Vol. 132, No. 30 — July 25, 1998

Canada Cooperatives Regulations

Statutory Authority

Canada Cooperatives Act

Sponsoring Department

Department of Industry

REGULATORY IMPACT
ANALYSIS STATEMENT

Description

The Canada Cooperatives Act (the "Coops Act") which received Royal Assent on March 31, 1998 replaces the Canada Cooperative Associations Act, R.S.C. 1970, c. C-40. The Coops Act modernizes the corporate governance rules relating to cooperatives and is largely modelled on the Canada Business Corporations Act, R.S., 1985, c. C-44 (the "CBCA").

While no regulations were enacted under the former Act, regulations are required under the Coops Act primarily because of the new provisions borrowed from the CBCA. Specifically, the Coops Act allows cooperatives to issue investment shares to non-members if authorized by members. It also permits cooperatives to constrain investment shares. Consequently, the proposed Coops Act Regulations are similar to the Canada Business Corporations Regulations SOR/79-316, as amended (the "CBCR").

The Regulations are divided into eight parts according to subject area.

Part 1, Electronic Transmission: This regulation establishes the regulatory framework for electronic transmission of documents, notices and other information for the purposes of the Act. This includes transmission of information by and to a cooperative. This regulation does not apply to documents or notices to be sent to or issued by the Director appointed under the Coops Act. Specifically, the regulations describe the conditions that must apply if information is to be transmitted electronically. For example, the recipient must ask or consent to receive the information electronically and the method chosen for sending it allows the recipient to access the information and to retain it in a permanent form.

The proposed regulations originally included provisions on electronic filing of documents required to be sent to, or issued by, the Director appointed under the Act. These regulations were identical to proposed regulations for electronic filing under the CBCA. Separate consultations were held with both Coops Act and CBCA stakeholders. While no substantive comments were received during the Coops Act consultation, several were received in the CBCA consultation. The result is that the electronic filing regulations are being redrafted. Rather than delay the passing of the regulations under the Coops Act, the electronic filing regulations have been removed. It is anticipated that they will become part of the Coops Act regulations at the same time that they become regulations under the CBCA. Concurrent consultations on the redrafted regulations will be held with both Coops Act and CBCA stakeholders as required.

Part 2, Corporate Names: The Coops Act does not allow cooperatives to be incorporated with names that are prohibited. These regulations describe names that are prohibited as cooperative names. For example, a proposed name that is confusing with an existing trade name or trade mark is prohibited.

Part 3, Proxies and Proxy Solicitation: These regulations establish the content and form of the proxy, and the content of the management proxy circular and the dissident's proxy circular required by the Coops Act to be sent to shareholders when soliciting proxies. Proxy documents must be sent to the investment shareholders before an investment shareholders' meeting and must be filed with the Director. Investment shareholders are holders of shares in the capital of a cooperative which are not membership shares. These documents must provide sufficient information to allow investment shareholders to make an informed decision at the meeting, must include the name of any director of the cooperative who intends to oppose any proposed action and must include the name of any person who controls, directly or indirectly, more than 10% of the voting investment shares.

Part 4, Financial Disclosure: These regulations list the financial statements that must be sent to members and shareholders and, if required, filed with the Director. The financial statements must at least include (a) a balance sheet, (b) a statement of retained earnings, (c) an income statement and (d) a statement of changes in financial position. They must also be prepared in accordance with the generally accepted accounting principles as set out in the Handbook of the Canadian Institute of Chartered Accountants.

Part 5, Constrained Share Cooperatives: The Coops Act permits cooperatives to constrain or restrict the issue, transfer or ownership of investment shares to persons who are not resident in Canada in order to comply with any prescribed law to receive a benefit, such as a licence, permit or grant. These regulations establish disclosure requirements, issue and transfer restrictions, and voting rights related to constrained investment shares. They also prescribe the laws under which a cooperative can constrain investment shares.

Part 6, Rules of Procedure for Applications for Exemptions: The Coops Act allows cooperatives and other interested parties to apply for an exemption from complying with certain provisions. For example, the Director can exempt a cooperative from sending a form of proxy and proxy circular to shareholders and can authorize a cooperative to dispense with an audit committee. The regulations set out the application procedure and the rights of the applicant.

Part 7, Prescribed Fees: Schedule I of the regulations sets out the prescribed fees related to any action that the Director is required or authorized to take under the Coops Act. These actions include: the issuance of certificates on receipt of articles of incorporation, amalgamation, amendment, etc.; the examination of applications for exemptions; and providing any person with a copy or certified copy of a document required by the Act or regulations to be filed with the Director. Fees are also prescribed for the filing of annual returns. Since the administrative responsibilities given to the Director under the Coops Act and the CBCA are similar, the processing of applications under the Coops Act require at least the same amount of resources as under the CBCA. For this reason, the fees to be prescribed under the Coops Act will be the same as those under the CBCA.

Part 8, Prescribed Interest: Under the Coops Act, the directors of the cooperative determine if payment to a dissenting member would adversely affect the financial well-being of the cooperative. In such cases, payment of the value of those members' membership shares may be made over a period of not more than ten years. The regulations prescribe the rate of interest that these payments must bear. The regulation sets the interest payable at the Bank of Canada rate plus three percent to reflect prevailing economic conditions.

Alternatives

In order for the Coops Act to be implemented in an effective and workable manner, the Coops Act requires regulations to be made. The Coops Act, itself, refers to the need for these regulations in requiring certain rules or procedures to be prescribed. For example, the Coops Act requires management proxy circulars to follow a prescribed form. The regulations set out the contents of these documents and are consistent, where applicable, with disclosure requirements under the various securities legislation in Canada.

Benefits and Costs

Since the regulations are similar to the CBCR, the benefits and costs are also similar. The changes that are brought by the Coops Act and these regulations will impose certain costs on the cooperatives. However, some of these costs were imposed by the previous legislation and are continuing, rather than new, costs. Currently, there are approximately 50 federal cooperatives. With the new Coops Act, the expected rate of incorporation is five per year. The rate of incorporation under the former Act is two per year. Since the requirement that a cooperative must carry on business in more than one province is maintained under the new Act, we do not expect a large number of cooperatives to incorporate federally. Larger cooperatives wanting to operate under a corporate framework which is similar to the corporation model are likely to be attracted to the new Act. The regulations, therefore, will affect a small percentage of Canadian non-financial cooperatives of which there are more than 7 300.

The regulations dealing with corporate names will impose costs on the incorporators and cooperatives since they must pay $75 to a private firm for a name search report. This cost is a continuing one since cooperatives are required to file a name search report under the former Act. Given the importance of a cooperative name, the cooperatives benefit from the name regulations to the extent that their names are protected from any future registration of a similar and confusing name by another business entity. In addition, the cooperative has the right to use its name throughout Canada. Given the expected small increase in the rate of incorporation, the impact on government resources required to make name decisions is minimal, amounting to less than 1 percent of one staff member's time per year.

The regulations requiring disclosure of information will impose costs on cooperatives incorporated under the Coops Act. The costs arise from the collection, presentation and distribution of information. The main beneficiaries are members and investment shareholders. Overall, however, accessible and adequate information contributes to the integrity of the marketplace. With respect to constrained investment shares, disclosure of the constraints is necessary, particularly where a cooperative is allowed to sell these shares without the investment shareholders' approval. The costs related to financial disclosure are continuing costs since the former legislation also required financial disclosure. The regulations dealing with proxy solicitation and constrained shares will have little impact on the existing federal cooperatives, as only a few have issued investment shares and none engage in an activity that would require constraints on shares.

Cooperatives would also bear the costs of applying for exemptions from certain provisions of the Coops Act. Under the CBCA the application fee for most exemptions is $250. This cost is minimal and is outweighed by the benefit of a flexible legislation and, where the exemption is granted, the benefit of the exemption. Less than 0.01 percent of CBCA corporations apply for exemptions. Therefore, given the number of existing cooperatives, few exemption applications are expected. Consequently, the demand on government resources is minimal.

Consultation

The cooperatives sector through the two national cooperatives associations, the Canadian Co-operative Association (CCA) and the Conseil Canadien de la Coopération (CCC), contributed greatly to the modernization of the federal coops legislation. They were also significant participants in the development of these regulations. The two associations along with the Co-operatives Secretariat of Agriculture and Agri-Food Canada assisted in ensuring that the proposed regulations package was distributed as extensively as the Coops Act was when it was introduced as a bill. The proposed regulations were sent to a considerable number of cooperatives, including the 50 federally incorporated cooperatives, cooperative federations, credit unions, professional associations, academics, provincial registrars and other officials responsible for cooperatives, and provincial securities regulators. Each recipient was asked to submit written comments within the 60-day consultation period.

Many of the submissions proposed minor drafting suggestions or made comments with respect to the Coops Act which was still in bill form. Three regulatory issues, however, emerged from the responses.

The first issue related to the use of an individual's name in the cooperative name. The proposed regulations required that in order to use an individual's name, the individual's written consent must be submitted with the incorporation documents and, in addition, the individual must have a material interest in the cooperative. A comment stated that some cooperatives may want to use the name of a leader of the cooperative movement to identify their objectives with the philosophies attached to that person rather than to suggest that that person has material interest in the cooperative. The regulations have been revised to allow for the use of a recognized cooperative leader in a cooperative name without that person having material interest in the cooperative.

The second issue relates to the requirement under the proposed regulations that financial statements be prepared in accordance with the generally accepted accounting principles (GAAP) as set out in the Handbook of the Canadian Institute of Chartered Accountants (CICA Handbook). While they accept that reference should be made to the CICA Handbook, CCC and its members, supported by CCA, submitted that cooperatives should be exempted from certain generally accepted accounting principles with respect to the treatment of patronage allocations and membership shares. Instead, they propose that the regulations set out alternative disclosure rules similar to those found in the Québec cooperatives legislation on how patronage allocations and membership shares should be disclosed in the financial statements. The CICA also commented on the regulations during consultations. It submitted that it is appropriate that the proposed regulations refer to GAAP and that alternate disclosure rules should not be prescribed in the regulations.

The purpose in referring to the CICA Handbook in the proposed regulations is to ensure the quality and credibility of financial statements. Financial statements are used to assess an organization's financial health and are relied upon by members, shareholders, creditors and other interested parties. To prescribe alternate disclosure rules for financial statements in the regulations could result in a distortion of marketplace information and would hinder important comparative performance analysis by interested parties. A lack of comparability would be confusing or even misleading to users of financial statements. Furthermore, unlike most other provincial cooperative legislation, the Coops Act gives cooperatives the ability to issue shares to non-members, which underscores the importance of reliable and comparable financial statements.

The CICA is an independent body whose mandate is to enhance the quality and credibility of financial information; the CICA Handbook has been formulated with a view to ensure that financial information is understandable, relevant, reliable and comparable. It is appropriate that we rely on its expertise as does the CBCA and the Cooperative Credit Associations Act. Any changes to the treatment of patronage allocation and membership shares should come from the CICA. CCC along with CCA and the financial cooperative associations are currently discussing their concerns with CICA directly.

The third issue deals with the prescribed interest rate for payments made to dissenting members. A submission was made that the rate was too high since most cooperatives have the ability to borrow funds at lower rates. It was also submitted that, rather than a variable rate, a rate based on the 10-year Canada bond yield represented a reasonable and balanced interest rate. It was argued that a fixed rate would recognize the unique nature of member equity as being a commitment to the cooperative and not simply an investment vehicle for the member. The regulations have been revised to lower the prescribed interest rate from 3.5 to 3 percent plus the Bank of Canada rate but will continue to be a variable rate. While member equity is unique, it must be recognized that a member who has exercised dissent rights is no longer a member of the cooperative. The certainty of a fixed rate may be appealing to a cooperative but it may not serve the interests of the former member. A variable interest rate, on the other hand, achieves a better balance between the interests of the former member and those of the cooperative.

Compliance and Enforcement

Under the Coops Act, the Director appointed under the legislation is given the authority to take such enforcement action as is required to ensure equity and fairness in the co-operative environment. This authority extends to the regulations enacted under the Coops Act. The Coops Act is, however, intended to be primarily self-enforcing, meaning that it provides aggrieved parties direct access to remedial actions. Generally, only in extraordinary circumstances where the public interest is affected will the Director be likely to intervene.

With respect to mandatory filings and the requirement to include certain information in documents sent to the shareholders and the Director, the Director already has systems in place for the processing of similar requirements under the CBCA. For example, the Director has in place mechanisms to deal with applications for exemptions, the filing of financial statements, and the handling of complaints made by shareholders and members of improper conduct by a co-operative. Minor changes to internal policies and standardized documents will be required to reflect the new Coops Act and Regulations. Because of the small number of co-operatives (there are currently 50 federal cooperatives compared to 111,365 CBCA corporations; no more than 5 new cooperatives are expected to incorporate per year), there should be minimal impact on compliance and enforcement activities.

Contact

Cheryl Ringor, Regulatory Coordinator, Corporations Directorate, Jean Edmonds Tower South, 365 Laurier Avenue W, Ottawa, Ontario K1A 0C8, (613) 941-5729 (Telephone), (613) 941-5781 (Facsimile), ringor.cheryl@ic.gc.ca (Electronic mail).

PROPOSED REGULATORY TEXT

Notice is hereby given that the Governor in Council, pursuant to section 372 of the Canada Cooperatives Act (see footnote a), proposes to make the Canada Cooperatives Regulations, a copy of which can be obtained by Internet on Industry Canada's strategis Website http://strategis.ic. gc.ca/corporations or by calling the Corporations Directorate's Information and Publication Unit at (613) 941-9042.

Interested persons may make representations with respect to the proposed Regulations to the Minister of Industry within 45 days after the date of publication of this notice. All such representations must be addressed to Cheryl Ringor, Regulatory Coordinator, Jean Edmonds Towers South, 365 Laurier Avenue W, Ottawa, Ontario K1A 0C8, (613) 941-5729 (Telephone), (613) 941-5781 (Facsimile), ringor.cheryl.@ic.gc.ca (Internet).

The representations must also stipulate the parts of the representations that should not be disclosed pursuant to the Access to Information Act, and in particular, pursuant to sections 19 and 20 of that Act, the reason why those parts should not be disclosed and the period during which they should remain undisclosed. The representations should also stipulate those parts of the representations for which there is consent to disclosure pursuant to the Access to Information Act.

July 15, 1998

MICHEL GARNEAU
Assistant Clerk of the Privy Council

CANADA COOPERATIVES REGULATIONS

INTERPRETATION

1. In these Regulations, "Act" means the Canada Cooperatives Act.

PART 1

ELECTRONIC TRANSMISSION

2. For the purpose of subsection 2(3) of the Act, a document, notice or other information, other than a document or notice to be sent to or issued by the Director, may be sent or otherwise given electronically if

(a) the recipient asks to receive it electronically or consents to receiving it electronically;

(b) in the case of electronic sending or giving that does not include direct delivery to the recipient, the recipient is advised of the availability and the location of the information; and

(c) the way of sending or giving permits the recipient to have access to the information and to retain it in a permanent form.

PART 2

NAMES

Interpretation

3. The definitions in this section apply in this Part.

"confusing", in relation to a cooperative name, means a name the use of which causes confusion with a trade-mark or trade-name in the manner described in section 4. (prêter à confusion)

"distinctive", in relation to a trade-name, means a trade-name that actually distinguishes the business in association with which it is used by its owner from the business of others or that is adapted so as to distinguish them. (distinctif)

"secondary meaning", in relation to a trade-name, means a trade-name that has been used in Canada or elsewhere by any applicant or the applicant's predecessors so as to have become distinctive in Canada as of the date of filing an application for a cooperative name. (sens dérivé)

"trade-mark" means a trade-mark as defined by the Trade-marks Act. (marque de commerce)

"trade-name" means the name under which any business is carried on, whether it is the name of a cooperative or any other body corporate, a trust, a partnership, a proprietorship or an individual. (nom commercial)

"use" means actual use by a person that carries on business in Canada or elsewhere. (emploi)

Confusion of Names

4. A cooperative name is confusing with

(a) a trade-mark if the use of both the cooperative name and the trade-mark is likely to lead to the inference that the business carried on or intended to be carried on under the cooperative name and the business connected with the trade-mark are one business, whether or not the nature of the business of each is generally the same; or

(b) a trade-name if the use of both names is likely to lead to the inference that the business carried on or intended to be carried on under the cooperative name and the business carried on under the trade-name are one business, whether or not the nature of the business of each is generally the same.

Consideration of Whole Name

5. When determining whether a trade-name is distinctive, the name as a whole and not only its separate elements shall be considered.

Prohibited Names

6. For the purposes of paragraph 23(a) of the Act, a cooperative name is prohibited in respect of a request to reserve a name, including a request in respect of an application for revival under section 308 of the Act, if it is the same as, or is confusing with, a name that has, before the date of the request, been reserved by the Director for another person, unless

(a) written consent has been obtained from the person for whom the name was reserved; or

(b) the 90-day reservation period referred to in section 22 of the Act has expired without the person for whom the name was reserved having renewed the request to reserve the cooperative name.

7. For the purposes of paragraph 23(a) of the Act, a cooperative name is prohibited if the name contains any of the following:

(a) "Air Canada";

(b) "Canada Standard" or "CS";

(c) "Parliament Hill" or "Colline du Parlement";

(d) "Royal Canadian Mounted Police", "Gendarmerie royale du Canada", "RCMP" or "GRC"; or

(e) "United Nations", "Nations Unies", "UN" or "ONU".

8. For the purposes of paragraph 23(a) of the Act, a cooperative name is prohibited if the cooperative name connotes that the cooperative

(a) carries on business under royal, vice-regal or governmental patronage, approval or authority unless the appropriate government department or agency consents in writing to the use of the name;

(b) is sponsored or controlled by or is affiliated with the Government of Canada, the government of a province, the government of a country other than Canada or a political subdivision or agency of any such government unless the appropriate government, political subdivision or agency consents in writing to the use of the name;

(c) is sponsored or controlled by or is affiliated with a university or an association of accountants, architects, engineers, lawyers, physicians, surgeons or any other professional association recognized by the laws of Canada or a province unless the appropriate university or professional association consents in writing to the use of the name; or

(d) carries on the business of a bank, loan company, insurance company, trust company or other financial intermediary or a stock exchange that is regulated by a law of Canada or a province unless the appropriate government department or agency consents in writing to the use of the name.

9. For the purposes of paragraph 23(a) of the Act, a cooperative name is prohibited if the name contains a word or phrase, or connotes a business, that is obscene.

10. (1) Subject to subsection (2), and for the purposes of paragraph 23(a) of the Act and these Regulations, a cooperative name is prohibited if the cooperative name

(a) is not distinctive;

(b) is only descriptive, in any language, of the quality, function or other characteristic of the goods or services in which the cooperative deals or intends to deal;

(c) is primarily or only the name or surname used alone of an individual who is living or has died within 30 years preceding the date of the request to the Director to reserve that cooperative name; or

(d) is primarily or only a geographic name used alone.

(2) Subsection (1) does not apply if a person requesting the reservation of a cooperative name establishes that it has, through use, acquired and continues at the time of the request to have secondary meaning.

11. For the purposes of paragraph 23(a) of the Act, a cooperative name is prohibited if the cooperative name is confusing having regard to all the circumstances, including

(a) the inherent distinctiveness of the whole or any elements of any trade-mark or trade-name and the extent to which it has become known;

(b) the length of time the trade-mark or trade-name has been in use;

(c) the nature of the goods or services associated with a trade-mark or the nature of the business carried on under or associated with a trade-name, including the likelihood of any competition among businesses using the trade-mark or trade-name;

(d) the nature of the trade with which a trade-mark or trade-name is associated, including the nature of the products or services and the means by which they are offered or distributed;

(e) the degree of resemblance between the proposed cooperative name and any trade-mark or trade-name in appearance or sound or in the ideas suggested by them; and

(f) the territorial area in Canada in which the proposed cooperative name or an existing trade-name is likely to be used.

12. (1) For the purposes of paragraph 23(a) of the Act, a cooperative name is prohibited if an element of the name is the family name of an individual, whether or not preceded by the individual's given name or initials unless the individual, or the individual's heir or legal representative, consents in writing to the use of the name and, subject to subsection (2), the individual has or had a material interest in the cooperative.

(2) The individual is not required to have a material interest in the cooperative if Part 20 of the Act applies to the cooperative or if the individual is a recognized cooperative leader.

13. For the purposes of paragraph 23(a) of the Act,

(a) a cooperative name is prohibited if its use is likely to lead to the inference that the business carried on or intended to be carried on under it and the business of a body corporate that is dissolved are one business, whether or not the nature of their businesses is generally the same; and

(b) the name of a cooperative that is revived under section 308 of the Act is prohibited if it is confusing with a name acquired by another body corporate during the period beginning on the date of dissolution and ending on the date of revival of the revived cooperative.

14. For the purposes of paragraph 23(a) of the Act, a cooperative name that is confusing with the name of a body corporate that has not carried on business in the two years immediately preceding the date of a request for a cooperative name is prohibited unless the body corporate that has that name

(a) consents in writing to the use of the name; and

(b) undertakes in writing to dissolve immediately or to change its name before the cooperative proposing to use the name commences to use it.

15. For the purposes of paragraph 23(a) of the Act, a cooperative name containing a word that is the same as or similar to a distinctive element of an existing trade-mark or trade-name and, for that reason, is confusing with the trade-mark or trade-name is prohibited unless the person who owns the trade-mark or trade-name consents in writing to the use of the cooperative name.

16. (1) For the purposes of paragraph 23(a) of the Act, a cooperative name that is confusing with the name of a body corporate is prohibited unless

(a) the cooperative name is the name of an existing or proposed cooperative that is the successor to the business of the body corporate and the body corporate has ceased or will, in the immediate future, cease to carry on business under that corporate name and undertakes in writing to dissolve or to change its corporate name before the successor cooperative commences carrying on business under that name; and

(b) subject to subsection (2), the cooperative name of the existing or proposed cooperative sets out in numerals the year of incorporation, or the year of the most recent amendment to the cooperative name, in parentheses.

(2) The reference in a cooperative name to the year of incorporation or the year of the most recent amendment to the cooperative name may be deleted two years after its use is introduced, if the cooperative name so changed is not confusing.

17. (1) For the purposes of paragraph 23(a) of the Act, where two or more cooperatives amalgamate, the cooperative name of the amalgamated cooperative is prohibited if the new name is confusing or any of the criteria set out in subsection 10(1) apply.

(2) Notwithstanding subsection (1), the new cooperative name may be the same as the name of one of the amalgamating cooperatives.

(3) For the purposes of paragraph 23(a) of the Act, where an existing cooperative has acquired or will, in the immediate future, acquire all or substantially all of the property of an affiliated body corporate, the use by the cooperative of the corporate name of the affiliated body corporate is prohibited unless

(a) the body corporate undertakes in writing to dissolve, or to change its corporate name, before the cooperative begins using the corporate name as a cooperative name; and

(b) the cooperative name is not otherwise prohibited.

(4) For the purposes of paragraph 23(a) of the Act, where a proposed cooperative will, in the immediate future, acquire all or substantially all of the property of a body corporate that is to be an affiliate of the proposed cooperative, the use by the proposed cooperative of the corporate name of the affiliated body corporate is prohibited unless

(a) the body corporate undertakes in writing to dissolve, or to change its corporate name, before the proposed cooperative begins using the corporate name as a cooperative name; and

(b) the cooperative name is not otherwise prohibited.

Deceptively Misdescriptive Names

18. For the purposes of paragraph 23(a) of the Act, a cooperative name is deceptively misdescriptive if it is likely to mislead the public, in any language, with respect to

(a) the business, goods or services in association with which it is proposed to be used;

(b) the conditions under which the goods or services will be produced or supplied or the persons to be employed in the production or supply of those goods or services; or

(c) the place of origin of those goods or services.

PART 3

PROXIES AND PROXY SOLICITATION

Form of Proxy

19. (1) A form of proxy under Part 9 of the Act shall indicate, in bold-faced type,

(a) the meeting at which it is to be used; and

(b) whether the proxy is solicited by or on behalf of the management of the cooperative.

(2) A form of proxy shall contain a designated blank space for a date and shall state that, if it is not dated in the space, it is deemed to bear the date on which it is mailed by the person making the solicitation.

(3) A form of proxy, an accompanying management proxy circular or a dissident's proxy circular shall state, in bold type, that the shareholder may appoint a proxyholder other than a person designated in the form of proxy to attend and act on the shareholder's behalf at the meeting, and shall contain instructions as to the manner in which the shareholder may make the appointment.

(4) If a form of proxy designates a person as proxyholder, it shall provide a means for the shareholder to designate another person as proxyholder.

(5) A form of proxy shall provide a means for the shareholder to specify that the shares registered in the shareholder's name are to be voted for or against each matter or group of related matters identified in the notice of meeting, a management proxy circular, a dissident's proxy circular or a proposal under section 58 of the Act, other than the election of directors who are to be elected by the shareholders.

(6) A form of proxy may confer authority with respect to matters for which a choice is not provided in accordance with subsection (5) if the form of proxy, the management proxy circular or the dissident's proxy circular states in bold-faced type how the proxyholder will vote the shares in respect of each matter or group of related matters.

(7) A form of proxy shall provide a means for the shareholder to specify that the shares registered in the shareholder's name are to be voted or withheld from voting in respect of the election of directors who are to be elected by the shareholders.

(8) A form of proxy, an accompanying management proxy circular or a dissident's proxy circular shall state that the investment shares represented by the proxy will be voted or withheld from voting, in accordance with the instructions of the shareholder, on any ballot that may be called for and that, if the shareholder specifies a choice under subsection (5) or (7) with respect to any matter to be acted upon, the shares will be voted accordingly.

20. A form of proxy may confer discretionary authority in respect of amendments to matters identified in the notice of meeting or other matters that may properly come before the meeting, if

(a) the person by or on whose behalf the solicitation is made is not aware within a reasonable time before the solicitation that the amendments or other matters are to be presented for action at the meeting; and

(b) the form of proxy, the management proxy circular or the dissident's proxy circular specifically confers the discretionary authority.

21. A form of proxy may not confer authority to vote in respect of the election of a director unless a bona fide proposed nominee for the election is named in the form of proxy, a management proxy circular, a dissident's proxy circular or a proposal under section 58 of the Act.

Contents of Management Proxy Circular

22. (1) A management proxy circular shall contain the following information:

(a) a statement of the right of a shareholder to revoke a proxy under subsection 164(4) of the Act and of the method by which the shareholder may exercise that right as set out in that subsection;

(b) a statement to the effect that the solicitation is made by or on behalf of the management of the cooperative;

(c) the name of any director of the cooperative who has informed the management, in writing, that the director intends to oppose any action intended to be taken by the management and the nature of the action that the director intends to oppose;

(d) the method of solicitation, if otherwise than by mail, and if the solicitation is to be made by specially engaged employees or agents, the material features of any contract or arrangement for the solicitation, the parties to the contract or arrangement and its cost or anticipated cost;

(e) the name of the person by whom the cost of the solicitation has been or will be borne, directly or indirectly;

(f) the number of investment shares of each class of shares of the cooperative entitled to be voted at the meeting and the number of votes to which each investment share of each class is entitled;

(g) the record date as of which the shareholders entitled to vote at the meeting will be determined or particulars as to the closing of the security transfer register, as the case may be, and, if the right to vote is not limited to shareholders of record as at a specified record date, any conditions in respect of that right to vote;

(h) if the giving of any financial assistance, other than financial assistance given to members, or members of members, in accordance with paragraph 160(2)(e) of the Act, in the circumstances not prohibited by subsection 160(1) of the Act or referred to in paragraph 160(2)(d) of the Act, was material to the cooperative or any of its affiliates or to the recipient of the assistance, details of that financial assistance by the cooperative since the beginning of its last completed financial year in relation to

(i) if indemnification under section 113 of the Act is paid or becomes payable in the financial period,

(j) if insurance referred to in subsection 113(6) of the Act is purchased,

(k) the name of each person who, to the knowledge of the directors or officers of the cooperative, beneficially owns, directly or indirectly, or exercises control or direction over, investment shares carrying more than 10 per cent of the votes attached to any class of investment shares of the cooperative entitled to vote in connection with any matters being proposed for consideration at the meeting, the approximate number of the investment shares so owned, controlled or directed by each person and the percentage of the class of voting investment shares of the cooperative represented by the number of investment shares owned, controlled or directed;

(l) the percentage of votes required for the approval of any matter that is to be submitted to a vote of shareholders at the meeting other than the election of directors;

(m) if directors are to be elected by the shareholders, a statement of the right of any class of shareholders to elect a specified number of directors or to cumulate their votes and a statement of any conditions precedent to the exercise thereof;

(n) in tabular form, so far as feasible, if directors are to be elected by the shareholders with respect to each person proposed to be nominated by management for election as a director and each director who has been elected by the shareholders whose term of office will continue after the meeting;

(o) whether the cooperative has an executive committee of its board of directors or is required to have an audit committee and, if so, the names of those directors who are members of each committee;

(p) the details of any contract, arrangement or understanding between any proposed management nominee and any other person, except the directors and officers of the cooperative acting solely in their capacity as such, pursuant to which the nominee is to be elected, including the name of the other person;

(q) where the cooperative is required by the laws of a jurisdiction that is set out in column 1 of an item of Schedule 2 to file the form or information with respect to executive remuneration that is set out in column 2 of that item, the form or information, where action is to be taken with respect to

(r) where action is to be taken with respect to any of the matters referred to in subparagraphs (q)(i) to (iv),

(s) in any transaction since the beginning of the cooperative's last completed financial year or in any proposed transaction that has materially affected or could materially affect the cooperative or any of its subsidiaries,

(t) details of each transaction referred to in paragraph (s), the name and address of each person whose interest in the transaction is disclosed and the nature of the relationship by reason of which the interest is required to be disclosed;

(u) where a transaction referred to in paragraph (s) involves the purchase or sale of assets by the cooperative or any of its subsidiaries or holding bodies corporate otherwise than in the ordinary course of business, the cost of the assets to the purchaser and the cost of the assets to the seller, if the assets were acquired by the seller within the two years prior to the transaction;

(v) details of a material underwriting discount or commission with respect to the sale of securities by the cooperative where any person referred to in paragraph (s) has contracted or will contract with the cooperative in respect of an underwriting or is an associate or affiliate of a person that has contracted or will contract with the cooperative;

(w) subject to subparagraphs (vi) to (viii), where a person, other than a director or officer of the cooperative, or any of its subsidiaries or holding bodies corporate, is a member who manages the cooperative or any of its subsidiaries,

for the purposes of this paragraph,

(x) in any matter to be acted on at the meeting other than the election by the shareholders of directors, details of any material interest, direct or indirect, by way of beneficial ownership of securities or otherwise, of

(y) if action is to be taken with respect to the authorization or issue of securities, except to exchange the securities for other securities of the cooperative,

(z) if action is to be taken under section 130 or 289 of the Act to modify the rights, privileges, restrictions or conditions attached to any class of investment shares of the cooperative or to authorize or issue securities in order to exchange them for other securities of the cooperative,

(z.1) the material features of a plan, including the reasons for it and its general effect on the rights of existing security holders if action is to be taken with respect to that plan and if the plan is for

(z.2) if action is to be taken with respect to a plan referred to in subparagraph (z.1)(i), a statement containing, with respect to the cooperative and the other body corporate,

(z.3) if action is to be taken with respect to a plan referred to in paragraph (z.1), the financial statements of the cooperative as would be required to be included in a prospectus under the relevant laws of a province or the United States, unless an exemption from those laws is available or a waiver of those laws or similar relief is granted by the relevant securities regulator;

z.4) if action is to be taken with respect to a plan referred to in paragraph (z.2), the financial statements of the other cooperative that would be required to be included in a prospectus under the laws of a jurisdictions referred to in paragraph (z.3), unless an exemption from those laws is available or a waiver of those laws or similar relief is granted by the relevant securities regulator;

(z.5) a statement of the right of a shareholder to dissent under section 302 of the Act with respect to any matter to be acted upon at the meeting and a brief summary of the procedure to be followed;

(z.6) if action is to be taken with respect to any matter, other than the approval of financial statements, including alterations of investment share capital, amendments to articles, property disposition, amalgamation, rearrangements or reorganizations, the substance of the matter or group of related matters, to the extent it has not been described pursuant to paragraphs (a) to (z.5) in sufficient detail to permit shareholders to form a reasoned judgment concerning the matter, and if the matter is not required to be submitted to a vote of the shareholders, the reasons for so submitting it and the action intended to be taken by management in the event of a negative vote by the shareholders; and

(z.7) a statement, signed by a director or officer of the cooperative, that the contents and the sending of the circular have been approved by the directors.

(2) For the purposes of paragraph (1)(r), "routine indebtedness" means

(a) loans made by the cooperative to members, or members of members, in accordance with paragraph 160(2)(e) of the Act,

(b) if the cooperative makes loans to employees of the cooperative generally, whether or not in the ordinary course of business, loans made on terms, including those as to interest rate and collateral, no more favourable to the borrower than the terms on which loans are made by the cooperative to employees generally, but the amount of any remaining unpaid loans to any one director, officer or person proposed as a nominee, and his or her associates, that is considered as routine indebtedness under this paragraph during the last completed financial year may not exceed $25,000,

(c) whether or not the cooperative makes loans in the ordinary course of business, a loan made by it to one of its directors or officers if

(d) if the cooperative makes loans in the ordinary course of business, a loan that is made to a person other than a full-time employee of the cooperative or to any other body corporate, and that

e) indebtedness arising from purchases made on usual trade terms or from ordinary travel or expense advances, or for similar reasons, if the repayment arrangements are in accord with usual commercial practice.

23. A management proxy circular that is sent to the Director shall be submitted with a statement, signed by a director or officer, that a copy of the circular has been sent to each director and shareholder whose proxy is solicited and to the auditor of the cooperative.

Dissident's Proxy Circular

24. For the purposes of section 25, "dissident" means any person, other than the management of the cooperative or its affiliates and associates, by or on behalf of whom a solicitation is made, and includes a committee or group that solicits proxies, any member of the committee or group, and any person whether or not named as a member who, acting alone or with one or more other persons, directly or indirectly, takes the initiative or engages in organizing, directing or financing the committee or group, except

(a) a person who contributes not more than $250 and who is not otherwise a person by whom or on whose behalf the solicitation is made;

(b) a bank or other lending institution or a broker or dealer that, in the ordinary course of business, lends money or executes orders for the purchase or sale of shares and is not otherwise a person by whom or on whose behalf the solicitation is made;

(c) a person, retained or employed by a person by whom or on whose behalf a solicitation is made to solicit proxies, who is not otherwise a person by whom or on whose behalf a solicitation is made whose activities are limited to the performance of duties in the course of the employment or retainment;

(d) a person who only transmits proxy soliciting material or performs administrative or clerical duties in connection with the solicitation;

(e) a person, retained or employed by a person by whom or on whose behalf a solicitation is made in the capacity of lawyer, accountant, publicity agent, financial or public relations adviser;

(f) a person regularly employed as an officer or employee of the cooperative or any of its affiliates who is not otherwise a person by whom or on whose behalf a solicitation is made; and

(g) an officer or director of, or person employed by, a person by or on behalf of whom a solicitation is made, if the officer, director or employee is not otherwise a person by whom or on whose behalf a solicitation is made.

Contents of Dissident's Proxy Circular

25. A dissident's proxy circular shall contain the following information:

(a) the name of the cooperative to which the solicitation relates;

(b) the information required by paragraphs 22(a), (d) and (e);

(c) details of the identity and background of each dissident, including

(d) details of any material interest of the dissident, direct or indirect, by way of beneficial ownership of securities or otherwise, in any matter to be acted upon and the interest of the dissident in the securities of the cooperative to which the solicitation relates, including

(e) if directors are to be elected by the shareholders, information required by paragraphs 22(n), (p), (s) and (x), in respect of each nominee proposed by the dissident for election as a director and in respect of the associates of the nominee;

(f) the information required by paragraphs 22(s) and (x), in respect of each dissident and each dissident's associates; and

(g) the details of any contract, arrangement or understanding, including the names of the parties, between a dissident, or any of the dissident's associates, and any other person, with respect to

26. If a dissident is a partnership, body corporate, association or other organization, the information required by paragraphs 25(c) and (f) to be included in a dissident's proxy circular shall be given in respect of each partner, officer and director of, and each person who controls, the dissident but who is not a dissident.

27. Information that is not known to a dissident and that cannot be ascertained by the dissident on reasonable enquiry may be omitted from a dissident's proxy circular, but the circumstances that render the information unavailable shall be disclosed in it.

28. (1) A dissident's proxy circular shall contain a statement, signed by the dissident or a person authorized by the dissident, that the contents and the sending of the circular have been approved by the dissident.

(2) A copy of a dissident's proxy circular that is sent to the Director pursuant to subsection 166(3) of the Act shall be accompanied by a statement signed by the dissident or a person authorized by the dissident to the effect that

(a) the circular complies with these Regulations; and

(b) a copy of the circular has been sent to each director, to each shareholder whose proxy has been solicited, and to the auditor of the cooperative.

Date of Proxy Circular and Information

29. A proxy circular shall be dated as of a date not more than 30 days before the date on which it is first sent to a shareholder of the cooperative and the information, other than financial statements, required to be contained in it shall be given as of the date of the circular.

Financial Statements in Proxy Circular

30. (1) Where financial statements accompany or form part of a management proxy circular, the statements shall be prepared in accordance with Part 4.

(2) The financial statements referred to in subsection (1), if not reported upon by the auditor of the cooperative, shall be accompanied by a report of the chief financial officer of the cooperative stating that the financial statements have not been audited but have been prepared in accordance with Part 4.

PART 4

FINANCIAL DISCLOSURE

General

31. The financial statements referred to in paragraph 247(1)(a) of the Act shall, except as otherwise provided by this Part, be prepared in accordance with the generally accepted accounting principles that are set out in the Handbook of the Canadian Institute of Chartered Accountants.

32. The auditor's report referred to in section 261 of the Act shall, except as otherwise provided by this Part, be prepared in accordance with the generally accepted auditing standards that are set out in the Handbook of the Canadian Institute of Chartered Accountants.

Contents of Financial Statements

33. (1) The financial statements referred to in section 247 of the Act shall include at least

(a) a balance sheet;

(b) a statement of retained earnings;

(c) an income statement; and

(d) a statement of changes in financial position.

(2) Financial statements need not be designated by the names set out in paragraphs (1)(a) to (d).

PART 5

CONSTRAINED SHARE COOPERATIVES

Interpretation

34. The definitions in this section apply in this Part.

"Canadian" means,

"constrained class" means the class of persons specified in the articles of a constrained share cooperative as being ineligible to hold, as a class, more than the maximum aggregate holdings. (catégorie restreinte)

"constrained share cooperative" means a cooperative that has provisions in its articles imposing a constraint. (coopérative à participation restreinte)

"constraint" means a restriction on

"control" means control in any manner that results in control in fact, whether directly through the ownership of investment shares or indirectly through a trust, a contract, the ownership of investment shares of any other body corporate or otherwise. (contrôle)

"maximum aggregate holdings" means the total number of voting investment shares of a constrained share cooperative that may be held by or on behalf of persons in the constrained class and their associates in accordance with the articles of the cooperative. (avoir maximum total)

"maximum individual holdings" means the total number of voting investment shares of a constrained share cooperative that may be held by or on behalf of any one person in the constrained class and the person's associates in accordance with the articles of the cooperative. (avoir maximum individuel)

"resident of Canada" means an individual who

"voting investment share" means an investment share that is subject to a constraint referred to in paragraph (a) or (b) of the definition "constraint" and that carries voting rights under all circumstances or by reason of the occurrence of an event that has occurred and that is continuing and includes a security currently convertible into such an investment share and a currently exercisable option or right to acquire the investment share or the convertible security. (part de placement conférant un droit de vote)

Disclosure Required

35. Each of the following documents issued or published by a constrained share cooperative shall indicate conspicuously the general nature of its constrained investment share provisions:

(a) a certificate evidencing a voting investment share;

(b) a management proxy circular; and

(c) a prospectus, statement of material facts, registration statement or similar document.

Powers and Duties of Directors

36. (1) The directors of a constrained share cooperative that has provisions in its articles imposing a constraint referred to in paragraph (a) or (b) of the definition "constraint" in section 34, shall refuse to register a transfer of a voting investment share of the cooperative in accordance with the articles if

(a) the total number of voting investment shares held by or on behalf of persons in the constrained class exceeds the maximum aggregate holdings and the transfer is to a person in the constrained class;

(b) the total number of voting investment shares held by or on behalf of persons in the constrained class does not exceed the maximum aggregate holdings and the transfer would cause the number of the investment shares held by persons in the constrained class to exceed the maximum aggregate holdings;

(c) the total number of voting investment shares held by or on behalf of a person in the constrained class exceeds the maximum individual holdings and the transfer is to that person; or

(d) the total number of voting investment shares held by or on behalf of a person in the constrained class does not exceed the maximum individual holdings and the transfer would cause the number of the investment shares held by that person to exceed the maximum individual holdings.

(2) Notwithstanding subsection (1), the directors of a constrained share cooperative that is described in that subsection shall register a transfer of a voting investment share of the cooperative to a person in the constrained class if the person establishes that the person was the beneficial owner of that investment share on the day on which the cooperative became a constrained share cooperative.

(3) The directors of a constrained share cooperative that is referred to in subsection (1) shall refuse to issue a voting investment share of the cooperative to a person in the constrained class in circumstances where the directors are required to refuse to register a transfer of the investment share by that subsection.

(4) For the purposes of subsection (3), the directors may count as issued investment shares the voting investment shares that it is currently offering to its shareholders or prospective shareholders.

37. The directors of a constrained share cooperative that has provisions in its articles imposing a constraint referred to in paragraph (c) of the definition "constraint" in section 34,

(a) shall refuse to issue an investment share of the cooperative to a person

(b) shall refuse to register a transfer of a share of the cooperative if the transfer is to a person

Limitation on Voting Rights

38. Sections 39 and 40 apply to a constrained share cooperative that has provisions in its articles imposing a constraint referred to in paragraph (a) or (b) of the definition of "constraint" in section 34.

39. (1) Where on the day on which a cooperative becomes a constrained share cooperative the total number of voting investment shares of the cooperative held by or on behalf of a person in the constrained class exceeds the maximum individual holdings, the person or the person's nominee may, in person or by proxy, only exercise the voting rights attached to the maximum individual holdings held on that day or on any subsequent day.

(2) After the total number of investment shares held by or on behalf of the person referred to in subsection (1) is reduced below the maximum individual holdings, the person or the person's nominee may, in person or by proxy, exercise the voting rights attached to investment shares held.

40. (1) Except as provided in subsection 39(1), where the total number of voting investment shares of a constrained share cooperative held by or on behalf of a person in the constrained class exceeds the maximum individual holdings, no person may, in person or by proxy, exercise the voting rights attached to those investment shares.

(2) Where it appears from the investment share register of a constrained share cooperative that the total number of voting investment shares held by a shareholder is less than the maximum individual holdings, a proxyholder for the shareholder may vote those investment shares unless the proxyholder has knowledge that the investment shares beneficially owned by the shareholder exceed the maximum individual holdings.

(3) Where, after the day on which a cooperative becomes a constrained share cooperative, a cooperative or trust that was not a person in the constrained class becomes a person in the constrained class, the cooperative or trust shall not exercise the voting rights attached to any investment shares it holds in the constrained share cooperative while it is a person in the constrained class.

Sale of Constrained Investment Shares

41. (1) For the purposes of subsection 131(1) of the Act, before a constrained share cooperative concludes that investment shares of the cooperative are owned contrary to a constraint referred to in paragraph (c) of the definition "constraint" in section 34 or the directors of the cooperative determine that investment shares of the cooperative may be owned contrary to the constraint, the cooperative shall send by registered mail a written notice in accordance with subsection (5) to the person shown in the securities register of the cooperative as the holder of the investment shares.

(2) For the purposes of subsection 131(1) of the Act, investment shares of a constrained share cooperative that are owned contrary to a constraint referred to in paragraph (c) of the definition "constraint" in section 34 may only be sold after the directors of the cooperative

(a) have ascertained whether or not the cooperative has received a reply to a request for information referred to in subsection (7) respecting the shares and considered the reply, if any; and

(b) have examined and considered any other records of the cooperative containing information that would indicate whether the shares are owned contrary to the constraint.

(3) For the purposes of subsection 131(1) of the Act, where a constrained share cooperative has sent a notice referred to in subsection (1) to a person shown in the securities register of the cooperative as the holder of investment shares, the cooperative shall, not less than 90 days but not more than 150 days after the sending of the notice, send to the person by registered mail a further written notice in accordance with subsection (6) respecting the investment shares that the cooperative intends to sell if

(a) the cooperative has concluded that investment shares in respect of which the notice was sent are owned contrary to a constraint referred to in paragraph (c) of the definition "constraint" in section 34; or

(b) the directors of the cooperative have determined that investment shares in respect of which the notice was sent may be owned contrary to the constraint, and the cooperative intends to sell all or some of the investment shares pursuant to subsection 131(1) of the Act.

(4) Where a cooperative sends a notice under subsection (1) or (3), the cooperative shall, at the time the notice is sent, enter or cause to be entered in the securities register of the cooperative the particulars of the notice including the date on which it was sent.

(5) The notice referred to in subsection (1) shall contain

(a) the name and address of the holder of the investment shares as shown in the securities register of the cooperative;

(b) a statement identifying the certificate representing the investment shares by certificate number or otherwise;

(c) a statement indicating that all or some of the investment shares may be sold by the cooperative pursuant to subsection 131(1) of the Act if the shares are owned, or the directors of the cooperative determine that the shares may be owned, contrary to a constraint referred to in paragraph (c) of the definition "constraint" in section 34;

(d) a statement indicating that the cooperative may conclude that all or some of the investment shares are owned contrary to a constraint referred to in paragraph (c) of the definition "constraint" in section 34;

(e) a statement indicating that the directors of the cooperative may determine that all or some of the investment shares may be owned contrary to a constraint referred to in paragraph (c) of the definition "constraint" in section 34 and that for the purpose of making the determination the directors of the cooperative will

(f) a statement indicating that no investment share in respect of which the notice is sent may be sold pursuant to subsection 131(1) of the Act if a transfer of the share is registered in the securities register of the cooperative after the notice was sent unless the cooperative again complies with the requirements set out in this Part respecting the sale of the share;

(g) a statement indicating that no investment share in respect of which the notice is sent may be sold pursuant to subsection 131(1) of the Act unless not less than 60 days but not more than 150 days have elapsed from the day on which a notice referred to in subsection (3) is sent to the holder of the share;

(h) a statement indicating the earliest date and the latest date on which the cooperative may sell the investment shares, having regard to the requirements set out in section 43;

(i) a statement indicating that the investment shares may only be sold on an exchange on which investment shares of the cooperative are listed and posted for trading or, where investment shares of the cooperative are not listed and posted for trading on an exchange, in such a way as to obtain the best sale price available in the circumstances at the time of sale.

(j) a statement indicating that, if not all the investment shares of the holder evidenced by a certificate are sold pursuant to subsection 131(1) of the Act, a certificate evidencing the investment shares that are not sold will be issued upon surrender for cancellation of the certificate representing the investment shares sold; and

(k) a statement indicating that, forthwith upon the sale of the investment shares pursuant to subsection 131(1) of the Act, the cooperative will

(6) The notice referred to in subsection (3) shall contain

(a) the name and address of the holder of the investment shares as shown in the securities register of the cooperative;

(b) a statement identifying the certificate evidencing the investment shares by certificate number or otherwise;

(c) a statement indicating that all or some of the investment shares may be sold by the cooperative pursuant to subsection 131(1) of the Act if the shares are owned, or the directors of the cooperative determine that the shares may be owned, contrary to a constraint referred to in paragraph (c) of the definition "constraint" in section 34;

(d) a statement indicating that the cooperative has concluded that the investment shares are owned, or that the directors of the cooperative have determined that the investment shares may be owned, contrary to a constraint referred to in paragraph (c) of the definition "constraint" in section 34 and indicating the reason for the conclusion or determination, as the case may be;

(e) a statement indicating that the cooperative intends to sell all or a specified number of the investment shares pursuant to subsection 131(1) of the Act;

(f) a statement indicating that if, before the sale, the cooperative changes its conclusion that the investment shares are owned, or the directors of the cooperative change their determination that the investment shares may be owned contrary to a constraint referred to in paragraph (c) of the definition "constraint" in section 34 or there is a change in the reason for the conclusion or determination, the cooperative will send a notice in accordance with subsection 42(1) to the person shown in the securities register of the cooperative as the holder of the investment shares;

(g) a statement advising that, unless the person shown in the securities register of the cooperative as the holder of the investment shares receives a notice referred to in paragraph (f), that person and all other interested persons should not assume

(h) a statement indicating that no investment share in respect of which the notice is sent may be sold pursuant to subsection 131(1) of the Act if a transfer of the share is registered in the securities register of the cooperative after the notice referred to in subsection (1) was sent unless the cooperative again complies with the requirements set out in this Part respecting the sale of the share;

(i) a statement indicating that no investment share in respect of which the notice is sent may be sold pursuant to subsection 131(1) of the Act unless not less than 60 days but not more than 150 days have elapsed from the day on which the notice was sent to the holder of the share; and

(j) a statement indicating each of the matters referred to in paragraphs (5)(h) to (k).

(7) The notice referred to in subsection (1) shall be accompanied by a request for information, including a request for the completion of the forms, that would indicate whether the investment shares are owned contrary to a constraint referred to in paragraph (c) of the definition "constraint" in section 34.

(8) The notice referred to in subsection (3) shall be accompanied by a request for information referred to in subsection (7) unless the cooperative has received the requested information before the notice is sent.

(9) A request for information referred to in subsection (7) shall be accompanied by instructions for the furnishing of the information and the completion of the forms referred to in that subsection and by a sufficient number of copies of the forms.

42. (1) A constrained share cooperative that has not sold an investment share in respect of which a further notice was sent to a person under subsection 41(3) shall, without delay, send to the person, by registered mail, a notice of any change, with reasons, in respect of the conclusion or determination referred to in that subsection, or of a change concerning the reasons for the conclusion or determination.

(2) Where a cooperative sends a notice under subsection (1), the cooperative shall, at the time the notice is sent, enter or cause to be entered in the securities register of the cooperative the particulars of the notice including the date on which it was sent.

43. (1) No investment share shall be sold by a constrained share cooperative pursuant to subsection 131(1) of the Act unless

(a) the cooperative has sent the notices referred to in subsections 41(1) and (3) to the person shown in the securities register of the cooperative as the holder of the investment share;

(b) not less than 150 days but not more than 300 days have elapsed from the day on which the notice referred to in subsection 41(1) was sent to the holder of the investment share;

(c) not less than 60 days but not more than 150 days have elapsed from the day on which the notice referred to in subsection 41(3) was sent to the holder of the investment share;

(d) the cooperative has concluded that the investment share is owned, or the directors of the cooperative have determined that the investment share may be owned, contrary to a constraint referred to in paragraph (c) of the definition "constraint" in section 34 and, at the time of sale, the cooperative has no reasonable grounds on which to change its conclusion or the directors of the cooperative have no reasonable grounds on which to change their determination, as the case may be;

(e) the sale takes place

(f) the cooperative sells the investment share with a view to obtaining the best sale price available in the circumstances at the time of sale.

(2) No investment share in respect of which a notice is sent in accordance with subsection 41(1) shall be sold by a constrained share cooperative pursuant to subsection 131(1) of the Act if a transfer of the share is registered in the securities register of the cooperative after the notice was sent unless the cooperative again complies with the requirements set out in this Part respecting the sale of the share.

44. (1) Immediately on a sale of investment shares by a constrained share cooperative pursuant to subsection 131(1) of the Act, the cooperative shall

(a) register the transfer or a notice of the sale of the shares or cause the transfer or a notice of the sale of the shares to be registered in the securities register of the cooperative; and

(b) send a notice of the sale to the person shown in the securities register of the cooperative as the holder of the shares at the time of the sale.

(2) The notice referred to in paragraph (1)(b) shall

(a) state the number of investment shares sold;

(b) identify the certificate evidencing the investment shares sold, by certificate number or otherwise;

(c) state the date and manner of sale;

(d) state the manner in which the person entitled to receive the net proceeds of the sale pursuant to subsection 131(1) of the Act may obtain the proceeds;

(e) state that the cooperative has concluded that the investment shares were owned, or that the directors determined that the investment shares may be owned, contrary to a constraint referred to in paragraph (c) of the definition "constraint" in section 34 and state the reason why the cooperative so concluded or the directors so determined, as the case may be; and

(f) contain a statement, if not all of the investment shares of the holder evidenced by a certificate were sold, that not all of the shares were sold and that a certificate evidencing the investment shares that were not sold will be issued upon surrender for cancellation of the certificate evidencing the investment shares sold.

45. The proceeds of a sale by a constrained share cooperative under subsection 131(1) of the Act must be invested in an interest bearing account in a body corporate any of whose deposits are insured by the Canada Deposit Insurance Corporation or guaranteed by the Quebec Deposit Insurance Board or by any other similar entity created by the laws of another province.

Disclosure of Beneficial Ownership

46. Section 47 applies to a constrained share cooperative that has provisions in its articles imposing a constraint referred to in paragraph (a) or (b) of the definition "constraint" in section 34.

47. (1) In order to ascertain the beneficial ownership of investment shares of a constrained share cooperative, its directors may

(a) require any person in whose name the investment shares are registered to furnish a statutory declaration under the Canada Evidence Act

(b) require any person seeking to have a transfer of a voting investment share registered in the person's name or to have a voting investment share issued to that person to furnish a declaration similar to that referred to in paragraph (a).

(2) Where a person is required to furnish a declaration under subsection (1), the directors may refuse to register a transfer of a voting investment share in the person's name or to issue a voting investment share to the person until that person has furnished the declaration.

(3) In administering the constrained investment share provisions set out in the articles of a constrained share cooperative, the directors of the cooperative may rely upon a statement made in a declaration referred to in subsection (1) or (2).

(4) Where the directors are required to determine the total number of voting investment shares of a constrained share cooperative that are held by or on behalf of residents of Canada, the directors may rely on the latest address shown in the investment share register to conclude

(a) in respect of an address that is in Canada, that an individual is a resident of Canada; and

(b) in the case of an address that is outside Canada, that an individual is not a resident of Canada.

(5) For the purposes of subsection (4), the directors may only rely upon the investment share register of the constrained share cooperative as of any date after the day on which the cooperative became a constrained share cooperative but that date shall not be more than four months before the day on which the determination is made.

References and Definitions for the Purposes of Section 130 of the Act

48. (1) For the purposes of paragraph 130(1)(b) of the Act,

(a) the following laws of Canada or a province are prescribed, namely,

(b) "financial intermediary" means a bank, trust company, loan company, insurance company, investment company, association and a body corporate carrying on business as a securities broker, dealer or underwriter.

(2) For the purposes of paragraph 130(1)(c) of the Act, the following laws of Canada are prescribed:

(a) the Canada Petroleum Resources Act and any regulations made under it; and

(b) the Petroleum Incentives Program Act and any regulations made under it.

PART 6

RULES OF PROCEDURE FOR APPLICATIONS FOR EXEMPTIONS

Application

49. This Part applies to every application for an exemption under subsection 4(6) or 167(1), section 248 or subsection 263(2) or 267(2) of the Act.

Time of Filing Applications

50. (1) An application for an exemption under

(a) subsection 4(6) of the Act may be made at any time;

(b) subsection 167(1) of the Act shall be made before the date of the notice referred to in subsection 165(1) of the Act;

(c) section 248 of the Act shall be made at least 60 days before the documents in respect of which the exemption is requested are to be sent to the Director;

(d) subsection 263(2) of the Act may be made at any time; and

(e) subsection 267(2) of the Act shall be made at least 30 days before the cooperative is required to comply with Part 8 of the Act.

(2) Notwithstanding subsection (1), the Director shall extend the time for making an application for an exemption if the applicant establishes that no prejudice will result from it.

Notice by Director of Decision

51. The Director shall, within 30 days after receipt of an application for an exemption, grant the exemption requested or send to the applicant written notice of the refusal together with reasons for the refusal.

General

52. The Director may request that an applicant for an exemption furnish the Director with further information or that any other person furnish the Director with information in writing that is relevant to the application.

53. The Director shall furnish the applicant for an exemption with a copy of any information received from any other person under section 52 and shall allow the applicant a reasonable opportunity to respond in writing.

54. Where an applicant for an exemption or a person from whom the Director has requested information under section 52 does not provide the information within a time specified by the Director, the Director may deal with the application without regard to the information.

55. For the purposes of section 345 of the Act, the Director is deemed to have refused to grant an exemption if the exemption is not granted or the written notice of the refusal is not sent within the time specified in section 51.

Prescribed Fees

56. The fee in respect of the filing, verification or copying of any document or in respect of any service that is set out in an item of column 1 of Schedule 1 that is provided by the Director under the Act shall be the fee set out in column 2 of that item and shall be paid to the Director on the filing, verification or copying of the document or before the Director provides the service in respect of which the fee is payable.

PART 7

PRESCRIBED INTEREST

57. For the purposes of subsection 302(25) of the Act,

(a) the rate of interest for any month is the rate per annum that is the aggregate of three per cent per annum and the Bank of Canada rate in effect on the third Wednesday of the month preceding the month in respect of which the interest is computed; and

(b) the interest shall be calculated on a monthly basis for each month or part thereof starting on the day on which the resolution is adopted and ending on the day on which full payment is made.

COMING INTO FORCE

58. These Regulations come into force on the date on which they are registered.

SCHEDULE 1
(s. 56)

FEES

Item	Column 1 Activity	Column 2 Fee ($)
1.	Issuance by the Director of
	(a) a certificate of incorporation issued pursuant to section 12 of the Act	500
	(b) a certificate of amendment issued pursuant to subsection 126(6) or 303(6) of the Act	200
	(c) a certificate of amendment issued pursuant to section 292 of the Act, other than a certificate of amendment the purpose of which is to add an English or French version to a cooperative's name, or to replace a corporate name that the Director has directed be changed pursuant to subsection 24(1) of the Act	200
	(d) a restated certificate of incorporation issued pursuant to subsection 294(3) of the Act, unless issued with certificate of amendment	50
	(e) a certificate of amalgamation issued pursuant to paragraph 285(6)(b) or subsection 299(4) of the Act	200
	(f) a certificate of continuance issued pursuant to subsection 285(6) of the Act	200
	(g) a document evidencing satisfaction of the Director, as required under subsection 287(1) of the Act	200
	(h) a certificate of arrangement issued pursuant to subsection 305(1) of the Act	200
	(i) a certificate of revival issued pursuant to subsection 308(3) of the Act	200
	(j) a certificate of intent to dissolve issued pursuant to subsection 310(5) of the Act	50
	(k) a corrected certificate issued pursuant to subsection 376(2) of the Act	200
	(l) a corrected certificate, where the error was made solely by the Director's staff	0
2.	Sending the annual return to the Director under section 374 of the Act	50
3.	Examination by the Director of the cooperative's file in connection with a request for a certificate of compliance pursuant to subsection 375 of the Act	35
4.	Application to the Director for an exemption under subsections 4(6), 167(1), 263(2) or 267(2) of the Act	250
5.	Application to the Director for an exemption under section 248 of the Act	100
6.	Uncertified copies of documents provided by the Director under subsection 377(2) of the Act	$ 1 per page
7.	Certified copies of documents provided by the Director under subsection 377(2) of the Act	$ 35 per certified copy

SCHEDULE 2
(Paragraph 22(q))

EXECUTIVE REMUNERATION

Item	Column 1 Jurisdiction	Column 2 Form or Information
1.	Ontario	Form 40 of Regulation 1015, as amended from time to time, made under the Securities Act, R.S.O. 1990, c. S-5
2.	Quebec	Item 6 of Schedule VIII to the Securities Regulations, as amended from time to time, made under the Securities Act, R.S.Q., c. V-1.1
3.	Nova Scotia	Form 41 of the Securities Regulations, 1991, as amended from time to time, made under the Securities Act, R.S.N.S. 1989, c. 418
4.	British Columbia	Form 41 of the Securities Regulations, as amended from time to time, made under the Securities Act, R.S.B.C. 1996, c. 418
5.	Saskatchewan	Form 38 of the Securities Regulations, as amended from time to time, made under The Securities Act, 1988, S.S. 1988, c. S-42.2
6.	Alberta	Form 40 of the Schedule to the Alberta Securities Commission Rules, as amended from time to time, made under the Securities Act, S.A. 1981, c. S-6.1
7.	Newfoundland	Form 39 of the Securities Regulations, as amended from time to time, made under the Securities Act, R.S.N. 1990, c. S-13
8.	United States	Items 402, 403 and 404 of Regulation S-K, as amended from time to time, made under the Securities Exchange Act of 1934 of the United States

SCHEDULE 3
(Paragraph 22(r))

INDEBTEDNESS OF DIRECTORS AND OFFICERS

Item	Column 1 Jurisdiction	Column 2 Form or Information
1.	Ontario	Item 7 of Form 30 of Regulation 1015, as amended from time to time, made under the Securities Act, R.S.O. 1990, c. S-5
2.	Quebec	Item 7 of Schedule VIII to the Securities Regulations, as amended from time to time, made under the Securities Act, R.S.Q., c. V-1.1
3.	Nova Scotia	Item 7 of Form 30 of the Securities Regulations, 1991, as amended from time to time, made under the Securities Act, R.S.N.S. 1989, c. 418
4.	British Columbia	Item 7 of Form 30 of the Securities Regulations, as amended from time to time, made under the Securities Act, R.S.B.C. 1996, c. 418
5.	Saskatchewan	Item 7 of Form 28 of the Securities Regulations, as amended from time to time, made under the Securities Act, 1988, S.S. 1988, c. S-42.2
6.	Alberta	Item 7 of Form 30 of the Schedule to the Alberta Securities Commission Rules, as amended from time to time, made under the Securities Act, S.A. 1981, c. S-6.1
7.	Newfoundland	Item 7 of Form 29 of the Securities Regulations, as amended from time to time, made under the Securities Act, R.S.N. 1990, c. S-13
8.	United States	Items 402, 403 and 404 of Regulation S-K, as amended from time to time, made under the Securities Exchange Act of 1934 of the United States

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International Submarine Cable Licences Regulations

Statutory Authority

Telecommunications Act

Sponsoring Department

Department of Industry

REGULATORY IMPACT
ANALYSIS STATEMENT

Description

The External Submarine Cable Regulations were adopted pursuant to the Telegraphs Act in 1960. The Telegraphs Act consisted of a consolidation of four previous statutes which dated back to 1852. In the Revised Statutes of Canada, 1985, Part IV of the Act dealt with external submarine cables. Its provisions were based on those of an 1875 statute and have been amended over the years to accommodate a changing economic, political and technical environment.

The new Telecommunications Act came into force on October 25, 1993. The new Act is a consolidation of a number of previous statutes which establishes a new legislative and regulatory framework for all telecommunications common carriers regulated by the federal government. The Act applies primarily to telecommunications common carriers under federal jurisdiction who own and/or operate their own transmission facilities. In the Act, these carriers are referred to as "Canadian carriers". The Telecommunications Act also applies to external submarine cable operators, whether or not the definition of Canadian carrier applies to them.

The Act provides that a licence is required for the construction and operation of international submarine cables and ancillary works. The provisions applicable to the licensing of submarine cables are contained in sections 17 to 20 of the Act. Section 19 has recently been amended to broaden the scope of this provision which initially limited the issuance of a licence to corporations. This section now provides for the issuance of licences to persons.

The Telecommunications Act has been amended recently to exempt the international submarine cables from the Canadian ownership and control provisions set out at section 16 of that Act. With this amendment, Canada meets one of its international trade obligations under the Fourth Protocol to the General Agreement on Trade in Services (GATS). This obligation will come into effect on October 1, 1998. Subsection 22(2) of the Act is the provision applicable to regulating the issuance of international submarine cable licences. The Regulations are being modernized to better accommodate a competitive market and to ensure consistency with the Telecommunications Act. The External Submarine Cable Regulations are to be revoked in their entirety and replaced by the International Submarine Cable Licences Regulations. The Standing Joint Committee for the Scrutiny of Regulations supports the modernization of these Regulations.

Alternatives

Maintaining the status quo was unacceptable because the Regulations were adopted pursuant to the Telegraphs Act which was replaced by the Telecommunications Act. The current Regulations are inconsistent with Canada's obligations under the GATS to liberalize the ownership and control of international submarine cables as of October 1, 1998. It was considered necessary to update the Regulations to ensure consistency with the Telecommunications Act and our international trade obligations. Alternatives to regulations were also unacceptable because the nature of this initiative does not allow for self-regulation. Sections 17 and 18 of the Telecommunications Act provide for regulating the framework for international submarine cable licences. The International Submarine Cable Licences Regulations modernize the legal framework for the licensing of international submarine cables.

The draft Regulations include the following policy changes affecting the issuance of a licence for international submarine cables:

1. The Regulations create two new classes of licence, a terminating cable licence and a through cable licence, based on whether or not the cable is connected to telecommunications facilities in Canada and providing telecommunications services in Canada. Licences will no longer be issued according to the type of telecommunications services provided. The new classes of licence are determined by the cable's relationship to other Canadian telecommunications facilities.

Terminating cable licences are to be issued for cables that are landed in Canada and through cable licences are to be issued for cables that pass through Canada but that are not landed.

2. To obtain a terminating cable licence, an applicant will have to be authorized under federal laws to carry on the business permitted by that licence. The applicant will also be required to control the international submarine cable and its associated works and facilities. The Department will no longer impose on the applicant the requirement to meet Canadian ownership and control requirements as previously set out in the External Submarine Cable Regulations. The Telecommunications Act has been amended to exempt international submarine cables from the Canadian ownership and control requirements found at section 16. Under the International Submarine Cable Licences Regulations, terminating and through cable licences will be available to Canadian or foreign entities.

3. The requirements for completing an application will change. In addition to the information that is being requested under the current Regulations, the draft Regulations will require that the following information be submitted:

(a) documentation indicating compliance with the requirements set out in the Canadian Environmental Assessment Act;

(b) information on the financial and technical capabilities, including the business arrangements, that support the construction or operation of the cable, as the case may be, and its associated works or facilities;

(c) information on the human resources, software, hardware and other materials used to construct or operate the cable, as the case may be, and its associated works or facilities;

d) information on the interconnection and interoperability of the cable with telecommunications networks in Canada and outside Canada, and the applicant's strategy for providing access to telecommunications to Canadians at a reasonable cost; and

(e) information on any other measures taken by the applicant to meet the objectives set out in section 7 of the Act.

4. Subsection 22(2) of the Telecommunications Act has been amended to provide for the issuance of a submarine cable licence to corporations and persons other than corporations. The International Submarine Cable Licences Regulations have been drafted to reflect this amendment to the Act.

The substance of the provisions that set out the conditions of a licence, and that are being removed from the Regulations, will not change. These conditions will continue to apply and will be incorporated into a licence pursuant to the Minister's authority under subsection 19(2) of the Act. The Department is regulating when necessary and making use of alternatives to regulations whenever possible. In doing so, the process becomes more transparent and less onerous for industry.

Benefits and Costs

There are no fee changes proposed for international submarine cable licences in this regulatory package. Although there is an increase in the amount of information to be provided by applicants requesting a submarine cable licence, this increase will have little economic impact on the applicants' end users beyond the current practice.

The outcome of these changes is a concise set of Regulations written in plain language that are user friendly, accessible, transparent and understandable. The Department will be regulating where necessary and removing those provisions that can be effectively implemented by other means. The Department is making use of alternatives to regulations whenever possible.

In modernizing these Regulations, the Department is providing for the fair, efficient and effective licensing of international submarine cables and will support the orderly development of Canada's telecommunications system. By supporting the development of Canada's telecommunications industry, the Department is creating an economic environment that is based on competition and that promotes the growth of the telecommunications industry and the creation of jobs for Canadians.

Consultation

This regulatory initiative is of particular interest to Teleglobe Canada, the sole holder of five international submarine cable licences issued by the Minister, and to those few corporations who could potentially apply for a licence in the future. The policy changes reflected in these Regulations have been informally discussed with Teleglobe Canada and with the CRTC.

Consultation with the environmental and local communities will take place, on a licence by licence basis, when an applicant conducts an environmental impact assessment test. The environmental community will be consulted by each applicant for an international submarine cable licence. There is no environmental impact as a result of these Regulations. Any impact on the environment would be the result of specific work undertaken by the licensee. Consultation with the environmental and local communities is therefore not required for the development of these Regulations.

The consultation period for this initiative will be 60 days as required by subsection 22(4) of the Telecommunications Act. During this period, Teleglobe Canada, the telecommunications industry at large, and members of the general public may make their views known.

This initiative has been identified in the Federal Regulatory Plan for 1996 (item IC/96-8-I) and 1997. It was also identified in Industry Canada's Departmental Report on Plans and Priorities for 1998.

Compliance and Enforcement

Officers responsible for reviewing applications for international submarine cable licences will be responsible for the compliance and enforcement of these Regulations with respect to the completion of an application. Compliance with the conditions of licence and other applicable provisions of the Telecommunications Act will be conducted through investigation and enforcement in accordance with Part V of that Act.

Contacts

Allan MacGillivray, Director, Industry Framework, Telecommunications Policy Branch, Industry Canada, 300 Slater Street, Ottawa, Ontario K1A 0C8, (613) 998-4298 (Telephone), (613) 952-0567 (Facsimile), macgillivray.allan@ic.gc.ca (Internet) or Douglas MacEwen, Manager, Industry Structure, Telecommunications Policy Branch, Industry Canada, 300 Slater Street, Ottawa, Ontario K1A 0C8, (613) 998-4420 (Telephone), (613) 952-0567 (Facsimile), macewen.doug@ic.gc.ca (Internet).

PROPOSED REGULATORY TEXT

Notice is hereby given, pursuant to subsection 22(4) of the Telecommunications Act (see footnote b), that the Governor in Council, pursuant to subsection 22(2) of that Act, proposes to make the annexed International Submarine Cable Licences Regulations.

Interested persons may make representations with respect to the proposed Regulations to the Minister of Industry within 60 days after the date of publication of this notice. All such representations must cite the Canada Gazette, Part I, and the date of publication of this notice, and be addressed to Michael Helm, Director General, Telecommunications Policy Branch, Industry Canada, 300 Slater Street, Ottawa, Ontario K1A 0C8.

The representations should stipulate those parts of the representations that should not be disclosed pursuant to the Access to Information Act and, in particular, pursuant to sections 19 and 20 of that Act, the reason why those parts should not be disclosed and the period during which those parts should remain undisclosed. The representations should also stipulate those parts of the representations for which there is consent to disclosure pursuant to the Access to Information Act.

July 15, 1998

MICHEL GARNEAU
Assistant Clerk of the Privy Council

INTERNATIONAL SUBMARINE CABLE LICENCES REGULATIONS

INTERPRETATION

1. The definitions in this section apply in these Regulations.

"Act" means the Telecommunications Act. (Loi)

"terminating cable licence" means an international submarine cable licence issued, amended or renewed under section 19 of the Act for the construction or operation of an international submarine cable landing in Canada, including its associated works or facilities, that extends between any place in Canada and any place outside Canada. (licence de câble terminal)

"through cable licence" means an international submarine cable licence issued, amended or renewed under section 19 of the Act for the construction or operation of an international submarine cable, including its associated works or facilities, that extends through Canada between places outside Canada and does not connect to telecommunication facilities in Canada. (licence de câble de transit)

CLASSES OF LICENCES

2. Subject to section 3, a person may hold the following classes of international submarine cable licences:

(a) a terminating cable licence; and

(b) a through cable licence.

ELIGIBILITY

3. (1) A person is eligible to hold a terminating cable licence if the person

(a) is authorized under an Act of Parliament or any regulations made under it to carry on the business permitted by that licence; and

(b) controls the administration and operation of the international submarine cable, including its associated works or facilities.

(2) A person is eligible to hold a through cable licence if the person controls the administration and operation of the international submarine cable, including its associated works or facilities.

APPLICATIONS

4. An applicant for a terminating cable licence or a through cable licence shall file a written application with the Minister that includes the following information:

(a) the name of the applicant;

(b) the address of the head office of the applicant or, in the absence of a head office in Canada, the address in Canada where service on the applicant may be effected;

(c) if the applicant is a corporation, the province, state or country where the applicant was incorporated and the date of incorporation;

(d) the intended route of the cable and, in the case of an application for a terminating cable licence, the landing points of the cable in Canada;

(e) documentation indicating compliance with the requirements set out in the Canadian Environmental Assessment Act;

(f) the term being requested for the licence, which may not exceed 10 years; and

(g) in the case of an application for a terminating cable licence, information relating to the following matters, for the purpose of assessing the extent to which the applicant meets the Canadian telecommunications policy objectives set out in section 7 of the Act, namely,

FEES

5. An applicant shall pay, at the time of filing the application, a licence fee of $100 for the first year of the term of the licence.

6. (1) The licence fee for each subsequent year of the term of the licence is $100.

(2) The licensee shall pay the licence fee to the Minister annually, on or before the anniversary of the date of issue of the licence.

REPEAL

7. The External Submarine Cable Regulations (see footnote 1) are repealed.

COMING INTO FORCE

8. These Regulations come into force on the date on which they are registered.

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Footnote a

S.C., 1998, c. 1

Footnote b

S.C., 1993, c. 38

Footnote 1

C.R.C., c. 1515

NOTICE:
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