CORPORATE CHANGES. Douglas L. Osborn Kim Bodnarchuk MacPherson Leslie & Tyerman LLP 1500, nd Street East Saskatoon, SK S7K 5T6

Transcription

1 CORPORATE CHANGES Douglas L. Osborn Kim Bodnarchuk MacPherson Leslie & Tyerman LLP 1500, nd Street East Saskatoon, SK S7K 5T6

2

3 Saskatchewan: Bar Admission Program ACKNOWLEDGMENT This paper is an update and expansion of papers previously prepared by Robert Pletch, Q.C., Danny Anderson and Kurt Wintermute, of MacPherson Leslie & Tyerman LLP, for the purposes of the Bar Admission Course.

4

5 Saskatchewan: Bar Admission Program i TABLE OF CONTENTS I. INTRODUCTORY REMARKS...1 II. EFFECTING CHANGES TO CORPORATE CHARACTERISTICS, GENERALLY...2 III. CONTINUANCES...8 IV. AMALGAMATIONS...12 V. SALE OF ALL OR SUBSTANTIALLY ALL OF A CORPORATION'S PROPERTY..16 VI. VII. VIII. STRIKING CORPORATE NAME OFF THE REGISTER AND RESTORATION...20 DISSOLUTIONS...22 REVIVAL...24 PRECEDENTS: GENERAL CHANGES TO CORPORATE CHARACTERISTICS: Notice of Special Meeting of Shareholders...P-1 Management Proxy Circular...P-3 Form of Proxy...P-9 Special Resolution of Shareholders to Amend Articles to Change Corporate Name...P-11 Resolution of the Directors to Amend Articles to Change Corporate Name from Numbered Company to Other Name (Section 167(3))...P-13 Special Resolution of Shareholders Amending Articles - General Wording...P-15 Special Resolution of Shareholders Amending Articles to Create an Additional Class of Shares, with the Authority Given to the Directors of the Corporation to Revoke the Resolution Before it is Acted Upon (Section 167(2))...P-17 Special Resolution of Shareholders Amending Articles to Change Number of Directors from Fixed Number to Maximum/Minimum Number...P-19

6 ii Saskatchewan: Bar Admission Program CONTINUANCES: Documentation respecting Export of Corporation out of Saskatchewan: Waiver of Dissent Right by Shareholders of Corporation...P-21 Special Resolution of Shareholders Approving Continuance of Corporation Out of Saskatchewan...P-23 AMALGAMATIONS: Documentation Respecting Long Form Amalgamation Pursuant to Section 176: Special Resolution of Shareholders Approving Amalgamation...P-25 Long Form Amalgamation Agreement...P-27 Documentation Respecting Short Form Amalgamation Pursuant to Section 178: Resolution of Directors Approving Vertical Amalgamation...P-35 Statutory Declaration Pursuant to Section 179(2): Statutory Declaration of a Director of One of the Amalgamating Corporations...P-39 Statutory Declaration of a Director of Both of the Amalgamating Corporations...P-41 DISSOLUTIONS: Documentation Respecting Dissolution Pursuant to Sections 203(2): Special Resolution of Shareholders to Dissolve Corporation Under Section 203(2)...P-43 Documentation Respecting Dissolution Pursuant to Section 203(2.1): Special Resolution of Shareholders to Dissolve...P-45 Declaration Respecting the Distribution of Property and Discharge of Liabilities...P-47 Documentation Respecting Long Form Dissolution Pursuant to Section 204: Special Resolution of Shareholders to Dissolve Corporation...P-49

7 Saskatchewan: Bar Admission Program 1 I. INTRODUCTORY REMARKS This paper provides an overview of the statutory framework and some practical considerations regarding certain "corporate changes", namely: (a) (b) (c) (d) (e) (f) (g) general changes to the corporate characteristics of an existing Saskatchewan business corporation; continuances, consisting of the import and export of a corporation; amalgamations, both long form and short form; sales of all or substantially all the property of a corporation; striking the name of a corporation off the register of corporations in Saskatchewan and restoring a corporation to the register; dissolving a Saskatchewan business corporation; and reviving of a previously dissolved Saskatchewan business corporation. "Corporate change" is a very broad term that may be used to describe almost any type of alteration to the corporate form, structure, direction or operation. However, there are generally considered to be two types of corporate changes, those that occur in the ordinary course of business and those that are "fundamental". Fundamental changes concern the nature of the corporation itself, or the rights and obligations of the parties who are shareholders of the corporation. Of primary concern to shareholders are those fundamental changes that might affect the profitability of the corporation and consequently might have an impact the shareholder's investment. The Business Corporations Act of Saskatchewan (the "Act") acknowledges that any such fundamental change should require the special attention of the directors and shareholders of the corporation. The provisions of the Act outline procedures to be followed and requirements to be met before a fundamental change will be considered valid. Even though a sufficient majority or supermajority of the shareholders may support a fundamental change, in certain situations the Act provides protection to a shareholder who disagrees with the majority by vesting special rights in the dissenting shareholder.

8 2 Saskatchewan: Bar Admission Program As a fundamental change by a corporation requires compliance with numerous procedural rules, a solicitor should be involved early on in the process. Management of a corporation may have invested considerable time and effort in making these important business decisions, and the solicitor involved will often be under some pressure to ensure that the change is accomplished promptly and without any doubt as to its legal validity. Accordingly, this is an area that requires a special degree of close attention to detail on the part of the solicitor. II. EFFECTING CHANGES TO CORPORATE CHARACTERISTICS, GENERALLY The most common type of change to the characteristics of a corporation is a change to its Articles. Generally, such changes are dealt with pursuant to sections 167 and 170 of the Act and include changes to the following: (a) (b) (c) (d) (e) corporate name, restrictions on the business or powers of the corporation, share capital features or share structure, restrictions on the issue or transferability of shares of the corporation, and number of directors of the corporation. Section 167 outlines the types of amendments to the Articles of the corporation that, as a general rule, require a "special resolution" of the shareholders. A special resolution is defined in the Act as requiring the approval of two-thirds of the shareholders represented in person or by proxy at a special meeting of the shareholders called for such purpose. Section 129(1) of the Act requires that for any meeting of shareholders, notice of the time and place of the meeting must be sent not less than twenty-one days nor more than fifty days before

9 Saskatchewan: Bar Admission Program 3 the meeting, not only to all shareholders entitled to vote at the meeting, but also to each director and to the auditor of the corporation (unless the shareholders have dispensed with the appointment of an auditor pursuant to section 157). Section 129(5) states that all business transacted at a special meeting and all business transacted at an annual meeting other than consideration of financial statements, auditors report, election of directors and reappointment of the incumbent auditor, is deemed to be special business. Section 129(6) provides that where special business is to be transacted at a shareholders' meeting, the notice of the meeting shall state the nature of that business in sufficient detail to permit the shareholders to form a reasoned judgment thereon and shall include the actual text of any special resolution to be submitted to the meeting. Accordingly, where special business such as is involved in effecting an amendment to the Articles of a corporation is on the agenda, there must be included with the notice of special meeting the text of the actual special resolution as it is proposed to be voted upon by the shareholders. In addition to the notice requirements for a special meeting of shareholders, regard must also be had to the provisions of sections 143 and 144. Section 143 provides that where a corporation has fifteen or more shareholders, management of the corporation shall, concurrently with giving notice of a meeting of shareholders, send a form of proxy to each shareholder who is entitled to receive notice of the meeting. Section 12 of The Business Corporations Regulations (the "Regulations") enacted pursuant to the Act, requires the form of proxy to be in accordance with section 140 of The Securities Regulations (the "Securities Regulations") enacted pursuant to the Securities Act, 1988 of Saskatchewan. Strict compliance with the prescribed form of proxy is essential to its validity. Section 144(1) of the Act states that in the case of solicitation by or on behalf of management of a corporation, a "management proxy circular" in prescribed form must be sent to the directors, to the auditor and to each shareholder whose proxy is solicited, either as an appendix to or as a separate document accompanying the notice of the meeting. It should be noted that any "person" may solicit proxies. A "person" is defined in the Act to include any individual, partnership,

10 4 Saskatchewan: Bar Admission Program association, body corporate, trustee, executor, administrator or legal representative. However, the requirements imposed by section 144(1) also apply to any solicitation other than by or on behalf of management, and such a "dissident's proxy circular" in the prescribed form must be sent to the directors, to the auditor and to each shareholder whose proxy is solicited. Section 12 of the Regulations states that the form to be used for either a management proxy circular or a dissident's proxy circular is to be in accordance with section 129 of the Securities Regulations and Form 28 thereof. Further, the requirement of a proxy circular prevails whether or not the corporation has fifteen or more shareholders, and is activated solely by the fact of the solicitation of proxies. Section 144(2) states that a person required to send a management proxy circular or dissident's proxy circular shall send concurrently a copy of the circular to the Director of the Saskatchewan Corporations Branch in Regina (the "Branch Director"), together with a copy of the notice of meeting, form of proxy and any other documents for use in connection with the meeting. Section 14 of Regulations also provides that where a management proxy circular is sent to the Branch Director, it must be accompanied by a statement signed by a director or officer of the corporation indicating that a copy of the circular has been sent to each director, each shareholder entitled to notice of the meeting to which the circular relates and to the auditor of the corporation, if applicable. It should also be noted that section 144(2.1) of the Act lists two exceptions to the obligation to send proxy documents to the Branch Director. With respect to content of a management proxy circular circulated in connection with a special meeting, it has been held that a management proxy circular must contain "sufficient information to permit the shareholder to come to an intelligent conclusion whether [the shareholder] should vote in favour of the proposal to be put to the meeting or against it." Although a management proxy circular may contain a recommendation, the shareholders must be apprised of the reason the recommendation is being made. (Smith v. First Merchant Equities (1988), 68 Sask. R. 161 (Q.B.).)

11 Saskatchewan: Bar Admission Program 5 Failure to comply with any of the foregoing matters relating to the formalities of convening special shareholders meetings can render the transaction of business at the meeting a nullity. Certain changes to the Articles of a corporation dealt with in section 167 also give rise to the dissent right under section 184 of the Act. The dissent right allows a shareholder who disagrees with certain enumerated changes otherwise approved by a sufficient majority of shareholders, to be paid a fair value for his or her shares. Section 184 sets out the procedure to be followed by a dissenting shareholder to exercise this right. If the corporation and the dissenting shareholder cannot agree on the fair value of the dissenter's shares, the court will fix the amount to be paid by the corporation. Accordingly, special care and attention must be devoted by management when considering changes to the corporation which bring about the dissent right and by solicitors when drafting the documentation to effect the change. Section 184(1) of the Act states that a dissent right exists if the corporation resolves, among other things, to amend its Articles under section 167 to add, change or remove any provisions restricting or constraining the issue, transfer or ownership of shares of a class of shares held by the dissenter, or if the corporation resolves to amend its Articles to add, change or remove any restriction on the business or businesses that the corporation may carry on or the powers the corporation may exercise. There is always a risk that the proposed amendment to the Articles to which section 184(1) applies may give rise to a significant number of dissenters and cost the corporation a considerable amount of money. If management of the corporation suspects that such might be the case, it may be prudent to include in the special resolution the authority of the directors to revoke the resolution before it is acted upon (but after it has been approved), without further approval of the shareholders, pursuant to the provisions of section 167(2) of the Act.

12 6 Saskatchewan: Bar Admission Program Section 167 is subject by its terms to the provisions of section 170, which creates special voting rights in favour of shareholders of particular classes or series of shares, in circumstances where the corporation proposes to amend its Articles. Section 170 provides that in such circumstances the holders of a class of shares are entitled to vote separately as a class upon the proposal to amend the Articles. The holders of a series of shares of a class are also entitled to vote separately if such series is affected by the amendment in a different manner from other shares of the same class. It should also be noted that by the terms of section 170(3), the right to vote separately as a class or series applies whether or not a class or series otherwise carries the right to vote. Section 170(4) further provides that a proposed amendment to the Articles that is subject to section 170 is adopted when the holders of the shares of each class or series entitled to vote separately thereon as a class or series have approved the amendment by special resolution (i.e., two-thirds of the shareholders of each class or series present in person or represented by proxy at the meeting called for that purpose). The general rule that changes to the Articles of a corporation may only be affected by special resolution of the shareholders is subject to at least two exceptions, as follows: (a) (b) Section 167(3) provides that the directors may amend the Articles of a corporation, without the approval of shareholders, to change the name of a numbered company to a name other than that of a designated number; and Section 6(3) states that if the Articles or a unanimous shareholder agreement require a greater number of votes of directors or shareholders than that required by the Act to effect any action, the provisions of the Articles or of the unanimous shareholder agreement prevail. Accordingly, an amendment to the Articles of a corporation may require the approval of more than two-thirds of the shareholders present in person or represented by proxy, if so provided in the Articles or by a unanimous shareholder agreement. Once an amendment has been approved by shareholders in accordance with the foregoing procedures, Articles of Amendment in prescribed form must be filed and accepted by the Branch Director, pursuant to section 171(1) of the Act. Upon receipt of the Articles of Amendment,

13 Saskatchewan: Bar Admission Program 7 section 172 states that the Branch Director shall issue a Certificate of Amendment, and section 173 provides that the Articles of a corporation are amended on the date shown in the Certificate of Amendment. Therefore, for example, shares of a new class of shares cannot be issued until the date shown on the Certificate of Amendment. This consideration is particularly important in year-end tax related transactions where it is essential, in order to accomplish the desired result, that a new class of shares be in existence and be issued to shareholders by a particular date. It is not sufficient that the shareholders approve of the creation of such class of shares, or that the material be filed with the Corporations Branch. Rather, it is the date shown on the Certificate of Amendment which determines the earliest date that the shares can be issued. It should also be noted that certain corporate characteristics are not included in the Articles of a corporation, and consequently do not require the approval of the shareholders by special resolution or the submission of Articles of Amendment to the Branch Director to effect a change. For example, section 19(1) requires a corporation to have at all times a registered office in Saskatchewan. The directors of a corporation may change the registered office by a directors' resolution, and within fifteen days of the change are required by section 19(4) to send to the Branch Director a Notice of Registered Office. Where a corporation sends Articles, other than Articles of Amendment or Articles of Dissolution, to the Director, the corporation is also required to send to the Branch Director a Notice of Registered Office in Form 3. Where a corporation, pursuant to section 273, sends an annual return to the Director within fifteen days after a change is made to the address of the corporation's registered office, section 19(4.1) states that the annual return is deemed to be the notice required by section 19(4). A corporation is also required by the provisions in section 101(1) to send to the Branch Director a Notice of Directors in Form 6 at the time of sending Articles of Incorporation. Section 101(3) allows the shareholders of a corporation, by ordinary resolution at the first meeting of shareholders and at each succeeding annual meeting at which an election of directors is required, to elect directors to hold office for a term expiring not later than the close of the third annual

14 8 Saskatchewan: Bar Admission Program meeting of shareholders following the election. Further, section 104(1) provides that the shareholders of the corporation may by ordinary resolution at a special meeting remove any director or directors from office. Within fifteen days after a change is made among its directors, a corporation is required by section 108(1) to send to the Branch Director a Notice of Directors setting out the change. Once again, if a corporation sends an annual return to the Branch Director within fifteen days after a change is made among its directors, the annual return is deemed to be the notice required under section 108. The Corporations Branch does not charge any fees for filing a Notice of Directors or a Notice of Registered Office. Please see the precedent materials for "General Changes to Corporate Characteristics" (pages P-1 to P-20) for samples of some of the documents referred to above. Forms set out in the Act and/or the Regulations can be found at III. CONTINUANCES The Act provides mechanisms whereby a corporation incorporated under the laws of a jurisdiction other than Saskatchewan may, in certain circumstances, be "continued" under the laws of Saskatchewan as if it were a Saskatchewan corporation (an "import" continuance). Conversely, the Act also provides a mechanism whereby an existing Saskatchewan corporation may apply to be continued under the laws of another jurisdiction, thereby ceasing to be a Saskatchewan corporation and becoming a corporation governed by the laws of the other jurisdiction (an "export" continuance). Import and export continuances can be useful in accomplishing a number of corporate objectives, the most common of which is to facilitate amalgamations between corporations. Two or more corporations cannot inter-jurisdictionally amalgamate, and it is therefore necessary to bring the corporations into a common jurisdiction as a condition precedent to amalgamation. Occasionally, it also transpires that a client, who is the sole shareholder of a corporation, moves from one jurisdiction to another and wishes to have the corporation governed by laws of the client's new "home" jurisdiction, in which circumstances a continuance can be useful.

15 Saskatchewan: Bar Admission Program 9 Section 181 of the Act governs import continuances and provides that a corporation incorporated under the laws of a jurisdiction other than Saskatchewan may, if so authorized by the laws of the jurisdiction where it is incorporated, apply to the Branch Director for a Certificate of Continuance. One of the useful features of a continuance is that a corporation may effect any amendment to its Articles authorized either under the laws of the exporting or importing jurisdictions, simply by restating its Articles in the desired form and presenting the same as Articles of Continuance to the Branch Director. In addition to Articles of Continuance, the following documents must be filed with the Branch Director: (a) (b) (c) evidence of approval from the home jurisdiction of the corporation; evidence of good standing of the corporation in its home jurisdiction; a copy of the charter documents of the importing corporation (i.e., its existing Articles and all amendments thereto); (d) Notice of Directors in Form 6; (e) Notice of Registered Office in Form 3; (f) (g) a Statement of Continuance in the form required by the Regulations in Form 28; and the required fee for a Certificate of Continuance. Upon receipt of the documents referred to above, the Branch Director will, if he/she finds the material to be in order, issue a Certificate of Continuance; on the date shown in that Certificate, the corporation becomes a corporation to which the Act applies. If a corporation continued into Saskatchewan still "carries on business" in the jurisdiction from which it exported, as that phrase is defined by laws of the exporting jurisdiction, the corporation will have to be re-registered as an extra-provincial corporation in the exporting jurisdiction. Further, if the corporation was already extra-provincially registered in other jurisdictions, a

16 10 Saskatchewan: Bar Admission Program continuance into Saskatchewan will likely amount to a kind of change for which notice must be filed in these other jurisdictions, by applying for Articles of Amendment of an extra-provincial corporation (for comparable provisions in Saskatchewan see section 271 of the Act). Section 182 of the Act governs export continuances, and basically sets forth a mirror reflection of the provisions of section 181. Section 182(1) states that a corporation may apply to the appropriate official or public body of another jurisdiction requesting continuance, if it is authorized by the shareholders in accordance with section 182, and if it establishes to the satisfaction of the Branch Director that its proposed continuance in another jurisdiction will not adversely affect creditors or shareholders of the corporation. Although the Branch Director takes judicial notice of the fact that the continuance of a Saskatchewan corporation in another Canadian jurisdiction will not "adversely affect creditors or shareholders of the corporation", the Branch Director may require special proof in the case of continuance by a Saskatchewan corporation to a jurisdiction outside Canada. To obtain the shareholder approval for continuance out of Saskatchewan, section 182(3) provides that a notice of a special meeting of shareholders complying with section 129 of the Act be sent to each shareholder and, in addition, the notice shall specifically state that a dissenting shareholder is entitled to be paid the fair value of his/her shares in accordance with section 184. Each share of the corporation carries the right to vote in respect of a continuance, whether or not it otherwise carries the right to vote. An application for a continuance in another jurisdiction is then authorized when the shareholders voting thereon have approved of the continuance by special resolution. Once again, because of the risk that a large number of shareholders may choose to exercise their dissent right even though a sufficient majority of the shareholders approve of the continuance, it may be wise to provide in the special resolution that the directors of the corporation have the authority to abandon the application for continuance in another jurisdiction without further shareholder approval, pursuant to section 182(6) of the Act.

17 Saskatchewan: Bar Admission Program 11 In order to obtain from the Branch Director a Certificate of Authorization, which evidences the Branch Director's approval of the continuance out of Saskatchewan, it is necessary to file a Statement of Proposed Continuance in Another Jurisdiction (Form 30) and pay the required fee. The Branch Director will, assuming he/she has no objection to the continuance, provide a Certificate of Authorization (Form 31), that will then form a part of the documentation that must be filed with the Corporations Branch of the receiving jurisdiction, in the same manner as was described above under section 181. Once the continuance of a Saskatchewan corporation has been effected in another jurisdiction, notice should be sent to the Branch Director. Section 182(7) states that upon receiving notice that is satisfactory to the Branch Director that the corporation has been continued under the laws of another jurisdiction, the Branch Director shall file the notice and issue a Certificate of Discontinuance. Sending the Branch Director the Articles of Continuance that conform to the law of the receiving jurisdiction will provide sufficient notice for the purpose of section 182(7). Even though a Saskatchewan corporation is continued in another jurisdiction, it may still desire to carry on business in Saskatchewan and therefore be required to be registered as an extraprovincial corporation in Saskatchewan. A corporation will be deemed to be carrying on business in Saskatchewan if it meets any of the requirements outlined in section 262(2) of the Act. Section 41(3) of the Regulations provides that where a Saskatchewan corporation continues pursuant to the laws of another jurisdiction, the corporation is deemed to be registered as an extra-provincial corporation for a period of 60 days from the date of its continuance in the other jurisdiction. Further, unless the corporation submits to the Branch Director a completed Power of Attorney in Form 24 with a fee of $50, the Branch Director will strike the name of the corporation from the register on the expiration of the 60-day period.

18 12 Saskatchewan: Bar Admission Program In the cases of both import and export continuances under sections 181 and 182, the Act makes it clear that no new corporation is created, and no existing corporation ceases to exist, in the process of continuance. Rather, the Act provides, in section 181(7) and 182(9), that the property of the corporation continues to be its property, the corporation continues to be liable for its obligations and causes of action, claims or liabilities to prosecution are unaffected by the continuance. Please see the precedent materials for "Continuances" (pages P-21 to P-24) for examples of some of the continuance documentation referred to above. Forms set out in the Act and/or the Regulations can be found at IV. AMALGAMATIONS Amalgamations are dealt with in sections 175 to 180 of the Act, which describe amalgamation procedures commonly referred to as "long form" and "short form" amalgamations. Note that section 175 provides that two or more corporations (the number of corporations which may amalgamate is unlimited) may amalgamate and continue as one corporation. That is to say, like continuances under sections 181 and 182, an amalgamation of corporations does not terminate the existence of the pre-amalgamation corporations, nor does it give rise to the creation of a new, amalgamated corporation. Rather, the amalgamating corporations are considered at law to have an unbroken corporate existence which is merely "merged" into a single, ongoing corporate entity. The legal result is particularly important from a taxation point of view, since otherwise the amalgamating corporations might be seen to have made a taxable disposition of all their property and assets, as part of the amalgamation. The timing of completing an amalgamation (and therefore of completing any of the corporate changes referred to herein) can be very important to a client; in this regard, the provisions of section 255(3) of the Act can be very helpful. This section states that the Branch Director may

19 Saskatchewan: Bar Admission Program 13 date the Certificate which relates to the filing of the corporate change with him/her as of the day he/she receives the corresponding Articles (i.e., Articles of Incorporation, Articles of Amalgamation, Articles of Continuance, Articles of Amendment, etc.) or as of any later date specified by the person who has signed the Articles. Accordingly, it will often be useful to prefile, for example, Articles of Amalgamation, and request the Branch Director to date the Certificate of Amalgamation as of a particular date which corresponds with a year-end, monthend or other date which is important to the client. Failure to so request in filing the material with the Branch Director may result in the Certificate in question being dated simply as of the date it is filed. "Long Form" amalgamations, which are dealt with in sections 176 and 177 of the Act, include all amalgamations other than amalgamations between a holding company and its wholly-owned subsidiary (vertical amalgamation) or between two corporations wholly-owned by the same parent, holding corporation (horizontal amalgamation), both of which are commonly referred to as "short form" amalgamations. In the case of a long form amalgamation, section 176 requires that an amalgamation agreement be entered into between the amalgamating corporations, which agreement shall, among other things, provide for the manner in which the shares of each amalgamating corporation are to be converted into shares or other securities of the amalgamated corporation. That is to say, as an integral part of the amalgamation the issued share capital of each the amalgamating corporations has to be exchanged for new shares or other securities in the amalgamated corporation, and the formula for this exchange must be set out in the amalgamation agreement. Particular attention should be given to section 176(2) which states that if shares of one of the amalgamating corporations are held by another of the amalgamating corporations (i.e., there is some element of a parent-subsidiary relationship), the amalgamation agreement shall provide for the cancellation of such shares when the amalgamation becomes effective without any repayment of the capital in respect thereof, and no provision shall be made for the conversion of such shares into shares of the amalgamated corporation.

20 14 Saskatchewan: Bar Admission Program Section 177 details the corporate approvals that must accompany a long form amalgamation, providing that the directors of each amalgamating corporation shall submit the amalgamation agreement for approval to a meeting of the holders of shares of the amalgamating corporation of which they are directors. The shareholders of the amalgamating corporations are entitled to receive a notice of the meeting complying with section 129. This notice shall also include or be accompanied by a copy or summary of the amalgamation agreement and shall specifically set out that a dissent right exists in respect of the amalgamation decision. Section 177(3) states that each share of the amalgamating corporations becomes a voting share when voting on a proposed amalgamation irrespective of whether it otherwise carries the right to vote. If the amalgamation agreement contains a provision that, if contained in a proposed amendment to the Articles, would entitle the holders of a class or series of shares to vote separately under section 170, then the holders of shares of a class or series will be entitled to vote separately with respect to the amalgamation decision, pursuant to section 177(4). The amalgamation agreement is adopted when the shareholders of each amalgamating corporation have approved of the amalgamation by special resolution of each class or series of such shareholders entitled to vote thereon. "Short form" amalgamations are dealt with in section 178 of the Act, the distinguishing feature from a procedural point of view being that in the case of short form amalgamations only directors approval of each amalgamating corporation is required, and the Act does not expressly require that there be an amalgamation agreement in such circumstances. (It might be considered good practice, nonetheless, to document the commercial result intended to be accomplished in the amalgamation by preparing an amalgamation agreement, in these circumstances.) In a vertical, short form amalgamation, the issued shares of each of the amalgamating wholly-owned subsidiary corporations must be cancelled without any repayment of capital. The Articles of Amalgamation shall be the Articles of Incorporation of the parent, holding corporation, and the stated capital of the amalgamated corporation is to be the same as that of the amalgamating parent, holding corporation.

21 Saskatchewan: Bar Admission Program 15 In a horizontal, short form amalgamation, the shares of all but one of the wholly-owned subsidiary corporations of the same parent, holding corporation are to be cancelled without any repayment of capital. The Articles of Amalgamation shall be the same as the Articles of Incorporation of the amalgamating subsidiary whose shares are not cancelled. The stated capital of the amalgamating subsidiaries whose shares are cancelled is to be added to the stated capital of the amalgamating subsidiary whose shares are not cancelled. After approval of either a long form or short form amalgamation, section 179 provides that Articles of Amalgamation in prescribed form shall be sent to the Branch Director, together with a new Notice of Directors and Registered Office. Section 179(2) requires that there be filed with the Articles of Amalgamation, a statutory declaration of a director or officer of each of the amalgamating corporations establishing to the satisfaction of the Branch Director that the solvency tests will not be breached as a result of the amalgamation, and that there are reasonable grounds for believing either that no creditor will be prejudiced by the amalgamation, or that adequate notice has been given to all known creditors of the amalgamating corporation and no creditor objects to the amalgamation otherwise than on grounds that are frivolous or vexatious. This statutory declaration is an important part of the amalgamation package, and special attention has to be focused on its preparation and, in particular, whether the declaration can simply be given to the effect that no creditor will be prejudiced by the amalgamation, or alternatively, whether notice of the amalgamation should be published. Section 179(3) sets out the requirements for providing adequate notice, stating that notice is to be sent to each known creditor having a claim against the corporation that exceeds $1,000, and that the notice is to be published once in a newspaper published or distributed in the place where the corporation has its registered office and reasonable notice is to be given in each province in Canada where the corporation carries on business. If any doubt exists as to whether an officer of the corporation can give the statutory declaration simply that no creditors will be prejudiced, it will be advisable to proceed with the formal procedure of giving notice to creditors.

22 16 Saskatchewan: Bar Admission Program Once the Branch Director has received Articles of Amalgamation and the statutory declaration referred to above, he/she will issue a Certificate of Amalgamation, and it is on the date shown in the Certificate that the amalgamation becomes effective. Please see the precedent materials for "Amalgamations" (pages P-25 to P-42) for samples of some of the amalgamation documentation referred to above. Forms set out in the Act and/or the Regulations can be found at V. SALE OF ALL OR SUBSTANTIALLY ALL OF A CORPORATION'S PROPERTY As the directors of a corporation are charged with the responsibility of directing the management of the business and affairs of the corporation, situations may arise where the directors believe it is in the best interests of the corporation to alter the operations of the business in a seemingly fundamental way, by making an extra-ordinary disposition of corporate assets. However, a question may arise as to whether it is within the authority of directors to make such an important decision without the prior approval of the shareholders due to the provisions of section 183 of the Act, and the advice of a solicitor may need to be sought. Section 183(2) provides that a sale, lease or exchange of all or substantially all the property of a corporation other than in the ordinary course of business of the corporation requires the approval of the shareholders in accordance with the procedure set out within section 183. As the disposition of all or substantially all of the corporation's property would amount to a fundamental change, the voting procedure set out in section 183 affords the shareholders special rights such as: (a) the right to receive notice of the meeting which includes or is accompanied by a copy or summary of the agreement of sale, lease or exchange and which outlines the shareholders right to dissent and be paid a fair value for the shares held;

23 Saskatchewan: Bar Admission Program 17 (b) (c) (d) the right of non-voting shares to vote on the proposed disposition decision; the right of classes or series of shares to vote separately if affected by the disposition in a manner different from the shares of another class or series; and the right to approve the disposition by special resolution. The phrase "all or substantially all of the property of a corporation" is not defined in the Act, but rather is subject to judicial interpretation. Therefore, prudent directors who are unsure as to whether the corporate assets proposed to be sold would fall under this definition may want to seek the advice of a solicitor prior to proceeding with the disposition. If the directors do not obtain the approval of shareholders before proceeding with the transaction, a shareholder who believes that the disposition falls under the definition may file a dissent, and bring an application under section 184(16) to have the court fix the fair value for the shares of the dissenting shareholder. Accordingly, in order for a solicitor to provide a client with competent advice with respect to this issue, an awareness of the judicial decisions in Saskatchewan which have interpreted the phrase "all or substantially all the property of a corporation" is essential. In Holdings Ltd. v. Fayerman Brothers Ltd. (1986), 46 Sask. R. 75, the Saskatchewan Court of Appeal had occasion to interpret the phrase "all or substantially all the property of a corporation". In this case, the directors of a wholesale-retail company carrying on a hardware business recommended to its shareholders at a properly constituted annual meeting that the company discontinue its business operations and proceed to sell its entire inventory in the normal manner, but not replace it. The resolution was passed by a majority of the shareholders. The respondent, a corporate shareholder of the appellant hardware store, objected to the resolution and requested that the appellant buy its shares, but was informed that the appellant was not prepared to do so. The respondent filed a notice of dissent pursuant to section 184(7) of the Act demanding payment of the fair value of its shares. The Saskatchewan Court of Appeal stated that the sole issue to be decided on appeal was whether the respondent was a dissenting shareholder. To arrive at this determination the Court considered two questions, as follows:

24 18 Saskatchewan: Bar Admission Program (a) (b) Is this a sale in the ordinary course of business? Is this a sale of all or substantially all of the appellant's property? In order to determine whether a sale is in the ordinary course of business, the Court stated that it is necessary to examine the actual operations of the corporation rather than how the corporation styled itself. The Court found that the appellant was an ongoing operation selling merchandise of a particular kind at both the retail and wholesale level. Although the resolution adopted by a majority of the shareholders contemplated the sale of all the appellant's inventory to its regular customers in the normal way, the Court held that such a sale was not in the ordinary course of the appellant's business. The Court stated that the distinguishing feature of the sale that brought it outside a sale in the ordinary course of the appellant's business was that the inventory sold was not to be replaced and therefore the sale was in the nature of a liquidation sale rather than a regular sale of inventory. In considering whether the sale of inventory was a sale of "all or substantially all of the property" of the appellant, the Court noted that the inventory amounted to 33% of the total value of the appellant's assets. However, the Court concluded that the sale of all of the inventory was a sale of substantially all of the appellant's assets because the sale would fundamentally change the nature of the appellant's business, and reduce the appellant from a retail-wholesale operation to a holding company. The Court reasoned that the question of whether a sale amounts to a sale of "substantially all of a corporation's property" must be decided on a qualitative basis rather than on a quantitative basis. The respondent was therefore found to be a dissenting shareholder within the meaning of section 184 and entitled to be paid the fair value for its shares. The Saskatchewan Court of Appeal once again had occasion to consider what constitutes a sale of "all or substantially all of a corporation's assets" in Martin v. Bourgault (F.P.) Industries Air Seeder Division Ltd. (1987), 62 Sask. R The appellant was a manufacturer of agricultural

25 Saskatchewan: Bar Admission Program 19 implements including air seeders and cultivators and operated out of two facilities it owned. The appellant decided to "divisionalize" its operations and sell all of its assets related to the manufacture of cultivators to a newly formed corporation, which would assume a proportionate share of the appellant's corporate debt. The appellant would change its name and operate out of one facility devoted solely to the manufacture of air seeders, while the new company would manufacture cultivators out of the other facility. At the time of the transaction, the assets transferred to the new company represented 55% of the value of the assets of the appellant and accounted for 57% of the appellant's total yearly sales. The appellant did not seek the approval of its shareholders prior to executing the transaction. The respondent shareholder filed a dissent and brought a motion under section 184 to have the Court fix the fair value of his shares to be purchased by the appellant, on the basis that the transaction amounted to a sale of all or substantially all of the assets of the appellant. The Saskatchewan Court of Appeal concluded that the sale of the assets relating to the manufacture of cultivators was not in the ordinary course of the appellant's business but concluded that the transaction did not constitute a sale of substantially all of the appellant's assets. The Court reviewed its previous decision in Holdings Ltd. v. Fayerman Brothers Limited, and the cases cited therein, and stated that the common feature of all those cases which found a sale of all or substantially all of a corporation's assets was that the assets sold, despite accounting for only a small percentage of the corporation's total assets, were operating assets. The Court stated that the effect of the sale of operating assets in those cases was to fundamentally change the nature of the company from an operating company to a holding company, and therefore destroy its ability to carry on its main business. The Court proceeded to distinguish these cases on the basis that the sale by the appellant did not destroy the appellant's ability to carry on business in substantially the same manner as it had done before the sale. The Court, however, adopted its previous reasoning that a qualitative assessment should be made when determining whether a transaction amounts to a sale of all or substantially all of a corporation's assets. The Court, therefore, held that the respondent was not a dissenting shareholder within the meaning of section 184 of the Act.

26 20 Saskatchewan: Bar Admission Program Accordingly, in advising clients with respect to whether a sale constitutes a sale of all or substantially all of the assets of a corporation, a lawyer should be cognizant of the fact that it is not the value of the assets in relation to the total assets of the company that is important, but rather it is the significance the assets sold to the corporation's ability to continue carrying on business in the same manner as it had done prior to the sale. VI. STRIKING CORPORATE NAME OFF THE REGISTER AND RESTORATION Section 262 of the Act requires every corporation carrying on business in Saskatchewan to be registered under the Act. The Branch Director maintains a register of corporations pursuant to section 282 which lists the names of all the corporations that may lawfully conduct business in Saskatchewan. Section 290(1) enumerates the circumstances under which a corporation may have its name struck from the register of corporations. The most common circumstances for striking the name of a corporation from the register are where: (a) (b) (c) the Branch Director does not receive a return, notice or other document or prescribed fee required by the Act; the corporation gives notice to the Branch Director that it has ceased to carry on business in Saskatchewan; the corporation is not entitled to carry on business under the act of incorporation of the jurisdiction in which it was incorporated; (d) the corporation is issued a Certificate of Discontinuance pursuant to section 182; (e) (f) the corporation is dissolved; or the corporation is amalgamated with one or more other corporations.

27 Saskatchewan: Bar Admission Program 21 Before striking a corporation off the register, the Branch Director will send notice to the corporation advising the corporation of the default under section 290(1) and stating that unless the default is remedied within 30 days after the date of the notice, the name of the corporation will be struck off the register. If the corporation does not cure the default within the time mentioned in the notice, the Branch Director may strike the name off the register and publish notice thereof in the Saskatchewan Gazette. Once a corporation is struck off the register, it may suffer a number of disabilities. Section 275(1) provides that a corporation that is not registered under the Act cannot sue or maintain an action or other proceedings in respect of a contract it made in Saskatchewan. However, it is important to note that if a corporation subsequently becomes registered, it is deemed to have had the capacity to maintain an action on contracts in Saskatchewan ab initio and throughout the proceedings. Therefore, restoring a corporation to the register may simply be a condition precedent that must be done in order to allow a corporation to bring an action in Saskatchewan. Also note that this restriction does not apply to a federally incorporated corporation. (See section 275(3) of the Act.) Further, an unregistered corporation that carries on business in Saskatchewan under a name, part of which is "Limited", "Incorporated", "Corporation", "Ltd.", "Inc." or "Corp." is guilty of an offence under section 299 of the Act and liable on summary conviction to a fine of $5,000. The standard for being found to be "carrying on business" in Saskatchewan, as outlined in section 262, is very easily met and includes such things as: having a telephone number listed in a directory issued by Saskatchewan Telecommunications; holding any title, estate or interest in land; having a resident agent or representative or maintaining an office, warehouse or place of business in Saskatchewan; as well as the catch-all phrase "otherwise carrying on business in Saskatchewan". Finally, section 205 states that a corporation that does not restore its name to the register within two years after the date on which it was struck off under section 290 may be dissolved by the Branch Director. However, reliance on the Branch Director to dissolve a corporation under section 205 is

28 22 Saskatchewan: Bar Admission Program probably not prudent, given the potential for fines if found to be carrying on business in Saskatchewan and the availability of summary procedures for dissolution under section 203. Of particular importance to a corporation that is struck off the register is section 291, which provides that the liability of the corporation and every director, officer and shareholder of the corporation continues and may be enforced as if the name of the corporation had not been struck off the register. The courts in Saskatchewan have made it clear that a lack of registration alone does not dissolve a corporation, nor do the disabilities it suffers from being struck off the register relieve the corporation from its obligations and liabilities to file income tax returns or goods and services tax returns. (See: R. v. Chilton Insurance and Consulting Inc. and Chilton (1995), 138 Sask. R. 308 (Q.B.); and R. v. Rasmussen and Saskatoon Salvage Co. (1985) Ltd. (1995), 130 Sask. R. 308 (Prov. Ct.).) Section 290(5) provides that a corporate name that has been struck off the register may be restored simply by filing with the Branch Director an Application to Restore Name to the Register (Form 25) along with the prescribed fee. The Branch Director may then issue a Certificate in a form adapted to the circumstances. VII. DISSOLUTIONS Perhaps the most fundamental corporate change affecting a corporation is the termination of its corporate existence, and matters in this regard are subject to the provisions of sections 201 to 221 of the Act. Discussion of this topic will focus on the procedures to be followed for summary dissolution as outlined in sections 203 and 205 of the Act, with reference being made to the extensive provisions in section 204. The simplest type of dissolution is made available to a corporation that has not issued any shares. In this situation, section 203(1) provides that a corporation may be dissolved at any time by