Section 42 of the Alberta Business Corporations Act (as it was at the time of the writing of this report) made it illegal for a corporation to provide financial assistance to:
– a shareholder or director of that corporation or an affiliated corporation;
– an associate of any or the above; or
– a purchaser of shares of that corporation or an affiliated corporation
if that corporation was not “solvent” as defined by the ABCA.
The report relates complaints about this section, namely that the insolvency formula was difficult to resolve, and that it prevented corporations from providing financial assistance necessary and beneficial to the corporation itself. The report investigates whether repealing s 42 of the ABCA would reduce the ability of shareholders or creditors to bring actions on behalf of the corporation (so-called “derivative actions”) or on their own behalf (“personal oppression actions”) when damaged by financial assistance actions.
The report concludes that repealing s 42 would not be damaging to shareholders or creditors, and recommends that:
– the requirements for disclosure of financial assistance then found in s 42(2) be incorporated into s 149 of the Act (as it was).
– non-distributing corporations be required to give 90 days notice before giving financial assistance to any of the first two sets of groups mentioned above.
– Alberta’s Securities legislation be amended to regulate the giving of improper financial assistance to those purchasing shares of a distributing company; and
– s 231 of the Act be amended to include a creditor as a complainant who may initiate a derivative action on behalf of the corporation if the ruling in First Edmonton Place Limited v 315888 Alberta Ltd. and Majeski (1987), 54 Alta LR (2d) 289, (QB) was overturned.