Private company directors and officers face new fines under CBCA amendments
Introduced in April 2019 to implement certain provisions of the federal budget tabled on 19 March 2019, Bill C-97 proposes various amendments to the Canada Business Corporations Act (CBCA).
The amendments include the requirement for private CBCA corporations to maintain a detailed share register of individuals having “significant control” over the corporation. Individuals with significant control over an organization include those who are the registered holder, beneficial owner, or hold direct or indirect control over, (1) shares that carry 25% or more of the voting rights attached to all of the corporation’s outstanding voting shares; or (2) shares that are equal to 25% or more of all the corporation’s outstanding shares measured by fair market value. Corporations must be prepared to disclose this register to the Director of Corporations Canada on request; the register also needs to be available for inspection by creditors and shareholders. Corporations must also disclose their shareholder register to investigative bodies (i.e. the police, CRA, etc.) when that body has reasonable grounds to suspect that the register would be relevant in investigating an offence committed by, or involving, the corporation or an individual with ‘significant control’. The Bill also adds enforcement powers, giving ‘teeth’ to these new share register requirements. Any director or officer of a corporation who knowingly authorizes, permits or acquiesces in the contravention of these requirements may be liable for (1) a fine of up to $200,000, (2) six months’ imprisonment, or (3) both (1) and (2). These sanctions apply regardless of whether the corporation is prosecuted for a related offence.
A directors’ and officers’ (D&O) liability insurance policy can provide board members and executives with financial protection in the event they are faced with allegations of wrongdoing. Private corporations will also typically enjoy broad protection under a D&O policy, limited only by exclusionary provisions and language contained in the policy. Depending on the specific policy language, D&O insurance could respond to provide insured individuals with legal defense costs to defend themselves against alleged violations of the CBCA.