Outdated laws such as the Bulk Sales Act may soon be history if the Ontario government moves on a set of proposals to reform Ontario’s business legislation that many lawyers say are long overdue.
“Most of this stuff is catch-up and coming into the 21st century late to the party,” says Dan Rothberg of Basman Smith LLP of the report released earlier this month by the Ministry of Government and Consumer Services.
“I wouldn’t say it’s making us more competitive; it’s taking away some of the barriers that made us less competitive.”
The report originated from the 2015-16 provincial budget in which the government announced it would take another look at Ontario’s business law statutes. Several members of the Ontario Bar Association took part in the panel that prepared the report.
The paper conceded that “a comprehensive review of business legislation to ensure that Ontario is competitive hasn’t been done for some time” while noting at the same time that the province “is facing both opportunities and challenges as the economy shifts” and that “a responsive legal framework is key to its ability to succeed.”
The province’s business regulations lag those of other jurisdictions just as companies find themselves facing stiffer international competition in North American markets, according to the report.
The report’s recommendations fall under five main themes: establishing a process to keep corporate and commercial law current; making Ontario a jurisdiction of choice for business; supporting greater market certainty and confidence in market transactions; modernizing laws relating to secured lending and other commercial activity; and facilitating market activity and promoting small-business growth through greater certainty, clarity, and efficiency in business legislation.
Among the recommendations likely to have the most impact, lawyers say, are proposals to eliminate Canadian residency requirements for boards of directors.
If the government adopts that proposal, more multinational corporations will likely set up Canadian subsidiaries in Ontario rather than formally incorporating in places such as New Brunswick and British Columbia that don’t have that requirement, says Graham Erion of DLA Piper (Canada) LLP.
Another proposal would allow the incorporation of unlimited- liability corporations in Ontario, something that would be “really helpful from a tax-structuring perspective for foreign companies who want to establish a business presence here or at least have some assets here,” says Erion.
Another potential “game-changer,” says Erion, is a proposal to expand the availability of limited-liability partnerships beyond professionals such as lawyers and accountants.
Engineers, architects, and dentists, for example, may find the limited-liability partnership model attractive.
The proposed changes aren’t likely to affect the organization of law firms specifically, says Erion, although allowing new types of corporations is likely to mean more work for lawyers. “I think there’s going to be a lot of business opportunities there for lawyers as some of these structures — the ULC structure, the LLP structure — become more widely available,” he says. “This is going to be good for the legal profession as a whole.”
In general, he says, the reduced complexity that should result from the proposals should make life better for businesses and their lawyers. “A lot of this legislation nobody really looks at,” he says. “So I just think it’s timely, I think it’s exciting, and I think it’s going to provide a lot of clarity for businesses and for counsel once this stuff gets cleaned up a little bit.”
Something that’s particularly overdue, according to lawyers, is a proposal to repeal the Bulk Sales Act, a piece of legislation dating back to 1917 aimed at protecting creditors from companies selling all or most of their assets quickly without paying them back. “I think we’re the only jurisdiction in North America left with such legislation,” says Rothberg. “It’s archaic.”
Another proposal suggests lifting a provision that directors must provide their formal consent in advance for participants to attend a meeting by phone or other electronic means, something Erion calls a “ridiculous” requirement.
It’s lamentable, says Rothberg, that the mandate of the panel wasn’t wider since the change Ontario business really needs requires a collaborative effort across ministries. “It’s being done in a vacuum so that it doesn’t really talk about big-picture issues,” he says, referring to Ontario’s corporate and small-business tax rates.
“Nobody has even considered that within this mandate and we’re certainly not the most competitive province.
Our small-business rate is at the high end of the country,” he says.
Laws around the province’s mining industry also need an update, says Rothberg.
Bill Northcote, chairman of Shibley Righton LLP’s business law practice group, agrees the government should be going further than simply trying to keep pace with other jurisdictions. “Ontario is in a catch-up stage of its legislation rather than leading change,” he says. “I would have liked to have seen the government be a little bit more innovative than they are.”
For example, he says, British Columbia and many U.S. states now allow benefit corporations intended to achieve a public purpose, such as alleviating poverty or protecting the environment. Clothing manufacturer Patagonia Inc. is one such corporation, he says. Ontario legislation, however, doesn’t include them.
The ministry will be accepting feedback on the report until Oct. 6. Meanwhile, the OBA is planning to host a business law reform summit on Oct. 8 aimed at getting opinions from lawyers, business leaders, and the government.