Industry Committee on Nov. 4th, 2009

[Colette Downie]

I came ready to answer questions about Canada Business Corporations Act today, not so much about the changes to the bankruptcy and insolvency legislation and the wage earner protection program. I don't have my reference documents on those pieces of legislation, so it would be very difficult for me to explain the changes.

There were two sets of changes, one that came into force last June, and another set that came into force this past September. I'd certainly be happy to explain those at a later date, if that's okay with you.

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

Sure, I understand.

[Coleen Kirby]

The interaction between bankruptcy and the CBCA is that if you are insolvent you may not use the liquidation dissolution provisions of the CBCA to liquidate; you have to go through either the Bankruptcy and Insolvency Act or the Companies' Creditors Arrangement Act. The CBCA only deals with solvent companies trying to liquidate. The two are totally separate pieces of legislation.

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

I guess when I saw Mr. Lennon's name and his title here, it led me to the place where these questions—

[Wayne Lennon]

There's a division of labour within the office.

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

That's been known to happen in our office too.

[Wayne Lennon]

I'm the corporate law policy guy; the insolvency law policy guy is not here right now.

[Colette Downie]

We're certainly happy to answer questions. It's just that we we're not prepared at this exact moment.

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

Sure, I appreciate that, but it has shot down my questions pretty quickly. That's okay. I understand. I don't mean any criticism.

I'll try one more, then. To both again, this is something a little more direct, on pensions. According to the OECD guidelines, where a pension insurance plan does not exist—and I'll quote from here—it says there should be a “priority position for due”—and I can see the answer coming already—“and unpaid contributions...equal to at least the position of due and unpaid taxes...”. In some countries they'd call that super-preference.

The guidelines recommend that “priority rights may also be appropriate for underfunded pension commitments...that are the responsibility of the plan sponsor”, depending on whether a guarantee scheme exists and the likely impact on credit availability.

I am interested in your comments on the issue of according super-status, especially regarding unfunded pension liabilities, and how this might affect bankruptcy laws. Again we're into that other area.

[Colette Downie]

I could certainly provide you with a basic answer, and then if you want more details in terms of the specific changes and their timing I'll have to follow up at a later time.

The amendments you referred to—and they came into force in two tranches, depending on whether you were dealing with a bankruptcy situation or a restructuring, which would not necessarily lead to a winding-up of the company—do give super-priority to outstanding pension contributions, the normal contributions that are made into a pension plan based on actuarial information and the predictions about the way the market is going to function. Those are certainly given priority. They do not give priority to underfunded pensions.

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

To unfunded liabilities.

[Colette Downie]

That's a situation where the market has gone down, it wasn't predicted, and there are special payments that are needed to make up the shortfall. Those are not given priority in those legislative changes. It's not to say they wouldn't be covered; they're just not given that priority.

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

As a result of that view, defined benefit pension plans are under a lot of pressure these days. You have situations where companies are asking workers to go to defined contributions for that exact reason.

I certainly appreciate the response I have been given, and I'll have my staff get in touch, and perhaps we can follow up. I really appreciate it.

That obviously shortens my time considerably, but thank you, Mr. Chair.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Marston.

We'll go to Mr. Garneau.

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

Thank you very much.

There are a number of issues that have come up in the public since the Enron and other scandals. Given the fact that there haven't been changes to the law since 2001, although you had discussion papers and feedback on two occasions that you mentioned, what is your feeling about whether or not this act is achieving the proper balance with respect to the issue of directors' liabilities?

[Wayne Lennon]

As far as I'm aware, there's no question of any consideration that the director liability provisions are a problem. The act itself provides a due diligence defence in virtually every case.

Do you mean director liability for specific issues or just generally with respect to corporate governance?

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

It seems to me there has been a move towards shareholders wanting a greater responsibility on the part of directors with respect to their roles within companies, given the fact that there were some fairly awful cases where it seemed to me that the board of directors either was not doing anything or seemed to be unaware of things happening within management that led to some pretty awful outcomes.

[Wayne Lennon]

One of the things the 2001 amendments did was to make much easier and in fact legalize the ability of shareholders to communicate with one another. Prior to that, it was very difficult for them to do so, and it led to organizations such as the Canadian Coalition for Good Governance and the SHARE, of which I spoke earlier, who were combining various institutional investors, particularly, into an organization that can put a great deal of pressure on corporations in which they invest.

Whether they choose to do that on a particular case-by-case basis is pretty much up to them. I know they do it, but one of the things the recent OECD meeting on corporate governance did recommend was that shareholders generally—and they're speaking in the broader context, not just Canada—and especially institutional shareholders, should take more responsibility in administering their shares and pressuring boards to act in ways that maximize shareholder value in the long term particularly.

If the Canadian Coalition for Good Governance and the SHARE came before this committee, they would probably have specific issues they would like to see raised and discussed. The only one of which I'm aware is one Colette referred to earlier, that they specifically would like to be able to nominate, remove, and elect individual directors.

[Colette Downie]

If I could add to Wayne's comments, one of the things that's interesting about the CBCA is that compared to some U.S. legislation—I'm not sure exactly which jurisdictions Enron was incorporated in—my understanding is that the CBCA is more focused towards shareholder rights and giving shareholders the tools they need to influence the running of the company. That may not be the case in some U.S. jurisdictions, particularly where they are more management-oriented in corporation rules and corporate governance rules as well. It may be that those lessons of Enron and WorldCom are not directly transferrable here as well, because we have a statute with a different kind of focus.

[Siobhan Coady, Liberal, St. John's South—Mount Pearl, NL]

To follow up on that line of questioning, I want to get my head around the SOX rules in the United States—Sarbanes-Oxley—and how critical they are to what we have before us.

A subsequent question is this. You mentioned five or six substantive changes that you have heard are required in this bill. Are the officials or the government coming forward with these recommended changes, or are you just supposing that some of the witnesses we may call will bring those forward?

[Colette Downie]

On the changes, first of all I meant to characterize them, and I apologize if I misspoke. They really are issues that we've heard from stakeholders that they would like to bring forward.

[Siobhan Coady, Liberal, St. John's South—Mount Pearl, NL]

You're not bringing them forward.

[Colette Downie]

No, we're not bringing those forward. We'd like to hear what the stakeholders have to say here and we'll certainly be listening closely and looking forward to the committee's recommendations.

In terms of Sarbanes-Oxley and some of the rules that apply in the securities context, I'm certainly not an expert on those. They're complementary rules to the incorporation laws. I'll let Wayne expand, because he's certainly more knowledgeable about those than I am.

[Wayne Lennon]

Sarbanes-Oxley, or SOX, didn't affect corporate law in the United States, but it was the U.S. Securities and Exchange Commission that did. In Canada, the Canadian securities administrators looked at SOX and incorporated many of its most positive features, in terms of the disclosure of some issues, the independence of directors, and a few other things.

[Siobhan Coady, Liberal, St. John's South—Mount Pearl, NL]

I agree it's a securities issue, but you can see that we're talking about shareholder rights. I think you just mentioned removing and electing individual directors as one of the things you've heard. How is it complementary?