Q1 Capital Partners

If you haven't already heard, certain amendments to the Ontario Business Corporations Act ("OBCA ") came into force on August I, 2007. This article outlines a summary of some of the changes made to the OBCA that, if not exactly exciting, are at a minimum, essential information for directors and the companies they direct.

Residency Requirements

Prior to the amendments, the OBCA's director residency rules provided for the cumbersome requirement that a majority of the directors be resident Canadians. If a board consisted of two directors, at least one of them had to be a resident Canadian, and '"vhere there was a sole director, that director was required to be a resident Canadian. For business to even be transacted at directors' meeting, a majority of directors present had to be resident Canadians.

The amendments to the OBCA reduce the residency requirement for the board to 25%. Where a corporation has less than four directors, at least one director still must be a resident Canadian. The most interesting change is that business may now be transacted at directors' meetings without a resident Canadian board member present. Although these amendments bring the OBCA inline with the CBCA, you should take note that at present, the business corporations statutes of British

Columbia, New Brunswick and Nova Scotia have dispensed with the residency requirements entirely.

Conflicts of Interest

Under the OBCA a director is required to disclose his or her interest with respect to a material contract or transaction or proposed material contract or transaction and in such case is not (subject to certain exceptions) entitled to vote on a resolution approving such contract or transaction. Prior to the amendments coming into force, a director, having disclosed such a conflict was permitted to attend at the meeting at which the conflicting matter was considered, they would simply abstain from the voting.

With the amendments now in place, a conflicted director is now prohibited from attending any part of a meeting of directors during which the contract or transaction is discussed as well as from voting on any resolution to approve it, unless the contract or transaction relates primarily to certain limited exceptions. This new requirement will likely necessitate the holding of more than one meeting (or several mini-meetings in a row) in order to comply.

If quorum can not be established due to the fact that a director is not permitted to be present at the meeting by virtue of having disclosed a conflict, the remaining directors will be deemed to constitute a quorum for the purposes of voting on such resolution. In the event that all of the directors are prohibited from attending any part of a meeting of directors due to a conflict, the resolution may only be approved by the shareholders.

Directors' and Officers' Standards of Care

The ORCA provides that every director and officer of a corporation, in exercising their powers and discharging their duties, shall act honestly and in good faith with a view to the best interests of the corporation, and exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

A recent Supreme Court of Canada decision elicited a broad interpretation of the statutory duty of care. Specifically, that such duty is owed to the corporation and to its stakeholders, including creditors.

In response to such decision and recognizing that maintaining duties to the corporation, its shareholders and creditors might easily place a director in a conflict situation, the amendments clarify that this statutory duty of care is owed exclusively to the corporation and to no one else, including shareholders.

Read the full memo by Heather Whitten on the Wilson Vukelich website.