Written By Denise Bright, Beth Riley, Brent Kraus and Spencer Brown
On December 2, 2021, the Alberta Government's Bill 84: Business Corporations Amendment Act, 2021 (Bill 84) received Royal Assent. The amendments to the Business Corporations Act (Alberta) (ABCA) contemplated by Bill 84 (which are scheduled to come into force on proclamation and are not yet effective) are consistent with amendments made through the Red Tape Reduction Implementation Act (e.g., removing the director residency requirement), in that they, generally, modernize the ABCA, afford additional flexibility to corporations, directors and shareholders in organizing their affairs, and reduce regulatory and administrative burdens for Alberta corporations, all with the objective of retaining existing businesses in, and attracting new businesses to, Alberta.
The Amendments will:
- subject to particulars to be set out in the Business Corporations Act Regulation, have the effect of modifying certain directors' responsibilities and protections;
- expand court discretion in relation to plans of arrangement;
- reduce administrative burdens for private corporations (for example, by permitting auditor waivers and written shareholder resolutions to be passed by specified majorities, rather than unanimously); and
- modernize outdated requirements and definitions and provide for increased corporate flexibility.
Modify Directors' and Officers' Responsibilities and Protections
Opportunities to Participate in Corporate Opportunities—Waivers. The corporate opportunity doctrine provides that, generally, directors and officers, in their capacities as fiduciaries to a corporation, may not take advantage of a business opportunity available to such corporation. The Amendments anticipate the enactment of regulations (under the ABCA), which will set out the framework under which a corporation may waive its interest in certain corporate opportunities offered to it or its officers, directors or shareholders. Those regulations have not yet been published; accordingly, there is uncertainty regarding the ultimate approach that will be taken by the Government of Alberta, but corporations may be permitted to develop policies and procedures for the waiver of corporate opportunities that they consider aligned with corporate and shareholder objectives. We expect to follow-up with a further client update following publication of the regulations.
For example, the regulations (when enacted) may: (i) permit private equity investors, or other investors with diverse portfolios, to invest in or participate as a director or officer of a corporation on the basis that the investor is permitted to pursue business opportunities in similar lines of businesses as a corporation without fear of a claim of breach of fiduciary duty; and (ii) offer a means for corporations to resolve conflicts for directors who sit on multiple boards in the same industry.
While corporate opportunity waivers are permitted in various U.S. jurisdictions, Alberta would be the first jurisdiction in Canada to afford latitude to corporations in that regard.
Material Contracts & Transactions. The ABCA generally requires directors and officers to disclose an interest in a material contract or transaction and prohibits directors from voting on resolutions to approve such material contract or transaction, subject to certain exemptions. The Amendments will allow a director to vote on resolutions to approve a material contract or transaction to the extent that the director's interest would benefit the corporation. This amendment would apply, for example, in the context of a director guaranteeing a loan to the corporation. The Amendments will also extend the requirement to disclose an interest in a material contract or transaction to persons who act in the capacity of a director or officer, as if that person were a director or officer.
Due Diligence Defence: Good Faith. The ABCA provides that directors will not be liable for breach of the duty of care if the director demonstrates that he/she relied in good faith on opinions and reports of certain experts, such as lawyers, accountants, engineers, appraisers and other professionals. The Amendments will expand this protection to include reliance on an opinion or report of a "person, including … an employee of the corporation, whose profession or expertise lends credibility to a statement made by that person."
Enhanced Indemnification & Insurance. Under the ABCA, a corporation may, generally, indemnify a director or officer for costs incurred in connection with a civil, criminal, or administrative action or proceeding to which the director or officer is made a party, provided the director or officer acted in good faith, believed his/her conduct was lawful, and was substantially successful on the merits of his/her defence of the action or proceeding and was fully and reasonably entitled to indemnity. The Amendments will enhance the protection of directors by expanding indemnification to apply (i) to investigations or other actions or proceedings, (ii) to investigations/actions/proceedings where the director is involved in, but is not a formal party to, the investigation, action or proceeding, and (iii) in cases where the director was not judged by a court or competent authority to have committed any fault or omitted to do anything that the director ought to have done, rather than the more onerous standard of being substantially successful on the merits in the director's defence of the action and being fairly and reasonably entitled to an indemnity. In addition, the Amendments will expand the ability of a corporation to purchase and maintain officers' and directors' insurance in certain circumstances.
The Amendments also specifically provide that shareholders party to a unanimous shareholder agreement may "fetter" their discretion when exercising the powers of directors under such unanimous shareholder agreement.
Expand Court Discretion Regarding Plans of Arrangement
A plan of arrangement is a court supervised and approved procedure (governed by the applicable corporate statute, such as the ABCA), under which corporations may complete a wide range of transactions, including mergers and acquisitions and reorganizations.
Completing a plan of arrangement under the federal Canada Business Corporations Act (CBCA) has, in certain circumstances, been viewed as more favourable and flexible than under the ABCA, especially in the context of corporate debt restructurings, as the CBCA (i) does not explicitly require shareholder approval (even though the provision's breadth encompasses certain corporate transactions that would require shareholder approval if completed outside of an arrangement); and (ii) provide that a court may grant a stay of proceedings at the time the plan of arrangement proceedings begin, allowing the corporation to focus strictly on such proceedings.
The Amendments will provide a court with increased discretion, including the ability to make any order "it thinks fit" in connection with a plan of arrangement, which would allow the court to grant a request for a stay of proceedings if the corporate applicant so requests, and to approve a plan of arrangement without first obtaining shareholder approval.
As a note, the Amendments will also require the filing of the court documents with the Registrar under the ABCA, to allow the Registrar to intervene if necessary.
It remains to be seen whether the courts' familiarity with the CBCA will cause it to continue to be the statute of preference for corporate restructurings, or whether the ability for ABCA companies to proceed under their own legislation, rather than continuing under the CBCA, will gain traction.
Reducing Administrative Burdens for Private Corporations
The Amendments will allow the administration of private corporations to be more streamlined and flexible, including by (i) reducing the threshold for approval of a written shareholder resolution from unanimity to two-thirds of the shareholders entitled to vote on the resolution; (ii) reducing the threshold for passage of a resolution to dispense with the appointment of an auditor from unanimity to two-thirds of the shares entitled to vote the resolution (unless it is to be passed by written resolution, in which case it will need to be signed by all of the shareholders entitled to vote on the resolution); and (iii) permitting a corporation to shorten the notice period for shareholders' meetings from a minimum of 21 days and a maximum of 50 days, to a minimum of 7 days and a maximum of 60 days.
Modernize Outdated Requirements, Definitions and Increase Flexibility
Extend the time period to revive a dissolved corporation. The Amendments will increase the length of the window during which a corporation may be revived following dissolution (from the current five years to 10 years, measured from the date of dissolution each case), thereby providing additional time to recommence a business, collect assets or resolve legal issues.
Modernizing the ABCA. The Amendments will modernize the ABCA to remove multiple outdated or redundant provisions. Among other things, the amendments contemplate (i) removal of the requirement to publish the record date of a shareholders' meeting (which requirement will continue to apply to reporting issuers under the rules of stock exchanges); (ii) replacement of the defined term "distributing corporation" with "reporting issuer" (which takes its meaning from applicable securities laws in Canada); (iii) the issuance of securities certificates in electronic form, (iv) voice votes at shareholder meetings, rather than a show of hands (which change is compatible with earlier ABCA amendments to facilitate virtual meetings); (v) expand acceptable contact information to include email; and (vi) deletion of references to faxed and handwritten documents.
Expand insider trading provisions. The ABCA restricts "insiders" (as defined in the ABCA) from making use of confidential corporate information in the context of acquisitions and dispositions of securities of the corporation. These provisions are similar to, but different than, the insider trading provisions set out in applicable securities laws in Canada.
The Amendments will expand the definition of "insider" to include (i) a person who received confidential information while a designated insider, such as a director, officer or 10 percent shareholder of a corporation; and (ii) in certain circumstances, a person who proposes to make a takeover bid for shares of a corporation or to enter into a business combination with the corporation. The insider trading prohibition will also be expanded to include a trade in a security of another entity whose value is significantly dependent on the value of the securities of the corporation, such as a material subsidiary trading in the securities of its parent company.
The Amendments also contemplate modifications to the insider trading defence set out in Section 130 of the ABCA. The ABCA currently provides that an insider is not liable (under Section 130) in circumstances where the relevant information was known, or in the exercise of reasonable diligence should have been known, to the other party to the trade. After the Amendments become effective, an insider will not be liable to the other party to the trade if the insider reasonably believed that the relevant information had been generally disclosed or that the information was known, or ought reasonably to have been known, to that party.
The Amendments seek to modernize the ABCA and align the ABCA with leading corporate statutes, all with the objective that Alberta becomes a more attractive place to incorporate, invest and grow a business. Bill 84 was introduced after significant consultations, which occurred during the period from July 2020 to September 2021, with business leaders, legal and academic communities, accounting firms, the banking industry and the Alberta Securities Commission, among others.
The Alberta Government has advised that the Amendments will be proclaimed into force after the associated regulations have been developed and stakeholders have an opportunity to become familiar with the amendments.
To understand how these Amendments may affect corporations, how new and existing corporations may benefit from the Amendments (including possibly amending a corporation's articles, bylaws or unanimous shareholder agreement) or to assist with any questions about the new Amendments, please contact any of the authors.