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THE STANDING SENATE COMMITTEE ON BANKING, TRADE AND COMMERCE

EVIDENCE


OTTAWA, Wednesday, May 29, 2019

The Standing Senate Committee on Banking, Trade and Commerce met this day at 4:15 p.m. to study the subject matter of those elements contained in Divisions 1, 5 and 26 of Part 4, and in Subdivision A of Division 2 of Part 4 of Bill C-97, An Act to implement certain provisions of the budget tabled in Parliament on March 19, 2019 and other measures; and, in camera, for the consideration of a draft agenda (future business).

Senator Douglas Black (Chair) in the chair.

[English]

The Chair: Good afternoon, senators. Welcome to you and members of the general public who are following today’s proceedings of the Standing Senate Committee on Banking, Trade and Commerce, either here in the room or listening via the Web.

Before we get under way, I just wanted to indicate to senators that, as you know, we have a vote at 5:30. The bells will ring in an hour from now. I am hopeful that we will be able to conclude this panel by five o’clock, which I believe we can do, because the panellists with whom I have spoken understand the questions we want addressed, and I would imagine they will get right to it. If we can’t, we can’t.

I’m hoping we can have a short in camera meeting just to review process and challenges over the next two or three weeks, and then we’ll be done, and we can get into the chamber to vote. That would be the plan, we’ll see how it goes.

My name is Doug Black. I’m a senator from Alberta, and I chair this committee.

I would ask my colleagues to please introduce themselves, starting with Senator Deacon.

Senator C. Deacon: Colin Deacon, Nova Scotia. I like the chair’s plan.

Senator Wetston: I guess I can’t say anything against that plan now. Howard Wetston, Ontario.

Senator Duncan: Good afternoon. Pat Duncan from the Yukon.

Thank you, Mr. Chair, for that clear-cut plan forward.

[Translation]

Senator Dagenais: I am Jean-Guy Dagenais from Quebec.

Senator Verner: I am Josée Verner from Quebec

[English]

Senator Stewart Olsen: Carolyn Stewart Olsen, New Brunswick.

Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador.

Senator Wallin: Pamela Wallin, Saskatchewan. I have a question for the chair. Is Mark a permanent member of the committee now?

The Chair: Pretty much. Any volunteers? We, of course, are always ably assisted by our clerk and the analysts from the Library of Parliament.

Today we are continuing our subject matter examination of all or parts of four divisions of Part 4 of Bill C-97, the Budget Implementation Act, 2019, No. 1. Honourable senators will know that our committee must report our findings to the Senate no later than June 6, 2019.

Further to our meeting of May 15 when we heard from the Canadian Association of Insolvency and Restructuring Professionals, the Canadian Bond Investors’ Association and Transparency International Canada, among others, we had further questions. We are therefore pleased to welcome back some officials today to respond to the testimony regarding lack of consultations and unintended consequences for the bond markets, as well as for Division 5, questions we have about the lack of consultations for the amendments to the BIA and the Companies’ Creditors Arrangement Act.

For Division 2, Subdivision A, Canada Business Corporations Act, the committee has questions about why a public registry for beneficial ownership is not possible.

I am pleased to welcome our witnesses today. From Innovation, Science and Economic Development Canada, our standing witness, Mark Schaan, Director General, Marketplace Framework Policy Branch; assisted by Ian Disend, Senior Policy Analyst, Marketplace Framework Policy Branch; from the Department of Finance Canada, Kathleen Wrye, Acting Director, Pensions Policy; and Safeena Alarakhia, Senior Advisor, Financial Crimes Governance and Operations, Financial Systems Division, Financial Sector Policy Branch.

Let’s begin with opening remarks. I’m not quite sure who will start, so I’ll let you work it out. Mr. Schaan, please.

[Translation]

Mark Schaan, Director General, Marketplace Framework Policy Branch, Innovation, Science and Economic Development Canada: Let me start by apologizing.

[English]

I realize I have appeared so many times at this committee now that I don’t recall which suit I wore last and whether or not I’m varying my wardrobe sufficiently. My apologies, because I think I wore this suit the last time.

[Translation]

I am pleased to attend today’s meeting to further discuss the proposed amendments in Bill C-97 to the Bankruptcy and Insolvency Act, or BIA, the Companies’ Creditors Arrangement Act, or CCAA, and the Canada Business Corporations Act, or CBCA.

[English]

At your May 15 meeting, the Canadian Association of Insolvency and Restructuring Professionals, the Canadian Bond Investors’ Association, and the United Steelworkers testified about their concerns with the BIA and CCAA amendments. The committee also heard testimony from Transparency International regarding beneficial ownership transparency. I also understand that written submissions were provided to the committee, some of them from other like-minded groups.

The main concerns raised about the BIA and CCAA changes were: one, a perception of insufficient consultations; two, potential unintended consequences resulting from the amendments; and three, a disappointment that pension deficits were not given a super-priority in insolvency proceedings.

With respect to Canada Business Corporations Act changes, essentially there was a call made for a publicly accessible registry of beneficial ownership information in Canada. I don’t intend to rehash my previous testimony but would rather respond directly to these concerns and then answer any questions you may have.

I first want to acknowledge that we respect the views expressed by the other witnesses. In fact, we rely on them. That said, laws of general application are always a careful balancing act, which means that while we seek and thoughtfully consider the views of our stakeholders, the government cannot always adopt all of them.

Clearly, the issues addressed by these amendments are not straightforward; competing interests and very personal matters are implicated. As officials, we approached our work with a view to fulfilling the government’s important commitments in these areas in a collaborative, meaningful and deliberate fashion. We feel quite confident that our process lives up to this standard.

[Translation]

As I noted on May 8, responding to concerns about the security of workplace pensions in the insolvency context, the government took a whole-of-government, evidence-based approach to enhancing retirement security.

[English]

Following considerable previous study of many of these issues, in mid-2018, Innovation, Science and Economic Development; Finance Canada and Employment and Social Development Canada officials began our work.

First, we drafted a consultation document. This document was widely circulated in the latter part of 2018 and posted online for comment. It included for comment the very issues addressed by the proposed amendments. Many of the same issues were also at the fore during the last insolvency law review during 2014.

In late 2018, notwithstanding our already strong sense of stakeholder positions given many previous interactions, we convened about a dozen meetings with stakeholders representing workers, pensioners, employers and experts. Guided by the consultation document, our discussions with them were engaging and enlightening.

It was important to hear first-hand not only the insights of subject matter experts, but also the experiences of pensioners. We expected all stakeholders in these meetings to provide written submissions. We received almost 50 formal submissions and posted them online. They are still available today on ISED’s website. Indeed, CAIRP, the USW, the Insolvency Institute of Canada and Mr. Breton in his personal capacity all made extremely helpful written submissions. The government also sought online feedback from the public, receiving more than 4,400 online submissions, many of which reinforced the need for greater transparency and fairness in our insolvency regime.

Subsequently, the government proposed its amendments to insolvency, corporate governance and pension statutes, the collective purposes of which were to enhance retirement security and uphold the core principles of Canada’s marketplace framework laws that make them strong platforms for economic growth, innovation and jobs for Canadians.

Among other things, the amendments clarify and confirm that in insolvency proceedings the duty of good faith applies to all parties and the courts may require, where appropriate, creditors to disclose their real economic interests. These measures respond directly to pensioners’ concerns about informational asymmetries and procedural disadvantages in insolvency proceedings.

Both CAIRP and the CBIA are concerned about these provisions. It was noted that the good faith requirement could lead to uncertainty and litigation and maybe even require a creditor to reduce its claim in favour of others. It was noted that disclosure of real economic interests could negatively affect the marketability of bonds or other debt, impede creditors’ rights to vote in proceedings or even discount creditor claims.

In response, I note that a duty to act in good faith is well established in Canadian insolvency law. The BIA and CCAA already impose good faith obligations in numerous contexts. Trustees, monitors and receivers must act in good faith. A debtor must also demonstrate good faith to extend its stay of proceedings. Moreover, the Supreme Court of Canada has ruled good faith is one of the “cornerstones of restructuring proceedings” and has recognized a common law duty of good faith in contractual relationships. Extending, particularly to creditors, and codifying this principle, will give courts another tool to ensure fairness in insolvency negotiations.

Judicial discretion and flexibility are hallmarks of the Canadian insolvency regime. Our courts’ expertise in insolvency matters is internationally recognized. This, coupled with the general strengths of the regime has been instrumental in facilitating many successful restructures.

We respectfully believe this historical objective and reasoned track record does not warrant the concerns as those expressed in the weeks prior, and trust that the courts will continue to effectively use the expanded tools at their disposal to fulfill the objectives of the insolvency regime and ensure that parties do not abuse the system.

With respect to real economic interests, disclosure is only required by court order. In no way is a reduction of voting power or discounting of claims mandated. To be even clearer, this simply provides the courts the possibility of providing additional information to the parties to a restructuring, and not anything more. Before making an order, courts must balance interests in determining disclosure; something they effectively do all the time. They must consider factors such as the monitor’s view, whether the disclosure would help the restructuring succeed, and whether a party would be prejudiced by disclosure. This greater transparency about what the participants actually have at stake should increase the likelihood of a successful restructuring plan to the benefit of all stakeholders. This also speaks directly to the strong views that the insolvency regime requires greater transparency and reducing information and other asymmetries.

I previously addressed the counterpoints to a super-priority for pension deficits so I don’t propose to do so again here, though I’m happy to address any specific questions on the issue.

[Translation]

I’ll now briefly address the CBCA amendments for access by police and tax authorities to the registers that private, federally incorporated companies will soon have to maintain. These will contain information on the individuals that ultimately exercise significant control over the companies.

[English]

Last week, Transparency International highlighted what it views as shortcomings with the measures, ultimately advocating for a publicly accessible registry.

As you know, the responsibility for corporate law is shared with the provinces, with about 90 percent of companies incorporated under provincial law. Federal officials have been and will continue to work in lockstep with provincial and territorial colleagues to strengthen beneficial ownership transparency in Canada. In the last two budget bills, the government has made improvements. Manitoba and British Columbia have also recently introduced legislation, with other provinces expected to follow suit.

Importantly, our work is not done and the government is considering further enhancements, including potential registry options, none of which has been ruled out yet. Public registries have potential benefits, but also carry risks. They are only now appearing elsewhere in the world, particularly in Europe. Experience is therefore very limited, and it is incumbent upon us to perform our due diligence to assess what works in the Canadian context, which is defined in part by its federal structure and specific marketplace characteristics.

I thank the committee for the opportunity to make these opening remarks, and I look forward to your questions.

The Chair: Thank you very much.

First of all, I would like to acknowledge Senator Stewart Olsen, the deputy chair, for her leadership in suggesting that these officials return to us to do exactly what we are doing — just doing a bit of clarification.

Senator Stewart Olsen: Thank you, chair. So it’s my fault you’re here.

The Chair: That’s pretty much what I’m saying.

Senator Stewart Olsen: I think it’s really important when we have witnesses testify and raise concerns, which seem fairly weighty ones, that you should be able to come back and have the opportunity to explain that publicly. It’s a budget bill, and I think it’s really important for that reason.

I still am not absolutely clear on your discussion of the possible disruption for the bond market. I wonder if you can just expand on that a little, because you note that the good faith requirement is well understood by everyone. It makes me a little nervous when people say, “Well, no, it could lead to. . .” so if you could just explain that, I would be grateful. The second question I have is why wouldn’t the government perhaps define what a good faith requirement is?

Mr. Schaan: Thank you for the question. There are two aspects to it that I’ll come at. First, on good faith, restructurings by their very nature are complex and the vast majority of participants and signatories to restructuring efforts are good faith actors who are there to try and maximize their economic interests and get to a reasonable outcome.

There are the exceptions where people have used the restructuring process to potentially stymie the efforts of others, and use their informational asymmetry or others to potentially come at the expense of those who are technically vulnerable in some of those restructurings like pensioners and employee groups or others. By providing a good faith requirement, we have provided yet another tool to the court to be able to have in its tool belt and to use with the noted track record of significant good usage that it’s had with the other tools, including this one, historically.

So, the good faith requirement does not suggest that the courts will willy-nilly suggest that people’s rightful due diligence or efforts in restructuring are somehow bad faith. The test for bad faith, as I say, is well articulated. The rationale for not defining it is that it’s so case specific.

In some cases it’s a good faith matter to file multiple procedural motions or potential procedural efforts in a restructuring. In some cases, though, the continued use of procedural tools to either delay or stymie efforts of progress is actually bad faith. So rather than having us define that in a statute, giving that flexibility and discretion to the courts is a valuable one.

The second important point that I think the bond market disruption question that really came through was on economic interests and the disclosure of those.

First of all, with all due respect to the stakeholders who testified, as I say, we have taken their views on board and we think they are valuable. There was potentially some alarmism about what this could lead to. The nub that we’re trying to get to is that sometimes in restructurings there are rightfully held secondary and tertiary dark market holders that we don’t call into question that it’s rightful that they bought debt on a secondary or third market or they bought bonds. That’s not what we’re taking issue with.

We think that the informational asymmetry of having a pension-holder with an unfunded pension liability when they have 80 cents on the dollar, they are holding a coupon for their remaining 20 cents and they are sitting beside someone who, in theory, looks like they are holding a 20-cent coupon as well, but they actually bought that coupon for 1 cent. When they’re in the restructuring, that makes them feel like everyone is taking a haircut, “Let’s all make sure we’re all agreed, all similarly water and wine here,” but the reality is that such informational asymmetry is such that it may not be the case.

What we’re actually saying is that in extraordinary circumstances the court has the tool, upon request, to actually disclose those economic interests and ask further disclosure. It’s not automatic. It doesn’t come with any consequences in the sense that it doesn’t come with a notion that the bond-holder should automatically have their credit claim reduced. That’s not at all what says. It just says that maybe you would make a different deal in certain cases if the court ordered that there be real economic interest information available to you, and then you can act accordingly.

I think the bondholders are jumping to the conclusion that by the very disclosure of their economic interest, they would necessarily have a disadvantage or that potentially there would be actions taken. That’s not the case. They can still stand up for whatever their interests are in that restructuring. There is no automatic resulting behaviour. It’s the discretion of the courts and then, ultimately, in certain cases, a resolution of what is an informational asymmetry.

Senator Stewart Olsen: Thank you. I will comment that the judges will not always be cognizant of disruptions in the bond market by their asking them to disclose. I’ll just leave it at that. I thank you for your explanation and your due consideration.

The Chair: Thank you.

Senator Wetston: Thank you. I appreciate you being back again. I’ll just follow up on Senator Stewart Olsen’s question on the bond market. You’re not suggesting that a 20-cent coupon is not a real economic interest, are you?

Mr. Schaan: Not at all. It is a real economic interest.

Senator Wetston: I think that’s important to note.

You covered a lot of territory, which is helpful, but I wanted to ask about this good faith issue. I think it exists in a lot of commercial arrangements and is well recognized as such. It has been certainly clarified or established in contractual relations by the Supreme Court of Canada five or six years ago now. I can’t remember the name of the case, but that is the case.

In thinking about the concerns around the good faith and insolvency proceedings, the amendments are extending, as I understand it, the existing statutory provisions or requirements to a wider range of actors throughout proceedings. Who would they be?

Mr. Schaan: Right now, as I indicated in my opening, they are subject to the monitor, to the party itself of restructuring. This would extend it to creditors.

Senator Wetston: Are you viewing that as wider? I would have thought that they would already have been included. I am just having a little trouble understanding why it might be wider.

Mr. Schaan: I think there is some view that everyone already was, potentially. But in terms of a tool for a court to govern behaviour in a restructuring, I think the clarification of the absolute requirement for good faith and the codification of such actually allows the court to potentially act on that in its management and jurisdiction over the restructuring.

Senator Wetston: I wanted to get some clarification on the super-priority. You have talked about it; we have discussed it. The issue is what it affects, positively or negatively. The concern is that it might affect the defined benefit plans. From a restructuring perspective, it might affect the ability to preserve jobs, et cetera. Could you clarify that?

What impact would this have on negotiable claims and restructurings? For example, being paid in full, affecting access to interim financing and issues of that sort, can you help me with that? I thought those were some of the concerns expressed by some witnesses. Do I have it wrong?

Mr. Schaan: No, I think there is a legitimate concern on the part of pensioners and workers that they would like to receive their full entitlement in a restructuring or an insolvency, hence why they would like it to come as a primary claim.

To the point of the impact on restructuring, we can look to some of the successful restructurings, and while we can’t play it backward with perfection, there are some useful examples where we can imagine what might have happened. I’ll get my numbers wrong so I will not quote them. I’ll just say that for a company like Air Canada, for instance, that has been through the CCAA process three times successfully and emerged as a going-concern entity with a live pension; it still has a pension that is, at this point, in a very positive situation.

The unfunded pension liability, when they entered into the restructuring process, exceeded all capital on hand and all assets by a magnitude of — again, I will not quote numbers, but let’s say it was significantly more than the assets. That meant that if that had been the party to the restructuring and there had been a super-priority in place, essentially the pensioners all get paid except the unfunded pension liability would be so great that even then there would still be a haircut, and probably a significant one. There would then be nothing left for any other creditor. That means the likelihood of emerging as a successful restructuring at the end of that point is — instead what we have, without a super-priority, is a commitment from everyone to engage in the restructuring process, and now we have a going-concern airline that still has a pension and all of those jobs.

Senator Wetston: As a quick followup, I can see the merit of that, obviously. It’s one thing to get pensions paid; it’s another thing for the company to survive. That might be the bit of the tradeoff you’re discussing. I think we had a similar experience in Ontario with the steel companies. I’m not sure — maybe Stelco — I can’t remember.

Mr. Schaan: Both.

Senator Wetston: Was it a similar experience, from your perspective, that a super-priority might have resulted in the same issue? It doesn’t look like they survived very well in any event, but they are functioning.

Mr. Schaan: In the Stelco case, the pension is still there. We see that as a positive outcome of the restructuring process that the company has emerged. There are jobs and growth, and the pension remains intact.

Senator Wetston: In fairness, that is the case. I don’t want to misstate that or suggest otherwise.

[Translation]

Senator Verner: I, too, would like to talk about what good faith means. Other senators have already raised the issue. When Jean-Daniel Breton was here, he told us his counterparts in English-speaking Canada seemed to be concerned or uneasy about the good faith requirement because of the two legal systems that coexist in Canada: civil law and common law.

He said there might be something vague about using the term “good faith.” He didn’t recommend any actual amendments but suggested that a committee might be created to examine the definition. As he put it, creating a committee of people who practise in the common law provinces to clearly define the term would be very useful.

Has he talked to you about that discomfort or concern? Has he suggested the possible creation of an advisory committee to you?

Mr. Schaan: We have the opportunity to discuss the issue with stakeholders and build collaborative relationships with all of them. There are two important things I would note. First, discussions are under way to define standards on this matter. However, it’s not impossible for stakeholders and other actors to seek out information on their own, develop good practices and study the factors or key elements used to define “good faith” terminology.

[English]

There has been a number of these areas of the law, whether it’s through bench and bar, organizations or through efforts of the law societies in various fora, to essentially take juridical constructs that the court has the discretion to interpret, and potentially add depth and understanding to them. What we have purposely chosen not to do in this bill is to try to do it in the legislation.

[Translation]

It’s really important to recognize that Quebec law now includes the notion of “good faith,” and it works well. If there are any issues or concerns regarding the use of the term in the law, perhaps the committee could find other ways to share court decisions.

[English]

I don’t think the statute is the place to do it. I think there is room to potentially continue to inform the discussion of what good faith looks like. Senator Wetston will chuckle, but there has been a good dialogue about constructs like the public interest that are similarly undefined in other statutes but continue to have very helpful elaboration in other fora.

Senator Verner: Thank you.

Senator C. Deacon: Thank you for being here again, Mr. Schaan. You will have to continue to help educate me on this issue. I’m thinking about the period leading up to bankruptcy proceedings, which is often sort of the plane heading down but it just hits the tops of the trees and is able to get altitude again. Market forces are very important factors during that period, and having people all working around a table to try to put in place conditions for renewed success versus inevitable failure.

It did worry me, when we were hearing about this a couple of weeks ago now, that when you are forcing the market price versus face-value discussion to be inevitably coming into a bankruptcy proceeding if the deal is not done, you are going to disrupt the market forces in those discussions leading up to possible bankruptcy proceedings. People will now be looking at their asset and seeing, potentially, a different value being attributed to it.

I’m just worried about that period of time and the effect that your change will have, not within a bankruptcy proceeding but leading up to it. For all those times, across Canada in lots of different sizes and types of organizations, where they are struggling and having to get everybody to work together, this change further downstream may have an effect that could limit the willingness of different parties to play ball. It may limit the ability to access new funds to come to the table.

Please speak about that and your considerations around that issue. I don’t know enough, but it worries me whenever we try to disrupt market forces.

Mr. Schaan: I have a few thoughts about that. This is not to argue against market forces. Believe me, the whole insolvency regime is predicated on trying to use market forces appropriately and ensure we don’t do things like a run to the courthouse or a run on the banks. I would say that one of the fundamental rationales, or the background of this particular effort, is continued feelings of unfairness, lack of transparency and asymmetry for other parties to those —

Senator C. Deacon: I heard you say that. “Fairness” is a tough word. I learned that in elementary school.

Mr. Schaan: Yes. The deals that were reached previously that were based on the notion that —

Senator C. Deacon: I really want you to speak about the effect on market forces in that preceding period, versus your rationale for doing what you are doing. Did you analyze that factor?

Mr. Schaan: Yes. To conclude that first thought, I think we need to be open to the notion that fairer deals that actually result in restructurings but do so with the full knowledge of all parties, as opposed to a deal premised on one party being unaware of who and what they were negotiating with is an important point.

First of all, we have the discretion of the courts as to what is actually revealed. Second of all, it is revealed on request. Every single restructuring and insolvency will not be throwing around economic information to everyone and their dog. There is a significant amount of discretion and due diligence that will come into that process. Even so, let’s actually play it forward and say that I am now a bondholder and worried that if I end up in a restructuring situation they will know what I really paid and I may potentially be vulnerable to receiving less. What will I do? I will potentially call my bond and that will actually trigger the very process that we have in place now.

Senator C. Deacon: But you could be accelerating the proceedings.

Mr. Schaan: Except that an accelerated CCAA is not necessarily — we have to suggest that if restructuring is coming and a restructuring happens earlier, it provides the company with the flexibility and freedom to be able to work out a deal. Whether it happens early or late, if it is a liquidation and we have concerns, we put strong efforts to try to keep liquidations from happening.

Restructuring is an opportunity for a company to put everyone in a room and hopes that a deal emerges. If the deal was premised on impartial information for one set of parties, in certain circumstances I don’t know if that’s necessarily a good argument for why we should continue to allow it to happen. In our minds, the potential value of the information in the restructuring is huge, and the potential even in the worst-case scenario is an earlier CCAA and earlier process to come to an agreement, which was either possible or it wasn’t regardless of the circumstances.

Senator C. Deacon: Thank you very much.

Senator Wallin: I have a process question. When you say that you have heard all the testimony of the critics who have come before us or sent testimony in, what does that mean? What do you do with that information now?

Mr. Schaan: As you can imagine, the team has been working on these issues for a long time. I am very blessed and lucky to have a team with a lot of institutional memory and bench strength on these files and has been around a while. We have to weigh the public policy objectives of the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act, and there are many.

There is a transparency public policy objective, there is fairness, there is one around distress and loss of economic standing for the party involved, the debt market and the continuation of liquidity. All of these are public policy objectives. Essentially, whenever there is a possibility of a policy change or opportunity, we take in all those factors. We look at which public policy objective they meet, and is there a way to meet that objective without being at consequence to one of the others. As is the case in insolvency almost all of the time, you are always balancing between those.

Our view wasn’t that this was a pure privilege of fairness and transparency over liquidity. No, this is a balance. Liquidity is critical. The debt markets are critical. But, can we make the debt market still function and meet its public policy objectives and do so in a way that potentially adds greater transparency and fairness?

Senator Wallin: I guess my point is narrower. We are dealing with a budget implementation act, and this is a difficult exercise to amend, et cetera. Do you go back and create a list of things we better look at the next time? Do you try to do it piecemeal ex post facto?

Mr. Schaan: We have a number of lists, and our stakeholders have lists too. There are a number of folks who have a running list of things that, when we get around to it, they would like us to potentially look at or examine. Those vary. All of these concerns continue to be part of the fodder to continue to look at that and whether we should come back for that issue.

In fact, many of these transparency issues have been cooking for a long time: What is the right venue, and is now the right moment to introduce some pro-transparency measures recognizing where we are in balance?

Senator Wallin: Short of “let’s see the list,” which I don’t think we really can, it means you will be back again.

[Translation]

Senator Dagenais: I’d like to thank the witnesses. Mr. Schaan, I have a question for you about the proposed amendments to the Canada Business Corporations Act. Further to one of the provisions, the fine for failing to disclose information was set at $5,000. In some cases, that may be too low and may not deter potential offenders. Why was the fine set at just $5,000?

Mr. Schaan: The bill establishes two penalties under the law, an administrative penalty, which is the same for all violations of the act, so $5,000. However, another penalty exists when the violation is purposeful.

[English]

They are criminal provisions, essentially, that articulate when people have knowingly and misleadingly held back information. That penalty is $200,000 and up to six months in prison.

Essentially, what we balanced in the laws is to say, “If you fail to put in the right address for Mr. Mark Schaan as the beneficial owner,” and that’s technically a violation of the registry of significant control, we can fine you up to $5,000. But if you know that Mr. Schaan was not a very good actor and was actually the beneficial owner motivated behind this and you hid that information —

[Translation]

In that case, the penalty is higher and includes possible imprisonment.

Senator Dagenais: Thank you very much.

[English]

Senator Marshall: Thank you for being here today. In your opening remarks you mentioned some of the organizations that have concerns with the amendments, and you listed half a dozen there. Just as an example, I’m looking at the letter that the Insolvency Institute of Canada sent you recently about their concerns.

Without getting into specific areas liked the definition of “good faith,” you have all of these organizations that have come back, and they have extensive concerns with the amendments being proposed. I wonder if they don’t know what they are doing, or maybe government officials don’t have a good grasp of what is happening. Why do they have some concerns?

We are at this point where we have this budget implementation act, and it is almost like it is too late to do something. You are trying to correct something, but maybe you will make it worse. It is very concerning when you see all these organizations. These are all reputable organizations, reputable individuals, and they are expressing not just a concern over one area such as good faith. They have multiple concerns about the legislation.

I’ve had experience with several budget implementation acts, and for this one in particular I’m getting the impression that there are a lot of sections that were rushed. They don’t seem to be well thought out. I am looking at this and wondering how well thought out this is.

I know we are saying we are going to have a list, and we are going to correct it down the road, but what kind of damage will we do before then? What do you do with this? Do you just take this now and throw all the concerns in the garbage and say, “Wait until we see what happens and see what filters out”? What do you do with it?

Mr. Schaan: I will start by saying that the submissions from the parties involved that testified before you read very similarly to the submissions that they made to our consultation process.

Senator Marshall: But that’s not what they are saying. The Insolvency Institute of Canada, in fact, say, “The proposed amendments,” at least in the budget implementation act, “go beyond matters addressed in the . . . consultation process in January. . . .”

That’s at least one organization that thinks that what they were approached with back in January is much narrower. They see something now much broader and bigger than what they were led to believe.

Mr. Schaan: I would respectfully disagree with that characterization of our consultation document. We did actually engage on these issues, and CAIRP actually covers them in their submission.

I take their views extremely seriously, and it is something that we work very closely on with all of these stakeholders. These are issues that have been percolating for a long time. These are issues that we have given a significant amount of due care and thought to.

No, we don’t take these concerns and just put them in a drawer and wait. We will continue to monitor implementation and work with these same stakeholders.

I will note, though, that the reality of these types of statutes is that there are, as I indicated to Senator Wallin, a wide diversity of stakeholders who often hold extremely divergent views. The nature of the statutes have oftentimes been that that’s why they are not amended at all, in part, because there is this stasis that exists where no one wants to move forward because you will never make everyone happy. That’s just the nature of these types of things.

There is a reality that, as we make changes to these statutes, there are multiple public policy objectives that we will serve. I don’t know a way forward that potentially makes everyone happy. What we’ve tried to do is ensure that we have weighed and understood the real public policy concerns and the impacts they will have on the objectives we are seeking, with the hopes that we have carved out a thoughtful and considered path forward.

Senator Marshall: On reflection, has there been any consideration given to carving out that part of the budget implementation act and deferring it?

Mr. Schaan: Back to my opening remarks, I don’t share the concerns of the intervenants. I hear their concerns. From my perspective, I don’t agree. I take their concerns very validly, and it is important input.

For that end, the premise of your question is that I would agree with them that the law is wrong, and I would suggest that the proposal of law that we put forward is not. It is actually a valid one.

Senator Marshall: Not necessarily that it is wrong, but perhaps there were certain implications that had not been considered at the time.

Mr. Schaan: No. We thought very hard about exactly these types of implications and what happens in these sorts of circumstances and what will happen to economic behaviour.

We have a significant amount due deference to the system, which I recognize is not always as perfect as people like because it doesn’t provide all the certainty in the world, but we have had recent articles that speak to the value of our courts and their adjudication of these matters as being internationally well read. In fact, there was a recent article in the Globe about the fact that people try to find a Canadian linkage to use our insolvency system because of the expertise of our courts in adjudicating these matters. That’s potentially why we feel far more comfortable with these amendments.

Senator Marshall: For these organizations that have approached you and said they don’t like the amendments, do you respond to them or do you just file that away with your list to do and consider at some future date?

Mr. Schaan: We have regular dialogue with the vast majority of these stakeholders. Other than individual Canadians, the people who contributed and participated in our consultation process are known to us. There is an ongoing dialogue, including all the organizations that appeared before you.

Senator Marshall: Thank you.

Senator Wetston: Just a quick question on prompt payments. Contract security, what will Treasury Board allow or not allow? Surety bonds? Can you accept them now? If so, what percentage of surety bonds might make up, for example, the types of contract security that Treasury Board allows government to accept?

Mr. Schaan: I would have to get back to you on that question, senator. I actually don’t know the answer to that.

Senator Wetston: That’s fine. Thank you for getting back to me.

The Chair: Would you be able to do overnight?

Mr. Schaan: Hopefully.

The Chair: That sounds like something for you, Ian.

Mr. Schaan: It is actually for Paul, who normally appears beside me.

Senator Wetston: The percentage is not that important. I am just wondering if these types of bonds are acceptable to Treasury Board with respect to government contracting, particularly in light of the prompt-payment legislation.

Mr. Schaan: To be clear, it is surety bonds and whether they are accepted by the government in government procurement, which has a linkage to the bond market.

Senator Wetston: Yes, it would, and prompt payment potentially under the regime you are now putting in place.

The Chair: Madam Clerk, when we get that information, perhaps you could circulate it.

Panellists, thank you for being here. It was helpful. We had questions; I believe you addressed them. Whether everyone is satisfied is another question, but we appreciate the effort all of you have put into preparing for today. Mr. Schaan, we look forward to the response.

(The committee continued in camera.)