CBCA Amendments Codify Best Interests Considerations

The federal government’s omnibus budget implementation bill (Bill) received royal assent on June 21, 2019, the last sitting day of the House of Commons and Senate before breaking for the summer. Accordingly, certain significant amendments to the Canada Business Corporations Act (CBCA) are now in force, while further amendments are subject to being proclaimed into force by the Governor in Council.

These CBCA amendments codify into statute some of the principles relating to directors’ duties set out in the Supreme Court of Canada (SCC) 2008 decision BCE Inc. v. 1976 Debentureholders (BCE). They also require that certain CBCA corporations develop an approach to remuneration, hold an annual advisory “say-on-pay” vote, and provide annual disclosures on diversity (including, but not be limited to, Aboriginal Peoples, persons with disabilities, members of visible minorities ― each as defined by the federal Employment Equity Act), compensation clawback mechanisms and the well-being of employees, retirees and pensioners (see our April 2019 Blakes Bulletin: Broad Changes to CBCA Proposed: Directors’ Duties, Additional Disclosure and Annual Say-on-Pay).

TIMING OF AMENDMENTS

One of the most significant amendments is the codification and expansion of the common law principles pertaining to directors’ duties. While most of the CBCA amendments are not yet in force, this amendment is now binding. This means that directors of CBCA corporations, in exercising their statutory fiduciary duty, may consider, but are not limited to, those factors enumerated in the newly enacted subsection 122(1.1) of the CBCA. These factors include the interest of various stakeholders (including employees, retirees and pensioners, creditors, consumers and governments, in addition to the corporation’s shareholders), the environment and the long-term interests of the corporation.

Other amendments to the CBCA contained in the Bill (including those relating to additional diversity, well-being and remuneration disclosure requirements, and the holding of an annual “say-on-pay” vote) are to come into force on the day(s) fixed by the Governor in Council.

WHAT NEXT?

While the guiding principles were established in BCE, it is now codified (and expanded) in statute that directors (and officers) of CBCA corporations are not bound to only consider the interests of shareholders when seeking to act in the best interest of the corporation. Accordingly, care must be given by directors (and officers) in exercising their fiduciary duties to consider taking into account the interests of the relevant “stakeholders,” the environment and the long-term interests of the corporation.

With respect to the amendments that are not yet in force, any or all of which could be proclaimed in force at any time, it remains unclear whether this will occur before the upcoming federal election. Similarly, regulations associated with the CBCA amendments will need to be enacted, but the timing is not certain. Meanwhile, the further proposed amendments to the CBCA (including to mandate a majority voting standard for the election of directors), as contained in Bill C-25, remain subject to being proclaimed in force, having received royal assent on May 1, 2018 (see also our January 2017 Blakes Bulletin: Proposed Regulations for Revised CBCA Provide Structure to Changes Proposed in Bill C-25).

For further information, please contact:

Matthew Merkley                       416-863-3328
David Bristow                            416-863-5829

or any other member of our Capital Markets or Corporate Governance groups.