INDY Committee Meeting

STANDING COMMITTEE ON INDUSTRY

COMITÉ PERMANENT DE L'INDUSTRIE

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, November 5, 1998

[English]

• 0837

The Chair (Ms. Susan Whelan (Essex, Lib.)): I'll call the meeting to order, pursuant to an order of reference of the House dated Tuesday, October 6, 1998, consideration of Bill C-53, an act to increase the availability of financing for the establishment, expansion, modernization, and improvement of small businesses.

We're pleased that the department has had the opportunity to meet with a number of groups and has been able to respond to a number of concerns that the committee has raised.

What's being distributed now by the messengers are copies of several things. One is a letter to Mr. Alan Young, vice-president of policy of the Canadian Bankers Association. They are being distributed in both official languages, if you would like to take a look at that.

I'm going to ask the department to make some opening statements and explanations, and then we're going to turn it over to some questions before we go to clause-by-clause. I've been informed by a number of members on the committee that they have other commitments at 10 a.m., and so do I, so we'll do our best to try to accommodate everyone's needs.

Does everyone have this in front of them now, or are we still distributing? Everyone has it? Okay. That means I'm going to turn to the department, if they would like to begin. Mr. Dunlop.

Mr. Robert Dunlop (Director General, Entrepreneurship and Small Business Office, Department of Industry): Thank you, Madam Chair, for giving us the opportunity to appear before you again.

These committee hearings have been extremely helpful in deepening our understanding of the impact of the bill, and in particular the proposed regulations. We have been listening carefully, and we believe that a better program will emerge from this process. In my brief comments today, I'll endeavour to clarify for you some of the issues that committee members may have found problematic.

The draft regulations raised a number of important issues. It was pointed out to you by a number of witnesses that the effect of the preliminary draft wording concerning leasehold improvements would effectively close this class of lending to a major category of borrower. We listened carefully to your hearings, and we agree with this assessment. This was not the intent of the bill or the draft regulations.

I can assure the committee that the current draft wording in the regulations dealing with existing leasehold improvements, leasehold improvements and landlords' waivers has been withdrawn from further consideration.

[Translation]

We share stakeholders' interest in limiting the possibility of abuse under this program, following cost recovery. In co-operation with the Canadian Restaurant and Food Services Association and the Canadian Franchise Association...

Ms. Francine Lalonde (Mercier, BQ): Are you reading a text?

Mr. Robert Dunlop: Yes.

Ms. Francine Lalonde: Which one?

An Honourable Member: Do we have it?

Mr. Robert Dunlop: No.

The Chair: No, Ms. Lalonde.

Ms. Francine Lalonde: Thank you.

Mr. Robert Dunlop: ...as well as the Canadian Bankers Association, we feel confident that we can ensure that this program remains an important financing option for small business owners. If we cannot come to an agreement...

• 0840

[English]

The Chair: Could I just ask you—it appears you're reading from a text—if you could read a little more slowly? I'm not sure if you've given a copy to translation.

A voice: They have a copy, but it's not translated.

The Chair: So they do have a copy, but it's not translated, so you have to read perhaps just a little more slowly.

[Translation]

Ms. Francine Lalonde: May we have this text?

[English]

The Chair: They don't have copies of what they're reading from, but they have copies of everything else they're explaining.

[Translation]

Ms. Francine Lalonde: This goes to the heart of the matter. Why can't we have the text?

[English]

The Chair: I'm sorry, I didn't get that.

[Translation]

Ms. Francine Lalonde: Why can't we have that text?

[English]

The Chair: I think it's only a brief opening statement; then we're going to go into discussion.

Mr. Dunlop.

Mr. Robert Dunlop: It's just this opening statement.

[Translation]

Ms. Francine Lalonde: But this is the text in which they state that they are satisfied. Yes or no?

Mr. Robert Dunlop: No, but I am referring to Mr. Young's letter. The important document is Mr. Young's letter, in which he stated that he was very much in agreement with the proposed approach and in which he described everything he has raised with the committee in detail. There's also the reply given by the Department, which seems to be in agreement.

I will continue reading the text. If we cannot come to an agreement, we will remain committed to maintaining current practices in dealing with these questions.

[English]

The committee has heard or received written confirmation from each of the major stakeholders about this understanding. In addition, we are pleased to table an exchange of correspondence between the department and the Canadian Bankers Association confirming their support for the bill and the amendments. They have confirmed their understanding of the proposed method for resolving the concerns about the consultations draft of the related regulations.

[Translation]

Because of the way this program works, that is the involvement of a third party, lending institutions play a crucial role in the success of the programs. Industry Canada concluded an agreement with the Canadian Bankers Association on each of the matters raised before the committee. Among the proposals mentioned in the exchange of correspondence you will note that some of them, but not all of them, were chosen for implementation. Those recommendations are supposed to improve the program. Furthermore, we communicated with the other large lending institutions, among them the Confédération des caisses populaires Desjardins and the credit cooperatives to ensure that they were also included in the process.

[English]

Concern was also expressed about the proposed prohibition on the financing of sales of going concerns between non-arm's-length parties in the preliminary draft regulations. Again, the objective was to reduce the potential scope for abuse, not to impede the legitimate intergenerational transfer of businesses. So this prohibition will be withdrawn from the draft regulations and we will work with stakeholders to find wording that deals only with potential abuse.

Industry Canada expects to have round table meetings with lenders, the CRFA, and the CFA in Toronto in mid-November. This forum will be aimed at reaching an agreement on improvements to the draft regulations. Subsequently, should Parliament adopt this bill, we could be in a position to prepublish the resulting draft regulations very early in the new year. This would give interested parties, including the committee, the time to review and comment on them in advance of their implementation.

[Translation]

The work of refining the regulatory provision is far from over. We will continue to follow the points of view expressed by the committee with close attention and as I mentioned we will continue our consultations with the various stakeholders.

• 0845

[English]

Another issue that must be clarified is the inclusion of measures in the bill and regulations limiting the ability of related borrowers to obtain loan guarantees in excess of the $250,000 limit. These changes were introduced to respond to the reports of the Auditor General and the public accounts committee.

Concern was expressed about the potential impact of these measure on couples. For example, would a woman not be eligible if her husband had a loan outstanding?

Instead of using the Income Tax Act's restrictive definition of arm's length, a more targeted approach is proposed in the regulations. The proposed “related borrower” definition is derived from a similar provision in the Canada Business Corporations Act. It would define related borrowers according to business relationships, not family ties. So a husband and wife, for example, who are not in business together would be able to secure separate guaranteed loans without impediment as long as these loans were for separate businesses.

[Translation]

The bill contains a provision allowing for the creation of pilot projects for capital leases and the voluntary sector. As was indicated in remarks to the House, the Minister will ask for the support of the Industry Committee in order to define those pilot projects. This could involve holding hearings on the preliminary versions of the regulations in order to provide advice on the breadth and scope of those pilot projects.

[English]

Madam Chair, I do not want to take too much time with this statement. As the committee knows, we have prepared written submissions on several other issues that have been raised during your deliberations. These include the questions raised by the assistant auditor general in his testimony; a summary of the responses to the report of the public accounts committee; a clarification of the nature and intent of the compliance audits proposed under the bill; an explanation of the impact of the proposed new due diligence requirements; and a summary of the requirements for reporting both to Industry Canada and by Industry Canada.

In concluding, I would like to thank the committee for its work on this important bill and for giving us the opportunity to participate in the process.

The Chair: Thank you, Mr. Dunlop.

Does anyone have any questions at this time?

Mr. Lastewka.

Mr. Walt Lastewka (St. Catharines, Lib.): Madam Chair, since the letter to Mr. Alan Young outlines all the items that the CBA has brought forward, I wonder if we could just go one section at a time, just in case there are any other questions on that report. That report had so many items. I know the department has been meeting with not only the CBA, but all the other stakeholders. There might be a good reason to go through that letter so people understand it. If there were any questions, we could—

The Chair: Mr. Dunlop, perhaps you could explain the letter of November 4 in some detail.

Mr. Robert Dunlop: I'll ask Mr. Webber to do that.

The Chair: Mr. Webber.

Mr. Peter Webber (Team Leader, Small Business Financing, Entrepreneurship and Small Business Office, Department of Industry): Good morning and thank you.

The Chair: Ms. Lalonde.

[Translation]

Ms. Francine Lalonde: In reading his text, Mr. Dunlop stated that the banks said that if they could not conclude an agreement after having tried they would maintain their current practices. I don't have the text that was read. It seems however to be an extremely important text. That means that if they do not agree with the regulations, well, the regulations will not exist in their view. Once again, we find ourselves facing a peculiar situation.

[English]

The Chair: Ms. Lalonde, in fact the letter I distributed on Tuesday morning or afternoon from the Canadian Bankers Association, after their meeting with the department, said that very thing. It said they would continue to operate under the old regulations until they had reached an agreement on the new regulations. The department had agreed to that. If they can't reach an agreement, I guess it will continue on the old. It should provide some comfort level to members of the committee that the bankers and associations involved are working diligently with the department to resolve the wording.

• 0850

I think perhaps if Mr. Webber took us through the letter.... Mr. Lastewka.

Mr. Walt Lastewka: Madam Chair, when we had some of the stakeholders back, if you remember correctly, I personally questioned each of the stakeholders on whether they understood there was some abuse in the system. I said abuse in the system was key and they must come up with some terminology to go after the abuse in the system. If they couldn't, then it would be the old regulations.

They all committed in front of the whole committee that they would attempt, with the department, to find a way to start to remove the abuse in the system. To me it's key in the short term to come up with something that will stop the abuse, and, as we heard just the other day, they don't want to have that abuse. It works against them also because it's involved in the fees, administration costs, and so forth.

My understanding is that all the stakeholders who reported here will be attempting in the next short while—and there's a meeting at the end of the month—to try to put some legislation to remove the abuse they recognize there is in the system.

The Chair: Mr. Lastewka, with all due respect, we didn't necessarily have all of the stakeholders here. I've tried to make it very clear to both the minister's office and the department that when it comes to existing leaseholds there is a wide variety of stakeholders that need to be dealt with, not just restaurants and franchises. I'm putting that on the record again so our concerns are noted there.

Why don't we let Mr. Webber take us through the letter and we'll see if there are any questions after that?

Mr. Peter Webber: I just want to reiterate that the agreement we reached certainly encompasses that very point. The existing situation will continue until such time as we reach an agreement on the wording in these areas and the other issues that were raised by the banks, particularly in relation to security, so it's clearly understand by all members of the committee that the situation businesses find themselves in today in respect of existing leasehold improvements and financing franchises will not be changing under these regulations unless we can reach an agreement on new language.

I think we have a commitment from all the stakeholders that they feel strongly about the need to address the areas that have been abused in the past by certain borrowers, so we're confident we can reach an agreement. I think the letter to Alan Young states very clearly in the second paragraph our commitment to keep the Small Business Loans Act and regulations status quo unless and until we can reach an agreement on these particular issues.

I should say as well that there has been a very broad consensus on all of the other issues. There are some issues that need to be clarified, and we'll be working with the stakeholders to do that, but the other elements of the regulations have been reviewed and have, generally speaking, received a very positive reception. So I'm confident that we can reach an agreement on that.

To pass on to the questions related specifically to the bill outlined in this letter—

• 0855

[Translation]

Ms. Francine Lalonde: Excuse me. I would like to ask another question, Madam Chair. The agreement was concluded with the Canadian Bankers Association. Was it also concluded with the Canadian Restaurant and Food Services Association and the Canadian Federation of Independent Business?

Mr. Robert Dunlop: We did not receive an official letter from the Canadian Federation of Independent Business. We have letters of agreement with the Canadian Franchise Association and the Canadian Restaurant and Food Services Association. I believe that in his testimony the other day, Mr. Whyte gave verbal approval.

Ms. Francine Lalonde: However, he said that he wanted the principles to be enshrined in law so that they could not be changed through regulations. It must be well understood that the banks are the lenders, as well as the franchisors, and this Act concerns the borrowers, who need credit. It seems to me that they have to be considered in the same way.

Mr. Robert Dunlop: We intend to work with them also. I believe that Mr. Whyte indicated his approval to this approach in his testimony.

Ms. Francine Lalonde: No, in his testimony he stated that the principles should be...

[English]

The Chair: Excuse me, Madame Lalonde, but there are a number of pieces of paper in front of you. I know you haven't had an opportunity to go through them, but one of the things is that in response to the Auditor General's report—and something I guess we've had all along in the binder—the objective of the SBLA program has remained essentially the same since 1961. I think that's the overall principle on which it's administered and adapted to the times as times change. So why don't we let them take us through the letter and we'll go from there?

Mr. Webber, please.

Mr. Peter Webber: With respect to subclause 5(1), the CBA proposed that some wording be removed. We have agreed, after discussions, to leave the subclause as is, but we'll work together to develop language in the regulations that will ensure claims aren't denied in instances where there has been an inadvertent non-compliance and the non-compliance didn't contribute to the claim for loss.

With respect to giving notice, we've had a discussion with the CBA. My impression was that in respect of subclause 5(3), they had a misapprehension of the effect of this clause. I think they felt this 24-hour notice clause applied generally to every action that had to be taken under the act.

We clarified that it was certainly not the case, and this 24-hour notice period only applies in respect of subclause 5(3). We did not support their suggestion that we extend it to seven days, because the 24-hour notice is put there to protect the taxpayer and all other lenders from egregious abuse by one lender. I would also add that this section has never been used in the past, but it is there in case the situation arises where we need to use it. They have agreed that given that explanation, the 24-hour notice is reasonable.

With respect to maximum loan size, they raised a concern with respect to the wording of the language that they felt might put them in a position where their loans officers would have to know what loans had been made at one institution to the same borrower. We clarified that was absolutely not the case. Basically we're looking for them to at least make the effort to find out what is outstanding at the same branch to that individual borrower.

• 0900

We've consulted with legal counsel and agreed between ourselves and the CBA that the addition of the words “actual knowledge” will help to clarify their situation and help them understand that the objective here is to ensure that they do their own checking within their branch, but they're not expected to go beyond that.

With respect to subclause 9(2), we've explained the situation to them. This subclause would eliminate the minister's liability in cases where lenders fail to pay all of their annual administration fees on all of their loans. It's of course primarily aimed at smaller lenders who might choose to submit their annual administration fees only when loans go into default. It is not really intended to deal with the major lenders. We have agreed to work together to develop language in the regulations to ensure that clerical errors don't result in the imposition of this sanction. Obviously, the clerical error would have to be occasional and inadvertent.

With respect to the pilot projects, they asked that this be voluntary. We explained, as I think we did last week to you, that participation in this program at all is entirely voluntary on the part of lenders. Therefore they've agreed with us that it's not necessary to reiterate that with respect to the pilot projects.

On audit and examination, we have agreed, as we indicated last week, that a 21-day notice period makes sense, and we will be providing that 21-day notice. They had asked for an addition to subclause 15(2) that would have essentially made it clear that the documents, records, and books of account being referred to are only those in relation to the loan made under the CSBFA.

In reviewing this with the drafters, we came to the conclusion that because subclause 15(1) already refers to documents, records, and books of account, the addition of the word “the” within subclause 15(2) would make it specific to those that were referred to in subclause 15(1); therefore we wouldn't need to go beyond that. This language between subclause 15(1) and subclause 15(2) will ensure that the auditors will have access to the lender's loan procedures in respect of their conventional loans. This is very important in determining whether they have in fact applied the same due diligence requirements that apply in respect of their conventional loans.

I would also say that we expect that due diligence will be undertaken before they do a risk assessment. That means they will collect the information they need and do their credit checks and calculations of the borrower's ability to repay the loan. Then, after having done all that, they will do their risk assessment. The risk assessment is done by the lender after the due diligence. It's a separate step, and it is the step that takes place before they decide whether this loan is to be made under conventional loans, under the CSBFA, or not at all.

• 0905

I just want to clarify that. There seemed to be some confusion among some of the witnesses as to how that worked.

With respect to subclause 15(3), they had asked to make it clear that the audits would be undertaken on-site. We have no problem with that. The wording we've come up with here is somewhat more flexible. It means that if a lender is content with documents being removed from their site by the auditors—either that or copies—the auditors can take them away. Obviously it's with the prior permission of the lender; otherwise the audit has to be undertaken on-site. Again, they're comfortable with that wording.

With respect to non-compliance, “if a lender refuses or intentionally fails” is the new wording we've agreed to. The problem they identified was the question of “knowingly”. There seemed to be some ambiguity. The extent to which that could be their reluctance to participate on a particular day might be construed as knowingly failing to comply. This is intentionally failing to comply, which is a higher standard, I'm told, and requires a positive act in order to be proven that they intentionally refused. That language is acceptable to both us and the lenders.

With respect to the two other suggestions, one that Industry Canada report to the lenders their position in respect of the liability ceiling.... We've undertaken to do that. In fact, we have been making similar reports under the existing program for some time. We will continue to do that, but we have agreed that that doesn't need to be added to the act.

Finally there is the provision of 90 days' notice of a change in the act and regulations. We explained the difficulties of that. First, I would say that the issue that has caused this to be raised was in relation to the issuance of a guideline, not a change in the act or in fact any changes in the regulations. We have undertaken to provide ample notice of changes in guidelines, but subject to our ability to act quickly to close off loopholes and abuses that come to our attention that need to be closed off; we have to take action as quickly as possible to control costs. Those are relatively rare cases, and we will provide as much notice as we reasonably can, keeping in mind the need to control the ability of abuse under the program.

In addition to their submission, the bankers, when we met with them on Monday, raised with us a concern about transitional arrangements between the existing program and the new program. Currently there's no provision in Bill C-53 for any transition between those two acts, particularly in relation to loans that were approved under the existing act but hadn't yet been dispersed; in other words, no payments had been made under them. To avoid borrowers having to go through a separate evaluation period, we have agreed that it makes sense to put in some transitional arrangements that will mean that essentially the eligibility requirements established in the SBLA for loans that were made before March 31, 1999, will be deemed to be accepted under the CSBFA until July 1, 1999, so as to provide that window of transition between the two programs.

• 0910

In summary, that is what's in this letter.

I should also note before I close, Madam Chairman, that we received a response from the CBA in which they essentially agree with this approach and endorse these changes. Thank you.

The Chair: Thank you very much, Mr. Webber.

I have a list of questioners who want to ask questions. I also want to make sure everyone has in front of them everything the department has distributed today. They have also submitted a letter to the committee. There were some concerns about the example of offence provisions, and you should have that. And then there is an itemized information package, which has a response to the issues raised by the assistant auditor general, a summary of the response to the issues raised in the report of the public accounts, a response to the question about the execution of audits and examinations, a response to the question about lender due diligence and risk assessment, and a response to the question about the reporting requirements under the CSBFA.

To refer you briefly to number four, the response to the question about lender due diligence and risk assessment, it clearly outlines the steps that would be taken. There was some concern about due diligence and the risk level, and how we ensure that the CSBFA has a reason to continue and the banks have a parameter in which to judge a higher level of risk. So it's there, if you want to take a look at it or if you have any question about that.

I'm going to questions. I have Ms. Jennings and then Madame Lalonde.

Ms. Jennings.

Ms. Marlene Jennings (Notre-Dame-de-Grâce—Lachine, Lib.): Thank you.

Thank you very much. I just have one question. It's on page 6, the section where you're talking about the 90-day notice—the first paragraph, the last sentence, which states:

The department also commits to providing lenders with 90 days' advance notice of major changes to the act and related regulations, except in cases involving abuse.

Can you explain that to me?

Mr. Peter Webber: Yes. Obviously, as I was explaining earlier, there are situations where we become aware of abuses of the program. It's very difficult for us to give 90 days' notice of a change that closes off that abuse, because if you give 90 days' notice, that alerts the unscrupulous to the possibility of using this, particularly as they may not have been aware of it previously.

It's a very difficult situation. In fact, the example the CBA raised with us was the problem of loan splitting, where we issued a guideline on notice to lenders in May 1996—again without notice, but as a result of a number of requests from lenders and from borrowers for interpretations of particular sections of the regulations. We realize that in that instance there was a significant possibility that the way in which certain individuals were interpreting the act and regs, we would be faced with a situation where the maximum loan size provided for in the act would essentially become meaningless, and we had to act quickly to deal with that.

• 0915

But that was a very special case. Indeed, I think that's the only one of that nature we've issued in the last five years. It's an awkward situation, but both the lenders and the borrowers we've consulted with understand the need to act quickly in cases where that kind of thing happens. But under normal circumstances it's a very rare instance.

Ms. Marlene Jennings: My confusion here, and I'm relying on you to dissipate this confusion, is with regard to the difference between guidelines. You say that you commit to providing lenders with 90 days' advance notice of major changes to the act. If it's a major change to the act, it's going to come before the House. With the amendment whereby the regulations will also come before the House, ergo to this committee, then there's going to be—

Mr. Peter Webber: Yes, that's covered. The guidelines are the administration's interpretation of the regulations and how they should be applied in each—

Ms. Marlene Jennings: So are you saying that in normal cases where you discover there are abuses because a particular guideline of a particular section of the regulation or the act lends itself to several different interpretations, you're not changing the regulation, you're changing your guideline?

Mr. Peter Webber: Yes.

Ms. Marlene Jennings: Then this isn't clear, because this makes it appear that you're going to provide 90 days' notice of major changes to the act and the regulations except in cases involving abuse. I'm saying, no, if there's going to be a major change to the guidelines or the act, it has to come before the House. Therefore, the stakeholders and the potential abusers are going to be aware of it. If you're talking about the guidelines, that's a completely different issue.

Mr. Peter Webber: Perhaps it could have been clearer, yes. You understand—

Ms. Marlene Jennings: Okay. Through discussion it now has been made clear. Thank you.

The Chair: Thank you, Madam Jennings.

[Translation]

Ms. Lalonde, please.

Ms. Francine Lalonde: When I asked the question, I wanted to know whether we had Mr. Young's text. We have it, but we have copies that are unsigned. Is this what we usually have? These aren't real photocopies.

[English]

The Chair: It's the French translation that is unsigned. I apologize, Madame Lalonde. The English version is signed.

[Translation]

Ms. Francine Lalonde: Fine. As for pilot projects, in your explanation you say that the participation of a lender to the loan- guarantee program is strictly on a "bénévole" (volunteer) basis. You must mean "volontaire" (voluntary) rather than "bénévole", because we understand that that is not the case. I think it's important to point that out. It's a bit worrisome for those who hope that pilot projects will give rise to amendments to the Act itself or to other programs. Briefly, it is said that banks are not concerned because they don't have to participate. Is that it?

Mr. Peter Webber: That's true, but with the pilot projects it is probable that the other lenders will be interested in participating in the program. I'm referring to companies in the capital lease market who do not take part in the program at this time. As we mentioned in the beginning there are 1,300 participants in this program on the lenders' side. In the pilot project, the number will probably be even higher.

• 0920

Ms. Francine Lalonde: That's true for capital lease, but for non-profit organizations, I would like move an amendment. There will be a pilot project on working capital funds. Let's say that the attitude is worrisome.

For the pilot project to be a true pilot project, have you considered at the Department that the banks might only use the guarantee under the new Act on condition that they participate at least minimally in the pilot project?

Mr. Serge Croteau (Director General, Programs and Services Branch, Industry Canada): We discussed it when we had individual meetings. We have not yet made any decision on the various criteria involved in the pilot projects. The Act gives us the possibility of setting criteria that would be completely different from those that are currently in the Act and those involved in the deregulation involving loans. The pilot projects will have to be structured after a series of negotiations with the various stakeholders. So it is practically impossible for us, for the time being, to talk about different pilot project models because those discussions have not yet begun with the various parties.

Ms. Francine Lalonde: Am I mistaken in saying that such a condition, even a minimal one, will be impossible to introduce once the bill has been passed? We know that the regulations cannot go further than the spirit of the Act.

Mr. Serge Croteau: You are suggesting that to allow access to the existing program, we insist on minimal participation in the pilot project. I agree with you that this would run counter to the spirit of the Act.

Ms. Francine Lalonde: Thank you.

[English]

The Chair: Thank you, Madame Lalonde.

Mr. Riis.

Mr. Nelson Riis (Kamloops, Thompson and Highland Valleys, NDP): I'd like to take this just a little bit further. I suspect that in the last couple of days some of the members of the CBA were not happy campers in terms of the changes they see coming in some other sectors.

I was worried, Mr. Webber, when you were commenting on the CBA's concern about lender participation when it comes to the pilot projects, because I think many of us, and perhaps all of us around the table, see them as being two very exciting initiatives. Whether it ends up under this or some other legislation remains to be seen. But I would be surprised if we didn't see the banks enthusiastically participate in this. I know the situation is a voluntary one, but I think we would expect the banks to be interested in this as well.

Mr. Peter Webber: I think you are absolutely right, Mr. Riis.

The Chair: Mr. Lastewka, did you wish to comment on that?

Mr. Walt Lastewka: My understanding is that there has not been overwhelming support from the banks at this time. It's for that reason that when they have a proposal on how to make the voluntary program work, the department is going to be coming back to the committee for committee input in order to put it in a more positive manner. Then we would have to go back to the banks and all the lenders to see which ones would want to participate. I think we're going into an unknown area, and there's a lot of caution at this time. That's why I personally felt it would be very good for the industry committee to have some discussion on what are the goalposts and how it should be put together, and to then go back to the lenders to see if they want to voluntarily participate. I do believe that's the message we've given to our lenders as we've proceeded with this legislation.

Mr. Nelson Riis: Yes.

The Chair: Mr. Dunlop, do you have anything to add to that?

Mr. Robert Dunlop: Our objective was to design a program that was attractive for the banks. I think what they were indicating beforehand is that they would want to participate in that and make sure it's a program that works for both the borrower and the lender, as the entire program is designed to do.

• 0925

The Chair: Mr. Riis, just so you're your aware, when the minister spoke in the House, he said:

The bill proposes the creation of two pilot projects designed to be financially self-sufficient. Hon. members should know that I intend to call upon their advice, through the Standing Committee on Industry, when the regulations and the parameters of the pilot projects are being drafted.

Mr. Nelson Riis: I understand. When I hear the banks saying this does not necessitate their participation in pilot projects, I just want to make it clear for my perspective that I expect them to be participating, and if they don't, they do it at their own peril.

I think one of the problems we've seen these days is that the reluctance about the merger has to do with the fact that we have a lot of concerns that they're not satisfying the demands of the SMEs. That I think has grated many Canadians, and when I see wording like this, where it seems as though they may not be that willing, I want to put on the table that I think we'll be watching them very closely and expecting an enthusiastic participation under the appropriate conditions and through the appropriate consultations. But if they think they're going to let this be for some other area of lending, I like to think they're going to be surprised. Thank you.

The Chair: Mr. Riis, I'm sure many of us echo that sentiment.

Lastly, Mr. Shepherd.

Mr. Alex Shepherd (Durham, Lib.): I have two questions. First of all, I'm a little lost about the process. When you were talking about the duplication of lending and you talked about using not the definition of the Income Tax Act but rather that of the Canada Corporation Act, where is that in these amendments?

Mr. Peter Webber: It's in the related borrower regulations or in the consultation draft of the regulations, which you have with you. It's in subsection 3(2) of the—

Mr. Alex Shepherd: So you're amending the regulations here as well?

Mr. Peter Webber: We have tabled a copy of the consultation draft of the regulations that accompany this bill, but of course we can't issue any regulations until such time as the bill has been adopted by Parliament because we don't have regulatory authority.

Mr. Alex Shepherd: I'm visualizing the classic abuse situation where somebody has a company and they want to take two cracks at this so they split their company. The wife starts up a company under her name or whatever and suddenly you get $500,000 rather than $250,000. Are there other provisions there that say the spouse must be actively engaged in the business or not?

Mr. Peter Webber: Basically the provisions in the regulations cover situations where individuals own a business together or have substantial control of the business together, and therefore for that business they'd only be able to get $250,000. But there are also provisions that provide for the situation where if one individual, even if they are related under that rule, were to be operating in a significantly different business or in a different geographic market, then they would be eligible to have access to the program for two loans.

The purpose here is to avoid the situation where one business is getting $1 million worth of loans under the program without making it impossible for distinct businesses to access the program. The example we always think of is the grocery store that's constructed as a number of different entities; the deli and the bake shop and the produce counter are all incorporated as separate entities, but the fact of the matter is that they don't have an independently viable business. They have to depend on each other to bring the business in. If one fails, the likelihood is that they all fail. It's this situation we're trying to avoid, without saying that the husband and wife who are not in business together wouldn't be able to have access to the program for two separate business operations.

• 0930

Mr. Alex Shepherd: I understand what you're saying, but just to clarify, I used the words “geographic market”, and I'm not quite sure what that means. If I took my steel fabrication plant and decided to have a sales section and I split that into a separate company and did all the marketing for it, and then I have two companies, you're telling me it's impossible to get two loans. Is that correct?

Mr. Peter Webber: That's right, because they're essentially the same business, but the one business depends on the other one.

Mr. Alex Shepherd: Yes. I understand. I'll have to read what it says.

Mr. Peter Webber: Yes. Right.

Mr. Alex Shepherd: Getting back to this amendment to subclause 15(4), where you changed the wording from “knowingly” to “intent”, I don't pretend to be a lawyer, but it would appear to me to be very difficult to prove intent. That's a very difficult point under the law—

Mr. Peter Webber: Yes.

Mr. Alex Shepherd: —whereas “knowingly”, I think, encompasses negligence in the sense that the person was in a position where he or she knowingly knew this was in non-compliance with the act. Aren't we simply letting the banks off the hook here because intent is very difficult? You would have to have documentary evidence for somebody intentionally trying to contravene the parameters of the act.

Mr. Peter Webber: The fact is that this provision is there to encourage cooperation. We have no evidence to suggest they're going to be unwilling to participate, but we felt that the stricter test would be more appropriate since instances of clerical error or of inadvertent non-compliance would not be caught by this, whereas intentional non-compliance, knowing you have files that are in your branch or in your office and keeping them from the auditors, that would—I'm not a lawyer either, but I suspect—come closer to the definition of intentionally failing to comply.

Mr. Alex Shepherd: In using that example I could see somebody who said, I left those in my bottom drawer, but it was negligence.

The Chair: Mr. Shepherd, we have to move on. We have to move to clause-by-clause very quickly here.

Ms. Barnes, do you have one brief question?

Mrs. Sue Barnes (London West, Lib.): Yes. In connection with the geography aspect, I want you to expand and tell me what you mean by that, and then I have an example I want to give you to see whether it would fit your changed definition right now.

Mr. Peter Webber: A distinct geographic market is going to have to be defined by each individual kind of business. Take, for example, a Treats franchise in downtown Ottawa. There are many Treats franchises and they deal with relatively distinct geographic markets, whereas a Canadian Tire might have a bigger drawing area.

Mrs. Sue Barnes: I'll give you my example, and it will clarify it in my own mind then.

If I'm a husband and I have a successful sports store and I operate it in downtown and I want my wife to set up the same business in a suburban mall in the same city, not far geographically, say within five miles or something like that—different markets but exactly the same business—is that going to be interpreted with the new store that my wife sets up—

Mr. Peter Webber: The other condition is that it has to be a definite corporation and it has to be a distinct product or service.

Mrs. Sue Barnes: You go through whether you did it without incorporating or did it as your own business. That's not the question. That's not an abuse. It's legitimate, and I want to make sure that's allowed.

Mr. Peter Webber: If they're independently viable and they're distinct entities, the chances are that they will be allowed, but again, this is in the draft regulations, and this is something we'll be discussing with the lenders. While they agree with the intent, they have raised some questions around interpretation.

• 0935

Mrs. Sue Barnes: My concern is—

The Chair: Mrs. Barnes, I think you should be aware that they have sent out the draft regulations to a large number of stakeholders, not just the banks. A large number of different people have been asked for their comments. They've only received some comments from some groups, and they're still waiting for other comments from others.

All committee members are more than welcome to submit their own individual comments and concerns. The reg debate will go on for a while, but I would really prefer to move to clause-by-clause now, if we could.

That being said, everyone should have the proposed amendments in front of them. Pursuant to Standing Order 75(1), consideration of clause 1 is postponed.

(Clause 2 agreed to)

(On clause 3—Loans made after March 31, 1999)

The Chair: For clause 3, we have several amendments.

Madame Lalonde, I'm not sure if this has been explained to you. Your amendment would in fact be considered a preamble for clause 3 and should be dealt with before clause 1, just before we get to the title. Is that okay with you?

[Translation]

Ms. Francine Lalonde: If it's merely a technical question, that doesn't concern me, but I want the debate on this to be held because this is the argument brought forward by the Canadian Federation of Independent Business. If I prepared this it is because I looked for something in the bill to operationalize the title. The title of the bill is: "An Act to increase the availability of financing for the establishment, expansion, modernization and improvement of small businesses", but there is nothing in the bill that anchors that. So I felt that there should at least be one provision in the bill that states what the title does.

[English]

The Chair: Okay. So are you in agreement that we'll deal with your amendment just before the title and as a preamble?

[Translation]

Ms. Francine Lalonde: Is the preamble part of the bill? Is it interpretative?

[English]

The Chair: No, Madame Lalonde, the preamble would explain the intention of the bill, but it exists as part of the record.

[Translation]

Ms. Francine Lalonde: I don't agree, because in C-54 there is a provision entitled "Purpose of the Act" which explains the uses the law is to be put to. In this bill, because of all the debates we have held, we could have a purpose of the Act clause which would read... It would be a new clause 3.

[English]

The Chair: I think one of the explanations from the department is that your definition of the purpose is slightly different from what the objective of the SBLA program has been since 1961. I don't know if you've compared what you've defined to be the purpose versus what the definition has been since 1961.

[Translation]

Ms. Francine Lalonde: We have heard a lot of things on this, Madam Chair.

[English]

The Chair: No, I'm just asking if you've had the opportunity to look at page 1, where it talks about the objective of the SBLA program remaining essentially the same as laid out in the Small Business Loans Act.

Mr. Lastewka.

Mr. Walt Lastewka: Madam Chair, after reading Madame Lalonde's amendment, I just want to get some clarification on my understanding of what she's trying to do here. We heard a number of times from the CFIB and other people that we should reconfirm the purpose of this act, because there was some concern that we were going away from small business. Probably at a later date, we as a committee need to come back to establish what we think a small business is, because there are many definitions for it.

• 0940

I just want to ask the legal person from the department what the appropriate place is wherein we could reconfirm that the purpose of the act is to assist small businesses to be established and to be expanded, and that said purpose be kept within “small business”. Perhaps the department legal people could guide us on that a bit.

Ms. Lenore Scanlon (Legal Counsel, Department of Industry): We do have an existing preamble in the bill. I'm not a drafter, but after meeting with our drafters on this bill, my understanding is that it seems to be no longer the fashion, if you will, to put an object clause in bills. I could certainly get details on that if you like, but the preamble was put in here to achieve a similar purpose: to state the purpose of the act. That would be an appropriate place if changes or clarifications are needed.

[Translation]

Ms. Marlene Jennings: The preamble stipulates very clearly that this is an "An Act to increase the availability of financing for the establishment, expansion, modernization and improvement of small businesses". Normally, if memory serves, when we must interpret the law, we must take the preamble into consideration.

The Chair: Madam Lalonde.

Ms. Francine Lalonde: The title says: "to increase the availability of financing". This isn't the same thing as saying that there will be financing for eligible businesses. There is a description but there is no statement that we want to help businesses that would otherwise have trouble accessing financing. I could get out the unedited version of the presentation made by the Canadian Federation of Independent Business as well as the survey I did in my own riding and in other ridings. It shows that small businesses want the program to be reserved to those businesses that have the most trouble finding funding. That doesn't mean that we shouldn't have certain requirements but the guarantee should not serve to guarantee loans which would otherwise be granted. That isn't specified in the preamble.

[English]

The Chair: Madame Lalonde, with all due respect, I've asked you if you wish to debate this in the preamble and you've said you wish to debate it now. I therefore ask you to move your amendment for clause 3.

[Translation]

Ms. Francine Lalonde: Thank you. I move my amendment to clause 3.

The Chair: Mr. Dubé.

Mr. Antoine Dubé (Lévis-et-Chutes-de-la-Chaudière, BQ): I second the motion.

[English]

(Amendment negatived—See Minutes of Proceedings)

The Chair: We have two other amendments for clause 3, and I'll begin with Mr. Lastewka.

Mr. Walt Lastewka: Madam Chair, I hope everybody has this in front of them. I move that Bill C-53, in clause 3, be amended by replacing lines 37 to 39 on page 2 with the following:

made under the Small Business Loans Act.

(Amendment agreed to)

The Chair: Mr. Lastewka, you had a further amendment.

[Translation]

Ms. Francine Lalonde: Madam Chair, I haven't even been able to find that in the text. You have to give us enough time. You know that we are in favour of the principle behind this bill and we want it to be the best possible bill. So we must have time to read it.

[English]

The Chair: I apologize, Madame Lalonde. You have in front of you draft amendments. We're now at G-2, and we're still on clause 3. I'll ask Mr. Lastewka to move the amendment and read it at the same time, and that will hopefully give everyone opportunity to understand it.

Mr. Walt Lastewka: Thank you, Madam Chair.

Did you want me to read the whole thing?

• 0945

An hon. member: No, take it as read.

Mr. Walt Lastewka: Can I ask if everybody has it first?

The Chair: Mr. Lastewka, we're on G-2. You should have in front of you a package of amendments.

Mr. Walt Lastewka: It's titled G-2?

The Chair: Yes, but you should have two sets of amendments in front of you, one of which has G-1 on the front. We're on G-2 in that package. The other set that you have is the Bloc amendments. We only received them today, so they're in a separate set, unfortunately. It will therefore be a little bit confusing as we go back and forth between the different amendments.

Mr. Walt Lastewka: I think they're all titled G-2.

The Chair: Does everyone accept Mr. Lastewka's amendment, or does he need to read it? No?

An hon. member: No.

Mr. Walt Lastewka: Does everybody have G-2?

Are there any questions that you want to ask the department?

Mr. Nelson Riis: Madam Chair, it might be helpful just to have somebody say what the amendment is about.

An hon. member: What does it do?

The Chair: Mr. Lastewka or the department.

Mr. Peter Webber: Madam Chair, the amendment is the transitional arrangement that I explained mid-course during the explanation in the CBA letter.

The Chair: That's what's on page 6 on the letter, under “Deemed eligibility”.

(Amendment agreed to—See Minutes of Proceedings)

(Clause 3 as amended agreed to on division)

(On clause 4—Loan conditions)

The Chair: Ms. Lalonde, there's a problem with your proposed amendment. If you would like to move the amendment, I'll then explain the problem.

[Translation]

Ms. Francine Lalonde: I prepared this amendment following the intervention by the Canadian Federation of Independent Business that wanted the principles underlying this bill to be included in the Act, and was willing to let regulations evolve where they may later. That is why I provided specifics for c.(1). In the bill, it says:

(c) the loan must be for an expenditure or commitment that falls within the scope of one or more prescribed classes of loans;

We define four prescribed classes of loans:

c.(1) loans to finance the purchase for improvement, by the borrower, of real property or immovables necessary for the operation of the borrower's small business;

c.(2) loans to finance existing leasehold improvements or to finance leasehold improvements of real property or immovables of which the borrower is or will become the tenant, which leasehold improvements are made by the borrower and are necessary for the operation of the borrower's small business;

c.(3) loans to finance the purchase, installation or improvement, by the borrower, of equipment necessary for the operation of the borrower's small business;

c.(4) loans to finance the payment by the borrower of registration fees referred to in section 11 of the Act.

[English]

The Chair: Just in case everyone is not aware of it, that's amendment BQ-2. It's in the second package that you should have in front of you. Does the department have any response to that amendment?

Mr. Peter Webber: All I would say is that the language is substantially taken from the consultation draft of the regulations, with the addition of “existing leasehold improvements” in paragraph (c.2).

Ms. Lenore Scanlon: I would just add that if this amendment is considered, I think there are other sections of the bill that would be impacted by it. With the way the regime is set up in C-53 right now, the loan classes will be in the regs. It's difficult to just take the section from the reg and insert it at this place in the bill. We'd have to check the other referential impact.

The Chair: Mr. Lastewka.

• 0950

Mr. Walt Lastewka: Knowing what we've gone through in the last month or so, I'm a little concerned about the tentative agreements that we have amongst all the stakeholders on this. If we start including things, we're just going to make things more complicated. From all the lessons learned and what we've talked about, I would hope we've come up with some agreement. I would prefer personally to leave it at that.

[Translation]

The Chair: Ms. Jennings.

Ms. Marlene Jennings: The problem for me is the way in which the agreements were concluded. That's the type of thing I expect to see in the regulations that will be prepared following the negotiations. According to the agreement, in the regulations and the Act, the status quo would be maintained with regard to the financing of existing leasehold improvements or leasehold improvements. This would remain such as long as there is no agreement on changing the regulations to eliminate the abuse everyone has identified. And should there not be any agreement, the status quo would be maintained in any case.

The Chair: Mr. Dubé, please.

Mr. Antoine Dubé: Ms. Lalonde said this before, but I think it bears repeating. Personally what bothers me a bit is that the officials of the department made sure they negotiated with the bankers, with the lenders' side, but seemed to find it more difficult to do the same with those who are to benefit from the loans, the borrowers, represented by the Canadian Federation of Independent Business.

The objective is to help people to obtain more financing, but it seems that they are on the side of those who will be lending the money. I am uncomfortable with that. I remember very clearly hearing representatives from the Canadian Federation of Independent Business express the hope that...

[English]

The Chair: I think we all understand the amendment.

Madame Lalonde, do you have anything further?

[Translation]

Ms. Francine Lalonde: Yes. I want to say that we worked without knowing what the outcome of the discussions would be. It seems positive to say that there will then be discussions among the parties, but this bill guarantees those loans. That isn't new. We didn't invent anything. We just took words from the previous act. Let's not forget that it was in the Act. We took the main categories from it to include them here.

People can then negotiate amendments to the regulations as they see fit, but at least the Act will specify that small businesses will have access to those loans. It was in the law before. Don't forget that now it no longer is. Provisions which resembled regulations were removed from the law and this is no longer in it. If you go through the exercise of reading the law as such, you can't find a statement of purpose. I challenge you to do so. That is why I wanted our expectations to be clearly stated in the bill.

[English]

The Chair: Thank you. We understand your amendments.

(Amendment negatived)

(Clause 4 agreed to on division)

(On clause 5—Liability of Minister)

The Chair: We have two proposed amendments for clause 5, and we'll do them in the order of the lines that are there. First, we have BQ-3, and then Reform is replacing line 37.

Madame Lalonde.

[Translation]

Ms. Francine Lalonde: I withdraw that amendment, Madam Chair. It was about the seven-day period and that has been accepted.

[English]

The Chair: Okay, you're removing the amendment.

[Translation]

Ms. Francine Lalonde: We are referring to the one about the seven-day period, are we not?

[English]

The Chair: Yes.

[Translation]

Ms. Francine Lalonde: So, I am withdrawing it.

[English]

The Chair: Thank you. I will now move to the Reform amendment, R-1. I apologize, I should have done that one first.

Mr. Jaffer.

Mr. Rahim Jaffer (Edmonton—Strathcona, Ref.): Thank you, Madam Chair.

I move that Bill C-53, in clause 5, be amended by replacing line 37 on page 3 with the following:

and ultimately the taxpayers are liable to pay a lender any eligible loss,

• 0955

The rationale is to recognize that the taxpayer is ultimately responsible for any payout to a lender when a loan is made under the act that goes into default. It's a fact of the act anyway. It's just to explain that.

I would propose, Madam Chair, in order to save time for the committee, that as the first six amendments Reform is proposing all deal with the same theme, maybe we could vote on them all together.

The Chair: No. Only by unanimous consent can we vote on them all together.

Mr. Rahim Jaffer: It would save time for the committee.

The Chair: Well, it's going to be out of order. It's up to the committee. Is there unanimous consent? There's no unanimous consent. I need unanimous consent. Madam Lalonde, do I have it? Mr. Keyes.

Mr. Stan Keyes (Hamilton West, Lib.): The Bloc is just asking if they can see all six before they vote. If you just give them one minute, we might save twenty minutes later.

Mr. Rahim Jaffer: They're all the same.

Mr. Stan Keyes: Well, let them see that. They just want to see that.

The Chair: You're dealing with only your first six amendments, Mr. Jaffer?

Mr. Rahim Jaffer: Yes, that's right.

The Chair: It's “taxpayers' liability” and “ultimately the taxpayers”.

Mr. Rahim Jaffer: That's right. As I mentioned, it's just for the interest of the committee on the time factor.

The Chair: Sure. I understand that. Are you satisfied that we'll deal with them all together?

[Translation]

Ms. Francine Lalonde: Could I ask them whether they would agree to add "it being understood that the taxpayer pays and will benefit"?

[English]

The Chair: Madam Lalonde, are you making an amendment to an amendment?

[Translation]

Ms. Francine Lalonde: I asked the question. That is the spirit of this bill, because there are costs, but there are also social and economic benefits to be derived from it. It isn't just a matter of costs.

[English]

The Chair: Okay. Are there any other comments? We're going to deal with them all together.

[Translation]

Ms. Francine Lalonde: Yes, we can consider them all together.

[English]

The Chair: We thank you.

Mr. Rahim Jaffer: I would like a recorded vote, Madam Chair.

The Chair: Mr. Jaffer would like a recorded vote. We'll have a recorded vote on this.

Would you like to have a discussion, Mr. Jones? Do you have a comment?

Mr. Jim Jones (Markham, PC): Yes.

The Chair: No one else has a comment.

Mr. Jim Jones: I can't support this because I think it weakens the bill. The minister and these officials here are responsible to the taxpayers. I don't feel we should be putting the taxpayers on the hook. The accountability is with the minister and the government officials, not the taxpayer.

The Chair: Thank you. All those in favour of the amendment?

We're going to have a recorded vote. How do we do this?

The Clerk of the Committee: We will start with those in favour of the amendment.

(Amendment negatived: nays 11; yeas 3)

(Clauses 5 and 6 agreed to)

(On clause 7—Maximum loan size)

The Chair: We have an amendment on clause 7. Did you want to move the amendment, Mr. Lastewka?

• 1000

Mr. Walt Lastewka: Yes, I do. Thank you, Madam Chair.

As discussed, I move to amend clause 7 on page 5 by including the words:

by the borrower or the lender has actual knowledge

The Chair: Great. All those in favour of the amendment?

[Translation]

Ms. Francine Lalonde: I want to know what it's about. Please explain what it means.

[English]

The Chair: This was explained by the department earlier. Do you mean to have it explained again?

An hon. member: No.

The Chair: I don't think so.

An hon. member: It was the same explanation.

(Amendment agreed to)

(Clause 7 as amended agreed to on division)

(Clauses 8 to 12 inclusive agreed to)

(On clause 13—Regulations)

The Chair: We have several amendments. On BQ-4 we have Madame Lalonde. We have BQ-4 and BQ—

[Translation]

Ms. Francine Lalonde: Excuse me. I think it's clear. The clause would be amended by replacing line 22 on page 6 with the following:

recommendation of the Minister after public consultation with all stakeholders concerned, after report at the Standing Committee on Industry, and after an agreement of this same Committee, make any

[English]

The Chair: Madame Lalonde, I should let you know that this amendment is out of order. The committee only has the power to recommend matters to the House; we cannot order.

Do you want your second amendment, BQ-5?

[Translation]

Ms. Francine Lalonde: With the kind of success I had, I will not move it.

Mr. Antoine Dubé: But it is important.

[English]

The Chair: Okay.

[Translation]

Mr. Antoine Dubé: It has to do with the working capital.

Ms. Francine Lalonde: I know that.

[English]

The Chair: Madame Lalonde, we have BQ-6. Did you wish to make that amendment?

I don't have a BQ-5. Is there a BQ-5? She said no already.

Neither to BQ-6?

[Translation]

Ms. Francine Lalonde: That is correct.

[English]

The Chair: We have a government amendment.

Mr. Lastewka, on G-4.

Mr. Walt Lastewka: For G-4 I move to amend clause 13, page 7, to include subparagraph (5) as follows:

(5) The Minister shall cause a copy of each regulation proposed to be made under subsection (1) to be laid before each House of Parliament before it is made.

Once you accept that, I want to add something, if I may.

The Chair: Would you like to amend it?

Mr. Walt Lastewka: I think the intent of the group was to make sure that notice was made, and so forth. If it could be added, and if it's legally right, I would move to amend by adding the words “and respective standing committees”. Therefore, if it was tabled in the House, it would also go to the respective standing committees.

The Chair: Are you saying to add this at the end? What's your amendment?

Mr. Walt Lastewka: It would read:

each House of Parliament and referred to each respective standing committee.

The Chair: And “be referred to the appropriate committee” would be the...?

Mr. Walt Lastewka: That's fine.

As we have discussed here, the intention was that we want to have notification. We don't always want to be on the search for it in the House. If it got tabled in the House, then it would also be sent to all the standing committees that are in effect.

I realize that sometimes there are some standing committees not in effect, but...the respective or appropriate standing committee. That was my intent, Madam Chair.

The Chair: Okay. Madame Jennings and Madame Lalonde.

Ms. Marlene Jennings: Where the document we received provides rationale for the government amendments, it says:

This amendment would provide the opportunity for the House and Senate Committees to be made aware of any proposed regulatory changes. The Standing Orders of the House provide that any document tabled in the House can be considered by the Standing Committees of the House of Commons on their own initiative.

• 1005

So it would appear that this amendment, as it now stands does that.

The Chair: No, but it does refer it to the appropriate committee. I've discussed it with the clerk, and we would not automatically see it.

Ms. Sue Barnes: I have to insist that it's possible, but—

Ms. Marlene Jennings: It's possible, but you'd have to call it before the committee.

The Chair: Okay.

Ms. Marlene Jennings: My understanding, however, is that Mr. Lastewka's amendment to the amendment would automatically require notification to the committee. So we'd have to decide to hear witnesses or not hear witnesses at that time.

Is that correct?

An hon. member: Yes, that's correct.

Mr. Walt Lastewka: This act is a major act for the industry committee. I wouldn't normally do this with other acts, but on this act, because it's such a.... As Madame Lalonde would say, it's at the heart of the standing committee because of small business and so forth. Because of this, I wanted to make sure that this was in this time.

The Chair: Okay.

Madame Lalonde, did you want to make some more comments on that?

[Translation]

Ms. Francine Lalonde: Yes, I want to make some, but I want to ask this gentleman to read back the wording of his amendment.

[English]

The Chair: I'll abbreviate it for the committee:

(5) The Minister shall cause a copy of each regulation proposed to be made under subsection (1) to be laid before each House of Parliament before it is made and be referred to the appropriate committee.

(Amendment agreed to)

The Chair: All those in favour of clause 13 as amended?

Mr. Stan Keyes: Madame Chair?

The Chair: Yes.

Mr. Stan Keyes: The department is looking very puzzled at this moment.

Ms. Lenore Scanlon: I'm sorry. It was just to add a few extra words to the amendment to the amendment. This is for clarification. It's not the minister who has the power to refer it to a committee.

I have sent over some additional words to express the fact that it's the House that shall refer it to the appropriate committee.

The Chair: It would read:

(5) The Minister shall cause a copy of each regulation proposed to be made under subsection (1) to be laid before each House of Parliament before it is made and the House shall refer it to the appropriate committee.

Ms. Lenore Scanlon: That is correct, as determined in accordance with the rules of that House.

The Chair: Does that work?

Mr. Stan Keyes: It's a friendly amendment for greater verification, Madam Chair.

The Chair: I don't want it going to the other standing regs. I want it to come to this committee, so I want to ensure that....

Mr. Stan Keyes: Could you read back what you have?

The Chair: Is it the understanding of the committee that it would go to both Houses?

Mr. Stan Keyes: Yes, absolutely.

The Chair: Or do we just want it to be referred back to the appropriate committee of the House?

An hon. member: Both Houses.

[Translation]

Ms. Francine Lalonde: We have no power to make other recommendations. It seems to me that it would be the House.

Mr. Antoine Dubé: For us, it would be the Senate—

[English]

The Chair: Let's try this again.

Mr. Stan Keyes: Of each House. It's better to be inclusive than exclusive.

The Chair: Let's try it again:

(5) The Minister shall cause a copy of each regulation proposed to be made under subsection (1) to be laid before each House of Parliament before it is made and shall be referred to the appropriate committee of each House.

Something's not right there.

Mr. Stan Keyes: Madame Chair, maybe we could ask the departmental representative to rephrase what she said earlier? That might clarify it. Can she read back this amendment, Madame Chairman?

The Chair: Let's hear the amendment.

Ms. Lenore Scanlon: It reads:

(5) The Minister shall cause a copy of each regulation proposed to be made under subsection (1) to be laid before each House of Parliament before it is made, and that House shall refer the proposed regulation to the appropriate committee of that House as determined by the rules of that House.

• 1010

The Chair: That's what I don't like. We don't need “the rules of that House”.

The Clerk: And that House shall refer the proposed regulations to the appropriate committee of that House. Is that what we're saying?

Mr. Nelson Riis: That's all you need.

The Chair: It would be:

(5) The Minister shall cause a copy of each regulation proposed to be made under subsection (1) to be laid before each House of Parliament before it is made, and that House shall refer the proposed regulations to the appropriate committee of each House.

Correct? All those in favour? Mr. Dubé.

[Translation]

Mr. Antoine Dubé: If it were written in simple terms, if we were to just mention the House of Commons, would it be in order? That's a question I'm asking the law officers. If we were to limit this to the first wording, where only the House of Commons was mentioned, would it be in order or must we automatically think in terms of both houses?

[English]

The Chair: It's in order, Mr. Dubé, to do it either way. It's been proposed as doing it to both Houses.

(Amendment agreed to)

The Chair: All those in favour of clause 13 as amended?

(Clause 13 as amended agreed to)

The Chair: At this time I'm going to turn over the chair to Mr. Bellemare because I have to go, and I apologize.

[Translation]

(Clause 14—Regulations)

The Vice-Chairman (Mr. Eugène Bellemare (Carleton—Gloucester, Lib.)): We are now on clause 14. I believe that Ms. Lalonde has an amendment.

Ms. Francine Lalonde: I move that the bill be amended by replacing, in clause 14, lines 2 and 3 on page 9, the following:

on the recommendation of the Minister, of the Minister of Finance and of the Standing Committee on Industry.

The Vice-Chairman (Mr. Eugène Bellemare): You have moved your amendment?

Ms. Francine Lalonde: Yes.

The Vice-Chairman (Mr. Eugène Bellemare): I must let you know that your amendment is out of order since the committee doesn't have the power to order the House but simply to recommend matters to the House.

Ms. Francine Lalonde: No, I'm not ordering the House, I recommend. I'm saying: "on the recommendation of the Minister, of the Minister of Finance and of the Standing Committee on Industry". I changed the wording.

The Vice-Chairman (Mr. Eugène Bellemare): I still must tell you that your amendment is out of order since you mention the triple recommendation of the Minister, of the Minister of Finance and of the Standing Committee on Industry. We can only recommend matters to the House.

Ms. Francine Lalonde: Mr. Bellemare, I understand that you are listening to the Clerk, but I did hear what was said earlier, and therefore I changed my wording "be made on the triple recommendation" and I added: "on the recommendation of the Minister, of the Minister of Finance and of the Standing Committee on Industry."

• 1015

I am sorry I made a mistake. Fortunately my assistant was here. It is on page 9 where it says:

(2) Regulations under paragraph (1)(j) shall be made on the recommendation of the Minister and the Minister of Finance.

I add "the Standing Committee on Industry."

An Hon. Member: Therefore, "the triple recommendation."

The Vice-Chairman (Mr. Eugène Bellemare): I am going to ask the Clerk to clarify this matter for us. It will save us going back to it.

[English]

The Clerk: I'll try. The problem is the only place the committee can make any recommendations is to the House. The only circumstances under which those recommendations have any force of law, or any other kind of force except political suasion, would be when it's done in a report that is adopted by the House. When the recommendations are adopted by the House, it becomes an order of the House. I can't see how a recommendation of a standing committee in an act is a possibility, because what you would need is the approbation of the House as opposed to just the committee.

[Translation]

Ms. Francine Lalonde: All right. I withdraw it, but there is still a problem.

The Vice-Chairman (Mr. Eugène Bellemare): Thank you, Ms. Lalonde.

We are now going to—

Ms. Francine Lalonde: No, no, that's all right. I'll withdraw it.

The Vice-Chairman (Mr. Eugène Bellemare): You withdraw it?

Ms. Francine Lalonde: Because we covered the matter at some other point.

The Vice-Chairman (Mr. Eugène Bellemare): Very well. The amendment is withdrawn.

[English]

Mr. Stan Keyes: The key to me is still clause 14, Mr. Chair.

The Vice-Chairman (Mr. Eugène Bellemare): It is withdrawn.

All right, next amendment.

Mr. Walt Lastewka: Mr. Chairman, this is in relation to clause 14 on page 9.

The Vice-Chairman (Mr. Eugène Bellemare): I believe R-7 is the next item.

Mr. Rahim Jaffer: I move that Bill C-53, in clause 14, be amended by adding after line 3 on page 9 the following:

(3) Before a regulation made under subsection (1) comes into effect, the Minister shall cause a copy of the regulation to be laid before the Standing Committee of the House of Commons on Industry as soon as possible after the regulation is made, and that Committee shall report on the regulation to each House of Parliament on any of the first fifteen days on which that House is sitting after the day on which the Committee's report is prepared.

This particular amendment would allow for more public input by stakeholders, and it's very similar to the motion that was made in 13 just recently with the pilot project, so I don't think it's going to cause any problem for this committee since we supported the last article. As I said, this brings regulations before the committee so witnesses can be called to voice their concerns and improve public input to any changes to regulations that may come to Bill C-53.

The Vice-Chairman (Mr. Eugène Bellemare): I understand this amendment to be in order.

Mr. Stan Keyes: In regard to the Reform motion, Mr. Chairman, as put forward by Mr. Jaffer, he is incorrect in saying this is just like the motion made previously, because he does stipulate in his last three lines that “on any of the first fifteen days on which that House is sitting after the day on which the Committee's report is prepared”, and then he alludes to the fact that the witnesses could be called forward.

The problem, Mr. Jaffer, is what happens if you can't get those witnesses here within the first 15 days because they have commitments to go elsewhere. Therefore, you're limiting yourself to 15 days; your witnesses may not be able to appear for 20 days, so you're putting yourself in a rut there. We understand the intention, but just physically it may limit the committee's ability to call within 15 days if witnesses aren't prepared to come forward.

Mr. Rahim Jaffer: Mr. Chair, that could be changed if so willed by the committee, but I think the principle of this amendment is in line with the previous one in clause 13, and I think it's important that we allow for that public input as much as possible.

• 1020

Mr. Stan Keyes: I think Mr. Jaffer may find that without limiting ourselves to putting a day line on this thing, as he has done, government amendment G-5 will do exactly that, without the need to limit ourselves to a particular day.

An hon. member: I'd like to have a recorded vote on that, Mr. Chairman.

The Vice-Chairman (Mr. Eugène Bellemare): Let's have a recorded vote on this.

The Clerk: This is on the Reform amendment that is labelled number 7.

(Amendment negatived: nays 9; yeas 5)

Mr. Walt Lastewka: Mr. Chairman, if I may, I move that clause 14 of Bill C-53 be amended by adding after line 3 on page 9 the following:

(3) The Minister shall cause a copy of each regulation proposed to be made under subsection (1) to be laid before each House of Parliament before it is made.

That would include the same additional amendment, which is proper—

The Vice-Chairman (Mr. Eugène Bellemare): Mr. Lastewka, are you referring to amendment G-5?

Mr. Walt Lastewka: Yes, sir.

The Vice-Chairman (Mr. Eugène Bellemare): I just want to make sure everyone is on the same page.

Mr. Walt Lastewka: I think it captures the intent of Madame Lalonde's motion and of a number of other people here, because of the importance of this bill to this committee.

The Vice-Chairman (Mr. Eugène Bellemare): Mrs. Barnes.

Mrs. Sue Barnes: Thank you, Mr. Chairperson.

While I agree with the principle of this, I do want to have clarified by the department, the clerk, or somebody around this table that we have not in fact created a procedure where potentially you could have simultaneously in both Houses the regulations or the material going to two different committees that might come up with two different decisions and then there would be no appropriate mechanism to have them come back and be passed by the respective Houses, either the Senate back to the House or the House back to the Senate. We would then be in a situation that would cause a blockage of regulations. I certainly would not want that to occur inadvertently. I would like somebody to reassure me that procedurally what we're doing here is creating an effective mechanism.

It would be more effective to come first before the House, get the changes from the committees, and then move to the Senate for their input. To me, that would be the normal way. It's either coming one way or the other, but to do both simultaneously gives me some concern. I think we're going really fast here, and I just need to be reassured that procedurally we're not creating more problems than solutions.

[Translation]

The Vice-Chairman (Mr. Eugène Bellemare): That's a very good point, Ms. Barnes. I shall ask Mr. Dunlop to have somebody from the department answer that question.

[English]

Mr. Peter Webber: First, Mr. Chair, the procedure laid out in the amendments, as I understand it, provides for the tabling of the regulations before they're made so that committees, if they choose, can comment on them. We would then as a department take those comments and consider what changes need to be made to the regulations.

• 1025

My understanding of the Statutory Instruments Act and the established regulatory process is that this is delegated authority to the minister. There's no formal approval process other than that which is established by the Statutory Instruments Act. So we go through cabinet and the prepublication process. Then this is tabled in the House. We get the comments from the two houses, as we would from other stakeholders during that comment period, and then we would recommend changes to the regulations pursuant to those recommendations. I think that's my understanding of what the process would be.

Mr. Stan Keyes: I'd just like to go further, Mr. Chair.

The Vice-Chairman (Mr. Eugène Bellemare): Yes, Mr. Keyes.

Mr. Stan Keyes: So there is no process or obligation on the minister to receive this as a point of law from a committee, whether it's here or in the Senate.

Mr. Peter Webber: I suspect this is the case legally. In fact, the reality is that certainly members of Parliament, like other stakeholders—

Mr. Stan Keyes: We can make recommendations.

Mr. Peter Webber: —can make recommendations.

Mr. Stan Keyes: I'm just saying that we're not binding the minister to a decision that this committee may reflect on when a regulation is posed to it. Is that correct?

Mr. Peter Webber: That's correct.

Mr. Stan Keyes: Thank you.

[Translation]

The Vice-Chairman (Mr. Eugène Bellemare): Ms. Lalonde had raised her hand.

Ms. Francine Lalonde: I want to make a comment. At previous meetings, we had discussions with the Canadian Bankers Association and the Canadian Restaurant and Food Services Association. They had been assured that they would negotiate with the department. We are in a hurry and we pass a lot of things, but I hear more and more that this committee, at least on paper, wouldn't have much clout with the follow-up of things. It is a source of concern. This is why I agreed with Ms. Barnes. What Mr. Webber has just said is not fully in line with what was said previously. Namely that this committee would take part in the debates which would take place with the bankers and the Canadian Federation of Independent Business.

The Vice-Chairman (Mr. Eugène Bellemare): Have the department officials any comment in reply to Ms. Lalonde's remarks? No?

Ms. Francine Lalonde: Then I understood correctly.

The Vice-Chairman (Mr. Eugène Bellemare): Mr. Keyes.

[English]

Mr. Stan Keyes: Thank you, Mr. Chairman. I think Madame Lalonde may be making a point; however, I think it's an argument for another day. It's on the statutes rather than on this particular amendment on this particular day having to do with this particular proposal that the minister bring these to the committee for our consideration, even though they have no point in law. Madame Lalonde may be making a point, but it's probably an argument for another day if she wants to go to the extent of amending statutes.

[Translation]

The Vice-Chairman (Mr. Eugène Bellemare): Ms. Jennings.

Ms. Marlene Jennings: A study undertaken by this committee on the proposed changes to the regulations would have no legal significance to force the Minister—

[English]

The Vice-Chairman (Mr. Eugène Bellemare): I would not entertain a legal interpretation by committee members. As for a legal interpretation, I would ask that we have higher staff—

[Translation]

Ms. Marlene Jennings: That's what he just said, Mr. Bellemare. Did you listen?

The Vice-Chairman (Mr. Eugène Bellemare): Why do you repeat, Madam?

Ms. Marlene Jennings: That's exactly the answer given by the Industry officials.

The Vice-Chairman (Mr. Eugène Bellemare): There is no need to repeat.

Are we ready for the question?

Ms. Marlene Jennings: I would like to finish, if you please.

The Vice-Chairman (Mr. Eugène Bellemare): Ms. Jennings—

Ms. Marlene Jennings: I am answering the concerns of Ms. Lalonde. Thank you.

Following the legal opinion given by the Industry officials in reply to the question asked on the government side, I should like to answer Ms. Lalonde's concern.

• 1030

As a matter of fact, as they said, there will be no obligation on the Minister as a point of law. However, in view of the fact that the committee will be considering an amendment to the regulations, as a committee we will have the opportunity, if we wish, to meet all the stakeholders who had participated in any negotiation. This is reassuring for me because we will have the opportunity to address these people directly. That is why the amendment as proposed is not a problem for me.

The Vice-Chairman (Mr. Eugène Bellemare): Are we ready for the question?

[English]

We are voting now on G-5, that clause 14 of Bill C-53 be amended by adding after line 3 on page 9 the following

(3) The Minister shall cause a copy of each regulation proposed to be made under subsection (1) to be laid before each House of Parliament before it is made, and that the House shall refer the proposed regulations to the appropriate standing committees of each House.

[Translation]

Ms. Francine Lalonde: I am opposed to it.

[English]

(Amendment agreed to on division)

The Vice-Chairman (Mr. Eugène Bellemare): I understand

[Translation]

that the Bloc Québécois wants to move an amendment, BQ-8. Ms. Lalonde.

Ms. Francine Lalonde: This is an amendment to clause 15, by replacing lines 10 and 11—

The Vice-Chairman (Mr. Eugène Bellemare): You have withdrawn the BQ-7. Have you also withdrawn BQ-8?

Ms. Francine Lalonde: Yes.

The Vice-Chairman (Mr. Eugène Bellemare): Very well.

Ms. Francine Lalonde: I should have written "withdrawn" on it.

The Vice-Chairman (Mr. Eugène Bellemare): It's withdrawn.

Ms. Francine Lalonde: And I withdraw the other one also.

[English]

(Clause 14 as amended agreed to on division)

(On clause 15—Minister's powers)

The Vice-Chairman (Mr. Eugène Bellemare): We're now at G-6. Mr. Lastewka.

Mr. Walt Lastewka: G-6 is on page 9:

15(1) The Minister may, after giving at least twenty-one days notice

This is an item that was discussed under the preamble by the department.

The Vice-Chairman (Mr. Eugène Bellemare): Are there any questions?

(Amendment agreed to on division)

The Vice-Chairman (Mr. Eugène Bellemare): Mr. Lastewka, G-7.

Mr. Walt Lastewka: Mr. Chairman, again this is on clause 15. This is an item we discussed earlier under subclause 15(2), the documents, records, and books—

The Vice-Chairman (Mr. Eugène Bellemare): Mr. Lastewka, I believe we should be doing an amendment by the Bloc, BQ-9, or has that been withdrawn?

Madame Clerk?

The Clerk: Yes, that's right.

The Vice-Chairman (Mr. Eugène Bellemare): Fine. The clerk agrees BQ-9 has been withdrawn.

Now we're back to G-7. Mr. Lastewka.

• 1035

Mr. Walt Lastewka: It's housekeeping.

The Vice-Chairman (Mr. Eugene Bellemare): G-7 is housekeeping.

(Amendment agreed to)

The Vice-Chairman (Mr. Eugene Bellemare): Does clause 15 carry?

Mr. Stan Keyes: No. We're on G-8.

The Vice-Chairman (Mr. Eugene Bellemare): Mr. Lastewka, G-8.

Mr. Walt Lastewka: Again, this is an item we discussed earlier with the department. It's to amend clause 15 by replacing line 30 on page 9 with the following:

of the audit or examination. Without the permission of the lender, the authorized person shall not remove the documentation or copies from the relevant sites.

The Vice-Chairman (Mr. Eugene Bellemare): Mrs. Barnes.

Mrs. Sue Barnes: That does not apply to being able to look at the documents on-site, though.

Some hon. members: No.

Mrs. Sue Barnes: That's clear. Thank you.

(Amendment agreed to)

Mr. Walt Lastewka: Amendment G-9 amends clause 15 by replacing lines 31 to 34 on page 9 with the following:

(4) The Minister shall provide the lender with a copy of the report of the audit or examination within twenty-one days after the report is completed.

(5) If a lender refuses or intentionally fails to comply with any requirement of this section, the Minister

The Vice-Chairman (Mr. Eugene Bellemare): Are you ready for the question?

[Translation]

Just a minute, please. Ms. Lalonde.

Ms. Francine Lalonde: Questions were raised earlier. It was said that by adding the word intentionally it would give a greater latitude on one side, but that on the other hand, it would be quite difficult to prove. It's like adding nothing because that would mean a lawsuit and when it comes to banks, before we can prove that they have intentionally done this or that—

Mr. Antoine Dubé: You would need a lie detector.

Ms. Francine Lalonde: Perhaps that might be reassuring to you, but personally I find very little reassurance.

The Vice-Chairman (Mr. Eugène Bellemare): Have the department officials any comments?

Mr. Croteau.

Mr. Serge Croteau: I think that you have to look at the context. We are dealing with an audit. If we were to send a series of letters to a lender asking him to get set for an audit and if he repeatedly ignored our request, I think that we could almost prove that it is intentional, that he doesn't want any audit.

Ms. Francine Lalonde: Why don't we insert the word "repeatedly" instead of using the adverb "intentionally"?

Mr. Serge Croteau: This becomes a legal matter.

Ms. Lenore Scanlon: This is a matter of legal interpretation. Can a series of acts such as those, over all, constitute a proof of intent? It all depends on the facts, of course, and you're absolutely right: it is more difficult than what we had previously. It is a matter of proof. The facts mentioned in the example can, in appropriate circumstances, constitute a proof of intent. But it is more difficult, of course.

Ms. Francine Lalonde: If you had written "refuse repeatedly", this would have given you the evidence you need and you wouldn't have had to prove intent.

I'm concerned because you did mention in several instances, which was the reason for postponing the clause-by-clause consideration of the bill, problems of corruption and abuse. I know that we fear these words, but in certain cases, it could be that. However, this bill concerns persons and groups other than the banks. Is it not contradictory to make the evidence more difficult to obtain while saying that we want to stop abuses? The evidence will come from the audit.

• 1040

Mr. Serge Croteau: First, there was mention of abuses, but I don't think that it was said that these abuses generally came from the lenders. They mostly come from the borrowers. Second, the ensuing penalty in case of non-compliance with an audit request will be so great that I don't believe that we'll have any great difficulties convincing lenders to agree to these audits when necessary.

Ms. Francine Lalonde: That would still be logical.

The Vice-Chairman (Mr. Eugène Bellemare): Thank you, Mr. Croteau. Mr. Lastewka.

[English]

Mr. Walt Lastewka: Mr. Chairman and fellow colleagues, with the discussions we've had with many of the stakeholders—not just the banks because I know the department is consulting on a wide basis—there's a spirit of desire to remove any abuses. The objective here was to put in the word “intentionally” to mean that—intentionally.

The spirit of the group is to find a way to stop any abuses. This committee at any time can ask the department to report on the progress of this section. I think it's important for us to do that from time to time because there are abuses in the system we're trying to remove for the good of all—lenders and borrowers and the department. I think it would be best if we go along with this clause in that manner.

(Amendment agreed to on division)

(Clause 15 as amended agreed to on division)

(Clauses 16 to 22 inclusive agreed to)

[Translation]

Ms. Francine Lalonde: There is something I forgot to look at.

The Vice-Chairman (Mr. Eugène Bellemare): Ms. Lalonde, do you have mental reservations?

Ms. Francine Lalonde: Exactly.

The Vice-Chairman (Mr. Eugène Bellemare): We're going to go now to clause 1.

(Clause 1 agreed to on division)

The Vice-Chairman (Mr. Eugène Bellemare): Is the title agreed to?

Some Hon. Members: Carried.

Ms. Francine Lalonde: On division.

The Vice-Chairman (Mr. Eugène Bellemare): Is the bill agreed to?

Some Hon. Members: Carried.

Ms. Francine Lalonde: On division.

[English]

The Vice-Chairman (Mr. Eugène Bellemare): Shall I report the bill to the House?

Some hon. members: Agreed.

The Vice-Chairman (Mr. Eugène Bellemare): Shall the committee order a reprint for use at report stage?

Some hon. members: Agreed.

The Vice-Chairman (Mr. Eugène Bellemare): I now declare the meeting adjourned. You can take a week off.