Thursday, June 6, 2019

The Standing Senate Committee on Banking, Trade and Commerce has the honour to table its

THIRTY-FIRST REPORT

Your committee, which was authorized to examine the 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, has, in obedience to the order of reference of Thursday, May 2, 2019, examined the said subject-matter and now reports as follows:

The committee held meetings on May 8, 15, 16 and 29, 2019, during which it heard from officials from federal departments and agencies, as well as representatives from the financial sector, civil society and human rights organisations, insolvency professionals, a union, the construction industry and a senator.  Written submissions were also received on the topics examined by the committee.

A. Subdivision A of Division 1 of Part 4

Subdivision A of Division 1 of Part 4 would amend the Bank Act to, among other things, provide members of federal credit unions with different methods of voting prior to meetings and provide additional exceptions to the requirement that a proxy circular be sent in order to solicit proxies. The Subdivision also makes a technical amendment to An Act to amend certain Acts in relation to financial institutions.

The committee was concerned that the proposed changes may not address issues with proxy voting that have been under review in provincial securities regimes and under the Canada Business Corporations Act. The Department of Finance Canada noted that the proposed regulation-making authorities are intended to allow the department to make regulations that reflect the best practices in other jurisdictions.

The Canadian Credit Union Association appreciates the proposed change but noted that the second, proposed change contained in the federal budget, “the opportunity for institutions to reduce their administrative costs and regulatory burden by using technology in their communications with owners,” is not contained in Bill C-97, forcing credit unions to continue to provide paper statements to members.

Senators commented that the federal government should implement this change at the earliest opportunity, following the federal election, but the ability for members to choose to continue to receive paper statements should not be removed.

B. Subdivision B of Division 1 of Part 4

Subdivision B of Division 1 of Part 4 would amend the Canadian Payments Act to provide greater flexibility to Payments Canada with respect to the Board of Directors and the Stakeholder Advisory Council. With respect to the changes affecting the Board of Directors of the Canadian Payments Association, proposed amendments would allow the term of the elected directors to be renewed twice and to extend the term of the Chairperson and Deputy Chairperson of that board. With respect to the changes affecting the Stakeholder Advisory Council, the proposed amendments would allow the remuneration of certain members of the council, remove the limit on the number of persons appointed to the council and remove the requirement that up to two members of the board be appointed to the council.

Senators were concerned that removing the limit on the number of members appointed to the Stakeholder Advisory Council combined with the ability to provide members with remuneration could potentially lead to a lack of proportional representation of certain stakeholder groups, since the bylaws setting out the composition of the council indicate minimum numbers, rather than a percentage of members.

C. Subdivision A of Division 2 of Part 4

Subdivision A of Division 2 of Part 4 would amend the Canada Business Corporations Act to require a corporation, on request by an investigative body that has reasonable grounds to suspect that certain offences have been committed, to provide to the investigative body a copy of its register of individuals with significant control or information in that registry that is specified by the investigative body. It also requires those investigative bodies to keep certain records in relation to their requests and to report annually in respect of those requests.

Transparency International Canada referred to the proposed changes as a “tepid step.” It pointed out that an investigative body would have to serve notice to the corporation before requesting any beneficial ownership information, which would signal to the target of an investigation that he or she is under investigation. It also highlighted the absence of a requirement that corporations verify the identity of individuals on the registry.

The committee expressed concern that the beneficial ownership registry that is being established under the Canada Business Corporations Act would not be a public registry. Transparency International Canada had the same concern and mentioned that there are more than 40 countries that are moving towards having a public beneficial ownership registry. It also noted that public corporations already have to disclose shareholders with more than 10% ownership, and no personal information is made public. In its view, having a basic number of criteria listed in a public beneficial ownership registry would assist small businesses in knowing who they are doing business with. Lastly, it stressed that Canada is not meeting the 2003 international standards set by the Financial Action Task Force, and as a consequence, Canada has become a place where criminals “stash dirty money.”

Senators also had questions about the privacy implications of providing such information to investigative bodies. According to the Department of Innovation, Science and Economic Development, the Office of the Privacy Commissioner has reviewed this legislation and the investigative body must have reasonable suspicion of an offence prior to gaining access to the registry.

D. Division 5 of Part 4

Division 5 of Part 4 would introduce amendments to the Bankruptcy and Insolvency Act, the Companies’ Creditors Arrangement Act, the Canada Business Corporations Act and the Pension Benefits Standards Act, 1985, in order to enhance retirement security for workers and retirees.

The amendments to the Bankruptcy and Insolvency Act would clarify the duty of good faith that applies to all parties in an insolvency proceeding, provide courts with further powers to address executive payments made prior to an insolvency and exempt registered disability savings plans (RDSPs) from seizure by creditors in bankruptcy proceedings. The amendments to the Companies’ Creditors Arrangement Act would limit the scope of court orders made in relation to the initial stay of proceedings, require creditors to disclose their economic interest in the debtor company and clarify the duty of good faith for all parties.

The amendments to the Canada Business Corporations Act would allow directors and officers, when discharging their duties, to consider interests such as those of employees, retirees, pensioners, creditors, consumers, the government and the environment. It would also require publicly traded companies to report on policies in relation to diversity of senior management, the well-being of employees and the recovery of certain incentive-based compensation. It would also require them to hold non-binding shareholder advisory votes on executive compensation. Lastly, the amendments to the Pension Benefits Standards Act, 1985 would clarify that a plan member is entitled to the same pension benefits when a pension plan is terminated as when the plan is operating. It would also allow a defined benefit pension plan administrator to purchase an annuity for former plan members and beneficiaries and thus transfer any pension plan obligations to a life insurance company.

Regarding the proposed changes to the Bankruptcy and Insolvency Act, the Canadian Association of Insolvency and Restructuring Professionals and the Council of Canadians with Disabilities strongly supported the amendments in relation to the RDSP. 

The committee had concerns about the rationale for the proposed changes to the Companies Creditors Arrangement Act. With respect to the proposed change requiring creditors to disclose their economic interest, the Canadian Bond Investors Association said that it also did not understand the purpose of these changes as they could have a negative effect on the secondary market for bonds, which is an important source of liquidity for bondholders. It noted that if the secondary market purchasers had to disclose the discounted value at which they had purchased the bonds, this would likely result in those purchasers not receiving the full value of the bonds at insolvency, and as such, there would be no incentive for secondary market purchasers to take the risk of buying bonds. Regarding the proposed duty of good faith provisions, in its view, they are unnecessary and could lead to uncertainty and conflicting duties during insolvency proceedings.

The Canadian Association of Insolvency and Restructuring Professionals agreed that the proposed duty of good faith clauses are unclear, particularly for common law jurisdictions. It stated that the disclosure of economic interest provision goes too far in requiring disclosure of the value of transactions, but it did note that a disclosure of economic interest may be important when there is a misalignment between the legal and economic interests of the creditor, such as with a credit default swap where a creditor could benefit from the failure of the debtor company. In its view, all of the provisions in relation to corporate insolvencies should be subject to a deeper review and commentary by stakeholders before being implemented as there could be “unintended consequences.” 

In a written submission, the Insolvency Institute of Canada indicated that it had similar concerns with the lack of consultations with respect to the changes proposed for the Companies Creditors Arrangement Act. In particular, it pointed out that Division 5 goes beyond the matters that were addressed in the consultation process that was held by the federal government in January 2019. It noted potential problems with the provisions related to disclosure of economic interest, duty of good faith, interim financing, liability for directors’ compensation and scope and length of stay.

The United Steelworkers and, in a written submission, the National Pensioners Federation and the Canadian Federation of Pensioners, stated that Division 5 fails to address the lack of legislative protections for pensions upon insolvency. They recommended that a super-priority claim be granted for unfunded pension liabilities in insolvency. The committee asked whether legislating a super-priority claim was considered by the government. Innovation, Science and Economic Development Canada indicated a super-priority claim was not a viable option because the debtor company would likely not have sufficient money to pay for that liability, and if it were to pay that liability, the company would likely not have the funds to restructure. 

In a written submission, the Barreau du Quebec indicated that the amendments proposed for the Canada Business Corporations Act require extensive analysis to assess the impacts they could have on Canadian corporations. It expressed concern that these provisions could move forward without proper consultations.

E. Division 26 of Part 4

Division 26 of Part 4 would enact the Federal Prompt Payment for Construction Work Act, which would establish a payment regime for contractors and subcontractors for construction work related to federal construction projects on federal lands. Witnesses expressed strong support for Division 26, with Senator Plett stating that the provisions of Division 26 closely mirror his work on Public Senate Bill S-224, An Act respecting payments made under construction contracts.

The committee had concerns about whether the proposed federal legislation would differ from Ontario’s 2017 construction lien legislation and how the federal and provincial statutes would be applied. The Department of Justice Canada said that the federal and Ontario statutes do not have many differences, just a few in relation to the timing of payments or submissions. The Surety Association of Canada noted that some elements of the Ontario legislation apply to all construction projects, not just government construction contracts. The National Trade Contractors Coalition of Canada also mentioned that Saskatchewan, Manitoba and Nova Scotia have adopted the model set out in the Ontario legislation and that Quebec has launched a pilot project with respect to prompt payment legislation.

The Surety Association of Canada recommended an amendment to proposed section 23 to allow the Governor-in-Council to make regulations to address insolvency risks. However, Senator Plett said that having prompt payments should result in fewer contractors becoming insolvent, and thus would only support the proposed amendment if the enactment of insolvency-related regulations was not mandatory.

Committee Observations

1. With respect to Subdivision A of Division 2 of Part 4, the committee has not heard adequate justification for not making the corporate beneficial ownership registry set out in the Canada Business Corporations Act a public registry. The committee looks forward to receiving an update from the federal government about the status of negotiations with the provinces and territories concerning their own beneficial ownership registries at its earliest convenience.

2. Regarding the changes proposed in Division 5 of Part 4, the committee notes that there are differences in the interpretation of the duty of good faith between civil and common law jurisdictions in Canada.

3. The committee heard from witnesses that the consultation process that took place prior to the drafting of this section was not meaningful. The committee acknowledges these remarks and notes that there were substantial stakeholder concerns about the legislation that were not expressed to the committee in the first appearance by the officials.

4. In the committee’s view, federal government officials appearing before the committee should be prepared to outline stakeholders’ concerns with proposed amendments.

5. The committee expresses its support for the federal government’s progress with prompt payments for federal construction projects set out in Division 26 of Part 4. 

Respectfully submitted,