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New Year’s Update

January 16, 2024

A Look Back on a Great Year

This past year has been another exciting time of growth and good cheer for the SkyLaw team! We travelled around the globe meeting clients in Australia, Dubai and throughout the U.S. and Canada, we grew our team and our client base, and we worked on super interesting transactions. We lived our creed: we do work we enjoy with people we enjoy working with.

Before the holidays, the SkyLaw team had a blast at our annual holiday lunch at the RCYC! Everyone was given $100 cash to spend on a Kris Kringle gift, one of which was a fancy karaoke machine. That led us to an impromptu karaoke session (where we finally got to hear how great a singer Priya Ratti really is), followed by a spectacular evening stroll through the dazzling light display at Casa Loma.

We hope everyone had a splendid holiday season, and we would like to extend our best wishes for a healthy and happy 2024 to all of our incredible clients, contacts, alumni and family members, followers and subscribers. Cheers to the new year!

What’s in store for 2024?

We have so much to look forward to this year!

We are building up our corporate services team and buying more minute book cabinets as the new clients keep rolling in.
We are putting the finishing touches on our online incorporation platform SkyLaunch! We will help ignite new businesses and lead them efficiently through the start-up process.
We will once again be the exclusive author on Canadian M&A for global publisher Chambers and Partners. There are lots of developments to talk about. Stay tuned!
Not-for-profit corporations in Ontario were given three years to get into compliance with the Not-For-Profit Corporations Act, 2010 (not a typo, it was passed in 2010 and came into force in 2021, but that’s another story). If you can believe it, the deadline is this year already: October 24, 2024. We love working to a deadline and expect to be working with a lot more not-for-profit corporations this year.
We are already planning client trips to Montreal, Miami and New York. It has been so wonderful returning to in-person meetings.
We’ve doubled down on our Blue Jays season tickets (well, we actually one-and-two-thirds-ed down because we have had three seats in the TD Clubhouse for several years and we picked up two new seats in the renovated 100 level behind the visitor’s dug-out). (BTW, Kevin blames himself for the Jays missing out on Shohei Ohtani: he had prepared a special SkyLaw Update e-mail blast with the headline “It’s Sho-Time in Toronto!”. Too soon, jinxed it.)

Client Spotlight: MotherLove Ferments Inc.

One of SkyLaw’s long-standing clients frequently makes investments in exciting new businesses and as a result, we get the opportunity to learn all about them. The most recent investment we helped close was in BC-based MotherLove Ferments Inc. – a company committed to crafting a variety of flavours of kombucha and water kefir using only the finest organic ingredients with no artificial additives.

SkyLaw helped with strategizing and documenting the deal structure, including assisting with considerations for updating the shareholder agreement to reflect the terms of the investment.

MotherLove uniquely offers Kombucha in a 6-pack as well as kombucha and water kefir by the keg. We will be selecting a kombucha dispenser for the office so that the SkyLaw team can try out the MotherLove products!

For more information, check out their website: www.motherloveferments.com.

Our Insights and Important Deadlines

Change is afoot for CBCA corporations

A friendly reminder to our clients who own and operate federal (CBCA) corporations that, from January 22, 2024, they will need to file information about “individuals with significant control” (ISCs) with Corporations Canada and some of this information will be made publicly available. We have been contacting clients who may be impacted by this and if you haven’t already responded to our outreach, please do so as soon as possible to make sure your corporation complies with these new requirements when they come into force. See also our blog here for more information.

A key deadline for Ontario not-for-profit corporations approaches

Back in 2010 when the Not-For-Profit Corporations Act, 2010 was originally passed, October 24, 2024 must have seemed impossibly far away. But we’re now about 10 months away from this key date, which is the deadline for Ontario not-for-profit corporations to become compliant with the new Act.

The changes introduced by the Act include certain provisions which must be included in a corporation’s articles, a new standard organizational by-law which is deemed to come into effect if the directors do not pass a by-law of their own, and certain new rules around how a corporation may prepare its financial statements, the kinds of conflicts of interests which must be reported by directors and officers, and enhanced rights for members of a not-for-profit corporation. Check out more details here. We look forward to working with great non-profits this year to help them stay compliant.

Earn-outs in Private M&A: a fertile ground for disputes

We have seen a number of private M&A transactions in the past year with a significant portion of the purchase price being subject to an earn-out. These provisions are notoriously ripe for disputes because the calculations can be tricky and the amounts at stake are often high. We put some of our advice on earn-outs into a new blog that can be found here. The key takeaway is that it is worth the time to draft clear and thorough earn-out provisions based as much as possible on undebatable objective measures.

As a cautionary tale, the high profile dispute in the Delaware courts between Berkshire Hathaway and the billionaire Haslam family (owners of the Cleveland Browns) highlights the importance of clear drafting. Haslam sold Berkshire Pilot Travel Centers, the largest U.S. truck stop chain that includes the Flying J brand. The seller retained 20% of Pilot and had a put option to sell that stake based on the post-closing value of the business (a put option like this can be another way to achieve the same goals as an earn-out). The Haslams claimed Berkshire made a change after closing to the method of accounting used for Pilot without their consent, which reduced the value of the business by US$1.2 billion for purpose of the put option calculation. The dispute turns on the drafting of the provision and which changes Berkshire could make once it took control of the business. Buyers and sellers beware: any post-closing adjustment like this needs to be very carefully drafted, and buyers in particular should think through carefully any changes they might make post-closing and get agreement for those changes in the share purchase agreement.On another note, we try hard to come up with catchy titles for our blogs, but the winner in this category surely has to be the excellent blog from Stewart McKelvey reviewing the case law on earn-outs: Ensuring your earn-out turns out.

Cracking Down on Predatory Lenders: upcoming changes to the criminal interest rate

The turn of the year brought an interesting new development on the commercial lending front: on December 23, 2023, the federal government proposed new Criminal Interest Rate Regulations. The regulations build on the federal government’s amendment last year to the criminal interest rate set out in the Criminal Code, from a 60% effective annual rate to a 35% annual percentage rate.

The criminal interest rate, which had not been previously significantly updated since being introduced in the Criminal Code in 1980, applies to virtually all credit agreements and arrangements in Canada, including instalment loans, lines of credit, auto loans, and credit cards. Although the amendment to the criminal interest rate is not yet in effect and the proposed regulations are only still in draft form, these steps reflect increased governmental scrutiny on predatory lending practices in Canada. The regulations are open for public comment until January 22, 2024.

A Brief Cross-Canada Tour: comparing corporate law requirements across provinces and territories

New Year’s is a great time to look at the big picture. On that note, our recent blogs include some “snapshots” of basic corporate requirements, comparing all of the provinces and territories across Canada.

Would it surprise you to know that of all 13 jurisdictions, only Manitoba’s corporate statute and the federal Canada Business Corporations Act still require any Canadian resident directors?
You might also be interested in which provinces and territories require a company to maintain a beneficial ownership registry (a growing trend as corporate transparency marches forward).
Finally, we found somewhat nerdy enjoyment in comparing how “carrying on business” is defined in each province and territory – they are surprisingly diverse! (A person that “carries on business” within a province may need to register or obtain a license from the applicable province.) The definition for the Yukon Territory, for instance, includes an explicit reference to activities relating to mining and interests in natural resources, while British Columbia specifically excludes an entity if its principal business consists of the operation of ships. It’s kind of adorable.

Three Secrets to Success

When Kevin was at Dalhousie Law School, Sir Graham Day spoke to the students and revealed his three secrets to success:

be the first to arrive and the last to leave each day;
read The Economist; and
…(unfortunately Kevin can’t remember the third one).

Kevin has had a subscription to The Economist ever since, and who knows where he’d be if he could only remember the third key to success.In any event, the suggestion to read The Economist has proven to be invaluable. Bill Gates says he reads The Economist “cover-to-cover” because it provides “good background knowledge”. Charlie Munger, the famously well-read Vice-Chairman of Berkshire Hathaway who passed away recently, said The Economist is “his favourite adult magazine”. This past holiday, everyone at SkyLaw received a subscription to The Economist. We are in good company.

The Economist recently released a new podcast series “Boss Class” that we all enjoyed, hosted by the writer of the “Bartleby” column. He explores current issues around leadership, remote work, team meetings and other hot topics in management with input from some of the world’s most prominent business leaders. Here are a few of the take-aways we had from the podcast:

Priya – “Good leaders have systems, not superpowers.” Exemplifying this insightful quote from the podcast, Andrew Palmer interviews Emma Walmsley, CEO of GlaxoSmithKline, who shares that having a single-page document that sets the purpose of the company provides a clear, shared framework to drive all decisions in the same direction. She is also a fan of using this technique on a day-to-day basis to encourage efficiency of each meeting. On each agenda item for any meeting are the letters “DIA” which stand for “Decision, Input and Awareness”. Identifying each item with one of these letters is a simple trick that encourages accountability and ownership to move things forward at a timely pace. It’s a new process technique that we’ll be trying out at SkyLaw team meetings!

Michael – Business leaders concerned about staff retention would do well to adopt a more thoughtful approach to what motivates employees in a rapidly changing world. It is no longer purely about the money or the ever-elusive concept of “career prospects.” And there is no single best answer to questions such as the appropriateness of hybrid working and the use of technology to enhance (and monitor) employee productivity. Leaders must listen to their employees and meet them where they are, instead of forcing the issue and assuming that what worked for them in the past must also work now. The world has moved on and will continue to move on.

Jen – On the topic of how companies motivate employees to do their best work, all businesses have a mixture of incentives at their disposal, including pay, perks, and purpose. Some notable opinions about how to get the most out of people included: providing an equitable wage (it’s important to pay people enough for them to concentrate on doing well), giving employees the freedom to make choices, making it clear that what they do matters to the business as a whole, and giving them a sense of purpose regarding why your organization exists.

Esta – The chance of having a good meeting goes up if you stick to some common sense rules: 1) Question whether you need a meeting at all. 2) Be explicit about what the meeting is for and if there are any decisions to be made. 3) Involve everyone early so that people are used to contributing. 4) Have a way to capture items you need to discuss further. The SkyLaw team plans to keep these best practices in mind as we go about our meetings moving forward.

Victoria – Robert Noury, the co-founder of Arctic Shores, discusses the idea of using psychometric assessment tools in the early stages of the interview process to ensure hiring success. He feels that resumes can cause biases and subsequently hinder the success of the new employee. These are interesting considerations as we look into ways to improve our hiring processes at SkyLaw.

Andrea – It is helpful for managers to provide specific and clear directions – communication is key. Fitting the task at hand into the bigger picture, such as the broader objectives of the company or the context of a deal or the law, can help team members feel like an important part of achieving a goal or looking after a client’s interests. While the tasks themselves should be clearly set out, team members should be given a level of freedom as to how to go about completing their tasks. Allowing every staff member to showcase their abilities to solve issues outside the box translates to the success of the company as a whole.

Kevin – Google undertook an ambitious project called Project Aristotle to answer the question of what makes a great team. The key take-aways included: the work has meaning and makes a positive impact, the team has clear goals and well-defined roles, team members can depend on one another, and team meetings are psychologically safe environments that encourage the free flow of ideas. SkyLaw plans to have an off-site retreat soon where we can work to implement some of these ideas.

The Future is Bright

In the Fall of 2023, Kevin West and Priya Ratti were invited as guest lecturers for the graduate program on Social Entrepreneurship in the Faculty of Applied Science & Engineering at the University of Toronto taught by Alex Kjorven of Ourboro. (See the full presentation in our Fall Update here).

In December, Priya Ratti returned to serve on a panel of judges, alongside Ben Bisset (Founder of Caboodl), Kelly Burke, (Vice-President of Business Development at Peerage Capital) and Will Duggan (Vice-President Adjacent Business Models at the Co-operators).

The engineering students pitched their impressive social enterprise ideas in a Dragon’s Den style format of presentation and Q&A. With game-changing ideas about turning air into water and sustainable campfires, we are hopeful that the future of humanity is in good hands!

This blog post is not legal or financial advice. It is a blog which is made available by SkyLaw for informational purposes and should not be used as a substitute for professional advice from a lawyer.

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