External Affairs

Question 1

Corporation has a duty to:

Answer 1

• Limited liability of corporations
• Liability covered by tort and contract law
• Legislation enacted to protect stakeholders in a corporation, including:
  
  • Employees
  • Creditors
  • Investors
  • General public
  • Environment

Question 2

Regulatory Offenses

Answer 2

• Regulatory offences resemble traditional criminal law because, in order to protect the public interest, they punish those who ignore the rules; however, the penalties are usually less serious

Question 3

Requirement of Mens Rea (and when it is not needed)

Answer 3

• Mens Rea = requirement of intent, but with regulatory offenses, there is no need for this
• no mens rea is necessary when there is absolute liability

Question 4

Is there a minimum issued capital requirement for corporations?

Answer 4

• no minimum investment requirement to start a corporation beyond the cost of incorporating
• lack of capital = lack of ability to pay creditors particularly debts arising from tort or breach of K
• raise capital by selling shares

Question 5

What does the CBCA(The Canada Business Corporation Act) do?

Answer 5

CBCA covers protection of creditors

• Share capital cannot be repaid by way of dividends or redemption of shares if the transaction will render the corporation insolvent
• Insolvency: having liabilities in excess of the realizable value of one’s assets or being unable to pay one’s debts as they fall due
• Where a payment or redemption is made and causes insolvency – directors may be held personally liable (called the solvency test)

Question 6

What does the Maintenance Test do?

Answer 6

• Corporation cannot declare a dividend where:
  
  • a. The corporation is, or would after the payment be, unable to pay the liabilities as they become due; and
  • b. If the realizable value of the corporation’s assets would thereby be less than the aggregate of its liabilities AND its stated capital of all classes

→ means they can’t take the money out of the company

Question 7

What does the securities legislation do?

Answer 7

Governed by Ontario Securities Commission

• Two Broad goals:
  
  • Prevent and punish fraudulent practices; and
  • Require full disclosure of financial information to prospective buyers of shares and bond

Question 8

What they do to accomplish these goals - protect investors

Answer 8

• Licensing brokers and other agents to deal in securities
• Requiring corporations to publish a prospectus
• Requirement of ongoing disclosure
• Regulates practices of takeovers or reorganizations of corporations

Question 9

Corporate Governance: Requirements of IPO

Answer 9

• Independence: Decision-makers should be free of conflicts.
• Transparency: Decisions should be made through an open process.
• Disclosure: Information should be available to the public.
• Accountability: Decision-makers should be responsible for their conduct.
• Checks and balances: Internal structures should bring irregularities to light.
• Prospectus - gives info. to buyers
• Continuing disclosure

Question 10

Civil Liability of Corporations: Tort Liability

Answer 10

• vicarious liability

Question 11

Indoor Management Rule

Answer 11

• Indoor management rule: An innocent third party may rely upon the regularity of a corporate act, just as he may rely upon the apparent authority of an agent, if it is reasonable for him to do so in the circumstances.

Question 12

How can Corporations Commit Crimes?

Answer 12

• Standard: “beyond a reasonable doubt”
• Actus Reus – the guilty act
• Mens Rea – the guilty mind
  
  • Mens Rea offences
  • Strict Liability offences
  • Absolute liability offences (cannot apply to criminal acts that carry a term of incarceration as a penalty)
  → to have a murder charge, you have to prove both, you did the act + you intend to kill the person

Question 13

The “Directing Mind” Principle

Answer 13

• Any person who has policy making authority can be construed as the “directing mind” and can therefore fulfill the mens rea requirement for the corporation to be convicted
• a corporation can be charged with fraud
• if the person is the one running the corporation and is doing the fraud, they are the directing mind

-> it can be hard to tell who was behind the wrongful act, if it was the director or if it was the person lower

Question 14

How is The Criminal Code’s Test different from the directing mind principle?

Answer 14

Changed the directing mind principle:

• First, the physical act and mental intent of any offense are not required to be found in the same person. Corporate criminal liability can be established in multiple employees with different responsibilities.
• Second, the physical act may be committed by virtually any employee or contractor or an aggregate of them.
• Third, corporate mens rea may be found not only in those with policy-making authority but also in a senior officer or employee with operational responsibilities.

Question 15

Criminal Code’s Test: Prove Offense

Answer 15

• In respect of an offence that requires the prosecution to prove negligence, and organization is a party to the offence if
  
  • a)Acting within the scope of their authority i.One of its representatives is a party to the offence, or ii. Two or more of its representatives engage in conduct, whether by act or omission, such that, if it had been the conduct of only one representative, that representative would have been a party to the offence; and
  • b)The senior officer who is responsible for the aspect of the organization’s activities that is relevant to the offence departs – or the senior officers, collectively, depart – markedly from the standard of care that, in the circumstances, could reasonably be expected to prevent a representative of the organization from being a party to the offence

Question 16

Criminal Code Offences Types

Answer 16

• fraud, whistleblowing, market manipulation

Question 17

Reasons for Sentencing

Answer 17

• Denounce wrongdoing
• Protect the public
• Rehabilitate the offender i.e. deter the offender from repeating the offence and promote acceptance of responsibility for one’s actions
• Deter others from committing the offence
• Repair harm done
• Promote public confidence

Question 18

Problems in Punishment

Answer 18

• Fines = Increase costs to consumers
• Incarceration = Can’t imprison the corporation, Difficulty in widely held corporations in determining the person responsible (actus reus & mens rea) beyond a reasonable doubt

Question 19

Liability for Environmental Officers: defences

Answer 19

• Regulatory offence
• Importance of public safety and protection of the environment
• actors are held liable, but also the officers and directors
• Presumption of negligence (can be refuted)
  
  • ex. oil spills
  • corporations have to prove they did their due diligence and not the judge having to prove guilt by;
    
    1. Effective system to prevent offences is in place
    2. Regular monitoring of that system
    3. Implement improvements where ever identified
    4. Keep up to date on technological and scientific advancements

Question 20

Standard of Care of Directors and Officers

Answer 20

• Need for expertise when in engaged in hazardous activities
  
  • Held to the higher standard of the specialized skill and knowledge in the area; or
  • If no skill and knowledge – then failed to employ the necessary expertise

Question 21

Sentencing for Environmental Offenses: Reasons for punishment

Answer 21

Reasons for punishment:

- Protect the public
- Deter and rehabilitate offenders
- Promote compliance with the law
- Express public disapproval of the action

Question 22

Sentencing for Environmental Offenses: Factors to be considered in determining Sentence

Answer 22

• Nature of the environment affected
• Extent of the damage actually inflicted
• Deliberateness of the offence
• Attitude of the defendant
• Attempts to comply with the Regulations