True (Delaware) North Strong: How Alberta’s Amended Business Corporations Act Stacks Up Against the Ontario and Federal Statutes

True (Delaware) North Strong: How Alberta’s Amended Business Corporations Act Stacks Up Against the Ontario and Federal Statutes

Jan 8, 2024 | Article

By Mercedes Simon, Gregory Prekupec

On May 31, 2022, Alberta’s Business Corporations Amendment Act, 2021 was proclaimed into force, bringing significant changes to the Alberta Business Corporations Act (“ABCA”). This came as part of a larger series of legislative changes enacted in late 2020 under the Red Tape Reduction Implementation Act, 2020 which aimed to- as the name suggests- cut the red tape in 12 pieces of legislation to keep business in the province and invite new business in by making the regulatory and administrative aspects faster and less burdensome. Unsurprisingly, this move was compared to the U.S. state of Delaware, whose General Corporation Law resulted in an explosion in business entities moving to the jurisdiction.

In part, Alberta’s bid is possible because Canadian businesses enjoy the privilege of incorporating in their jurisdiction of choice. This can often be a strategic move, as choosing a jurisdiction with less red tape, tax advantages, and other business-friendly provisions can be financially strategic.

But how does “Delaware North” stack up to similar provincial and federal legislation? The chart below provides a breakdown of the ABCA’s amendments, as compared to the Business Corporations Act of both the federal and Ontario governments (“CBCA” and “OBCA”, respectively). As can be seen, in many cases the ABCA is not pushing the envelope as much as it is removing redundancies and bringing outdated provisions more in line with other jurisdictions.

In the case of residency and registration requirements, Alberta is craving a different path, departing from the increasing move towards corporate accountability seen in Ontario and federally. Similarly, by allowing a wider range of transactions and opportunities which the corporation might take advantage of, the province now has what is undoubtedly the most investor-friendly corporate statute. While the ABCA amendments will surely be advantageous for investors, possible implications surrounding corporate accountability and liability will remain to be seen. Already, in a King’s Bench decision on September 2023, the Court rejected a defendant’s interpretation of the self-interested transactions provision (see below) to seek compensation for managerial work while also being a voting shareholder.

ABCA (Old) ABCA (New) OBCA CBCA
Shareholder/ “Transparency” Register
n/a No requirement Must have a register of “individuals with significant control” Must have a register of “individuals with significant control”
Director Residency Requirement
At least 25% must be resident Canadians No requirement – board appointments can be from any place of residence

No requirement – board appointments can be from any place of residence*

 

 

*This was amended in 2021

 At least 25% must be resident Canadians

Corporate Opportunity Waivers (COWs)

 

 

Here Alberta has taken direct inspiration from Delaware, who has offered COWs since 2000. These waivers run counter to the predominate doctrine in Canada which prohibits fiduciaries (like directors and officers) from personally benefitting from opportunities which ‘belong’ to the corporation.
n/a May waive “any interest or expectancy of the corporation in or to, or in being offered an opportunity to participate” in an opportunity offered/presented by an officer, director or shareholder n/a n/a
Due Diligence Defence
Directors will not be liable for a breach of the duty of care where the director can demonstrate the relied in good faith on the financial statements of the corporation, or the opinion or report of certain people “whose profession or expertise lends credibility to a statement made by that person” Expanded to now include interim financial statements, and the list of people whose “profession or expertise lends credibility to a statement made by that person” now includes: “person” generally, as well as employees Director will not be liable for breach of duty of care, including reliance in good faith on financial or interim financial statements of the corporation, or the opinion or report of auditor, report or advice of officer/employee, report of certain people “whose profession or expertise lends credibility to a statement made by that person” Same wording as Ontario, but doesn’t specify interim financial statements, and states only “person whose profession or expertise lends credibility to a statement made by that person”
Special Consideration to Nominating Shareholder Interests
n/a A nominee director may now give special (but not exclusive) consideration to the interests of their nominating shareholder n/a n/a
Director Self-Interested Transactions
n/a Directors may vote on agreements where that director may have a material interest but such interested may benefit the corporation n/a n/a
Indemnification & Insurance
Limited to “civil, criminal and administration” proceedings Now extends to “investigate” and “other” proceedings Limited to “civil, criminal and administration” proceedings Limited to “civil, criminal and administration” proceedings
Director/officer must be a direct “party” Extends to proceedings where a director is “involved” Extends to proceedings where a director is “involved” Extends to proceedings where a director is “involved”
Director/officer must be “substantially successful on the merits” and prove they were “fairly and reasonably” entitled to indemnification Must merely prove they had not been “judged by a court […] to have committed any fault or omitted to do anything that [the director/officer] ought to have done” Must prove they had not been “judged by a court […] to have committed any fault or omitted to do anything that [the director/ officer] ought to have done” Must prove they had not been “judged by a court […] to have committed any fault or omitted to do anything that [the director/ officer] ought to have done”
Shareholder Voting by Written Resolution
Unanimity of Shareholders Shareholders representing “at least 2/3 of the shares” of the corporation Unanimity of Shareholders Unanimity of Shareholders
Calling a Shareholder Meeting

Mandatory Minimum Notice Period – 21 days

 

 

 

Maximum Notice Period – 50 days

Mandatory Minimum Notice Period – 7 days

 

 

 

Maximum Notice Period – 60 days

Mandatory Minimum Notice Period – 10 days

 

 

Maximum Notice Period – 50 days

Mandatory Minimum Notice Period – 21 days

 

 

Maximum Notice Period – 60 days
Passing Resolution to Dispense with Auditor Appointment
Unanimity of Shareholders 2/3rds of Shareholders Majority vote Unanimity of Shareholders

Revival of Dissolved Corporation

 

 

Ideally, extending the period of time to revive a corporation should give businesses time to collect and account for assets, resolve possible legal issues and recommence their business.
5 years 10 years 20 years

Not specified in the Act.*

 

 

*However, the federal government’s policy direction lays out the process to revive a corporation, as well as common grounds for refusal (one being the corporation “has been dissolved for a while”, stating 2 years as an example)
Filings
n/a Alberta now has the CORES registry allows for instantaneous filing for some filings, including limited corporation incorporations and amendments to a limited corporation’s articles n/a n/a
Some electronic filings permitted

The ABCA now includes expanded electronic filings, including:

 

 

·         Issuing security certificates

·         Financial statements can be signed electronically; and

·         Shareholders, directors and the corporation can be sent documents electronically

 No similar provision, but some electronic filings permitted No similar provision, but some electronic filings permitted

Arrangements

 

 

This is a court-sanctioned and supervised procedure where a corporation may complete a range of transactions which fundamentally alter the corporation, such as mergers and acquisitions, cancellation or creation of share classes, or amalgamations. The amendments under the ABCA will likely allow for greater flexibility structuring and implementing major changes in a corporation, including any exits.
Meeting of creditors and debtholders must be held prior to court approval of a proposed plan Court may make any order “it thinks fit” in connection an arrangement Court may make any order “it thinks fit” in connection an arrangement Court may make any order “it thinks fit” in connection an arrangement
True (Delaware) North Strong: How Alberta’s Amended Business Corporations Act Stacks Up Against the Ontario and Federal Statutes

FNF Enterprises Inc. v. Wag and Train Inc.

Oct 18, 2023 | Article

By Mercedes Simon, Gregory Prekupec

A recent Ontario Court of Appeal (“ONCA”) decision, FNF Enterprises Inc. v Wag and Train Inc., 2023 ONCA 92, helps further clarify the longstanding doctrine of corporations’ separate identity. However, the case provides an interesting application to the oppression remedy, here for a commercial landlord pursuing a claim against a sole director who intentionally value-stripped their corporation.

The Facts

The appellants were landlords who leased their premises to the respondent- sole director Linda Ross, who was operating a dog grooming, training and day care business called “Wag and Train”. A year out from the lease’s expiration, the premises were abandoned, left in poor condition; and no further rent was paid. Simultaneously, the business moved to another location in the same municipality under a different name.

In their claim, the appellants also argued Ross knowingly stripped value from Wag and Train and moved her business elsewhere, in full knowledge of her liabilities against and breach of the lease.

Piercing Corporate Veil Will Not Be Successful…

The motion judge found the corporate veil should not pierced, and the ONCA agreed but on different grounds. In the lower court decision, piercing the veil was refused as the appellants had not disclosed any fraud or improper conduct by Ross, nor anything in her conduct suggesting a separate identity from the corporation.

Instead, the ONCA applied the two-part test set to pierce the corporate veil, namely:

  1. The corporate form is being abused to the point the corporation is no longer truly separate (this must also go beyond ownership or control into complete domination or abuse of the corporate form); and
  2. There was fraudulent or improper conduct giving rise to liabilities the plaintiff seeks to enforce.

Here, the appellants claimed Ross was liable for obligations incurred by breaking the lease, including arrears of rent, costs to repair the premises and the remainder of rent owing under the lease up to the end of the term. The conduct relied upon was Ross’ controlling interest as its sole director, therefore making the decision to break the lease and strip it of value.

The ONCA rejected this claim, stating Ross’ decision to break the lease should not raise to the level of piercing the corporate veil as the conduct was insufficiently fraudulent or improper.

Secondly, the corporate veil could not be pierced as it regarded value-stripping. Because Ross stripped value from Wag and Train while aware of its lease liabilities, this was distinct from inciting a breach by stripping value from the business. Unlike in previous cases, an explicit link between the liability and the wrongdoing was not present. Here, Ross began value stripping after, not concurrently, to the lease liabilities arising.

…But an Oppression Remedy Claim Might

Secondly, the ONCA rejected the lower court’s findings that the appellants had no grounds for an oppression remedy. Firstly, the ONCA applied the two requirements for an oppression remedy claim under s. 248 of the Ontario Business Corporations Act (“OBCA”):

  1. The complainant must identify the expectations it claims have been violated by the conduct of the respondent, and those expectations were reasonably held; and
  2. The complainant must show the reasonable expectations were violated by corporate conduct that was oppressive, unfairly prejudicial or disregarded the interested of any security holder, creditor, director, or officer.

For the remedy to be granted against a director, the individual must have had the requisite degree of involvement in the oppressive conduct so it may be attributed them; and personal liability is fit given the circumstances.

Here, the appellants were creditors whose interests had been unfairly prejudiced and disregarded. Ross’ actions as sole director meant that the appellants’ interests were compromised by unlawful internal corporate “manoeuvring” which the appellants were unable to protect themselves against.

More to the point, Ross was not entitled as sole director to use Wag and Train funds as if they were her own. The ONCA reminded us that the power to declare a dividend to shareholders is contingent on being able to pay creditors (here, the appellants), and shareholders do not enjoy this right to assets while the corporation is ongoing. As a result, the court found the oppression remedy test was met.

So, while FNF Enterprises may relieve directors of smaller corporations as to their personal liability, a personal remedy could be found if reasonable expectations of a complainant were violated by oppressive conduct.

True (Delaware) North Strong: How Alberta’s Amended Business Corporations Act Stacks Up Against the Ontario and Federal Statutes

Hold Your Horses: Personal Property Rights, Licences, Copyright and NFT’s

Feb 15, 2022 | Article

By Zach Nickels, Dan Pollack

 

 

 

 

M.F. Husain’s “Lightning” Painting https://lightningnft.io/

 

A recent filing in the U.S. District Court for the Southern District of New York provides yet another example of the importance of understanding the intersection of personal property rights, licences, copyright and non-fungible tokens (“NFTs”) and the distinctions between them.

The Claim

In TAMARINDART, LLC v. Raisa Husain and Owais Husain as Administrators of the Estate of Maqbool Fida Husain,[1] the plaintiff TamarindArt (“Tamarind”), a fine art gallery located in New York City, filed a complaint in response to a cease-and-desist letter it received from the estate of the late artist Maqbool Fida Husain (“Estate”). The Estate’s cease-and-desist was aimed at derailing Tamarind’s imminent NFT project based on Husain’s famous painting entitled “Lightning”, accusing them of copyright infringement. In their complaint, Tamarind seeks, among other things, a declaratory judgment of non-infringement of copyright purported to be owned by the Estate and monetary damages in an amount determined at trial.

The Facts

Tamarind purchased the 60-foot-long “Lightning” in 2002 for $400,000, and upon the sale Husain (the work’s creator and copyright owner) allegedly granted Tamarind an “exclusive, royalty-free, worldwide license to display, market, reproduce and resell all or any part of the artwork”, which included “all digital and off-line media”.[2]

However, beyond this expansive licence, Tamarind also claims that Husain offered “all the rights [in Lightning] including the copyright” such that Tamarind would be able to print posters, graphics or any digital works of Lightning in order to recoup some of the money spent purchasing the work.[3]

Eventually, Husain passed in 2011, and earlier this year Tamarind prepared to launch the “LightningNFT project” which involved the release of a still undetermined number of NFTs incorporating aspects of Lightning with 62 unique traits.

Lightning Strikes… Twice?

On January 8, 2022 Tamarind received the cease-and-desist letter from the Estate, which claimed that although Tamarind owned the physical artwork, it did not own the copyright in the work, and therefore had no right to reproduce, distribute copies or create derivative works based on the work or display it publicly.[4]

Considerations of Interest (From a Canadian Copyright Perspective)

Although this dispute has yet to be resolved, it highlights some of the issues that both copyright holders and licensees can face in the burgeoning NFT-minting industry, and provides an opportunity to reflect on some important considerations when dealing with copyright and NFTs:

Personal Property Rights Are Not The Same As Copyrights

  • Owning a physical copy of a work in which copyright subsists =/= owning the copyright in the work.
    • When you buy a copy of a work, you have personal property rights in that work. You can even re-sell that work according to what is known as the doctrine of exhaustion where the copyright holder’s exclusive rights to distribution are “exhausted” after the first purchase (think second hand books or vintage vinyl). However, because you do not have copyrights in the work, you cannot reproduce or make copies of that work.
    • This situation recently raised its ugly head out of the sand when a group of “Cryptobros” purchased a copy of a rare book about Alejandro Jodorowsky’s “Dune” for $2.66M and planned to make NFTs and an animated limited series following the acquisition. Little did they know, the purchase of the book did not confer any copyrights in the book – just the rights to the book itself!

What Does Your Licence Actually Entail?

  • As copyright holders/licensors and licensees, it is critical to understand the scope and the nature of any intellectual property licence that you are a party to. Consider: are you a non-exclusive or exclusive licensee? What rights to use the work and in what manner can you use the work as a licensee?
    • For example, the popular NFT platform NBA Top Shot’s Terms of Use clearly set out that NFT purchasers are granted a “non-exclusive, non-transferable, royalty-free license to use, copy and display the [NFT]…”, and not true ownership of the NFT (in the traditional sense) nor any copyright in the work subsisting in the NFT. Who reads Terms anyways?

Get It In Writing!

  • Any assignment of copyright must be made in writing and signed by the copyright owner (or duly authorized agent) under section 13(4) of Canada’s Copyright Act.
    • In the event that slip—ups are made when parties’ intentions are such that copyright should have been assigned upon the completion of a transaction, retroactive assignments of copyright can be drafted.

Obtain A Waiver of Moral Rights

  • Moral rights can only be waived under section 17.1(2) of the Copyright Act – they cannot be assigned like copyrights can.
    • It’s critical to ensure that if you are planning to modify a work in which you have obtained the copyrights (perhaps to mint some NFTs?) that you also obtain a waiver of the author’s moral rights – otherwise, you could expose yourself to liability for infringing their rights to paternity or integrity!

Substantial Parts Unknown…

  • As a non-copyright owner or non-licensee, even if you only reproduce “part” of a copyright protected work as an NFT or otherwise, you can still be found liable for copyright infringement if the portion constitutes a substantial part of the work.
    • According to the Supreme Court of Canada’s seminal decision in Theberge v. Galerie d’Art de Petit Champlain Inc.,[5] the “principal economic benefit [of copyright]… to an author… is the sole right to reproduce the work or any substantial part thereof in any material form whatever”.[6] In other words, if an NFT or other derivative created by a non-copyright owner includes a substantial part of a work in which copyright subsists, the non-copyright owner could be opening themselves up to liability for copyright infringement under section 27 of the Copyright Act.

 

 

[1] 1:22-cv-595 (S.D.N.Y) [TamarindArt].

[2] See TamarindArt at para. 2.

[3] See TamarindArt at para. 32.

[4] See TamarindArt at para. 4.

[5] 2002 SCC 34 [Theberge].

[6] See Theberge at para. 12.

True (Delaware) North Strong: How Alberta’s Amended Business Corporations Act Stacks Up Against the Ontario and Federal Statutes

Turn Off The Plastic Tap

Oct 20, 2021 | Article

Dipchand LLP is proud to share our support and participation in artist and activist Benjamin Von Wong’s latest project and symbol of environmental change, the Giant Plastic Tap.

In collaboration with the Embassy of Canada in France, Von Wong continues to raise the awareness of single-use plastics, but for the first time, his art directly tackles the source of plastic pollution -its production. 

To help amplify the movement, Von Wong created an opportunity for everyone to participate in the project and help #TurnOffThePlasticTap through a $10,000 giveaway in prizes.

Our lawyer Dan Pollack worked closely with Von Wong and his team to create the necessary agreements, rules, and releases to bring this project to life. The following breakdown discusses the various legal components that are an essential behind-the-scenes part of this spectacular installation and giveaway.

(The Giant Plastic Tap in an active container yard featuring Benjamin Von Wong’s mother posing as a construction worker.) 

The Giant Plastic Tap –Art Installation 

Releases and Terms & Conditions: 

  • Property/Location Releases
  • Production/Media Releases
  • Model Releases 
  • Contributor Terms
  • Terms of Use for Users (individuals, media, NGOs, and businesses) 

Contest

Creating official contest rules with a “short rule” summary Contest Platform

  • Gleam.io 

Gleam.io is a third-party marketing platform used for running various campaigns with an app that allows you to track and monitor your competition on the platform, social media, and your website.
Von Wong uses Gleam.io to allow the audience to complete a variety of tasks, including sharing the contest link, creating mash-ups, and watching videos to increase their chances of winning a prize.

While Gleam provides excellent tools for this kind of campaign, it’s still vital to ensure that the applicable terms and contest rules are customized to your needs and properly vetted. 

(Remixed photo by Ted Chin for the #TurnOffThePlasticTap campaign -IG Account: @TedsLittleDream) 

Promotion
  • Social Media Platforms 

Social media is one of the easiest and most impactful ways to reach and engage with your audience. However, when it comes to sponsoring promotional campaigns, you need to consider the legal regulations and restrictions unique to each social media platform. 

To run a successful campaign, it’s essential to make sure you understand each platform’s policies, or you run the risk of penalties such as takedowns and even possible account suspension or termination.

You can find the rules for some of the top platforms here: Facebook, Twitter, and Instagram. 

Remember, to run a successful campaign of any kind it’s essential to have your legal ducks in a row with the correct documentation and to review the policies of all the platforms you’re using. While this due diligence can be daunting, it’s a critical step to avoid potentially serious legal headaches in the future.

We’re very excited to share Von Wong’s Giant Plastic Tap initiative and the contest with you and wish everyone the best of luck! For more information on the Giant Plastic Tap and the $10,000 giveaway in prizes, please visit https://www.turnofftheplastictap.com/. 

Facing the Consequences: The Intersection of Copyright and Personality Rights

Jul 19, 2021 | Article

 

By Zach Nickels, Dan Pollack

Earlier this month, The Hudson’s Bay Company used a photograph of a prominent Toronto lawyer and EDI advocate taken by an acclaimed Toronto portrait photographer to promote The Bay’s “Charter for Change” fundraising campaign to promote opportunities for the BIPOC community in an in-store display.

Unfortunately, they did so without the permission of either the photographer (Luis Mora), or the subject of the portrait photograph (Hadiya Roderique) herself.

Beyond the terrible optics of using a photograph of a prominent activist in support of a “goodwill” campaign without her permission, this situation illustrates the intersection between copyright and misappropriation of personality (commonly known as “publicity rights”) and potential landmines for business owners.

 

 

“Photograph and post from the Twitter account of Hadiya Roderique (https://twitter.com/hadiyaroderique?lang=en).”

Copyright Infringement

The Bay did not license the right to use the photograph from the photographer Mora, the (presumable) copyright owner. Under Canada’s Copyright Act, the unauthorized reproduction of the photograph constitutes copyright infringement. This is true regardless of whether the work contains a copyright notice/watermark or is registered with the Canadian Intellectual Property Office.  When The Bay reproduced the photograph without obtaining Mora’s authorization or a licence to do so, they infringed his copyright in the work and could be liable for damages.

Interestingly, intention has nothing to do with liability. Although the photograph in this incident was apparently used as an early inspiration piece and unintentionally remained in the “final product” as a mistake, copyright infringement does not require intent. It is critical that business owners must always ensure that they have obtained valid licences for any copyrighted works that their business intends to use before it goes “live”, or they run the risk of incurring liability for copyright infringement.

Misappropriation of Personality Rights /Publicity Rights

An additional legal layer beyond copyright is in the mix because the photograph at issue was a portrait of Roderique. Despite The Bay’s altruistic goals, the promotion of The Bay’s campaign was a commercial use requiring permission from the subject of the photograph, Roderique.  Permission would typically be granted by the subject of a photograph through a “model release” where the portrayed person agrees to waive any claim that they might have based on their publicity rights in the image, also referred to as “NIL” rights (Name, Image and Likeness).  For portraits of prominent individuals like Roderique that were not taken for the purpose of licensing, the photographer or end user would need specific permission from Roderique.  However, such permission would not be required if the image was licensed by Mora for “editorial” use – for example, in connection with a news article about Roderique.

In Canada, the tort of misappropriation of personality (known as publicity rights in the United States) applies to situations where a clearly identifiable individual’s “NIL” rights are exploited for commercial purposes that suggest their endorsement.  It usually arises when the person is prominent because the value of their NIL rights is greater than the average person.  Context is also important – Roderique’s NIL rights as a prominent lawyer and activist would be substantial for this kind of campaign where her endorsement would add significant credibility and value.  Despite their immediate actions to remove the infringing display and apologize to Roderique (and no indication that this was anything but a mistake), The Bay could be confronted with significant liability on two fronts from two different rights holders:  copyright infringement to Mora and misappropriation of personality rights to Roderique.

Takeaway

Everyone understands that mistakes happen, but they can have substantial potential costs even when unintentional.  This incident is an important reminder of how the consequences for this kind of incident are not limited to bad publicity, but also potential exposure to liability on two fronts based on two separate sets of rights:  copyright infringement and misappropriation of personality. When using creative content to promote their products and services, businesses therefore need to not only ensure that they have permission to use the content itself, but also consent from the people who appear in the content.

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