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 FRANÇAIS  

September 2013

Transition of Federally Incorporated Not-for-profit Organizations: Do Not Wait Until the Last Minute!

Since the Canada Not-for-profit Corporations Act (S.C. 2009, c. 23) replaced Part II of the Canada Corporations Act (R.S.C. 1970, c. C-32) on October 17, 2011, all federally incorporated not-for-profit organizations were granted a three-year transition period to file their articles of continuance. This transition period expires on October 17, 2014. Of the 25,000 organizations concerned, only a handful have made the transition.

Corporations Canada reached out to the legal community, expressing concern with the high percentage of applications for continuance it now expects to receive in October 2014. Should the federal government’s concerns come to fruition, the usual processing time for this type of application will almost certainly be prolonged. In addition, corporations that do not take steps to ensure their continuance will be considered inactive and risk dissolution.

Furthermore, the transition process for these organizations will have to include a revision of the by-laws to comply with the new legislation, as mentioned in the December 2011 edition of our Info-CRAC newsletter. As well, whether for a continuance or a new incorporation, by-laws must be filed with Corporations Canada within 12 months of their approval by the members of the organization.

Remember that corporations can keep their name. However, the continuance may also be an opportunity to change a name. A NUANS report would then be required, unless the corporation opts for a numbered name.

We are pleased to announce that the CRAC team has partnered with specialists in federally incorporated not-for-profit organizations to offer you a continuance service package. This package, offered exclusively to legal professionals, consists of a turnkey service that includes the production of draft by-laws, draft pre- and post-continuance resolutions of the board of directors, minutes of the board meeting, notice to attend and minutes of the special general assembly of members and the drafting and filing with the Director of forms 4031 and 4002, two interviews of at most two hours each and filing of the current updating declaration with the Registraire des entreprises du Québec.

We can also examine your record of meeting minutes, obtain charitable registration numbers and incorporate new not-for-profit organizations.

You can now encourage your clients to file their articles of continuance without delay and help them avoid the inevitable rush as the deadline approaches.

Please feel free to contact our team should you need any information in this regard:

514-861-2722 / 1-800-361-5744 / crac@crac.com

Deposit of Conversion Clauses as Part of a Federal Amalgamation – Rejected!

For several weeks now Corporations Canada has rejected all applications for the deposit of articles of amalgamation accompanied by conversion clauses. Actually, only regular amalgamations are affected by this change as simplified amalgamations are not subject to these types of clauses.

This new procedure came about as a result of the risk of complications when a simplified amalgamation subsequently takes place. In such a case, articles have to be identical to those of the parent company (vertical amalgamation) or those of the company whose shares were not cancelled (horizontal amalgamation). When there is a discrepancy, Corporations Canada is forced to require articles of amendment to remove the conversion clauses to make the articles identical.

The legal reasoning behind this new procedure rests on Subsections 185(1) and (2) of the Canada Business Corporations Act (R.S.C. 1985, c. C-44), hereinafter the CBCA, which do not require that conversion clauses be filed. Instead, Subsection 182(1)(c) of this same act states that conversion clauses must be included in the amalgamation agreement, which itself must be kept in the record of meeting minutes. What we have here is a restrictive interpretation of Sections 182 and 185 of the CBCA by Corporations Canada.

Ex Officio Cancellations by the Registraire des entreprises du Québec are Back!

Section 59 of An Act respecting the legal publicity of enterprises (R.S.Q., c. P-44.1) stipulates that the Registraire des entreprises du Québec may ex officio cancel the registration of any registrant who fails to produce two consecutive annual updating declarations. Although such cancellations were common a few years ago, this procedure has been set aside when the Registraire made its shift online in February 2011.

The Registraire plans to revive the ex officio cancellation process as of February 2014. At that time, the concerned registrants should receive a notice and will have 60 days to supply the annual updating declarations or see their registration cancelled ex officio.

Minor Technical Changes to the Business Corporations Act and An Act Respecting the Legal Publicity of Enterprises

By Patric Besner (Besner, Avocats d’affaires)

An Act to amend various legislative provisions mainly concerning the financial sector S.Q. 2013, c. 181 (presented as Bill 31) was passed on June 14, 2013, and took effect on the same day (save for a few exceptions, see section 120 of the Act, S.Q. 2013, c. 18).

This is an omnibus bill amending several acts, including the following:

Act respecting insurance (chapter A-32)
Act respecting the Autorité des marchés financiers (chapter A-33.2)
Real Estate Brokerage Act (chapter C-73.2)
Act respecting the distribution of financial products and services (chapter D-9.2)
Money-Services Businesses Act (chapter E-12.000001)
Derivatives Act (chapter I-14.01)
Act respecting the legal publicity of enterprises (chapter P-44.1)
Act respecting trust companies and savings companies (chapter S-29.01)
Business Corporations Act (chapter S-31.1)
Securities Act (chapter V-1.1)

More specifically, here is what has changed in business law:

1) Sections 96 and 414 of the Business Corporations Act (chapter S-31.1) (see sections 100 and 101 of the Act, S.Q. 2013, c. 18).

Below is a comparison of sections 96 and 414 from the previous version and the version in effect since June 14, 2013:

96. A corporation may not make any payment to purchase or redeem shares

 

(1) if the corporation is not a reporting issuer and the payment would make it unable, in the event of liquidation, to repay shares ranking higher than or equally with the shares so purchased or redeemed, taking into account any waiver of repayment by the higher- or equal-ranking shareholders; or

 

(2) if the corporation is a reporting issuer and there are reasonable grounds for believing that it is or would, after the payment, be unable to pay, when due, the entire redemption price of its redeemable shares

 

414. A corporation that is not insolvent able to pay its liabilities as they become due may, in the absence of adequate legal provisions or if existing provisions are impracticable or too onerous in the circumstances, apply to the court for the approval of an arrangement proposed by the corporation.

 

An application concerning a corporation governed by one of the Acts listed in Schedule 1 to the Act respecting the Autorité des marchés financiers (chapter A-33.2), other than a private issuer within the meaning of that expression in the regulations under the Securities Act (chapter V-1.1) that is not governed by another Act listed in that schedule, must be notified to the Autorité des marchés financiers.

The changes made to section 96 concern only reporting issuers, while those made to section 414 aimed to make the English version match the French text.

2) Section 131 of An Act respecting the legal publicity of enterprises (see sec. 98 of the Act, S.Q. 2013, c. 18).

Below is a comparison of the previous version and the version in effect since June 14, 2013:

131. The registrar and any person authorized to conduct an inspection or an investigation may not communicate or allow anyone to communicate to another person, other than a person generally or specially authorized by the Minister personally, any information obtained during an inspection or an investigation, or allow an inspection or investigation report to be examined.

 

The first paragraph applies despite sections 9, 23, 24 and 59 of the Act respecting Access to documents held by public bodies and the Protection of personal information (chapter A‑2.1).

1http://www2.publicationsduquebec.gouv.qc.ca/dynamicSearch/telecharge.php?type=5&file=2013C18A.PDF

Updated Tables

We invite you to view our recently updated tables on the following topics:

These tables are available on our website www.crac.com in the Corporate Services / Useful Information section.

Our entire team is there to assist you with your files outside Quebec. Please contact Denis Livernoche in the Name Searches department or Kelly Cardoso in Corporate Services with any associated queries.

Recent Legislation Affects Priorities of Bank Act Security Interests

While any lender may register security interests in personal property in Canada’s provincially legislated Personal Property Security Act (“PPSA”) registries, including the Registre des droits personnels et réels mobiliers (“RDPRM”) in Quebec, banks uniquely have access to an additional option, the federally legislated Bank Act security registry.

Bank Act Security

Registration of security under the Bank Act is available to banks when lending to eligible borrowers, including farmers, fishermen, forestry producers, miners, manufacturers, and both retail and wholesale sellers of goods (each as defined in the Bank Act).

Eligible collateral includes products of agriculture, fishing and aquaculture, forestry, mining and quarry extraction, and goods, wares and merchandise (each specific to the type of eligible borrower as provided in the Bank Act).

To register its security in accordance with the Bank Act, a bank must file a Notice of Intention (“NOI”) in the prescribed form. The NOI must be registered with the appropriate agency of the Bank of Canada, in the province of the borrower’s principal place of business. Each registration is effective across Canada (although registry searches can be performed only on a province-by-province basis).

A NOI is valid for a five-year period, after which it must be renewed each year. Registration of a NOI may occur up to three years prior to the borrower’s actual provision of the security to the bank, but any security documents must be executed prior to advancement of the loan.

Interaction of Bank Act and PPSA Registrations

Banks are the only creditors able to take advantage of the Bank Act security registry, but like other creditors, may also register their security interests with the provincial PPSA registries (including Quebec’s RDPRM). Over the years, there has been significant confusion as to how priority issues between these two security regimes are resolved.

Most of the provincial PPSAs (including Ontario) provide that the PPSA does not apply to a lien given by statute, which includes the Bank Act. However, case law in Ontario indicates that Bank Act security falls within the meaning of a “security agreement”, which can be registered under the PPSA. The PPSA in Saskatchewan specifically provides that it does not apply to security agreements governed by sections 426 to 436 of the Bank Act, and that a security interest is not valid to the extent that it is also secured pursuant to sections 426 to 436 of the Bank Act. Accordingly, in Saskatchewan a bank must rely only on its Bank Act security and registration. The Saskatchewan PPSA does not, however, discuss priorities between PPSA and Bank Act security held by other lenders.

The Supreme Court of Canada Weighs In

In 2010, the Supreme Court of Canada considered competing interests between the Bank Act and the PPSA in two cases: Bank of Montreal v. Innovation Credit Union (“Innovation”) and Royal Bank of Canada v. Radius Credit Union Ltd. (“Radius”).

In both Innovation and Radius the borrower had executed a general security agreement (“GSA”) in favour of a credit union providing a security interest in all present and after-acquired property of the borrower. The borrower subsequently obtained financing from a bank and granted security over almost all of the same collateral, without disclosing the credit union’s pre-existing GSA. Although the bank registered its Bank Act security before the credit union registered a financing statement in the appropriate provincial personal property security registry, the Court ruled in both cases that the PPSA security interest granted first, but not perfected by registration, had priority over the subsequent, but perfected, Bank Act security interest.

Parliament Steps In to Provide Clarity

The Financial Systems Review Act (“FSRA”) came into force on May 24, 2012, with amendments to sections 425 to 428 of the Bank Act in response to the Innovation and Radius cases. The FSRA effectively reverses the Court’s decisions and clarifies that security registered under the Bank Act has priority over an unperfected PPSA security interest in the same collateral.

However, the FSRA created an exception to this priority rule. If the bank has knowledge of an existing, unperfected PPSA security interest, the bank’s registered Bank Act security will not have priority. Notably, the FSRA does not provide a definition of “knowledge”, resulting in ongoing uncertainty which may be the subject of future litigation.

Lenders’ Due Diligence

Where appropriate, lenders should perform Bank Act searches to determine if Bank Act security has been taken over collateral offered by a potential borrower. Lenders should be aware that the results of a Bank Act search are specific to the province in which the search is conducted, so in some cases multiple Bank Act searches will be required in different provinces. Searching several provinces may be advisable where it is difficult to determine the borrower’s principal place of business.

As well, lenders should note that purchase money security interest (“PMSI”) status applies only against other creditors who have registered in the personal property security registry, so Bank Act searches should be conducted to determine priority if the proposed collateral with PMSI status might be subject to the Bank Act.

In light of the FSRA, bank lenders should consider whether they have knowledge of another lender’s unperfected security interest in proposed collateral. If the FSRA exception applies, the bank will not have priority over the other lender.

Conversely, while it has yet to be tested in the courts, a bank not engaging in reasonable due diligence could risk an allegation that it was “willfully blind” to an unperfected security interest, leading to constructive knowledge of the security interest being imputed to the bank. To help mitigate this risk, it will be good practice in many cases for banks to register under both the appropriate PPSA regime(s) and Bank Act registry (if applicable).

Quick Reminder on the Registration of Securities Under Section 427 of the Bank Act and Registration of the Associated Certificates of Release

To register a Notice of Intention in the prescribed form under the Bank Act, you must send us a complete form reflecting the legal requirements. To avoid needless delays in the processing of your application, remember that it is important to make sure that the form contains all of the necessary information. There are five things that you need to check before submitting your request to record a Registration of a Notice of Intention. You must send us two copies (either two originals or one original and one copy) of the Notice of Intention to give security, which must contain the following:

  • The name of the individual or company granting the security;

  • Their full address;

  • The date and place where the Notice of Intention was signed;

  • The original signature of the individual or representative of the company that granted the security (digital signatures and other copies of signatures such as stamps alone are not acceptable); and

  • The bank’s transit number (five digits) and branch number (three digits).

Also, to ensure the timely processing of your requests for the registration of certificates of release, please remember that your request must be submitted on official letterhead (including an address) from the bank and must contain the following:

  • The registration number and date of the Notice of Intention concerned by the release;

  • The exact name of the individual or company that granted the security, as recorded in the register;

  • The original signature of a bank representative (here, again, digital signatures and other copies of signatures are not acceptable); and

  • The confirmation of the release associated with the Notice of Intention stating that every security to which the Notice of Intention relates has been released or that no security was given to the bank, as the case may be.

Please contact Sébastien Bourque via email at sebastien.bourque@dhltd.com or by telephone at 514-861-2799 / 1 800-361-5744, ext. 326, for any questions or for more information.

CAP –Annual Congress

The Canadian Association of Paralegals (CAP) held its annual congress on June 13 of this year. Once again, CRAC representatives had the pleasure of meeting participants at their booth.

Congratulations to Mélanie Bouchard of Robinson Sheppard Shapiro, who won our $100 gift card for the Scandinave Spa.


Pierre Bilodeau, Lawyer / Project Leader, R&D at CRAC and Mélanie Bouchard, Paralegal at Robinson Sheppard Shapiro.

Thank you to CAP for providing a space free of charge to the Fondation Jean Marc Paquette (FJMP), whose mission is to help women with breast cancer.

Congratulations to Jessica Rodrigues-Cerqueira of Stikeman Elliott, who won the carry-on suitcase offered by the FJMP.


Jessica Rodrigues-Cerqueira, Paralegal at Stikeman Elliott and Pierre Bilodeau, Lawyer / Project Leader, R&D at CRAC.

What's new with us...

Lots of babies!

Carline Downer, Team Leader in the Search and Registration department, gave birth to her first child, Mariah-Ivy, on March 5.

Madeleine Cadieux, Corporate Services Manager, gave birth to her second daughter, the tiny Rose, on March 30.

David Bernardi, Vice-President of Strategic Accounts, welcomed his second boy, Noah, born on March 30.

Stéphane Day, Shipping Clerk, Corporate Accessories, became the proud father of Charles-Antoine, born on April 30.

A fairy-tale wedding

On July 13, Annie Fredette (Director, CRAC Operations), exchanged wedding vows with the love of her life, Benoit Normand in a very emotional ceremony. Although the sun was out that day, nothing shone brighter than the happy newlyweds.


The newlyweds, Annie and Benoit, with Annie’s godson, Zachary Néron (4) and his brother Mathis (6).

A race for a good cause

On Saturday, August 17, Annie Fredette and Pierre Bilodeau took part in a 10 km race to raise money for the Regroupement pour la Trisomie 21.

They did this in support of their friend and colleague, Madeleine Cadieux, whose little girl Rose was diagnosed with Down syndrome within hours of her birth earlier this year.


Runners: Émile (Madeleine’s brother), Annie, Pierre and Josselin (friend)


Madeleine’s family and friends: her friend Josselin, her brother Émile, her father André, her significant other Charles-Frédérick, her mother Lucy, her friend Annie. In front: Madeleine with her two daughters, Charlotte and Rose.

We rode for diabetes research

Last September 20th, we made a difference riding to raise funds and contribute to prevent and accelerate the pace of research on Type 1 diabetes.

Below are our riders who participated in this event that brings together more than 23,000 business leaders and employees from across Canada.  


The D+H team: Anne Roy (Executive Assistant), Annie Fredette (Director, CRAC Operations), David Bernardi (Vice-President, Strategic Accounts), Bianca Sallesse-Somensari (Trade-mark Technician), Élise Hudon (Customer Relationship Manager).


Bianca Sallesse-Somensari, whose father suffers from diabetes, was very happy to participate in this event.

CRAC

1080 Beaver Hall Hill,
Suite 1717
Montreal (Québec) Canada
H2Z 1S8
Tel: (514) 861-2722
Toll free: 1-800-361-5744
Fax: (514) 861-2751
E-mail: crac@crac.com

Notice:
This newsletter is intended to provide information of general interest only and does not offer nor should it be construed as offering any legal advice about specific situations. Individuals or entities using the information contained or referenced herein should not act upon this information without first seeking legal advice from a qualified lawyer in the particular jurisdiction. Given the changing nature of the law, we do not and cannot warrant or assure that the information herein is complete or accurate. You are advised to seek professional legal counsel in the applicable jurisdiction for your specific situation.

This newsletter is published for the benefit of our clients. Please submit any comments in writing to crac@crac.com