OVERVIEW OF THE NEW BRITISH COLUMBIA

  BUSINESS CORPORATIONS ACT
by Todd Harvey

Introduction

1.   Transition of Pre-Existing Companies

      (A)   Mandatory Transition Requirements

      (B)   Electronic Filing of Documents through Corporate Online

2.   Substantive Changes under the New Act

      (A)   Corporate Governance

      (B)   Share Capital and Corporate Finance

      (C)   Amalgamations, Dissolutions and Restorations

      (D)   Corporate Records

3.   Government Objectives

4.   Conclusion

Contact Information

Introduction

The Government of British Columbia has enacted a new Business Corporations Act (the “New Act”), which is to replace the existing Company Act (the “Old Act”), and plans to bring the New Act into force on March 29, 2004. The New Act represents the most significant change in British Columbia corporate law since the Old Act came into force in 1973!

The purpose of this discussion paper is to:

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1. Transition of Pre-Existing Companies

(A)  Mandatory Transition Requirements

A company that was created under the Old Act or another previous corporate statute in British Columbia and is still in existence on the date the New Act comes into force is defined as a "pre-existing company" under the New Act.

All pre-existing companies must, within two years from the date the New Act comes into force, do the following:

Until the Transition Application is submitted, a pre-existing company will be generally restricted from altering its Articles and carrying out certain corporate transactions. In addition, it is rumoured that lending institutions may require confirmation that the transition rollover has been completed as a condition of lending. The Transition Application is to be in the form established by the Registrar of Companies and must include the Notice of Articles. The Notice of Articles contains the full name and address of the directors, address of the Registered Office and Records Office of the pre-existing company, name of the company, and authorized share capital of the company, among other things, and cannot contain any further information.

Although for most companies it is expected that their existing Articles will continue to comply with the New Act (other than some inconsistencies in terminology due to different terms and definitions used under the New Act), as part of the transition certain companies may need to make amendments to their Articles in order to comply with the New Act. These changes include, for example, moving special rights and restrictions for shares from the old Memorandum to the Articles to comply with the requirements of the Notice of Articles provisions.

Supporting resolutions will also need to be passed to authorize the Transition Application and supporting documents. A special shareholder’s resolution must also be passed to authorize any additional changes to the Articles that may be desired or required.

If a pre-existing company fails to file the Transition Application within the two-year time period, the Registrar of Companies will be entitled to dissolve the company and strike it from the Registry. Upon being struck, the company will cease to exist and its assets will automatically become the property of the Crown.

Please note, however, that Baker Newby has developed a plan to ensure all of our corporate clients complete the transition rollover to the New Act within the two-year period. We will be in contact with all of our corporate clients during this period, most likely in conjunction with their next regular Annual Report (unless circumstances arise which require the transitional rollover to be completed sooner), to provide instructions and documentation to effect this mandatory transitional rollover. It is our goal to make this transition as easy as possible for our clients!

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(B) Electronic Filing of Documents through Corporate Online

In addition to the Transition Application and related transitional changes to pre-existing companies, once the New Act is in force and Corporate Online is operational, electronic filing of forms with the Registry will become mandatory.

The initial implementation of Corporate Online is expected to permit the filing of Transition Applications, incorporations, alterations of capital, amalgamation documents, annual reports and changes of address and changes of directors. All B.C. companies will be required to file electronically all filings available electronically under the new Corporate Online computer system.

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2. Substantive Changes under the New Act

In addition to the mandatory transition requirements and the introduction of Corporate Online, the New Act will also introduce a number of important substantive changes to the way companies are organized and operated in British Columbia. Some of these substantive changes are as follows:

(A) Corporate Governance

Directors’ Residency Requirements: Under the Old Act a majority of directors were required to reside in Canada and at least one was required to reside in British Columbia. These requirements are eliminated in the New Act.

Officers: Under the Old Act, there is a requirement to appoint a President and a Secretary. Under the New Act, a company can have whatever officers it chooses.

Transfer of the Powers of Directors: Under the Old Act, there was no provision for the transfer of the powers of directors to other persons. Under the New Act, this transfer is permitted if provided for in the Articles of the company.

Conflicts of Interest Rules for Directors and Senior Officers: The tests for determining whether a director or senior officer of a company is in a conflict of interest with respect to a transaction being contemplated by the company have been clarified. Under the New Act, in order for the conflict of interest requirements to be engaged, the interest of the director or senior officer in the transaction must be material and the transaction being contemplated must be material to the company. The Old Act does not have such a materiality test.

Indemnification of Directors: Under the New Act, in general, directors may be indemnified by the company without a court order if certain requirements are met. Also, directors may be indemnified for costs incurred in relation to investigative actions. Under the Old Act, the indemnification provisions required a court order and were silent on indemnification of costs for investigative actions.

Majority Required for Special Resolutions: Under the New Act, the majority required to pass a special resolution can be specified in the company’s Articles as anywhere between 2/3 and 3/4 of the members voting at a members’ meeting. Under the Old Act, the special resolution majority was fixed at a 3/4 vote.

Exceptional Resolutions: Under the New Act, an "exceptional resolution" can be provided for in the Articles of a company and the majority required to pass the exceptional resolution can be greater than the majority required to pass a special resolution. The Old Act does not provide for such resolutions.

Shareholders’ Meetings by Teleconference: Under the New Act, shareholders’ meetings can be held by teleconference or other communication method. In the Old Act, shareholders’ meeting must be conducted in person or waived in writing unanimously.

Shareholders’ Meetings Outside British Columbia: Under the New Act, shareholders’ meeting can be held outside British Columbia without the approval of the Registrar of Companies if provided for in the Articles of the company. In the Old Act, such meeting must have the approval of the Registrar.

Waiver of Preparation of Annual Financial Statements: Under the New Act, companies can waive the requirement to prepare annual financial statements with the unanimous consent of all shareholders. This was not possible under the Old Act.

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(B) Share Capital and Corporate Finance

Unlimited Share Capital, Fractional Shares, Par Value, Reduction of Share Capital: Under the New Act, a company will be able to have an unlimited number of shares in each class of authorized shares, and fractional shares are permitted. Under the Old Act, companies needed to specify the number of shares for each class and were not permitted to have fractional shares. The ability to issue shares with or without par value is retained in the New Act. Under the New Act, reductions of share capital without a court order are possible in certain circumstances.

Restrictions on Financial Assistance by Companies: Under the New Act, restrictions relating to the provision of financial assistance by companies found in the Old Act have been removed. However, new disclosure requirements have been added respecting such assistance.

Solvency Test for Companies: The solvency test that must be met by companies engaging in certain transactions, such as issuing dividends, has been simplified in the New Act such that a company that is able to pay its debts as they become due is considered solvent.

Pre-emptive Rights on Issuance of Shares: Under the Old Act, private companies were required to offer new issuances of shares to existing shareholders before offering the same to new shareholders. In the New Act, companies are permitted to modify their Articles to remove such rights.

Declaration of Dividends: Under the New Act, the procedure for declaring dividends has been simplified.

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(C) Amalgamations, Dissolutions and Restorations

Rules Governing Amalgamations: Under the New Act, the rules respecting amalgamations have been simplified and made more flexible. The requirement in the Old Act for related companies to enter into an amalgamation agreement has been eliminated in the New Act, and some amalgamations can now be conducted without a court order. Further, some amalgamations between foreign companies and B.C. companies, which were not permitted in the Old Act, are now possible.

Dissolutions and Restorations: The rules governing voluntary dissolutions are more flexible under the New Act. Restorations of companies will now be possible by order of the Registrar of Companies without court approval.

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(D) Corporate Records

New Requirements for the Records Offices for Companies: Another key change under the New Act is that many of the responsibilities of the Registrar of Companies to keep and maintain the most important corporate records for companies will be downloaded and will become the sole responsibility of a company’s own records office. Accordingly, the New Act includes several detailed provisions which impose new requirements with respect to the filing, maintenance and inspection of company records at a company’s record office, as well as penalties for failure to properly comply with these requirements.

Some examples of the specific new requirements of a company’s records office with respect to maintaining corporate records under the New Act are:

The New Act also increases the penalties for non-compliance with the requirements relating to maintenance of company records. For example, the New Act makes it an offence for a company to fail to maintain certain records at its records office and under the Offence Act (British Columbia) such an offence is punishable by fines of up to $2000, imprisonment for up to six months, or both.

The requirement to properly maintain a company’s records have always been very important, not only because of requirements under the Old Act, but because accurate records are essential for corporate financings, opinion letters, share sales and other key transactions. As a consequence of the new responsibilities being imposed on companies, proper maintenance of corporate records will become even more important under the New Act. However, please note Baker Newby will of course be taking steps to ensure that the companies for which we act as records office will fully comply with the new requirements for the filing and maintenance of company records.

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3. Government Objectives

In passing the New Act and implementing Corporate Online, the British Columbia government is seeking to:

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4. Conclusion

To sum up, although the New Act implements a number of significant changes to substantive company law in British Columbia and imposes a number of new obligations that must be complied with, as noted above, we will be doing everything we can to ensure that all of our corporate clients are in full compliance with the New Act. We would also be pleased to assist anyone maintaining their own corporate records in navigating these new requirements and obligations under the New Act, and in particular in ensuring that your company is successfully transitioned under the New Act.

Also, it should not be forgotten that the New Act is intended to provide companies more opportunities, more flexibility and a lessened regulatory burden when compared to other corporate statutes in Canada. Accordingly, we will also be pleased to assist you in obtaining the full benefits and advantages of the New Act.

Finally, please note that this discussion paper is intended as an overview of the New Act only, and is not intended as legal advice. If you have any questions, require further information about the New Act, or require assistance with the transition to the New Act, please contact one of our corporate/business lawyers or corporate department staff set out below:

The text of the New Act can be found at www.fin.gov.bc.ca/registries/colin/default.htm

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