By Michael D. Lipton Q.C. and Chad Finkelstein
Many members of the gaming industry are not aware of provincial gaming regulators' requirements for the prior approval of any corporate change of the registrant. This article examines what a registrant can expect in terms of compliance with provincial gaming legislation in Ontario, British Columbia and Alberta when contemplating a change to the organization, structure or ownership of an entity registered with the respective gaming regulator. A future article to appear in this publication will provide further guidance with respect to the requirements for prior approval by gaming regulators in Saskatchewan, Manitoba, Quebec and Nova Scotia.
Ontario
Under the Gaming Control Act, 1992 ("GCA"), notification to and approval of the Alcohol and Gaming Commission of Ontario ("AGCO") with respect to certain corporate changes of the registrant are essential in order to maintain a valid registration. Pursuant to section 4(3) of the GCA, the registration of a supplier, be it a corporation or partnership shall expire immediately upon any change in the officers and directors of the corporation or membership of the partnership unless the Registrar of the AGCO has consented in writing to the change. This requirement is further clarified by the Regulations to the GCA. Section 34 of Regulation 385/99 states that every registered supplier shall notify the AGCO in writing within 5 days of any change to its officers, directors or partners or of any change in the holders of 5% or more of any of its shares. These two sections combine to mean that if a registrant is making a change to its officers, directors or partners or a change in the holders of 5% or more of its shares, the AGCO must be notified immediately and must ultimately approve of such change.
Therefore, it is good practice that prior to effecting a change in the officers or directors of the registrant that notice of such change be given to the AGCO, and no formal change in that respect be made until the AGCO has granted its approval. With respect to a change in holders of 5% or more of the shares of the registrant, prior approval is not required, but timely notice must be provided in accordance with the GCA, recognizing that the Registrar of the AGCO still maintains the power to approve or disapprove of such transfer.
Further, it is important to note that these provisions only apply to a registrant, and accordingly a parent company of the registrant which is not itself registered with the AGCO is not required to obtain the approval any change in its directors, officers, members or shareholders. However it is good practice to keep the AGCO aware of such changes on a timely basis.
British Columbia
The British Columbia Gaming Policy and Enforcement Branch ("GPEB") mandates that prior regulatory approval of certain corporate changes is required in order for the registrant to maintain valid registration in that province. Section 73(1) of the B.C. Gaming Control Act states that a registrant must deliver notice to the general manager of the GPEB of:
- a change in the directors, officers or associates if the registrant is a corporation;
- a change in the associates if the registrant is a partnership;
- the direct or indirect acquisition of 5% or more of the voting shares of the registrant or associate of that registrant that is a corporation; or
- the direct acquisition of one or more securities issued by the registrant, other than the voting shares already described, if the amount paid up under the securities is equal to or greater than 5% of the aggregate paid up capital of the registrant.
If the registrant includes the parent company, as is sometimes the case, then the requirements for prior approval of a corporate change will reach up the corporate ladder to the parent company.
The prior approval requirements are outlined in subsection 73(2) of the Gaming Control Act which states that notice of the corporate changes described as aforesaid must be given "to the general manager in advance". The general manager will, within 60 days of receiving the notice, either approve or refuse the intended change, or specify a new date on or before which the general manager must decide whether to grant approval. Failure to comply with these requirements of registration may result in a suspension, cancellation or imposition of new conditions of registration.
Alberta
The Alberta Gaming and Liquor Act ("GLA") also contains provisions respecting prior approval and reporting obligations of organizational changes of the registrant. Prior approval of the board of the Alberta Gaming and Liquor Commission ("AGLC") is required when there is a change in the ownership of a registrant, but not a change of control of the registrant. Such change automatically results in the cancellation of the registration requiring the new controlling entity to apply to be registered.
Pursuant to subsection 30.2(1) of Alberta Regulation 143/96 to the GLA, a "proposed sale, assignment or transfer of a portion of a business" that is a sole proprietorship, partnership or privately-held corporation under which activities relating to a gaming registration are carried out "must be reported" to the AGLC and "must be approved by the board prior to the effective date of such sale, assignment or transfer". The GLA does not specify how long prior to the effective date the change in ownership must be reported, however it is good practice to provide timely notice.
Subsection 30.2(2) of the Regulation states that a sale, assignment or transfer of 5% or more of a business that is a publicly held corporation under which gaming activities are carried out must be reported to the AGLC within 10 business days after the effective date of such sale, assignment or transfer and must be approved by the board of the AGLC.
However, under section 30.1 of the Regulation, if the sale, assignment or transfer of a portion of the business under which the gaming activities authorized by a licence or registration are conducted results in a change of control, the licence or registration is cancelled. Such change of control may refer to the sale of 50% or more of the shares of the corporate registrant, or, in the case of a gaming facility, the replacement of the operator with a new third party operator.
As well, pursuant to subsection 30.3(1), the board of the AGLC must approve the acquisition, other than by way of sale, assignment or transfer, of any financial interest in the facility to which the license relates the licensee or the licensee's business prior to the date on which such acquisition takes effect.
In view of these legislative requirements, while preparing for any change in the officers, directors, shareholders, or any other individual or entity which owns a part of or exercises any decision-making authority over the registrant, it is sound practice to carefully review the applicable legislation and advise the gaming regulator before such change takes effect. Failing to comply with these requirements may lead to a suspension or loss of registration, which as experienced members in the industry know, is the most valuable asset a gaming company owns.
Michael Lipton is senior partner and chair of the gaming law section of Elkind & Lipton LLP. He is immediate past president of the IMGL with an international practice in gaming law.
Chad Finkelstein is an associate with Elkind & Lipton LPP & a member of the gaming law section.