Fundamental Changes Archives

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.

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.

Lazarus-Like Nature of Corporate Dissolution under the CNCA

In Park v. Canada Korea Foundation (decided August 2017), Justice Bowden of the Supreme Court of British Columbia held that a dissolved (and, therefore, non-existent) corporation still had the limited capacity to take steps to recover litigation costs awarded in its favour and, to that end, to instruct counsel.

Saskatchewan Court of Appeal Overturns Flawed Referendum Process

In its 2007 decision in Mowat v. University of Saskatchewan Students' Union, the Saskatchewan Court of Appeal overturned the internal decision of a student association to become a member of a national student federation, despite the approval by a majority of students in a referendum.

BC Case Highlights Perils of Corporate Inflexibility

In Vancouver Opera Foundation, Re (released March 2015), a registered charity incorporated under the Society Act (British Columbia) tried to obtain a court order overriding certain provisions of its constitution that were declared to be unalterable.  While it failed to obtain the court order it sought, the court suggested some viable work-around solutions.

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