Debates of June 21st, 1995

Business Development Bank Of Canada Act

[The Acting Speaker (Mrs. Maheu)]

Is it agreed?

[Some hon. members]

Agreed.

[The Acting Speaker (Mrs. Maheu)]

In that case I shall propose Motions Nos. 16, 17 and 18 to the House.

[Ian McClelland, Reform, Edmonton Southwest, AB]

moved:

Motion No. 16

That Bill C-91, in Clause 23, be amended by replacing lines 40 to 42, on page 10, with the following:

"shares with a par value of $100 each, but the paid-in capital of the Bank,".

Motion No. 17

That Bill C-91, in Clause 24, be amended a ) by replacing lines 18 and 19, on page 11, with the following:

"24. The rights conferred by shares include"; and b ) by deleting lines 26 to 38, on page 11.

Motion No. 18

That Bill C-91, in Clause 27, be amended by replacing lines 28 to 42, on page 12 and lines 1 to 23, on page 13, with the following: a ) authorizing the issue of shares in one or more series and authorizing the Board to fix, by resolution, the maximum number of shares in each series and to determine the designation, rights, privileges, restrictions and conditions attaching to the shares of each series, subject to any limitation set out in the by-law; b ) changing authorized shares without par value, whether issued or not, into shares with a par value and changing authorized shares with a par value, whether issued or not, into shares without par value; and c ) consolidating or subdividing shares.''

[Werner Schmidt, Reform, Okanagan Centre, BC]

Madam Speaker, before I get into the debate I would like to express my appreciation for the unanimous consent given to the grouping and that all of these motions are deemed to have been put, to expeditiously advance the debate and the passage of the bill.

However, I also need to register very clearly and unequivocally that the establishment of a crown corporation like the Federal Business Development Bank or by whatever other name it might be called in the future is not consistent with Reform Party policy. We would suggest that such a crown corporation, organization or corporation not exist. Even though that is our position, we want to make the crown corporation as efficient and effective as it can be. That is the purpose of the amendments that our party is presenting to the House this afternoon.

With regard to Motions Nos. 16, 17 and 18, which refer to clauses 23, 24 and 27 of the act respectively, each of these amendments and those respective clauses refer to the capital structure of the proposed FDBD. The capital structure as covered in clause 23 suggests that it consists of a variety of instruments. The first of these are common shares with a par value of $100 each and an unlimited number of preferred shares without par value, but the paid-in capital of the bank together with any contributed surplus related to it and any proceeds referred to in paragraph 30(2)(d).

This paragraph from 30(2)(d) really has to do with hybrid capital instruments. We will talk about that in just a moment. We also need to recognize that those things that have been described as equity have to do with contributed surplus and retained earnings.

Therefore, a couple of things need to be suggested here. First, the categorization of common shares versus preferred shares needs to be distinguished. The common shares and the preferred shares will be owned by the crown which is the Government of Canada. However, as I understand it, there is a difference in how they are treated in terms of the presentation of the budget to the House of Commons.

The preferred shares, to the best of my knowledge, will not be in the budget but off budget. In other words, they are considered as an investment of the government so the people are unaware of what the disposition or exposure is of the Government of Canada in the equity of the Federal Business Development Bank.

Motion No. 16 deletes from the capital structure of the bank the category of preferred shares. This would suggest that it is better to take them out.

When we get to clause 24, if there is going to be a share capital part of the capital structure of the bank, to make it more efficient then it ought to be possible, in fact it is necessary in our opinion, that there be a variety of classes of shares and that they be created in such a way that there is a maximum of flexibility possible.

If some future government would like to do what the current government is doing, that is privatizing crown corporations like CNR, then this capital structure would be a very convenient way to make the thing go smoothly. From that point of view, it is an improvement to go to a share capital position.

Our suggestion is that there be only one class of shares which are common shares rather than preferred shares. Motion No. 17 clarifies and makes more efficient the disposition, control and management of those shares.

I would like to focus briefly on the hybrid capital instruments. Nowhere does the act define exactly what is meant by a hybrid capital instrument. This raises a whole series of questions. The

first question has to do with what is the priority claim in the event of dissolution of the bank or in the event of looking at the earnings of the bank as to who gets paid and in what order they get paid. Do they take preference to the preferred shares or do they take a secondary position or do they maybe even take a tertiary position? It is not clear.

Therefore the act is deficient in not making that clear. The act is also deficient in not clarifying exactly who will own these hybrid financial instruments.

The question really arises of who will be expected to buy these things. Are they going to be individual citizens? Is it going to be the Government of Canada?

The way the act is written, it is possible that the government could own these, that individual citizens could own these, that corporations could own these. That raises the other good question: Could some kind of persuasive power be directed towards the banks and it be requested that they supply this hybrid capital, in which case it is almost an expectation that it is just short of exercising a tax on the banks in order to supply the capital for this crown corporation? I do not think that is a desirable situation to be in.

The other situation is that if you create a hybrid capital instrument and nobody knows exactly what we are talking about, that is like creating something we are supposed to be supporting and we are not sure what it is we are supporting. One has to be very critical of that kind of provision in an act of this kind.

There is one other point that has to be raised here, and that is the actual manner in which the retained earnings and the contributed surplus is going to be handled by this bank. On one hand, the bank is told that it must manage its affairs in such a way that there is complete cost recovery in terms of the loans and the financial transactions it engages in. On the other hand, there is a provision that the capitalization of the bank contain a parliamentary appropriation.

It depends a lot now on what the mix of these equity positions is going to be. If the major portion of the capitalization of the bank is going to be a hybrid capital instrument and if that has prior claim, then indeed the bank is obligated to pay the holders of these hybrid instruments before it considers any profit to the bank or any return on investment. If the major part of that is there, that becomes a direct charge against the earnings the bank might make. Most of those earnings will come from the money it lends to various entrepreneurs.

I would respectfully suggest to the House that we adopt these three amendments to the act.

[Dennis Mills, Liberal, Parliamentary Secretary to Minister of Industry]

Madam Speaker, to begin I would like to say to the industry critic for the Reform Party and the critic from the Bloc Quebecois that as we in committee designed this bill we had a very constructive debate, a very solid exchange of views. I am happy to see that this spirit is continuing today in the House, because it is important that we put this bill through the House today, with all the responsibility we have been given to make sure we do the right thing.

At the same time, members must realize that this Business Development Bank of Canada is an instrument that we need to act as a catalyst with the small and medium size business community and it must be done. This bill must be passed before this House adjourns.

I now want to deal with the Reform Party member's concerns about this area of the bill on these motions. I want to humbly differ with him. Where the member has said that we are not specific about the options the bank may choose to get into and therefore the crown's liability might be increased, I differ with that.

I want to be very specific. Under section 30 of the bill, it is entitled the debt to equity ratio. Section 30 is very specific. The aggregate of (a) the borrowings of the bank under subsection 18(1) and section 19 and (b) the contingent liabilities of the bank in the form of guarantees given by it must not at any time exceed 12 times the equity of the bank.

We go on and we are very specific about the definition of equity:

For the purpose of subsection (1), the equity of the Bank consists of

(a) the amounts paid for its shares, including any contributed surplus;

(b) the retained earnings of the Bank, which may be positive or negative;

(c) the amounts paid to the Bank as capital by Parliamentary appropriation; and

(d) such proceeds of debt instruments, hybrid capital instruments or any other arrangements as may be prescribed as equity by the Governor in Council.

What I am suggesting by that very specific control the bank has is that the amendment the Reform Party is putting forward is not necessary because any activity in respect to the concern of the member of the Reform Party could only be undertaken if it met the bank's eligibility criteria. If the eligibility criteria were not met, then the bank could not proceed holus-bolus on its own.

I believe that the bill, as it stands, amply covers the Reform Party's concerns.

[Yves Rocheleau, Bloc, Trois-Rivières, QC]

Madam Speaker, I am pleased to rise to participate in the debate on the fourth group of motions and I am pleased that we have agreed to

accommodate one of our Reform Party colleagues, who had to return to his riding unexpectedly early.

I should mention from the outset that the amendments before us are very technical and very specialized. We support them, because, on the whole, they strike us as not altering the spirit of the bill to any degree, a bill, I might add, that we condemn with all the strength we can muster. This is perhaps a bit of a disappointment for our Reform colleagues.

This very important bill changes the rules of the game and the way of doing things in addition to changing the name of the largest federal financial institution. The change is being made on the sly, without debate or show, make no mistake about it, even though the bill will completely change the operation and the mission of the bank in its relations with future clients.

It will have the role of agent of regional development. We will, however, come back to this point at length during the course of the day. The mission of the bank is being changed in that the nature of the role of economic developer through small business will be altered. We have questions about the way the bank will work in the future, because, in our opinion, it will have to become more commercial in nature and assume the accompanying concerns.

At this point in the debate, I would like to inform you that we will support the three motions by our colleague from the Reform Party, and particularly the amendment to prevent the issue of preferred shares. We consider it important in the context that the legislation clearly state preferred shares may not be issued.

I end my remarks here and will comment further on the bill itself in the coming hours.

[The Acting Speaker (Mrs. Maheu)]

Is the House ready for the question?

[Some hon. members]

Question.

[The Acting Speaker (Mrs. Maheu)]

Is it the pleasure of the House to adopt Motion No. 16?

[Some hon. members]

Agreed.

[Some hon. members]

No.

[The Acting Speaker (Mrs. Maheu)]

All those in favour of the motion will please say yea.

[Some hon. members]

Yea.

[The Acting Speaker (Mrs. Maheu)]

All those opposed will please say nay.

[Some hon. members]

Nay.

[The Acting Speaker (Mrs. Maheu)]

In my opinion the yeas have it.

And more than five members having risen:

[The Acting Speaker (Mrs. Maheu)]

Pursuant to Standing Order 76(8), a recorded division on the motion stands deferred. The recorded division will also apply to Motion No. 17.

The next question is on Motion No. 18. Is it the pleasure of the House to adopt the motion?

[Some hon. members]

Agreed.

[Some hon. members]

No.

[The Acting Speaker (Mrs. Maheu)]

All those in favour of the motion will please say yea.

[Some hon. members]

Yea.

[The Acting Speaker (Mrs. Maheu)]

All those opposed will please say nay.

[Some hon. members]

Nay.

[The Acting Speaker (Mrs. Maheu)]

In my opinion the nays have it.

And more than five members having risen: