Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 8 - Evidence, June 17, 2009
OTTAWA, Wednesday, June 17, 2009
The Standing Senate Committee on Banking, Trade and Commerce, to which was referred Bill C-4, An Act respecting not-for-profit corporations and certain other corporations, met this day at 4:05 p.m. to give consideration to the bill.
Senator Michael A. Meighen (Chair) in the chair.
[English]
The Chair: I wish to call to order this meeting of the Standing Senate Committee and Banking, Trade and Commerce.
We have a lot to do today. We are fortunate to have with us the Honourable Diane Ablonczy, Minister of State for Small Business and Tourism, Industry Canada; she is accompanied by a number of officials.
[Translation]
This afternoon, the committee is studying Bill C-4, An Act respecting not-for-profit corporations and certain other corporations.
[English]
Bill C-4 is essentially the re-introduction of three previous bills that died on the Order Paper, the oldest of which dates to 2004. Like its predecessors, Bill C-4 is intended to make it easier for not-for-profit corporations to benefit from the protections afforded by incorporation, as well as the predictability and accountability offered by a modern corporate governance framework.
In that spirit, the proposed changes would, among other things, streamline the incorporation process and allow not- for-profit corporations to assume the broader powers of a corporate legal entity. The proposed changes would also broaden the rights of members by allowing them to access corporate records and membership lists, request meetings and make proposals for discussion at an organization's annual meeting.
To discuss the bill in more detail, we are privileged to have the minister with us today. She is accompanied by Mr. Roger Charland, Executive Director, Corporate and Insolvency Law Policy and Internal Trade, Industry Canada; Mr. Wayne Lennon, Senior Project Leader, Corporate and Insolvency Law Policy and Internal Trade, Industry Canada; and Ms. Coleen Kirby, Manager, Corporation Canada, Policy Section, Industry Canada.
Minister, since you have arrived, we have been joined by Senator Greene from Nova Scotia.
Without further ado, minister, I invite you to make a statement, which I see you were good enough to distribute before the meeting started.
Hon. Diane Ablonczy, P.C., M.P., Minister of State (Small Business and Tourism): Thank you very much.
Honourable senators, it is a pleasure to be here this afternoon. I do not know if you are aware of this, but I believe this is the first time in history that a Senate standing committee has hosted a minister of state. You are, therefore, making a bit of history here this afternoon.
The bill you are about to study has been introduced virtually unchanged seven times previously in the House of Commons. For one reason or another, it has always died on the Order Paper. This is a bill that has been a bridesmaid no less than seven times. It is marching down the aisle on this occasion, hoping the bridegroom will actually tie the knot. You have the power to make that happen. We are hoping that will, in fact, occur.
This is an interesting bill. It was passed in its present form in 1917, making it older than any of us in this room, a distinction that, sadly, we cannot always claim. In this case, this bill predates all of us and it is crying out for modernization.
The bill regulates not-for-profit organizations, which are an integral and crucial part of Canadian life — something I do not have to tell you because most, if not all, of you are involved in not-for-profits in one form or another. It is hard to say in just a couple of minutes how much not-for-profits mean to Canada and Canadians. They provide much needed services to people in our community, particularly those who are among the most vulnerable of our fellow citizens — the destitute, the homeless, the sick, the aged and the young.
Some not-for-profit corporations also undertake crucial research, either in search of cures for physical or mental diseases or in the area of social sciences, where results are aimed at broader social goals. Some provide cultural and sporting diversions, which are also important for healthy communities. Some offer spiritual uplift or guidance. There is a wide range of not-for-profits. They are a very vigorous part of our Canadian mosaic.
All of these corporations, honourable senators, are made up of motivated and dedicated people. Many of them are volunteers, and these people should be the focus of doing whatever we can to make their lives and their efforts as effective as possible.
That is what we are trying to do with this bill. Let us put it this way: Not-for-profits have been waiting for this.
As I have said, Bill C-4 is long overdue. The current legislation is ancient, to say the least. It has not been substantially amended since 1917. No doubt, 90 years ago it was state of the art. However, time has not been kind to the Canada Corporations Act, CCA. There have been advances in corporate governance, communications technology, management theory, not to mention the evolution of the society in which these corporations operate. They have all passed the CCA by. A better framework law is needed and a better framework law is what you have before you.
The bill offers clarity where clarity does not currently exist. That is always a good thing in politics, is it not? It provides certainty for not-for-profit corporations in the areas where there was not or is not any. As well, the bill significantly reduces the regulatory burden.
Someone once said that if red tape were nutritious we could feed the world, so anything we can do to get rid of some red tape is a good thing. The bill will save federal not-for-profit corporations time and money, and this will come as a great relief for many organizations that are pressed for both.
I want to give you a short summary of the most important features of the bill. Mr. Chair, you gave a good summary, but please allow me to add a couple of points.
First, the bill allows for a streamlined system of incorporation. It will allow interested parties to start a new not-for- profit organization quickly and with minimal red tape. Right now, that process is a cumbersome one.
Second, once incorporated, corporations will have an almost unlimited flexibility in how they organize themselves. Given the complexity of modern society, this flexibility is really important. As well, flexibility in how they carry out their affairs will allow them to write their articles and bylaws to suit their own specific needs, with minimal government approval required.
Third, the bill provides for an important comprehensive set of members' rights, similar to those available to shareholders under business corporate law. It will ensure that members will receive financial and other corporate information in a timely fashion and that they will be able to propose items for consideration at meetings of members and have access to the courts, if necessary, to seek redress in the event of conflict. All of these rights we take for granted these days. They are not currently granted under the old 1917 act.
Further, directors and officers will have clear direction on their duties and responsibilities. They will be provided with a due diligence defence against statutory liability. Right now, directors and officers are sitting ducks, making it difficult to attract and retain qualified individuals. We want to fix that.
Federal corporations will have new standards of transparency and accountability. Corporations whose revenues stem from public donations or government grants will be required to file their financial statements with Corporations Canada; these financial statements will be available for public scrutiny by any interested Canadian.
Finally, the bill provides rules and procedures for those corporations. These activities may require them to seek financing through capital markets. This will be a small segment of not-for-profit corporations, but it is important that, for the very few corporations to whom this may apply, the rules need to be as clear and comprehensive as possible.
Honourable senators, I am pleased to inform you that the measures contained in the bill were rigorously studied by colleagues in the House of Commons on the Industry, Science and Technology Committee. A number of significant stakeholders were invited to comment on the provisions of the proposed act, including the Canadian Red Cross, Imagine Canada, the Canadian Bar Association, the Certified General Accountants Association of Canada, the Canadian Institute of Chartered Accountants and the United Way. Each of these witnesses provided thoughtful comments on the particulars of the bill, as well as on the wider implications should it become law.
On the basis of the submissions of these witnesses, a number of small amendments were made to the original bill, amendments that would clarify the wording and intent of the provisions of the bill and produce some internal consistencies in language.
I would like, honourable senators, to ask you to join me in expressing my appreciation for the hard work of the committee members from all parties who gave their attention to this legislation and emerged satisfied that Bill C-4 is a well-considered modernization of current legislation.
During the clause-by-clause examination of the bill by the Industry Committee, the government provided a detailed examination and response to the issues raised by stakeholders. We have a big binder of that response. I know you will want to read every word of this, so I want you to be aware that it is available. All of the issues that were raised by the witnesses were examined by the experts in the department.
I raise this because I understand you will hear one of those issues raised later this afternoon — that is, the issue of who can conduct audits or review engagements of federal not-for-profit corporations.
The approach taken in Bill C-4 is that anyone who conducts audits or review engagements should meet the qualifications of the professional body and any requirements imposed by the provinces — so that we do not tread on provincial jurisdiction in this particular bill before us. We do not want to override or attempt to override provincial laws regulating who would be qualified to carry out audit or review engagements.
I would add that other federal corporate statutes, like the Canada Business Corporations Act — although they are drafted somewhat differently, the analysis that I have been provided concludes that they realize the same policy and intent. Because this issue will be raised, I want to invite you to examine the experts here on that particular issue so you can make an informed decision about that.
One of the most interesting aspects being involved in this issue, of course, is to hear the wonderful stories that Canadians have been able to tell about their involvement with not-for-profit organizations. It is heart-warming to see the impact that these organizations have had on their communities.
Unlike other pieces of legislation, although ``not-for-profit act'' sounds dry and dusty, Bill C-4 touches all of us across the country. Because all of us have had involvement in these not-for-profit corporations, the bill is of real interest to us in a very personal way.
I would like to close by saying that, over the years, the voluntary sector has been asking Parliament to modernize the governance statute of not-for-profit corporations. As I mentioned, the bill represents the eighth attempt at meeting the sector's needs in this area, and I would add that it is the fourth attempt in the last five years.
Honourable senators, Bill C-4 is a bill whose time really has come. I urge you to support expeditious passage of this important piece of legislation. We all know the instability of the current Parliament. The time frame really is short and I would be very saddened, on behalf of the many volunteers and community workers across our country, were we to fail to deliver this modernization right now, while we have the opportunity to do so.
It would be my pleasure to answer your questions. I brought with me the real heavyweights on this bill — and they have been introduced to you.
Once again, I thank you for the opportunity to discuss this important legislation here with you this afternoon.
The Chair: Thank you, Madam Minister, for that helpful introductory statement.
You have noticed, perhaps, that we have been joined by Senator Ringuette, from New Brunswick. We have at least two senators who would like to ask you questions. The first is Senator Massicotte.
[Translation]
Senator Massicotte: Mr. Chair, Minister, thank you for being with us today. I agree with you: this is a very important bill that should be studied and adopted as soon as possible. I believe that this bill has been around for a long time, and we should work diligently to implement it.
When we look at the briefing notes of the Standing Committee on Industry, Science and Technology of the House of Commons, we can see that you have received comments and suggestions from many people. I would like to refer in particular to the submission from the Canadian Bar Association. According to their studies, they made several recommendations to improve this bill, because obviously, nothing is perfect. What is your reaction to these comments? Do you agree, and have you made amendments further to these suggestions from the CBA?
[English]
Ms. Ablonczy: I will refer that to the officials because they did that analysis.
[Translation]
Roger Charland, Executive Director, Corporate and Insolvency Law Policy and Internal Trade, Industry Canada: Ten motions were moved and adopted in committee, with a view to following up on the recommendations made by the CBA. We have a list here, if you are interested: there were amendments to the definition of ``public accountant,'' amendments to the definition of ``soliciting corporation,'' and a few places where the text was clarified. There was a motion moved to eliminate section 29 further to a recommendation from the CBA. They were duly considered and gave rise to the 10 motions.
Senator Massicotte: I would appreciate receiving a copy. There is an aspect that interests me particularly, and I think it is of interest to all the senators, because we all sit on boards of charities, and that is it is difficult to get people to sit on such boards. It is an important role, but these days there is always concern around the responsibility inherent to this position and thus the risks to which we are exposed by sitting on a board of directors. I see that the proposed bill maintains responsibilities for all directors on the prudent board of directors, and the only argument that can be used in case of error is that of due diligence. In other words, we must be able to prove that we have been prudent, and if we are prudent, then we do not expose ourselves to the risks that corporation directors are typically exposed to.
I am wondering whether this is the right criterion. It is a criterion that is applied frequently to non-profit corporations, and I can understand that, because often the directors have a financial interest in these corporations, or else they are paid well enough to ensure that they maintain this interest. But in the case of charitable organizations, directors who are not closely involved with these organizations are usually there to give of their time and to help these organizations, which play an important role in Canadian society. So I am wondering whether this criterion is too strict.
When we look at what happened in Saskatchewan, when we look at the recommendations of the CBA, even when we look at the committee that was chaired by Mr. Broadbent in 1999, everyone recommends an argument of good faith rather than due diligence or prudent administrators.
Why did you not respond to the suggestions, and why do you maintain such a heavy burden of proof on directors of charitable organizations?
Mr. Charland: I would like to begin by saying that we looked at the amendments, and we continue to believe that the most modern and widely accepted standard is one of prudence and due diligence. We believe that, even with regard to non-profit corporations, that is the appropriate standard to use to ensure proper management of these organizations, so we maintain the position that that is the right standard.
Senator Massicotte: That goes against the recommendations of the CBA, those made by Mr. Broadbent's panel in 1999, and those made by Saskatchewan and Nova Scotia as well, if I am not mistaken. For people who are not closely involved with the organization, I am concerned that this will discourage them from participating in the organization, at the expense of our society. Clearly, that is not your opinion.
Mr. Charland: We believe that this clarifies the responsibilities with regard to what exists already. We want to clarify these responsibilities by offering a defence that will be very useful for directors. We are of the opinion that this is a good measure.
[English]
Senator Harb: Thank you for your presentation. We would like to have clarification on the issue raised by the Certified General Accountants Association of Canada — CGA-Canada. In reading clauses 180(1)(a) and 180(1)(b), one can conclude that they are one and the same. Clause 180(1)(b) is repeating what is in 180(1)(a). CGA-Canada made the very compelling point that they have worked an agreement with a number of provinces, such that they can practise interprovincially.
CGA-Canada had an agreement with eight provinces. They made a presentation to the committee at the House of Commons indicating that paragraph 180(1)(b) should be deleted, because it will impede their ability to do work. For example, if a not-for-profit corporation located in Alberta moved to Ontario, they would not be able to continue their work with them.
I would have liked to see CGA-Canada sitting here so that you can rebut them and answer any of their concerns; however, I suspect they will be appearing before us later today. I hope they are listening to your arguments.
Why is it important to reiterate this, when it already exists in a previous clause? Why is it in the bill twice? CGA is saying that other acts, like the Canada Business Corporations Act and the Canada Cooperatives Act, do not have that language. Introducing it here can hurt the CGA-Canada membership and profession — which I know was not the intent.
Could you clarify and tell us how you would feel about a proposition to eliminate this particular clause, so that we will protect an institute?
Coleen Kirby, Manager, Corporation Canada, Policy Section, Industry Canada: Subclauses (a) and (b) do not accomplish the same thing. Subclause (a) requires an organization to be a member of a provincially recognized accounting association. The three associations in Canada are the Chartered Accountants of Canada, the Certified General Accountants Association of Canada and the Certified Management Accountants of Canada.
Not all members of those organizations have taken the requisite courses and have passed the test to be qualified to conduct review engagements and audits. For example, a CGA may be doing accounting work but not doing financial reviews. In this country, professional qualifications are licensed, and licensing is done provincially. Each province has worked out for itself what qualifications it feels are required to do a financial review.
There are two basic types — audits and review engagements. All provinces have some sort of licensing requirement to conduct audits; not all provinces have licensing requirements with respect to review engagements. Prince Edward Island and Nova Scotia, in our understanding, do not regulate who is allowed to do review engagements.
Therefore, the two are not the same. The requirements are different, and we require you to pass both. Each province decides who is qualified to conduct a financial review in its province.
With respect to the Canadian Business Corporations Act and the Canada Cooperatives Act, both acts only permit audits and use the word ``auditor'' accordingly. Bill C-4 permits both audits and review engagements. It is that second, lower level of review that is still regulated by the Canadian Institute of Chartered Accountants handbook, which sets the Generally Accepted Accounting Principles, GAAP, and Generally Accepted Auditing Standards, GAAS, in this country. We had to spell out the words ``public accountant'' instead of ``auditor'' and then define what we meant by that.
In all cases, our intent has been the same. If you are licensed by the province to conduct a review engagement in that province, then you are licensed under the three acts to conduct the financial review that is required.
Therefore, they are not the same. They have different requirements and the language difference here is because of the terms ``review engagements,'' which is not required under the other statutes.
Senator Harb: Was that clear enough, Mr. Chair?
The Chair: Very clear, I thought. Can you repeat it?
Senator Harb: I will not monopolize the time of my colleagues. I know others may raise it.
The Chair: Let me ask one question, Ms. Kirby, if I may: I had it completely clear in my mind but it is starting to fritter away.
What would be the situation if you did not have 180(1)(b)?
Ms. Kirby: Anyone who is a member of one the accounting organizations could do the financial review, even if they had not taken any of the courses to do financial reviews or passed any of the tests, which is determined provincially across the country. Would they necessarily have the qualifications to do the review? We do not know. Many small not- for-profits are often looking for anybody who will volunteer their services to do the review because of the cost associated with it, whether they would have someone qualified to do reviews. Very few CMAs, for example, go through the testing to be qualified to do any kind of financial review. That is one of the reasons the focus is very much on the CAs and CGAs.
Wayne Lennon, Senior Project Leader, Corporate and Insolvency Law Policy and Internal Trade, Industry Canada: In a two-tier system without clause (b) any CGA or CMA or CICA could do an audit of a federal corporation even if they were not necessarily licensed to do one of a provincial corporation. It would be a two-tier system, which we want to avoid. We would like to say that if you are licensed by the province, you can do one of the federal corporations, period.
Mr. Charland: I will add — provincial jurisdiction over the qualification and not wanting this act to override whatever the provinces have established in terms of their jurisdiction over professional qualifications.
The Chair: Thank you, Mr. Charland.
Senator Fox: May I ask a supplementary?
The Chair: Certainly.
Senator Fox: I assume you have met with the CGAs and told them that. What is their response?
Ms. Kirby: We have had meetings with both the CAs and the CGAs for 10 to 12 years on this issue with respect to the Canada Business Corporations Act, with respect to this bill and with respect to each time we table the bill. They do not like the answer and, therefore, they keep saying that they want the provision out. We have a straight disagreement on it.
Senator Ringuette: I am happy to hear that you have been in discussion for the last 10 to 12 years. I am a little shocked by your comments about the communication issue with the CGAs after 12 years of meetings and being able to formally recognize their title. This committee and the Senate National Finance Committee have been looking into interprovincial trade barriers extensively and the related costs and ineffectiveness.
Minister, you said that you do not want to tread on provincial jurisdiction. It says at 180(1)(a) the following:
(a) be a member in good standing of an institute or association of accountants incorporated by or under an Act of the legislature of a province.
That says it all.
Senator Harb: It says it all.
Senator Ringuette: If you do not want to tread on provincial jurisdiction, then 180(1)(a) establishes that because it recognizes the power of the provinces to recognize the qualification or association of accountants and the requirements to be a member of such associations.
I believe that 180(1)(b) is contrary to what the members of this committee and the Senate National Finance Committee want to see. It is an unnecessary trade barrier between provinces set up by the federal government, and I do not agree with it. You might not hear a real question in that, but I am trying to be clear.
Ms. Ablonczy: You are being very clear. It says it all only if we want to go to the lowest common denominator to open the door for people who can provide audits and review engagements. We want to set the bar quite a bit higher that that. That is why we have gone to (b), so they not only have to be a member in good standing but also they need these qualifications. That is really a protection for our not-for-profits to ensure that the skill set we are allowing to deal with their important financial matters on behalf of members and on behalf of the community, who depend on their work, is set at a higher standard. That is the issue you have to grapple with. Do we want the lowest common denominator — anyone who has a licence — to do unspecified accounting work or do we want to ensure that these people have had a higher level of training that would allow them to serve properly to the highest standard of these organizations?
Officials, do you want to add anything to clarify that? I guess they are happy with that, so we should be too.
Senator Ringuette: Minister, we have higher standards established in other federal legislation, for example, the audit requirements under the Canada Elections Act, under the Bank Act, and under the CMHC Act. They all recognize the qualifications of certified general accountants. I have not been persuaded by your arguments.
Ms. Ablonczy: Are you not arguing the opposite point? If I understand you, you are saying there are higher requirements for other acts, but we should not have higher requirements for this bill?
Senator Ringuette: No. I am saying that the required standards under the Canada Elections Act, the Bank of Canada Act and the CMHC Act are certainly high and that, under those requirements, the certified general accountants can do audits. I find this bill is setting a double standard and creating trade barriers. It is almost discriminatory.
Ms. Ablonczy: That is fair. Let us examine that.
Ms. Kirby: Both of the acts to which you refer operate solely in the federal sphere. In terms of the Canada Elections Act and the CMHC Act, you are talking federal Crown corporations. Under the Constitution, the Bank Act is purely federal as well. There are no provincial requirements.
Senator Fox: If I may, it is subject to provincial consumer legislation as of last week.
Ms. Kirby: Yes, but the corporate standards are set federally.
Not-for-profit law, like share corporations, the Canadian Business Corporations Act, is an area where there is dual jurisdiction, in that you can incorporate federally or provincially. We have overlapping jurisdiction. The argument has been made constitutionally that we have jurisdiction for the federal corporate statutes under trade and commerce power whereas the provinces have it under property and civil rights. We try very hard when doing the federal corporate power to not infringe on provincial jurisdictions because of this overlap unless there is a very strong need. Other statutes listed are solely federal authority.
In this case, the consistency from the department has been to keep the CBCA, the Canada Cooperatives Act and the not-for-profit act consistent. We leave it as an area of provincial jurisdiction for the provinces.
Senator Ringuette: I really beg to differ.
The Bank of Canada Act says that certified general accountants can do audits. Section 180(1)(a) leaves the discretion for incorporated accountants associations to be recognized under provincial legislation. If in one province the CGAs are not an association of accountants recognized by the provincial legislature, so be it.
We are not being consistent. We are federal parliamentarians. We must respect provincial jurisdiction, as we are doing in 180(1)(a). I absolutely do not agree with your arguments in regards to (b).
Ms. Ablonczy: Mr. Chair, if I might summarize that. For the purposes of some acts that are solely under federal jurisdiction, the federal government can decide who can do audits. However, in this case, there is provincial jurisdiction mixed into it. The provinces themselves in some cases say: ``You cannot do audits or review engagements unless you have this additional training.'' What we would do, madam senator — which is a good title, too — to be really candid about it is allow the CGA, for example, to do through the backdoor what it cannot do through the front door with the provinces.
In other words, they could not do audits or review engagements in some cases if they had to adhere to provincial standards. However, we would be allowing them to do audits and review engagements irrespective of the mandate they have been given by the provinces if we change this legislation.
Therefore, we are saying to the provinces: ``We do not care what you say about audits and review engagements. We will let groups that you do not recognize as being capable of doing this to do this work in provincial legislation although they could not do it under your provincial legislation.''
We are allowing these groups to do through federal legislation what they could not be permitted to do under provincial legislation. Therefore, it is a disrespecting of the provincial provisions.
Senator Fox: As one who has served on a number of not-for-profit organizations, some of them start as being for- profit but end up being not-for-profit. I have three questions on not-for-profits.
Did I understand the minister to say that a provincially incorporated not-for-profit corporation could not use a CGA for audits?
Ms. Ablonczy: They can use some CGAs, if they have the extra training.
Senator Fox: They can.
Ms. Ablonczy: They need to have the extra training.
Senator Fox: The only group that has come to us that feels done in by this legislation is the CGAs. We want to understand their position and point of view, as I am sure you have tried to do.
If provincially incorporated not-for-profit corporations could use either a CGA or a chartered accountant, depending on the nature of the work done and the legislation, I would suggest that 180(1)(b) is redundant.
Federal not-for-profit corporations should have the same leeway to choose who they want. These are people serving their community. They are not dumb or stupid people. They will not go out and get a CGA who is not qualified. Maybe they will feel a CGA is qualified if it is purely auditing. If it is more, maybe they will choose someone else. Why impose it on them? Why not let the marketplace decide and the intelligence of the board of directors prevail in their choice?
I would say that that would give you the best of all possible worlds.
Senator Harb: Very convincing.
Ms. Kirby: What you have missed, senator, is the fact —
Senator Fox: I am sure I missed a lot of things.
Ms. Kirby: It depends in which province the provincial not-for-profit is incorporated. If you are incorporated in a province that permits CGAs and CAs to do reviews, you are allowed to do it provincially and this bill will say you can also do it federally. If you are in a province of incorporation that says only one group can do audits or review engagements in provincial legislation, this bill says that that is the same criteria that will apply federally. It is absolutely identical.
The difference is that it varies by province because the provinces have taken different approaches to how they do review engagements or audits essentially. It varies by provinces under this proposed act the same as it will under provincial legislation. It matches.
Senator Fox: My feeling is that it does discriminate against CGAs. My temptation would be to say let the board of directors of the not-for-profit corporation decide. A federally incorporated not-for-profit corporation is not in all cases, but in most cases, likely to be more sophisticated in its approach to business life than a provincially incorporated one. I do not want to say negative words towards provincially incorporated not-for-profits.
However, why not let them? There then will be more competition in the system. If they can choose between a CGA and a CA for an audit, so be it. More competition will likely assist the not-for-profit organizations with lower prices than simply leaving — I do not like the word monopoly — the monopoly to one group. I do not see why we cannot let the board of directors or the head of the audit committee of the not-for-profit corporation decide whether his needs require a CGA, a CA or a CGA plus. Why do we have to regulate everything?
Ms. Ablonczy: I do not think that is the issue, with respect.
The issue is whether the federal government will say under federal legislation that you can do audits and reviews as long as you are a CGA irrespective of the wishes of the province that may require you to have extra courses and extra training.
The issue is that we will confer upon you a stature and an acceptance level that your province will not.
Senator Oliver: My principle question has already been asked by Senator Harb, but I apologize for not being here during your opening remarks, minister.
Ms. Ablonczy: It was such a great speech.
Senator Oliver: I have had a chance to read them. You said this legislation for not-for-profit corporations began in 1917 and that this bill offers clarity where clarity did not exist before.
Nowhere in this Bill C-4 that proposes a not-for-profit corporation act does it define not-for-profit. Should it and would that give more clarity if it did?
Ms. Ablonczy: That is a good question, one that I am sure the officials can answer.
Ms. Kirby: You are correct that the bill does not define not-for-profit anywhere. The bill is replacing Part II of the Canada Corporations Act, which is called Corporations without Share Capital, not not-for-profit. The not-for-profit part or concept involved in these corporations is what happens to the money they make. There is no question that most charities make money, or profit, because if their administrative costs exceeded what they collect, they would not get very far. They need profit in that sense. The difference is that respecting a business corporation profit is paid back to shareholders in a dividend. Not-for-profits take the profit they make after they pay their costs and then they do something with it.
For a charity, which is the corporation that most people think about, what they do is usually provide some sort of social benefit. A golf association or a curling club will take the money made and maintain the facilities and provide the activity. In the case of the 19 airport authorities, such as Toronto, Ottawa, Montreal, the money is used for building, expansion and providing services.
The question really is this: Where does the money go? Provisions that the money cannot just be paid out to members as a dividend as such are excluded in the bill itself. Part of the problem is that the phrase ``not-for-profit'' is confusing. If you look at the range of corporations it covers now, a more technical explanation is ``non-share capital corporation'' rather than ``not-for-profit.''
Only one third of our corporations are charities. The rest are other corporations, a fair number of which their sole activity is to raise money or take money and pay it to a certain group.
Senator Oliver: Based on what you said, there really should be some kind of clause defining it and explaining it.
Ms. Kirby: If you define it, a bunch of the corporations we have now cannot stay underneath us. Most of the First Nations land claims agreements — and I know there was one just recently in Manitoba — I am guessing when that money is paid out it will be paid out to one of these not-for-profit corporations. The money is then going to the members of the group. It will be used for housing and various other things, but also in straight payments to the people.
First Nations use these because they do not like the concept of shares. They do not want the ownership concept, so they use non-share corporations where everybody has a joint ownership element.
The concept of not-for-profit, and the way most people think of it, has never really existed in the full range of corporations to which this act has always applied.
Senator Oliver: Minister, you said that nothing has been done about this area since 1917. As has just been explained, there are some large not-for-profits and some very small not-for-profits. Some of the changes you are making, particularly in relation to directors' liability and so on, are fairly complicated. Do you have a system of training or easing in particularly for the smaller not-for-profits that can help them before suddenly the due date has arrived and they have to comply? What kind of procedures do you have for training?
Ms. Ablonczy: That also is a good question, senator, and was raised extensively by the house committee as well.
There is a three-year phase-in period for this legislation, which allows especially the smaller groups to get up to speed. There are also templates available to them. There would be template articles of incorporation and bylaws and that sort of thing. Also, Industry Canada has assured us that they will have dedicated people who are actually reachable to hold the hand of the smaller groups with questions as they go along. We can certainly ensure that is followed through on.
The whole idea behind this is to make it easier for not-for-profits and to give them a modern framework. We will do everything we can to bring them along into this new system because it is to everyone's advantage that this happen. It is to government's advantage particularly.
Senator Oliver: There is strong support out there for this bill, there is no question.
Senator Moore: I too have read over your remarks and I wish to address a point on page 3 of your written presentation. The paragraph reads as follows:
Directors and officers will have a clear sense of their duties and responsibilities. They will also be provided with a due diligence defence against statutory liability. These measures will help ensure that not-for-profit organizations will remain able to attract and retain qualified directors and officers.
I, like others around the table I am sure, have been a member of numerous not-for-profit organizations in my community. I wonder about this imposition of a personal liability on directors and officers. They are there serving a public interest but being treated as if they were directors or officers of a for-profit corporation.
In my case, I do not think anybody was ever compensated. We all did it for love of the cause and the community. I do not know that this will help retain and attract people. I am also concerned about insurance these organizations will now have to pay for liability of officers and directors.
May I have some comments on those two issues, please?
Ms. Ablonczy: Those are excellent questions, senator.
First, the standard of reasonable care that is in this legislation is the modern standard. It is pretty basic to all actions by directors.
The second thing is that there is a balancing act to accomplish here. You do not want to have no defence of due diligence for directors because otherwise they have unlimited personal liability for whatever might go wrong in the organization. On the other hand, you do not want to have the bar so low that these organizations are poorly served by carelessness on the part of the directors. There are concerns on the part of insurers because most directors I know, now boards of directors, do have private insurance to cover liabilities. An attempt has been made to try and strike a reasonable balance.
I will let the officials fill in why they think this is the best balance, because I think that is really the nub of your question.
The Chair: Could I ask the officials to indicate what the defence is now?
Ms. Kirby: There is not one.
The Chair: As well, the defence we know in the proposed act.
Ms. Kirby: Right now, there is no defence at all. A complaint we have heard from the volunteer sector is that it is not clear as what the standard is for liability. It is unknown what your liability is and you have no defence if you passed it.
Insurance is an issue now, if you can arrange it. Under this legislation, they will know exactly what the standard is and they will have a defence available for due diligence if they have taken reasonable steps of somebody in that circumstance. It is based very much on the circumstances you are dealing with.
Are you talking about running a golf club, a community association, a national charity, or are you talking about an organization that works with disadvantaged or disabled people?
The Chair: Sorry for the interruption.
Senator Moore: Thank you, Mr. Chair. I do not know what happened to acting in good faith within the law. All of a sudden now it is due diligence and it is tantamount to the same standards that have to be observed by for-profit officers and directors. I am very concerned about that.
I do not know why they do not have some kind of immunity if they have acted in good faith and they have acted within the law. They are volunteers and they are not in it for personal gain. Most of the people do this for the cause, for the community service, and I think we are loading them up here unreasonably.
Ms. Ablonczy: As it stands, there is unlimited liability. There is no legislative protection for directors of these corporations, and that has been a real concern to some people who would otherwise volunteer because then they are personally liable.
This provision brings the new regime into the modern standard. In fact, virtually all corporate law has the standard of reasonable care. The corporate world knows this, people in business know this, and we are simply extending it to this not-for-profit sector.
Senator Moore: I do not know that people have behaved or performed in a charity or not-for-profit any differently today than they did 10 years ago, 20 or 30 years ago, whatever the time period. What would be the impact of this bill, if passed, on the insurance premium that these not-for-profits would have to come up with to cover these new rules? I can just see the paperwork that these directors and officers will have to complete to satisfy the audit. I have gone through that.
I am repeating myself. I do not know how that will help attract or retain interested volunteers.
Mr. Lennon: The act imposes no new liabilities. The liabilities already exist. Common law imposes liabilities. There are over 100 statutes in Ontario alone that impose liabilities on directors of all kinds.
Senator Moore: That is the modern standard.
Mr. Lennon: That is the modern standard, and it is the world in which we live. The act recognizes that most of those people are volunteers. They are not in it for themselves. Alas, bad things happen. They happen in nursing homes, residential schools and playgrounds, all sorts of events, not necessarily by misfeasance or malfeasance but sometimes just by negligence. Someone does not care enough to check a playground properly and a child gets hurt. People get sued. Directors get sued.
The act recognizes the fact that if they act in a reasonable manner, with the same diligence that a competent, reasonable person would act in the same circumstances, they have a defence against those liabilities. The act actually clarifies matters for the insurance companies. Right now, it is an open book. There is no standard against which the insurance companies can apply their premiums. This sets that standard.
Senator Moore: Are you saying that acting in good faith is a lesser standard than reasonableness? I do not understand that.
Mr. Lennon: I am not sure the courts would see it that way. We are trying to protect directors against unreasonable liability.
Senator Moore: What is your answer with regard to looking into the crystal ball as to what may happen in regard to premiums that not-for-profits will have to pay for officers' and directors' liability insurance should this go through the way you have it set out?
Mr. Lennon: I have no crystal ball, but it is my anticipation, because of the certainty and clarity that the act provides, that it would allow insurance companies to more reasonably ascertain their risk and adjust their premiums accordingly, probably downwards.
The Chair: We will impinge a bit on the time of our next witness, simply because the subject they are interested in has taken some of the time of this session. We have two more questioners, and if they could be reasonably brief, we will be able to provide half an hour for our next witnesses.
[Translation]
Senator Hervieux-Payette: Welcome. I just have a comment to make concerning what my colleague said about the differences in the professional area. First, there are several lawyers at the table, and you know as well as I do that there are restrictions on the practice of law in Canada. In the current negotiations with Europe, one of the major obstacles that the Europeans recognize and that exists in Canada, is that professionals cannot exercise their profession if they go to a different province. I think, Mr. Chair, that our committee could look at how harmful this is for our country to have all these interprovincial barriers.
I will just give you an example: my daughter studied for two years at a university in Quebec, and those two years were not recognized in British Columbia. I should emphasize that the federal government contributed funding to post- secondary education, and so this issue goes far beyond the framework of this act and the question of CGAs.
I would like to ask you a question about management of the funds. You are aware, as I am, of recent incidents that occurred in Canada, the United States and elsewhere, where a number of foundations and not-for-profit corporations held funds they received through donations amounting to several hundreds of millions of dollars, which literally disappeared. I made a donation, we made a donation to different corporations that administered these funds for charity, but I have not seen anything in this act that protects those who donate funds. Not-for-profit corporations cannot exist on provincial, federal or municipal government funding alone; they also require contributions from Canadian citizens. And since we are not shareholders, we are donors. We want to ensure that the donations we make are properly managed.
So here is my question: we are revisiting this act for the eighth time, so why has an administrative clause not been inserted as it has been for certain corporations that administer money on other people's behalf? Insurance companies have considerable restrictions on the types of investments they are allowed to make. You are opening a door here, but you are not guaranteeing that people who make donations will have their money managed more securely in future than it has been in the past. Has this been taken into consideration or not? Why have you chosen not to guarantee to donors that this money will be spent reasonably? Because there is no restriction of any kind.
I think this would have been a perfect opportunity to impose certain restrictions on purchases, whether it be with regard to company shares, because this scope of investment is not authorized in other areas, whereas now there are millions, hundreds of millions, even billions of dollars invested in not-for-profit sectors. Why does this not appear in the act?
[English]
Ms. Ablonczy: Thank you, senator, for those questions. With respect to the ability of labour, or professionals, to practise in all provinces at the same level, I share that concern. I am the federal representative on the Committee on Internal Trade, which meets a couple of times a year to try to move the beam forward on this. Mr. Charland is part of that committee as well. That effort, to date, has been by consensus. Because you have to get agreement of 13 provinces and territories, plus the federal government, you can imagine that progress on that kind of labour mobility, which is your issue, has been somewhat slow. We did, however, recently reach an agreement on labour mobility with all provinces and territories, and we are pleased by that.
What you might be suggesting in your question — I am not sure — is for the federal government to impose labour mobility on the provinces, at least in this particular case, by saying, ``Notwithstanding that the provinces are requiring higher standards, we will allow CGAs to perform these functions in the face of provincial requirements, or the requirements of some provinces.''
I am partly happy with that approach, because I get frustrated with the slow process of the Agreement on Internal Trade and would like to see some of these agreements happen a little more quickly. However, as I say, that has not been the approach to date. It has been by consensus, to get agreement, very much respecting each of the provinces' and territories' right to open doors as they see fit. I am not sure that is an issue for this particular committee, but it is an interesting issue that you raise. We have chosen in this legislation not to do that, to respect provincial rights, to require certain standards of CGAs who are performing work under this legislation.
With respect to your second question, how does this strengthen the administration of money, I know the officials have these measures at their fingertips, so I will let them list them for you. One of the points of this legislation is to give much better framework to the management of monies in these not-for-profit corporations, and so I will have some of the measures listed quickly for you.
[Translation]
Mr. Charland: In general, I would say that the bill and the way it was designed go in that direction. That is sort of the idea behind the introduction of rights of members of the corporation and what gives rise to the difference between soliciting and non-soliciting corporations. That is also what gives rise to the obligation to have financial statements audited versus simply an audit mission, depending on the level, and what gives rise to the obligations of transparency and circulation.
At the outset, I would like to specify that the bill before you was designed with the idea that there should be more transparency and accountability on the part of management, greater right of access to information, and the ability to take measures such as oppression remedies in situations where the board of directors does things that it should not do. I will then turn the floor over to my two colleagues who know more about important technical details.
To avoid any confusion, I would like to point out that in the case of a charity, there are, in addition, a number of measures and rules that exist within the Taxation Act. So there is this whole additional system that applies.
[English]
Ms. Kirby: The basic philosophy behind the whole act is who does the oversight — and the oversight is not one element but the whole idea.
Right now, there is very minimal member oversight and minimal government oversight. Once you have incorporated, the government has almost no say in what goes on.
The philosophy behind this act is that if there is more transparency so members and the government have a better idea of what is going on there will be more accountability. There are more provisions both to give information and for the members to act if they find a problem, whether it is to replace the board of directors, bring a motion to ask where things are going, do an investigation, do an impression remedy, do a derivative action. The range is much broader, so we are hoping that particularly members will have better oversight. If someone tries to pull a fast one with the company, or attempts to do something outside the rules, the members can settle the issue, the ultimate remedy being settling the matter in court, dealing with it that way.
Many not-for-profits get into disagreements between members and the board of directors or between directors on the same board. We are trying to give them the powers and possibilities to work out those problems. If you are concerned that a director or an officer, say, is breaking the rules, there will be measures to step in. The current act has almost none of this and, therefore, there is almost no oversight.
Mr. Lennon: The current act with respect to financial statements does not provide any provisions that the members actually see the audited financial statements. They have to be prepared by the corporation and an auditor's report is given out, but the members themselves do not see the statements.
Under Bill C-4, the members are required to receive the statements and be given them by the corporation in advance of the annual meeting.
Further, with respect to soliciting corporations — those that receive money from the government or from public donations — those financial statements are deposited with the government and are available for public scrutiny.
As Ms. Kirby said, there is much wider transparency and openness, and members can address any questions they have about the use of the money, as can donors. They have access to that information as well.
Senator Eyton: I have been reading through your presentation. I am sorry I was late for your presentation at the beginning of this session. My understanding from my intense reading over the last 10 or 15 minutes is that Bill C-4 is an extract coming out of the Canada Corporations Act, but are they meant to be conjunctive? Does the Canada Corporations Act and Bill C-4, when it is enacted, cover the waterfront? Are there any gaps, and do they merge, and you are either not-for-profit or you are subject to the Canada Corporations Act?
Ms. Ablonczy: The short answer is yes. The long answer the officials can always give.
Ms. Kirby: Federally, it comes down to the type of organization you want to make. With this bill, we are hoping that the Canada Corporations Act, originally written in 1869 and in 1917 added the not-for-profits, will have been completely replaced. Part of it was already replaced when the Canada Business Corporations Act was created in 1975. In 1997, we got the Canada Cooperatives Act. We still have a number of other corporate entities, such as boards of trade, trade unions, pension fund societies that have old legislation around, but the three main ones are a share corporation, a non-share corporation or a co-op — and those three will pretty much cover most of the business environment. When this act is in place, we will have three modern statutes that are all relatively similar and have similar philosophical and administrative approaches.
Senator Eyton: In that context, and maybe I am missing something, I was intrigued that this proposed act is entitled the Canada Not-for-profit Corporations Act but that nowhere is ``not-for-profit'' defined. There are all kinds of requirements and standards, and there is legislation running to some 170 pages. Is an individual who disqualifies himself as a not-for-profit corporation in no man's land? Is there any gap whereby an individual can assert that there is no definition or clear statement of what a not-for-profit corporation is?
Ms. Kirby: The act applies to corporations created under it that will not have shares, and the restriction is on where the money or profit of the corporation goes. So the distinctive feature of the Canada Business Corporations Act is that there are owners who own shares and the profits are paid out in the form of dividends. The distinctive feature of this statute is that you have a corporation that does not have share capital and the profits are not just paid to members in the form of dividends but are paid to further the activities of the corporation.
The problem is the title. If you look at the purpose in clause 4 and at clause 31 or 32, you will find an explanation as to where the money is supposed to go.
Mr. Charland: The bill applies to corporations that are incorporated under it. Bill C-4 enables the incorporation of a legal entity without share capital, and once that entity is created, that is the framework of legislation that applies to it. In that sense, there is no gap. If your desire is to set up a company that may profit, then you will incorporate under the CBCA and be governed, if you will, by the rules under the Canadian Business Corporations Act. The same thing goes for the cooperatives.
Senator Eyton: Even if I alter the purpose or manner in which I do business, because I was incorporated under this act, will it continue to apply?
Ms. Kirby: Correct.
Mr. Charland: So long as you continue to not give dividends.
Ms. Kirby: Then you are in breach of the proposed act and we dissolve you and you no longer exist.
Mr. Charland: I bring that up just for clarification.
Senator Eyton: Bill C-4 has had a long history. In my summary here, it refers to 2004 and twice in 2008. Now we have this effort. Essentially, it has gone unchanged through all of that. Most of what we see here today or almost all was originally in Bill C-21?
Ms. Kirby: There were amendments between Bill C-21 and Bill C-62, none of which was a substantial change. There were wording changes. Because the bill was out, we heard directly from stakeholders. We also had the advantage of three House of Commons committee meetings. Comments were made, so we have refined language at various points, the same way we made the 10 changes at the House of Commons Industry Committee. The ultimate objective of most of the clauses has not changed. How we word the clauses has changed at times, so there have been small changes to the bill throughout.
Senator Eyton: Was there similar debate in these different stages of Bill C-4? In earlier stages, was there similar debate or discussion?
Mr. Lennon: Bill C-21 had I believe three hearings in the Industry Committee. Bill C-62 died after first reading. The first Bill C-4 died after first reading, and now we have this one. This is as far as it has gotten.
Senator Greene: Thank you. I imagine that there are many organizations, trade associations and groups that you have heard from that like the bill exactly the way it is.
I think I was reading somewhere that the Canadian airports association, particularly, liked it. Could you comment on that? What did they like about and, if there were other associations or organizations that made specific comments about or praise for the legislation, what in particular did they see as advantageous?
Mr. Lennon: I do not recall reading any submissions from the Canadian airports association. I spoke to some representatives informally and they indicated that they quite liked the corporate governance provisions. They also felt the clarity of the proposed act was much improved over the current statute.
As far as other organizations, we did extensive consultations in advance of Bill C-21. I think we spoke to 300 different groups or representatives of groups. Most of them especially liked the directors' liability provisions. They liked the clarity of that and of much of the rest the bill. They liked the fact that the proposed act is very flexible; it provides them with the maximum flexibility to do their business without much oversight. Once incorporated, they can write their own articles of incorporation and bylaws. They can go about their business without much red tape.
For most small organizations, the requirements in the proposed act are minimal. Most of the proposed act deals with some very fundamental corporate governance provisions — things that you want to do anyway; they are good ideas. You have to file your financial statements, have an annual meeting and discuss things with your members. There must be elections of boards of directors.
Then there are the directors' liability provisions and other internal corporate governance measures that lead one to have a well-run organization. A large part of the proposed act is related to contingent provisions, which most corporations will never really use — provisions dealing with going out in the marketplace to raise capital funds, for example. However, the rules are there if they want them and they are relatively self-contained so that, if they do not want to use them, they flip to the next chapter and away they go.
However, the flexibility and ease of use are the overriding pluses of Bill C-4.
The Chair: Thank you, Senator Greene. Since Senator Moore is a member of the steering committee, I have difficulty refusing his request for one final question.
Senator Moore: I will be brief.
Mr. Lennon, you mentioned in your comments a few moments ago that the not-for-profits under the new rules will be required to file financial statements with Corporations Canada. What is Corporations Canada?
Mr. Lennon: Corporations Canada is the organization that is the administrative arm of Industry Canada. It handles the administration of this proposed act, the Canada Business Corporations Act and the Canada Cooperatives Act. Ms. Kirby is the representative of that section.
Senator Moore: Is that a different office than the one to which charities send in their annual returns now?
Mr. Lennon: It is. They used to send their annual returns to Canada Revenue Agency.
Senator Moore: Will that no longer be required?
Mr. Lennon: The requirements are different. Ms. Kirby can explain.
Ms. Kirby: Right now, under the Canada Corporations Act, the minister has delegated all the government administration for not-for-profits to our office. Therefore, corporations will continue dealing with the same office and the same people. It has always been, independently, that they have to deal with Canada Revenue Agency for the charities arm. Only one third of our corporations are charities. The other two thirds are not and therefore have different reporting requirements.
Senator Moore: Are you saying that the one third that are registered charities will continue to file their statements with Canada Revenue Agency?
Ms. Kirby: Yes, that is under the Income Tax Act.
Senator Moore: They will not do so with this bill, as well?
Ms. Kirby: No, there are different reporting requirements. Right now, all the not-for-profits are required to send us an annual summary every year. Under Bill C-4, they will be required to send us an annual summary every year. That requirement does not change. The information on the piece of paper is about to change, but not the requirement.
Senator Moore: That does not impact on existing charities, correct?
Ms. Kirby: No, it will be the same. Now, if you are a charity for both, you will still have to do both. There is no change.
Senator Moore: What do you mean by ``charity for both''?
Ms. Kirby: If you are a charity, and incorporated under the Canada Corporations Act, you send your annual income tax form to the Canada Revenue Agency and your annual summary under the corporate statute to us.
Under the new legislation, you will still have to do the two. They do not overlap in any way.
Senator Moore: What about if you are a provincial incorporation?
Ms. Kirby: If you are provincially incorporated, you send the form to Canada Revenue Agency and the annual summary to the provincial body that incorporated. There are still two; there is no change in that.
The Chair: We will have to call this portion to an end. Minister, thank you very much for appearing. If the officials would like to stay in the event that they may be needed for technical information during our next panel, they are welcome to do so. I know you have other duties to attend to.
In the second part of our meeting, we will hear from the Certified General Accountants Association of Canada and, in particular, from Carole Presseault, Vice-President, and Gerry Stobo, Partner, Borden Ladner Gervais LLP.
Welcome to both of you. We apologize for keeping you waiting. In our defence, I do say that matters that interest you did receive some airing in the earlier session. We are aiming to wrap up your testimony in 15 minutes, which will depend on senators and how quickly they get to their questions.
Do you have a statement?
Carole Presseault, Vice-President, Certified General Accountants' Association of Canada (CGA-Canada): I do have a brief statement. If you bear with me, I would like to go through it.
Thank you, Mr. Stobo, for joining us. Mr. Stobo has been legal counsel for CGA-Canada on some of these issues for a number of years. Most recently, he has been our legal adviser on the two-trade challenges we have initiated under the Agreement on Internal Trade. We have a lot of expertise in this area.
Before I go into my formal statement, I need to set the record straight. We sat through the testimony that you heard. We, of course, sat through the testimony of officials and of the department before the Standing Committee on Industry in the House of Commons. Over the last 10 to 12 years that this legislation has been drafted, much has changed. Many of you indicated that you sit on not-for-profit organization boards and corporate boards, and you will know firsthand that a lot of things have changed in the audit world.
Ten or twelve years ago, Enron was not a household word. Stringent, independent standards have been introduced in the audit world since then. There was rigorous oversight of the audit function with the creation of the Canadian Public Accountability Board, a predecessor committee to yours. They had a lot to say about that organization. Especially in Canada, the regulatory landscape for public accounting has changed.
In Quebec, we now have legislation on the desk of the Minister of Justice that will give full public practice rights to certified general accountants, something that our members have been working on for a number of years. In reference to statements made by the department, the title of ``auditor'' — ``auditeur,'' in French — recognizes both audits and review engagements. ``Auditor'' is not a title restricted just to audits.
The Chair: What is a vérificateur, then?
Ms. Presseault: We have spent a lot of money trying to get definitions of ``expert comptable,'' ``vérificateur,'' ``audit'' and ``auditor.'' The trend right now seems to be with the words ``audit'' and ``auditor,'' in Quebec certainly, and in Europe as well. There are many other ways of describing it. In Ontario, they are called public accountants, and in Newfoundland, they are called licensed public accountants. There are many titles. It is a complex area.
The legislative framework in P.E.I. was changed in 2004. The legislation before you is supposedly representing that framework. In Nova Scotia, the framework was changed in December 2002, and that is not taken into account in this proposal.
We want to have the opportunity to correct some of the facts that were presented. The issue, of course, is with regard to exams. It is all about standards, and the bar is the same wherever you are. It is not an issue of a lower or higher standard. It is an issue of one standard for public accounting.
I will now present my more formal remarks. I just needed to put that on the record now.
We want to steer the discussion around the facts. We are asking your indulgence at this eleventh hour. We are coming to your committee as the arbiters of what has largely been an issue of competition in the marketplace.
I will remind you that we have 71,000 members and students. We have been around for quite a while. We celebrated our one-hundredth anniversary last year. We are international in scope. We have mutual recognition agreements with Australia and the U.K, and many others.
We support this legislation. However, as you are well aware, we would like to focus our comments on section 180(1).
We have distributed a document called ``Briefing Note,'' in both French and English, that outlines our proposal. I think you are aware of it. I will focus on three aspects of our proposal.
We object to the provision of the second test — must meet any other provincial qualification to provide public accounting services. We believe this provision is redundant, inconsistent with federal legislation, could prevent the mobility of public accountants across jurisdictions and has the effect of restricting competition for public accounting services. Finally, we believe it sets a precedent in federal legislation.
You have been provided a lot of information, which you will be addressing as you proceed in a few minutes to clause-by-clause study. I would like to present our point of view.
You have been told that other federal legislation reflects the wording of clause 180(1)(b). That is not true. Our legal adviser has conducted a thorough review of federal legislation, and the provisions governing auditor requirements dictate otherwise.
Not even the modernized Canada Business Corporation Act or the Canada Cooperatives Act — we have just heard that those are modernized pieces of legislation — contain language that mirrors what is proposed here. In fact, as many of you noted, our proposal mirrors provisions in the Bank Act, the Canada Elections Act, the CMHC Act, to name just a few. Accepting subclause (b) sets a new precedent in federal legislation.
You were also told that it is not the role of the federal government to provide for auditor requirements, and some provinces might challenge this. The acts I just named, plus a number of other federal statutes, set auditor requirements. There has been no challenge.
Legislators and policy-makers are continually told that we do not meet the standards of the Public Accountants Council for the Province of Ontario. I will not disagree with that. However, meeting the standard is not equal to being qualified.
You probably have not been told that the Competition Bureau of Canada, in its landmark study of the self- regulated profession, had a lot to say about those standards. The bureau said that the maintenance of high accounting standards does not require imposing one accounting body's detailed curriculum on others, and doing so, they said, would effectively limit competition from other designations.
The bureau studied the professions for more than one year. They have a whole chapter on accounting. They concluded that the Public Accountants Council for the Province of Ontario should be flexible when applying the standard in order to give members of all designations who have the equivalent training and education the right to practise public accounting. Not doing so would effectively limit or restrict competition.
The federal government, as a signatory to the Agreement on Internal Trade, must comply with the requirements. The minister indicated that she is very involved with the Committee on Internal Trade. In fact, governments have just updated the labour mobility provisions. They have made a lot of noise, and we have congratulated them on doing so.
The new chapter does not require regulators to change their qualification or educational standards to accommodate someone who has been qualified according to different standards. That is the basis of the mutual recognition principle, which is that people can acquire competencies through different combinations of training and experience. The key is that there is one national occupational standard for public accounting, and, by the way, soon to be an international standard. Anyone trained and certified for public accounting has the same competencies, no matter how they were acquired.
Senators, I thank you for this opportunity. We are open to your questions.
The Chair: Thank you. You have done extraordinarily well. I appreciate it very much. This will give us more time for questions.
Senator Fox: Thank you very much for being here. You are the only group, to my knowledge, that has asked to be heard. Since you are the only group, I think we should take your concerns very seriously. You have exposed your concerns very well indeed.
The Chair: Senator Fox, just for the record, I have to congratulate our colleagues Senator Greene and Senator Oliver, who I think persuaded our witnesses to appear today. They were not initially so inclined.
Ms. Presseault: We had persuasive arguments from a number of senators.
Senator Fox: We talk about being either a CA or a CGA. I could replace ``be a member in good standing of a professional accounting organization'' by ``be a member in good standing of a legal profession,'' let us say.
It is not the case that, if I am looking for a lawyer, I will just look in the blue book in Quebec and pick out the name of a lawyer and call him up. If I am looking for a lawyer with certain qualifications, I will look for a tax lawyer or a corporate lawyer.
I tend to think it is the same with CA or CGA. Say that I am the head of a not-for-profit organization and I need some professional help, and I am also mindful of the fact that there are liability provisions that say I have to use due diligence and that I have to act in good faith, et cetera. I would want to choose someone competent and, in some cases, I would choose a CGA, perhaps because the services might be less expensive or because I know the individual and have confidence.
Even if I choose to hire a CA, I will not call one of the big five and ask that one be sent over. The managing partner of the CA firm will want to know the details of my requirements. I might require the services of a tax accountant, or an expert in governance, or an expert in international trade, or someone who knows IFRS better than anybody else at the time.
My tendency is to say, let the marketplace decide, let that individual, who is at the head of an organization, decide who he wants without imposing artificial constraints. I feel quite strongly that 18 (b) is redundant. If you are a federal not-for-profit corporation, your head office is somewhere. You will have to live with provincial legislation anywhere. I think it is absolutely redundant. We have seen it for telecom companies that are regulated federally. Quebec legislation came out this week that imposes all kinds of conditions on cell phone operators. Last week, there was decision on banks such that they are subject to consumer credit protection on their loans and their interest rates.
It is redundant and I am not satisfied that it is not inconsistent. I will ask Mr. Stobo to tell me what he thinks about the question of inconsistency. It seems to be inconsistent with some other pieces of federal legislation, but I would rather have your opinion.
We are trying to get away from having private corporations or professional groups set limits to movement within the country. Just last week, Quebec and France signed an agreement so that lawyers in Quebec can practise law in France and French lawyers can practise in Quebec. It is time we set aside some of these things. I would suggest that perhaps we take the lead on that. I would like to ask Mr. Stobo to elaborate on the question of restricting competition.
Once again, if I am the head of a not-for-profit organization, why not leave it up to me and the head of my audit committee to decide whether in those circumstances he needs someone from a pool of CGAs or someone from a pool of chartered accountants.
There are two questions: inconsistency and competition.
Ms. Presseault: I know the question is to Mr. Stobo, but you hit a very important point: Yes, let the market decide. However, we ask of legislators and policy-makers to make it a level playing field. That is all.
Gerry Stobo, Partner, Borden Ladner Gervais LLP, Certified General Accountants Association of Canada (CGA- Canada): With respect to consistency with other federal legislation, there was some suggestion in the House of Commons that the provisions of Bill C-4 paralleled other legislation, like the Canada Business Corporations Act and others. In fact, it does not parallel, as Ms. Presseault has pointed out. The federal legislation we have reviewed is almost entirely bereft of any provisions setting out qualifications of auditors. In fact, we found one statute, other than the Bank Act and the CMHC Act, which Ms. Presseault and others have mentioned, that addresses the issue of qualifications of auditors. It is a piece of legislation under the mandate of Industry Canada, which is introducing this legislation. It is the act in respect of the Canada Foundation for Innovation, which parallels the Bank Act and the Canada Elections Act in terms of the qualification of auditors.
The suggestion that Bill C-4 somehow parallels existing legislation is simply not true. It introduces the added requirement that you have to comply with the provincial regulations in respect of public accounting, and that is what we find so offensive. That is what unfairly prevents CGAs from conducting public accounting functions in respect of federal entities. There has been some suggestion that there is an infringement on provincial jurisdiction. That is simply not correct. Federal legislators have the authority, as you have had in the past, to determine the qualification of auditors. The legislation where the federal Parliament has addressed itself to the qualification of auditors has had the effect of permitting CGAs to conduct these functions right across the country.
There is that inconsistency. This is an opportunity, in my respectful view, for Parliament to get it right with the elimination of clause 180(1)(b).
The Chair: Mr. Stobo, if I may ask, if 180(1)(b) were not in the bill, is it not true then that certain public accountants could audit federally incorporated institutions but not some provincial institutions?
Mr. Stobo: That is correct — in Ontario.
The Chair: It would be thus in the provinces where additional qualifications are referred to in 180(1)(b).
Mr. Stobo: I will ask Ms. Presseault to address the second part. There already is a two-tier system — for example, the Canada Elections Act. A CGA in Ontario can conduct an audit in respect of an election. I am not entirely sure but I would guess that the provincial elections act in Ontario would not permit a CGA to perform that audit.
Mr. Stobo: The two-tier system already exists, whether we like it or not.
Ms. Presseault can address the question of what CGAs can do in respect of public accounting functions across Canada.
The Chair: You are arguing for the removal of a two-tier system, where possible.
Mr. Stobo: In this case.
Ms. Presseault: Not every certified general accountant or chartered accountant can do audits. You would not want that to happen. You want only those who meet the additional requirements, and refer back to subclause (a).
If you are a member in good standing, you have to respect those very high requirements to audit financial statements — the high standards for public accounting, which are examination, experience requirements and other requirements such as liability insurance and meeting the standards of independence, which are much more rigorous than what is proposed in Bill C-4.
Not every member can meet those higher requirements. Currently, every Canadian jurisdiction, except Ontario, allows certified general accountants to practise the full scope of public accounting. There are still some late regulatory changes in Quebec. There is a partial regulatory aspect in Quebec where members are qualified to practise public accounting.
Members in Ontario who are in good standing and meet the requirements to be public accountants can provide public accounting services under the federal legislation in the province of Ontario, and they do so.
We have monitored closely the number of certified general accountants who work as auditors for campaigns, and it is a surprisingly large number. It provides you with an additional pool of qualified people — which is what we are looking for in this sector — who meet the requirements in subclause (a).
Senator Ringuette: I had a few questions on legalities, but Mr. Stobo has answered them in his statement. Thank you.
Senator Massicotte: I am trying to understand something, so I will take the argument of Senator Fox, which I appreciate, and try it on for size. He is basically saying this: Let the consumer decide and the member of the board decide whom to employ to audit statements or be an engineer or a lawyer. That argument has merit, but history has shown us that the provinces thought they needed to regulate or to know who is qualified to be a medical doctor, for example. Therefore, it is illegal for an engineer to perform surgery. We have regulations to regulate who should work as an engineer, doctor, accountant, and so on.
If you take that argument and say somebody has to decide who is competent enough to do whatever is supposed to be done — if you remove the subclause you want to remove, I gather we could have a CMA that I understand has no experience, no ability, no expertise to do public audits, and could be employed by a chairman of a charity to do an audit. If I understand correctly, it is because they are members in good standing of an accounting association and so on. You basically remove the right of the province to decide who is qualified to do the audit.
Would that not bother you? Is it not against the public interest to have somebody decide who has the ability to do so, or do you want to go as far as Senator Fox and say let the engineer do the public audit, let anyone decide, as long as the board decided in a full market economy?
Senator Fox: That is not what I said.
Senator Massicotte: If you want to use your arguments to let the market decide, let the consumer decide, why not — let us use a CMA argument. Should a CMA be able to do so?
Ms. Presseault: I cannot speak for the CMAs. I have no knowledge of their education or their training program. I would not be well placed to comment on whether or not they could be permitted.
Again, the marketplace would dictate. Our members who work for the Canada Revenue Agency would have absolutely no interest in providing public accounting services for the not-for-profit sector. Anyone without a fee can provide public accounting services to any organization without charging a fee in Ontario.
What we are tapping into here is the thousands and thousands of small charitable, not-for-profit organizations in communities that could benefit from this. We want to ensure — and going back to the accountability framework in Bill C-4 — that people who are doing so are qualified to do so. You need one to make sure that they are a member of a profession.
Senator Massicotte: If you remove subclause (b), CMAs could be employed to do public audits — am I correct about that — whether they are qualified or not?
Ms. Presseault: I do not know. I cannot answer that.
Senator Moore: I want to raise a point that Senators Oliver and Eyton raised with the last witnesses. We know the proposed act is not-for-profit. The title is not defined and we have been told by the minister that this represents the eighth attempt to get this done, the fourth in the last five years.
Does that concern you? Have you looked at a definition for what a not-for-profit might be in your years of experience, either with the organization or its counsel? Do you have any help to give us there? I find it preposterous that we do not have a definition. Why not? Is there a reason they are not putting it in?
Ms. Presseault: Senator, we unfortunately have taken a very narrow look at the legislation. We have not looked at that issue.
Senator Moore: Did it not surprise you? It has certainly a strong impact on some of your clients. I thought you or you clients might like to know whether they meet the definition.
Mr. Stobo: I share that view.
Senator Day: Could you look at clause 180? I notice in 180(1)(a) that you are a member in good standing of an institute or association of accountants incorporated by or under an act of the legislature or province.
In the case you were giving us, is CGA-Canada incorporated to operate in the province of Ontario?
Ms. Presseault: CGA is incorporated in every province and territory of Canada.
Senator Day: Are there restrictions when you incorporate on what you can do, or is that a separate piece of legislation?
Ms. Presseault: It is a separate piece of legislation.
Senator Day: If you look at (b), it talks about being able to perform under clauses 188 to 191, and that just talks about the various services that would be performed as a public accountant. Can we drop all of (b) out of there or should we incorporate 188 to 191 in (a) to say ``authorized to perform the services under sections 188 to 191''?
Mr. Stobo: I would say you could drop it and nothing would be lost.
The Chair: Are there any other questioners? That is it?
It remains for me to simply thank you both very much for your understanding and your clear presentation. We appreciate it.
We will now turn our attention to clause-by-clause examination of the bill.
The Chair: Is it agreed, colleagues, that the committee proceed to clause-by-clause consideration of Bill C-4, an act respecting not-for-profit corporations and certain other corporations?
Hon. Senators: Agreed.
Senator Massicotte: I would have thought we would have had a two-minute discussion. There are two issues. Do you want to get to it or discuss generically the issues on which we agree or disagree?
The Chair: When we get to it we might.
Senator Day: Mr. Chair, I will make a statement that I think that we should not proceed with clause by clause right after hearing evidence. We should take an opportunity to think about some of these issues raised by the witnesses. I made this point with you before. You know my position — and I understand the time of year and the urgency. I just want to put it on the record that I think that would be helpful.
Senator Fox: I would like to second that. We have time to do it tomorrow morning. It will not take much time, but it is a good idea to take overnight.
The Chair: I am in the hands of the committee.
Senator Oliver: A notice went out saying hearing witnesses on Bill C-4 and clause-by-clause consideration of the bill. That was in the formal notice to the public.
Senator Fox: It is 6:00. I have another committee meeting and I cannot stay.
Senator Massicotte: Can we have a brief discussion over a couple of issues and do clause-by-clause tomorrow?
Senator Fox: I have another meeting to go to. This ends at 6 p.m. I call it 6 p.m.
The Chair: I would not like to proceed without all of our members. We have four hours tomorrow.
Senator Day: I would prefer that.
The Chair: If you would prefer that and others would prefer that — and I would ask senators in your reflections tonight to remember that there are a couple of contentious issues, and whatever way they go, if they go against your particular opinion, there is always a possibility of attaching observations.
Senator Harb: In terms of the timing, will we have time to do that tomorrow?
Senator Ringuette: Yes, we have four hours.
The Chair: I detect a consensus, I may be wrong, that we wait until tomorrow. If we do, we are starting at 8:30, we will do it right off the top.
Senator Day: Right at 8:30.
The Chair: Right at 8:30, and that will give us three and a half hours, which probably is enough for any person to concentrate in one stretch.
Keep in mind, honourable senators, that maybe not every ``I'' has to be dotted and every ``T'' crossed. You do have a steering committee that you may wish to empower. I want to say right now that it would be my view that if there is work for the steering committee to do I would like to have Senator Ringuette there as an observer. It was her resolution, after all.
Senator Oliver: On Bill C-4?
The Chair: I suppose you would not technically have a right to vote, Senator Ringuette.
If we do have work to do as a steering committee, I would appreciate if the other colleagues would agree that Senator Ringuette be present. It is her resolution and I would like her input to ensure that we do the work that you mandate us to do correctly.
Thank you all very much.
(The committee adjourned.)