Evidence of meeting #42 for Industry, Science and Technology in the 40th Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was cbca.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

Colette Downie  Director General, Marketplace Framework Policy Branch, Department of Industry
Cheryl Ringor  Director, Compliance and Policy Branch, Corporations Canada, Department of Industry
Wayne Lennon  Senior Project Leader, Corporate and Insolvency Law Policy and Internal Trade Directorate, Department of Industry
Coleen Kirby  Manager, Policy Section, Corporations Canada, Department of Industry

3:30 p.m.

Conservative

The Chair Conservative Michael Chong

Good afternoon, everyone. Welcome to the 42nd meeting of the Standing Committee on Industry, Science and Technology, this November 4, 2009.

We're here pursuant to the order of reference of Wednesday, April 22, 2009, and pursuant to section 136 of the Canada Business Corporations Act, to conduct a statutory review of the act.

Before us today, we have four witnesses from the Department of Industry: Madam Downie, Mr. Lennon, Madam Kirby, and Madam Ringor. Welcome to you all.

We'll begin with ten minutes or so of opening statements from the department, if they have them, and then we'll proceed to questions and comments from members of the committee.

Before we do that, I just want to mention to members of the committee that there have been a number of Governor in Council appointments made, which have been sent to the clerk of the committee as a point of information. I'll have the clerk of the committee distribute that information to your offices, if you so wish. It's your right, as members of the committee, to review those appointments. If you want to do that, let the clerk know.

Without further ado, we'll begin with Madam Downie.

3:30 p.m.

Colette Downie Director General, Marketplace Framework Policy Branch, Department of Industry

Thank you very much, and good afternoon.

I'll just start out with a quick note, and an apology, which is that I am going to be referring to a slide deck, but through some kind of miscommunication, we don't have the copies as yet. Somebody is on their way with copies. So I'll make sure that my remarks are self-explanatory. I apologize for that.

Just to expand on your introduction, my responsibility at Industry Canada is as director general for marketplace framework policy. That's my title. I'm responsible for the policy behind the Canada Business Corporations Act.

I am joined by Wayne Lennon, who works with me in the branch. Also joining me is Cheryl Ringor, director of compliance and policy, and a deputy director under the CBCA. Both she and Coleen Kirby, the manager of the policy section at Corporations Canada, are really the feet on the ground, the actual administrators or folks who are in charge of actually making the statute work.

That said, we are here today to help the committee and to answer any questions that you may have. My colleague, Ms. Ringor, and I will start with a brief presentation, which will speak to the provisions in the Canada Business Corporations Act, the amendments that were made in 2001 and the implementation of the act.

Just by way of initial background, corporate law provides a framework for the creation and governance of corporations, by defining rights and responsibilities of the corporation and its shareholders, directors, and managers. It also provides rules around disclosure and transparency, conflict of interest, and the way corporations interact with third parties, just as examples.

The corporate governance framework in Canada is complemented by provincial securities laws, which apply to the way securities markets work and the rules around the operations of those markets. Obviously, a well-managed corporate framework in Canada benefits Canadian society as a whole. It's a fundamental ingredient to increasing Canadian economic prosperity by doing things such as providing certainty to attract investment; to increase our competitiveness as a place to invest; and to assist in the development of innovation—again because it provides that certainty.

Our corporate governance framework is recognized internationally. Delegations from a number of countries have visited Canada specifically to learn more about how the CBCA works, with a view to including some of its features in their own governance framework.

In terms of our framework being recognized internationally, the World Bank's Doing Business 2009 and 2010 ranked Canada second as a place for starting a business--New Zealand was first-- and eighth for ease of doing business, behind Singapore, New Zealand, the U.S., Hong Kong, Denmark, the U.K., and Ireland. The World Economic Forum's Global Competitiveness Report for this year ranked Canada fourth for efficiency of corporate boards of directors and eighth for the protection of minority shareholder interests. In both cases, obviously, a number of factors went into the ranking. It wasn't all about the CBCA, but certainly the CBCA was an important ingredient in those rankings.

Created in 1975,

In Canada, the CBCA has been considered a leading-edge statute in corporate law and has served as the basis for provincial corporate law legislation and implementation. One of the act's main objectives is to balance the interests of corporations and their directors against those of shareholders and creditors, all the while deflecting an unnecessary burden.

So the main objective of the law is to permit the efficient administration of the act while balancing the interests of management, shareholders, and creditors of federal corporations. It contains little administrative discretion, again, to provide that certainty that I referred to before. It does provide some flexibility through regulations and for detailing rules. It provides a comprehensive regime of shareholder remedies.

It is a framework statute, as I mentioned earlier, that also provides for the creation and dissolution...all kinds of reorganization in between federal business corporations. It sets out the basic features and structures of a corporation, establishes corporate governance standards, codifies principles of transparency and accountability, and provides a framework for the interaction of various interested parties, directors, management, shareholders, and creditors. It is not prescriptive about the way that a corporation runs its internal and external business. It actually facilitates the ability of a corporation to arrange those structures in the ways that it sees fit and to adapt as the economy and as the business adapts over time.

Perhaps I'll pass it over to you now, Cheryl.

3:35 p.m.

Cheryl Ringor Director, Compliance and Policy Branch, Corporations Canada, Department of Industry

I'll just do a quick overview of some of the operations.

The number of new incorporations in Canada is about 180,000 to 200,000 a year. Prior to fall 2008 the strong Canadian economy has meant that there was an increase in the number of new incorporations. In fiscal year 2007-2008 it reached a high of 200,000.

The percentage of new corporations that go under the CBCA is between 11% and 12% of the national total, and that's been relatively steady. But with the economic downturn of last year, the preliminary data show that incorporations have declined by about 10% throughout Canada. For CBCA incorporations, we've experienced a reduction of 4% from the previous years, and some provincial registrars have experienced a greater reduction.

What this shows is that even in the midst of the economic downturn the federal corporate statute still remains relevant to incorporators across the country, providing a stable legislative framework for aspiring entrepreneurs.

The biggest change since 2001 in the operations has been the use of online filing. We first introduced online filing for incorporations on January 1, 1999, and the 2001 amendments made it easier to offer more services online. So what we have now for online is 90% of incorporations are done online and 81% of returned filings are also done online. While they're still very popular, because we have reached a penetration rate of 90%, there's still a certain percentage who still want to file by paper or other traditional means. We will continue to offer those means of transacting with us.

Currently there are about 192,000 corporations under the CBCA, and fewer than 1% of those are publicly traded. This indicates that the CBCA is an important framework for tens of thousands of small and medium-sized enterprises across the country. Having said that, the publicly traded corporations, though, of CBCA represent 39% of the TSX Composite Index, and 56% of the TSX 60 Index is incorporated under the CBCA. That's excluding banks and other financial institutions.

So that's the broad overview from the operational side. I'll just pass it over to Colette.

3:40 p.m.

Director General, Marketplace Framework Policy Branch, Department of Industry

Colette Downie

I'll give a very quick thirty-second history of the CBCA. As I mentioned, it was introduced in 1975, and in 2001 a set of very comprehensive amendments were made. These were the result of extensive national consultations across the country involving hundreds of stakeholders and soliciting a large number of recommendations and suggestions for change. The resulting amendments directly reflected the concerns of those stakeholders. We would be happy to provide more detail about the extent of those consultations and those changes.

In 2004, after the Enron and WorldCom scandals, Industry Canada issued a discussion paper asking stakeholders what amendments might be necessary to the CBCA. Among the issues under discussion in that paper were the independence of directors and auditors, the certification of financial statements by the CEO of corporations, the separation of the positions of CEO and chairman of the board, and whether increases in penalties were needed for infractions of the relevant provisions of the CBCA. As a result of those consultations, there was little consensus among stakeholders about how the federal government should address those issues. However, most felt that since the CBCA applies only to a percentage of publicly traded Canadian corporations, these matters should be left to provincial securities regulators.

A second discussion paper was issued, in 2007, asking whether the government should enact a stand-alone piece of legislation to establish procedures on the transfer of securities or whether this should be left to the provinces. The prevailing view as a result of the consultations was that the federal government should not introduce its own security transfers act, but rather that the provinces would be in a better position to regulate the procedures around transferring shares and securities of corporations.

To sum up, the CBCA appears to be a well-functioning statute. It's responsive and flexible, and since 2001 there has been little substantive or significant demand for amendments to the CBCA. However, that's not to say, as is the case for any piece of legislation, that it is perfect. Because of the continuing evolution of the marketplace, modernization may be required. We suspect stakeholders, specifically the Canadian Bar Association, the Canadian Coalition for Good Governance, and the Shareholder Association for Research and Education, will be interested in having the opportunity to address the committee on a number of issues.

We will be following the committee's deliberations with interest and look forward to its recommendations.

We are now happy to answer all of your questions.

Thank you.

3:40 p.m.

Conservative

The Chair Conservative Michael Chong

Thank you, Madam Downie and Madam Ringor.

We'll begin with questions from Mr. Rota.

3:45 p.m.

Liberal

Anthony Rota Liberal Nipissing—Timiskaming, ON

Thank you, Mr. Chair.

Thank you for coming today.

I was going through some of the notes in the area of tipping and insider trading in the act. How effective is that section? When it comes to enforcement, is that done at a federal or a provincial level? How exactly does that work, and how effective is it?

3:45 p.m.

Wayne Lennon Senior Project Leader, Corporate and Insolvency Law Policy and Internal Trade Directorate, Department of Industry

There are very few provisions in the CBCA regarding insider trading. The 2001 amendments, for the most part, relegated those to the provincial securities regulators. There are some rules in there about buying and selling on margin, or short-selling, that you can't do it as an insider. But by and large, the provincial securities regulators are responsible for enforcement of insider trading provisions.

3:45 p.m.

Liberal

Anthony Rota Liberal Nipissing—Timiskaming, ON

Again, not being familiar with it.... They're enforced at a provincial level. Is there a separate set of laws, or do they use what we have in the CBCA?

3:45 p.m.

Senior Project Leader, Corporate and Insolvency Law Policy and Internal Trade Directorate, Department of Industry

Wayne Lennon

They use the securities act.

3:45 p.m.

Liberal

Anthony Rota Liberal Nipissing—Timiskaming, ON

Okay, very good.

The CBCA has provincial counterparts. How do they compare? I mean, different provinces have different regulations. Do you see industry or different corporations going to different places, depending on what they want to get? Is this a problem?

3:45 p.m.

Director General, Marketplace Framework Policy Branch, Department of Industry

Colette Downie

I can certainly take an initial stab at that question, and others can add detail.

Yes, there are provincial incorporation statutes companies can also choose if they wish to incorporate. By and large, the CBCA is viewed as the model for a number of pieces of provincial legislation. Often, if changes are made to the CBCA, similar changes are made to provincial statutes. It's not always the case. But it's very much viewed as a fairly effective piece of legislation by the provinces.

It's up to corporations as to where they incorporate, and it's very much a business decision. If a business knows from the start that it's interested in operating across the country, and it wants to know whether a particular business name has been taken across Canada, it might choose to incorporate under the Canadian Business Corporations Act, because that search will be done. Other than that, it's very much a matter of a business decision by the prospective new business.

3:45 p.m.

Liberal

Anthony Rota Liberal Nipissing—Timiskaming, ON

I'm not quite clear, aside from the name, as to why they would go national as opposed to provincial. It's not because one is easier to get or one would give them more advantage in some other way.

3:45 p.m.

Senior Project Leader, Corporate and Insolvency Law Policy and Internal Trade Directorate, Department of Industry

Wayne Lennon

The administrators can speak to the cost-effectiveness of incorporation and the level of service provided.

The name search is important for businesses that are doing business across the country. If you are of a view that you might want to do business in the international sphere, the Canadian name has a little more cachet than perhaps a provincial name. It's better known. But beyond that, as was said, the laws are slightly different. They're not entirely uniform. It becomes a business decision for the corporation as to where it may wish to incorporate.

3:45 p.m.

Conservative

The Chair Conservative Michael Chong

I think Madame Ringor would like to add to that.

3:45 p.m.

Director, Compliance and Policy Branch, Corporations Canada, Department of Industry

Cheryl Ringor

I would just like to add that for the vast majority of small businesses, a lot of the provisions don't really make much difference to them, because they're just more interested in running their businesses.

When we did an analysis of what's a good predictor of whether they'll come federally or provincially, the cost was a big predictor. When we reduced our incorporation cost in 2001 by half, from $500 to $250, we saw an increase in incorporations. In fact, our fees are among the most competitive in Canada, other than Alberta, in terms of incorporation. So the start-up costs are very low.

As well as our services that Wayne alluded to, we offer incorporation online. We've heard anecdotally and also through our surveys that you could almost get a certificate of incorporation in a few hours. That's why, under the starting-a-business element of the World Bank's doing business project, we're ranked number two.

3:50 p.m.

Liberal

Anthony Rota Liberal Nipissing—Timiskaming, ON

Part of that is attributed to the online registration, I take it.

3:50 p.m.

Director, Compliance and Policy Branch, Corporations Canada, Department of Industry

3:50 p.m.

Liberal

Anthony Rota Liberal Nipissing—Timiskaming, ON

Okay, very good.

How often is the CBCA reviewed? Is there a process that happens on a regular basis? Is there a large demand from industry to have this reviewed?

3:50 p.m.

Senior Project Leader, Corporate and Insolvency Law Policy and Internal Trade Directorate, Department of Industry

Wayne Lennon

This is the first review since 2001. The 2001 amendments, which were quite comprehensive--basically, whole sections of the act were rewritten--were the first substantive amendments since 1975. There had been some housekeeping bills and some up-to-date measures that had taken place in the interim, but nothing as substantive as in 2001.

The act, in 2001, said that a committee of Parliament should review the statute within five years of its coming into force and every ten years thereafter. There is a built-in review process.

3:50 p.m.

Liberal

Anthony Rota Liberal Nipissing—Timiskaming, ON

So we're basically working on the tenth year right now.

3:50 p.m.

Conservative

The Chair Conservative Michael Chong

No, we're actually three years behind. We were supposed to have reviewed this. The act came into force in November 2001.

3:50 p.m.

Liberal

Anthony Rota Liberal Nipissing—Timiskaming, ON

That's why I'm asking the question. I'm trying to figure out where we are on the scale.

3:50 p.m.

Conservative

The Chair Conservative Michael Chong

The act called for an initial five-year review, which was supposed to be completed by the autumn of 2006. That did not happen, so we are three years late in reviewing this. Subsequent to the first five-year review, there is to take place a ten-year review and thereafter every ten years.

3:50 p.m.

Liberal

Anthony Rota Liberal Nipissing—Timiskaming, ON

Thank you. That clarifies it. That's what I was trying to find out.

I asked if there was anything major asked of industry, any changes or any major changes that were proposed either by government or by Industry Canada.

3:50 p.m.

Director General, Marketplace Framework Policy Branch, Department of Industry

Colette Downie

No, there are no major changes proposed at this stage. We're obviously interested in what the committee has to say and to recommend. We're certainly not aware of significant changes or really loud calls for changes by industry at this stage. I'm sure some issues will be raised with the committee, but nothing really major has come to our attention so far.