Canada: Ontario New Not-For-Profit Corporations Act 2010 (Bill 65) - 2013 Updates And Analysis Of The Transition Provisions

The Ontario Not-for-Profit Corporations Act 2010 (the "Act") was passed in October of 2010. The proposed date for it coming into force was changed from the fall of 2012 to July 1, 2013 in September 2012. 

The Province announced at the end of March that it will be "at least" January 1, 2014 before the Ontario Not-for-Profit Corporations Act, 2010 comes into force.

This week, the Province published a default by-law for Ontario not-for-profit corporations in draft form on the Ontario Ministry of Consumer Services website. The draft by-law is relatively bare-bones; as it must be, to apply to the wide variety of organizations that are currently incorporated under the Ontario Corporations Act. It is probably not suitable for use by more sophisticated organizations, particularly those with multiple classes of members, delegate or representational voting arrangements, or any organizations which have carefully or significantly crafted their governance structures.

Transition Confusion

There is a transition section in the Act: section 207. That transition provision deems any by-law or letters patent not amended to explicitly bring them into conformity with Bill 65's provisions to be amended on the 3rd anniversary of the Act coming into force. This period has been referred to as a three year transition period. Some have assumed that during the three year transition period the existing by-laws "override" all of the provisions of Bill 65. 

The Province has said that "the government takes the position that provisions of [Letters Patent and by-laws] that are valid under the current Corporations Act will continue to be valid until the end of the three-year transition period or sooner if the corporation amends them to conform with the Act." (emphasis added)

Non-profit corporations, particularly those looking to ensure their existing non-voting membership classes do not acquire the class veto rights which the new Act creates (see our earlier comprehensive analysis for an explanation) have been confused about whether steps to remedy those situations need to be carried out before the Act comes into force. 

Adding some credence to the view that those types of changes do not need to be made before the Act comes into force is the Ministry of Consumer Service's statement:

For example, under ONCA, non-voting members will have some limited voting rights. However, it is the government's intent that if an existing corporation provides for non-voting members in its letters patent, any supplementary letters patent, by-laws and special resolutions, the non-voting members remain non-voting for the three-year transition period. (emphasis added)   

Unfortunately, the government's intent or position may not be what a court, faced with an application by disgruntled non-voting members, may decide the actual wording of the Act means.

We do not believe it is safe to rely upon these statements to put off amending Letters Patent, By-laws or Supplementary Letters Patent until the end of the three year transition period. 

A provision of an existing by-law "remaining valid" is not the same as that provision overriding or eliminating a new right which the Act provides to non-voting members when that Act comes into force. The transition provision, section 207 of the Act, simply says that a non-conforming by-law is deemed to comply on the third anniversary of the Act coming into force. Section 207 does not say that the by-law should be interpreted as if Bill 65 did not exist until the third anniversary unless it is amended earlier. The Act does not explicitly postpone the effect of any provisions of the Act which are contrary to the intent of the existing constating documents. 

Unless the Act is further amended before it comes into force, it is safest to make the organizational changes which avoid application of undesirable provisions of the new Act in advance of it coming into force. It is particularly important that any non-voting membership classes a not-for-profit corporation does not wish to maintain be eliminated before Bill 65 comes into force. 

Fortunately for those corporations which have not had the time or energy to devote to this task, we now have almost seven additional months to amend their by-laws and seek supplementary letters patent in order to rearrange their affairs.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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