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The situation around COVID-19 is changing rapidly. Schools nationwide have suspended classes, organizations are requiring staff to work at home remotely and governments across the country have required the cancellation of certain events. “Social distancing” has quickly become the new norm and found its way into our vocabulary. In this time of uncertainty, we are pressed to reconsider how we do business, modifying our practices to manage this crisis. While some operations must be put on hold for the time being, organizations can rely on technology to continue other aspects of their operations or business as usual.
As coronavirus spreads, registered charities and non-profit organizations (“NPOs”) that help the needy and vulnerable are likely to face unprecedented demands. Thus, it is critical that operations continue to the extent possible. This article discusses some key governance considerations that should be top of mind for management and boards of directors in the coming weeks, if not months.
With office closures and increased remote working, organizations may have to alter when and how they hold meetings, by either postponing them or taking them virtual. In addition to the regularly scheduled meetings of boards and committees, charities and NPOs may in many instances have to plan for their Annual General Meeting (“AGM”), which given the time of year, is likely fast approaching.
To determine permitted practices and procedures and how they can be amended if necessary, corporations must first turn to their governing legislation. This will be either the Canada Not-for-profit Corporations Act (“CNCA”) or provincial legislation, depending upon the statute under which the organization is incorporated. If you are unsure under which statute your organization is incorporated, you should consult your organization’s constating documents (i.e., articles of incorporation, letters patent, etc.).
The CNCA or the applicable provincial legislation generally sets out the minimum corporate governance standards applicable including the rights, powers, and duties of directors and members. Federally, the CNCA mandates certain meeting and voting procedures (such as notice requirements for members’ meetings). This article will summarize the statutory requirements of the CNCA.
If your organization is established provincially we would be pleased to consult and confirm what the provincial practices are. We will shortly provide a summary of what is available provincially as a resource to our clients.
To determine permissible governance practices, corporations should also consult the following documents, in order of priority, as applicable: articles of incorporation or letters patent or constitution, by-laws, and policies. For some matters, the applicable legislation will defer to provisions contained in the corporation’s by-laws. In such cases the by-law provisions will take precedence over the general legislative provision, and may be stricter or more flexible than the statute.
Meetings by Electronic Conference
The CNCA contains a general provision permitting directors and members to participate in meetings electronically, via conference call or other electronic meeting platform, thereby permitting members and directors to be considered present at the meeting even when they attend remotely (i.e. all directors do not have to be at the same physical location).
During the pandemic, directors may have to convene meetings on short notice to discuss pressing issues. Unless the articles or by-laws provide otherwise, directors may meet at any time and on any notice that the by-laws require. Further, unless prohibited by the by-laws, a director may participate in a board meeting or committee meeting by electronic means (i.e. telephone or other device that permits all participants to communicate adequately with each other) with the consent of the directors. A director so participating in a meeting is deemed to be present at that meeting. Any security, confidentiality or other considerations with respect to the conduct of such a meeting shall be determined by the board.
With regards to a meeting of the members, unless prohibited by the by-laws, the directors or members may call a meeting of the members and require that such meeting be held by telephone or electronic means so long as all participants can communicate adequately. That said, some organizations’ by-laws contain provisions that require in-person attendance at members’ meetings. Careful review and consideration of your organization’s bylaws should assist in determining whether your members’ meetings may be held virtually or must be held in-person.
Pursuant to the CNCA, whether a meeting is held in person or electronically, the corporation must give notice of the time and place of a members’ meeting. Notice must be given to the members, public accountant and each director 21 to 60 days before the day of the meeting if notice is given by mail, courier, or personal delivery. This notice period is shortened to 21 to 35 days if notice is given by telephone, electronic communication, or other means of communication. Note, however, your by-laws can specify any notice period within the above ranges. Organizations should therefore review the notice provision in their by-law carefully to ensure that notice of meetings is provided so as to comply with both the by-laws and the statutory requirements.
Notice can be waived by those required to be in attendance at a meeting, providing all agree to waive the notice. This could be helpful in situations of real urgency.
It is not uncommon for meeting materials to be mailed in advance of the meeting. During times like these, if it is possible to make such materials available electronically (with necessary precautions taken to secure confidential information) then this should be considered. Organizations may consider emailing traditionally mailed material or posting any such material on their website using a secure link. Organizations will need to ensure, however, that everyone has access to the material. If there is any uncertainty as to whether every person entitled to the meeting material will be able to receive it electronically, then the organization may need to stick to traditional methods of distributing meeting material or take steps to contact recipients to advise that the material will be made available electronically.
One of the biggest concerns organizations may have is how to ensure they are able to hold their annual AGM. Technically, a corporation must call an annual meeting of members every year within six months of its fiscal year end. The obvious question is what happens if that deadline cannot be met.
In some instances, the issue will be compounded by the fact that the organization may not be in a position to complete their financial audit with their auditor before the required deadline. With organizations and accounting firms operating remotely and/or closed, delays will happen. And of course, organizations serving those in need will be focused elsewhere during this crisis. So what is to be done?
For some it will be a matter of determining if the AGM can be held electronically. For organizations with small memberships this could likely be achieved with relative ease and could be done when the financial statements are available. For those with larger memberships, the first place to look will be the by-laws to determine if they speak to holding the members’ meeting electronically. If the by-laws are silent on or prohibit electronic meetings, the meeting will be delayed. If the AGM is held after the statutory deadline and this is a year in which there is a scheduled election of directors, the CNCA confirms that the incumbent directors continue to hold office until their successors are elected.
If the directors do not call a meeting by the deadline, there is a risk that a member could initiate a court application against the corporation and/or its directors on the basis that the directors failed to hold the meeting as and when required by the CNCA. Practically speaking, we anticipate that members are not likely to take issue with a delay, given the unprecedented circumstances. Despite this, it would be best if the members and directors agree to the delay in advance, if obtaining such agreement is practicable.
That said, it is possible for a corporation to apply to Corporations Canada to extend the time for calling the AGM (i.e., to a time when social distancing is no longer recommended). A corporation must apply at least 30 days before the day on which the notice of the time and place of the meeting is to be given to members. Corporations Canada has the power to grant an extension, as long as it reasonably believes that the members will not be prejudiced. Corporations Canada evaluates each application on a case-by-case basis. Given that we are experiencing a pandemic, it would not be unreasonable to expect that the extension will be granted. An exemption to extend the time for calling an AGM is typically effective for one financial year. However, there may be circumstances where a multi-year exemption will be permitted. We hope that Corporations Canada will proactively consider making a statement on this.
During this crisis, some members may be unable to attend a meeting, even by electronic means. These members may still wish to cast their votes. Ideally, a corporation’s by-laws would provide for voting procedures for those not in attendance in-person (or electronically). This is called absentee voting and includes proxy voting as well as other electronic absentee voting. Unfortunately, under the CNCA (unlike under Ontario provincial legislation, for instance), absentee voting is not permitted unless the corporation’s by-laws explicitly provide for absentee voting. This means, if your organization’s by-laws are silent on proxies or other absentee voting, then votes must be cast by members at the meeting in order for them to be valid. That said, the corporation may apply to Corporations Canada to permit members to vote as absentees.
The by-laws of a corporation may permit members to vote by means of a proxy by appointing a person to attend the meeting on the member’s behalf and to act in the manner set out in the proxy. If proxies are permitted, a proxy must be in writing, the proxy holder need not be a member, and the proxy must be submitted to the corporation in the manner set out in the by-law or in the notice if the by-law defers to the notice.
Electronic Absentee Voting
The by-laws of a corporation may also permit an electronic form of absentee voting. If electronic absentee voting is permitted, the method used must: (i) enable the corporation to verify the votes cast; and (ii) be capable of ensuring anonymity in the votes. These requirements can be difficult to achieve so careful consideration of the method used should be undertaken.
Charities and NPOs with large memberships may struggle to attain quorum during the next few months, even if meetings are held remotely and electronic voting is permitted. Pursuant to the CNCA, the members may adjourn a meeting if quorum is not attained at the start of the meeting. If the meeting is adjourned one or more times for more than 30 days from the date upon which it was originally convened, the corporation is required to send out a new meeting notice, within the prescribed notice period set out in the corporation’s by-laws.
Any meeting of directors may be adjourned to any time. Notice of an adjourned meeting of directors is not required to be given if the time and place of the adjourned meeting is announced at the original meeting. That said, practically, directors that may not have been in attendance at the originally scheduled meeting should always be advised of adjourned meetings.
Written Resolutions in Lieu of Meetings
For certain matters, unless the by-laws provide otherwise, a written resolution signed by all the directors or members entitled to vote on that resolution at a meeting of members, including an AGM or special meeting, is valid as if it had been passed at the meeting. The written resolutions can be emailed to each director or member, as applicable, to be signed in counterpart (i.e. each director or member can sign on a different page). Written resolutions are permissible, unless the by-laws state otherwise.
T3010 and other Income Tax Filings
Registered charities and NPOs are required to file their annual information or tax return within 6 months of their fiscal year end. We expect that the Canada Revenue Agency will publish information, potentially including extensions, related to these filings. Currently such forms can be e-filed but there is still an expectation that extensions will be available. More to come on these issues in the very near future.
The world as we know it has changed dramatically in just a few short weeks. This situation is one for which we do not have a playbook, but we will find ways to adjust and carry forward. Charities and NPOs may find it particularly important to continue with business as usual, especially where they provide programs to vulnerable persons. We would be pleased to assist your organization in determining the permitted procedures. If corporations are not already able to do so, we could assist with amendments to your governing documents to allow for governance to be carried out remotely.
Charities and NPOs are reminded to stay informed of and follow government orders and directives. Certain legislation gives sweeping powers to public health authorities and imposes strict penalties if orders are not obeyed. For additional information, please see our COVID-19 resources page.