On February 15, 2015, Ontario’s Minister of Government and Consumer Services asked a 13-member panel of legal practitioners and academics to survey the province’s business law landscape and provide recommendations on reforming laws to modernize the province’s business environment. In June, 2015, the panel submitted a comprehensive report with 16 recommendations for legislative reform that would promote the following key objectives:
- Making Ontario a leading jurisdiction for business;
- Updating legislation dealing with commercial activity, including the PPSA; and
- Creating an environment with more certainty and efficiency to support market activity and small business growth.
These objectives would be achieved by amending, and in some cases even repealing, a number of significant pieces of Ontario legislation, as detailed below. It is important to bear in mind that these are simply proposals, but the fact that such a broad range of reforms to Ontario business law is under serious discussion is a significant development in its own right.
Making Ontario a leading jurisdiction for business
In the case of the Business Corporations Act (OBCA), the panel recommended removing barriers on board composition by eliminating Canadian residency requirements which currently mandate at least 25% Canadian resident representation on corporate boards, a provision that is routinely avoided by incorporating in a Canadian jurisdiction that does not impose it. In a further attempt to streamline and modernize the operation of boards of directors, the panel suggested changing the cumbersome rules regarding electronic communications so as to allow meetings to be held electronically or via conference call without the notices and consents currently required from the parties involved.
The panel also recommended that shareholders be given the ability to vote against candidates in a board election in order to more effectively control their board’s composition. It also recommended the statutory recognition of beneficial shareholders which would (for example) allow those who hold shares through an electronic based book-entry system to be entitled to the rights and remedies under the OBCA as registered shareholders.
In light of a similar review process underway with respect to the Canada Business Corporations Act (CBCA), another item that could perhaps be added to the “wish list” would be that the Ontario and federal jurisdictions adopt a consistent approach with respect to company law issues such as the rights of beneficial shareholders.
With regard to partnerships and the Limited Partnerships Act, the panel made proposals aimed at encouraging the formation of more LPs in Ontario. In particular, the committee mentioned the possibility of reducing the potential for limited partner liability, noting that many LPs are formed under corresponding Manitoba legislation that permits limited partners to take a more active role in the business.
ULCs, LLPs and LLCs
The panel proposes a number of changes designed to make the use of a variety of business forms easier. For example, ULCs (unlimited liability corporations) would be permitted in Ontario – as they are currently in Alberta, B.C., and Nova Scotia – and eligibility for LLP (limited liability partnership) status would be extended beyond the legal and accounting professions. The panel also considered the adoption of U.S.-style LLCs (limited liability corporations) but was of the view that the expanded LLP would serve much the same purpose.
Updating legislation dealing with commercial activity, including the PPSA
Eliminating some quirks of Ontario’s PPSA
With respect to the Personal Property Security Act (PPSA), the panel emphasised amendments to permit cash as collateral to be perfected by control as opposed to registration, and supported a provision to make cash have priority over competing security interests. Other recommendations included proclaiming into force “location of debtor” provisions which provide for a debtor’s location to be that of its registered office; repealing the provision mandating that a debtor receive copies of all registrations; defining “intangible” in the PPSA to clearly include licences, IP licences and quotas, as is currently the case in British Columbia and Saskatchewan, and waiving the requirement for chattel paper financiers to physically possess chattel paper (a requirement that has inhibited the development of electronic chattel paper in Ontario).
Repealing the Bulk Sales Act
Ontario is last Canadian jurisdiction to retain bulk sales legislation. Intended to protect unpaid trade creditors against a vendor’s bulk sale of all or substantially all of its assets, the Bulk Sales Act’s remedies have largely been superseded by those available in other statutes. Because the Act can apply, in theory, to a broad range of business transactions, it often requires parties to obtain legal advice, exemption orders and indemnities. The panel recommended that Ontario join other Canadian jurisdictions in repealing the Act.
Repealing duplicative preference and fraudulent conveyance legislation
The panel proposed the repeal of both the Assignment and Preferences Act and the Fraudulent Conveyances Act, legislation that is largely superseded by federal bankruptcy legislation and which achieves very little other than to add costs to business transactions. The committee recommended the substitution of the Uniform Law Conference of Canada’s model act, the “Reviewable Transactions Act” for the two statutes.
Creating and environment with more certainty and efficiency to support market activity and small business growth
Making franchise law compliance simpler
Franchising is an important engine of business growth. Ontario’s Arthur Wishart Act (Franchise Disclosure) is one of several pieces of provincial legislation in Canada that govern the franchisor-franchisee relationship. While the legislature’s intention to provide substantial protections to franchisee’s was warranted, the Arthur Wishart Act has created a number of difficult and costly compliance issues, particularly in comparison with franchise legislation in other provinces. For example, 14 days before a franchisee signs a franchise agreement or pays consideration relating to the agreement, the franchisor must disclose “all material facts” to the franchisee, though uncertainty surrounds what “all material facts” entails, as it remains undefined in the Act. As a result, the panel called for an update to Arthur Wishart Act, with a view to bringing about greater disclosure certainty (and lower legal costs) for both franchisees and franchisors.
Simplifying business registration requirements
Particular emphasis in this section of the report was placed on simplifying business information and business registration legislation, particularly with respect to duplication and inconsistency. For example, obstacles exist for many international organizations (e.g. LLCs) whose structures and/or designations differ from those recognized under Ontario legislation.. Legal advice must often be sought in both cases to ensure compliance with Ontario’s regulations. As a result, the panel suggested modernizing Ontario legislation to allow for simpler and more predictable designations of common types of foreign corporate entities. The committee also recommended a reduction in the amount of information collected from companies to what is truly necessary from a policy perspective, as well as improved co-operation with other provinces with respect to reducing the needless duplication of corporate filings.
The recommendations proposed by the panel would modernize Ontario business law and align it with neighbouring jurisdictions in a manner that would help to reduce transaction costs. The Ministry of Government and Consumer Services states that it will create a reform agenda based on these recommendations, though there is no timeline for completion. If you so desire, you can e-mail comments and ideas on the report to The Ministry of Government and Consumer Services at firstname.lastname@example.org with “Business Law Agenda Report” in the subject line. The Ministry is accepting submissions until October 16, 2015.