New provisions on escheats of corporate property should cause corporations to take notice
By David Lyons
On December 10, 2016, Bill 144, the Budget Measures Act, 2015, came into force. This Bill enacted several new statutes, including the Forfeited Corporate Property Act, 2015 ("FCPA") and the Escheats Act, 2015 (“EA”).
Collectively, this legislation addresses what happens to a company's forfeited property once it is dissolved. The Ontario Ministry of Finance stated the intended effect of this legislation is to:
- Mitigate risks to Ontario taxpayers that may arise when corporate property forfeits to and becomes Crown property when a company is dissolved.
- Reduce the number of corporate properties that are forfeited to the Crown.
- Increase corporate accountability for costs associated with forfeited corporate property.
- Increase transparency and certainty in the management and disposition of forfeited corporate property.
- Return forfeited property to productive use as quickly and efficiently as possible.1
This new legislation is an attempt to deal with an ongoing problem in corporate law – what to do with the property of a company that no longer exists at law. Keep in mind that a company is created pursuant to law and only exists so long as it legally conforms to applicable laws. An example is useful in this case. Let's say that you incorporated XYZ Co in 1978 and in 1979 that company bought a piece of real estate. The real estate sits in the company and the property continues to grow in value. Somewhere along the line you forget to make the necessary corporate or tax filings for XYZ Co and the government decides to cancel (dissolve) it. If things go according to plan, you should receive several notices or warnings of this with a chance to comply. However, if you didn't keep up your corporate records, then you might not get the notice. The notices go by and the company is dissolved. What happens next? In law, this is called an ‘escheat' and in Ontario any property held by a defunct company reverts to the Crown, subject to some opportunities to right this wrong (see below) – this is a big problem for any property owner.
However well-intentioned, this new legislation is burdensome. The legislation has the effect of amending many corporate Acts - the Ontario Business Corporations Act, the Corporations Act, and the Ontario Not-for-Profit Corporations Act (the "Corporate Acts") - by implementing a requirement to maintain an updated register of the company's ownership interest in land at its registered office or at another location determined by the directors. While there is a grace period of two years before the requirement comes into effect, it is advisable for companies that have ownership interests in many properties to have registers prepared as soon as possible.
The new FCPA and EA also introduce a new way for the Crown to manage and deal with forfeited corporate properties. The legislation establishes new timelines within which owners can revive companies and recover their assets. Until the introduction of the FCPA and EA, owners had 20 years from the date of dissolution to revive the company and recover their assets – by fixing the problem a company could virtually place itself in the same position it was before the dissolution. With the introduction of the new legislation, the timelines have changed. While the dissolved company can still be revived within 20 years from dissolution, it will not recover its assets if the revival takes place more than three years after the date of dissolution, subject to some exceptions. The legislation also provides that any personal property left in, on, or under forfeited real estate is also forfeited to the Crown, irrespective of ownership. After the three-year deadline, the Crown can use the forfeited property for Crown purposes, dispose of it, and delete or amend any encumbrances registered against the property from legal title (in the case of real estate) and under the Personal Property Security Act (in the case of personal property).
The enactment of the new legislation places the onus on directors and officers of companies to maintain updated property registers and will also make it more difficult to recover assets forfeited to the Crown in the event of dissolution. It is important that business owners come to terms with the new requirement to ensure their company complies since the stakes for companies that don't comply are now much higher.
1Amendments and Proposals in the Budget Measures Act, 2015. (2015, Nov 18). Retrieved from: https://news.ontario.ca/mof/en/2015/11/amendments-and-proposals-in-the-budget-measures-act-2015.html