Corporate Update

by admin | Jun 30, 2016 | Charity & Not-for-Profit Law

Amendment to Canada Not-for-profit Corporations Regulations

On May 13, 2016, Regulation SOR/2016-98 was registered to amend certain Department of Industry Regulations. Among the changes, section 73 and 83 of the Canada Not-for-profit Corporations Regulations SOR/2011-223 were amended by replacing the Canadian Institute of Chartered Accountants (CICA) Handbook references with the Chartered Professional Accountants Canada (CPA) Handbook. In this regard, the CPA is the new association of professional accountants in Canada that replaces the Canadian Institute of Chartered Accountants. As a result, the names of the handbooks have changed, but the accounting rules remain the same.

Nova Scotia now permits Community Interest Companies

On June 15, 2016, the Nova Scotia legislature passed the Community Interest Company Regulations, which bring into effect the Community Interest Companies Act (the “Act”). At the same time, an order was made by Governor in Council on June 14, 2016, declaring the proclamation of the Act as of June 15, 2016. In a Service Nova Scotia news release on June 15, 2016, it  indicated that Department of Business is working with stakeholders to develop a social enterprise strategy.

The Act received Royal Assent on December 6, 2012. The Act permits companies incorporated under the Companies Act to be designated as Community Interest Companies (“CICs”) if they pursue profits while advancing social causes that are traditionally associated with not-for-profit organizations, such as promotion of health or social and environmental concerns. CICs are required to declare their “community purpose,” provide a community interest plan and report on their plan annually. A “community purpose” means “a purpose beneficial to (i) society at large, or (ii) a segment of society that is broader than the group of persons who are related to the community interest company. The Act also clarified that the following are examples of a community purpose: “providing health, social, environmental, cultural, educational or other services, but does not include a political purpose” or a purpose prescribed under the Act. CICs are restricted in the amount of dividends they may declare, how assets are distributed on dissolution and are required to make financial statements public.

However, the Income Tax Act was not amended to provide special tax relief or tax status for CICs. As such, CICs must comply with the rules for non-for-profits or pay tax as a for-profit entity under the Income Tax Act.

NFP in Norway Found Liable for Employee Taken Hostage in Conflict Area

by admin | May 26, 2016 | Charity & Not-for-Profit Law

In November 2015, an Oslo District Court in Norway found that the not-for-profit Norwegian Refugee Council (“NRC”) was liable for gross negligence in failing to meet its duty of care to its employee, Steve Dennis, who had been injured and kidnapped. NRC is an organization that provides food, shelter and education to refugees all over the world, including conflict zones in Asia, the Middle East and Africa. However, while working for the NRC in 2012, Mr. Dennis was shot and taken hostage for four days in Dabaab, Kenya. Since the time of his rescue, the court found that Mr. Dennis has suffered significant physical and psychological injuries, including post-traumatic stress disorder and depression, for which the court awarded $695,000 in damages. A resource link to an English translation of the decision can be found here, as posted by the Oslo District Court.

In its decision, which has received significant international attention, the court found that “aid organizations are major employers with the same responsibility for their employees as other employers.” In this particular case, NRC had sent Mr. Dennis to Kenya despite expert reports about increased possibility of kidnappings and violence in the area. Furthermore, NRC had previously conducted an internal security review and had found internal weaknesses in its own capabilities to respond to those threats. Although NRC is a widely respected not-for-profit organization in Norway, the court found that despite its “good deeds” the organization’s employees “must however know that their employer covers their back with a satisfactory handling of their security and that they will be taken care of if anything happens.” No appeal of the court’s decision has been announced to date.

Canadian charities and not-for-profits need to be aware of this developing case law, as it is not inconceivable that a similar finding could be reached in Canada if similar facts were to arise. Not-for-profits and charities alike owe their employees, volunteers and potentially agents a duty of care and could be found to be liable in negligence as NRC was in this case. This duty of care to employees and volunteers (among others) exists and needs to be managed effectively, particularly when an organization’s purpose is delivering often life-saving aid and resources in potentially dangerous areas of the world. Addressing the inherent risks associated with many international not-for-profit’s programs must be adequately addressed through due diligence and risk assessment procedures to protect the organization, its charitable property (if it is a charity) and its volunteers, employees and agents. Failing to take proactive action to address varying risks present in different areas of operations exposes an organization and its directors to potentially both civil (like the situation of NRC) and even criminal liability. Just as in the case of NRC, the liability of the organization is ultimately based on how it addressed (or failed to address) risk and liability prior to an event such as kidnapping or injury. There is no defence or leniency for organizations simply because of the organization’s highly laudable and potentially life-saving programs, and the liability cannot be addressed simply ‘after the fact’ in responding to situations. The risks are there, and must be addressed in advance, just as any other for-profit organization, particularly those operating internationally and in zones of varying level of risk and danger.