November 30, 2009
Will the New Canada Not-for-profit Corporations Act limit foreign activities by Canadian charities?
I am not even going to try to answer this issue. I tried before to deal with Subsection 16(3) and got the answer wrong. I am excerpting a piece from a paper entitled Insight on C-4, the New Canada Not-for-profit Corporations Act By: Wayne Gray, who is a partner at McMillan LLP, Toronto. http://www.mcmillan.ca/waynegray to answer the question.
“V. FAQ
Q1: Is the New Act Effective to Abolish the Ultra Vires Doctrine? Answer: Yes.
Subsection 16(3) of the New Act provides that:
A corporation has the capacity to carry on its activities, conduct its affairs and exercise its powers in a jurisdiction outside Canada to the extent that the laws of that jurisdiction permit.
Some have seen this provision as problematic for those federal NFP corporations operating in foreign countries.
However, the concern appears to be groundless. Section 16 of the CNCA is identical to s. 15 of the CBCA. Sections 15 and 16 of the Business Corporations Act (Ontario) (the “OBCA”) are to the same affect. As well, s. 15 of the Saskatchewan Non-profit Corporations Act, 1995 (the “Saskatchewan Act”) is substantively to the same effect. While the provision is new for federal NFP corporations, the same provision has existed for many years in the CBCA and all of the federal, provincial and territorial statutes modelled on the CBCA nary a hint of a problem.
The Dickerson Committee clearly intended to abolish the ultra vires doctrine through what ultimately became s. 15 of the CBCA. Professor Peter Cumming (as he then was) intended the same in his 1973 Proposals for a New Not-for-profit Corporations Law for Canada. Section 15 of the CBCA, and its OBCA counterpart, were considered by the Supreme Court of Canada in Communities Economic Development Fund v. Canadian Pickles Corp., where Iacobucci J., writing for a unanimous court, held that the ultra vires doctrine had been abolished by s. 15 for corporations that incorporate under the CBCA (and by ss. 15 and 16 for corporations that incorporate under the OBCA). There was no suggestion in Canadian Pickles that s. 15(3) of the CBCA qualifies the abolition of the ultra vires doctrine in any way, keeping the doctrine alive for business or activities conducted outside of Canada or automatically transforming all corporate acts that breach a foreign law into an ultra vires act under domestic law.
The simple purpose of s. 16(3) is to codify cases such as Bonanza Creek Gold Mining Co. v. R. In Bonanza Creek, the Judicial Committee of the Privy Council stated that, in the absence of express legislative restrictions, a provincially-incorporated corporation may accept powers and rights conferred on it by authorities outside of its incorporation jurisdiction. Laws of a host foreign jurisdiction can always limit the powers exercisable in that jurisdiction by a federal, provincial or territorial corporation. Extrapolating Bonanza Creek, a CBCA corporation or a CNCA corporation should be able to accept powers and rights conferred on it by authorities outside of Canada in the absence of express legislative restrictions to the contrary.
Even on a plain reading, s. 16(3) is enabling, not disabling. It contains a positive statement of the corporation’s capacity to operate outside of Canada. It does not in any way negate the capacity conferred by s. 16(1), which the Supreme Court has held to be sufficient to abrogate the ultra vires doctrine. Despite s. 16(1) of the New Act, it is possible for a host foreign law to prohibit or restrict a federal NFP corporation from operating within the host jurisdiction. Canadian corporate capacity cannot trump the application of foreign law.
By the same token, the ultra vires doctrine is purely a function of the domestic law that governs a corporation. Foreign law can make a corporate act illegal but not ultra vires.
In any event, s. 17(3) of the New Act also has potential application. It reinforces that the legislative intent of the New Act is enabling - specifically that a mere contravention of the New Act does not result in a declaration of invalidity. The CBCA formulation for abolition of the ultra vires doctrine has withstood judicial scrutiny at the highest level. It would have been counterproductive to undermine this certainty by tinkering with the legislative formulation for abolishing the ultra vires doctrine in the New Act.”
March 20, 2009
Canada Not-for-profit Corporations Act - Fourth Time Lucky? Will Canada get a new fed corporate law?
The Canadian parliament is once again considering passing the Canada Not-for-profit Corporations Act. If it is passed it will affect 19,000 Canadian federal corporations that are incorporated under federal law. The Bill is currently in the Industry, Science and Technology Committee.
Here is the first reading of the bill.
http://www2.parl.gc.ca/HousePublications/Publication.aspx?Language=E&Parl=40&Ses=2&Mode=1&Pub=Bill&Doc=C-4_1
If you actually want to understand what the bill in plain language then you might find this interesting:
http://www.parl.gc.ca/LEGISINFO/index.asp?Language=E&query=5653&Session=22&List=ls
Here are some speeches on the draft bill that you may find interesting:
Sponsor’s Speech at Second Reading (Diane Ablonczy, the Minister of State for Small Business and Tourism)
http://www2.parl.gc.ca/HousePublications/Publication.aspx?Mode=1&Parl=40&Ses=2&Language=E&DocId=3645216&File=0#SOB-2582125
She likes the Bill she introduced! She thinks that it is an improvement over what we have “The not-for-profit sector has repeatedly said that the current statute no longer meets its needs. For example, under the current statute, the incorporation process is slow and cumbersome. There are no provisions for amalgamating two or more corporations. There are no provisions for modern communications technologies. Financial accountability and transparency is inadequate. Directors do not have adequate defences against unwarranted liabilities. Members have few rights, and the list goes on.”
Hyperbole Alert: “Bill C-4 springs from the need to replace an 18th century piece of legislation with a modern framework that reflects the imperatives of the Canadian economy’s diversity and the changes that have come about in recent years. It directly addresses these issues, and what is more, provides a solid basis on which healthy, dynamic, well-run not-for-profit corporations may flourish.” It was a 1917 act, not 18th century. To imply that the Canadian government does not care about non-profits and would wait 120 years to revamp the act is unfair. They only waited 92 years. Also Minister Abloncy I hope you have something more up your sleeve - this Act by itself does not “provide[s] a solid basis on which healthy, dynamic, well-run not-for-profit corporations may flourish”. Except for a corporate or charity lawyer in a field of dreams this Act will have only a minor benefit to non-profits and unfortunately it may take 10-15 years to really see the benefit. In the first 5 years the amount of time, distraction, resources, effort to convert etc will probably do more to promote the corporate legal bar and assorted consultants than actually improve the capacity of charities. It is a nice try but I hope that the government will not consider that it has done its bit by passing this legislation. It is, minus a few concerns, a positive piece of legislation but it is not a panacea to the many problems undercutting the charitable sector.
Liberal Speech at Second Reading - Mr. Marc Garneau (Westmount—Ville-Marie, Lib.)
http://www2.parl.gc.ca/HousePublications/Publication.aspx?Mode=1&Parl=40&Ses=2&Language=E&DocId=3655358&File=0#SOB-2588256
His comments defy gravity. Ok no more astronaut jokes. He likes the bill ” If passed, Bill C-4 will implement new rules on financial reporting based on the organization’s annual revenue and sources of funding, new rules on standard of care for directors and new rules for direction liability, new rules that permit written resolutions in place of meetings and allow corporations to avail themselves of technological advances, also new rules permitting members access to certain information to monitor director activities and enforce their rights within the organization and a streamlining of the incorporation process and a reduction in the regulatory burden for the not for profit sector.”
Hyperbole Alert: ” In other words, with this new bill, the sometimes endless and often complicated incorporation process will be streamlined and simplified.” Are you kidding me, there are 19,000 federal non-share capital corporations. Yes you have to wait 20 business days to get an incorporation under the current Canada Corporations Act (CCA) but that is nothing compared to waiting one year for a charity application to be processed or 1.5 years for CIDA to approve an application that used to take 6 months.
Bloc Québécois Speech at Second Reading (Mr. Robert Vincent (Shefford, BQ))
http://www2.parl.gc.ca/HousePublications/Publication.aspx?Mode=1&Parl=40&Ses=2&Language=E&DocId=3655358&File=0#Int-2588298
He likes the Bill but has a concern about the Federal government to some extent legislating in an area of provincial jurisdiction. “As well, section 154 of the Canada Corporations Act currently stipulates that the federal minister may grant a charter of incorporation if the corporation thereby created pursues objects “to which the legislative authority of the Parliament of Canada extends, of a national, patriotic, religious, philanthropic, charitable, scientific, artistic, social, professional or sporting character, or the like objects.” But it appears that the proposed new legislation would not require a not-for-profit organization to include in its statutes the objects it intends to pursue, thus sidestepping the whole notion of specifying what action an organization can take in accordance with its goals. Since we know that the federal Parliament only has jurisdiction over organizations that do not have provincial goals, this raises the following question: Why does the bill not include some provision to oversee what falls under federal jurisdiction? The Bloc Québécois feels that this question should be studied in committee. These are legitimate issues that the Bloc Québécois is trying to defend. Under section 92 of the Constitution, managing the social economy, volunteering and community activities falls within provincial jurisdiction. As set out in that section, all matters of a merely local or private nature fall under Quebec’s exclusive jurisdiction. I repeat; it is important to note that the federal Parliament has jurisdiction over only those organizations that do not pursue provincial objects. Section 92, subsection 11 of the Constitution Act, 1867 grants the incorporation of companies with provincial objects specifically to the provinces. Accordingly, there seems to be a serious flaw in the bill and it must be carefully examined to avoid any potential conflict between the provinces and the federal government. The bill must be amended to limit its application to not-for-profit corporations that operate in several provinces, that have offices in several provinces or whose object comes under federal jurisdiction. Adding these limitations is not mandatory per se. Constitutionally, the federal government does not have the authority to legislate in areas of Quebec jurisdiction. However, to avoid any confusion that could arise from the new wording of the legislation, it would be wise to include provisions limiting the scope of its application.”
New Democratic Party Speech at Second Reading (Ms. Libby Davies, Vancouver East, NDP)
http://www2.parl.gc.ca/HousePublications/Publication.aspx?Mode=1&Parl=40&Ses=2&Language=E&DocId=3655358&File=0#Int-2588360
She has concerns about the length ie. 170 pages. ” The not-for-profit sector and our non-profit organizations have had to rely more and more on voluntary contributions and donations. They are always scrambling for money. The biggest issue facing the voluntary sector is not 170 pages of Robert’s Rules of Order and a regime of putting everyone under one size fits all, it is the question of stable long-term funding. Long gone are the days when non-profit organizations could rely on core funding to continue with their core operations and then expand to whatever programs they were doing. Now every organization, I dare to say, spends probably one-quarter or more of its time writing grant applications, chasing down every small bit of money that they can in order to develop their programs. In my riding of Vancouver East there are organizations that are literally on the front line. They are literally dealing with life and death situations. These organizations are democratic. They are transparent. Everything that they do is out there for people to see and to become involved in. In looking at the bill, I have some very serious questions as to why we are so focused on a regulatory regime for not-for-profits when we are completely missing the point of what is the real crux of the issue for non-profits in this country. The NDP, in going through this 170 page bill clause by clause and looking at the incredibly detailed micromanagement requirements that are in there, these organizations will now have to go through various hoops and there are processes and regulations involving a lot of paperwork and reporting requirements. It is absolutely incredible. It is 170 pages of things they have to note and make sure are followed up.”
Hyperbole Alert: “I certainly have a concern that the bill in its current form will make it very difficult to attract new directors and volunteers in the not-for-profit sector. Anybody faced with this massive regulation would say, “I came here to do good work. I came here to make a contribution to my community. I came here to make good decisions. I came here to help people,” and all of a sudden that person is faced with having to deal with a massive bureaucratic regime, where one size fits all right across the country. We have to seriously question whether or not the bill, if it is adopted in its current form, would have a counter-effect. Maybe it is being put forward from the point of view of transparency and accountability, but it may have the effect of turning people right off and asking why on earth they would get involved in doing this work when there are so many requirements and responsibilities.” Ms Davis people don’t read the CCA, because it is long and incomprehensible to most directors, I don’t think this new legislation is going to make it worse. It is hard to get people to volunteer for boards and actually attend the meetings and come prepared because people are working too hard (60 hour weeks), they do not have access to adequate child care solutions like universal day care and right now they are worried about their own jobs. I am sure you will not disagree that those are factors! Finally and most importantly a whole industry has been created of scaring directors into thinking that being on a non-profit or charity board is very risky and the likelihood of litigation is great (and providing advice to those anxious directors). We all deal with risk everyday. Serving on a non-profit board is a lot less risky than skiing or playing hockey - two things I try hard to avoid because skiing is plain dangerous, especially if you don’t have a helmet, and also I don’t skate.
Clarification needed alert: “Another concern that we have about the bill is that it does not address the relationship between charity status, Revenue Canada and the issue of advocacy. This has been a long-standing debate. There are organizations that are very concerned about the severe limits that are put on them to do advocacy work. Somehow advocacy has become a negative word. It has become a negative component to the work that is done. However, what I see in my community is that the advocacy work, which does not mean that it is partisan, to uphold people’s rights, whether it is in legal aid, housing or groups that have been very marginalized, is very important for the not-for-profit sector. This issue has not been dealt with at all.” This made no sense but Libby if you want to call I would be happy to discuss. Read the CRA Policy Statement on Political Activities (CPS-022) if you want to understand what political activities a Canadian charity can undertake with the blessing of CRA. Canadian charities currently spend $50 million on political activities, even though by my calculation under the CRA rules they are allowed to spend about $15 billion. Don’t blame CRA because many Canadian charities have not read CPS-022, don’t want to take the time to understand the political process, don’t want to allocate real resources to political activities, don’t appreciate the important role that government plays in so many aspects of our lives etc. It is vital that Canadian charities be engaged in allowable political activities as set out in CPS-022, but this corporate statute is not the place to deal with it.
There was some interesting back on the forth on the bill:
Superior North, NDP):
Mr. Speaker, we understand the need for bringing our corporations act into the 21st century. However, we are rather disappointed that a fairly straightforward six page present act has been expanded into a rather bloated a one hundred and seventy page document. We believe there will be need for amendments to the bill. We are particularly concerned that the bill would increase the record keeping and regulatory burden on non-profits, especially the small non-profits. It seems to treat the average legion social club the same as it treats the Red Cross of Canada. We are concerned that the record keeping requirements will become onerous. We hope there will be some trimming down and some thought given to that sort of thing. What we seem to have is a 170 page expansion and legalization of Robert’s Rules of Order.
Mr. Marc Garneau:
Mr. Speaker, I take note of the member’s comments. It is a large document, but the consensus that has been reached in consultations over a period of six to eight years is this is in fact a document that streamlines and clarifies the responsibilities and the processes involved with being a non-profit corporation. However, I take note of the member’s comments. It would be important to ensure that small organizations would not burdened to the same extent as larger organizations. I welcome the member’s input to the committee discussions that will take place in due course to move toward a ratification of the bill.
...
Mr. Paul Szabo (Mississauga South, Lib.):
... The area I want to comment on is with regard to the coming into force of the regulations. The member may want to comment on this. The bill has a substantial section on the regulations. One of the regulation provisos indicates that the governor in council, basically the cabinet, can establish regulations. It gives cabinet the power to define certain terms used in the bill but they are not defined in the bill, which I find very unusual. The bill provides substantive latitude and causes me a bit of concern with regard to the facility to be able to change the scope of legislation through regulation rather than through the legislation itself. In normal cases, regulations are enabled by the legislation itself. I raise this from the standpoint that I hope the committee will look at the extensive provisions allowing for regulations to be put forward. In my own view, they appear to be fairly broad and sweeping and there may be items here that should be incorporated into the legislation as it exists rather than at some other time at the discretion of cabinet.
———-
PRESENTATION BY THE CANADIAN RED CROSS SOCIETY TO
THE STANDING COMMITTEE ON INDUSTRY, SCIENCE AND TECHNOLOGY
CONCERNING: BILL C-4 AN ACT RESPECTING NOT-FOR-PROFIT CORPORATIONS AND CERTAIN OTHER CORPORATIONS
TUESDAY, MARCH 10, 2009
APPEARING FOR THE CANADIAN RED CROSS:
Main speaker: Alan D. Reid, Q.C., General Counsel
Witness: Pam Aung Thin, National Director of Public Affairs and Government Relations
Monsieur le Président et membres du comité,
Au nom de la Croix-Rouge canadienne, je tiens à vous remercier de nous permettre de comparaître devant le Comité permanent de l’industrie, des sciences et de la technologie.
Permettez-moi tout d’abord de vous parler brièvement du mandat de la Croix-Rouge canadienne, avant de laisser la parole à notre conseiller juridique, M. Alan Reid, qui présentera nos commentaires concernant le projet de loi C-4 régissant les organisations à but non lucratif et certaines personnes morales..
La Croix-Rouge canadienne est un organisme humanitaire à caractère bénévole sans but lucratif, qui se consacre à améliorer la condition des plus vulnérables au Canada et partout dans le monde grâce à l’appui et le dévouement de plus de 30 000 bénévoles et membres, ainsi que de ses 3 500 employés. La Société est dotée d’un mandat unique – celui d’auxiliaire des pouvoirs publiques à tous les échelons au Canada. En ce sens, la Croix-Rouge canadienne joue un rôle essentiel en assurant le lien entre les gouvernements, la société civile et les collectivités qu’elle dessert..
La Croix-Rouge canadienne est membre du plus important réseau humanitaire au monde qui comprend plus de 100 millions de bénévoles et membres à travers le monde.. Elle fait partie du Mouvement international de la Croix-Rouge et du Croissant-Rouge, qui est formé du Comité international de la Croix-Rouge, de la Fédération internationale des Sociétés de la Croix-Rouge et du Croissant-Rouge et de 186 Sociétés nationales de la Croix-Rouge et du Croissant-Rouge..
Aujourd’hui, au nom de la Croix-Rouge canadienne, nous tenons à vous assurer de notre appui global au projet de loi C-4. Je vais maintenant laisser M. Reid, présenter de manière plus détaillée nos commentaires et recommandations.
Mr. Chair,
Members of the Committee,
The Canadian Red Cross recognizes the need for new legislation governing not-for-profit corporations in Canada. Moreover, the Society participated in consultations organized by Industry Canada in 2002, and those consultations have influenced in many respects the form and content of Bill C-4.
In particular we welcome:
• Specific authority for telephonic and electronic meetings and voting;
• Authority to make binding unanimous resolutions without meeting;
• Tighter conflict of interest requirements;
• Broadening of indemnification authority, including indemnity advances, which may become increasingly relevant given the current public appetite for enforcing governance accountability;
• Overall, the increased deference Bill C-4 extends to corporate by-laws on many issues that were formerly regulated by the CCA and Ministry policy directives.
In 2005, the Canadian Red Cross appeared before the Committee to express its support for Bill C-21, a forerunner to Bill C-4, as well as to make some general observations, which we believe still largely apply.
While we support the “as of right” approach to incorporation, and welcome the fact the new corporate model will eliminate “up front” government regulation (e.g. no Ministerial approval of articles or by-laws), we note that the new corporate model places a large emphasis on self-regulation, and on checks and balances resting upon enhanced legal rights and access to courts. Bill C-4 is detailed and difficult legislation, and will be complemented by lengthy regulations. It will pose compliance challenges, not just for small not-for-profits that operate without legal departments and/or sizeable legal budgets, but even for large organizations such as the Canadian Red Cross, with easier access to legal assistance. Every new comprehensive piece of legislation presents interpretive and operational issues, and Bill C-4 is no exception. It calls upon not-for-profits to address many new challenges: e.g. - systems for tracking and allowing access to a large and changing membership (in the case of the Society); procedures to meet enhanced accountability thresholds; adjustments to new financial procedures; re-doing of by-laws - all of which will require careful efforts to ensure that governance provisions and practices measure up to the new standards. Because there is a lot of room for error, and for disputes, in adapting to this new model, we encourage the government to support and build upon current Industry Canada initiatives to educate the not-for-profit, in particular the voluntary sector, through publications, websites, model by-laws, workshops, non-binding administrative opinions on key issues, all of which will assist not-for-profits, both large and small, in their due diligence and other compliance efforts.
While it is noted in the accompanying explanatory text that the Bill provides directors with an express “due diligence” defence against potential liability, we note also that the Bill equally promises to enhance and protect member rights and gives members additional power to enforce their rights and to oversee the activities of their organizations, as well as to monitor the directors’ activities. Finding ways of satisfying due diligence will become even more challenging and critical for directors than it is today. Arguably, this Bill may heighten tension between membership and directors, increasing the risk of liability rather than reducing it. While we have no doubt that well-qualified directors will continue to come forward to serve the not-for profit and charitable sectors, it will be interesting to see how insurance underwriters will assess the balance of risk and rights, and what impact this legislation will have on already steep premiums for directors’ and officers’ liability insurance.
In part, this question may be influenced by the extent to which the new corporate model stimulates resort to courts to resolve corporate governance issues. Given our concern that enhanced members’ rights, coupled with broader judicial remedies, could elevate dispute resolution costs for not-for-profits and charitable organizations, we would have preferred to see overt legislative encouragement of administrative process and alternative dispute resolution mechanisms. Section 293 gives the Director authority to “make inquiries of any person relating to compliance with this Act,” but for the most part the Director, like everyone else in the new model, may feel compelled to rely on courts to enforce compliance. We hope that the legislative model will prove flexible enough to allow for less formal and less costly means of resolving member/board/management tensions, as well as compliance issues raised by the Director, and we would encourage the government to create and finance a mandate for Industry Canada to assist not-for-profits in developing efficient and humanitarian approaches to resolving compliance issues, in lieu of engaging the courts.
The Canadian Red Cross, in preparing for this presentation, has chosen not to single out particular sections and clauses of Bill C-4 for specific criticism. Doubtless there are sections that might be improved, but a lot of work has gone into this Bill over many years by many experts in the field, and we choose not to repeat before this Committee comments we may have made in the reform process that have not found their way into Bill C-4. Notwithstanding small concerns that we may have about some of the details of certain provisions of the Bill, our primary message to the Committee today is that we view Bill C-4 as an important legislative initiative, and support the change it will bring. We will undoubtedly gain a deeper understanding of its complexities as we work through our governance and financial procedures in an effort to bring the Society into compliance with the new regime.
We would like to see the Bill move through the legislative process as quickly as possible. Reform of this area has been a long time in coming, and we are anxious to get on with the task of adjusting to the new regime.
Thank you once again for inviting us to appear before you.
Merci.
——-
