Bill C-25 (Historical)

An Act to amend the Canada Business Corporations Act, the Canada Cooperatives Act, the Canada Not-for-profit Corporations Act, and the Competition Act

Part 1 amends the Canada Business Corporations Act, the Canada Cooperatives Act and the Canada Not-for-profit Corporations Act to, among other things,
(a) reform some aspects of the process for electing directors of certain corporations and cooperatives;
(b) modernize communications between corporations or cooperatives and their shareholders or members;
(c) clarify that corporations and cooperatives are prohibited from issuing share certificates and warrants, in bearer form; and
(d) require certain corporations to place before the shareholders, at every annual meeting, information respecting diversity among directors and the members of senior management.
Part 2 amends the Competition Act to expand the concept of affiliation to a broader range of business organizations.

[Mark Schaan]

Sure. This is a long-standing issue as to the degree to which the Canada Business Corporations Act outlaws bearer shares or not. We have had discussions with both Publish What You Pay Canada and Transparency International, the global anti-corruption coalition, as part of our FATF review.

It is the long-standing view of both us and independent legal opinion externally and within the justice department that bearer shares have, in fact, been illegal in Canada under the CBCA since its inception in 1975. Subsection 24(1) of part V of the act says, “Shares of a corporation shall be in registered form and shall be without nominal or par value.”

That has always been the case since 1975, so in our view, bearer shares have always been inadmissible and non-permissible under the act.

What we are changing in Bill C-25 is we are adding a new section under section 29, which is “options”, whereby an individual may hold an option for conversion to a share and that share must be in registered form as per subsection 24(1). What we are changing in proposed section 29.1 is to say you can't issue any more options that are in bearer form, and if someone shows up with one, you have to convert it to a registered share.

What it is right now is an option. Our view is that this would complicate matters because it actually requires the registration of the option as opposed to the registration of the share, so under subsection 24(1) our view is that what we want to register is the share. For the option, we are doing what we believe the act has the power to do, which is to bind corporations to do two things: one, no further options in bearer form, and, two, if anyone shows up with one, you have to convert it.

[Elizabeth May, Green, Saanich—Gulf Islands, BC]

In clause 7 then, this is related to the last NDP motion. It deals with the problem of bearer shares. It's clear that Bill C-25 occupies itself with the subject of bearer shares in dealing with new ones, but it doesn't deal with existing ones. In trying to fit this amendment into the substance and shape of the bill as it now is, I've added a subsection, which you'll find fits in after proposed subsection 29.1(2) on line 32.

It's in the proposed section that deals with bearer shares, so I believe it will not be inadmissible. We certainly tried to make it fit within the clauses of the bill that are currently being considered, and I'll just read the operative words, because there's a lot of language in conversion privilege, option or right, etc. The goal here is this language: anything in bearer form issued before the coming into force of this section may not be exercised until it has been replaced in accordance with proposed subsection 29.1(2).

I think it's really clear from a lot of the evidence that this committee has heard that bearer shares are a problem. Bill C-25 realizes they are a problem, but it leaves the barn door wide open. As Brian Masse has already pointed out, Claire Woodside's evidence was very persuasive, from Publish What You Pay Canada.

Just to quote her, and this relates directly to this amendment, “This change will ensure that criminals are prevented from using existing bearer shares for nefarious purposes.”

I really hope the committee will approve my amendment PV-4.

[The Chair, Liberal, Dan Ruimy]

The amendment seeks to amend subsection 20(6) of the Canada Business Corporations Act. The House of Commons Procedure and Practice, second edition, states on pages 766 to 767:

...an amendment is inadmissible if if proposes to amend a statute that is not before the committee or a section of the parent Act, unless the latter is specifically amended by a clause of the bill.

Since subsection 20(6) of the Canada Business Corporations Act is not being amended by Bill C-25, it is therefore the opinion of the chair that the amendment is inadmissible.

We're going to go to PV-2.

Ms. May.

[Elizabeth May, Green, Saanich—Gulf Islands, BC]

Thank you, Mr. Chair.

Having put on the record my objections to the process, I can proceed right to my amendment. As members may know, these are deemed to have been moved, because I can't move these or vote on them as I'm not a member of the committee.

Going over the evidence, there are a lot of opportunities to really avoid tax evasion schemes and money laundering schemes that were missed in Bill C-25. Relying on the evidence of Publish What You Pay and Transparency International, this amendment, PV-1, moves to increase the level of fine as a sanction in order to encourage them to maintain the records and disclose securities information. The current penalty is too low to do that, in our view.

[The Chair, Liberal, Dan Ruimy]

I'm going to read out a bit of what's going to happen today on clause-by-clause consideration of a bill in committee.

I'd like to provide members of the committee with a few comments on how committees proceed with the clause-by-clause consideration of a bill.

As the name indicates, this is an examination of all the clauses in the order in which they appear in the bill. I will call each clause successively, and each clause is subject to debate and a vote. If there are amendments to the clause in question, I will recognize the member proposing it, who may explain it. The amendment will then be open for debate. When no further members wish to intervene, the amendment will be voted on.

Amendments will be considered in the order in which they appear in the package each member received from the clerk. If there are amendments that are consequential to each other, they will be voted on together.

In addition, to be properly drafted in a legal sense, amendments must be procedurally admissible. The chair may be called upon to rule amendments inadmissible if they go against the principle of the bill or beyond the scope of the bill, both of which were adopted by the House when it agreed to the bill at second reading, or if they offend the financial prerogative of the crown.

If you wish to eliminate a clause of the bill altogether, the proper course of action is to vote against that clause when the time comes, not to propose an amendment to delete it.

Since this is the first exercise for many of us in this room, the chair will go slowly to allow all members to follow the proceedings properly. If, during the process, the committee decides not to vote on a clause, that clause can be put aside by the committee so we may revisit it later in the process.

As indicated earlier, the committee will go through the package of amendments in the order in which they appear and vote on them one at a time unless some are consequential and dealt with together. Amendments have been given a number in the top right corner to indicate which party submitted them. There is no need for a seconder to move an amendment. Once moved, you will need unanimous consent to withdraw it.

During debate on an amendment, members are permitted to move subamendments. These subamendments do not require the approval of the mover of the amendment. Only one subamendment may be considered at a time and that subamendment cannot be amended. When a subamendment is moved to an amendment it is voted on first, then another subamendment may be moved in a committee, or the committee may consider the main amendment and vote on it.

Once every clause has been voted on, the committee will vote on the title and the bill itself, and an order to reprint the bill will be required so that the House has a proper copy for use at report stage.

Finally, the committee will have to order the chair to report the bill to the House. That report contains only the text of any adopted amendments as well as an indication of any deleted clauses.

I thank the members for their attention and wish everyone a productive, happy clause-by-clause consideration of Bill C-25.

Thank you.

I would also like to point out that we have Elizabeth May here today.

[The Chair, Liberal, Dan Ruimy]

Welcome, everybody, to meeting number 50 of the Standing Committee on Industry, Science and Technology, pursuant to the order of reference of Friday, December 9, 2016, Bill C-25, An Act to amend the Canada Business Corporations Act, the Canada Cooperatives Act, the Canada Not-for-profit Corporations Act, and the Competition Act.

Today we are in clause-by-clause and we will be joined by Mark Schaan, director general, marketplace framework policy branch, strategic policy sector, who will offer his expert guidance.

[Clare Beckton, Executive Director, Centre for Women in Politics and Public Leadership, Carleton University]

Thank you. I will be very brief on this.

I'm coming at this from a totally different part of the bill and from a totally different perspective as I was asked to do. Just to let you know, the centre works on advancing women's leadership in all sectors through research programs for advancing women, looking at barriers and opportunities, and creating awareness and partnerships. We are not an advocacy group. We will not put forward positions but look at what the possibilities are in different circumstances given what's being presented.

We have done a number of pieces of research, including recently “A Force to Reckon With: Women, Entrepreneurship and Risk“, looking at how women entrepreneurs look at risk, which is very important for the advancement of women in entrepreneurship, and I would also say, in terms of advancing women on boards, because these are a feeder group for potential participation on boards. We will now be looking at how women entrepreneurs look at innovation, because this is key to the Canadian economy.

One of the things we also did in 2012 was a benchmark study of women's leadership in Canada, and this looked at where women were across the various sectors in terms of senior leadership. When we looked at it, it came out that there was 29% of women, but only when you added in the public sector. When you looked at the private sector, it was 26%, and when you looked across the public sector, it varied from very low percentages in mining, resources, and construction to much higher in the financial sectors and the service industries. That continues to be the case as we look at what's happening in terms of board participation.

I've also been part of the Canadian Board Diversity Council, assisting with its founding through a grant from Status of Women, and I've also been part of their advisory board. One of the things the Canadian Board Diversity Council has been doing is mapping the changes in board representation. We know that we have a comply or explain regime in Ontario, and in a number of other provinces now, 10 other provinces, I believe they're now looking at whether that's been successful.

Just as an example, in 2015, looking at the Financial Post 500, there was 19.5% female representation on boards, and in 2016, 21.6%. Progress is slow at this rate. It will take quite a long time to reach that goal of 30% to 50%, which is what most people would say is appropriate representation.

When I was asked to come here, I took a look at Bill C-25, and this kind of legislation is designed to be a nudge to nudge corporate boards forward, as I'm reading it, without the imposition of quotas. I know that this committee has looked at various options, including quotas. There will be some who say quotas don't work. I think that we have evidence that quotas do work in some countries, depending on the length of time those quotas are given. If you have only a short period of time and corporate boards don't turn over very quickly, then it's not likely to be successful.

Whenever there's talk about there not being adequate feeder groups, we know that is not the case. There are more than enough very highly qualified women to serve on the boards that have positions in Canada. That is something that has been looked at through the Canadian Board Diversity Council, through Catalyst, and through other organizations that have ongoing lists of already pre-qualified women who have gone through.

When I looked at the bill, I looked at how it was put forward. It was put forward as a bill with, as one of its objectives, increasing gender participation on corporate boards that are under the Canadian Corporations Act. But when I looked at the actual legislation, there is no mention of the word “gender” in it. The word is “diversity”, and diversity is not defined as it stands in the current legislation; it's left to regulations.

I tell corporations and others all the time that lumping diversity and gender together without articulating the need to have the larger participation of women on boards does not always work, because we know that women are not a diversity group; they are 50% of the population. As for diversity, yes, bringing women on boards will bring diversity, but if it's left only under the rubric of diversity, you may not get the numbers you're attempting to get.

One of the things the Canadian Board Diversity Council has advocated is aspirational targets. I'm not sure if there have been discussions at this table, but I think aspirational targets are very useful.

I'm not sure the legislation, as I read it, really requires an explanation. Did you actually look at diversity candidates? Did you actually look at women when you were choosing your board members? If you didn't, why didn't you?

Just to put it on the table, I am a lawyer. I practised law with the federal government for many years, and taught it, so I come at the bill from a lawyer's perspective as well. There are some things in the existing legislation that I see as challenges that may not achieve the goals of the legislation, which I think are very positive goals that we need to be moving forward with.

I'll leave it at that. I know you have lots of questions, and we can have a good discussion as a result.

[Claire Woodside, Director, Publish What You Pay Canada]

Thank you.

Good morning, members of Parliament. Thank you for the opportunity to participate in today's hearing.

My name is Claire Woodside, and I'm the director of Publish What You Pay Canada. With me is Mora Johnson, barrister and solicitor, who has been providing us with some legal advice.

Publish What You Pay Canada is part of an international coalition of more than 800 civil society organizations working to increase transparency and accountability in the resource extraction sector.

The public disclosure of beneficial ownership is critical to the global fight against corruption. It will provide governments, citizens, journalists, law authorities, financial institutions, and businesses with information that will help them detect and avoid corruption. It is the first step Canada must take to eliminate the practice of “snow washing”, discussed by Transparency International Canada at a previous hearing.

In the brief circulated this morning, Publish What You Pay Canada makes five recommendations for amendments and additions to Bill C-25. Here I will highlight three of those recommendations.

Firstly, Publish What You Pay Canada recommends that the CBCA be amended to require that non-distributing corporations submit a form to the federal corporate registrar with details of their registered shareholders and beneficial owners. This information should then be included within Corporations Canada's online database.

Secondly, Publish What You Pay Canada recommends amending Bill C-25 to prevent the misuse of bearer shares. The elimination of bearer shares has been identified domestically and internationally as a key step in efforts to increase beneficial ownership transparency.

Regrettably, the current drafting of Bill C-25 will not prevent the misuse of existing bearer shares; nor will it eliminate the shares, as has been stated within government. The current text of the bill prohibits the issuance of new bearer shares and allows for the voluntary conversion of existing bearer shares but does not require that individuals who hold bearer shares register those shares before exercising the rights attached to them.

To prevent misuse of such shares, Bill C-25 should be amended to require that all bearer shares be registered in advance of exercising rights associated with those shares, such as selling or pledging shares. Please see page three of the briefing note provided to you for proposed wording of the amendment. This change will ensure that criminals are prevented from using existing bearer shares for nefarious purposes.

Publish What You Pay Canada's third recommendation proposes amending the CBCA to include higher sanctions for companies that wilfully fail to maintain records and disclose securities information. The current penalty of $5,000 is not sufficiently dissuasive to incentivize companies evading these requirements for tax evasion or criminal purposes.

We recommend increasing the penalty to a maximum of $1 million for companies acting in bad faith in not maintaining or disclosing adequate corporate records. A higher maximum fine will be an important tool in the hands of law enforcement. “Good faith” errors in reporting would not attract the maximum penalty. The higher penalty would be applied in those cases in which the controlling mind of the corporation intended to hide, destroy, or simply not collect legally mandated information.

The proposed amendments will have four important impacts. First, they will enable Canada to fulfill its international obligations. Second, they will help law enforcement detect and investigate crime. Third, they will help banks and other professions, such as real estate agents, comply with Canadian anti-money laundering requirements. Fourth, they will improve the business climate in Canada.

There is mounting global recognition of the critical role that beneficial ownership transparency plays in the fight against corruption and tax evasion. Simply put, beneficial ownership transparency makes it more difficult for individuals to use anonymous companies to commit crimes.

In June 2013, G8 leaders agreed to a set of principles on beneficial ownership transparency. These principles were then reflected in the G20 “High-Level Principles on Beneficial Ownership Transparency”, agreed upon in 2014.

Despite these commitments, a 2016 evaluation by the Financial Action Task Force found that Canada is only partly compliant, or non-compliant, with beneficial ownership transparency recommendations.

While improving beneficial ownership transparency in Canada will require action by both provincial and federal governments, the onus is on the federal government to lead by example and create a public, centralized register of beneficial owners for federally registered companies. The amendment proposed by Publish What You Pay Canada will allow Canada to meet its international commitments and join its peers, including the U.K. and the EU, who have implemented or are implementing public beneficial ownership registries.

Second, increased beneficial ownership transparency will help law enforcement agencies detect crime and pursue criminals. In 2016, the Financial Action Task Force wrote:

Despite corporate vehicles and trusts posing a major [money laundering] and [terrorist financing] risk in Canada, [law enforcement agencies] do not investigate many cases in which legal entities or trusts played a prominent role or that involved complex corporate elements or foreign ownership or control aspects.

Determining the beneficial owner behind a corporation often poses an insurmountable problem for law enforcement agencies, yet anonymous companies are frequently at the heart of corruption and money-laundering schemes. A World Bank study of over 200 cases of grand corruption found that 70% included an anonymous shell company. Furthermore, the UN Office on Drugs and Crime estimates that between $800 billion and $2 trillion U.S. is laundered each year. Improved beneficial ownership transparency is critical to effective investigations involving corporations. This is likely why beneficial ownership transparency has, internationally, been supported by law enforcement bodies.

Third, under Canadian anti-money laundering laws, financial institutions, and other professions such as real estate agents, casinos, and accountants are required to exercise “know your customer” due diligence and report suspicious transactions to authorities. They are not just on the front lines of crime detection, but in many transactions, represent the best, or only, opportunity available for the state to detect suspicious activity. Banks and others are required to ask companies if they are representing third parties, but currently, there is no mechanism for them to verify beneficial ownership information and properly fulfill their due diligence obligations.

For banks and other professions, failing to fulfill anti-money-laundering obligations can result in regulatory fines and reputational costs. This has been seen in other markets, with HSBC, BNP Paribas, Raymond James, and others facing steep fines for violating anti-money laundering rules. Just recently, closer to home, FINTRAC fined an unknown bank $1.1 million for failing to report a suspicious transaction.

A central registry will allow financial institutions and other professions to fulfill their anti-money laundering obligations in a more efficient and less costly manner.

Fourth, beneficial ownership transparency will help mitigate business risk and create a better business climate by enabling those transacting with corporations to know with whom they are really doing business, who the real person is behind the corporation. The CBCA, in allowing for the creation of limited liability companies with separate legal personalities has the benefit of encouraging people to create businesses. At the same time, it actually increases business risks.

While limited liability protects shareholders and business owners from risking their personal assets, it also limits the pool of money available to creditors, employees, and others if the business should run into trouble. In 2015, there were over 4,000 insolvencies filed by Canadian businesses, amounting to net liabilities of over $5 billion, which have to be borne by unpaid creditors and unpaid employees. Creating public access to legal and beneficial owners of corporations will allow companies and financial institutions to know with whom they are really doing business, thus allowing them to reduce risk and make better business decisions.

Despite the numerous benefits, Canada has not joined the global efforts to address beneficial ownership. Instead, we have accepted the risks posed by an opaque system. This must change.

By accepting the amendments proposed by Publish What You Pay Canada, the federal government will demonstrate international and domestic leadership and ensure that Canada is not a magnet for tax evaders, money launderers, and those who finance terrorism.

Thank you.

[The Chair, Liberal, Dan Ruimy]

We have witnesses here, and we're going into the realm of debate while we have witnesses here. I still fail to see the relevance to Bill C-25, which is why we're here and why we have witnesses here.

After we're done with our witnesses, we do have time later on to have a debate about it. In so far as relevance to Bill C-25 and the fact that we have witnesses here, I'm failing to understand where we are with this today right now at this point.

[The Chair, Liberal, Dan Ruimy]

Does this have something to do with Bill C-25?

[The Chair, Liberal, Dan Ruimy]

Welcome everybody to meeting number 48 of the Standing Committee on Industry, Science and Technology. We are continuing our fine work on Bill C-25.

Today we have with us Claire Woodside, director of Publish What You Pay Canada, and Mora Johnson, barrister and solicitor. From the centre for women in politics and public leadership, we have Clare Beckton, executive director.

We're just going to move right into it. You each have 10 minutes.

[Terry Sheehan, Liberal, Sault Ste. Marie, ON]

Thank you.

Bill C-25 makes three key reforms to the process of electing corporate directors. Shareholder participation is more than just voting. How will shareholders benefit from increased clarity and transparency?

Matthew.

[Terry Sheehan, Liberal, Sault Ste. Marie, ON]

Thank you very much to all the presenters today. It was very informative.

My first question is a question that I've asked of staff, I've asked of the minister, and I'm going to ask you. How will Bill C-25 support young Canadians' getting engaged in the boards and in the entire work process?

Would anyone care to start?

[Catherine McCall, Director of Policy Development, Canadian Coalition for Good Governance]

Thank you, Stephen.

Thank you, Mr. Chair, and thank you to the members of the committee for asking us to appear before you.

CCGG strongly urges this committee to support and endorse the CBCA amendments proposed in Bill C-25 and to recommend to the House that those amendments be adopted, keeping intact four key governance enhancements.

First is the requirement to hold individual elections for directors. Not long ago it was common for companies to circulate a form of proxy to shareholders where the options presented were to vote for or withhold from voting for a slate of directors rather than for individual nominees. Individual elections for directors are now a listing requirement on the Toronto Stock Exchange; however, nothing prevents this TSX rule from being reversed in the future. Individual director elections are a fundamental matter of good governance and this rule should be set out in statute.

Second is the requirement that a director's term shall end at each annual meeting of shareholders following that director's election. Again, though such a provision is now a listing requirement of the TSX, nothing prevents this TSX rule from being reversed, and we believe annual elections should be set in statute.

The third governance enhancement to be preserved is the majority voting system for uncontested director elections. We consider this to be one of the key reforms of this bill. The CBCA, as you know, currently provides for a plurality voting system. Under such a system, it is not possible to vote against a director. Rather, a shareholder can either vote for or withhold from voting for a director nominee. Withhold votes are, in effect, an abstention, and they do not count. By way of example, a nominee who owns just one share could vote for him or herself and still be elected. We know of no principled reason why this system should remain. The election of directors is a fundamental right of shareholders, and as such, they should have the ability to cast a meaningful vote either for or against a nominee.

Earlier, Matthew referred to the current TSX listing requirements that companies adopt a majority voting policy. We believe this is an inadequate workaround for a number of reasons. First, again, it could be reversed by the TSX, and second, it only applies to TSX-listed companies and not to the approximately 1,500 venture companies that have access to the public markets. Access to those markets comes with accountability, and the requirement that directors be able to be voted against is not an onerous requirement. I think that even venture companies should be accountable to shareholders.

There have been examples. Even companies with this majority voting policy have ended up in the situation of what are known as zombie directors, where directors that have not received a majority of the votes in favour are kept on by the board. We think that is unacceptable.

Finally, Bill C-25 should retain the comply or explain regime for board diversity, both the gender diversity and the forms of diversity other than gender, as proposed in the regulations. CCGG supports efforts to improve diversity. We have stated for many years that public companies should be composed of directors with a wide variety of experiences, views, backgrounds, and expertise that, to the extent practical, reflect the gender, the culture, the ethnicity, and other characteristics of the communities in which they operate.

Thank you.

[Stephen Erlichman, Executive Director, Canadian Coalition for Good Governance]

Thank you very much.

Mr. Chair, members of the committee, thank you for inviting the Canadian Coalition for Good Governance, colloquially referred to CCGG, to present to you on the topic of Bill C-25. My name is Stephen Erlichman. I'm the executive director of CCGG. With me is Catherine McCall, CCGG's director of policy development.

Before I provide my remarks, let me say a few words to introduce CCGG.

The coalition was founded in 2002 to promote good governance practices in Canadian public companies whose shares are owned by our members. CCGG's members include a wide range of institutional investors, primarily pension funds and third-party money managers, that have an aggregate of approximately $3 trillion in assets under management. Millions of Canadians rely on returns from these investments to fund their retirements. A full list of CCGG's members is available on our website at ccgg.ca.

The coalition is widely recognized in Canada as a thought leader in corporate governance. We are regularly consulted by governments, regulators, and stakeholders for our views. Just yesterday, we intervened at the Supreme Court of Canada in the Livent case because of certain issues we believed were very important in the corporate governance context.

When we last appeared before this committee in 2009, we recommended many of the changes that are in Bill C-25 relating to the governance of public companies under the Canada Business Corporations Act, colloquially referred to the CBCA. We are pleased to return today to offer further comments and suggestions. At the outset, I note that all our recommendations relate to part 1 of Bill C-25, which concerns amendments to the CBCA. In particular, we are concerned with provisions that apply to distributing corporations, the term used in the CBCA for public companies.

To begin, my colleague, Catherine, will address the key provisions of C-25 that should be maintained going forward. Later, I will review recommendations for further improvements to corporate governance under the CBCA.

Catherine.