by Bryan C. Haynes of Bennett Jones LLP
Previously published in the Canadian Lawyer magazine
Most jurisdictions in Canada require the unanimous consent of all shareholders, including nonvoting shareholders, in order for a nondistributing corporation to dispense with an audit. The requirement is absolute and mandatory — there are no other exemptions or qualifications. The public policy rationale behind the rule is laudable; however, the implementation in practice can be austere. It is time to revisit the universal audit requirement as it applies to nondistributing corporations.
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If you have ever felt frustrated, or perhaps tempted, by emails promising millions in riches, then you will enjoy Neil Forsyth’s Delete This At Your Peril – One Man’s Fearless Exchanges With The Internet Spammers, published by Birlinn. You will find an excerpt from the book here in pdf format.
It’s the season of the CGA Ontario salary survey, so it’s appropriate to provide you with the previous results for all three Ontario accounting designations.
Here are the Ontario results, with a link to the pages where you can find either the earlier versions or the remaining provinces:
By Pierre Alary of Gowling Lafleur Henderson LLP
I. Introduction
Sometimes, two is better than one. A company in dire straits can potentially attain success by dividing itself into two separate entities. Whether the issues plaguing the company are financial or philosophical in nature, a separation of the business should be considered by corporations and practitioners alike. In addition to making good business sense, a divisive reorganization, or “corporate divorce”, can be structured to benefit both parties from a tax perspective. In other words, a corporate divorce does not need to be a painful experience. This article will conduct a brief overview of the well-known butterfly transactions, but will primarily focus on an alternative method, the “McMullen Method”, which was approved by the Tax Court of Canada in recent years.
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Canada’s Provincial Personal Property Security Acts (“PPSA”) have set many tiny tripwires for secured lenders. In Part 1 we saw how misspelling a borrower’s name stripped a factoring company of its security in the borrower’s accounts receivable. In Part 2 we will look at the change-of-name provisions in Ontario’s PPSA and the consequences of failing to heed them.
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On October 6, 2010, in Seier v. The Queen, the Tax Court of Canada provided us with one more example of a lender and corporate director who must pay the GST and payroll withholdings arrears of a failed business.
In this case, a lender, by realizing on his security, becomes the sole director and shareholder of the borrower corporation. He then fails to monitor the corporation’s compliance with the various GST and payroll tax requirements. As a result, the corporation accumulates in these accounts $60,000 outstanding for which the lender, as corporate director, is assessed.
The Court’s decision is instructive since it paints a picture of absentee management that is common and likely found within your own experience.
Lenders (who upon a liquidation are liable for such debts out of the proceeds) and directors (who are directly liable for such debts) must have monitoring systems in place to limit this risk.
I suggest that some combination of the following could be used to reduce risk:
- Use of a third-party payroll service, with all remittances to be made by the service.
- All payroll and GST/HST assessments and statements are forwarded for review immediately upon receipt.
- An independent accountant is engaged by the lender/director for periodic review of underlying calculations with the accountant’s fees reimbursed by the corporation.
- The lender’s/director’s own bookkeeper/accountant provides this periodic review.
If you are using any of these controls, or some other one, please share it by clicking on “Leave a comment” at the top of this post.
The following is excerpted from “Directors’ and Officers’ Duties and Liabilities“, August, 2010, by Robert E. Milnes and Kathleen M. Ritchie of Gowling Lafleur Henderson LLP.
Practical Suggestions for Complying With Duties and Minimizing Liability
To comply with a director’s or and officer’s duties, and to minimize liabilities, the following rules should be followed:
1. Directors and officers should avoid any conflict of interest, which includes self-dealing of any kind, particularly in respect of share transactions that are motivated by knowledge acquired as an insider.
2. Directors and officers should be aware of the terms of the articles and by-laws of the corporation and should be able to verify, in general terms on an on-going basis, that the corporation’s business and affairs are being managed in accordance with any restrictions contained in such documents.
3. Directors and officers of corporations in regulated industries
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