Why corporations cannot ignore the Forfeited Corporate Property Act
The Forfeited Corporate Property law affects all corporations in Ontario. What does it mean for your corporation’s operation and finances?
Avoid hefty fines, total loss of property, and other financial implications
On December 10, 2016, the Forfeited Corporate Property Act 2015 (the “FCPA”) came into force in Ontario. This statute addressed what happens to property that is not distributed by an Ontario Corporation prior to its dissolution and made related amendments to several provisions of the Business Corporations Act (Ontario) (the “OBCA”), the Corporations Act (Ontario) (the “OCA”), and the Ontario Not-For Profit Corporations Act (the “ONCA”).
These amendments require all OBCA corporations to maintain a register of ownership interests in land in Ontario, with non-compliance carrying harsh penalties.
What does the FCPA mean to you?
The FCPA has changed how your corporation’s personal and real property records should be maintained, and what can happen should you dissolve your corporation. In short, the legislation:
- Impacts your ability to recover property from a dissolved company;
- Establishes extra record-keeping requirements; and,
- Imposes hefty fines for non-compliance (along with other implications).
The impact on your ability to recover forfeited property
The FCPA enforced new ways for the Crown to deal with forfeited corporate property by creating new timelines for owners to revive corporations and recover their assets.
The dissolution of a corporation means that any real property the corporation owned is forfeited to the Crown. Prior to the enforcement of the FCPA, if you dissolved your corporation, you had 20 years to revive it and recover your property. While the dissolved corporation can still be revived within 20 years from dissolution, you must now apply to revive the corporation within THREE YEARS OF DISSOLUTION in order to recover property from a revived corporation.
Further, the FCPA provides that any personal property situated in or under the forfeited real property is also forfeited to the Crown, regardless of ownership.
Your new record-keeping requirements
The new record-keeping requirements under the FCPA are that you must keep records of all property in which you have an ownership interest at the registered address of the corporation.
As such, these records must now include beneficial and registered ownership in land in Ontario, and land on which your corporation holds a charge or mortgage.
Who does the record-keeping requirements apply to?
When the FCPA was enacted, the new record-keeping requirements applied immediately to OBCA corporations incorporated after December 10, 2016. Since December 10, 2018, it has applied to all corporations in Ontario.
Regardless the age of your corporation, you should now record all your property.
What information must be recorded?
The new property records under the FCPA must identify each property individually, and show the date on which your corporation acquired the property (and disposed of it, if it has been sold). Additionally, the register should contain copies of deeds, transfers, and other supporting documents.
In this register, you will need to record:
- the municipal address (if any);
- the registry or land title division and property identifier number (the “PIN”);
- the legal description; and,
- the assessment roll number (if any).
For tips on record-keeping, read my article “What is a minute book?”
What could happen if you aren’t complying with the new law?
If your corporation has yet to compile a register of ownership of real property in Ontario, you are in breach of the law, which could lead to heavy fines.
Penalties for non-compliance with these record-keeping requirements are fines of up to $25,000, including fines ranging from $100 to a maximum $5,000 per day if you fail to provide the Crown with any information about a forfeited property upon request.
There are, however, further implications with non-compliance. It is probable that any loans you have contain covenants, representations, and warranties that make the loan reliant on compliance with all laws that apply to you. Hence, if you do not compile and maintain a register of your properties, you could be in breach of your loan agreement. In this case, your lawyer will not be able to provide a legal opinion to your lender.
Thus, not only could non-compliance lead to a heavy fine, but it could also impede your plans to grow and invest by inhibiting your ability to borrow for your corporation.
What should your corporation do?
On its face, the enactment of the FCPA has made it easier for the Crown to either use or sell property and assets of dissolved companies by shortening the 20-year wait period to benefit from forfeited property.
However, corporations now have extra record-keeping requirements. The impact will depend on the type of corporation and its property dealings. For example, a real estate developer must now keep full records of all its purchases and sales.
Corporations are also affected by the requirement to remain in compliance of all applicable laws imposed by most lenders.
Finally, for those corporation owners who dissolved a company and are considering reviving it, there is now a need to do so within three years to recover forfeited property. Past this date, the revived company may not be the one you thought you were recovering.
Whether your corporation is solvent and thriving, facing dissolution, or you plan to revive a dissolved corporation, it is crucial that you receive legal advice with regards to the Forfeited Corporate Property Act, 2015.
For the advice you need to avoid the perils of this new business law, contact me today.