Canada: Ontario Snips Red Tape In Over 40 Statutes, Including OBCA, PPSA And Franchise Legislation

Ontario Bill 154, The Cutting Unnecessary Red Tape Act (CURTA) received Royal Assent on Tuesday, November 14. An omnibus bill amending over 40 statutes, the new legislation implements a number of recommendations made by the Ontario Business Law Advisory Council in its Fall 2016 Report, and enables not-for-profit corporations and charities to benefit from some of the features of the Not-for-Profit Corporations Act, 2010 prior to its proclamation. Selected highlights relevant to businesses, and non-profits and charities, are summarized below.

Changes Affecting Businesses

• Shareholder proposals: The Ontario Business Corporations Act provisions on resubmitted shareholder proposals are amended to mirror those in the Canada Business Corporations Act. As in the CBCA, the OBCA now allows shareholders a five-year period to resubmit a previously defeated proposal that has received a minimum, and increasing, amount of support (3% on first submission, 6% on second, and 10% thereafter). A separate amendment allows non-offering corporations to establish in their bylaws a time period (between 21 and 60 days before a meeting) for shareholders to submit a proposal. Permitting a shorter time frame than 60 days (which is still applicable to offering corporations) balances non-offering corporations more informal structure, which does not require proxy solicitation or an information circular, with management's needs to properly incorporate the proposal and any response into materials provided to shareholders in connection with the meeting.
• PPSA/RLSA: Businesses that finance, lease, or repair motor vehicles, will welcome changes to the Personal Property Security Act and the Repair and Storage Liens Act codifying Ontario case law on perfection by VIN. A secured party will now have a perfected security interest or non-possessory lien over a motor vehicle that is properly described in the financing statement or lien claim by its vehicle identification number, even if there is an error in the debtor's name. The PPSA conflict of laws provisions are also amended to clarify interpretation issues that arose under the "location of debtor" rules, and their accompanying transitional rules, introduced in 2015.
• Franchising disclosure:The Arthur Wishart Act (Franchise Disclosure) 2000, is amended to allow franchisors to enter into confidentiality and location agreements with prospective franchisees and to accept deposits (up to an amount to be prescribed, and only if refundable without deduction), without triggering the disclosure obligation. The definition of franchise is extended to apply not only where a franchisor exercises significant control over the franchisee's method of operation or provides significant assistance, but also where the franchisor has the right to do so. A number of changes are made to disclosure exemptions (these include determining the small franchisee and sophisticated franchisee disclosure exemptions by the total initial investment made, and extending the franchisor officer/director exemption to corporations under the control of such franchisor officers/directors). Note that except for the extended definition of franchise (which came into force on Royal Assent), these amendments to the Arthur Wishart Act(Franchise Disclosure) must still be proclaimed in force.

Changes Affecting Charities and Non-Profits

• Corporations Act "Upgrades" while waiting for the ONCA: Ontario not-for-profit corporations and charities have been waiting seven years for the proposed Ontario Not-for-Profit Corporations Act, 2010 (ONCA) to be proclaimed in force, and its timing continues to be uncertain. To address this, a number of amendments have been made to the Ontario Corporations Act, intended to allow Ontario not-for-profit and charitable corporations to have the benefit of some of the ONCA's more modern features during the period before its proclamation. Notable changes include those permitting electronic meeting notices, meetings and votes, establishing an objective standard of care for directors and the ability to forgo an audit where annual revenues are under $100,000. There are also some technical amendments to the still unproclaimed ONCA.
• Social Investments: The Charities Accounting Act applies to all corporations and trusts incorporated or created for a religious, educational, charitable or public purpose – not just registered charities. The CCA is now amended to allow such corporations and trusts to make a "social investment": using their property to further their purposes and achieve a "financial return." A financial return is considered to be achieved if the outcome of the application or use of the property is better in financial terms than expending all the property. The amendments generally carve out social investments from the "prudent investment" provisions of the Trustee Act (other than those allowing mutual fund and common trust fund investments), set out the terms on which such social investments may be made, and impose certain duties on trustees and directors making a social investment (including a requirement for trustees and directors to determine if advice should be obtained respecting a proposed social investment and, if so, to obtain and consider that advice). These new rules raise a number of questions as to their operation and implications; initially caution, as well as advice, will be required.

Dealing Electronically with the Government of Ontario

A major portion (at least by word count) of Bill 154/CURTA is devoted to changes throughout Ontario's corporate law statutes to accommodate the filing, keeping and searching of documents in electronic format. The changes are described as facilitating a "new modern business registration system", and ensuring consistency across the business law statutes to enable future business law reform agenda. One candidate for modernization that was not addressed is the PPSA registry system. Moving to a fully electronic registry was recommended by the Business Law Advisory Council and raised before the Standing Committee on Justice Policy during its consideration of Bill 154/CURTA. As an entirely digital registry would improve both its efficiency and security, users of the system will continue to watch for progress on this front.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.