Not-For-Profit Legal Blog

Complainants who may bring Oppression or Derivative Proceedings

Members and other complainants can pursue various remedies under the Canada Not-for-profit Corporations Act, the most important of which are as follows:

● oppression remedy;

● court-ordered liquidation;

● derivative action; and

● compliance and restraining order.

The first three bullet points are, however, not available with respect to disputes on tenets of faith of a religious corporation. But who may seek these remedies?

Derivative Actions under the CNCA

The Canada Not-for-profit Corporations Act authorizes a complainant to apply to court for leave to:

● bring a derivative action on behalf of the corporation or any subsidiary (a derivative action); or

● intervene in an action in which the corporation or an affiliate is a party (an intervention in defence of the corporation).

Usually, the application is for leave to bring a derivative action. Interventions to defend a corporation against whom an action has been brought are rare.

The leave application enables the court to perform a gatekeeper role in screening out abusive strike suits. Likewise, the requirement for judicial approval of a settlement acts as a final control on abusive strike suits.

Liquidation Distributions by CNCA Corporations

The liquidation distribution rules applicable to a not-for-profit corporation, together with the prohibition against a distribution before liquidation or dissolution, is what fundamentally distinguishes NFP corporations from for-profit corporations. A for-profit corporation is intended to make a profit for its shareholders. Before dissolution, the shareholders receive this profit in the form of a dividend (or, in some cases, a repurchase of shares). On liquidation, any remaining property, after satisfying all debts and liabilities of the corporation, are distributed to the shareholders. In contrast, an NFP corporation is prohibited from distributing its surplus revenues or property before dissolution. On liquidation or dissolution, the corporation may distribute its remaining property in accordance with the distribution scheme of the legislation and, to the extent permitted, in accordance with the provisions of its articles.

Voluntary Liquidation and Dissolution by NFP Corporations

Except where the corporation has never issued any memberships, voluntary dissolution of a corporation under the Canada Not-for-profit Corporations Act requires the approval of members by special resolution (that is, the approval of at least two-thirds of the votes cast at a meeting of members, or all of the members if the approval is made by resolution in writing without a meeting). If there is more than one class or group of members, the corporation can only be dissolved by special resolution of each class or group of members, voting separately as a class. Even members who otherwise are not entitled to vote under the articles enjoy a separate class vote for purposes of voting on a dissolution or liquidation and dissolution. If the corporation has never issued any memberships, then it may be dissolved at any time by all of the directors - the only time that the Act requires a super-majority board approval.

B.C. Court Frees Surrey Knights from Penalty Box

In Surrey Knights Junior Hockey v. The Pacific Junior Hockey League (released October 2018), Justice Winteringham of the Supreme Court of British Columbia found that a junior hockey team had been denied procedural fairness in its expulsion from the league and further ordered expulsion proceedings against the team to stop.

Ontario Court Denies Standing to Bring Oppression Proceedings against Charitable Corporation

In The Campaign for the Inclusion of People who are Deaf and Hard of Hearing v. Canadian Hearing Society (released September 2018), Justice Wilton-Siegel of the Ontario Superior Court of Justice refused to find that the corporate applicant was a proper person to bring oppression proceedings against a federally incorporated charitable society and stayed the application of the individual applicants in favour of arbitration.

Overview of the Financial Statement of an NFP Corporation

Directors of a corporation incorporated or continued under the Canada Not-for-profit Corporations Act must present comparative financial statements to the members at every annual meeting. The Canada Not-for-profit Corporations Regulations specify these annual financial statements in further detail. What follows is a summary of the content each of these financial statements.

In each case, the financial statements must be prepared in accordance with generally accepted accounting principles ("GAAP") set out from time to time in either:

● the CPA Canada Handbook - Accounting; or

● the CPA Public Sector Accounting Handbook.

Court-Ordered Liquidation

When the Canada Not-for-profit Corporations Act came into force in 2011, it carried forward the statutory power of the court to order the liquidation of a not-for-profit corporation but, at the same time, introduced a much wider range of remedies open to the court through the oppression remedy. Given the less draconian alternatives under the oppression remedy, courts will generally be reluctant to order the liquidation of an NFP corporation, except as a last resort.

Separate Class Voting Rights under the CNCA

The Canada Not-for-profit Corporations Act allows each corporation to set out in its articles the classes, or regional or other groups of members (for convenience, called "classes" in this article). If there are two or more classes, the articles must set out the voting rights attached to each class of members. The default rule is that each member is entitled to one vote. However, the articles can provide that a class of member has only those voting rights mandated by the Act. The articles can expand the voting rights or restrictions of a class but are limited in the extent to which they can curtail voting rights.

Fundamental Changes under the CNCA

The Canada Not-for-profit Corporations Act provides that the members must approve, by special resolution (which requires the approval of at least two-thirds of the members who cast votes) certain changes or transactions. In some cases, the changes require the approval of each separate class of members - even if the membership class is otherwise non-voting.

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