The legislation governing British Columbia not-for-profits, known as societies, is changing. On November 28, 2016, a new Societies Act (the “New Act”) is scheduled to come into force, replacing the current Society Act (the “Current Act”). The legislation is a welcome modernization of the outdated Current Act, and includes a number of provisions and procedures that will be familiar to those who deal with business corporations incorporated under the British Columbia Business Corporations Act.
Within two years of the New Act coming into force, all existing B.C. societies must transition their constitution and bylaws into a form that complies with the requirements of the New Act. Whether or not they transition, all B.C. societies will be governed by the New Act as of the in force date. The transition is done by filing a transition application online. Any society that has not filed a transition application within the two-year period may be dissolved by the Registrar. Lenders should therefore ensure those borrowers that are societies transition within the prescribed time period, and require them to provide a copy of the filed transition application or other evidence that they have completed the process.
A key change in the New Act of importance to lenders to the not-for-profit sector in British Columbia relates to the borrowing powers of a B.C. society. The change applies to all societies as of November 28, 2016, whether or not they have transitioned under the new legislation. The Current Act contains a somewhat inscrutable section that has generally been interpreted to mean that a society cannot borrow money unless it has been authorized to do so by a special resolution, which requires approval by at least 75% of the society’s voting members. Even more restrictive is that any power to borrow given to directors under that special resolution is limited to a maximum period of one year after the special resolution is passed. The borrowing provision of the New Act is much more flexible, giving the directors the general power to authorize a society to borrow money, subject only to any restrictions or prohibitions on borrowing in the society’s bylaws.
This section of the New Act is similar to the usual borrowing powers of a business corporation, and will make it easier for directors, without the need for approval by a society’s members, to authorize borrowing by a B.C. society. However, the provision of the New Act that permits the bylaws to restrict or prohibit the ability of a society to borrow money is a good reminder to lenders in all provinces to be vigilant in confirming the proper authorization of borrowing by a not-for-profit. Despite some similarities between them, societies and other not-for-profits differ from business corporations, which almost invariably give directors the clear authority to borrow. The adage “know your borrower” is even more applicable if the borrower is a society or other not-for-profit entity.