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Not-For-Profit Legal Blog

Enfranchisement Principles Applied to Overturn Results of Election

In Ngouandi v. Assemblée communautaire fransaskoise (A.C.F.) Inc. (released July 2018), the Saskatchewan Court of Queen's Bench applied broad pro-enfranchisement principles to overturn the results of the election of the president and regional board member of a Saskatchewan non-profit association representing the Francophone community in Saskatchewan.

Summary Judgment Granted to Remove Directors as Co-Defendants

In 101082401 Saskatchewan Ltd. v. Tunnels of Little Chicago Association Inc. (released October 2018), the Saskatchewan Court of Queen's Bench granted summary judgment to release the directors of a Saskatchewan not-for-profit corporation as co-defendants in an action.

Rectification of Records of NFP Corporations

The Canada Not-for-profit Corporations Act permits the corporation or a member, director, officer or holder of a debt obligation of the corporation, or any aggrieved person, to apply to court for an order to rectify the records or registers of the corporation.

Grounds for an Oppression Remedy Against an NFP Corporation

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

● oppressive or unfairly prejudicial acts, omissions or conduct detrimental to the interests of a member or others; or

● conduct that unfairly disregards the interests of members or others.

However, a court cannot make an order under the oppression remedy if the court is satisfied that:

● the corporation is a religious corporation;

● the impugned decision of the directors is based on a tenet of faith held by the members of the corporation; and

● it was reasonable to base the board's decision on this tenet of faith having regard to the activities of the corporation.

Thus, a court is prevented from adjudicating on the merits of religious doctrines. But it would not be prevented from granting an order to recover church monies or other property wrongfully taken by those in control of the church.

Compliance and Restraining Orders under the CNCA

The Canada Not-for-profit Corporations Act provides for compliance and restraining orders. The provision is broadly cast in terms of who may apply for an order, who may be bound by an order, the scope of an order and what types of orders can be made.

Application of the CNCA to Federal Special Act Corporations

Over the years, Parliament has enacted many special Act corporations. The International Air Transport Association is a prominent example of a federal special Act corporation. But there are many others.

In most respects, the Canada Not-for-Profit Corporations Act does not apply to special Act corporations. In some cases, however, the CNCA applies, in part by reference or adoption of select provisions of the CNCA.

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.

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