ONTARIO RELEASES REGULATION UNDER THE CHARITIES
ACCOUNTING ACT:
By TERRANCE S. CARTER, B.A.,
LL.B.
CHARITY
LAW BULLETIN No. 1 - February 1st, 2001
The Public Guardian & Trustee of Ontario,
through the Ministry of the Attorney General, filed the anticipated Regulation
under Section 5.1 of the Charities Accounting Act on January 19th,
2001 as Regulation 04/01. It is
expected that the Regulation will be published in the Ontario Gazette on
February 3rd, 2001. The full
text of the Regulation is set out at the end of this Bulletin.
The Regulation has been anticipated for almost
three years, as a result of amendments to the Charities Accounting Act
authorizing that Regulations could be adopted by the Attorney General
permitting certain acts involving charitable property that would otherwise
require the approval of the Superior Court of Justice. Section 5.1 authorizes Regulations to be
adopted permitting indemnification of directors and officers, and the purchase
of directors and officers liability insurance by a charity. Section 5.1 also authorizes Regulations to
allow the pooling of restricted funds held by a charity, as well as permitting
directors to receive remuneration from the charity on which they serve as board
members.
Although Regulation 04/01 permits charities to
indemnify and/or purchase liability insurance for directors and officers under
certain circumstances, as well as co-mingling special purpose trust funds,
provided that certain records are maintained, the Regulation does not at
this time permit directors of a charity to receive remuneration from a
charity. The Public Guardian and
Trustee has indicated that further Regulations dealing with remuneration of
directors may be introduced in the future, but at the present time there is no
remedial Regulation to provide relief from the common law rule in Ontario that
directors of a charity have a trustee-like fiduciary obligation not to put
themselves in a conflict of interest by receiving remuneration from the charity
on which they serve as a director.
The omission in the Regulation to address the
thorny issue of remuneration of directors will no doubt be a significant
disappointment to many charities and their legal counsel who had hoped for
remedial provisions to be included in the anticipated Regulation. As a result, it will be incumbent upon
charities and their legal counsel to review the corporate by-laws of a charity
to ensure that directors are not permitted to receive remuneration, other than out-of-pocket
expenses, or alternatively to proceed to obtain a consent order permitting
remuneration of directors in accordance with Section 12 of the Charities
Accounting Act.
In relation to the authority given to a charity
in the Regulations to indemnify and/or purchase directors and officers
liability insurance, there are a number of mandatory considerations that a
board of directors will need to consider before proceeding with indemnification
of directors and officers on the purchase of liability insurance. The mandatory criteria and conditions that
must be met are set out under Section 2 of the Regulations and should be
carefully reviewed.
In relation to the authority in the Regulations
permitting co-mingling of special purpose trust funds by a charity, the list of
mandatory records that must be maintained by a charity in Section 3 of the
Regulations will prove to be very onerous.
When all of the applicable requirements are taken into account, a
charity may very well decide that it may be simpler to maintain each special
purpose trust fund in a separate account for investment purposes
notwithstanding the possible lower rate of return for the overall
portfolio. It will therefore be
important for the board of directors of a charity to weigh the benefits to be
realized from combining special purpose trust funds against the significant
list of administrative and financial records that must be maintained in order
to operate a pooled special purpose trust fund.
A more detailed commentary concerning the
effects of these new Regulations will appear in the next issue of Charity
Law Update.
DISCLAIMER:
This Legal Update is provided as an information service to our clients
and is a summary of legal matters. It is not meant to be a legal opinion.
Readers are cautioned not to act on information provided herein without seeking
specific legal advice with respect to their unique circumstances. Comments and
suggestions are welcome.
BARRISTERS, SOLICITORS & TRADE-MARK AGENT
211 Broadway, P.O. Box 440
Orangeville, Ontario, L9W 5G2
Telephone: (519) 942-0001
Fax: (519) 942-0300
Terrance S. Carter practices at Carter and
Associates in Orangeville, Ontario,
And specializes in the area of charity and
not-for-profit law.
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REGULATION MADE UNDER
THE CHARITIES ACCOUNTING ACT
APPROVED ACTS OF EXECUTORS
AND TRUSTEES
Ontario Regulation 04/01
Filed: Jan. 17, 2001
Gazette: Feb. 3, 2001 (proposed)
APPROVAL OF SPECIFIED ACTS
1. (1) The acts authorized by this Regulation that would otherwise
require the approval of the Superior Court of Justice in the exercise of its
inherent jurisdiction in charitable matters shall be treated, for all purposes,
as though they had been so approved.
(2) Subsection
(1) does not constitute authorization of an act that conflicts with one of the
following in a particular case:
1. The will or the instrument in writing relating to the property.
2. A court order relating to the will or instrument or relating to
the property.
(3) An executor or trustee must maintain records demonstrating that he,
she or it has complied with the requirements of this Regulation when engaging
in an act that is authorized under subsection (1).
(4) An executor or trustee is not required by virtue of this Regulation
to give any indemnity or to make any payment.
AUTHORIZATION TO INDEMNIFY
2. (1) In the circumstances and subject to the restrictions set out
in this section, an executor or trustee and, if the executor or trustee is a
corporation, each director or officer of the corporation may be indemnified for
personal liability arising from their acts or omissions in performing their
duties as executor, trustee, director or officer.
(2) An executor, trustee, director or officer cannot be indemnified for
liability that relates to their failure to act honestly and in good faith in
performing their duties.
(3) In the circumstances and
subject to the restrictions set out in this section, insurance may be purchased
to indemnify the executor, trustee, director or officer for the personal
liability described in subsection (1).
(4) The terms of the
indemnity or insurance policy must not impair a person’s right to bring an
action against the executor, trustee, director or officer.
(5) The
executor or trustee or, if the executor or trustee is a corporation, the board
of directors of the corporation shall consider the following factors before
giving an indemnity or purchasing insurance:
1. The degree of risk to which the executor, trustee, director or
officer is or may be exposed.
2. Whether, in practice, the risk cannot be eliminated or
significantly reduced by means other than the indemnity or insurance.
3. Whether the amount or cost of the insurance is reasonable in
relation to the risk.
4. Whether the cost of the insurance is reasonable in relation to
the revenue available to the executor or trustee.
5. Whether it advances the
administration and management of the property to give the indemnity or purchase
the insurance.
(6) The purchase of
insurance must not, at the time of the purchase, unduly impair the carrying out
of the religious, educational, charitable or public purpose for which the
executor or trustee holds the property.
(7) No indemnity shall be
paid or insurance purchased if doing so would result in the amount of the debts
and liabilities exceeding the value of the property or, if the executor or
trustee is a corporation, render the corporation insolvent.
(8) The indemnity may be
paid or the insurance purchased from the property to which the personal
liability relates and not from any other charitable property.
(9) If the executor,
trustee, director or officer is deceased, the indemnity or the proceeds of the
insurance may be paid to his or her estate.
COMBINING PROPERTY HELD FOR RESTRICTED OR
SPECIAL PURPOSES
3. (1) In this section,
“contributed
property” means, in respect of an individual property, additional property that
is added to, and forms part of, a pre-existing individual property.
(2) In the circumstances and subject to the restrictions described in
this section, an executor or trustee may combine property received by the
executor or trustee for a restricted or special purpose with other property
received by the executor or trustee for another restricted or special purpose
and may hold the combined property in one account in a financial institution or
invest it as if it were a single property.
(3) The property may be combined only if it advances the administration
and management of each of the individual properties to do so.
(4) All gains, losses, income and expenses must be allocated rateably,
on a fair and reasonable basis, to the individual properties in accordance with
generally accepted accounting principles.
(5) The executor or trustee must maintain the following records for each
of the individual properties, in addition to such other records as may be
required by law:
1. The value of the individual property immediately before it
becomes part of the combined property, and the date on which it becomes part of
the combined property.
2. The value of any portion of the individual property that does
not become part of the combined property.
3. The source and the value of contributed property relating to an
individual property, and the date on which the contributed property is
received.
4. The value of the contributed property immediately before it
becomes part of the combined property, and the date on which it becomes part of
the combined property.
5. The amount of the revenue
received by the combined property that is allocated to the individual property,
and the date of each allocation.
6. The amount of the expenses paid from the combined property that
are allocated to the individual property, and the date of each allocation.
7. The value of all distributions from the combined property made
for the purposes of the individual property, and the purpose and date of each
distribution.
(6) The executor or trustee
must maintain the following-records for the combined property, in addition to
such other records as may be required by law:
1. The value of each individual property that becomes part of the
combined property, and the date on which it becomes part of the combined
property.
2. The value of contributed property that becomes part of the
combined property, the date on which it be comes part of the combined property,
and details of the individual property to which the contributed property relates.
3. The amount of the revenue received by the combined property, the
amount allocated to each individual property and the date of each allocation.
4. The amount of the expenses paid from the combined property, the
amount allocated to each individual property and the date of each allocation.
5. The
value of all distributions from the combined property made for the purposes of
an individual property and the purpose and date of each distribution.