Industry Committee on March 7th, 2017

[The Chair, Liberal, Dan Ruimy]

Because they're inadmissible there is no vote on that, unless of course the chair is challenged. Then there would be a vote.

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

All right.

[The Chair, Liberal, Dan Ruimy]

We have completed NDP-6.

(On clause 7)

[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]

Thank you.

It is admissible. It is open for debate. I will point out that if amendment PV-4 is adopted, amendment NDP-7 cannot be moved as they are identical. If amendment PV-4 is defeated, so is amendment NDP-7 for the same reason. We are open for debate.

Mr. Masse.

[Brian Masse, NDP, Windsor West, ON]

I'm glad this amendment is coming forth, and I don't really care what party it comes from. I'm not surprised as it's part of an accountability theme we have seen here early on, and it's one of those to which there should be no objection, hopefully. Essentially we're arguing for cash to be registered, so to speak.

We've all seen the movies where they go into banks, get the bonds, and steal all that stuff, and then they have them to cash in somewhere else. This is where we can eliminate the use of bearer shares without infringing on the people who have that capital by simply having them have it registered. That's the thing. When they go to cash them in, when they go to use them, then it simply becomes registered money in our actual system. It's as simple as that, so it doesn't infringe on those who have them in any way. Who it would infringe upon is maybe somebody who wants to use them for illicit purposes or for questionable practices. That's who it's going to infringe upon. It's those players directly.

I like this amendment. In fact, it's better than my amendment. How's that? I will be supporting this amendment.

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

Thank you.

[The Chair, Liberal, Dan Ruimy]

Thank you.

Mr. Baylis.

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

This is something on which I asked our witnesses an awful lot of questions. I also took the time to meet with Mr. Schaan to try to determine how to address this issue.

I was led to believe that this clause as it stands does not actually address the issue. It's technical, and I'd ask if maybe Mr. Schaan could explain that.

[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.

[Brian Masse, NDP, Windsor West, ON]

This doesn't take care of the older stuff.

I have just a question further to that. What about shares prior to 1975?

[Mark Schaan]

On shares prior to 1975, can I defer to my colleague? This is Coleen Kirby.

[Coleen Kirby, Manager, Policy Section, Corporations Canada, Department of Industry]

I'm the policy director at Corporations Canada.

Prior to 1975 shares were issued under the Canada Corporations Act. They were a different form in that shares were issued according to par or par bought value shares. Generally, again, the act was silent with respect to bearer form. The intent always, as part of the transition from the old act to the current Canada Business Corporations Act, was to get rid of shares in par value. The concept of all shares having to be in registered form was consulted on. It was part of the original Dickerson report. It was part of two bills through Parliament. Nobody ever had any comment or objection that I've been able to find about the fact that shares would be in bearer form.

Our disagreement with the FATF has always been that we say shares have to be in registered form. They look at another provision that says securities can be in bearer form, securities involve shares. Our argument is the specific overrides the general. Their argument is that they don't agree with us. That's why we've been in the FATF last two reports and if you look at what the witnesses picked up, they were quoting the FATF report. They weren't quoting what we had always argued with them.

[The Chair, Liberal, Dan Ruimy]

Ms. May.

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

Could I be permitted to ask a question? If the position of the department is that bearer shares have always been illegal, what is the purpose of proposed subsection 29.1(2) for the holder of a bearer form that was issued before the coming into force of this section?

[Mark Schaan]

It's the option. In section 29, it doesn't concern the share; it concerns options and rights and transferable rights. These are transferable rights that exist in option form. They're not yet shares. Once they're shares, in order to conform with the act, they must be in registered form.

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

However, you would agree that there is a difference of opinion about how one interprets the previous act, and you're attempting through this to codify it more clearly that bearer shares are not allowed and must be registered.

[Mark Schaan]

We sought, as I said, both independent legal opinion and the opinion of the justice department. Their view, both the independent legal opinion and ours, is that bearer shares are illegal in this country and that what we are closing is the remaining loophole, which is simply related to the transfer of options.

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

Your opinion is that there's no risk of existing options that are not registered.

[Mark Schaan]

Yes. Our view is that options now must be converted into a share of registered form by a corporation when presented by the holder.

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

Anyone who has already received such an option and has bearer shares....

[Mark Schaan]

They can't have a bearer share. They can only hold a bearer option, because bearer shares don't exist in that all shares must be in registered form.

[Coleen Kirby]

An option is not a share and has no rights until it's converted.

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

I understand that. I'm not 100% persuaded that there isn't still a risk if there are bearer shares out there, before the coming into force of this act, that should be registered.

[Mark Schaan]

Our view would be that subsection 24(1) requires that all shares be in registered form.