Law Times

LaW TIMeS • NOVeMBeR 9, 2015 Page 7 www.lawtimesnews.com COMMENT Proclamation of Not-for-Profit Corporations Act an urgent priority BY THERESA MAN For Law Times fter waiting more than a year following the death of bill 85 in May 2014, the not- for-profit sector was happy to hear the Min- istry of Government and Consumer Services announce in September an update on the implementa- tion date for the Ontario Not-for-Profit Corporations Act. The disappointing news, however, was that the act would not come into effect for at least another two years. The ministry announced the act would not come into force until two things have happened: first, the legislature has passed technical amendments to the act and related legislation; and, second, the ministry has upgraded tech- nology to support the changes and improve service de- livery. The ministry further announced that the "govern- ment is fully committed to bringing [the act] into force at the earliest opportunity and will provide the sector with at least 24 months' notice before proclamation." Once the legislature proclaims the act, existing Part III not-for-profit corporations under the Corpora- tions Act will have three years to transition under the new legislation. The government has not introduced a new bill to replace bill 85. The ministry has not indicated what will be in the new bill, including whether it will be the same as bill 85, will contain the same changes as well as additional measures or will be completely different from that legislation. The ministry did not clarify when the 24 months' notice will start to run. If the 24-month notice were to start running now, the act would not be proclaimed until 2017. On the other hand, if the 24-month notice were to start running after the amendments have been passed or tabled, then it would be at least 2018 before the act could be proclaimed. Factoring in the three-year transition period after proclamation, it would be more than a decade before the Ontario not-for-profit corporations would fully im- plement the act. By then, one wonders whether the rules in the act, made in light of the corporate landscape in 2010 (or as early as 2007 when the Ontario government started its consultation process to develop the rules in the act today), will be out of date and, therefore, require further changes to meet the needs of Ontario not-for- profit corporations. By way of comparison, the implementation of the Canada Not-for-profit Corporations Act was more ef- ficient. After enacting it in 2009, the government pro- claimed it on Oct. 17, 2011, and gave a deadline of Oct. 17, 2014, for federal not-for-profit corporations to transition under the new legislation. Although there are still some corporations that have not continued, most of them have already moved under the new legislative regime. Before the demise of bill 85 in May 2014, the govern- ment indicated it would not proclaim the act in force until at least six months after enacting it in order to al- low corporations to prepare for the transition. The gov- ernment then indicated it did not expect the act to come into force before 2016. With the Liberal party, which originally introduced the act, winning the election in June 2014, the sector was happy to see Premier Kathleen Wynne's Sept. 25, 2014, mandate letter to the minister, David Orazietti, indicating that the implementation of the act was a priority. The recent announcement of the further delay is very disappointing to the sector. Ontario's not-for-profit corporations have been in corporate limbo since 2010 as they've had to make the difficult decision on whether to update their objects and bylaws to further their mission or wait for proc- lamation of the act before making those changes. The problem with waiting is that they do not know how long the wait might be. On the other hand, the prob- lem with updating the bylaws first is they would have to make those updates under the rules in the current Corporations Act and they may have to update them again after proclamation. In light of the recently an- nounced delay, corporations wanting to amend their bylaws or update their corporate objects should pro- ceed to do so under the current Corporations Act since there is no way of telling with certainty when the government will proclaim the act. Another concern created by the delay is that a number of not-for-profit corporations have al- ready taken steps to start transitioning under the act, such as adopting complex bylaws with provi- sions that would kick in upon proclamation. While working with such bylaws for a short period may be workable on a temporary basis, having to continue in this manner for a long time may not be desirable. Nevertheless, corporations that would like to col- lapse their membership classes to address concerns about membership rights entrenched in the act will have more time to amend their bylaws prior to proclamation. Under the act, if a corporation has two or more classes of mem- bers, members of separate classes (regardless of whether the class is voting or non-voting) can vote separately by class in relation to amending the articles to change the membership class structure or membership rights or making certain fundamental changes (such as amalga- mation). Each class (including non-voting members) will have a de facto veto right for these matters. Class voting rights will kick in upon proclamation. If a corporation wants to collapse its multiple membership structure with- out needing to obtain class approval for such a change, it will need to amend its bylaws before proclamation. Having the act proclaimed as early as possible is certainly a priority for the sector. Knowing a defini- tive proclamation date as early as possible would allow not-for-profit corporations to strategically plan for their transition and other governance updates. Hope- fully, the government will move forward with tabling a new bill and then proceed with proclamation of the act as soon as possible. If upgrading ministry technology to support elec- tronic filing of documents under the act is an issue, it would be better for the sector to proclaim the act sooner rather than later while continuing to use paper filings after proclamation followed by gradually phas- ing in the implementation of the computerized system once it is ready. LT A partner at Carters PC, Theresa Man practises in the area of charity and not-for-profit law. She is also co-author of Corporate and Practice Manual for Charitable and Not-for-Profit Corporations, published by Carswell. u SPEAKER'S CORNER Trudeau's political pipe dreams butt up against provincial realities hen Prime Minister Justin Trudeau starts discussions with the provinces about le- galizing marijuana and the initial haze of smoke clears, a lot of people will be quickly disillusioned as the reality of the process ahead dawns on them. A couple of criminal lawyers I've chatted with laugh when they tell me clients have al- ready called to ask if the court will drop their charges now that the Liberals have a major- ity in Ottawa. The answer is no, of course. Moving pot off the Controlled Drugs and Substances Act opens up a Pandora's box of thorny legal issues at both the federal and provincial levels. Ontario Premier Kathleen Wynne has been neutral for good reason because the province will bear the greater burden of en- forcement when the system starts treating possession of pot like alcohol or tobacco. There are a myriad of questions: How much marijuana is personal and how much constitutes trafficking? Would it remain a Criminal Code offence or would the law treat it like open liquor in a public place? Then there's the question of how to deal with drivers impaired by the drug. Ontario has a blood alcohol limit of .05 per cent above and beyond the Criminal Code's level of .08, but how will we intercept and prove what drivers have ingested? While there are specially trained police officers acting as drug recognition evalua- tors to administer a series of tests much like the field sobriety test, it's not always practi- cal. A breathalyzer would be preferable, and while companies such as Cannabix Technologies Inc. are working on it, the challenges are palpable in that it only detects usage rather than impairment and there's no fixed metric to gauge pot intoxication. Using the drug in the workplace is another issue. How will the Occupational Health and Safety Act deal with the issue? How will su- pervisors challenge and test for the drug? There's also going to be some impact on health-care costs, although there's an argu- ment that savings from enforcement, pros- ecution, and incarceration will offset some of those additional expenses. In the United States, we have the laugh- able standoff where states have authorized marijuana sales but the federal government, which controls banking, deems it a criminal offence and thus bars financial institutions from handling retailers' deposits. How will it play out as a cross-border issue? Might U.S. authorities seize the assets of those in the legitimate Canadian drug trade on the grounds of money laundering? Then there are the logistical issues, such as how to secure a growing, processing, distribution, and retail supply chain. While there are 26 licensed medical growers in Canada, it's hard to imagine they can supply millions of users. Where will people get their weed? Will they get it from pharmacies, the LCBO or specially licensed and regulated outlets? The supply chain has to be secure from start to finish in order to generate tax revenues and ensure control. Cash, of course, is the pot of gold under the rainbow for the provinces and the federal government. Whatever re- gime emerges, however, it will be competing against an es- tablished and highly efficient black market. We only need to look at the smoke shacks across Ontario and the pa- thetic attempts to enforce tobacco taxes to get a sense of how it might play out. It's no coincidence that marijuana is a staple among the 175 odd organized crime groups running contraband tobac- co, cocaine, and guns. A federal report last summer noted one of the biggest money- laundering threats to the nation comes from tobacco smuggling and trafficking through Mohawk First Nation reserves straddling the Quebec, Ontario, and New York borders. "Given the profitable na- ture of the illicit tobacco trade, there is significant organized crime involvement in the smuggling and trafficking of illicit tobacco across the Canada-U.S. border," according to a report that suggested the groups involved are "some of the most so- phisticated and threatening in Canada." Against this backdrop, Ontario has long tried to stem the distribution of illegal ciga- rettes and has recently increased taxes and bumped up parts of the Ontario Tobacco Tax Act. Like marijuana, the law says simple possession of untaxed tobacco is illegal and goes further by allowing for warrantless search, seizure, and charge. And what has this wrought in enforce- ment? There hasn't been much, according to Toby Barrett, the Haldimand-Norfolk MPP whose riding encompasses much of Canada's tobacco country. "They don't have the expertise or under- stand the industry," he says. "What's hap- pening now is that tobacco is being made into cigarettes here by First Nations and ending in Mexico, Guatemala, and Costa Rica. It's worrying because you know the drug cartels are operating down there and you've seen the violence and you wonder how it's going to play out if it comes up here." First Nations tobacco players have a lot of money and have taken over that industry, costing Ontario alone up to $1.1 billion in lost taxes in 2011. Some 35 per cent of ciga- rettes sold in Ontario in 2014 were illicit, ac- cording to the National Coalition Against Contraband Tobacco. With their established business in drugs and guns, organized crime groups won't find it much of a stretch to up their interest in marijuana growing and distribution be- cause they know there's little Ontario will do to stop them. LT Ian Harvey has been a journalist for more than 35 years writing about a diverse range of issues including legal and political affairs. His e-mail address is ianharvey@rogers.com. A W Queen's Park Ian Harvey

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