The New Quebec Business Corporations Act - Key changes of interest to public companies

Following the tabling of Bill 63 last October, the Quebec National Assembly adopted the new Business Corporations Act¹(the QBCA) on December 1, 2009. The purpose of the new Act is to modernize the legislation applicable to companies currently governed by Part I or Part IA of the Quebec Companies Act² (the QCA) and to create a new legal framework that will govern business corporations incorporated in Quebec after the QBCA comes into force.

A number of provisions of the QBCA are of particular interest to entities that will be governed by the QBCA and are “reporting issuers” under applicable securities legislation. The purpose of this bulletin is to review these provisions.

The QBCA introduces a detailed code relating to the convening and conduct of meetings of shareholders. Many of these provisions are inspired by the Canada Business Corporations Act³ (the CBCA). While many of the provisions relating to notices to be given, timing for record dates of shareholders entitled to vote and the like are new, they track in large measure the practice already followed by many Quebec-based public companies. A few differences between the QCA and the QBCA are nevertheless worthy of mention, namely, (i) an annual meeting of shareholders is to be held not later than 15 months⁴ after the last preceding annual meeting; at that meeting, the board of directors is to present the corporation’s financial statements for the fiscal year ended not more than six months (as opposed to four months under the QCA) before the meeting; (ii) the corporation may hold its annual meetings outside Quebec⁵ (if the articles so provide); (iii) a shareholder may require the corporation’s auditors or their predecessors to be present at the annual meeting and respond to questions;⁶ (iv) notice of a shareholders’ meeting must contain information on the matters to be treated at the meeting;⁷ and (v) unless otherwise provided in the corporation’s by-laws, a shareholder may participate in and vote at meetings by electronic means.⁸ We also note that the QBCA removes the requirement of the QCA that the auditors’ report must be read at the annual shareholders’ meeting.

An important addition to the Quebec corporations law landscape is the introduction of the right of shareholders to make shareholder proposals.⁹ While the ability of shareholders of CBCA corporations to make proposals has been in place for many years, such proposals have become more and more numerous and varied in recent years, with corporations receiving proposals relating to board of director composition (for example, having a minimum number of women on the board), director resignation policies, limits on executive compensation (“say on pay”) and many other governance matters. As is the case with their counterparts subject to the federal regime, corporations governed by the QBCA will be required, subject to the provisions of the QBCA and the regulations to be made thereunder, to include in proxy solicitation materials delivered to shareholders on an annual basis the text of proposals submitted by shareholders as well as the corporation’s response to such proposals. As is the case under the CBCA, a corporation will not be required to comply with the foregoing if:

• the shareholder proposal is not submitted to the corporation within the period prescribed by government regulation;
• 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 shareholders;
• the primary purpose of the proposal does not relate in a significant way to the business or affairs of the corporation, including making or amending by-laws, amending the articles or liquidating or dissolving the corporation;
• within the period, prescribed by government regulation, before the receipt of a proposal, a person failed to present, at a shareholders’ meeting, a proposal that, at the person’s request, had been attached to a management proxy circular or the notice of meeting;
• substantially the same proposal attached to a management proxy circular or a dissident’s proxy circular was presented to the shareholders at a shareholders’ meeting held within the period, prescribed by government regulation, before the receipt of the proposal and did not receive at the meeting the minimum amount of support prescribed by government regulation; or
• the right to present a proposal is being abused to secure publicity.

In addition, unlike the CBCA, the QBCA specifically contemplates that the presiding officer at a shareholders’ meeting must allow the person presenting a shareholder proposal to speak in respect of the proposal for a reasonable period of time.

The QBCA prescribes a number of major corporate events which, in order to be effected, require the adoption of a special shareholders’ resolution (in certain cases with a voting right being extended to shareholders who do not normally have the right to vote) and, in certain circumstances, gives shareholders of different classes or series the ability to vote separately as a class or series. These corporate events include:

• a disposal affecting a significant business activity;¹⁰
• approval of an amalgamation agreement;¹¹
• continuance of the corporation under the laws of a jurisdiction other than Quebec;¹² and
• dissolution of the corporation.¹³

In addition, inspired by the CBCA, the QBCA establishes the principle that any action which adversely impacts the equality between holders of shares of a class or series must be approved by special resolution of the shareholders of that class or series. More specifically, s. 191 of the QBCA provides:

“A special resolution that favours certain shareholders of a class or series of shares or changes prejudicially the rights attaching to all the shares of a class or series of shares must be approved by the shareholders of that class or series.

The same applies to a special resolution authorizing the articles to be amended in order to allow the board of directors to change prejudicially the rights attaching to all the shares of a class or series of shares without shareholder authorization.

Approval is given by a special resolution adopted separately by the holders of each class or series of shares concerned, whether or not the shares otherwise carry voting rights.

Such approval is not required if

1. the special resolution changes prejudicially in the same manner the rights attaching to all the shares issued by the corporation; or
2. under the amendment to the articles authorized by the special resolution, it is only possible to change prejudicially the rights attaching to all the shares issued by the corporation.”

These provisions will replace the procedure of compromise (arrangement) and the need to obtain court approval and the vote of three-fourths of the shares of the affected class or series provided for under s. 49 QCA.

Inspired by the CBCA and other Canadian corporate legislation, the QBCA introduces a regime permitting shareholders and certain other applicants to petition the court for a curative order where any conduct by a corporation or its directors could be “oppressive” or “unfairly prejudicial” to them.

Under the QBCA, unlike the CBCA, the class of persons who will be able to claim under the oppression remedy is limited to holders of securities, directors and officers of the corporation and does not include “creditors”. “Holders of securities” nevertheless includes holders of debentures, bonds or notes issued by a reporting issuer.

For a more detailed treatment of the oppression remedy, readers are referred to our Information bulletin entitled “New Remedies for Shareholders under the New Quebec Business Corporations Act”.

While the QBCA does not contain a specific chapter dealing with fundamental changes where special shareholder approval is required (as is contained in the CBCA and certain other Canadian corporations laws), there are a number of specific actions which require shareholder approval by way of ordinary or special resolution. The QBCA introduces the concept that shareholders who object to certain changes adopted by a corporation may dissent and demand that the corporation repurchase their shares for “fair value”.

Specifically, the QBCA¹⁴ stipulates that the adoption of any of the resolutions listed below confers on a shareholder the right to demand that the corporation repurchase the person’s shares if the person exercised all the voting rights carried by those shares against the resolution:

1. an ordinary resolution authorizing the corporation to carry out a squeeze-out transaction;
2. a special resolution authorizing an amendment to the articles to add, change or remove a restriction on the corporation’s business activity or on the transfer of the corporation’s shares;
3. a special resolution authorizing an alienation of corporation property if, as a result of the alienation, the corporation is unable to retain a significant part of its business activity;
4. a special resolution authorizing the corporation to permit the alienation of property of its subsidiary;
5. a special resolution approving an amalgamation agreement;
6. a special resolution authorizing the continuance of the corporation under the laws of a jurisdiction other than Quebec; or
7. a resolution by which consent to the dissolution of the corporation is withdrawn if, as a result of the alienation of property begun during the liquidation of the corporation, the corporation is unable to retain a significant part of its business activity.

Note that the adoption of a resolution referred to in any of subparagraphs 3 to 7 above confers on a shareholder whose shares do not carry voting rights the right to demand that the corporation repurchase all of the person’s shares.

Similarly, as described above, the QBCA requires that aspecial resolution that favours certain shareholders of a class or series of shares or changes prejudicially the rights attaching to all the shares of a class or series of shares be approved by the shareholders of that class or series. The same applies to a special resolution authorizing the articles to be amended in order to allow the board of directors to change prejudicially the rights attaching to all the shares of a class or series of shares without shareholder authorization. In the event any such special resolution is adopted, a shareholder has the right to demand that the corporation repurchase all of the person’s shares if the person exercised all the voting rights carried by those shares against the resolution.

For a more detailed treatment of the right to demand the repurchase of shares, readers are referred to our Information bulletin entitled “The Right to Demand the Repurchase of Shares under the New Quebec Business Corporations Act”.

In addition to the more important elements described above, the QBCA introduces a number of new concepts of interest for reporting issuers which are new and inspired by the CBCA and other similar legislation. These include:

Access to securities register

The QBCA¹⁵ provides that any person may access the securities register of a corporation or obtain a list of shareholders from the corporation. The person must, however, undertake in writing to use the information solely in connection with an effort to influence the voting of shareholders, a solicitation of proxies, an offer to acquire shares of the corporation or any other matter relating to the affairs of the corporation.

Uncertificated shares

Improving on the regime prescribed by the CBCA, the QBCA permits corporations governed by it to issue shares in uncertificated form¹⁶ (i.e., a share represented only by an entry in the corporation's securities register). Given the extent to which Canadian and US securities depositaries have become involved in day-to-day share transactions, it is unlikely that the ability to issue uncertificated shares will have a major impact on trading. However, the ability to issue such shares may facilitate certain corporate transactions.

Ability to designate additional directors

Like the CBCA, the QBCA¹⁷ provides that if the articles so provide, the directors of a corporation that is a reporting issuer or has 50 or more shareholders may appoint one or more additional directors to hold office for a term expiring not later than the close of the next annual shareholders' meeting. The total number of directors so appointed may not exceed one-third of the number of directors elected at the previous annual shareholders' meeting. Corporations governed by the QBCA should consider amending their articles to provide for this right in order to give the board of directors enhanced flexibility to appoint additional directors where it may be appropriate to do so (if, for example, it is desirable to name a board member following a significant transaction or if a particularly attractive directorship candidate is identified during the course of a year).

Access to minutes

Reflecting the enhanced rights of shareholders provided by the QBCA, the QBCA,¹⁸ like the CBCA, contemplates that shareholders may examine the portions of any minutes of the meetings of the board of directors or of any other document that contain disclosures by a director or officer relating to the interest that such director or officer has in a contract or transaction to which the corporation is a party.

Access to financial statements of subsidiaries

The QBCA¹⁹ provides that shareholders of a corporation may, on request, examine the financial statements of each subsidiary of the corporation (unless a court order preventing such access is obtained). The corporation may deny this request if the value of the assets, the revenues and the income before taxes of the subsidiary each represent less than 10 per cent of the corresponding amount in the financial statements of the corporation.

The changes described above, together with the many other innovations and changes introduced by the QBCA, establish a modern legislative framework for Quebec corporations. Public companies, in particular, would be well advised to carefully examine their internal governance structures, articles, by-laws, and approach to shareholders’ meetings in order to be fully prepared to benefit from the new legislation and, among other things, understand and be ready to respond to the enhanced shareholder rights established by the QBCA.

1. S.Q. 2009, c. 52.
2. R.S.Q. c. C-38.
3. R.S.C. 1985, c. C-44.
4. QBCA, s. 163.
5. QBCA, s. 164.
6. QBCA, s. 166.
7. QBCA, s. 167.
8. QBCA, s. 184.
9. QBCA, ss. 194 et seq.
10. QBCA, s. 272.
11. QBCA, s. 279.
12. QBCA, s. 298.
13. QBCA, s. 308.
14. QBCA, s. 372.
15. QBCA, s. 41.
16. QBCA, s. 61.
17. QBCA, s. 153.
18. QBCA, s. 130.
19. QBCA, s. 228.