Exemption Information Kits - Overview

Policy Statement 6.1
September 22, 2004

Table of Contents

• Background
• Types of Exemptions
  • Applications to Director - Kits Available
  • Applications to Director - Kits Not Available
  • Applications to Court - Kits Not Available
  • Single Filing Exemption
• The Exemption Application
  • Format
  • The Documents
  • Effective Date of Exemption
  • Duration
  • Revocation
  • Retrospective Effect
  • Fees
  • Number of Copies
  • Processing of Application
  • Urgent Cases
  • Publication
  • Appeal of Director's Decision
  • Access to Exemption Information Filed
  • Additional Information

Canada Business Corporations Act
Exemption Information Kits - Overview

1.  Background

The Canada Business Corporations Act ("CBCA") provides companies or individuals with relief from some of its requirements through a series of specific exemptions. Corporations or individuals must apply to the Director under the CBCA for these exemptions. To simplify this process, exemption kits were developed. The available kits are listed in the table below. These kits are intended to meet client needs for information concerning exemption applications and are either revisions of earlier kits or are entirely new. They were conceived as part of a plan to reduce the effort of all parties involved with exemption applications and to explain what the Director and staff consider when deciding whether to grant an exemption. Kits have not been prepared for exemptions that are rarely sought.

Applications to Director – Kits Available

Applications to Director – Kits Not Available

Applications to Court – Kits Not Available

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2.  Types of Exemptions

(a)  Applications to Director – Kits Available

Distributing Corporation:  Certain provisions in the CBCA apply only to distributing corporations and are devised to safeguard the interests of security holders and other stakeholders. However, it is recognized that situations exist where strict adherence to these provisions neither serves the interests of the security holders, nor the corporation, nor any other stakeholder. Subsection 2(6) of the CBCA provides the Director with the authority to determine that a corporation is not, or was not a distributing corporation, if the Director is satisfied that such a determination would not be prejudicial to the public. Circumstances in which the Director is likely to grant such an exemption are listed in the revised subsection 2(6) information kit.

Trust Indenture – Part VIII:  Subsection 82(3) of the CBCA states that the Director may exempt a trust indenture if the debt obligations issued and the security interests effected by the indenture are subject to a law of a province or of a foreign country that is substantially equivalent to Part VIII of the CBCA. The major factor in granting an exemption is whether the degree of protection offered to investors is substantially equivalent to the protection that would be given if the trust indenture were subject to the requirements of the CBCA. Typically, exemptions have been granted where the applicant has satisfied the Director that this is the situation and, in the case of foreign offerings, when the debt securities will not be available for sale in Canada. Precedents have been established for the United States.

Proxy solicitation (management and dissident):  Subsection 151(1) of the CBCA provides that the Director may exempt a corporation or dissident (usually a shareholder) from any of the requirements of Section 149 or subsection 150(1). Section 149 and subsection 150(1) provide that the management of a distributing corporation must send a "form of proxy" and a "proxy circular" to all shareholders entitled to receive notice of the meeting when the number of shareholders entitled to vote at the meeting is more than 50. Subsection 150(1) also applies to a dissident and provides that a dissident must send a dissident proxy circular. The "form of proxy" and "proxy circular" must contain the information prescribed in Sections 54 to 69 of the Regulations. Corporations and dissidents whose applications provide evidence that shareholders would not be prejudiced by the granting of an exemption are generally successful in receiving either complete or partial exemptions. An information kit is available for the exemption from the requirement to send management proxy solicitation and a separate information kit is available for the exemption from the requirement to send proxy circulars by a dissident.

Reporting of Financial Statements:  Section 155 imposes requirements concerning financial statements to be presented to the shareholders at the annual meeting and the frequency with which they must be updated. The content and preparation of financial statements must comply with the requirements of Sections 70 to 72 of the Regulations. These sections require that the financial statements must be prepared in accordance with the provisions of the Canadian Institute of Chartered Accountants' Handbook and must contain a balance sheet, a statement of retained earnings, an income statement and a statement of the change in financial position.

Section 156 states that the Director may authorize a corporation to omit from its financial statements any item prescribed, or to dispense with the publication of any particular financial statement prescribed. The Director will generally permit these omissions, on such reasonable grounds as he thinks fit, if the Director believes that the financial information thus revealed would be detrimental to the corporation. An information kit is available for those corporations requiring an exemption under Section 156.

Audit Committee:  Subsection 171(1) of the CBCA states that a distributing corporation must have an audit committee if the corporation's securities are held by more than one person. The audit committee thus established must comprise a minimum of three directors of the corporation where at least two of these directors are neither employees of the corporation nor any of its affiliates. Subsection 171(2) states that if the Director is satisfied that the shareholders will not be prejudiced, then an exemption may be issued which exempts the corporation from the requirement to establish an audit committee.

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(b)  Applications to Director – Kits Not Available

Name of Corporation:  Subsection 10(2) permits the Director to exempt a corporation continuing under the CBCA from the requirements of subsection 10(1): that the name of the corporation include the word or expression "Limited", "Limitée", "Incorporated", "Incorporée", "Corporation", "Société par actions de régime fédéral" or its corresponding abbreviation. There is no kit for this type of exemption as it has been rarely sought. Most exemptions have been granted to corporations incorporated under Special Acts when they were continuing under the CBCA and whose name was already well-known to the Canadian public, for example "Bell Canada".

Where continued reference to par value shares permissible:  Where the Director determines, on the application of an importing body corporate, that it is not practicable to change a reference to the nominal or par value of shares of a class or series that the body corporate was authorized to issue before it was continued under the CBCA, subsection 187(11) states that the Director may permit the corporation to refer in its articles to those shares, whether issued or unissued, as shares having a nominal or par value. No kit is available as this exemption is rarely requested.

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(c)  Applications to Court – Kits Not Available

Qualification of Auditor:

An interested person may apply to a court pursuant to subsection 161(5) for an order exempting an auditor from the need to be independent. For example, the court order would provide that the comptroller of the parent company could act as auditor. Note however that shareholders of all non-distributing corporations may resolve not to appoint an auditor, in which case no exemption application would be necessary. There is no kit for this type of exemption. Note that the CBCA does not require that a notice of application be sent to the Director.

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(d)  Single Filing Exemption

Section 258.2 gives the Director, CBCA authority to make a blanket exemption for notices or documents required to be sent to the Director where the information contained in the notice or document is similar to that required to be made public pursuant to another act of Parliament or of a legislature that the Director specifies.

Pursuant to this authority, the Director has issued the Single Filing Exemption providing that proxy materials and financial statements required to be filed with the Director pursuant to Sections 150 and 160 of the CBCA, need not be filed if documents containing similar information have been filed with any of the participating provincial and territorial securities commissions. Corporations do not need to notify the Director in order to rely on this exemption.

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3.  The Exemption Application

1. Format:  Applicants should refer to Form 27 (copy attached) to ensure that all essential information is included. Regulation 75 requires that the applicant provide information under three distinct headings: description and details of the exemption sought; statement of facts, and argument. The information kit provides assistance in drafting these applications.
   
   The Director recognizes that in some cases applicants may also be making similar representations under various provincial securities acts. The Director will accept an application made under any provincial securities act providing it contains all relevant information or additional information is attached so as to comply with CBCA requirements. Note, however, that provincial legislation may provide confidentiality protections that do not exist under the CBCA.
   
   

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2. The Documents:  Detailed below is a brief description of the three major documents that comprise the submission.
   
   
   1. Description and Details of the Exemption Sought:  The application must describe the exemption sought and note that it is an application for an exemption under the relevant section of the Canada Business Corporations Act, R.S.C. 1985, c. 44.
      
      
   2. Statement of Facts:  Information varies depending on the type of exemption sought. The applicant must provide all material facts about the application and describe the circumstances to the degree necessary to allow the Director to make an informed decision on the request.
      
      
   3. Argument:  Following the circumstances described, arguments must explain why an exemption is required and, when appropriate, why receiving an exemption would not be prejudicial to the interests of security holders or the public interest. Additional details are provided in the specific information kits.
      
      

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3. Effective Date of Exemption:  Exemptions take effect on the date of approval of the application.

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4. Duration:  This varies with the type of exemption sought. Additional details are found in the specific information kits.
   
   

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5. Revocation:  Exemptions are only revoked if the facts change and the resulting circumstances dictate that the corporation should no longer be exempt from the particular requirement. Appropriate notice will be provided to ensure the applicant can contest the decision to revoke an exemption decision.
   
   

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6. Retrospective Effect:  While the Act may permit exemptions to be granted that have retrospective effect, it is the policy to grant these only when there are valid reasons. Retrospective exemptions will only be considered in situations where the investing public would not be prejudiced and where the corporation would otherwise be prejudiced. Requests for retrospective exemptions will be reviewed on a case-by-case basis.
   
   

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7. Fees:  The prescribed fee for this type of application is $250.00.
   
   

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8. Number of Copies:  Only one set of documents is required.
   
   

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9. Processing of Application:  Section 90 of the Regulations provides the Director 30 days after receipt of an application for an exemption to either grant or refuse the application. If the application contains the necessary information, an exemption is usually issued no later than 15 working days after receipt of the application.
   
   

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10. Urgent Cases:  An applicant requiring that the Director review the application on an expedited basis should bring the request immediately to the attention of the Director's staff, providing reasons for the urgency.
    
    

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11. Publication:  Issued exemptions are published monthly under the heading "Corporations Canada Monthly Transactions" on its website.
    
    

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12. Appeal of Director's Decision:  A person who feels aggrieved by a decision of the Director to refuse to grant an exemption may apply to a court for an order requiring the Director to change his decision, and on such application, the court may so order and make any further order it thinks fit.
    
    

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13. Access to Exemption Information Filed:  Pursuant to section 266 of the CBCA, a person who has paid the required fee is entitled to examine, make copies or extracts of any document required by the Act to be sent to the Director. The information filed with the Director in support of an exemption application is not confidential. Such information is required to be filed in order to get an exemption and must therefore be made available to the public.
    
    

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14. Additional Information:  For additional information, including copies of the exemption kits, please contact the Corporations Canada at:
    
    Corporations Canada
    Industry Canada
    9th Floor, Jean Edmonds Tower South
    365 Laurier Avenue West
    Ottawa, Ontario
    K1A OC8
    Attention: Arrangements and Exemptions Section
    Telephone: (613) 941-5757
    Fax: (613) 941-5781

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