Speaker's Corner: Changes mean burdens for business?

On Dec. 10, 2015, the Ontario legislature passed the Budget Measures Act, 2015, which enacted a number of new statutes, including the Forfeited Corporate Property Act, 2015.

The Act also amended various existing pieces of legislation, such as the provincial Business Corporations Act, the Corporations Act and the Not-for-Profit Corporations Act.

The overarching purpose of these legislative changes is to improve the management of real property owned by Ontario corporations that is forfeited to the Ontario Crown.

The forfeiture of real property to the Crown may be the result from various circumstances, including where a corporation is dissolved or struck from the record and the real property held by the corporation is not properly dealt with prior to dissolution.

The Forfeited Corporate Property Act and these amendments are set to come into force on Dec. 10 (except for the amendments to the Not-for-Profit Corporations Act, which will come into force when the Not-for-Profit Corporations Act itself comes into force).

It is worth noting that there is a grace period of two years following the entry into force of this new requirement before it becomes applicable to existing corporations (corporations incorporated after Dec. 10, 2016 will be required to comply immediately).

As the Ministry of Infrastructure explained in a paper dated Aug. 11, 2016, the objectives are to reduce the number of corporate properties forfeited to the Crown, to return these properties to productive use more quickly, to increase corporate accountability for costs related to forfeitures and to be more transparent and certain in the management and disposition of forfeited property.

While such goals are laudable in principle, there is risk that the way they have been implemented in the Forfeited Corporate Property Act and related amendments to Ontario corporate statutes will result in the imposition of increased burdens on Ontario businesses and not-for-profit entities and potential exposure for failure to comply with these provisions on an ongoing basis. From a corporate document management standpoint, the key element of these legislative changes is the introduction of a new record-keeping duty on Ontario corporations.

Following the entry into force of the FCPA and related amendments to corporate statutes, the amended acts will require business and not-for-profit corporations to maintain a register of their “ownership interests in land in Ontario.”

This register will need to identify each piece of real property owned by the corporation as well as the date it was acquired and/or disposed, and will need to include copies of deeds, transfers or similar documents that contain information with respect to the real property’s municipal address, identifier number, legal description and assessment roll number, if any. This new register may find its way into the current form of standard minute books that are generally in use and maintained by counsel or otherwise maintained by the corporation itself. The new obligations may prove to be quite onerous to corporations that hold real property.

Practically speaking, corporations (and their counsel) will likely spend a significant amount of time and resources to retrieve the information required to be listed in the ownership interests register and to update their minute books or records accordingly and on an ongoing basis.

It is worth noting that there is a grace period of two years following the entry into force of this new requirement before it becomes applicable to existing corporations (corporations incorporated after Dec. 10, 2016 will be required to comply immediately). In a time of financial pressure on small businesses and not-for-profit entities to reduce legal spending, corporations would prefer fewer rather than additional requirements that will likely increase the cost and time required to maintain and update corporate records. In addition, this new requirement seems to run against the current effort of many law firms and corporations to go “paperless.”

The actual wording of these legislative changes may be problematic from a practical business perspective as well. For instance, neither the Forfeited Corporate Property Act nor the amendments to the other acts provide a definition of “ownership interests.”

While this breadth and vagueness adds to the scope of the information to be provided in the newly required ownership interests register, it also arguably means that this new record-keeping obligation applies equally to registered owners and to beneficial owners of real property in Ontario.

Many corporate groups use the distinction between legal and beneficial ownership of land when planning and structuring their ownership of real property and, therefore, this new record-keeping requirement may significantly impact that process.

The new record-keeping requirements also increase Ontario corporations’ exposure to fines for failure to comply with the provisions of their respective governing statute. While some are of the view that the Ontario government does not currently impose fines or penalties on non-compliant corporations in every circumstance, the reality is that the imposition of these new requirements does create additional obligations and related exposure,  and such increased exposure is compounded by the practical challenge of maintaining a detailed ownership interests register when a corporation owns many pieces of land or otherwise transacts real property on a regular basis.

This could prove to be a significant development as fines and penalties imposed by Ontario corporate statutes can be quite significant.

The Ontario government’s objectives to deal with forfeited real property and the downloading of additional responsibility to corporations in this regard needs to be weighed and considered against the practical implications of additional ongoing corporate record management and potential additional exposure for non-compliance.
It may also have some looking to incorporate under a less onerous statute, but for current Ontario corporations, it’s time to update your books.

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Graham King is a partner at Borden Ladner Gervais LLP and is the manager of BLG’s Corporate/Commercial and Private Company groups in Toronto. King received assistance for this piece from Pierre Permingeat, an associate, and Katherine Deakon, an articling student, at the firm.