Québec plans to modernize the legislation applicable to Québec companies by a fundamental reform of the Companies Act

On October 7, 2009, the Minister of Finance tabled Bill 63 at the National Assembly of Québec to modernize the Companies Act, which has not been the object of a reform since nearly 30 years.    

One of the main objectives pursued by Bill 63 is to make the Companies Act more attractive, and therefore to contribute to Québec's economic development by providing Québec's businesses with clear, simple, efficient and modern regulations while promoting good governance as well as protection of minority shareholders.

This reform is in some way a response to a similar reform at the federal level of the Canada Business Corporations Act, which entered into force in 2001 and with which the Bill shares the same name.

Eager to keep its corporate clients informed of the contents of this Bill that may affect them, Gowling Lafleur Henderson LLP presents below some key changes that Bill 63 will bring to the Companies Act when it comes into force:

1. Protection of minority shareholders

1. Right of dissent: Any shareholder may require the redemption of its shares if it disagrees with a significant change affecting its rights, such as the expulsion of shareholders, the amendment of articles, the alienation of a substantial portion of assets or a merger.
2. Shareholders proposals: It will now be possible for any shareholder of a corporation that is a reporting issuer or who has 50 shareholders and more to discuss at an annual meeting, a proposal previously submitted to the Board of Directors.
3. Derivative Action: It will now be possible, without recourse to provisions available at common law, to ask a court for permission to sue or otherwise act on behalf of a corporation or any of its subsidiaries.
4. Oppressive remedy: Similarly, minority shareholders will benefit from a statutory recourse if they are the object of abusive or unfair acts on the part of the corporation and the court will have, as is the case under Section 241 of the Canadian Business Corporations Act, a wide range of curative measures.

2. Liability of directors and officers

1. Codification of duties: The Bill codifies the main fiduciary duties of the directors and officers of a company, which are to act with prudence, diligence, honesty and loyalty, in the interest of the corporation, and specifies the duties applicable with regards to disclosure of interest.
2. Due diligence defence: As at the federal level, a director or officer may be exonerated for acts done in good faith in the execution of their functions.
3. Senior executive remuneration: To prevent the type of scandals that were highlited in the news recently, the power to set the remuneration of senior executives of a company will now be exclusive to the Board of Directors.

3. Administrative streamlining

1. Sole shareholder: To make things easier for companies with one shareholder, certain formalities are eliminated, such as holding an annual meeting or appointing an auditor.
2. Unanimous shareholder agreement: The applicable rules when a unanimous shareholder agreement is in force are specified and the requirements for registration in this event are strengthened.
3. Continuance: It will now be possible to continue the life of corporation incorporated under Québec law on to another legislation and, conversely, allow the continuance of a foreign corporation under the Québec legislation, thus eliminating the current irritating obstacle in this regard.
4. Rules respecting the maintaining of the capital: Bill 63 will simplify the rules and eliminate the accounting test which has always raised important interpretation difficulties.
5.  Financial assistance: The Bill puts an end to the framework of financial assistance by a corporation to its shareholders, which presently causes major difficulties for financing.
6. Dissolution and winding-up: The dissolution process will be simplified so that the rules relating to the winding-up will now be incorporated into the Companies Act.

4. Taking into account of new technologies

1. Use of new technologies: It will now be possible to form a company by using a new electronic platform that will be implemented by the Enterprise Registrar and amend its articles or merge it electronically.
2. Shareholders' meetings and directors' meetings: It will be possible to use the new available technologies to participate and vote.
3. Uncertified shares: It will now be possible to issue shares without them being represented by a share certificate.

It is to be noted that the companies governed by Part 1 of the current Companies Act will have 5 years from the coming into force of the new Business Corporations Act to extend thereunder, otherwise, with certain exceptions, they will automatically be dissolved, while the companies governed by Part 1A will automatically be governed by the new Business Corporations Act after its coming into force.

In conclusion, Bill 63 aims to make incorporation under the Québec jurisdiction as attractive, if not more, than incorporation under the Canadian Business Corporations Act or its equivalent in other jurisdictions in Canada and the U.S.