The Quebec Minister of Finance Raymond Bachand tabled bill 63 that, when passed, will eventually replace the Québec Companies Act as the primary corporate legislation in Quebec, thus creating the Québec Business Corporations Act.
The bill was introduced on Oct. 7, and is the product of more than a year of consultations with law firms, legal associations, law faculties, and other interested parties.
The primary objective of the bill is to rectify the shortcomings of the QCA by modernizing Quebec corporate law, following a wave of reforms already undertaken elsewhere in Canada, and by harmonizing the QCA with the legislation of other provinces. Given that the QCA has not been substantially amended in nearly 30 years, the reform of Quebec corporate law is a welcome development for legal practitioners and the business community alike.
Shareholders’ Rights and Recourses
The QBCA will substantially change shareholders’ rights and recourses, moving closer to the Canada Business Corporations Act and away from the current provisions of the QCA. In fact, unlike most other corporate legislation in Canada, including the CBCA, the QCA does not contain an “oppression remedy” for minority shareholders, debt holders, and creditors. The QBCA will introduce a recourse into Quebec law similar to that provided under s. 241 of the CBCA, allowing security holders, directors, and officers to bring an action against the corporation in which they have an interest to either rectify the situation or request the liquidation and dissolution of the corporation.
The new legislation also includes a new right to demand the repurchase of shares, similar in many respects to the right of dissent under the CBCA. Finally, the bill grants the right for any shareholder of a reporting issuer or of a corporation that has 50 or more voting shareholders, to propose questions to be discussed in a meeting.
The QBCA will formally allow the defences of reasonable prudence and diligence already recognized by Quebec jurisprudence but not codified in the QCA. The QBCA will also contain provisions outlining the circumstances in which a corporation must indemnify a director or officer for the costs, charges, and expenses reasonably incurred in the exercise of his or her functions, including those arising from the person’s participation in judicial actions. However, the QBCA will provide that a corporation is prohibited from indemnifying its directors and officers if these circumstances are not met.
Financial Assistance and Tests
The legislator did not retain the restrictions relating to financial assistance provided in the QCA thus harmonizing the QBCA with the majority of other corporate legislation in Canada, including the CBCA. This reorientation will undoubtedly be well-received by the legal and business community.
The bill makes no reference to the accounting test of the QCA. On the other hand, the solvency test of the QCA — not having reasonable grounds for believing that the corporation would be unable to pay its liabilities as they become due — remains for certain actions that may have an impact on the corporation’s solvency.
Amalgamation and Continuance
The provisions relating to amalgamation and continuance demonstrate the legislator’s intent to take a more open and flexible approach than the approach currently taken in the QCA. Regarding amalgamation, the bill allows corporations to amalgamate without regard for their respective incorporating, whereas amalgamation is allowed only between companies governed by either part one or part one-A of the QCA. Additionally, the bill eases the procedures required for both horizontal and vertical amalgamations. The bill includes a simplified procedure, notably, for horizontal amalgamations between “sub-subsidiaries” and vertical amalgamations between a parent corporation and a number of its subsidiaries.
With respect to continuance, the bill allows corporations governed by the statute of another jurisdiction to be continued under the QBCA and vice versa. Continuance under the QCA is essentially limited to companies governed by part one of the QCA.
Certain Attributes Remain
Although it is often claimed that the QCA is in many respects outdated, the fact remains that several aspects of the QCA are advantageous compared to the CBCA. Many such aspects remain in the bill, notably, the absence of a citizenship requirement for directors, the possibility to hold fractions of shares, the possibility to issue shares which are not fully paid, and the possibility to issue shares with par value.
The bill provides that all companies currently governed by part one-A of the QCA shall become corporations governed by the QBCA upon its coming into force. Companies governed by part one will have a period of five years to submit articles of continuance to the registrar in conformity with the QBCA.
Maxime Cloutier is a partner in the Montreal office of Fraser Milner Casgrain LLP where he specializes in commercial transactions, primarily in the fields of mergers and acquisitions.