Corporations Canada

Export Policy

Policy Statement 9.3
October 25, 2007

PDF version of Export Policy - Policy Statement 9.3 (PDF Format, 2.23 MB — 6 pages).

Table of Contents

This policy is intended only as a guide; it does not replace or take precedence over the CBCA.

Introduction

This policy sets out the position of the Director appointed under the Canada Business Corporations Act (CBCA) concerning "export" transactions. An export transaction, or a continuance (export), results in a corporation moving to another federal corporate statute, or another corporate statute of a Canadian province or of another country. The transaction will result in the corporation being governed by that statute and no longer subject to the provisions of the CBCA.

This policy states the main principles and provides practical guidance intended to facilitate export transactions. Although they do not have the force of law, these principles and guidelines provide information on how the Director reviews these transactions in relation to the Director's responsibilities under the CBCA. The policy is not intended to expand the Director's powers in any way. Nor is it intended to expand the powers of shareholders or creditors, beyond those given to them under the CBCA. The Director believes that by communicating the main principles and guidelines to persons intending to carry out export transactions, there will be fewer rejected requests as well as less cost and administrative inconvenience. In the end, however, the final interpretation of the CBCA and its related provisions is the responsibility of the courts.

The Director is not bound by this policy as regards the position taken in a particular case. This policy is not intended to replace legal advice. Accordingly, you may want to consult with legal counsel or other professional advisors prior to making an application for continuance (export).

For more detailed information on how to apply for an export under section 188, please see "Steps to Follow for an Export Transaction Policy" on the Corporations Canada website.

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Scope of Policy

This policy concerns transactions under which persons with a security or debt interest in a CBCA corporation have their interest changed to a corresponding interest in a non-CBCA entity.

Although it is not exhaustive, the following list describes, in general, the type of export transactions that can be performed:

  • An export continuance under section 188 of the CBCA, when a CBCA corporation becomes a non-CBCA body corporate;
  • An export amalgamation under section 182 of the CBCA involving a "three-cornered amalgamation" (e.g., two corporations amalgamate, with the shareholders of those corporations receiving shares of a third corporation affiliated with one of the amalgamating corporations as part of the amalgamation); and
  • An export arrangement under section 192 of the CBCA may result in a CBCA corporation continuing into another jurisdiction, or may leave a CBCA corporation in existence but transfer some of its investors to a non-CBCA body corporate (e.g., holders of equity and debt securities might be transferred, while trade creditors remain as creditors of a CBCA corporation).

The Director believes that situations in which persons with a security or debt interest in a CBCA corporation become holders of a similar interest in a non-CBCA entity (whether or not it is a body corporate) warrant attention in the application of the disclosure and other requirements of the CBCA. Accordingly, the following description of the principles to be followed applies in any situation where persons with a security or debt interest (the "Affected Persons") in a CBCA corporation (the "exporting CBCA corporation") have had their interest replaced by a similar interest in a non-CBCA entity (the "non-CBCA successor").

Affected Persons will normally be security holders, but in some cases might include others (e.g., a court might give a trade creditor or other stakeholder status as a "complainant" under paragraph (d) in the definition of that word in section 238 of the CBCA. In addition, relief may be granted under subsection 241(2) if conduct is found to be oppressive to any "security holder, creditor, director or officer").

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General Considerations

Director's Responsibilities

The Director recognizes that an export transaction may be in the best interests of a CBCA corporation. It may facilitate completion of some larger corporate restructuring or be desirable for some other business reason. If shareholders are given full disclosure and the transaction is carried out in full accordance with the CBCA, which requires shareholder approval for most types of export transactions, then the Director will become involved only to perform administrative responsibilities and carry out the Director's other statutory responsibilities. The Director is given specific responsibilities depending on the export transactions, such as the requirement in:

  • subsection 188(1), that the Director be satisfied that creditors and shareholders are not adversely affected if the export transaction is effected by continuance;
  • subsection 185(2), that the Director be satisfied as to the solvency of the corporations if the export transaction is effected by amalgamation; and
  • subsection 192(5), that the Director be given notice of an application for interim and final order and be satisfied as to the application if the export transaction is to be effected by arrangement.

More generally, the Director will consider intervening if the Director is of the view that the transaction may not be adequately disclosed or that it may be oppressive to Affected Persons who did not give their specific consent. The "Varity" case (Re Canada Business Corporations Act (1991) 3 O.R. 3d (Ont. C.A.) 336) makes clear that the "adversely affect" test in subsection 188(1) does not apply to other "non-188" types of export transactions. However, a number of CBCA provisions give the Director the authority to act if the Director believes that there may be inadequate disclosure or oppressive conduct. Some of these provisions enable the Director to act on an administrative basis while others require the Director to make a court application.

Disclosure

If a shareholders' meeting is necessary to approve an export transaction, then the information accompanying, or provided, in the notice of meeting must give sufficient detail to enable the shareholders to form a reasoned decision to support or reject the transaction. While the degree of detail required may vary between a corporation that has fewer than 50 shareholders and the one that has more than 50 shareholders, such disclosure should at least include:

  1. a description of any significant differences between protections available to security holders (e.g., derivative action, oppression, dissent and appraisal rights or equivalent protections) under the CBCA and the law applicable after the export transaction;
  2. a description of a subsequent transaction if the exporting CBCA corporation knows that such a transaction may have a material impact upon Affected Persons and could not have been effected under the CBCA without affording all the shareholder rights under the CBCA. This disclosure should be made whether or not the ability to effect the proposed subsequent transaction is a major motivating influence for the export transaction, and whether or not a legal commitment has been made to effect the proposed subsequent transaction after completion of the export transaction. Examples of such subsequent transactions include:
    • a non-CBCA successor effecting a corporate transaction that would not be permissible for a CBCA corporation or would be permissible only in modified form; and
    • a non-CBCA successor effecting a corporate transaction without a dissenting shareholder's appraisal remedy that, if effected under the CBCA, would require such dissent rights.
  3. the business reasons for the export transaction;
  4. the level of shareholder approval required for the export transaction (e.g., a two-thirds approval requirement if a special resolution is necessary), whether a dissenting shareholder's appraisal remedy is available and whether a requirement of a relevant securities law requires a shareholder meeting or dictates the requisite level of approval; and
  5. any other material considerations.

Certain Canadian Provinces

The Director recognizes that the corporate statutes of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Nova Scotia, New Brunswick, Newfoundland and Labrador and the Yukon contain derivative action, oppression, dissent and appraisal rights sufficiently similar to those in the CBCA that disclosure of the differences should not be necessary.

Disclosure to Other Affected Persons

Shareholders are not the only Affected Persons. Other Affected Persons may well feel they have an interest in an export transaction. The Director cannot require that Affected Persons other than shareholders be given notice of an export transaction if the CBCA does not require that notice be given to them. However, the Director considers that it is good corporate practice for a CBCA corporation to advise such non-shareholder Affected Persons of an export transaction if it has the potential to detract from their position or from the legal protection to which they are entitled. If such a notice is appropriate, a news release may well be adequate.

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Action by the Director

The Director has the following authority to take action with respect to an export transaction:

  • under section 188, if the Director is of the view that the export will adversely affect shareholders or creditors who did not give their specific consent, the Director has the authority, without reference to a court, to reject the application;
  • under subsection 185, if the Director is not satisfied with respect to the requirements of subsection 185(2) (e.g., as to the solvency of the corporations or that creditors will not be prejudiced or have not been given adequate notice of the amalgamation), the Director has the authority, without reference to a court, to reject an application for a "three-cornered" amalgamation;
  • under section 192, the Director has the right to appear and be heard in court, and may well choose to argue lack of fairness in an arrangement application;
  • under section 241, if the Director concludes that an export transaction involves oppressive elements, the Director has the authority to appear before the court as a complainant and may be prepared to exercise that authority;
  • under subsection 154(1), the Director may take action if circumstances warrant; and
  • under section 247, the Director may take action if circumstances warrant.

In verifying compliance with the solvency requirements of subsection 185(2) and the "will not adversely affect" requirement of subsection 188(1), the Director usually obtains all the necessary information through the required affidavits supplemented as necessary, for example by undertakings and legal opinions.

Complaints

In practice, the Director relies primarily on complaints received from Affected Persons to determine whether or not to take action. The reason for this is that, although Corporations Canada reviews all documents relating to export transactions to ensure that they comply with the views expressed in this policy statement, such reviews do not always bring to light the factual evidence needed to support an allegation of inadequate disclosure or of oppression. This is not to suggest, however, that the Director will take action on all complaints of inadequate disclosure or oppressive conduct; especially if legal remedies are available that do not require action by the Director.

In deciding whether to act on a complaint, the Director will consider not only the merits of the complaint, but also:

  • the adequacy of the legal remedies available;
  • the resources and access to legal remedies available to the Affected Person;
  • the nature of the public interest involved;
  • the available resources of Corporations Canada; and
  • other relevant factors.(1)

The Director will not initiate a non-disclosure related oppression application on behalf of a person who has specifically consented, by vote or otherwise, to that transaction. The Director is sensitive to the fact that export transactions may need to happen very quickly, within a narrow window of opportunity. Because the Director does not want to unduly delay such transactions, complainants must act quickly, ensuring that their initial representations are well documented and reflect the number of persons affected by the complained-of action. The Director will not consider complaints that lack these elements.

If an Affected Person provides credible evidence or analysis that raises doubts about the accuracy or completeness of the information contained in an affidavit filed with the Director concerning matters specified in subsection 185(2) or 188(1), the Director will ask the exporting CBCA corporation to explain the issues raised. In such cases, the Director may require that the issues raised be resolved before the export proceeds.

In both of these situations and in those where another concern has been raised, specifically as to adequate disclosure or oppressive conduct, the Director may request or require a reasonable delay in the export transaction to permit an adequate review of the matter. If the doubt relates to the matters specified in subsection 185(2) or 188(1), the Director has the authority to require that the export be delayed until the doubt is resolved. In other situations, if a request for delay is not granted, the Director will consider what other measures are available, including the possibility of initiating (or supporting an Affected Person in initiating) an application to require a delay under section 154 or 241.

The Director's Review

The Director's review will be conducted expeditiously and will consider all relevant facts. Three that are frequently relevant merit particular reference:

  1. Adequacy of disclosure. If a transaction is approved by the required majority of affected shareholders after full and meaningful disclosure of its implications, special circumstances such as an oppressive impact on another class of Affected Persons would ordinarily be necessary before the Director will intervene;
  2. Availability of a dissenting shareholder's appraisal remedy. The cost, uncertainty and delay which may be involved in the enforcement of this remedy (whether it arises under subsection 190(1) or in some other way) will be taken into account in determining to what extent it adequately protects shareholders; and
  3. The quality of protection under the laws applicable to the non-CBCA successor is of direct relevance.

Other factors, such as the use of a majority of the minority approval requirement, may also be relevant in appropriate situations.

Ongoing Concerns

If the Director's concerns persist after this review, the Director will determine how to proceed. If a dispute exists as to an issue arising under subsection 185(2) or 188(1), or as to a disclosure or oppression issue in which the Director should be involved, the Director will seek an efficient way to resolve it. Procedures open to the Director in appropriate cases are to initiate, or to support an Affected Person in initiating, an oppression application under section 241, or an application for a restraining order under subsection 154(1), or a compliance order under section 247, or, if the discretion exists, the Director may refuse to accept a document for filing unless ordered to do so by the court.

If appropriate in a section 188 application, having regard to the time constraints of the transaction, the Director will explore with interested and affected parties, alternative methods of dispute resolution such as mediation and arbitration. The Director's decision will be made only after appropriate consultation and will reflect a balancing of the issues discussed in this policy statement.

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Action by Affected Persons

Besides possible actions by the Director, Affected Persons who feel aggrieved by an export transaction may apply to a court under the CBCA. A court would have wide discretion to design an appropriate remedy for an Affected Person. Available options include:

  • the "oppression remedy" under section 241;
  • if the export transaction takes the form of an arrangement, the aggrieved person may challenge it before the court under section 192;
  • an application to the court for the calling of a shareholders' meeting under subsection 144(1);
  • an application under subsection 154(1) to restrain the holding of a meeting; or
  • an application under section 247 for a restraining or compliance order.
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Additional information and how to reach Corporations Canada

For additional information on Corporations Canada's products and services, please visit the Corporations Canada website or call our toll free number 1-866-333-5556.

You can also contact Corporations Canada at:

Client Services Section
Corporations Canada
Industry Canada
9th floor, Jean Edmonds Tower South
Ottawa, Ontario K1A 0C8
Toll free: 1-866-333-5556
Fax: 613-941-0601
Corporations Canada website

(1)The Director has developed a policy to set out more clearly the circumstances which would prompt the Director to initiate or intervene in a court action respecting alleged oppressive conduct. Return to (1)

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