Publications

Packed with valuable information, our publications help you stay in touch with the latest developments in the fields of law affecting you, whatever your sector of activity. Our professionals are committed to keeping you informed of breaking legal news through their analysis of recent judgments, amendments, laws, and regulations.

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  • Implementation of a deferred proceedings program for enterprises: why wait?

    On October 3 2016, Table Justice-Québec, a roundtable organization grouping the main actors of the law and justice community in Quebec, made public its action plan and proposed 22 measures relating to the administration of justice in Quebec. One of the subjects discussed by the participants to this roundtable was that of increasing the use of alternative dispute resolution measures, such as the non-judicial processing of several adult offences and alternative measures for teenagers. Is it not now time for applying similar measures to legal persons through the implementation of a deferred proceedings program for enterprises? The deferred proceedings agreement, already implemented in several countries such as the United States and England, is defined as a negotiation procedure used in the context of penal and administrative proceedings. When a person collaborates with the prosecuting authority, either by acknowledging the facts giving rise to matter, by paying compensation or a fine or performing rehabilitation, the prosecuting attorney abandons the proceedings pending against that person. As early as 1970, this type of diversion, better known in Quebec as alternative measures for minors or diversion program for adults was put to the test in the context of a pilot project. Moreover, since 1995, a diversion program applicable to some criminal offences applies at the DPCP (Direction des poursuites criminelles et pénales) and also municipal courts. This diversion program allows the prosecutor under the authority of the DPCP to deal with the matter on a non-judicial basis (DPCP directive NOJ-1). Hence, various factors are taken into consideration for the application of the diversion program, such as the specific circumstances in which the offence was committed (degree of premeditation, subjective seriousness, particularly as to the consequences of the offence from the victim’s point of view, degree of participation of the alleged perpetrator and the interest of justice, degree of collaboration, risk of recurrence). Sending a warning letter (or a formal notice only used in the case of breach of a probation order containing a repayment condition) is the mean used to apply this program. The application of this diversion measures program directly reduces congestion in the courts and allow them to process other types of matters more speedily. However, this program does not apply to matters involving legal persons. Enterprises (as well as individuals) who run afoul of penal justice currently cannot avail themselves of the opportunity to avoid judicial proceedings. In the wake of the Jordan case1, would it not be time to implement such a measure for enterprises? In this case, the Supreme Court of Canada reminded all participants in the criminal justice system that they had to make efforts and coordinate in order to make additional structural and procedural changes. The highest court of Canada ordered a stay of the proceedings against Mr. Jordan since he had had to wait for 49 months (between the charges being laid and him being found guilty) to know the outcome of his case. The Supreme Court created a new analysis framework to determine what is a reasonable period of time for undergoing trial within the meaning of section 11(b) of the Canadian Charter of Rights and Freedoms. According the Court, changes must be made. Accordingly, it is highly important for the judicial system to make substantial efficiency gains. In the light of these teachings, it seems to us that public authorities must now consider the implementation of alternative measures for enterprises. Moreover, concerning the advisability of instituting proceedings, it is important to note that DPCP directive ACC-3 currently requires the prosecutor to consider the existence of an alternative solution. Therefore, to the current requirement that prosecutors consider the application of the diversion program in the case of natural persons who committed criminal offences, should be added that of considering the application of a similar program to legal persons. The very efficiency of our judicial system, which, like any other public institution, has limited financial resources, is at stake. Why wait? R c. Jordan 2016 CSC 27 08-07-16.

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  • The importance of the independence of international organizations playing an active role in fighting transnational corruption

    Corruption is a scourge which transcends frontiers. In response to this situation, Canada has chosen to pass the Corruption of Foreign Public Officials Act (hereinafter referred to as the “CFPOA”) in 1998, then reinforced the regime thereof more recently. The difficulty with this Act lies in the fact that the offences must have been committed abroad. International cooperation thus remains essential to its application. The difficulties related to the transnational nature of corruption are real. The construction of a bridge across the Padma River, in Bangladesh, a project with an estimated value of 2.9 billion U.S. dollars, constitutes a typical illustration of effective transnational cooperation leading to the indictment of four individuals under the CFPOA. Last spring, in the context of this case, Justices Moldaver and Côté, writing for the Supreme Court of Canada (hereinafter referred to as the “Supreme Court”) unanimously confirmed the applicability of immunities and privileges conferred upon the World Bank Group (hereinafter referred to as the “World Bank”) and its personnel, who had been for several months refusing to communicate to the four accused individuals some documents pertaining to their informants.1 Indeed, after the World Bank received emails from various tipsters suggesting that bribe promises had been made to Bangladeshi officials responsible for awarding an important contract which it financed, its Integrity Vice-Presidency (hereinafter referred to the “INT”), responsible for reviewing fraud, corruption and collusion allegations, had decided to investigate. In view of its discoveries, the INT had sent part of these emails, of its investigation reports and other documents to the Royal Canadian Mounted Police (hereinafter referred to as the “RCMP”). On the basis of this information, the RCMP had obtained a court authorization to wiretap the private communications of the four individuals, which turned out to be self-incriminating. The Crown then charged the four persons for offences committed contrary to the CFPOA. The judgment of the Supreme Court was rendered at the stage where the four individuals contested the wiretap applications, seeking to have the Court order the communication of all the files of the INT. In other words, they sought to obtain the confirmation of the validity of subpoenas they issued to force two INT representatives to testify. At the outset, the Supreme Court noted that it is essential to protect international organizations that play an active role in fighting transnational corruption against state interference. In the case at bar, the respondent sought to have the senior investigators of the World Bank, who had worked in close collaboration with the various tipsters, appear before the Canadian courts and provide all their notes, memoranda, emails, documents obtained from the tipsters and all their communications of any nature. However, the Articles of Agreement of the World Bank provide that all its files and documents cannot be the subject of a communication order from a judicial body of a member country since they are described as being inviolable. The term “inviolable”, used in the Articles of Agreement, implies the absence of unilateral interference, which was exactly what the accused persons sought. Canada being a signatory of the Articles of Agreement of the World Bank, the Supreme Court confirmed the applicability of this privilege. In so doing, the Court emphasized that it is through compliance with, and recognition of such privilege that international organizations can retain their freedom and independence. Moreover, against the subpoenas issued against its employees responsible for the investigation, the World Bank raised the issue of the immunity of its personnel. The subpoenas in question would not only have forced the communication of documents, but also the testimonies of the investigators. None of the parties was contesting that the investigators were acting in the course of their duties when they collected all the information leading to the indictment of the four individuals. Neither was it contested that the immunity of the World Bank employees under the Articles of Agreement protects them against civil and penal proceedings and also against subpoenas. However, the four accused individuals maintained that since the World Bank had already communicated part of its investigation documents, it has implicitly waived such immunity. The Supreme Court ruled that the subject-matter and purpose of the treaty rather required an imperatively express waiver of the immunity from the World Bank. In the case under review, the World Bank had not waived the privilege. This type of privilege constitutes a protection granted to international organizations against interference from its member states. The legitimization by the state members of these international immunities is essential since organizations such as the World Bank cannot appeal to federal supervisory bodies due to their inexistence. In this case, the Supreme Court meant that it is fundamentally this supranational nature of the World Bank which allows it to fight the universal problem of corruption of public officials more effectively than its member states. An interpretation of its Articles of Agreement which recognizes this fact is therefore to be favoured, all the more so since such Articles of Agreement have been approved by Canada. The risk for corruption of public officials seems to be higher in some territories than in others, for example, in developing countries or in countries where democratic institutions are weaker. However, the risk is not limited to those countries; it remains present in more developed countries. The consequences of a conviction for having participated in a corruption scheme are serious, both from the legal point of view and public opinion. Prevention and awareness-raising of all employees in respect of this issue favour the development of a culture of integrity within your business. The development of internal diligence programs and training aimed at demystifying the issues pertaining to foreign countries with which your company deals also represent potential preferred solutions. Complete reference: World Bank Group v. Wallace, 2016 SCC 15.

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  • Bill 108 : highlights of the new rules on public contracting and the powers of the Autorité des marchés publics

    Last June 8, Carlos J. Leitão, the Minister responsible for Government Administration and Ongoing Program Review and Chair of the Conseil du trésor, tabled Bill 108, An Act to facilitate oversight of public bodies’ contracts and to establish the Autorité des marchés publics. This Bill creates the Autorité des marchés publics, whose mission will be to: examine the contract management of the ministère des Transports and any other public body designated by the government; monitor public contracts for the purpose of analyzing procurement trends and the contracting practices of public bodies and identifying problematic situations that affect competition; examine the tendering or awarding process for a public contract following a complaint, on its own initiative or at the request of the Chair of the Conseil du trésor. It will henceforth be possible for persons and partnerships interested in a public contract to complain about the process of awarding and tendering of the contract, depending on whether the contract is entered into by mutual agreement or granted by way of a call for tenders. In order to process the complaints fairly, public bodies must set up a procedure for receiving and reviewing complaints, which must be made accessible by Internet.   Complaints against the process of awarding a contract by mutual agreement Public bodies can forego the call for tenders procedure applicable to contracts involving an expenditure equal to or greater than the threshold of $25,000 (supply contracts for government departments and bodies) or $100,000 (contracts for professional and technical services or construction work)1 in order to conclude contracts by mutual agreement. However, where a public body does so, it must show that it is abiding by the purposes of the Act respecting contracting by public bodies2 and that the call for tenders procedure would not serve the public interest. In such a case, the public body must henceforth publish a notice of intention in the SEAO (electronic tendering system), at least 15 days before concluding the contract, to allow any company to express an interest in carrying out the contract. If a company expresses an interest and is able to perform the contract in accordance with the requirements and obligations set out in the notice of intention, the public body will be required to proceed by way of a call for tenders or not follow through with its intention to enter into a contract by mutual agreement. If the public body finds that the company does not meet the requirements of the notice of intention, it may conclude the contract with the company initially identified. In all events, the public body will be required to send its decision to the company having expressed an interest in the contract within a certain time period before the scheduled date for concluding the contract, by postponing that date, if necessary. If the company disagrees with the public body’s decision, it may submit a complaint to the Autorité des marchés publics which, after verifying the process for awarding the contract, may order the public body not to proceed with the contract by mutual agreement, or to initiate a public call for tenders if it intends to conclude the contract. The public body will be invited to submit its observations and the reasons for its decision to the Autorité. We note that where there are exceptional circumstances, the Conseil du trésor may nevertheless permit a public body to conclude a contract by mutual agreement that is the subject of an order of the Autorité des marchés publics, if the public body can show that it is in the public interest for the contract to proceed on that basis. If the public body contravenes an order of the Autorité des marchés publics, or it proceeds with the contract awarding process before the Autorité renders its decision, the Autorité may notify the public body that it is resiliation of the contract by operation of law. Complaints against the process of awarding a contract by call for tenders Any interested person may file a complaint with a public body if the conditions provided for in the tender documents do not ensure the honest and fair treatment of the tenderers, or do not allow qualified tenderers to participate in the process. Complaints may also be filed with respect to the process for the certification of goods and the qualification of service providers or contractors. The public body may then amend its tender documents and its certification or qualification process, or dismiss the complaint. In any event, it must send its decision to the complainant within a certain time period prior to the tender closing date, by postponing that date, if necessary. If the complainant disagrees with the public body’s decision, or the decision is not sent within the specified time limit, the complainant may file a complaint with the Autorité des marchés publics which, after verifying the process for awarding the contract, may order the public body to amend its public tender documents or cancel the call for tenders. The public body will be invited to submit its observations and the reasons for its decision to the Autorité. Where there are exceptional circumstances, in such case, the Conseil du trésor may also nevertheless permit the public body to proceed with the public call for tenders that is the subject of the order of the Autorité des marchés publics, if the public body can show that it is in the public interest that it should proceed. If the public body contravenes an order of the Autorité des marchés publics, or it proceeds with the contract awarding process before the Autorité renders its decision, the Autorité may notify the public body that it is resiliation of the contract by operation of law. In addition to the aforementioned powers, the Autorité des marchés publics may appoint an independent person to act as a member of a selection committee for purposes of the awarding of a public contract, order the public body to appoint an independent process auditor, and order the public body to inform the auditor of the composition of the selection committee for his approval. The Autorité des marchés publics will also have the power to make recommendations to the chief executive officer 3 of the public body, and may require that it be informed, within the time period determined by it, of the measures taken by the public body to give effect to its recommendations. Audit and investigative powers of the Autorité des marchés publics In carrying out its functions, the Autorité des marchés publics may: enter the establishment of a public body or any other premises in which it may keep documents; use any computer, equipment or other thing that is on the premises to access data contained in an electronic device, computer system or other medium or to audit, examine, process, copy or print out such data; and require from the persons present any relevant information as well as the production of any book, register, account, contract, record or other relevant document and make copies. Register of enterprises ineligible for public contracts Public bodies will always have the obligation to ensure that the bidders, or the successful bidder, are not named in the register of enterprises ineligible for public contracts before entering into any of the contracts described in section 3 of the Act respecting contracting by public bodies.4 The law will henceforth provide that companies whose application for authorization to contract, or the renewal thereof, is denied, or whose authorization is revoked, are ineligible for public contracts for a period of five years. In this regard, prior authorization to contract need only be obtained by companies that seek to conclude any contract with a public body involving an expenditure equal to or greater than the amount determined by the government,5 i.e. $1 million or $5 million depending on the category of contract. In addition, the government may henceforth determine that an authorization is required, based on specific conditions, notwithstanding that the expenditure involved in the public contract is below the specified threshold. Furthermore, the Conseil du trésor may nevertheless permit a public body to enter into a contract with a company that is ineligible for public contracts if it is in the public interest that the contract be performed by that company, or where urgent action is required and there is a threat to human safety or property. As of the date of publication of this newsletter, Bill 108 was at the study stage. Its final content and the date it comes into force will only be known once it is adopted. Lavery’s Business and Corporate Integrity Group will keep you informed of further developments. Article 502 of the Agreement on Internal Trade. CQLR c C-65.1. These purposes are, among others, to promote public confidence in the public procurement process, transparency in contracting processes, the honest and fair treatment of tenderers, and the opportunity for qualified tenderers to participate in calls for tenders by public bodies, etc. According to section 30 of the Bill, the concept of chief executive officer refers, as the case may be, to the deputy minister, the president or the director general, to the board of governors of a general and vocational college or university-level educational institution, or to the council of commissioners of a school board. Supra, note 2. The contracts described in section 3 are as follows, where they involve public expenditure: 1. supply contracts, including contracts for the purchase, lease or rental of movable property, which may include the cost of installing, operating and maintaining the property; 2. construction contracts to which the Building Act (chapter B-1.1) applies and for which the contractor must hold the licence required under Chapter IV of that Act; 3. service contracts other than contracts to integrate the arts with the architecture and environment of government buildings and sites. The following contracts are also described in section 3 and give rise to the same obligation, whether or not they involve public expenditure: 1. public-private partnership contracts entered into for the purposes of a public infrastructure project for which a public body brings in a contractor to participate in designing, building and operating the infrastructure; 2. any other contract determined by government regulation. Contracts of affreightment, contracts of carriage other than those subject to the Education Act (chapter I-13.3), damage insurance contracts and contracts of enterprise other than construction contracts are considered to be service contracts.  Order in Council 435-2015: Service contracts and subcontracts involving an expenditure equal to or greater than $1,000,000; Order in Council 793-2014: Public-private partnership contracts involving an expenditure equal to or greater than $5,000,000; Order in Council 796-2014: Service contracts and subcontracts and construction contracts and subcontracts involving an expenditure equal to or greater than $5,000,000.

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  • Government agencies, get ready!

    Last October 30, the provincial government announced the creation of 'Passeport Entreprises', an action plan focused on two main points: to facilitate access by businesses to government contracts and make the Quebec government's tendering processes more transparent and rigorous. The government intends to table a Bill to create the office of 'Commissaire aux contrats publics' ('Public Contracts Commissioner'), whose mission would be to ensure the sound management of public contracts. To do so, the current functions of the Autorité des marchés financiers regarding authorization to enter into contracts with the state would be transferred to the Commissioner. The Public Contracts Commissioner is expected to have the power to require that changes be made to call for tender documents, or even to cancel them outright if he or she is of the view that they unduly limit competition, either because they are too restrictive, or because they target a specific product or business where other businesses could meet the same need. Public agencies would be required to implement a systematic and transparent procedure, as an initial recourse, for processing complaints for lack of competition in tendering. Before turning to the Commissioner, an aggrieved company would first have to submit its complaint to the public agency responsible for the call for tenders, which would then be required to assess the complaint. For the time being, the foregoing is still subject to confirmation, since no Bill has yet been published. Lavery's Corporate and Business Integrity Group protects your interests and will closely follow the adoption of this Bill to assist you in taking the necessary measures to bring you into compliance with the new requirements.

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  • The corporate director: Questions and answers

    This 52-page bulletin answers in a practical and simple manner respecting the legal framweork forty-three (43) questions administrators ask or should  ask themselves. It is a very useful tool to promote good governance generating value. Click here to view the complete publication

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  • What precautions should a proposed director take prior to accepting to act as a corporate director? / What are the duties of a member of a board of directors?

    This Need to Know Express is part of a series of newsletters which each answers one or several questions in a practical and concrete way. These bulletins have been or will be published over the next few weeks. In addition, a consolidated version of all the Need to Know Express newsletters published on this topic will be available upon request.These various newsletters, as well as others published on the subject of governance, are or will be available on our website (Lavery.ca/publications – André Laurin). 3. WHAT PRECAUTIONS SHOULD A PROPOSED DIRECTOR TAKE PRIOR TO ACCEPTING TO ACT AS A CORPORATE DIRECTOR? A person who is invited or wishes to become a director should clearly make some prior verifications, including: his interest for the organization and its objectives; the requirements of the position as to time and efforts and his availability in that respect; the actual possibility to make a significant contribution, therefore resulting in added value for the legal person; the quality of incumbent directors, who will be his colleagues if he accepts to act as a director; the receptivity of management respecting sound governance and the help provided by management to directors to enable them to discharge their duties and play their full role; the quality of the existing corporate governance; the financial health of the legal person; the existence of actual or threatened significant proceedings against the legal person; the compliance by the organization with laws and contracts; the existence of adequate directors’ and officers’ liability insurance coverage; the availability of an indemnification undertaking by the legal person in favour of the director; the existence of recent director resignations and the reason thereof; the proportionality of compensation relative to the liability risks (mainly in the case of reporting issuers).Preliminary discussions with the chief executive officer, the chairman of the board and some current and former directors may be helpful in obtaining adequate confirmations in respect of many of these items. However, these discussions should be completed by reviewing documents such as the financial statements, court records, minutes...).A person who is an officer, director or employee of a corporation must also ensure that the new office as director is acceptable to the first corporation. The new office may in fact contravene a policy of the corporation, the contract between the individual and the corporation or the interest of the corporation.The risks to reputation related to accepting to act as director with some legal persons are not to be neglected either. We have recently seen that the reputation of high quality persons who had accepted on a pro bono basis to act as directors of not-for-profit organizations suffered as a result. The media, politicians and even auditors general sometimes draw quick, ill-founded conclusions as to the proper discharge of their duties by directors.4. WHAT ARE THE DUTIES OF A MEMBER OF A BOARD OF DIRECTORS?Incorporating statutes, particularly the Canada Business Corporations Act1 and the Business Corporations Act2 (Quebec), as well as the Civil Code of Québec3 all stipulate two general duties which directors are subject to, that is, the duty of care and the duty of loyalty. The Canada Business Corporations Act stipulates these duties as follows:“122. (1) [Duty of care of directors and officers] Every director and officer of a corporation in exercising their powers and discharging their duties shall (a) act honestly and in good faith with a view to the best interests of the corporation; and (b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.”In addition to these general duties, a director is also subject to many statutory obligations or presumptions of liability or guilt under various statutes, particularly for unpaid salaries and remittance of deductions at source and GST/QST. It is important for directors to be aware of all the statutory obligations and presumptions and know how to recognize them, ensure that the legal person takes appropriate measures in this respect and that the board supervises such measures. _________________________________________1 Canada Business Corporations Act, R.S.C. 1985, c. C-44.2 Business Corporations Act, C.Q.L.R., c. S-31.1 art. 119.3 Civil Code of Québec, L.R.Q., c. C-1991, articles 321 and following.

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  • Is a director required to be a shareholder or member of the legal person? / Who is eligible to become a director?

    This Need to Know Express is part of a series of newsletters which each answers one or several questions in a practical and concrete way. These bulletins have been or will be published over the next few weeks. In addition, a consolidated version of all the Need to Know Express newsletters published on this topic will be available upon request.These various newsletters, as well as others published on the subject of governance, are or will be available on our website (Lavery.ca/publications – André Laurin).1. IS A DIRECTOR REQUIRED TO BE A SHAREHOLDER OR MEMBER OF THE LEGAL PERSON?Subject to the following, the answer to this question is no.However, the governing statute, articles of incorporation, internal or administrative by-law or unanimous shareholder agreement may stipulate specific eligibility conditions.For example, as a non-exhaustive list of examples: the incorporating statute or the by-law of a not-for-profit organization (NFPO), professional corporation or some other legal persons may stipulate requirements as to membership, residence, citizenship, etc.; the articles of incorporation of a corporation or a unanimous shareholder agreement may confer on a shareholder the authority to appoint one or several directors or provide that a director must also be a shareholder.2. WHO IS ELIGIBLE TO BECOME A DIRECTOR?The eligibility conditions are mainly found either in the Civil Code of Québec1 for legal persons governed by it or in the incorporating statute of the legal person, as completed in both cases by the internal or administrative by-law duly adopted by the legal person or a unanimous shareholder agreement.Under all relevant statutes, a director must be a natural person. A legal person cannot be a member of the board of directors of another legal person.Article 327 of the Civil Code of Québec2 stipulates that “Minors, persons of full age under tutorship or curatorship, bankrupts and persons prohibited by the court from holding such office” are disqualified for office as directors. Exclusions which are similar in whole or in part are to be found in most incorporating statutes of legal persons.Most incorporating statutes do not require directors to be shareholders or, in the case of a NFPO, a member of the legal person.Moreover, some incorporating statutes prescribe eligibility conditions, such as citizenship or residence.Some statutes other than the incorporating statutes or some regulations or decisions of regulatory authorities establish prohibitions from acting as a director generally or, in other circumstances, from acting as a director of specific legal persons.In another publication entitled “May a director be removed by the board of directors during his term of office?”3 we discussed some additional eligibility conditions which may be prescribed by the internal or administrative by-law. Some legal person may, for example, wish to impose as an eligibility condition the absence of criminal record to avoid having to file an application with the court under article 329 of the Civil Code of Québec4 to obtain the removal of a director who has been found guilty of an offence pursuant to the Criminal Code.Failure to meet the conditions of eligibility and the loss of eligibility should, in our opinion, result in most cases and for most purposes, in the automatic disqualification of a natural person as a director.Any person who is invited to become a director of a legal person and the legal person itself must therefore verify that the applicable eligibility conditions are met. _________________________________________1 Civil Code of Québec, CQLR, c. C-1991.2 Civil Code of Québec, CQLR, c. C-1991.3 Lavery website - Publications - André Laurin - “The Corporate Director’s Q & A”, “20. May a director be removed by the board during his term of office?”.4 Civil Code of Québec, CQLR, c. C-1991.

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  • Registration Requirements of Venture Capital and Private Equity Fund Managers in Canada: A Favourable Regulatory Framework

    LAVERY: A LEADER IN MONTREAL IN THE PRIVATE EQUITY, VENTURE CAPITAL AND INVESTMENT MANAGEMENT INDUSTRY Creating and setting up private equity and venture capital funds are complex initiatives requiring specialized legal resources. There are very few law firms offering such services in Quebec. Lavery has developed enviable expertise in this industry by working closely with promoters to set up such structures in Canada and, in some cases, the United States and Europe, in conjunction with local firms. Through Lavery’s strong record of achievements, the firm sets itself apart in the legal services market by actively supporting promoters, managers, investors, businesses and other partners involved in the various stages of the implementation and deployment of private equity and venture capital initiatives. The U.S. House of Representatives passed a bill in December 2013 that would exempt many private equity fund advisers in the United States from the provision in the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) that requires advisers with more than $150 million in assets under management to register with the U.S. Securities and Exchange Commission (the “SEC”). The bill’s passage into law remains, however, uncertain. As a result, most private equity fund advisers in the United States remain under the oversight of the SEC.Canada, in contrast, remains one of the very few remaining jurisdictions where most private equity fund managers do not have to register with any securities regulator. When the Canadian Securities Administrators (the “CSA”) proposed the adoption of National Instrument 31-103 – Registration Requirements in 2007, many feared that this would change. A record number of comments made on the original draft in response to such changes led the regulators to clarify, in the final version of the policy adopted along with the new instrument, that the intention of the CSA was not to subject typical private equity funds to such requirements.REGISTRATION AS A PORTFOLIO MANAGERThe CSA indicates that venture capital and private equity funds (and their general partners and managers) (collectively, the “VCs”) are not required to register as a portfolio manager if the advice provided to the fund (and indirectly to the GUILLAUME LAVOIE [email protected] ANDRÉ VAUTOUR [email protected] investors of the fund) in connection with the purchase and sale of securities is incidental to their active management of the fund’s investments (notably as a result of the VC having representatives sitting on the boards of directors of the portfolio companies in which they invest) and if the VCs do not solicit clients on the basis of their securities advice. It must be also clear that the expertise of the manager of the VC is sought in connection with the management of the portfolio companies and that its remuneration is connected to such management and not to any securities advice it might be considered to be giving to the fund and its investors.REGISTRATION AS AN INVESTMENT FUND MANAGERVCs are typically not considered to be mutual funds because of the fact that their units or shares are not redeemable on demand. VCs that have redemption provisions in their organizational documents will typically have a series of important redemption restrictions that prevent them from being considered redeemable on demand. The CSA generally takes the view that where an investment fund allows its investors to redeem the securities they own in the fund less frequently than once a year, the fund does not provide an “on demand” redemption feature.Further, VCs are generally involved in the management of the companies they invest in. Such involvement can take the form of a seat on a board of directors or a direct involvement in the material management decisions or in the appointment of managers of such companies. As a result, they will not be considered to be “non-redeemable investment funds” as defined in Canadian securities legislation.A VC that is neither a mutual fund nor a non-redeemable investment fund will not be considered to be an “investment fund” for the purposes of Canadian securities legislation. Consequently, its manager will typically not have to register as an investment fund manager.REGISTRATION AS A DEALERWith regards to the dealer registration requirement, one must determine if the manager can be considered to be “in the business” of trading in securities. “Trading in securities” includes the sale of securities of the fund but also the simple act of soliciting potential investors on behalf of the VC. Determining factors in making such assessment will be (i) whether the manager is carrying on the activity of trading securities with repetition, regularity or continuity, (ii) whether it is being, or expected to be, remunerated or compensated for such activity and (iii) whether it is directly or indirectly soliciting investors. Based on these factors, most VCs will not normally be considered to be in the business of trading in securities.VCs solicit investors to invest in the fund, but this will typically be done for a limited period of time, without repetition, regularity or continuity and will normally be incidental to the involvement of the manager in the management of the portfolio companies. Further, the manager will typically not receive any compensation for its fund raising. Its compensation will rather relate to the management of the portfolio investments themselves in the form of a management fee and of a carried interest in the profits generated by these investments. These factors will normally allow the VC to be able to consider that it is not in the business of trading in securities.VCs that have a dedicated sales/marketing team or that have formed funds with open commitment and investment periods that regularly raise capital and invest such capital in portfolio companies should, however, be careful as to whether this reality may cause them to be characterized as being in the business of trading in securities. Given the ambiguity of the law in this respect and that such determination is fact-specific, some institutional investors may require that the promoter of the fund registers as an exempt-market dealer even when an argument can be made that no registration is required.In the context of the foregoing regulatory framework and in light of the growing Canadian private equity market, Canada can be an interesting market for private equity fund managers to launch a first venture capital or private equity fund without having to immediately bear those expenses mandated by the registration process with a securities regulatory authority.

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  • Proposed General Anti-treaty Shopping Rule : Private Investment Funds Will Need to Play it Safe

    LAVERY: A LEADER IN MONTREAL IN THE PRIVATE EQUITY, VENTURE CAPITAL AND INVESTMENT MANAGEMENT INDUSTRY Creating and setting up private equity and venture capital funds are complex initiatives requiring specialized legal resources. There are very few law firms offering such services in Quebec. Lavery has developed enviable expertise in this industry by working closely with promoters to set up such structures in Canada and, in some cases, the United States and Europe, in conjunction with local firms. Through Lavery’s strong record of achievements, the firm sets itself apart in the legal services market by actively supporting promoters, managers, investors, businesses and other partners involved in the various stages of the implementation and deployment of private equity and venture capital initiatives. Following the recent public consultations held by the federal government on the issue of treaty shopping, the 2014 Budget proposes to implement in the Canadian domestic law a general anti-treaty shopping rule (“GATSR”) which private investment funds investing in Canada (“Funds”) may have to deal with.Treaty shopping refers to a situation where, for example, a non-resident person who is not entitled to benefits under a Canadian tax treaty uses an entity in a country with which Canada has concluded a tax treaty and, to obtain Canadian tax benefits, earns or realizes income sourced in Canada indirectly through that entity.The GATSR would probably be integrated into the Income Tax Conventions Interpretation Act. Its application would result in denying in whole or in part the benefits claimed pursuant to a tax treaty.The GATSR provisions would provide for the following items: Main purpose provision: Subject to the relieving provision, the purpose of the GATSR would be to deny the benefit of a tax treaty to a person where it is reasonable to conclude that one of the main purposes of the transaction or series of transactions is to allow that person to obtain the benefit. Conduit entity’s rebuttable presumption: It would be presumed that one of the main purposes of the transaction or series of transactions is to obtain a benefit pursuant to such a treaty if the income in question is primarily used to pay, directly or indirectly, an amount to another person (such as a limited partner of a Fund) who would not have been entitled to an equivalent or more favourable benefit had that person received directly the income in question. Safe harbour’s rebuttable presumption:Subject to the rebuttable presumption of use of a conduit entity, it would be presumed that none of the main purposes for undertaking a transaction was for someone to obtain a benefit under a tax treaty if, as the case may be: the person carries on an active business, other than managing investments, in the foreign treaty country and, where the income in question is derived from a related person in Canada, the active business is substantial compared to the activity carried on in Canada by such related person; the person is not controlled, de jure or de facto, by another person who would not have been entitled to the benefit had that person directly received the income in question; the person is a corporation or trust listed on a recognized stock exchange. Relieving provision: The Minister of National Revenue (“Minister”) would, at his discretion, allow the grant of the benefit, in whole or in part, when circumstances reasonably justify it. Some examples of application of the GATSR suggest that a Fund may be targeted by the new rule. A fund which is set up as a limited partnership generally relies on a holding corporation which may be considered by the Minister as a conduit corporation pursuant to the GATSR. Funds should not assume that the legislator will provide relieving transitional rules for current structures, but rather consider right now the implementation of mechanisms to avoid or reduce the effects of the GATSR.

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  • Bill 1 : New Requirements for Public Calls for Tenders

    LAVERY: A LEADER IN MONTREAL IN THE PRIVATE EQUITY, VENTURE CAPITAL AND INVESTMENT MANAGEMENT INDUSTRY Creating and setting up private equity and venture capital funds are complex initiatives requiring specialized legal resources. There are very few law firms offering such services in Quebec. Lavery has developed enviable expertise in this industry by working closely with promoters to set up such structures in Canada and, in some cases, the United States and Europe, in conjunction with local firms. Through Lavery’s strong record of achievements, the firm sets itself apart in the legal services market by actively supporting promoters, managers, investors, businesses and other partners involved in the various stages of the implementation and deployment of private equity and venture capital initiatives. The Integrity in Public Contracts Act, also referred to as Bill 1, has been assented to on December 7, 2012. This Act imposes new requirements on public contracts tenderers. Managers of infrastructure funds have to be familiar with the rules under this Act as they most likely will have to deal with them in the context of an investment or a project involving a public body.AMENDMENTS TO THE ACT RESPECTING CONTRACTING BY PUBLIC BODIESThe Act Respecting Contracting by Public Bodies (“ARCPB”) determines the conditions applicable to contracts between a public body and private contractors involving an expense of public funds. The ARCPB applies to supply contracts, to services contracts and construction contracts entered into with these public bodies, as well as to public private partnership agreements entered into as part of an infrastructure project.Bill 1 amended the ARCPB in order to reinforce integrity in public contracts and control access to these contracts. It further increases the number of public bodies covered by the ARCPB by adding entities such as Hydro-Québec, Loto-Québec and the SAQ.The amendments provides for the implementation of a system to verify that enterprises wishing to enter into contracts with public bodies or municipalities meet the required conditions as regards integrity. Therefore, an enterprise wishing to enter into a contract (or a related subcontract) with a public body for an amount equal to or greater than a threshold determined by the government is required to obtain an authorization from the Autorité des marchés financiers (the “AMF”).The enterprise must generally have obtained this authorization by the date it files its bid. In the case of a consortium, each member enterprise must be individually authorized by that date. An authorization must be maintained throughout the performance of the public contract or subcontract. An authorization is valid for a period of three years and must be renewed upon expiry. The AMF keeps a public register of enterprises holding an authorization to enter into a contract or a subcontract with public bodies. These rules also apply to contracts awarded by towns and municipalities.CONDITIONS FOR OBTAINING AN AUTHORIZATIONAn application for an authorization must be made to the AMF. The contractor must provide with his application an attestation from Revenu Québec, stating that the enterprise has filed the returns and the reports required under tax laws and that it has no overdue account payable to the Minister of Revenue. Lastly, the enterprise must not have been refused an authorization or have had its authorization revoked in the preceding 12 months.Upon receipt of an application for authorization from an enterprise, the AMF sends to the permanent anti collusion squad (Unité permanente anticorruption or “UPAC”) the information obtained in order for the UPAC to make the verifications it deems necessary in collaboration with the Sûreté du Québec, Revenu Québec, the Régie du bâtiment du Québec and the Commission de la construction du Québec (“CCQ”). The UPAC sends to the AMF a report analysing the enterprise compliance with the integrity requirements. The AMF renders a decision on the application for an authorization.DECISION OF THE AMFBill 1 provides for mandatory and discretionary grounds for refusal. Thus, the fact, for an enterprise or related person, of having been found guilty, within the five preceding years, of any offence under various provincial or federal laws listed in Schedule I to this Act will result in the enterprise being automatically denied its application for an authorization. The offences listed in Schedule 1 mainly relate to criminal law and tax laws.If the enterprise applying for an authorization, or if any of its shareholders holding 50% or more of the voting rights attached to the shares of the enterprise, or any of its directors or officers has, in the preceding five years, been found guilty of an offence listed in such Schedule I, the AMF will refuse to grant or to renew an authorization. The AMF may even revoke an authorization if an enterprise or any of its related persons is subsequently found guilty of such an offence.Furthermore, if an enterprise has, in the preceding five years, been found guilty by a foreign court of an offence which, if committed in Canada, could have resulted in criminal or penal proceedings for an offence listed in Schedule I, the AMF will automatically deny the issuance or renewal of an authorization. Lastly, an enterprise found guilty of certain offences described in electoral laws or who, in the preceding two years, has been ordered to suspend work pursuant to a decision of the CCQ will also be denied its application for an authorization.Furthermore, the AMF may also, at its sole discretion, refuse to grant or to renew an authorization or even revoke an authorization already granted to an enterprise if the enterprise fails to meet the high standards of integrity that the public is entitled to expect from a party to a public contract or subcontract. In this respect, the AMF, following an investigation by the UPAC, will review the integrity of the enterprise, its directors, partners, officers or shareholders as well as that of other persons or entities that have direct or indirect legal or de facto control over the enterprise (a “related person”). To that end, the AMF may consider certain elements which are described in the ARCPB, particularly the fact that the enterprise or a related person maintains connections with a criminal organization, has been prosecuted, in the preceding five years, in respect of certain offences or has repeatedly evaded or attempted to evade compliance with the law in the course of the enterprise’s business. The AMF will also consider the fact that a reasonable person would conclude that the enterprise is the extension of another enterprise that would be unable to obtain an authorization or that the enterprise is lending its name to another enterprise that would be unable to obtain an authorization.CONSEQUENCES OF FAILURE TO BE AUTHORIZEDA contractor or subcontractor whose authorization expires, is revoked or denied upon application for renewal is deemed to have defaulted on the public contract or subcontract to which it is a party. In such a case, the enterprise must cease its work, except for contracts where only the obligation to honour the contractual guarantees remains. However, the enterprise may continue to perform the contract if the public body applies to the Conseil du trésor for permission for the continued performance of the contract or subcontract for reasons of public interest and the Conseil du trésor grants such permission. The Conseil du trésor may subject the permission to certain conditions.TRESHOLDS AND APPLICATIONUpon coming into force, the Act provided that the new provisions would apply to public contracts and subcontracts that involve an expenditure equal to or greater than $40,000,000. This threshold has been lowered to $10,000,000 in December 2013. Furthermore, the Act provides that regardless of the amount of the contract, the government may, before March 31, 2016, determine that the rules requiring an authorization apply to public contracts or subcontracts even if they involve a public expenditure amount of less than this threshold or that such rules apply to a category of contracts other than those currently regulated pursuant to the ARCPB. In such a case, the government may stipulate special terms for the applications for authorization that enterprises must file with the AMF in respect of such contracts.Lastly, the Act provides that the government may still before 31 March 2016, require enterprises that are parties to public contracts currently in process to file an application for authorization within the time it specifies. This provision is not limited to the contracts currently in process at the time Bill 1 comes into force and may therefore affect any contract in process before March 31, 2016.

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  • Legal newsletter for business entrepreneurs and executives, Number 17

    BILL 1: NEW REQUIREMENTS FOR PUBLIC CALLS FOR TENDERSNearly everybody talks about it. The Integrity in Public Contracts Act, also referred to as Bill 1, has been assented to on December 7, 2012 after an expedited review process of barely three months. Everybody is talking about it because the Act imposes on tenderers new requirements aiming at curbing fraud and corruption which, according to investigations of public authorities, undermine the construction industry.AMENDMENTS TO THE ACT RESPECTING CONTRACTING BY PUBLIC BODIES The Act Respecting Contracting by Public Bodies (“ARCPB”) determines the conditions applicable to contracts between a public body and private contractors involving an expense of public funds. It applies, among others, to government departments and bodies, educational and health establishments and public transit companies. The ARCPB applies to supply contracts, to services contracts and construction contracts entered into with these public bodies, as well as to public-private partnership agreements entered into as part of an infrastructure project carried out under a public-private partnership within the meaning of the Act respecting Infrastructure Québec.The ARCPB imposes on public bodies the general rule whereby contracts are to be awarded by way of calls for tenders, which is supposed to enable owners to get the lowest contract price through competition between tenderers while affording to tenderers an equal opportunity to get State contracts. This being said, the conclusions of the Duchesneau Report, made following the police investigation of the Marteau Squad on fraud and corruption in the construction industry, and the revelations from the Charbonneau Commission, demonstrate that the call for tenders system for the awarding of public contracts obviously fails to achieve its expected results.Bill 1 accordingly amends the ARCPB in order to reinforce integrity in public contracts and control access to these contracts. It further increases the number of public bodies covered by this Act by adding entities such as Hydro-Québec, Loto-Québec and the SAQ.The amendments implement a system to verify whether enterprises wishing to enter into contracts with public bodies or municipalities meet the required conditions as regards integrity. Therefore, an enterprise wishing to enter into a contract or a related subcontract for an amount equal to or greater than a threshold determined by the government is required to obtain an authorization from the Autorité des marchés financiers (the “AMF”). This rule is also applicable to sub-subcontracts, the amount of which is equal to or greater than such threshold.Subject to transitional provisions, the enterprise must be authorized as of the date it files its bid, except where the call for tenders specifies a different date which precedes the date the contract is entered into. An authorization must be maintained throughout the contract or subcontract. An authorization is valid for a period of three years and must be renewed upon expiry. The AMF keeps a public register of enterprises holding an authorization to enter into a contract or a subcontract. These rules also apply to contracts awarded by towns and municipalities.CONDITION FOR OBTAINING AN AUTHORIZATION An application for an authorization must be made to the AMF using a prescribed form with several schedules, which can be obtained from the website of the AMF. A guide for enterprises wishing to obtain an authorization is also available from the same website. The contractor must also provide with his application an attestation from Revenu Québec, issued not more than 30 days before the date on which the application is files, stating that the enterprise has filed the returns and the reports that it was required to file under fiscal laws and that it has no overdue account payable to the Minister of Revenue. Lastly, the enterprise must not have been refused an authorization or have had its authorization revoked in the preceding 12 months.Upon receipt of an application for authorization from an enterprise, the AMF sends to the permanent anti-collusion squad (unité permanente anticollusion or “UPAC”) the information obtained in order for the UPAC to make the verifications it deems necessary, in collaboration with the Sûreté du Québec, Revenu Québec, the Régie du bâtiment du Québec and the Commission de la construction du Québec. The UPAC sends to the AMF a report on the compliance of the enterprise with the integrity requirements. The AMF renders a decision of the application for an authorization.DECISION OF THE AMF The Act provides for mandatory and discretionary grounds for refusal. The fact, for an enterprise or related person, to be found guilty of any offence under various provincial or federal laws as listed in Schedule I to the Act results in the enterprise being automatically denied its application for an authorization. The offences listed in Schedule 1 mainly relate to criminal law and tax laws.Therefore, if the enterprise which applies for an authorization, any of its shareholders holding 50% or more of the voting rights attached to the shares of the enterprise, or any of its directors or officers has, in the preceding five years, been found guilty of an offence listed in Schedule I of the Act, the AMF refuses to grant or to renew an authorization. The AMF may even revoke an authorization if an enterprise or any of its related persons is subsequently found guilty of such an offence.Furthermore, if an enterprise has, in the preceding five years, been found guilty by a foreign court of an offence which, if committed in Canada, could have resulted in criminal or penal proceedings for an offence listed in Schedule I, the AMF will automatically deny the issuance or renewal of an authorization. Lastly, an enterprise found guilty of certain offences described in electoral laws, who, in the preceding two years, has been ordered to suspend work by a decision of the CCQ or been ordered to pay an amount claimed under subparagraph c.2 of the first paragraph of section 81 of the Act respecting labour relations, vocational training and workforce management in the construction industry will also be denied its application for an authorization.The AMF may also at its sole discretion refuse to grant or to renew an authorization or even revoke an authorization to an enterprise if the enterprise concerned fails to meet the high standards of integrity that the public is entitled to expect from a party to a public contract or subcontract. In this respect, the AMF, following an investigation by the UPAC, will review the integrity of the enterprise, its directors, partners, officers or shareholders as well as that of other persons or entities that have direct or indirect legal or de facto control over the enterprise (a “Related Person”).To that end, the AMF may consider the following factors listed in the ARCPB:1. whether the enterprise or a Related Person maintains connections with a criminal organization;2. whether the enterprise or a Related Person has been prosecuted, in the preceding five years, for any of the offences listed in Schedule I;3. whether an enterprise or a Related Person has been a Related Person of another enterprise which was found guilty, in the preceding five years, of an offence listed in Schedule I, at the time such offence was committed;4. whether an enterprise or a Related Person is under the direct or indirect legal or de facto control of another enterprise that has, in the preceding five years, been found guilty of an offence listed in Schedule I;5. whether the enterprise or a Related Person has, in the preceding five years, been found guilty of or prosecuted for any other criminal or penal offence;6. whether the enterprise or a Related Person has repeatedly evaded or attempted to evade compliance with the law in the course of the enterprise’s business;7. whether a reasonable person would conclude that the enterprise is the extension of another enterprise that would be unable to obtain an authorization;8. whether a reasonable person would conclude that the enterprise is lending its name to another enterprise that would be unable to obtain an authorization;9. whether the enterprise’s activities are incommensurate with its legal sources of financing; and10. whether the enterprise’s structure enables it to evade the application of the ARCPB.CONSEQUENCES OF FAILURE TO BE AUTHORIZED A contractor or subcontractor whose authorization expires, is revoked or denied upon application for renewal is deemed to have defaulted on the public contract or subcontract on the expiry of a period of 60 days after the date the authorization expired or the AMF notified its decision. In such a case, the enterprise must cease its work under any public contract, except for contracts where only the obligation to honour the contractual guarantees remains. However, the enterprise may continue to perform the public contract if the public body, for reasons of public interest, applies to the Conseil du trésor for permission for continued performance of the public contract or subcontract in question. The Conseil du trésor may subject the permission to certain conditions, including that the contractor or subcontractor agrees to the implementation, at the contractor’s or subcontractor’s expense, of oversight and monitoring measures. In the case of bonded contracts, regulations favour the exercise of oversight and monitoring measures by the surety of the enterprise.TRANSITIONAL PROVISIONS The proclaimed target of the government is to submit any contract worth $25,000 and more to the authorization mechanism. However, as more than 24,000 different enterprises on average enter each year into contracts worth in the aggregate between $20,000,000,000 and $30,000,000,000 per year with public bodies, the UPAC and the AMF will obviously not be able to review the files of all the enterprises wishing to enter into contracts with public bodies.The Act therefore provides that, from the day it comes into force, the new provisions apply to contracts and subcontracts that involve an expenditure equal to or greater than $40,000,000 and for which the award process is underway on that date or begins after that date.Furthermore, the Act also provides that regardless of the amount of the contract, the government may, before March 31, 2016, determine that the rules requiring an authorization apply to public contracts or subcontracts even if they involve a public expenditure amount of less than $40,000,000 or that such rules apply to a category of contracts other than those determined in application of the sections in question. In such a case, the Government may determine special terms for the applications for authorization that enterprises must file with the AMF in respect of such contracts. We have seen some examples of the application of this provision since December 19, 2012, since the government, by five different orders in council, has identified 125 contracts of the City of Montreal, the estimated value of which would likely be less than $40,000,000, which would require an authorization. These orders in council have been issued at the request of the City of Montreal, which wanted to subject these contracts to the new authorization regime. Specific application conditions have been made applicable to these orders in council, particularly the following:  a preliminary application for authorization must be filed by each tenderer to the AMF no later than on the deadline for submitting bids; only the applications of the two best ranked tenderers after the bids have been analyzed would be considered by the AMF as being completed; if the contract cannot be awarded to either of those tenderers, the other preliminary applications would be considered completed for the subsequent tenderers until the contract can be awarded.Lastly, the Act provides that the Government may, before 31 March 2016, require enterprises that are party to public contracts that are in process to file an application for authorization within the time it specifies. This provision is not limited to the contracts that are in process at the time the Act comes into force and may therefore affect any contract in process before March 31, 2016, possibly for a contract whose awarding process would have commenced after January 15, 2013. The consequences of this provision are serious since an enterprise which would not obtain its authorization following a request from the government would see its name registered in the register of enterprises ineligible for public contracts (designated under tis French acronym the “RENA”) for a period of five years. Such registration results in a presumption of default under all of its public contracts in process and forces the enterprise to cease its work unless the co-contracting public body obtains from the Conseil du trésor the permission for the enterprise to continue its work, with or without conditions.A first order in council has just been issued under this provision on May 8, 2013, under which the Centre hospitalier de l’Université de Montréal (CHUM) and the Centre Universitaire de Santé de McGill (CUSM) requested the government to require a party to a contract with them to apply with the AMF for the authorization to enter into a contract. This order in council grants to the enterprise 21 days from the date it comes into force to file its application for the authorization to enter into a contract. The order in council adds that if the enterprise fails to provide within the allotted time the information and documents prescribed by the AMF, it will be deemed to have defaulted under the contract within 60 days following the expiry of the 21 days period or the expiry of the time granted by the AMF for providing the information it requested, according to the case. It must be understood from that order in council that should the enterprise fail to provide its application for authorization to the AMF, it will be deemed to have defaulted under the contract.CONCLUSION The new conditions for obtaining a public contract imposed by the Act are demanding but they are no stranger to the legislative framework applicable to the construction industry. In fact, the Building Act was already imposing similar high integrity conditions to enterprises who wish to obtain a licence from the Régie du bâtiment. It does not seem to this day that the Régie du bâtiment has pushed the systematic application of these control rules. However, it must be understood that with Bill 1, unanimously passed by the National Assembly, government authorities intend to exercise strict control over the integrity of enterprises wishing to enter into contracts with the State. These enterprises must therefore ensure that they, as well as their directors, officers and shareholders, have a clean record, failing which they will suffer a purgatory of up to five years with no access to public contracts. Enterprises with a director, officer or shareholder charged with, or found guilty of an offence listed in Schedule I to the Act must distance themselves from such persons if they wish to maintain their right to enter into contracts with the State.

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