:
- the interests of shareholders, employees, retirees and pensioners, creditors, consumers, and governments,
- the environment, and
- the long-term interests of the company.
Say on Pay comes to the CBCA
Bill C-97 would introduce a new section 125.1 into the CBCA requiring prescribed corporations to develop an approach with respect to the remuneration of members of senior management. A report on the company’s approach would then be placed before the shareholders at each annual meeting, at which meeting a “Say on Pay” vote would be held. Companies would also be required to disclose the voting results. As is common practice in Canada, the Say on Pay vote would be non-binding, however shareholders will often agitate for change where the support level for the Say on Pay vote fails to reach a sufficiently high threshold.
New reports to be tabled at the annual meeting
Bill C-97 also proposes requiring prescribed corporations to place before their shareholders at each annual meeting several reports.
- First, a report respecting diversity among the directors and members of senior management. Such a report was first proposed as part of Bill C-25, and we have canvassed its contents in a previous post. There are no substantive changes from the report as earlier proposed in Bill C-25.
- Second, the report concerning the remuneration of members of senior management, as discussed above.
- Third, a report concerning “the recovery of incentive benefits or other benefits” as included in the above remuneration report. This appears to be a new type of report, and there is no further detail in Bill C-97 about its required contents, such detail being left to regulations. However, it may be similar to the existing practice, which is somewhat common across larger Canadian issuers, to disclose the existence and nature of any clawback policy.
- Finally, a report respecting the well-being of employees, retirees and pensioners. This also appears to be a new type of report not previously contemplated in legislation and not commonly presented by issuers in Canada. There is no further detail in Bill C-97 about the required contents of such a report, such detail being left to regulations.
Control register to be made accessible to investigative bodies
The final major change relates to private companies governed by the CBCA and the pending requirement to prepare and maintain a register of individuals with significant control over the company. (See our previous post on this issue. This requirement was introduced in Bill C-86 and will take effect on June 13, 2019.)
Questions have arisen as to which parties external to the company would have access to the new register. Amendments in Bill C-97 clarify that companies would have to turn over their register on request to any police force, the Canada Revenue Agency and equivalent provincial bodies, and any other prescribed body with investigative powers as determined by the federal cabinet.
Such investigative bodies would be limited in making such requests in two key ways.
- First, a request could be made only if the investigative body has reasonable grounds to believe that information in the register would be relevant to investigating a specified offence as set out in a new schedule to the CBCA. The contents of the schedule would be set, and could be revised by, the federal cabinet. A draft schedule is provided at the end of Bill C-97 and contains a long list of proposed offences.
- Second, the investigative body must also have reasonable grounds to suspect that certain specified entities either (1) committed the offence, or (2) were used to commit the offence, facilitate its commission, or protect from detection or punishment a person who committed the offence. Such specified entities include the company itself, or some other company or entity that is controlled or otherwise influenced by an individual that is also an individual with significant control of the company that is the target of the request.
Failure to comply with the request can result in serious penalties. In particular, a director or officer of a company who knowingly authorizes, permits or acquiesces in the contravention of the above requirement to turn over information to investigative bodies is liable on summary conviction to a fine of up to $200,000, six months’ imprisonment, or both.
Coming into force
The proposed amendments to the CBCA in Bill C-97 will come into force at different times.
- The amendments regarding the factors that may be considered concerning the best interests of the company come into force on the date Bill C-97 is granted royal assent.
- In the case of the amendments concerning the register of individuals with significant control, no coming-into-force date has been fixed, but it will likely be a date in June of 2019.
- The requirements to prepare and disclose the four reports will not kick in until regulations have been drafted and enacted, and such a process normally entails a consultation period. The standard Treasury Board guidance is that it takes 6–24 months for regulations to be enacted starting from the date of royal assent of the statute that delegated the power to make such regulations.
We will continue to monitor Bill C-97 as it winds its way through the legislative process.