INST Committee Meeting

STANDING COMMITTEE ON INDUSTRY, SCIENCE AND TECHNOLOGY

COMITÉ PERMANENT DE L'INDUSTRIE, DES SCIENCES ET DE LA TECHNOLOGIE

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, May 31, 2001

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[English]

The Chair (Mrs. Susan Whelan (Essex, Lib.)): I now call the meeting to order on Bill S-11, an act to amend the Canada Business Corporations Act and the Canada Cooperatives Act and to amend other acts.

We're very pleased to have with us today several witnesses. From the Department of Industry we have Mr. Lee Gill, director, corporate law policy; Ms. Veronica Wessels, senior project leader; Mr. Irving Miller, legal counsel from the Department of Justice; Mr. Wayne Lennon, senior policy analyst; and Mr. Bob Weist, director of compliance, corporations directorate. I see officials are also here from the Department of Transport. They are not at the table, but if we want them, they're here: Ms. Valérie Dufour, director general, air policy; and Mr. Jacques Pigeon, senior general counsel, legal services.

We will begin with the presentation. I understand that Mr. Gill is going to start the presentation. We'll turn it over to you, and then we'll move to questions.

Mr. Lee Gill (Director, Corporate Law Policy, Department of Industry): Madam Chair, committee members, thank you for inviting me to provide you with an overview of Bill S-11, an act to amend the Canada Business Corporations Act and the Canada Cooperatives Act and to amend other acts.

The proposals in this bill will improve the rights of shareholders of Canadian corporations, improve the ability of Canadian corporations to compete, and reduce costs for Canadian businesses. The Canada Business Corporations Act, which I will refer to as the CBCA, sets out the legal and regulatory framework for the governance of more than 158,000 businesses in Canada, including almost half the largest corporations.

The Canada Cooperatives Act sets out the framework for federally regulated cooperatives. Updating these acts will allow Canadian corporations to be more responsive to new technologies and the realities of a fast-changing marketplace.

The amendments in Bill S-11 update and modernize four core elements of the CBCA and the Canada Cooperatives Act. First, the bill will help eliminate barriers to competitiveness, so Canadian corporations and cooperatives can become effective global players. Second, the bill will expand the rights of shareholders. Third, the proposed amendments will more reasonably define the liabilities of directors, officers, and advisers. Fourth, the bill will eliminate unnecessary overlap and duplication with other laws, particularly with provincial securities statutes.

[Translation]

The bill will help eliminate a number of barriers to competitiveness for Canadian corporations and co-operatives. Canada is unique among the G-7 in that its federal corporate law maintains a residency requirement for board and committee membership. Even within Canada, four of the provinces and the three territories impose no residency requirements for businesses incorporated under their laws.

To provide flexibility for Canadian corporations, Bill S-11 proposes to reduce the number of board members who must be resident Canadians from a majority to 25 per cent. The bill also proposes to eliminate the residency requirement for committees of the board.

The allowable reduction concerning board members will not apply where federal legislation or policy impose ownership restrictions. In such cases, the current majority requirement will continue to be imposed.

A second issue, with respect to the competitiveness of Canadian corporations concerns the liability faced by directors.

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Legal defence provisions under current legislation inhibit appropriate risk-taking by only allowing a defence for directors if they have relied on reports prepared by a professional. This is a problem. Directors are often faced with decisions where they must act without such reports, where they must exercise discretion and rely on their personal skills, experience and judgment.

To provide for a reasonable defence in such circumstances, the bill provides a due-diligence defence. This defence will allow directors to defend themselves in a court action if they have exercised the care, diligence and skill that a reasonably prudent person would have exercised in comparable circumstances.

Bill S-11 will allow corporations to advance defence costs to directors for all types of legal proceedings. Of course, a director would be required to reimburse the corporation for these defence costs if he or she is ultimately found to be at fault.

A further proposed amendment would allow foreign subsidiaries of Canadian corporations to acquire, in limited circumstances, shares in their parent corporations for the purpose of merging with or acquiring a foreign target. The amendment will allow Canadian corporations to undertake such transactions in a more direct, cost- effective manner, thereby allowing them to compete more efficiently on a global scale.

[English]

The second core issue included in this bill involves shareholder rights. These provisions will significantly improve the ability of shareholders to monitor and influence corporate performance. Under existing rules, certain communications among shareholders are not allowed, are severely limited, or entail substantial financial costs by forcing shareholders to mail formal proxy requests to all shareholders.

The bill and its accompanying regulations will expressly permit shareholders to freely discuss matters related to corporate activities or performance among themselves, as long as they are not soliciting proxies. At the same time, the proxy rules will be liberalized so the shareholders will be allowed to solicit proxies by public means, including a speech or broadcast, through a newspaper advertisement, or over the Internet. This will allow shareholders and the representatives a greater level of participation in corporate decision-making, and will improve their surveillance over corporations.

Next I would like to highlight some of the proposed improvements to the shareholder proposal rules. It is broadly agreed in the investment community that shareholder proposals can be a vital way of monitoring corporate performance and influencing corporate behaviour.

The current rules only allow shareholders, whose names are registered with the corporation, to make proposals. But in today's world, most shareholders have chosen to allow intermediaries, such as brokers or trust companies, to hold the shares on their behalf. These intermediaries are the registered shareholders, and they are the only ones who can submit shareholder proposals under the current act.

Amendments in Bill S-11 will change this. They will allow shareholders, including beneficial shareholders who are not registered with the corporation, to submit proposals. In addition, the bill will remove an obstacle to shareholders having their proposals circulated by the corporation. The CBCA currently allows corporations to reject a shareholder proposal if its primary purpose is to promote general economic, political, racial, religious, social, or similar causes. Bill S-11 will remove these general causes for rejection.

As proposed in Bill S-11, a corporation will only be able to reject a proposal if it does not relate in a significant way to its business or affairs, and the burden of proof for rejecting a proposal is on the corporation.

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Another important feature of Bill S-11 is that it will permit corporations, cooperatives, shareholders, and co-operative members to use new and emerging technologies for their communications. This initiative is eagerly anticipated by the Canadian business community.

The joint committee on corporate governance, for example, established by the Canadian Institute of Chartered Accountants, the Canadian Venture Exchange, and the Toronto Stock Exchange, recommended in a March draft report the expeditious passage of these measures. Indeed, they recommended the provinces use changes proposed for the CBCA as a model for updating provincial legislation.

[Translation]

With respect to the third core element of the bill, that of responsibility and efficiency, clear accountability is a cornerstone of sound corporate governance.

The inclusion of a modified proportionate liability regime into the CBCA and the Canada Cooperatives Act is a major development. Currently, persons involved in preparing financial information face joint and several liability for claims arising from financial losses. The effective joint and several liability is to encourage plaintiffs to target defendants with deep pockets, regardless of their degree of fault. This could have adverse implications for the financial reporting system and for capital markets generally.

The proposed modified proportionate liability regime is based on the principle that liability should be proportional to the degree of fault. Included in this principle is a mechanism for allocating liability in the event of the insolvency of one or more of the defendants.

This regime allows a fairer allocation of responsibility, offering some protection to defendants who may only be marginally responsible for a plaintiff's losses. At the same time, certain categories of plaintiffs, including small investors, charitable organizations and unsecured creditors, would retain access to joint and several liability.

Finally, Madam Chair, the repeal of certain provisions will increase efficiency and reduce the costs of compliance. Specifically affected are provisions for insider reporting, takeover bids, and financial assistance.

[English]

Before I conclude my remarks, there's one final element I would like to bring to the attention of the committee members.

During clause-by-clause examination of this bill, the government will be asking this committee to consider removing clauses 235 to 238, which repeal the definition of “associate” in the Air Canada Public Participation Act, the CN Commercialization Act, the Nordion and Theratronics Divestiture Authorization Act, and the Canada Development Corporation Reorganization Act.

Some concern has been expressed that implementation of the clauses in question could circumvent the ownership restrictions found in the public participation acts governing such corporations as Air Canada and the Canadian National Railway Company. This could be seen as a departure from Parliament's intent, as expressed in those public participation acts. These clauses were not government amendments, but they were introduced during the clause-by-clause examination of the bill by the Standing Senate Committee on Banking, Trade and Commerce.

Committee members should be aware that there have been no public consultations on this issue; indeed, we have been advised that such a change would be outside the scope of the present bill.

Before any legislative changes in this area would be considered, policy analysis, including widespread consultations, would have to be undertaken. For the benefit of the members of this committee, I would like to take this opportunity to provide some background information on this issue.

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Bill S-11 expands the rights of shareholders to communicate among themselves, without triggering a requirement to send a formal proxy to all shareholders. The purpose behind expanding these shareholder rights is to enhance the ability of shareholders to influence and improve corporate decision-making. The amendments to Bill S-11 would have the effect of allowing shareholders to act, in concert, to promote their interests, with respect to the corporations in which they have invested.

There is an argument to be made that the definition of associate in the public participation acts that govern Air Canada and other corporations may preclude shareholders of these corporations from benefiting from the more liberalized shareholder rights regime proposed under Bill S-11. If the definition of associate in these public participation acts is repealed, the less restrictive definition of associate found in the CBCA would then apply to the corporations covered by the amendments.

Committee members should be aware, however, that the definition of associate in the public participation acts is intricately related to the ownership restrictions in those acts.

In the case of the Air Canada Act, for example, no person, including an associate of that person, can hold more than 15% of the voting shares of the corporation. The term “associate” is defined to include

parties to an agreement or arrangement, a purpose of which is to require them to act in concern with respect to their interests, direct or indirect, in the corporation.

If the current definition of associate is removed from the Air Canada Act, two or three significant shareholders, each owning less than 15% of the voting securities of the corporation, could arrange to vote their securities so as to effectively control the corporation. Removal of these clauses would maintain the status quo; it would ensure that no individual or small group of individuals could take effective control of these transportation services.

This is an issue of particular interest to Transport Canada. Should committee members wish, I believe the officials from the department are present to explain their specific objections to the clauses.

Allow me to conclude by saying this bill dramatically improves the regulatory framework that will allow Canadian firms to aggressively pursue all marketplace opportunities. It will facilitate the participation of shareholders. It will better position companies to exploit their competitive advantages. It will clarify responsibility and accountability, and improve efficiency.

The modernization of the existing legislation is an essential foundation for investment, innovation, trade, and economic growth in the knowledge-based economy.

This concludes my presentation. I will be pleased to take your questions. Thank you.

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

I will start with questions. Mr. Brien is first.

[Translation]

Mr. Pierre Brien (Témiscamingue, BQ): I would like to ask a question, and then I will turn the floor over to my colleague, Mr. Tremblay.

Clause 115 of the bill contains provisions about the joint liability of individuals involved in producing financial information. The Quebec Civil Code contains some provisions on the same subject. I would like to know which regime will apply if the provisions in the Civil Code deal with exactly the same matter.

Mr. Irving Miller (Legal Advisor, Department of Justice, Department of Industry): In the case of financial information and action based on this information, this bill will apply even though there is another rule in the Civil Code, because this is a specific case of federal co-operation. The federal legislation takes precedence.

Mr. Pierre Brien: If I understand correctly, the part of the Quebec Civil Code relating to clause 115 will become—

Mr. Irving Miller: But only in the case of situations set out in this legislation, not for other matters.

Mr. Pierre Brien: But at the moment, the situations described in the bill are covered by the Civil Code.

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Mr. Irving Miller: At the moment, yes. Several liability applies in all situations at the moment. However, once this legislation is in force, this will change for federal corporations in the situations described in this bill.

Mr. Pierre Brien: By what authority can the federal government take control of this jurisdiction?

Mr. Irving Miller: This is a constitutional matter. Our constitutional lawyers state that the federal legislation takes priority, because we are talking about federal corporations, and this is true even if there is an intrusion into provincial legislation, not only in Quebec, but in the other provinces. This legislation takes priority.

Mr. Pierre Brien: I see.

The Chair: Thank you, Mr. Brien.

Mr. Tremblay.

Mr. Stéphan Tremblay (Lac-Saint-Jean—Saguenay, BQ): Thank you.

My question is about clause 59 of the bill, which is section 137 of the current act.

First of all, I think it is a good thing to give shareholders the option of presenting proposals, on environmental, social, religious or other grounds. I think that is a very interesting feature.

However, what concerns me is that the act leaves far too many issues to be dealt with by regulation. We see that the prescribed duration and the prescribed number of days are set out in the regulations. Clause 59 contains a great many regulations, and I would like to see a mention of the number of months and the number of days. I would be able to tell you exactly what I would like to see.

My first question is as follows. When, how and by whom will these regulatory decisions be made? If I do not get an answer to this question, it will seem to me that I am signing a blank cheque if I vote for this bill.

My second question is about the dispute settlement mechanism. If a corporation does not agree with a proposal, because it feels it is not directly linked to the business of the corporation, and if the shareholder, that is, the person making the proposal, claims the opposite, how will the dispute be settled?

[English]

Mr. Lee Gill: Let me turn over the first part of the question, on the regulations, to Bob Weist.

Mr. Bob Weist (Director of Compliance, Corporations Directorate, Department of Industry): In terms of the regulations, one of the things we were told in consultations was that the more we delegate to the regulations, the better, in the sense that corporations need the flexibility that the regulatory process can bring them.

But in answer to your question—how the regulatory decisions are made, and by whom—those decisions are going to go through the federal regulatory process. The federal regulatory policy requires that we...as to how we conduct regulations. The policy requires us to conduct extensive regulations that we have to report in terms of the regulatory impact analysis statement. That then goes to the Privy Council Office, to the Special Committee of Council, which then publishes it in Canada Gazette for 30 days—60 days right now, but in the proposed act it would be 30 days. Once the comments are received from that, the package is put up once again for the Special Committee of Council to consider, in which case it's then published in Canada Gazette, Part II. Of course, then there's also the Standing Committee on the Scrutiny of Regulations.

So I do think quite a number of protections are built into the regulatory process.

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[Translation]

Mr. Stéphan Tremblay: I see.

I would like to ask a supplementary question. Will it be possible to challenge a decision whereby, for example, the person making the proposal must have been a shareholder for 10 years—which would make no sense—or that he or she must have owned at least $2,000 worth of shares or 1% of the shares of the corporation? Can you assure us, as parliamentarians and individuals interested in this bill, that we will be able to challenge the drafting of the regulations or express our opinions about it?

[English]

Mr. Bob Weist: There is ample consultation provided for in the federal regulatory policy, yes.

[Translation]

Mr. Stéphan Tremblay: Great.

[English]

Mr. Lee Gill: With respect to that first question, let me add that the proposed regulations are now up on the Industry Canada website. The consultations have already started, then, in a sense.

With respect to the latter part of your question, concerning the process by which shareholder proposals would be considered in the mechanism, right now what we have proposed in the bill is that the shareholder would have to make a complaint. The court considers that, and the onus is on the corporation to justify not having taken into account the proposal. The cost is also imposed, in that sense, on the corporation primarily.

With respect to alternative mechanisms, during the past 15 years our studies have shown that there have been only about 10 actions in this area, which is not a large number, certainly not enough to justify setting up a government-type review agency given the costs that would be involved. Other considerations have been proposed along the way. We have undertaken a study, and we're in the process of undertaking a study, to see whether alternative dispute resolution mechanisms might be feasible and useful. Those studies have not been completed. Given the small number we have incurred in Canada at this point in time, it's hard to say what the costs and the benefits of each type of mechanism might be.

In the future, though, certainly during the next review period in five years, those studies will be completed and there will be time for the parties, including the government, to discuss the various elements, if appropriate, of that type of mechanism.

[Translation]

Mr. Stéphan Tremblay: Very well. My first question is this. Can you confirm that court costs will be paid by the corporation?

My second question: we would like to suggest a simpler settlement mechanism than that used in the United States. As you know, the US has the SEC, a mechanism that has proven its worth, after all. Do we still have the opportunity to put forward a low- cost but effective dispute settlement formula, or once this bill is through will we have to go before the courts to settle disputes?

[English]

Mr. Lee Gill: Well, right now it is not clear that it is efficient for the government to do this, given the number. Under the bill you would have to go through the courts.

Perhaps I can turn this over to Daniel Picotte.

[Translation]

Mr. Daniel Picotte (Legal Counsel, Fasken Martineau DuMoulin): Under the current regulations, subsection 137(8) clearly stipulates that the parties must go before the court. I presume that, when they do so, the court can render any decision, including a decision on court costs, as it usually does. The court's decision will therefore depend on its assessment of the claims received before it. That is the usual process.

Mr. Stéphan Tremblay: Agreed. I have gone through this with a number of stakeholders in Canada who are very familiar with it, and who plan to show lobby shareholders more actively. At present, there is a dispute settlement mechanism that people seem to agree on. I would like to suggest it at some point, if I still can.

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[English]

The Chair: Is there any response?

Mr. Lee Gill: We would certainly accept any proposal. We would examine it. It's part of the process over the next while to consider this and examine the options. When the study we've contracted out comes in, we will make that available to the parties also.

[Translation]

The Chair: Thank you, Mr. Tremblay.

Mr. Drouin.

Mr. Claude Drouin (Beauce, Lib.): I just have one question, Madam Chair.

My question is for Mr. Gill and Industry Canada officials. I would like some clarification on the modified proportionate liability regime, which is based on the principle that liability should be proportional to the degree of fault. As you said in your presentation, the proposal contains a mechanism for allocating liability in the event of the insolvency of one or more of the defendants.

Can you provide more details on that mechanism? How will it work? I would like to know more about how the system would enable liability to be apportioned more fairly.

[English]

Mr. Lee Gill: Right now, with the proposed mechanism, the fault would be apportioned among the various parties by the court. Instead of the person against whom the harm has been done being able to go after an individual defendant, that defendant being found wholly responsible, and then having to try to go after the other parties to capture their part of the fault, when the action was taken before the court the first time, the court would apportion the fault among the defendants.

If all defendants were available, and none of the defendants was bankrupt, then all of the money would be paid back out. If I were 20% at fault I would pay 20%, and so on. If someone were not available—they were bankrupt and you couldn't go after that individual, the fault would be apportioned out according to the proportion of the responsibility of each defendant.

For example, if there were three of us, each of us was responsible for 33%, and one defendant was not available—assume that was myself, the other parties would have to pay my 33% and 33% of the other party—of the one that wasn't available.

Mr. Claude Drouin: You would split it between the two other parties.

Mr. Lee Gill: Their portion would be split according to their fault. So one-third would not be apportioned, and would go back to being a loss, if you like, to the other party.

Mr. Claude Drouin: Thank you, Madam Chair.

The Chair: Thank you, Mr. Drouin.

Madam Desjarlais, please. No questions? Mr. Tremblay, do you have any other questions? No.

Monsieur Brien.

[Translation]

Mr. Pierre Brien: You said that you have a legal opinion on the fact that the federal statute would override others. Can you share that opinion with committee members?

Mr. Irving Miller: I would have to discuss that with my superiors. However, Justice department opinions are generally provided to the government of Canada by committee members. I believe that is the policy.

Mr. Pierre Brien: So if the committee wants a legal opinion, it should not turn to the Department of Justice to request it?

Mr. Irving Miller: I can ask my colleague to join me to discuss this with you, if you wish.

Mr. Pierre Brien: I do not think that our schedule has any room for new witnesses. I'm talking specifically about this section, not about the rest. I'm talking about section 115 of the current statute, which refers to... Here, I have the Civil Code provisions. There seems to be potential for a legal debate on whether primacy of the federal statute is in fact constitutional. I may be wrong, but even if everyone agrees, the meaning is the same. Regarding the constitutional aspect, I think that primacy of the federal legislation, as you state, is in fact debatable.

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Do you consider this contentious? If it seems clear to you, do you believe that the government of Quebec would agree with your point of you?

Mr. Irving Miller: There is always a chance that someone will challenge this. As you know, when it comes to constitutionality, nothing is guaranteed.

Mr. Pierre Brien: We know that very well indeed.

Mr. Irving Miller: We are assured that the government of Canada's position is strong. I don't think I can share that opinion with you, but if I may, I will put the request to my superiors.

Mr. Pierre Brien: Please do.

[English]

The Chair: Thank you.

I'm wondering if you could take us through clauses 235 to 238 and why those were suggested. I don't really understand, if there was not discussion or witnesses, how they got into the act at the Senate.

Mr. Lee Gill: Clauses 235 to 238 were introduced in the Senate committee by Senator Kirby. As I mentioned in my presentation, some of the things that were allowed under the CBCA in terms of allowing shareholders to communicate between themselves in order to influence and improve corporate decision-making in this country might not have been applicable to corporations that were under some of the public participation acts, such as Air Canada. My understanding is that this was introduced to potentially resolve that problem.

The Chair: Now we're going to take it out because...?

Mr. Lee Gill: Because we have had the information from the Department of Transport, in particular, that they're not satisfied with that. Although it will perhaps have a corporate governance impact, it does impact the intentions of public participation acts in respect to some of their ownership restrictions and the intent behind those restrictions.

The Department of Transport officials are here. I would welcome them to come up, if you would like.

The Chair: If you think they have more to add, they can join us.

From my position, I'm just trying to clarify that before the amendments were introduced in the Senate, were there no discussions with Transport Canada on those amendments?

Ms. Valérie Dufour (Director General, Air Policy, Department of Transport): There were no discussions, Madam Chair. There were notes prepared to indicate that we did not favour what we heard was being proposed. And I think the Department of Industry officials have put a government position on the table.

These are substantive changes that have not been the subject of cabinet debate, and we feel it's inappropriate that they be introduced this way. They require and merit further consideration before they would advance. And we would not be supporting them for the reasons already described. Our definitions of “associate” are clearly related to the ownership restrictions. And the purposes of the “associate” definition in the new business corporations amendments are not there for the same purpose at all.

The Chair: So you did make this known to the Senate before they passed them?

Ms. Valérie Dufour: We had no such opportunity, Madam Chair.

The Chair: Okay. I misunderstood. I thought you said that there were notes that said—

Ms. Valérie Dufour: No. We informed our minister that we were aware they were there, but there were no witnesses...no call, no discussion.

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The Chair: Earlier we were talking about removing things from the legislation and putting them into the regulations. There was a suggestion, from Mr. Weist perhaps, that this would speed things up or provide more flexibility. Is that what I heard, or am I misunderstanding something?

Mr. Bob Weist: During our consultations, the Coalition for CBCA Reform, which is ten of our largest corporations in the country, told us that to the extent we could remain within the statute itself, they wanted to see more go into the regulations. This would enable a more flexible regime in the sense that we have not been before you on substantive parliamentary reform of the legislation, basically, since 1975. A lot of times changes in the corporate world need to happen a lot faster than our ability to get before Parliament to make the changes...but still remaining within the context of the statute was what I was trying to say.

The Chair: I'm just having a little difficulty with that, because I think the parliamentary process is very important. This committee in the past hasn't been very accepting of removing things and putting them into the regulations, unless there was some process in the legislation. Perhaps you can clarify this for me, because I haven't read it in complete detail. Would the regulations be referred back to a parliamentary committee?

Mr. Bob Weist: I'm not sure I understand the last part of the question.

The Chair: Some legislation contains a clause whereby if regulations are then possibly referred to parliamentary committees for a 30-day time period—not a substantially long time period, not 26 years—then at least parliamentarians have some input, especially when policy is put into the regulations. Is that part of this bill? There's no clause like that right now.

Mr. Lee Gill: There is no clause like that right now. We have not attempted to put policy into the regulations.

The Chair: If I heard correctly, we're removing things in the legislation that I would consider to be policy, and putting them into the regulations. That's what I'm asking, and I was trying to clarify that earlier. I heard there haven't been any substantive changes because in 26 years no one has had the time to come before Parliament. I think that's what I heard.

Mr. Lee Gill: Some of the numbers have been put into the regulations in this bill—time periods, certain fines, these sorts of things—so that those can be changed appropriately over time. We particularly tried to make sure the policy intent of the bill has not been put into the regulations.

The Chair: Okay. That was my question, and that's my clarification.

I have no further questions. I don't know if anyone else has any questions.

[Translation]

Mr. Drouin.

Mr. Claude Drouin: Thank you, Madam Chair.

I would like some clarification on comments by Ms. Dufour. What problems would this cause? Is there something else that should be done? I don't quite understand. I'm not familiar with the issue, because I'm not a permanent member of the committee. However, I would like to clearly understand what problems this would cause for Transport Canada.

Ms. Valérie Dufour: Mr. Pigeon might be able to add something to this, but basically, when we worked on Bill C-26 with the other committee, we increased the maximum percentage of shares that could be held by a single individual from 10% to 15%, but retained the prohibition on association among shareholders. As explained by Mr. Gill in his presentation, shareholders could get together during a meeting or when preparing for a meeting, and could through a collective vote essentially take control of the corporation. The government has no intention of letting that happen to such public corporations as CN and Air Canada. The purpose of the change was to maintain broad dispersion of shares, not to have legislation that encourages block voting in a manner that could change the way in which the corporation is controlled.

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Jacques may have something to add...

Mr. Jacques E. Pigeon (Senior General Counsel, Legal Services, Transport Canada): The only thing I would add is that the limit stipulated in the Air Canada Act applies not only to a shareholder but to a group of shareholders acting as partners within the purposes of the act. The 15% threshold Parliament established in June applies not only to shares held by a given individual, but also to shares held by groups of individuals considered as associates under the act.

Removing the special definition of “associate” contained in the act would have a specific legal impact: the word “associate” would henceforth have the same definition as it does in the Canada Business Corporations Act, yet the CBCA provides a different definition of “associate”. The definition is different because the term exists for different purposes in the CBCA. That is why we believe the definition should remain. In June, when Parliament set the 15% threshold, it took into account the fact that the threshold was calculated on the basis of the definition contained in the act at the time, a definition that was not changed. Thus, we consider that this constituted a new affirmation in June by Parliament—by the House of Commons—of the individual property restrictions stipulated in the act.

Mr. Claude Drouin: Thank you.

Mr. Gill, I would like to check something you said in your presentation. I'm having trouble understanding your notes. I might have misinterpreted what you said, but I thought that this bill did not amend the legislation of other departments, that legislation from other departments would have primacy. Did I misunderstand you? If I did, it would mean that the provisions put forward by Transport Canada and passed by the government would remain. Did I in fact misunderstand you? In your presentation, I thought I heard you say that any pre-existing legislation originating with another department would prevail. Is that indeed the case?

[English]

Mr. Lee Gill: I don't think I made any mention of that in my speech. Mr. Miller was referring to specifics of the application of particular law, and that was in relation to the Government of Canada and Quebec, federal law and provincial, I believe. Federal law would typically override the provincial law in terms of the application, but I don't....

Mr. Jacques Pigeon: Perhaps I can add that in the Air Canada Public Participation Act and also the CN Commercialization Act, which are the two acts I have with me right now, there is an override provision that says:

In the event of inconsistency between this Act

—which is the special act—

and the Canada Business Corporations Act, or anything issued...or established under that Act, this Act prevails to the extent of the inconsistency.

Mr. Lee Gill: And how would it apply right now? If you're incorporated under the Canada Business Corporations Act, as Air Canada is, in that case the Air Canada Public Participation Act, as it relates to Air Canada, would override the Canada Business Corporations Act for the definition of associate to the extent that this definition is found in the Air Canada Public Participation Act—if I'm not misquoting the title. So that's how it would look right now.

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In order for the CBCA definition of associate to apply, you'd have to delete the definition of associate in the Air Canada Public Participation Act.

Ms. Valerie Dufour: Which is what we don't want to do.

Mr. Lee Gill: Which is what they don't want to do.

Ms. Valerie Dufour: That's right.

The Chair: And that's what the amendments do?

Ms. Valerie Dufour: That's what the amendments do, yes.

The Chair: Just to clarify for those who weren't here from the beginning, when the bill went through clause-by-clause in the Senate, there were several amendments put through to clauses 235 to 238 that would actually affect the Air Canada Public Participation Act, known as the Air Canada act, and we are going to be asked to remove those amendments.

There was no testimony. There were no witnesses. It just happened the day of clause-by-clause, or that's the best we can determine here today.

Geoff, who's the researcher, was also the researcher for the Senate committee, so that's a fact.

Do you have any questions, Monsieur Brien?

Mr. Pierre Brien: No.

The Chair: Mr. Lastewka, any questions?

Mr. Walt Lastewka (St. Catharines, Lib.): No.

The Chair: We don't have any more questions today. We may have more questions after our witnesses next Tuesday, so we will invite you back before we go to clause-by-clause. We thank you for the large binder of information we have to read and for the very detailed briefing today.

Mr. Lee Gill: Thank you very much, Madam Chair, and thank you to the committee members.

The Chair: The meeting is adjourned.