MT Business Law in Ontario Fall 2008 V8.Qxp
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Recent Developments: Business Law in Ontario Volume 1, Issue 3 December 2008 FOREWORD Welcome to the latest issue of Miller Thomson LLP’s Recent Developments in Business Law Review. This publication is produced by Miller Thomson’s Ontario Business Lawyers and targets legal developments which may impact on your businesses. It is an off-shoot of our internal continuing education program which focuses on keeping our lawyers abreast of those developments and their practical implications. We wanted to share that with you. Our goal is to provide you with a high level snapshot of what is going on in business law in Ontario and what that may mean for your business. This issue features articles covering the recent Delaware case of Schoon v. Troy Corporation, a case which could have a significant impact on the indemnities of directors, recently introduced legislation designed to modernize federal non-share capital corporations, consumer product safety as well as copyright law. In addition, you will find the latest updates regarding the recent changes to the 5th protocol to the Canada - US tax convention. Our Ontario Business Lawyers are available to discuss any of the issues raised in the articles or any other business related issues you may have. We welcome your questions and comments on this publication and look forward to continuing to keep you ahead of the curve on the latest developments in business law. Yours truly, Barbara R.C Doherty Jason L. Rosen Sukesh Kamra Table of Contents BUSINESS & SECURITIES Director’s Indemnities Schoon v. Troy Corporation - A Cautionary Tale 1 The Decision to Block the MacDonald, Dettwiler and Associates Ltd./ Alliant Techsystems Inc. Deal 1 Compete to Win: Report of the Canada Competition Review Panel 3 Proposed New Rule Permits Listing of Special Purpose Acquisition Corporations on the TSX 4 National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings 5 Bill C-52 and Product Safety: A Call for Recall 5 FINANCIAL SERVICES Awakening the Giant - Trade and Investment Opportunities in India 6 The Wage Earner Protection Program Act and Recent Changes to the Bankruptcy and Insolvency Act 7 INTELLECTUAL PROPERTY & INFORMATION TECHNOLOGY Canadian Copyright Act Amendments: Round Two 8 TAX, ESTATES & TRUSTS Conversion Proposals for Income Trust: Planning for 2011 and Beyond 9 Canada - US Tax Treaty: Hybrid Entities 10 Canada - US Tax Treaty: New Limitation on Treaty Benefits 11 Bill C-62 - A Modernization of Federal Non-Share Capital Corporation Legislation 12 Miller Thomson Analysis BUSINESS & SECURITIES There are a number of options to limit exposure as a director. The first is simply to ensure that the indemnification and advancement provisions in the by-laws extend into perpetuity. Of course, this would not prevent any future board of directors Director’s Indemnities – A Cautionary Tale from amending the by-laws and removing the rights, despite the wording contained in the by-laws. The by-laws of most corporations, both for profit and not-for-profit, typically contain indemnity provisions in favour of the directors A second option is for the director to enter into a separate bilateral of the organization by which the corporation agrees to pay any indemnification agreement with the corporation or organization. costs incurred by the director resulting from their position. Such an agreement should be crafted to fit the situation in addition to the usual indemnification and advancement obligations. A non- The indemnity provisions are intended to be a safeguard to protect termination clause would also be included under all circumstances, the directors in the event legal action is brought against them including resignation or removal of the director. Such an agreement personally for actions taken on behalf of the corporation. Ancillary could not be terminated unilaterally by the corporation, removing to the indemnity, the corporation generally also agrees to advance the risk that the indemnity could be revoked. Of course, the funds to pay any ongoing legal or other costs incurred by the indemnity of the corporation is only enforceable to the extent director in the defence of the claim brought against them as and that the corporation remains solvent. when such costs are incurred. The third and most effective option is to ensure that the organization The intention of the indemnity and advancement provisions is to has sufficient and appropriate Directors and Officers Insurance ensure that there are no monetary repercussions resulting from (D&O Insurance) coverage in place. D&O Insurance remedies a director’s decision to serve on the board of a corporation or the concern that the corporation may not be in a position to organization. It is in the best interest of a corporation to attract the satisfy its financial obligations, presuming that the premiums best candidates to sit on its board, and as a result, they want to have been paid regularly. There are a wide variety of coverages reduce the reasons that a director would decline to serve with the available in the D&O market, including packages that include organization. tailing coverage, which provides coverage for a set period of time after a director has left the board. Such coverage should be A recent case argued in Delaware, Schoon v. Troy Corporation, discussed with your insurance broker and can be tailored to dealt with issues surrounding the indemnification of directors. correspond with the relevant limitation periods. There is wide In that case, a current and a former director of Troy Corporation discrepancy in the terms contained in D&O policies. Any policy were involved in litigation with Troy resulting from actions taken should be reviewed carefully to ensure that adequate coverage by a minority owner attempting to sell its shares of Troy. When is received. they attempted to enforce their rights to indemnification and advancement, they were informed that the other directors of Troy Should the reasoning contained in Schoon v. Troy Corporation be had held a meeting for the purpose of amending the by-laws of adopted in Canadian jurisdictions, it could have a significant the corporation so that the indemnity and advancement provisions impact on the risks associated with serving on a board of directors. would only apply to current directors. As a result, the current director The most efficient method of reducing any potential risk is to (Schoon) was included, but not the former director (Bohnen), whom ensure that appropriate Directors and Officers Insurance coverage Schoon had replaced on the board. is in place, including coverage that continues after a director has left the board. The court was asked to determine if the by-laws could be amended retroactively to remove the indemnification and advancement obligations; and whether the right to indemnification vested and Andrew S. Roth became enforceable at the time Bohnen agreed to serve as a T. 519.593.3264 director, or when the action was commenced against him. E. [email protected] The court found that the amendment to the by-law could apply retroactively and had the effect of removing the indemnity and advancement protections for all former directors. It also found that the right to indemnification only vested when an action was The Decision to Block the ATK/MDA Deal commenced against a director. Should this decision be followed in Canada (Delaware corporate cases are generally well received The Investment Canada Act in other jurisdictions) it would open former directors to significant The Investment Canada Act provides a regulatory review framework potential liability for actions taken when they were still members that allows the federal government to review foreign investments of the relevant board. in Canada. An investment is reviewable if there is an acquisition 1 does not send a notice under subsection (1) within the of control of a Canadian business and the asset value of the forty-five day period referred to in that subsection, the business being acquired equals or exceeds the threshold (set out Minister is deemed to be satisfied that the investment is in section 14 of the statute) as well as those investments the likely to be of net benefit to Canada and shall send a notice government considers “sensitive”, such as acquisitions of cultural to that effect to the applicant. businesses such as book publishing and distribution by a foreign entity. If the Minister of Industry is satisfied that a proposed Under section 21, the Minister must consider all of the information investment is likely to be of “net benefit to Canada”, then the provided by the foreign investor as well as the factors set out in Minister will approve the foreign investment under the Investment section 20, and based on these, the Minister must be satisfied Canada Act. that the foreign investment is likely to be of net benefit to Canada. Miller Thomson Analysis Net Benefit Test The MDA Decision The factors to be considered in assessing a proposed investment On May 8, 2008, the Minister of Industry, Jim Prentice, confirmed are listed in section 20 of the Investment Canada Act. A prospective his initial rejection of the planned $1.3-billion acquisition of the investor whose transaction is subject to review must address: Information Systems Business of MacDonald, Dettwiler and 20. For the purposes of section 21, the factors to be taken Associates Ltd. (“MDA”) by U.S. based Alliant Techsystems Inc. into account, where relevant, are (“ATK”). This is the first rejection of a transaction by a Minister (a) the effect of the investment on the level and nature of of Industry since the inception of the Investment Canada Act in economic activity in Canada, including, without limiting 1985. Since thousands of proposed foreign investments have been the generality of the foregoing, the effect on employment, on reviewed and allowed to proceed under the Investment Canada Act, resource processing, on the utilization of parts, components investors wonder whether this rejection signals a shift in the way and services produced in Canada and on exports from Canada; foreign investments in Canada will be treated in the future.