TELEMARK • Volume 19 • Issue 4 • April 2014

News

The 2014 Marque d’or Corporate Law Conference starts touring in May!

NEWS


The 2014 Marque d’or Corporate Law Conference starts touring in May!

True to our tradition and to respond to an interest that doesn’t diminish, we are pleased to announce the return of our popular annual conference. Me Marc Guenette will start touring on May 9.

Again, the tour will take us to the four corners of Quebec.

For more details and to register, please click on the following link: https://www.netco.net/invitations/invitationsConferences.html?action=intro

An event not to be missed!

Special offer

Due to popular demand, the special promotion "pay nothing for your constitution" is back!

From March 1 to April 30, 2014, when you purchase its minute book and proceed with its organizational proceedings, you don’t pay our constitution fees for your corporation using our online portal www.netco.net.

NEWS


Protecting Québec corporations headquarters



In June 2013, the Quebec government created the Task Force on the Protection of Québec Businesses (TFPQB). Their mandate was to recommend measures to encourage developing and maintaining corporate headquarters in Québec and to protect Québec businesses against unsolicited take-overs (UTO). The TFPQB’s report was released to the public on February 20, 2014, at the release of the 2014-2015 Québec government budget. Reminding us of the importance of Québec corporate headquarters, the report contains various recommendations for the protection of Québec businesses.





Importance and vulnerability of headquarters

In 2011, there were over 578 corporate headquarters in Québec, which generated over 5 billion dollars. More than 400 headquarters are located in the Montreal area and employ directly over 42,000 persons. They also contribute significantly to the economic and social life, since they attract a large selection of professional services. They contribute to the increase of commercial real estate, the development of catering and accommodations and they provide an important participation to the charity and cultural sectors. They are of capital importance for the well-being and prosperity of Québécois.

However, they are vulnerable to unsolicited take-overs (UTO). Indeed, most of the corporations with Québec headquarters are listed on the stock exchange. They are exposed to public take-overs, enticing for shareholders on a short term basis but that would provoke important economic losses for Québec.

Recommendations from the TFPQB

The TFPQB report contains various recommendations, some regarding the Québec Business Corporations Act, others concerning the securities regulating organizations and others regarding tax measures.

Recommendations regarding the QBCA

The purpose of the recommendations of the TFPQB is to provide tools for shareholders with long term interests and boards of directors of corporations governed by the QBCA to make decisions they consider being in the best long term interest of the corporation. The TFPQB recommends to introduce in the QBCA provisions for a “variable voting right”, i.e. a voting right based upon the duration of the shareholding. This variable voting right could be included in the articles of the corporation and withdrawn at any time by special resolution of the shareholders.

The second measure regarding the QBCA recommended by the TFPQB is to include provisions providing various operations for corporations subject to an unsolicited public offer, unless the approval of the board of directors of the target corporation is obtained. The principal measures suggested are as follows:

  • A 5 year restriction regarding amalgamations or other grouping of assets
  • A remittance of profits realized upon resale of securities
  • Restrictions on the removal from office of a director before the end of his term
  • Restriction on the exercise of the right to vote

 

This second measure could be inserted in the articles of the corporation and withdrawn at any time by special resolution of the shareholders.

These measures only concern corporations governed by the QBCA and do not affect corporations governed by the Canada Business Corporations Act or by statutes of other jurisdictions. They could also, as proposed by the TFPQB, be extended to issuers governed by the Civil Code of Québec, such as trusts.

Recommendations regarding Securities Regulators

The TFPQB recommends the proposals of the Autorité des marches financiers in its consultation document published March 14, 2013 regarding legislative and regulation measures concerning UPOs. It also recommends transforming the Bureau de décision et de révision into an administrative tribunal specialized in securities. The purpose of these recommendations is to enable boards of directors to fully exercise their fiduciary duties.

Fiscal recommendations

The TFPQB favors tax amendments in order to make the Québec taxation system more competitive so that headquarters will remain in Québec. Four measures are stated in the report.

a) To encourage purchase of shares by employees

This measure obviously develops the sense of belonging of employees. It also allows, in certain cases, for constituting blocks of shareholding, which may make more difficult an unsolicited take-over bid. The TFPQB recommends deferring tax to the time of sale of the shares rather than the time of acquisition thereof.

b) Stock options

Stock options are an important part of the remuneration of officers of corporations. The TFPQB recommends a competitive tax rate of capital gain.

c) Capital gain upon death

Taxation usually applies to capital gain resulting from the deemed dispositions of the shares of a deceased shareholder. The TFPQB recommends that the taxation usually due upon the death of the owner or of the important founding-shareholder be deferred to the time of transmission of ownership of the shares to another generation. This measure would prevent the premature sale of the control shares by the estate. Moreover, with respect to family trusts, the TFPQB recommends deferring the realization of capital gain to the time of the sale instead of every 21 years, as long as the business remains active.

d) Québec investment funds

The TFPQB also recommends to implement legislative and regulatory measures to promote financial and operational participation of the Québec investment funds in order to facilitate transmission of Québec corporations to the next generation.

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JURISPRUDENCE


The absence of a share certificate is not decisive to deny the status of shareholder

Côté v. Côté, 2014 QCCA 388





Jacques Côté, son of Donald Côté, alleges being a 51% shareholder of 9068-3772 Québec inc. In 2007, he files for an oppression remedy and alleges that his father unjustly expelled him from the corporation in July 2006. He seeks various orders and asks the redemption of his shares for an amount of approximately $250,000.

In December 2011, the Superior Court dismisses his action on the grounds that he did not discharge his burden to prove his status as a shareholder. Mr. Côté (son) appeals the decision.

The corporate book does not show any resolution pertaining to the shareholding of Mr. Côté nor any share certificate. His name appears on the register of shareholders and an amending declaration was filed with the Enterprise Registrar.

The Court of Appeal reverses the decision. It indicates that the existence of a share certificate is not necessary an imperative condition to recognize the status of shareholder. The certificate and the share are not to be confused. The incomplete, unreliable and possibly altered character of the minute book did not justify the trial judge in granting a decisive importance to the absence of a share certificate or of a resolution confirming the status of Mr. Côté as a shareholder. The documentary evidence in the file was important and confirmed Mr. Côté’s position.

Read the full text of the decision (in French) in La référence: EYB 2013-233834



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The Court grants a permanent injunction enjoining defendants from using the word “Autopneu”

Service de pneus Auclair inc. v. 9129-7515 Québec inc., 2014 QCSC 468





Service de pneus Auclair inc. (Auclair) and Les pneus R.Q.M. inc. (R.Q.M.) are asking the Superior Court to issue a permanent injunction enjoining the defendant corporations from using the word “Autopneu”. They are also asking for damages.

Auclair and R.Q.M. have been using the name « Autopneu » since 1989 and the « Autopneu » trademark was registered in 2009 with the Canadian Intellectual Property Office. They have filed proceedings with the Enterprise Registrar and the Québec Administrative Court and obtained decisions forcing Autopneu inc. to change its name. The latter is now using the name “Regroupement d’achat des marchands indépendants de pneus” (Regroupement). However, some members of Regroupement continue to use the word “Autopneu” in their display and their advertising.

The Court indicates that the evidence reveal that the defendants use the trademark « Autopneu ». They have customers in common with Auclair and R.Q.M. and operate in the same area. The Court indicates that there are no proceedings before the Federal Court, so the trademark is deemed to be validly used. It grants Auclair the exclusive right everywhere in Canada.

The Court issues the injunction, orders payment of compensatory damages but refuses to grant punitive damages. Read the full text of the decision (in French) in La référence: EYB 2013-233338



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Is the deed of sale of the shares enforceable even if not signed by the vendor?

Dupré v. Grégoire, 2014 QCQC 480





Upon the constitution of the holding corporation Spa Bleu Gestion Internationale inc. (Gestion), plaintiff Josée Dupré subscribed 50,000 Class E shares for an amount of $1,00 per share. Three other shareholders also invested but their investment is not filed as evidence. Moreover, the accountant of the corporation considered the amounts as personal investments. Thereafter, an exchange of email indicates that Marie Grégoire accepted to purchase half the shares held by Ms. Dupré for an amount of $25,000, the other half being purchased by another person.

A buy and sell agreement was prepared by the notary and signed by Ms. Grégoire but not by Ms. Dupré. Resolutions of the board of directors were prepared to approve the transfer of the shares.

Ms. Dupré did not receive payment of the sales price and has undertaken proceedings against Ms. Grégoire. She is also claiming an 8% annual interest. Ms. Grégoire alleges that the deed of sale is subject to a verbal condition making it conditional to her obtaining reimbursement of her investment in the share capital of another corporation, condition that did not materialize due to the financial difficulties of that corporation. Ms. Grégoire also filed a cross demand where she is claiming damages for defamation, menaces and breaking and entering in her residence.

The Court must first determine if the deed of sale is valid and enforceable. It reminds that Article 1385 C.C.Q. clearly stipulates that the contract is formed by the sole exchange of consents of the parties. There is no doubt that the contract was formed by the exchange of emails filed in evidence. The absence of the vendor’s signature is not an obstacle to the validity of the agreement. The validity of the resolution is not contested. The Court concludes that Ms. Grégoire did not prove the existence of a suspensive condition.

The Court also addresses the issue of interests claimed by Ms. Dupré. There is no evidence supporting her allegations. Consequently, the Court grants legal interest and the additional indemnity of Article 1619 C.C.Q. The Court dismisses the cross demands, the allegations thereof not having been proved.

Read the full text of the decision (in French) in La référence: EYB 2013-232779



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Ratification by the corporation of a lease signed by the promoters does not cancel the personal guarantee of the shareholders

9149-6646 Québec inc. v. 9174-8848 Québec inc., 2014 QCSC 381



9149-6646 Québec inc. operates a bistrot, cheese and gourmet grocery under the name Délices des Nations (Délices). It offers Messrs. Schneider, Ostré and Schott to do business together to add products and to serve a different clientele. Messrs. Schneider, Ostré and Schott accept to sign a lease for space within the premises of Délices in the name and on behalf of a corporation to be created. They constitute 9174-8848 Québec inc. soon after the signature of the lease. This corporation operates under the name Tendances Gourmandes (Tendances). The lease is a handwritten document that stipulates that the directors (shareholders) are jointly and severally liable for the conditions of the lease and for all other debts and arrears, up to three months for the rent.

Business is difficult for Tendances. Mr. Schott withdraws from the business but does not sell his shares. Tendances finally leaves the premises before the expiry of the lease. Délices claims the unpaid rent and other amounts. Defendants rely on Article 319 C.C.Q. to disengage from their personal liability. Mr. Schott also alleges his withdrawal from the business.

The Court first addresses the various claims of Délices. Regarding the personal liability of the directors, it indicates that Article 319 C.C.Q. does not apply in this case. Although Tendances is substituted to the individuals with respect to the obligations as lessee, this substitution does not cancel the guaranty they have signed. With respect to Mr. Schott, the argument based on Article 2363 C.C.Q. cannot be held. The guaranty was related to his status of director and not to performance of special duties. The evidence does not indicate that he ceased to hold office as director of the corporation.

Read the full text of the decision (in French) in La référence: EYB 2013-233032



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