Mr. Speaker, I love it when the House gives unanimous consent. It gives me a warm feeling inside. I rise today to speak on Bill S-11, an act to amend the Canada Business Corporations Act and the Canada Cooperatives Act. This is the first time since 1975 that the Canada Business Corporations Act, otherwise known as CBCA, has been amended. Many of these changes are long overdue.
Bill S-11 also contains amendments to the Canada Cooperatives Act. It continues the reform process that recently led to a new statute governing co-operatives, which came into force on December 31, 1999.
At that time, however, some issues required further consultation and are now addressed in Bill S-11. For the most part the changes to the CCA closely follow the amendments to the CBCA and harmonize the rules governing co-operatives with key elements of corporate law.
The CBCA is the main federal law governing corporations in Canada, including large, medium and small enterprises. This act sets out the legal and regulatory framework for more than 155,000 federally incorporated businesses. In Canada corporations have the option of incorporating at the federal or the provincial level. Almost half of the largest companies in Canada are incorporated under the CBCA.
The previous act to amend the CBCA was tabled in the Senate during the last session of parliament and was known as Bill S-19. The bill was before the Senate committee on banking, trade and commerce when it died on the order paper due to the federal election. Nonetheless, the members of the Senate committee heard from 35 witnesses between April and the end of June 2000 and they should be commended for their work.
Bill S-11 is substantially the same as Bill S-19 but incorporates recommendations suggested by stakeholders such as the Canadian Bar Association, the coalition for CBCA reform, the Canadian Co-operative Association and the task force of the churches on corporate responsibility.
The amendments seek to modernize the Canada Business Corporations Act in four areas by: first, recognizing the global nature of the marketplace; second, clarifying the responsibility of corporate directors and officers; third, reducing federal-provincial duplication; and fourth, expanding shareholder rights.
It is an immense understatement to say that business has changed fundamentally since the mid-1970s and it is high time that the Canada Business Corporations Act reflected the transformation to the global economy. We support these changes in principle.
The CBCA currently requires that a majority of directors on a federally incorporated board and on each committee be resident Canadians. Canada is the only G-7 country that imposes such antiquated residency requirements on its businesses.
Bill S-11 would reduce the residency requirement to 25% for boards and entirely eliminate the requirement for board committees. This change is long overdue and should help Canadian companies compete as global players. However, I must say it is characteristic of the Liberal government that sacred cow sectors such as book publishing, telecommunications, transportation and Petro-Canada would be exempt from this reduction. We question the rationale as to why these businesses are not permitted to enjoy the flexibility to appoint directors based on their qualifications and not on where they live.
Another welcome change is the amendment that would allow foreign subsidiaries of Canadian corporations to acquire shares in their parent corporations under limited and clearly defined circumstances. This is mainly for the purpose of acquiring or merging with foreign corporations. These amendments will allow Canadian federally incorporated companies to compete with foreign multinationals while expanding globally.
With an eye to allowing directors to take appropriate risks in their decision making, Bill S-11 would replace the good faith reliance defence for directors with a due diligence one and would allow corporations to pay for defence investigation costs.
To clarify responsibilities of corporate officers and directors, Bill S-11 replaces the current joint and several liability regime with one of modified proportionate liability. This change would mean that every defendant found responsible for a financial loss stemming from an error, omission or misstatement in financial information would be liable only for the portion of the damages that corresponds with his or her degree of responsibility. However, joint and several liability would continue to apply in cases of fraud and to designated categories of plaintiffs such as the crown, charitable organizations, unsecured creditors and small investors.
Bill S-11 also clarifies that when the directors' powers are transferred to shareholders under a unanimous shareholders' agreement, the associated liability and defences are also transferred to shareholders. New shareholders who are not informed that a unanimous shareholders' agreement was in place at the time of their acquisition would be allowed to cancel the transaction.
Bill S-11 seeks to end costly time consuming administrative and legal burdens on federally incorporated businesses by limiting conflicts between federal and provincial statutes and regulations. Amendments would also modernize the wording of the legislation to bring the CBCA up to date with technological and other developments.
With respect to insider trading, Bill S-11 would repeal the federal duplication of provincial insider filing requirements, impose civil liability on persons who disclose insider information, even if those persons did not participate in the transaction, and increase the maximum fine from the current $5,000 to $1 million.
Bill S-11 would repeal the CBCA provisions for takeover bids and would allow the comprehensive codes for the takeover bid regulations under provincial securities laws to prevail.
The provisions restricting financial assistance to directors, officers, employees and shareholders would be eliminated because they have proven to be difficult to apply in practice. Since directors approving financial assistance transactions are already required to act in the best interests of the corporation, they can be sued for failing to do so. This is safeguard enough.
Bill S-11 would allow for greater participation by small shareholders in corporate decision making. It would do so by relaxing the rules under which shareholders communicate among themselves and allowing proxy solicitation to be done through public broadcast or newspaper advertisement instead of by direct mailings. The amendments would encourage corporations to employ new technologies such as e-mail when communicating with shareholders and when conducting shareholder meetings.
The legislation would also liberalize mechanisms for individual shareholders to submit proposals as well as set minimum share ownership and length of ownership thresholds required to submit a proposal. The bill also aims to restrain management's ability to block or refuse proposals from being considered.
Bill S-11 reflects the transformation of business since 1975 with respect to the global marketplace, the electronic revolution and the rise of shareholder rights, as well as the necessity of reducing federal-provincial regulatory redundancies.
The Canadian Alliance therefore supports in principle this legislation. However we will be consulting with interested parties to ensure that the changes in the bill are indeed beneficial to Canadian business.
