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Canadian M&A Law

Sunday, June 25, 2017 | Ideas and resources on the law of mergers & acquisitions

The New Real Property Registry Requirement for OBCA Corporations (and other Ontario Corporate Law Reforms)

Posted in Marketplace Trends

Changes to Ontario’s Business Corporations Act requiring OBCA corporations to maintain registers of ownership interests in Ontario real estate are among a number of new and proposed legislative developments that are likely to affect many Ontario businesses. The real estate register requirement is in force as of December 10, 2016, with a two-year grace period for existing corporations. Also taking effect on that date are a number of changes to Ontario law that are intended to create a clearer and more straightforward process for the assumption of ownership by the Province of the real and personal property of dissolved corporations (including non-OBCA corporations).

Still at the proposal stage are a range of possible changes that include the elimination of the OBCA’s Canadian director requirement, increased latitude under the OBCA for shareholders to re-submit defeated proposals, and amendments to Ontario’s franchise law and personal property security legislation.

The real property register requirement

Timing

For existing OBCA corporations, a compliant register of ownership interests in land in Ontario must be in place by December 10, 2018, the second anniversary of the effective date of the amendments. However, corporations that are incorporated or continued under the OBCA on or after December 10, 2016 will need to comply immediately.

What is required

The register is to be kept at the corporation’s registered office and must record certain information. For example, it must state the acquisition and (if applicable) disposal dates of each property. Moreover, supporting documents, such as deeds and transfers, must be kept with the register if they contain information relating to:

  • the property’s municipal address, if any;
  • the registry or land titles division and the property identifier number,
  • the property’s legal description; and
  • the assessment roll number; if any.

While these requirements may not be overly problematic for OBCA corporations that rarely buy or sell interests in land, those for whom the holding of real property is a core business activity may find the administrative burden of compliance to be significant and possibly even onerous.

Scope of “ownership interest”

Unfortunately, the OBCA amendments do not define the key concept of “ownership interest”. As a consequence, practitioners have been left to puzzle over the scope of the requirement. For example, does it encompass leasehold interests? or land registered in the name of a corporation in the capacity of nominee but in which that corporation has no beneficial interest? At this point, no one can say for certain.

It should be noted that the requirement does not apply to ownership interests in land outside Ontario or to entities incorporated under statutes other than the OBCA, such as the Canada Business Corporations Act, even if they are based on Ontario.

Broader context of the legislation

These amendments are just one element in a broader initiative that includes the simultaneous enactment of the Forfeited Corporate Property Act, 2015 (FCPA) and new escheats legislation, known as the Escheats Act, 2015. As this might suggest, the overarching purpose of this initiative (which was announced in the Budget Measures Act, 2015) is to make it easier for the Government of Ontario to take title over and deal with abandoned or forfeited personal and real property, both of individuals and of corporate entities. It achieves this in a number of ways, e.g. by removing certain forfeited and escheated corporate assets from the pool of assets that are available to satisfy a third-party order or judgment against a dissolved corporation and by making it more difficult for a dissolved corporation to recover its assets upon revival.

The new legislation (both the FCPA and the Escheats Act, 2015) can also create significant liabilities for the former directors of dissolved corporations with respect to a wide range of costs incurred by the Crown as it ascertains and deals with forfeited corporate real and personal property. Corporations subject to dissolution proceedings should therefore pay close attention to the entire package of legislation.

The next wave of OBCA amendments

While OBCA companies are getting their real property registers up to speed, they should also keep an eye on a number of additional amendments that are under consideration. These include three significant proposals from the Business Law Advisory Council’s Fall 2016 report to Ontario’s Ministry of Government and Consumer Services.

  1. Eliminate the Canadian resident director requirement

The current OBCA requirement that 25% of directors be resident Canadians would be replaced with a requirement that, when first elected, directors include an agreement to attorn to Ontario law (with respect to the corporation) with the written consent that is already required of them.

The residency requirement is of little ongoing value in the eyes of the Advisory Council (and just about everyone else). Given that many other Canadian jurisdictions have eliminated it, all that it really achieves for Ontario is a loss of revenue and reduced influence on business law jurisprudence. The Advisory Council suggests that the residency requirement be replaced with a requirement that all OBCA directors agree to “attorn to the laws” of Ontario (i.e. submit to the jurisdiction of the Ontario courts). While the Advisory Council admits that such a requirement would not guarantee board accountability, it does note that most North American jurisdictions have even weaker guarantees than this, or none at all.

  1. Make it easier for shareholders to re-submit proposals

The current requirement that allows for the exclusion of a shareholder proposal from the management circular if it is a re-submission of a proposal that was defeated within the previous two years would be replaced by a requirement that such proposals be included if, in their previous submission, they attained a prescribed threshold of support.

Under s. 99(5)(d) of the OBCA, a corporation currently does not have to include a shareholder proposal in the management circular if, within the previous 2 years, a substantially similar proposal was defeated. While a shareholder could re-submit a proposal by filing a dissident circular, the cost of doing so would be prohibitive for many shareholders. The Advisory Council recommends adopting the approach of the Canada Business Corporations Act, under which proposals may be re-submitted via the management circular provided that they attained a specified threshold of support the last time they were voted on (within the previous 5 years). That threshold rises over time: it is 3% if the proposal has been submitted at exactly one previous meeting, 6% (at the most recent submission) if the proposal has been submitted twice previously, and 10% (at the most recent submission) if it has been submitted three or more times previously. In the opinion of the Advisory Council, the CBCA approach allows corporations to avoid nuisance submissions while at the same time allowing meritorious proposals the time they need to gain traction with shareholders.

  1. Allow non-offering corporations to specify time limits for the submission of shareholder proposals in their by-laws

Under s. 99(5)(a) of the OBCA, shareholders of all corporations (offering and non-offering) must submit proposals at least 60 days before the anniversary of the previous annual meeting. The Advisory Council recommends that non-offering corporations be allowed to specify the timing requirements for such proposals in their by-laws, provided that the time frame is between 10 and 60 days, inclusive.

Under the OBCA, a non-offering corporation must provide a notice of meeting at least 10 days prior to the meeting and is not required to solicit proxies or to provide an information circular. The ability to set the time for the submission of shareholder proposals (with the 10-60 day constraint) fits with the less formal structure of non-offering corporations while still ensuring that management has enough time to deal with the logistics of any such proposal.

Other recommendations

  • Amendments to the Personal Property and Security Act and the Repair and Storage Liens Act in relation to the perfection of security interests in cash collateral, security interests and liens over motor vehicles, location of debtor transitional rules and digitization of the registry systems applying to the two Acts.
  • Amendments to the Arthur Wishart Act (Franchise Disclosure), 2000 in relation to, among other things: disclosure requirements and exemptions from certain disclosure requirements under the Act. These amendments generally appear to respond to certain concerns expressed by franchisors about the burdensome nature of technical requirements under the Act.

While it is not obliged to do so, the Government of Ontario has based a number of significant legislative initiatives on previous recommendations of the Business Law Advisory Council, including the repeal of the Bulk Sales Act, which (as Schedule 3 to Bill 27) passed second reading in the Ontario legislature on November 29, 2016.