The Business Law Advisory Council (the “Council”) was established by the Government of Ontario in 2016 to review Ontario’s corporate and commercial legislation and to provide advice to the Government on priorities to reform that legislation.
The Fall 2016 Report of the Council to the Minister of Government and Consumer Services has been published by the Minister. Comments on the Report are being sought and are due by December 12, 2016. The full Report is available here.
The Report recommends the following changes to Ontario’s business laws:
Business Corporations Act (the “OBCA”)
- The current requirement under the OBCA that 25% of directors be resident Canadian should be eliminated. We further recommend that the written consent which directors provide in advance or within 10 days of their first election be accompanied by an agreement on the part of the prospective director that he or she will attorn to the laws of Ontario with respect to the corporation.
- Shareholders of a corporation should have the right to resubmit a proposal each year if it received a prescribed (and minimal) level of support in the first year of submission or achieved a prescribed increased level of support in subsequent years.
- The time period for shareholders of a non-offering corporation to submit a proposal should be set out in the corporation’s by-laws (subject to certain limits).
Personal Property Security Act (the “PPSA”) and Repair and Storage Liens Act (the “RSLA”)
- The PPSA should be amended to enable security interests in cash collateral to be perfected by “control”, thereby assuring secured parties a first priority security interest in such collateral. However, to address concerns expressed by some stakeholders representing pension beneficiaries, we also recommend a further amendment that would preserve the s. 30(7) priority for all deposit accounts other than those that function as “financial collateral” for “eligible financial contracts” as defined in regulations to the Bankruptcy and Insolvency Act (Canada), which definition includes most forms of OTC derivatives.
- The PPSA and RSLA should codify Ontario’s case law to confirm as perfected, security interests and liens over a motor vehicle that is accurately described in the financing statement or claim for lien by its vehicle identification number (VIN), despite an error in the debtor’s name.
- Sections 7.2(7), 7.3(6) and 7(2) of the PPSA should be amended to rectify a technical issue in the location of debtor transitional rules proclaimed December 31, 2015 to preserve as properly perfected without further action, existing PPSA registrations where the debtor’s legal location is not changed by the new location rules.
- The PPSA and RSLA registry system should become entirely digital for both filing and searching and should include updates to enhance the efficiency and security of the system.
Arthur Wishart Act
- Certain definitions in Arthur Wishart Act (Franchise Disclosure) (the “AWA”) should be amended to:
- clarify the types of intellectual property that may form the basis of a franchise and allow for the fact that the franchisor may be either the licensee or the owner of such intellectual property;
- ensure that franchisors who have the right to exert significant control over, or to provide significant assistance in, the franchisee’s method of operation are not exempted from the AWA merely by failing to exercise that right; and
- clarify that only the agreement by which the franchise is actually granted (and not merely a deposit, confidentiality or other ancillary agreement) triggers a disclosure obligation on the part of the franchisor (and a potential rescission remedy for the benefit of the franchisee).
- The exemption from the AWA in the case of a licence granted by a licensor to a single licensee should be clarified to state that the relevant geographic scope of the license be Canada.
- S. GAAP and GAAS, as well as IFRS and IAASB auditing and review engagement standards as adopted by other countries, should be deemed to be acceptable bases for the preparation and auditing or review of financial statements required to be attached to a disclosure document delivered under Section 5(4) of the AWA.
- A Form – Certificate of Franchisor should be added, applicable to the Statement of Material Change required to be delivered under Section 5(5) of the AWA.
- The recommendations of the Ontario Bar Association should be adopted to (a) clarify that the former director/officer exemption ceases to be available on the expiry of a fixed period after the prospective franchisee has ceased to be an officer or director of the franchisor; and (b) confirm that the exemption should also apply where the prospective franchisee is a corporation owned by such an individual.
- The fractional franchise disclosure exemption should be amended to clarify that the time period for measuring anticipated percentage of sales for the purposes of the exemption is the franchise’s first year of operation.
- The De Minimis Investment Disclosure Exemption’s concept of “total annual investment” be replaced with the concept of an “initial investment” anticipated by the parties at the time of entry into the franchise agreement, to clarify the timing and method of calculating the relevant investment amount for the purposes of the exemption.
- The Large Investment Disclosure Exemption should be amended to improve consistency between the Large Investment Disclosure exemption and the De Minimis Investment exemption.
Prior recommendations of this Council are included in Bill 27, the Burden Reduction Act, 2016. This Bill is in second reading debate as at November 18, 2016 and if passed would among other things:
- repeal the Bulk Sales Act; and
- end the requirement to send copies of PPSA registrations to the debtor, where the debtor has agreed to not receive verification statements.