Recent regulatory changes adding complexity to M&A in Quebec, say lawyers

Two pieces of legislation in Quebec – one recently enacted and the other soon-to-be-enacted – are adding complexity to mergers and acquisitions in the province, say two business group partners at Lavery de Billy LLP.

André Vautour and France Camille Demers say that the province’s new French language law, Bill 96, adds translation work to their transaction practices. They say some non-Quebec parties are surprised by the detailed information requests in the strict new transparency requirements.

Demers primarily practises in transactional and commercial law, and Vautour’s practice includes M&A, technology and entertainment, private equity, venture capital, investment management, and corporate governance, among other areas.

“We noticed in our last transaction that French language was an issue,” says Demers.

Under Bill 96, An Act respecting French, the official and common language of Québec, all written communication between an employer and its employees must be drafted in French.

In transactions involving a French party and a non-French party, the lawyers can become translators and sometimes must draft summaries of the corporate documents so that the purchaser can understand what it is acquiring, says Demers.

The required translation means that due diligence will take longer and be more expensive, says Vautour.

Lawyers must also become more involved in the post-closing, adds Demers. Typically, the client would deal with the court, purchaser, or internal team once the deal closes. But now, they are requesting translation help for license transfers and new applications for permits, she says.

On March 31, amendments from Bill 78, An Act mainly to improve the transparency of enterprises, come into force. The requirements apply to all businesses operating in Quebec, including those incorporated outside the province. These enterprises must make the name and address of their ultimate beneficiaries, shareholders or owners publicly available.

This means that if a US corporation acquires a Quebec business, for example, after the transaction’s close, the business must publicize the owner of the shares or other equity interests in the US corporation, says Vautour.

“The requirement in Quebec goes further than any other in North America,” he says.

Ontario, several other provinces, and the federal government have adopted similar legislation, but they only apply to companies incorporated in their respective jurisdictions, not those doing business from elsewhere. Businesses in these jurisdictions are also not required to make the information publicly available.

Quebec’s rules will be much more in line with the UK and Europe than North America, says Vautour.

“We don't know yet, because the legislation is not in force yet, but it may create issues for some purchasers,” he says.

In Demers’ practice, governmental entities have begun asking for the ultimate beneficiaries of corporations operating in Quebec. Foreign entities, such as those in the US, are usually “quite surprised” to be asked this level of detail, she says.

“In Europe, it's different because they already have similar obligations, so they are quite used to it. They already have the information on hand. But we see some reticence from the American folks.”

I doubt that it will cause a corporation to decide, for instance, not to do business in the province,” says Vautour. “But it may add some issues to certain transactions and some delays in obtaining the information.”