S. 137(2)(b) provides that where the powers of the directors are transferred to another person, the directors are then relieved of their rights, powers, etc. to the same extent. Why is this section necessary and worded the way it is? One reason is, clearly, that the section will reduce confusion where the transfer was unclear about the amount of power left with the transferring directors. Another more serious reason is that, without the requirement that the original transferor is required to give up the powers that they transfer, directors would be able to essentially appoint additional directors by giving them directorial powers, while still keeping their original powers intact. This would be a system with no respect whatsoever for the voting rights of the shareholders.
What would be the effect of an agreement to transfer powers of the directors if that agreement was not included in the articles? s. 137 is a permissive section- it holds that the articles of a company may transfer, in whole or in part, the powers of the directors to manage or supervise the management of the business and affairs of the company to one or more other persons. It does not say that this is the only way to transfer these powers. If this power wasn’t reserved for the shareholders, I think we could use Canadian Jorex Ltd. v. 477749 Alberta Ltd. and Northern Minerals Investment Corp. v. Mundoro Capital Inc., for the proposition that the residual power to do so would then go to the directors. In which case, the transfer would be valid.
Even if the transfer was not valid, if the transferee began acting as a director he or she would become a de facto director anyway. s. 138 would apply: “if a person who is not a director of a company performs functions of a director of the company, sections 142, 231, 234, 251, 335, 347 and 354 and Divisions 3 to 5 of this Part apply to that person (a) as if that person were a director of the company”.
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I agree with your analysis on s. 137 of the BCBCA. I found it interesting that under the CBCA, s. 146 allows a similar transfer of powers, however, this is completed through a “lawful written agreement”, rather than “the articles of a company may transfer”. For BC incorporated companies, since there is the requirement that reference to s. 137 be made in the company’s articles, I wonder what the effect of the difference in wording creates under the CBCA. Could it mean that there is more room for shareholders to fetter the discretion of directors? In closely held corporations, I could see that as a means of increasing shareholder power, but in large publicly held corporations, I feel like it wouldn’t make much of a difference.
Thanks for the response Alexandra. That’s a really interesting point about s.146 of the CBCA act and why the wording is different. The CBCA section requires a “written agreement” and the BCBCA s. 137 requires “a special resolution” or for the provision to have been part of the company’s articles at inception. Special resolution is defined in the BCBCA as a resolution passed by a special majority of shareholder votes or “passed by being consented to in writing by all of the shareholders”.
So…. actually it looks like the CBCA section is more restrictive, as it only gives the green light to written agreements to transfer directorial powers.