Industry Committee on March 10th, 2009

[The Chair, Conservative, Michael Chong]

Good afternoon, everyone.

We're here pursuant to the order of reference made on Wednesday, December 2, 2008, to study Bill C-4, An Act respecting not-for-profit corporations and certain other corporations.

I'd like to welcome our four witnesses today. From Imagine Canada, we have Madam Cathy Barr, vice-president of operations. We have Madame Susan Manwaring, a partner at Miller Thomson LLP. From the Canadian Red Cross Society, we have Madam Pam Aung Thin, who is the national director of public affairs and government relations, and Mr. Alan Reid, general counsel. Welcome to all of you.

I want to let members of the committee know that you've been given two documents, in both official languages. The first is a submission from Imagine Canada, and the second is a very in-depth comparison of the various iterations of this bill in front of us from previous Parliaments, which our analyst has prepared for us.

Thank you very much for that work.

She's also indicated that you will get an electronic copy at your office at some future time.

Without further ado, we'll start with Imagine Canada. You have 10 minutes for your opening statement.

[Cathy Barr, Vice-President, Operations, Imagine Canada]

Thank you, Mr. Chong and members of the committee.

I am here today presenting the submission that was actually written by the National Nonprofit Sector Task Force on the Modernization of Federal Not-for-Profit Corporations Law, which is a task force of representatives of the non-profit sector and various professionals, lawyers, etc., with expertise on non-profit law who came together to prepare this brief to the committee. They were brought together by Imagine Canada, which is the organization I represent.

I'd like to begin by congratulating the government on understanding the need to update the federal not-for-profit corporations law, which is pushing 100 years old at this point. I'm sure we're all in agreement that something needs to be done about that situation. I'd also like to congratulate all of you on your perseverance in bringing this act forward again. Again, as most of you probably are aware, it's been quite some time that all of us collectively have been working to get some new legislation passed. So we're very grateful to see this before us once again.

Having said that, however, the task force that we brought together did feel, upon its review of the act, that the government would be missing a major opportunity to reduce red tape if it allowed the act to pass as it stands right now. Therefore we are recommending that some changes be made, and ideally that perhaps the bill could be sent back for some more consultation with the non-profit sector. We do realize a lot of consultation has taken place in the past, but very little has taken place on this current, new iteration of the bill, and we think there are some flaws in it that might be improved upon if some more consultation took place.

Specifically, I'll bring your attention to the five different areas that we highlighted in our submission. The first relates to voting rights. We feel in this case that it would be best if it were up to the not-for-profit corporation itself, through its board of directors, to determine what the voting rights of members should be. This should not be put into the legislation. It would be better left to the non-profit corporation itself, which would allow it to change the rules in this area as needed and over time.

Secondly, we feel that as the act is written right now, there is a distinction made between soliciting and non-soliciting corporations. We feel this distinction is not particularly helpful, that it could be eliminated from the act with no diminution in the value of the act, and in fact that it would be preferable for non-profit corporations to simplify the act in this way. There are other ways in which the fundraising as an activity that charities engage in are regulated through the Canada Revenue Agency and through various provincial statutes, and we don't feel that this act needs to look at those things. Therefore we would prefer that distinction be eliminated from the act. That would also serve to simplify the act quite a lot, which would be helpful for non-profit organizations.

On that point I should note that research conducted by Statistics Canada and Imagine Canada shows that over half of all non-profit organizations have no paid staff at all. Many of these organizations are very small, volunteer-run organizations, so any way in which we can make the act simpler for them would be beneficial.

Thirdly, and this sort of speaks to the same point, there are references throughout the act to various remedies that are available to members. We feel in this case that this is a situation where, again, the act could be simplified, that it would be better to create a single remedy section rather than have references to various types of remedies throughout the act. This seems to have become a part of the act because it's part of the Canada Business Corporations Act. But businesses, and shareholders in businesses, have many different concerns than do members of non-profit organizations. Therefore we feel that all these mentions in the act of various remedies are unnecessary, that we could put one section in and refer to what remedies might be necessary for members and leave it at that. It would simplify the act a great deal.

Fourth, we feel it would be beneficial to move more of the content from the articles of incorporation to the bylaws of a corporation. The act as now written requires that many aspects of the way in which a non-profit corporation is run be written into the articles of incorporation. Again, this will create challenges for many non-profits, especially the small ones and the ones without paid staff, because they will have to engage a lawyer and go through a big, long process to change their articles of incorporation.

It would be much easier if many of those aspects of the corporation, such as the voting and non-voting, the number of directors, and that sort of thing could be put into the bylaws of the corporation. It would be much easier, simpler, and cheaper for non-profit organizations to change those rules if they were in their bylaws.

Finally, and this goes to an overarching point, specifically we're asking that three parts of the act, parts 6, 7, and 8, which we feel are largely not relevant for most non-profit organizations, be removed. The issues addressed in these sections arise only rarely, and we feel they could be dealt with through a statutory reference to the relevant provisions of the Canada Business Corporations Act. Again, this would simplify the act a great deal. It would shorten it, and it would reduce confusion for the largely volunteer boards, etc., that run Canada's non-profit organizations and charities.

Those are the five specific points of recommendation. But our major point is to simplify the act and make it clearer, shorter, and easier to use for small and medium-sized non-profit organizations and the volunteers who run them. That's one point.

The second point is that we feel this statute should be designed to facilitate the creation of non-profit organizations and give them basic rules for how they should constitute themselves, but it should not be a regulatory statute to regulate the various ways and means in which a non-profit corporation could act.

Those are our two main points. However, we don't want any of that to suggest that we aren't interested in moving the act forward, because we definitely want that, above all.

Thank you.

[The Chair, Conservative, Michael Chong]

Thank you very much, Ms. Barr.

Now we'll go to the Canadian Red Cross Society, to Ms. Aung Thin.

[Pam Aung Thin, National Director, Public Affairs and Government Relations, Canadian Red Cross Society]

Thank you, Mr. Chair and members of the committee.

On behalf of the Canadian Red Cross Society, I would like to thank you for allowing us to appear before the committee today.

First, let me tell you briefly about the Canadian Red Cross Society mandate before I give the floor to our General Counsel, Mr. Alan Reid, who will provide you with our comments on Bill C-4.

The Canadian Red Cross Society is a volunteer-driven, non-profit, humanitarian organization dedicated to improving the situation of the most vulnerable in Canada and throughout the world. This would be impossible without the dedicated support of its more than 30,000 volunteers and members, as well as its 3,500 employees.

The society has a unique mandate: to support public authorities at all levels in Canada. The Canadian Red Cross Society plays a pivotal role in providing a link between governments, civil society and the communities we serve.

The Canadian Red Cross Society is a member of the largest humanitarian network in the world, made up of over 100 million volunteers and members throughout the world. It is a member of the International Red Cross and Red Crescent Movement. This includes the International Committee of the Red Cross, the International Federation of Red Cross and Red Crescent Societies and the 186 national Red Cross and Red Crescent societies around the world.

We are here today on behalf of the Canadian Red Cross Society to pledge our overall support of Bill C-4.

I will now let Mr. Reid present our comments and recommendations in more detail.

Mr. Reid.

[Alan Reid, General Counsel, Canadian Red Cross Society]

Thank you, Pam.

Good afternoon, Mr. Chair and members of the committee.

I think the gist of our message is that the Canadian Red Cross recognizes the need for new legislation governing not-for-profit corporations in Canada. I want to underscore that; I think just about everybody would be in support of that. The Canadian Red Cross participated in consultations organized by Industry Canada in, I think, 2002. We recognize that those consultations have influenced, in many respects, the form and content of Bill C-4. In fact, those consultations went on over a significantly longer period than that.

In 2005 the Canadian Red Cross appeared before the committee to express its support of Bill C-21, a forerunner to Bill C-4, as well as to make some general observations that we believe still largely apply. At that time and again today, I want to mention a few particulars of the legislation that we consider to be important and things that will help us in our operations.

They include specific authority for telephone and electronic meetings and voting; the authority to make binding, unanimous resolutions without actually having to come together for a meeting; tighter conflict of interest requirements; the broadening of indemnification authority, including indemnity advances, which may become increasingly relevant given the current public appetite for enforcing government's accountability; and, overall, the increased deference Bill C-4 extends to corporate bylaws on many issues that were formally regulated by the Canada Corporations Act and ministry policy directives.

While we support the “as of right” approach to incorporation, and welcome the fact that the new corporate model will eliminate upfront government regulation—for example, there will no longer be ministerial approval of articles of incorporation or bylaws—we do note that the new corporate model places a large emphasis on self-regulation and on checks and balances resting upon enhanced legal rights and access to courts.

Bill C-4 is detailed and difficult legislation and will be complemented by lengthy regulations. It will pose compliance challenges, not just for small not-for-profits that operate without legal departments and/or sizable legal budgets but even for large organizations, such as the Canadian Red Cross, with easier access to legal assistance. In that respect, I am sympathetic with the points that have been made by Imagine Canada with respect to the voluntary sector and the difficulties some organizations will have adjusting to this.

However, every new comprehensive piece of legislation presents interpretive and operational issues and Bill C-4 is no exception. It calls upon not-for-profits to address many new challenges: systems for tracking and allowing access to a large and changing membership, especially in the case of an organization such as ours, which has a large membership and growing; procedures to meet enhanced accountability thresholds; adjustments to new financial procedures; and the redoing of bylaws, all of which will require careful efforts to ensure that governance provisions and practices measure up to the new legislative standards.

Because there is a lot of room for error and dispute in adapting to this new model, we encourage the government to support and build upon current Industry Canada initiatives to educate the not-for-profit sector—in particular, the voluntary sector—through publications, websites, model bylaws, workshops, and non-binding administrative opinions on key issues, all of which will assist not-for-profits, both large and small, in their due diligence and other compliance efforts.

While it is noted in the accompanying explanatory text that the bill provides directors with an express due diligence defence against potential liability, we also note that the bill equally promises to enhance and protect members' rights and gives members additional power to enforce their rights and to oversee the activities of their organizations as well as to monitor the director's activities. Finding ways of satisfying due diligence will become even more challenging and critical for directors than it is today. Arguably, this bill may heighten tension between membership and directors, increasing the risk of liability rather than reducing it.

While we have no doubt that well-qualified directors will continue to come forward to serve the not-for-profit and charitable sectors, it will be interesting to see how insurance underwriters will assess the balance of risk and rights and what impact this legislation will have on already steep premiums for liability insurance for directors and officers.

In part, this question may be influenced by the extent to which the new corporate model stimulates resorting to courts to resolve corporate governance issues. Given our concern that enhanced members' rights, coupled with broader judicial remedies, could elevate dispute resolution costs for not-for-profits and charitable organizations, we would have preferred to see overt legislative encouragement of administrative process and alternative dispute resolution mechanisms in the legislation.

Clause 293 gives the director authority to “make inquiries of any person relating to compliance with this Act”, but for the most part the director, like everyone else in the new model, may feel compelled to rely on courts to enforce compliance. We hope that the legislative model will prove flexible enough to allow for less formal and less costly means of resolving member/board/management tensions, as well as compliance issues raised by the director. We would encourage the government to create and finance a mandate for Industry Canada to assist not-for-profits in developing efficient and humanitarian approaches to resolving compliance issues, in lieu of engaging the courts.

The Canadian Red Cross, in preparing for this presentation, has chosen not to single out particular sections and clauses of Bill C-4 for specific criticism. Doubtless there are sections that might be improved, but a lot of work has gone into this bill over many years by many experts in the field. We choose not to repeat before this committee comments we may have made in the reform process that have not found their way into Bill C-4.

Notwithstanding small concerns that we may have about some of the details of certain provisions of the bill, our primary message to the committee today is that we view Bill C-4 as an important legislative initiative, and we support the change that it will bring. We will undoubtedly gain a deeper understanding of its complexities as we work through our governance and financial procedures in an effort to bring the society into compliance with the new regime.

The bottom line is that we would like to see the bill move through the legislative process as quickly as possible. We've watched it die too many times on the order paper. Reform of this area has been a long time in coming, and we are anxious to get on with the task of adjusting to the new regime.

Thank you once again for inviting us to appear before you. Merci beaucoup.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Reid, for your comments.

We'll have about an hour and 25 minutes of comments and questions from the members of this committee. We'll adjourn the meeting at 5:15 p.m., as we have votes at 5:30 p.m.

We'll begin with Madam Coady.

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

Thank you very much.

Thank you to both organizations for presenting before us today. It certainly is an important piece of legislation, and one that I understand has come before this committee and the House on numerous occasions, so I appreciate the fact that you're both in general support of the legislation, but you do have some concerns.

I want to speak to those concerns, if you wouldn't mind. I want to ask a couple of questions with regard to the membership issue. Both of you had addressed this issue.

I did take the opportunity, last week, to speak to the minister concerning membership and the “one member, one vote” kind of concept that the bill contains. I was given assurance that each corporation has to decide what voting rights will exist for its members—I understood that quite clearly—and that you could have everybody vote, or you could have nobody vote. It's “structure it yourself”. I'm using the exact term that I received, and of course that's in the public record.

I want you to speak to the issue that I know Imagine Canada has.

Also, Mr. Reid, you commented on the interaction between directors and members and some of the concerns about membership. I want to ask specifically--if what I'm understanding is that you will have maximum flexibility around memberships--what your further concerns are, noting what was said last week to us.

Thank you.

[Cathy Barr]

I'll let Susan answer that one. Susan was a member of our committee.

[Susan Manwaring, Partner, Miller Thomson LLP, Imagine Canada]

Good afternoon, Mr. Chairman and members of the committee. It's certainly a pleasure to be here supporting Imagine Canada today.

Thank you very much, Madam Coady, for your inquiry. The bill, as it's tabled, contains a number of provisions that deal with what I would call significant changes to a non-profit corporation, whereby it is possible for a non-voting class of membership to be required to support a change. They are not all kinds of changes. They deal with dissolution. It's very technical--some substantive changes to do with dissolution.

The voluntary sector, as I think you all know, is made up of many different types of organizations that are structured very differently. The one thing that is, by and large, consistent—but for, perhaps, private golf clubs and some certain associations or sporting clubs—is that members don't have proprietary rights in the assets of the entity. The entity is structured for a public purpose, whether it be a charitable purpose or a non-profit purpose somehow. Many organizations choose to have members who have non-voting rights, for any reason, and in most instances when the entity has non-voting members, that's what those people want. They want to be able to say they support the organization, but they're really not interested in the governance question. A concern, I think, that is raised by the voting rights really comes to that, and it gets into that place where you may want to facilitate volunteers being able to say they're members, but these are not people who are interested in governance or in coming to an AGM or in supporting or not supporting things.

So are we making it simpler or are we complicating the way things are done with the non-profit?

I think the other issue that comes out on the voting rights is that in the for-profit corporations, voting rights and shareholder classes, which deal with how you own your proprietary interest in the entity, are in the articles of an entity, and they require certain separate-class voting, which is understandable because you can adjust the proprietary interest of the shareholder if you don't require that. Bringing that concept into the non-share capital world is perhaps part of the concern, because you end up perhaps making it more difficult for organizations to govern themselves and then make it more difficult for them to understand the system and how to make changes.

Currently, membership classes are in bylaws. They're not required to be in the incorporating document, and they don't have to be set out in a way that you have to file amending documents to change them. I think the way the act could easily deal with these things is to say, unless otherwise provided for in a bylaw, this will be the way you should do it, but give the entities the ability to structure themselves in a way that will make it work for what they are, if they're a sports club, if they're a charity, if they're a foundation.

[The Chair, Conservative, Michael Chong]

Thank you.

Madam Coady, do you have any other questions?

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

Mr. Reid, I'm just wondering if you would care to comment on this issue of membership, seeing as you raised it as a concern between members and boards of directors having differences.

[Alan Reid]

I guess our concern wasn't the concern of Imagine Canada. I recognize that they have a more difficult task than we do, because they represent a broad constituency of member organizations. They have to look right across the spectrum.

I think our membership approach at the Red Cross is compatible with the provisions of the bill. There are some unique facets of our membership structure in the bylaws. Maybe I'll find out differently when the bill is passed and I have to sit down and start redoing some of this, but my initial view of it was that it wasn't going to cause us a lot of concern.

The concerns I have are really more generic. I think there's more of an emphasis on member rights now than there has been in the past. There are more avenues of access by members to what's actually going on in the organization. The requirement for maintaining membership lists is more stringent in the new legislation than in the current CCA.

All of that is to satisfy a sense that members who want to become more involved in the governance of their organization--at least to check, run, or monitor what's going on--should have access to more information. I think the more information you give people, the more room there is for conflict and dispute. There probably will be more tension between the director level and the membership level on certain issues.

I think the concern was...or my concern is--I guess I could speak for a lawyer--is that I'm not a big fan of resolving these things in courts. It's too slow, too expensive, and usually it doesn't lead to anybody coming out terribly happy.

I guess I was trying to perhaps push in the direction of saying, well, in terms of administering this new law, maybe the government should be putting more emphasis on structures to facilitate dispute resolution, without having to go down that road. That can be done informally. It doesn't have to be in the legislation. But from my point of view, it would be nice if Parliament, in the legislation, were to at least give a nudge or some support toward government taking a less court-based adversarial approach to resolving things that I think will come out of this legislation.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Reid.

Monsieur Bouchard.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

Thank you, Mr. Chair.

Thank you also for coming to testify here this afternoon. My first question is for Ms. Barr.

Your organization recommended that the Government of Ontario not adopt a classification for NPOs. Could you explain why you took this position?

[Cathy Barr]

In the Ontario act? Well, I think it was kind of the same reasons that we made the same recommendation here. We really believe the complexity of the non-profit sector is too large for one act, which perhaps only gets changed every 50 or 100 years, to really take into consideration.

The reality is that the non-profit sector encompasses universities, hospitals, food banks, animal shelters, international aid organizations, political parties, actually, in some respects of how the sector is defined, and professional organizations. There are all kinds of examples of organizations for various professions. They're all part of the non-profit sector, and they can all incorporate as organizations without shared capital.

We feel that any time an act tries to classify, as in this case, the soliciting and non-soliciting organizations--in the proposed Ontario act they had a variety of ways--it's easier and more efficient not to do that. The added benefit is so small that it's not worth the added complexity.

Susan, do you have something to add?

[Susan Manwaring]

I think it really comes down to that. I guess the philosophy that I understood from the business corporation statutes, both in Ontario and federally, is that they are basically facilitative. They set a framework that the individual can take advantage of to create the corporation they want. They don't try to regulate it per se. It's the statute that says how you create a corporation where you want to have limited liability.

I think the classification system then takes us more into regulation rather than into being a prescriptive, facilitative entity to create the corporate vehicle. On the classification issue, whether it's a charity, how you're classifying--those are issues that are relevant for tax purposes and some other purposes and are governed by other regulation. Why would we duplicate that? That's another argument against that classification.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

Ms. Barr, you also said that, if a classification system for organizations were included in the legislation, the government should be able to determine which type each organization should belong to—a public service agency, a religious congregation, etc. That is what you recommended.

What would you prefer to see in a classification system?

[Cathy Barr]

If I had to have a classification system, what would I prefer? I think Imagine Canada has been consistent in saying that we don't think there should be a classification system at all.

From my recollection of the process in Ontario, for which extensive consultations were done, they laid out a variety of options. The committee we put together for that piece of legislation said that if we had to have classification, they would prefer that the corporation itself, or the board of directors of the corporation, make the decision rather than some government entity.

But I think that was a fallback measure. Really, our position is that we feel the non-profit sector is better off without these classifications being placed in the acts. I did mention this the first time, that the non-profit sector changes a great deal over time. Fifty years ago we wouldn't have been envisioning the non-profit sector we have today. Acts change very infrequently, so we're concerned that whatever classification we come up with today won't necessarily be relevant in 2060, or 2090 maybe, when we're still living under the act that we pass today.

I think that's really the more important message, that we just don't think there should be classification at all in the acts.

[The Chair, Conservative, Michael Chong]

Do you have another question, Mr. Bouchard?

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

Yes. According to the Canadian Bar Association, the fact that Bill C-4 does not include classification is an error or an oversight. It considers this to be a shortcoming, because it is in favour of classification.

Were you aware of the Bar Association's view?

[Cathy Barr]

I'll let Susan handle that one. She's more familiar with the Bar Association.

[Susan Manwaring]

I don't recall the Canadian Bar Association submission suggesting a classification system. I don't believe that's a fundamental aspect. I'm not sure which part of the brief.... There are comments on the soliciting corporation, and there are comments on the definition and how it doesn't work.

The Canadian Bar Association concluded, having had their discussions, that rather than completely removing that, the suggestion would be to make amendments. They thought that the bar discussions would be a more effective submission.

The background on the Canadian Bar, whom I know you will be hearing from on Thursday.... Originally, if you have copies of the submission on Bill C-21, it came from the charities and not-for-profit section, the section that talks about the voluntary sector. That submission suggested that the soliciting corporation not be included in the statute.

The discussions this time were with both the for-profit and not-for-profit groups together. It was felt, because changes had not been made to the legislation over the course of time, that our objective would be to make some concrete suggested legislative changes that we were hoping could be implemented before the bill was passed, which would make it more effective, rather than repeating the same submissions that have not been accepted or adopted in the past.

[The Chair, Conservative, Michael Chong]

Thank you.

Thank you, Mr. Bouchard.

Mr. Wallace.

[Mike Wallace, Conservative, Burlington, ON]

Thank you, Mr. Chairman.

I want to thank our guests both from Imagine and from the Red Cross for coming today. I'm familiar with both organizations. You obviously do great work for Canada and around the world, and we appreciate your efforts.

Also, Mr. Chair, I want to say thanks with regard to the submission from the analyst. It's excellent, and I appreciate it. I was having a look at it in terms of the comparisons.

I'm new to the committee, so just for my understanding, it looks like we've had this bill in front of us since at least 1992, eight or nine years. We have Bill C-21, Bill C-62, and now Bill C-4. Did both organizations get the opportunities to comment on its development prior to today?

[Cathy Barr]

Yes. Imagine Canada did.