Industry Committee on March 12th, 2009

[The Chair, Conservative, Michael Chong]

Good afternoon, members of the committee.

Good afternoon to our two groups of witnesses.

Today we're studying Bill C-4, An Act respecting not-for-profit corporations and certain other corporations. We're pleased to have witnesses from two organizations in front of us.

We have Madam Carole Presseault, vice-president of government and regulatory affairs, Certified General Accountants Association of Canada. We have Madam Tamra Thomson, director of legislation and law reform at the Canadian Bar Association. We have Mr. Wayne Gray, a member of the national business law section of the CBA. Finally, we have Mr. David Stevens, who's a member of the national charities and not-for-profit law section of the Canadian Bar Association.

Welcome to all of you.

We'll have about 10 minutes of introductory statements from each organization, and we'll begin with the Certified General Accountants Association of Canada.

Ms. Presseault.

[Carole Presseault, Vice-President, Government and Regulatory Affairs, Certified General Accountants Association of Canada]

Thank you, Mr. Chairman and honourable members.

Mr. Chairman and Honourable Members.

Thank you for your welcome this afternoon and for the opportunity to appear before this committee to talk about Bill C-4, An Act respecting not-for-profit corporations and certain other corporations. The Certified General Accountants Association of Canada, together with its 71,000 members and students, represents really the future of the accounting profession. Our designation is built on a strong foundation of ethics, education, examination, and experience.

CGA Canada strongly supports the objective of providing a modern, transparent, and accountable framework for the governance of the not-for-profit sector in Canada. CGA Canada recognizes the important role of the not-for-profit sector, a role that it plays in communities across our country. Many of our members work with and within the sector as chief financial officers and chief executive officers of not-for-profit organizations. Others provide public accounting expertise and services to these organizations in communities across Canada.

Our interest in this legislation is quite narrow, Mr. Chair. It resides really in the provisions concerning financial disclosure, so I'll have some very brief remarks about our recommendation in this area. But I want to start by saying that as the not-for-profit sector benefits from the benevolence of Canadians and a favourable tax regime, a rigorous financial disclosure regime ensures appropriate transparency and accountability.

The financial reporting regime must adhere to exemplary governance practices. Professional accountants must meet the highest standards of professional competence, conduct, and ethics, no matter which sector they provide services to.

We would therefore like to suggest improvements to what we think is to simplify and strengthen the financial reporting requirements. Our focus is on clause 181 of the bill, specifying the qualifications to meet the three requirements to qualify to be a public accountant under Bill C-4. The first requirement is that the public accountant be a member in good standing of an institute or an association of accountants. The second requirement regards meeting any qualification under an enactment of a province. And the third one is with regard to independence criteria.

The first requirement recognizes that it is the responsibility of the professional association to ensure its members are competent and qualified to provide professional accounting services.

The professional bodies set professional standards of competence and ethics and only those professional bodies have the duty to ensure their members meet those standards by adhering to a conduct and disciplinary regime. In turn, these provincial institutes or associations of accountants have been delegated by their provincial and territorial governments to govern their respective members in the public interest.

The second provision requires public accountants to meet any qualifications under an enactment of a province. This is vague and redundant because a professional accountant who provides public accounting services must comply with the requirements of his institute or association whether these requirements are matters of law or practice. The requisite level of oversight is appropriately captured in the first requirement.

We also think that this provision in subclause 181(2) could impede the mobility of accounting professionals. Chapter 7 of the Agreement on Internal Trade, which was recently amended by Canada's trade ministers, stipulates that any worker certified for an occupation by a regulatory authority of one province or territory will be recognized as qualified to practise that occupation by all other provinces or territories. We believe this provision could be interpreted as adding another test of competency that is unnecessary.

The third provision requires the independence of the public accountant and proposes that professional accountants meet a number of tests of independence. We totally agree that the public accountant needs to be independent of the corporation. In fact, in the aftermath of major corporate failures in North America and Europe, the accounting profession, internationally and in Canada, proceeded to develop independent standards to ensure that the audit process is free of interference, conflict, or undue bias. These standards are more rigorous than what is required in Bill C-4. They are current, and they will remain current through a constant renewal process. They satisfy not only national requirements but international requirements, and they mainly require the identification of all threats to independence and the application of necessary safeguards. These standards are recognized for other types of corporations including report issuers.

We propose that Bill C-4 require that professional accountants comply with the standards of independence established by the professional regulatory body--whether it be CGA-Canada, the CICA, or CMA Canada--that has jurisdiction over them.

CGA-Canada's proposals to strengthen the legislation by clarifying the provisions respecting the qualification of auditors and also by significantly strengthening the independence requirements will ensure a high degree of harmonization across jurisdictions while maintaining high standards of competency and ethics.

Copies of our proposed amendments have been provided to the clerk.

Thank you and I would be pleased to answer your questions.

[The Chair, Conservative, Michael Chong]

Merci, madame Presseault.

I now invite the Canadian Bar Association to make an opening statement.

[Tamra Thomson, Director, Legislation and Law Reform, Canadian Bar Association]

Thank you, Mr. Chair and honourable members.

The Canadian Bar Association welcomes the opportunity to appear before you today on the Canada Not-for-profit Corporations Act. We consider this to be very important legacy legislation that you are considering today.

The Canadian Bar Association is a national association representing over 37,000 jurists from across Canada. The analysis of Bill C-4 was done with members from our national charities and not-for-profit law section and from our national business law section. These are the eminent practitioners in these areas of law, and indeed there are elements of both areas of law in this important bill.

In looking at this bill--it was an extensive process--the CBA members were keeping in mind our primary objectives, which are improvement in the law and improvement in the administration of justice. It's under those considerations that we have made our recommendations to this committee.

I'll just make a note about the paper you have in front of you. You have an executive summary that highlights the priority issues from the bill, from the CBA's perspective, and a list of our recommendations. A far more extensive brief was prepared and sent to the minister last month, so a complete analysis of all of those recommendations is in that larger brief. We would be willing to expand on any of the recommendations you have in front of you.

Mr. Gray and Mr. Stevens will comment on the substance of the recommendations. I might note that not only have they participated in the CBA's analysis of this bill but they have also co-chaired a committee of the Bar Association that reviewed similar Ontario legislation that is under consideration. So they bring a vast amount of knowledge and expertise to this bill.

I will ask Mr. Gray and then Mr. Stevens to make those comments.

[Wayne Gray, Member, National Business Law Section, Canadian Bar Association]

Merci.

Honourable Chair, members of the committee, we come to praise Bill C-4, not to bury it.

[Voices]

Oh, oh!

[Wayne Gray]

The good that legislators such as yourselves do lives long after you. That is the case with the bill before you. It is a bill that will have a long legacy and will exert a tremendous influence over the provinces and territories, much as did the CBCA before it. So it is important to pass it, but it is important to get it right.

First, you'll hear a lot of negativity about the bill from some of the submissions that have been received, and you may be confused as to the merits of the bill. I want to first of all say a few words about why the CBA strongly endorses the bill: it benefits all relevant stakeholders.

It benefits founders because it's going to be easier to incorporate. It will be very flexible in setting up your organization in terms of the content of the constituting documents, the articles and bylaws.

It will benefit members because they can elect and remove directors very easily.

There are extensive remedies in the new bill. Members carry the ultimate decision-making authority clearly under the bill. They have information rights—the right to receive financial statements before the annual meeting.

It benefits directors and officers. There are going to be clear duties and clear conflict of interest codes, such as we've seen under the CBCA. There are liability protections found under the CBCA that will be extended to not-for-profit directors.

My colleague Mr. Stevens will elaborate on two particular shortcomings that we see in the area of directors' liabilities, but they have the power to manage or supervise management and they're accountable to the members.

It will benefit lenders, who will have the same rules as they now have under the CBCA, when they lend money or take security against a not-for-profit corporation. And there's a codification of the indoor management role.

It will benefit the corporations themselves. They'll have tremendous flexibility with respect to the enormous diversity within the not-for-profit sector. It will be easy to amend the articles, and much easier to amend the bylaws too.

There's tremendous flexibility and ease in dealing with meetings of members and meetings of directors using modern technologies, including conference calls and consent resolutions.

It will benefit the public. Why? All of the above reasons will all benefit the public. In addition to that, there is greater transparency. For example, there's a requirement that soliciting corporations—those that raise money from the public, essentially—will have to annually file their financial statements publicly, whereby they'll be available for public inspection. So there's transparency in that respect.

Finally, not least, it will benefit the lawyers. Why? Because of all the additional complexity in this act; and that's what we also want to address.

This is why the CBA recognizes the bill as a vast improvement over the existing law, and one that deserves speedy passage and proclamation into law.

I was actually only kidding about the lawyers benefiting from the bill. We don't intend to actually benefit too much.

What we want to address in the next part of this presentation is all the ways in which we think you have an option to make an excellent bill better yet.

The core message we have is that there's nothing fundamentally wrong with the bill. There are some minor drafting issues that we've given to the department, which we won't bore you with. There are some other provisions in the bill that we think make sense to delete, in order to simplify the bill and make it easier for the sector that is going to be using this bill in the future to work with it in a much more efficient and understandable way. That's the theme of most of our suggestions.

From part II of our executive summary, I will be discussing items 1 to 4, and item 7. My colleague Mr. Stevens will be discussing the remaining five items.

If you turn to the executive summary, the first item....

Oh. We don't have much time.

Well, we'll look at the securities transfer, which is part 6. Currently, this is a law that falls under provincial-territorial securities transfer laws in force in the various provinces, except for a couple of the Maritime provinces. So it's currently governed under provincial law; this is going to be an intrusion for the first time into this territory. Recognize that only 12% of not-for-profit corporations are incorporated federally. It's also going to be inconsistent with the provincial laws, and modelled on an older U.S. statute.

Part 7, which deals with trust indentures, is also dealing with a matter that's regulated at the provincial level, securities law. In that respect, you're looking at the wrong end of the telescope by regulating issuers, federal not-for-profit corporations.

Part 5 in our submission deals with debt obligations. We believe the act is replete with provisions dealing with debt obligations, but there's no demonstrable need for these provisions. Very few not-for-profit corporations issue debt obligations beyond simple real estate mortgages or general security agreements to institutional lenders. Lenders are quite capable of protecting themselves through contracts and through provincial security regimes, and they don't need to rely on a helping hand from legislative provisions. I don't think they're asking for it.

We think a lot of these matters can be stripped out of the act and that it can be shortened and simplified.

This act is not about lenders. It's about members, the corporations, the public at large, and the directors and officers of those corporations. We think there is overuse of the regulations.

I can only really demonstrate this by showing you the act and then the regulations. If you read the act, you'll see the word “prescribed”. That's a clue that will tell you that you've got to look at the regulations, but there's no map. The regulations are not put out in the same provision.

This is not a criticism. I'm just saying that it could be made simpler by reintegrating the relevant provisions in areas in which they're not likely ever to be changed, haven't been changed in 34 years under the CBCA, and don't need to be separated in this way.

Finally, we think it could be simplified with respect to audited financial statements. We have a handout in French and English that you should have received. The top table demonstrates the audit exemption regime under the current bill, split into soliciting corporations and non-soliciting corporations, with different financial thresholds. There are unanimous resolutions, special resolutions, ordinary resolutions, and then a director's overriding consent in the case of soliciting corporations. It's a fairly complex regime, as you can see from this handout.

At the bottom of the table is the CBA recommendation, which was based on early consultations that Mr. Stevens and I, and the rest of our members, did a year and a half ago with the Institute of Chartered Accountants of Ontario. We devised a scheme that would be much simpler and would be uniform for all types of corporations.

Thank you very much.

[David Stevens, Member, National Charities and Not-for-Profit Law Section, Canadian Bar Association]

Mr. Chair, and honourable members, I'll take the remaining time to go through items 5, 6, 8, 9, and 10 in our executive summary.

Just picking up on my friend's submission, both the charity side and the business side of the Canadian Bar Association think this is an excellent piece of legislation that is long overdue.

Most of our submissions today are about making it simpler and easier to use.

The first item that I want to take you through is number 5 in the executive summary, dealing with the concept of “soliciting corporation”. This is a regulatory concept in the statute. “Soliciting corporation” is brand new to the statute; we don't have any experience with it in other statutes in Canadian or U.S. law in the non-profit sector. We looked at it very carefully, and we agree that it's actually a good concept for dealing with an interesting and necessary topic. The issue is to what extent should corporations who receive funding from the public, either as donations or government funding, or from other corporations who receive funds from the public, be regulated?

The concept of soliciting corporation is used in the statute to regulate soliciting corporations. Our only complaint is about the definition. We would like the definition to be improved. The way it is currently worded, a corporation could fall into that classification inadvertently during the course of the year, and because of that, it would then pick up all of the consequences of being a soliciting corporation—possibly not even knowing it had fallen into that classification. So we're suggesting that the definition be applied once a year when the corporation issues its financial statements and is in a position to know that it has fallen into that regulatory category and, therefore, when it is in a position to bring itself into regulatory compliance.

Item 6 in our executive summary deals with protecting directors and officers from unfair liability. Several jurisdictions in the U.S., and two jurisdictions in Canada, have legislation to protect non-share capital corporations' directors from liability for misfeasance, or negligence, from violations of the business judgment rule. We think that is a good idea and that this legislation should adopt the same kind of protection. There is statutory language currently available in the Saskatchewan Non-profit Corporations Act that could be incorporated into this statute. What it essentially does is to say that if you're a director of a non-share capital corporation, yes, you should be responsible for things that are caused by your own dishonesty or fraud; but, no, you should not be exposed to liability for mistakes in judgment.

Currently that type of error is covered in this legislation, and in commercial corporation legislation, by indemnity provisions and insurance provisions. What happens now is that the commercial corporation will promise the director that it will indemnify the director against the consequences of this kind of liability—and probably, or typically, also obtain insurance for that director against that kind of liability. Those two solutions, we think, aren't sufficient for the non-share capital sector. We want to go a step further and say, let's make those directors immune from that kind of liability, and let's save the non-share capital corporation the expense of insurance. Let's save that director the aggravation of defending against the claim for a period of time. Let's just give them immunity—but not from fraud or dishonesty, just from failures of business judgment.

Item 8 deals with amending bylaws. The point is a simple one. The constitution of the non-share capital corporation is stated either in the articles—which are basically entrenched—or the bylaws. Section 7 of the legislation says you must have items 1, 2, 3, 4, 5, 6 in your articles; however, all the other constitutional provisions you can put in your articles or your bylaws. The incorporators know that going into the regime, and they know how articles are changed, that is, by a two-thirds vote by special resolution; and they know how bylaws are changed, that is, the directors propose a change, there is interim validity, and then the members confirm it. So it is an easier regime for bylaws than for articles.

Our suggestion is that this basic regime—that is, having one regime for articles and one regime for bylaws—be used in this proposed statute. Without getting into the details, there is a provision in the statute with a hybrid constitutional change regime. We think it is an interesting idea, but in the end, it just confuses things. So this is another suggestion for simplification.

Item 9 in our executive summary refers to a provision in the current Canada Corporations Act that's been carried forward into this bill, requiring non-share capital corporations to file their articles or bylaws with the minister. Lots of people in the sector have never thought that it served a useful purpose. There are 19,000 of these non-share capital corporations in Canada. We don't know if the minister has enough room in his office to take all of these bylaws. What is the minister going to do with all these bylaws that are coming in? And to what extent are people going to comply?

Probably the utility of that kind of rule is that the sector is a bit informal in the way it operates, so let's make them send their bylaws to Ottawa, and 10 years from now when they can't find them, they can go to Ottawa to find them. The question is, though, is that actually going to work?

Secondly, if they don't send it in, what happens to that bylaw? Is it invalid because it hasn't been sent in? Under the current Canada Corporations Act, it's invalid. We suggest that there not be a requirement to send it in.

In our final submission, submission 10, I won't go into the details because our time has expired. Our submission is simply that the remedies available under the statute be rationalized a little bit more. Again, that's a simplification.

Our message is that this is an excellent piece of legislation. It's a huge improvement for the sector. We recommend that it be passed, but we also think it can be improved.

[The Chair, Conservative, Michael Chong]

Thank you very much to our witnesses for their opening statements. They've been helpful.

The larger brief that the Canadian Bar Association has provided to our committee is going to be translated. Until it's in both official languages, we're not going to distribute it. Once we have it translated, we'll have it distributed to members of the committee.

We now have just over an hour for questions and comments on the part of members.

Madam Coady.

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

Thank you very much for a very comprehensive and detailed report.

I appreciate both organizations coming to see the committee today and also the work they have done in this regard.

As you said, it's a very important bill. It's an important step forward. Thank you very much for the detail with which you've commented.

I have a couple of questions. I'm going to go back and forth between the organizations, but I just want, for the purposes of clarity, to ask about the soliciting versus non-soliciting.

Both of you could comment on this, but really, the Bar Association talked a little bit about this and streamlining, which I think is a good effect. Some of what you have talked about is about the soliciting versus non-soliciting, and it's been suggested that perhaps we don't need to define or have a different level or tier between the non-soliciting and the soliciting.

Do you think it should be defined as soliciting and non-soliciting? Or do you think minimum standards should apply for both? That's my first question.

[Carole Presseault]

I'd say the Bar Association has done a little more work than we have on this area, but we looked at it from a very holistic point of view. Our conclusion was that a one-size-fits-all approach didn't fit the sector. We number 19,000 organizations. I sit on three of those 19,000, and they are three very different organizations that solicit funds from very different areas.

My very facile answer is that one size doesn't fit all, and I think this soliciting and non-soliciting, with various thresholds, is worth looking at and trying.

[Wayne Gray]

I think it's absolutely a fundamentally important distinction. Really, I think it's inarguable.

Let me explain a couple of things. There are only seven rules that differentiate. It's a badge that fits different types of corporations. If you're a soliciting corporation, all it really means is that there are seven rules that are a little bit different for you than they would be for a non-soliciting corporation.

Three of those, I think, can't be argued. First, on liquidation, where do the moneys go? If you've been receiving money from the public, it should not go back to the members. That's clear under the act. To me, this is a fundamental distinction that you need.

Unanimous members' agreements have no application for soliciting corporations, so they shouldn't be applicable to those. Also, there is the filing of financial statements. That kind of transparency really only applies where the public is involved.

There are other rules you can debate, such as the number of directors and so forth, but you fundamentally need that distinction.

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

Thank you.

Very quickly, I have two other questions.

Are you satisfied? You've talked about how we should move forward with this bill and about how the suggestions you make will improve this bill. But you do say that we should move forward. Overall, have you been satisfied with the level of consultation you've had over the last number of years and the amount of time you've had to prepare to be before this committee or others? Are you satisfied that we've thoroughly consulted?

[David Stevens]

This has been in process for nine years. There was an extensive consultation process in the early 2000s, which we thought was excellent. That was on principles. This draft of the legislation has been in this form, more or less, since 2005. It's been available for lawyers and the public to read and comment on. We made a previous submission in 2005 as well. So, largely speaking, yes.

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

My third question is on remedies. It's sprinkled throughout the entire bill. We have had suggestions that perhaps we should have a section on remedies. We've also heard the suggestion that perhaps we're being a little too litigious in our goal of remedies.

Would either or both groups care to comment on the remedies that are found throughout the bill? Do you think they should be in a separate section? Do you think they're adequate? Do you think they need clarification?

[Wayne Gray]

I think there's a little bit of improvement in there. As Mr. Stevens said, you could consolidate the liquidation remedy and the oppression remedy. That would trim the act a little bit.

You could move a few other provisions, which we call “mini” compliance remedies, into the general compliance remedy. You don't need those if you have a general compliance remedy.

So there's a little bit of improvement, but it's not earth-shattering. All of that detail is in our larger submission.

I have one other point on that, though. The speaker from the Canadian Red Cross on Tuesday suggested arbitration. I do think that's worth considering.

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

Okay, thank you.

[The Chair, Conservative, Michael Chong]

Thank you, Madam Coady.

Do you have any more questions?

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

No, it's okay. They would have to be so short....

[The Chair, Conservative, Michael Chong]

Mr. Bouchard.

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

Thank you, Mr. Chair.

Thank you all for appearing this afternoon. My first question is for Ms. Carole Presseault of CGA-Canada.

You said that professional accountants comply with the standards of independence established by the professional regulatory body having jurisdiction over them. Could you describe how your body establishes the independence of its members?

[Carole Presseault]

Thank you for your question, Mr. Bouchard.

As I mentioned in my opening remarks, in the aftermath of the corporate failures, there was a complete review of the standards that apply to professional accountants. This did not take place in isolation. I can't tell you where the process began, but it is the one in which all accounting bodies, be they Canadian, American or European—they have many international affiliations—developed their independence standards.

You asked me how we arrived at this standard. It was an exhaustive consultation process and it was an internal process to develop a standard. There were also external pressures at the time. We worked together with our international body and the Canadian accounting bodies to develop and implement our standard. Today each provincial accounting body is responsible for applying this standard and making sure it is observed by our members.

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

You mentioned the provinces, so I would like to come back to the question of mobility. You said that part of this bill is incompatible with other legislation, and that the bill could limit the mobility of professional accountants.

Could you tell us how this bill may limit the mobility of professional accountants?

[Carole Presseault]

Thank you for your question.

As I mentioned, there are actually three requirements to be met by public accountants in order for them to practise or give their opinion on the financial statements of an organization under this Act. The first one is to be a member in good standing of an institute or association of accountants. The second one is somewhat problematic since it has a second provision whereby a public accountant must also comply with provincial enactments.

Recently, the provincial premiers all came to an agreement and thus struck a major blow for the improvement of Chapter 7, respecting the mobility of workers in Canada. It was concluded once again that it is really the principle of mutual recognition that should determine the mobility of workers in Canada. This principle provides that, if a professional's qualifications are recognized in one province, they must also be recognized in another province, full stop. According to our interpretation, the section in question brings another factor into play. Even if they are qualified, public accountants must meet another criterion that has not been specified in the Act. It is a little too vague.

Really, under subsection 181(1), public accountants must be members in good standing of an institute or association of accountants, and that's that. That's enough. It is the body that must ensure that they are qualified and able to do the job. If they're not, it's up to the body to take the disciplinary action required.

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

Thank you.

My next question is for the Canadian Bar representatives. I don't know which one of you can answer me.

The Act respecting not-for-profit corporations does not define what a not-for-profit corporation is. Do you have any comments to make concerning the definition that should be drafted of a not-for-profit corporation?