By Zach Lechner-Sung
It is time for a brand new Friday Finds, the weekly series where we share corporate and securities law headlines that caught our attention. Today we will be covering some recent announcements from IIROC, proposed changes to Ontario’s Business Corporations Act, and a recent SCC decision regarding long-term incentive plans. Let’s dive in!
In light of growing case numbers and the continued impact of COVID-19 on the Canadian economy, the Investment Industry Regulatory Organization of Canada (IIROC) has authorized its staff to extend existing relief efforts until June 30, 2021. Back in March, the IIROC Board of Directors approved the offering of exemptive relief to accommodate investment dealers who were having difficulty complying with IIROC member rules due to the pandemic. Recognizing a need to be flexible and accommodate remote working, IIROC offered assistance through late filing fee waivers, exemptions to facilitate the use of electronic signatures, and reduced in-person oversight obligations, among other things. In its notice distributed on October 9, IIROC also approved additional relief from annual security count requirements, provided firms have alternative procedures in place to safeguard security segregation.
Recently, IIROC also proposed amendments to its Dealer Member Rules with respect to bulk account transfers between investment dealers. These changes would provide IIROC staff with the authority to grant relief from certain account opening requirements (or re-papering requirements) when dealers merge or sell accounts to each other. This would allow dealers to open new accounts for clients and complete all required documentation “within an extended timeline”. IIROC suggests that these changes will improve the efficiency of these types of transfers, limiting delays of planned transactions while providing a more consistent framework for account movements. IIROC will be accepting comments on the proposed amendments until December 7, 2020.
The provincial government introduced a bill on October 6 that would remove certain long-standing requirements from the Business Corporations Act. In particular, the bill (entitled the Better for People, Smarter for Business Act, 2020) would remove the requirement that a minimum of 25% of the directors of an Ontario corporation be Canadian residents, allowing Ontario corporations to be more flexible in selecting board members. Applying to both public and private companies, this change would have a significant impact on foreign-owned organizations, who in the past may have chosen to incorporate in another province due to the director residency requirement. Additionally, the bill proposes to change the approval threshold for a written resolution from a unanimous signature requirement to a majority signature requirement. While this change would only apply to privately held corporations, it would significantly reduce the amount of time and resources required to obtain shareholder approval for common corporate actions.
On October 13, in the case of Matthews v. Ocean Nutrition Canada Limited, 2020 SCC 26, the Supreme Court of Canada clarified the test for whether an employee is entitled to compensation under a long-term incentive plan (LTIP) upon termination without cause. The plaintiff, David Matthews, sued his ex-employer Ocean Nutrition for constructive dismissal, seeking damages including the loss of an LTIP which would have provided him with a share of the proceeds received when the company was sold. The SCC agreed with the trial judge that Mr. Matthews was entitled to 15 months’ notice for his dismissal, and that there was nothing in his LTIP that limited his right to participate in the plan during the reasonable notice period. The SCC held that for an LTIP to preclude entitlement to compensation during the notice period, it would need to contain something that unambiguously alters or removes the common law right to claim damages for lost compensation that would have accrued until the end of the notice period. Language simply requiring than an employee be “full-time” or “active” is not sufficient to “unambiguously alter” this common law right. Clarification that the test for limiting language in a LTIP is very high warrants a review of employee incentive plans. Employers might want to clarify that LTIP compensation terminates the day that notice of termination is given, expressly stating that it does not have effect through any reasonable notice period.
Thank you for tuning in to this week’s Friday Finds. We hope to see you next week!