By Paul Smith, Dave Randell and Graham Haynes

On June 9, 2022, the Government of New Brunswick (“GNB”) released a consultation paper entitled Proposal to Modernize the Business Corporations Act (the “Proposal”) which outlines several significant amendments to the Business Corporations Act (New Brunswick) (the “NBBCA”). If adopted, these amendments would add to the existing and create new, competitive advantages to incorporating and doing business in New Brunswick.

The release of the Proposal was followed on June 10, 2022, by GNB proclaiming into force Bill 95, which amends the NBBCA to require corporations incorporated in New Brunswick to maintain a register of individuals with significant control over the corporation, i.e., a beneficial ownership registry. A separate client update by our Firm on this topic is forthcoming.

Background

The NBBCA was enacted in New Brunswick in 1981. At the time of its enactment, the NBBCA represented progressive legislation and created competitive advantages for professional service providers in the province. However, the statute has not maintained its once-enviable status as the most business-friendly legislation in the country and other provinces have, in recent decades, adopted similar provisions and established their own unique advantages.

In 2015, stakeholders, including Stewart McKelvey, proposed a suite of changes to the NBBCA to revitalize its competitive position. Unfortunately, these proposals were never adopted. However, in recent consultation with GNB, these changes have been reintroduced, along with other suggested progressive amendments, culminating in the Proposal.

Key Changes

The purpose of this client update is not to identify or summarize all of the relevant changes to the NBBCA proposed in the Proposal (a link to the 137 page Proposal can be found here) but rather to highlight some key changes which practitioners and stakeholders should be aware of:

1. Unlimited Liability Corporations: A historic competitive advantage of the Nova Scotia Companies Act, an unlimited liability corporation (a “ULC”) has long been an innovative and tax-efficient vehicle used by international investors, especially those in based in the US, to invest in Canada. The Proposal introduces a new part allowing for ULCs to be incorporated under the NBBCA to bring it into competition with Nova Scotia, Alberta, British Columbia and Prince Edward Island.

2. Repeal of Financial Assistance Restrictions. New Brunswick is one of the only jurisdictions in Canada which still contains restrictions on certain forms of financial assistance between related corporations. The Proposal will repeal these provisions in line with the reforms from other Canadian jurisdictions.

3. Limiting Preemptive Rights: The NBBCA provides that the shareholders of a corporation have anti-dilutive pre-emptive rights in respect of any subsequent issuance of shares of the corporation unless the articles of the corporation specifically precludes their application. The provisions added in the Proposal will eliminate such pre-emptive rights for all corporations incorporated after the date of coming into force of the legislation unless the articles of the corporation specifically provides for them – this essentially changes from system from one of opt-out to one of opt-in.

4. Limiting Cumulative Voting: Currently, the NBBCA provides that minority shareholders can use their votes cumulatively in order to elect directors of a corporation. This cumbersome voting system is inconsistent with modern corporate expectations and practice. The Proposal will similarly eliminate the application of mandatory cumulative voting for all corporations incorporated after the date of coming into force of the legislation unless the articles of the corporation specifically provides for it.

5. Directorless Corporations: Corporations are typically incorporated with a board of directors who are responsible for overseeing and executing the strategic direction of the company. However, in modern corporate practice, it is not uncommon for the power of directors to be usurped by a unanimous shareholders agreement which redirects said authority and responsibilities to the shareholders. The Proposal introduces a new part allowing for directorless corporations to be incorporated in certain circumstances, in which case the shareholders are empowered and accountable as directors.

6. Corporate Directors: While directors of a corporation are generally understood to be the individuals responsible for the corporation, the Proposal will allow shareholders to appoint corporate directors to the board of a corporation in certain circumstances. In such circumstances, the directors of that body corporate will then be responsible as an individual director otherwise would be.

7. Due Diligence Defence: A clear due diligence defence for directors will be added to the NBBCA and the good faith defence currently existing under the legislation will be adjusted to bring it into line with provisions at the federal level and in the province of Ontario.

8. Fundamental Changes: Several changes to the fundamental changes part of the NBBCA will be amended, including provisions which achieve the following:

a. Short-Form Amalgamations: Non-wholly owned subsidiaries will be able to be amalgamated under the short-form amalgamation process.

b. Arrangements: The definition of arrangement will be broadened, including permitting a Court to order an arrangement to proceed notwithstanding that it could be affected under another provision of the NBBCA.

c. Companies Act: A corporation incorporated under the NBBCA will be permitted to continue under the Companies Act (New Brunswick) to become a non-profit organization.

9. Take Over Bids. Section 134 of the NBBCA currently provides that when an offer is made for less than all of the shares of any class of a corporation which would result in the purchaser having majority control, that offer must also be made to all the other shareholders of the class – essentially providing all minority shareholders with a statutory tag-along right. This provision was relatively unique to New Brunswick. The Proposal, recognizing the advancements in securities laws for reporting issuers and that, for private corporations, such matters are more appropriately handled in a shareholders’ agreement, proposes the repeal of this provision.

10. Ancillary Corporate Changes: There are certain other miscellaneous changes under the Proposal which further its goal of enhanced legal efficiency and innovation in New Brunswick:

a. Promissory Note Consideration: It will be clarified that a promissory note received from an arm’s length party is acceptable consideration for the issue of a share of a corporation in New Brunswick.

b. Uncertificated Shares: Corporations in New Brunswick will have further and express statutory basis to issue shares in uncertificated form.

c. Board Appointments Outside of Meetings: The directors of a board will be permitted to increase the size of the board of directors by up to one-third in between meetings of shareholders.

d. Electronic Meetings: The use of virtual directors’ and shareholders meetings and electronic communications will be reaffirmed.

e. Financial Reporting. It will be expressly recognized that financial statements may be sent to shareholders by posting them on a website or internet file hosting service that can be accessed for free.

f. Corporate Trustees. The prohibition against a corporation acting in various fiduciary capacities (trustee, executor, guardian, etc.) will be lifted in certain circumstances, including in the context of a family trust.

11. Dissolution and Revival: The Proposal provides that a corporation can voluntarily dissolve in more circumstances, including when a corporation has made adequate provision for the payment of its liabilities, and that an interested person may revive a corporation that has been dissolved.

12. Appointment of Director: The Proposal states the Director under the NBBCA shall be appointed by Service New Brunswick rather than by the Lieutenant-Governor in Council.

Next Steps

Following a period during which stakeholders and the public can provide their comments on the Proposal, it is expected that GNB will adopt some or all of the amendments proposed thereunder through the introduction of legislation amending the NBBCA. Our Firm will continue to monitor and comment on such developments.

This update is intended for general information only. If you have questions about the above, please contact a member of our Corporate Group.

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