MINISTRY OF CONSUMER AND COMMERCIAL RELATIONS
INSTITUTE OF CHARTERED ACCOUNTANTS OF ONTARIO
CERTIFIED GENERAL ACCOUNTANTS ASSOCIATION OF ONTARIO
DELOITTE AND
TOUCHE
BDO DUNWOODY
WELCH AND COMPANY
CONTENTS
Tuesday 12 May 1998
Partnerships Statute Law Amendment Act, 1998, Bill 6, Mr Tsubouchi /
Loi de 1998 modifiant des lois en ce qui concerne les sociétés en nom collectif,
projet de loi 6, M. Tsubouchi
Ministry of Consumer and Commercial Relations
Mr Allen Doppelt
Institute of Chartered Accountants of Ontario
Mr Dave Wilson
Certified General Accountants Association of Ontario
Mr Ralph Palumbo
Mr Gordon Fuller
Deloitte and Touche; BDO Dunwoody; Welch and Company
Mr Don Craig
Mr Tom Ambeault
Mrs Eleanor Guenette
STANDING COMMITTEE ON ADMINISTRATION OF JUSTICE
Chair / Président
Mr Jerry J. Ouellette (Oshawa PC)
Vice-Chair / Vice-Président
Mr E.J. Douglas Rollins (Quinte PC)
Mr Dave Boushy (Sarnia PC)
Mr Bruce Crozier (Essex South / -Sud L)
Mr Peter Kormos (Welland-Thorold ND)
Mr Gerry Martiniuk (Cambridge PC)
Mr Jerry J. Ouellette (Oshawa PC)
Mr David Ramsay (Timiskaming L)
Mr E.J. Douglas Rollins (Quinte PC)
Mr R. Gary Stewart (Peterborough PC)
Mr Bob Wood (London South / -Sud PC)
Substitutions / Membres remplaçants
Mr Mike Colle (Oakwood L)
Mr Harry Danford (Hastings-Peterborough PC)
Mr Tony Martin (Sault Ste Marie ND)
Mrs Lillian Ross (Hamilton West / -Ouest PC)
Clerk / Greffier
Mr Douglas Arnott
Staff / Personnel
Mr Avrum Fenson, research officer, Legislative Research Service
Mr Michael Wood, legislative counsel
The committee met at 1533 in committee room 1.
PARTNERSHIPS STATUTE LAW AMENDMENT ACT, 1998 LOI DE 1998 MODIFIANT DES LOIS EN CE QUI CONCERNE LES SOCIÉTÉS EN NOM COLLECTIF
Consideration of Bill 6, An Act to amend the law with respect to Partnerships / Projet de loi 6, Loi visant à modifier des lois en ce qui concerne les sociétés en nom collectif.
The Chair (Mr Jerry J. Ouellette): Good afternoon, everyone, and welcome to the standing committee on administration of justice. I thank everybody for taking the time to be here this afternoon to discuss Bill 6.
The first matter to be dealt with is a report of the subcommittee on the committee business dated Thursday, May 7. Would somebody be prepared to move the adoption of the report?
Mr Mike Colle (Oakwood): I'll so move.
The Chair: Second? Mr Martin, so moved.
Is there any discussion on the report? If not, all those in favour? Opposed? Carried.
As per the minutes of the subcommittee, we will have a person from the ministry come forward and do a briefing on that. I believe we have Mr Doppelt. If you could come forward and identify yourself for Hansard, please.
MINISTRY OF CONSUMER AND COMMERCIAL RELATIONS
Mr Allen Doppelt: My name is Allen Doppelt and I am senior counsel with the legal services branch of the Ministry of Consumer and Commercial Relations. I'm going to be giving a brief overview of the bill. I have a handout here for the members.
What I thought I would do is just briefly go through my handout and give an overview of what the legislation is all about. I'll begin with, first of all, what is a limited liability partnership?
A general partnership is a partnership in which all the partners carry on business in common with a view to profit. They share the losses and the individual partners have unlimited personal liability. In other words, if the partnership is sued and the partnership assets aren't sufficient to satisfy a judgement, then all of the partners' personal assets are liable to seizure and sale.
A limited liability partnership is so called because it makes one major change in the general law relating to general partnerships. Unlike a general partnership, a partner in an LLP, as I call a limited liability partnership, is not personally liable for any liability arising from the negligence of another partner. In other words, let's say in the case of a profession, if one of the partners is negligent, the partnership assets and insurance are available to satisfy any judgement and the partner who is negligent will be personally liable, but the non-negligent partners will not be liable and their personal assets will be protected from seizure and sale.
This concept of a limited liability partnership originated in the United States, and almost every single American state now has such legislation, I think 47 out of 50 American states and a couple of the districts. They've basically adopted this legislation since 1991. The reason they did this is a response to the liability crisis in the United States, particularly for professionals, where there were enormous awards of damages and insurance coverage simply wasn't sufficient. This was particularly true in the case of auditing. To date, there is no Canadian jurisdiction that has such legislation. If we adopt this legislation, we will be the first in Canada.
Next, who may form an LLP? What the bill provides is in section 6 of the bill. It contains four new sections that are added to the Partnerships Act. Basically, LLPs may be formed only by professionals whose governing legislation permits LLPs to practise the profession. Initially, only the Chartered Accountants Act, 1956, will be amended to allow that profession to form LLPs. Chartered accountants have expressed a need for LLP status because of their concern that the international insurance market doesn't permit sufficient coverage with respect to their large potential liability associated with auditing financial institutions and other public companies. Other professions may request LLP status when their governing bodies consider it appropriate.
This type of status may not be appropriate for all professions. The legislation is structured in such a way as to provide an opportunity for government and the Legislature to consider the policy issues relevant to each profession, including the extent of liability exposure, the availability of insurance and the sophistication of the clients.
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How are LLPs formed? We have a very simple procedure for their formation. This is the new section 44.1 that is in section 6 of the bill. The new section 44.1 of the Partnerships Act basically says that an LLP is formed by a written partnership agreement designating the partnership as an LLP subject to the Partnerships Act. Existing partnerships can convert into an LLP by amending their partnership agreements. The partners, however, remain fully liable for all partnership debts and liabilities that arose before the conversion into an LLP.
The fact is that the partnership agreement isn't sufficient in itself. There are three basic requirements before an LLP can carry on business in Ontario. First of all -- and this is in the new section 44.2 of the Partnerships Act, which is also in section 6 of the bill -- the legislation governing a profession must be amended to permit the LLPs to practise that profession. Secondly, the professional governing body must establish mandatory minimum insurance coverage. That's basically for the protection of their clients. Thirdly, the LLP must register its name under the Business Names Act, and there are two name rules that apply. First of all, the LLP must identify itself as a limited liability partnership by including the words "limited liability partnership" or the abbreviation LLP or a French equivalent in the name and, secondly, the LLP must carry on business only under the registered business name.
As well, the bill provides for extraprovincial LLPs to carry on business in Ontario, and it's likely the case that, once this bill is passed in Ontario, many other Canadian jurisdictions will pass similar legislation. There are two basic requirements for the extraprovincial LLPs. First, they can only practise a profession which Ontario LLPs are authorized to practise and, secondly, they must register their names under the Business Names Act.
In other words, if a New York LLP wished to come into Ontario and practise, of course it would have to meet the general professional requirements of that profession and, as well, meet these requirements. The law under which that extraprovincial LLP is formed would determine how it is governed and the personal liability of its partners. One would anticipate that, since we would grant the status to extraprovincial LLPs, if Ontario LLPs wanted to practise in another jurisdiction, they would be accorded a similar ability to practise. That's just a brief overview of the legislation.
The Chair: Thank you very much. Are there any questions from the floor at this time?
Mr Bruce Crozier (Essex South): With regard to section 6, 44.2(b), "the governing body of the profession requires" etc, where it refers to liability insurance and it uses the word "minimum," how is that established? Is it under regulation? Does the association or the governing body itself determine what's minimum?
Mr Doppelt: Yes, the governing body itself determines the amount of minimum insurance, because the governing body has an obligation to act in the public interest since it's acting under legislation that governs that profession and knows that profession and the extent of its potential liability. I know in the case of the Institute of Chartered Accountants their minimum insurance requirements are established by bylaws that have been made pursuant to their governing statute. I believe, for partnerships that have four or more partners, the minimum amount of insurance is $1 million.
The Chair: Further questions? Seeing no further questions, we thank you very much for your presentation.
INSTITUTE OF CHARTERED ACCOUNTANTS OF ONTARIO
The Chair: For our first presentation we would ask the Institute of Chartered Accountants of Ontario to come forward, and if you could identify yourselves for Hansard as well before you start. You may or may not know that you have 20 minutes for presentation time. If there's any remaining time, it is to be divided equally between the three parties for questions and answers. You may begin, please. Thanks again for joining us.
Mr Dave Wilson: Good afternoon, members of the committee. My name is Dave Wilson and I'm the CEO of the Institute of Chartered Accountants of Ontario. Joining me are Tom Warner, the institute's registrar, and Kevin McGuire, our associate director of government affairs. We appreciate the opportunity to tell this committee of our wholehearted support for Bill 6.
Since all parties in the Legislature have expressed support for the bill, I will only note briefly the merits of establishing limited liability partnerships in Ontario. Then I will describe the extensive steps that the Institute of Chartered Accountants of Ontario has taken to meet its requirements to protect the public under LLP legislation.
In brief, LLPs are about fairness. Bill 6 provides that fairness. It protects only the personal assets of a partner from a claim that arises from an act of another partner or a person under the direct supervision and control of another partner. At the same time, a person who has a claim arising from an act of negligence may seek remedy from all the assets of the responsible partner, including his or her personal assets, and all the assets of the partnership, including the investment in the partnership of the non-responsible partners.
The act is simple, it has no tax implications and it is easy to administer.
The act protects the 3,395 CAs who are partners in Ontario CA firms. It provides the same protection to partners in the 576 offices of local firms as those in the 194 offices of regional firms and those in the 64 offices of the so-called Big Six national firms. Is it fair for partners in any of these firms to lose their houses, cars and other personal assets when they have had no involvement in a situation for which one of their partners is responsible? The answer is clearly no. LLPs will rectify this inequity.
The partners I am talking about are real people. To relate this excellent legislation to them, I understand that you will be hearing from three chartered accountants who personify the types of situations I have just mentioned. One is from the Belleville office of a regional firm in eastern Ontario, the second is from the Sault Ste Marie office of a firm with 57 offices in Ontario and the third is from the Kitchener-Waterloo office of a national firm that has 14 offices in Ontario.
The CA profession has led the call for LLPs in Canada because, like their public accountant counterparts throughout the world, they carry extremely unfair professional liability exposure. They have monitored developments in other jurisdictions and have found the introduction of LLPs in the United States to be an important step in remedying the exposure problem.
Limited liability partnerships were introduced as a form of business organization in the United States, in Texas, in 1991. Since then, legislation to establish them has been adopted in 52 of the US's 53 jurisdictions, and it is pending in Vermont, the 53rd jurisdiction. The very satisfactory US experience has demonstrated that LLPs operate in the interests of both the public and individuals serving the public in partnership organizations.
In seeking LLP legislation in Ontario, the Institute of Chartered Accountants has worked extensively with the Ministry of Consumer and Commercial Relations. We have developed, and obtained their approval for, a detailed plan for the registration of LLPs and the notification of firm clients and the general public. We have also satisfied the ministry's requirements to provide for minimum insurance levels.
The review of LLPs and their impact on the CA profession and consumers of audit services has been extensive. References that this committee might find particularly relevant are a March 1998 report of the Canadian Senate's committee on banking, trade and commerce and the support expressed for LLPs by both of Ontario's two other accounting bodies. The unanimous Senate committee report specifically calls for provincial legislation to provide for LLPs. A February 1997 certified general accountants' brief to the Ministry of Consumer and Commercial Relations and the Ministry of the Attorney General supports the introduction of LLPs. I am pleased to table these expressions of support for the record.
David Hipgrave, the executive director of the Society of Management Accountants of Ontario, the second-largest accounting body in Ontario, has joined us this afternoon. I am pleased to table a letter from him reiterating the CMA's support for Bill 6.
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The particulars of our implementation arrangements with the ministry include satisfying it on the contents of the communications that LLPs must make to their clients to ensure that the clients understand what an LLP is and to indicate to their clients that they maintain the required insurance coverage. I am pleased to table copies of the letters they are required to send to clients about LLPs.
The institute is also committed to providing detailed information to the public about LLPs and developing a fact sheet explaining LLPs to the public. Once the bill becomes law, the fact sheet will be available on the institute's public Web site and will be circulated to other professional bodies and business and consumer groups. As well, the institute will issue a news release on LLPs and will answer any queries directed to it. I am pleased to table with the committee a copy of the institute's LLP fact sheet.
In our work to develop LLPs, we have appreciated the understanding and support expressed by representatives of all parties in the Legislature and we have found the ministry's officials to be exemplary in their cooperation and helpfulness. We are proud to have pioneered LLPs with them.
We expect that other professions with members to which LLPs would be applicable will seek amendment of their legislation to provide LLPs. When they pursue the due process necessary to establish the merit for such amendments and develop the related implementation provisions that must precede such amendments, we can assure them that they will be well pleased in working with the ministry.
Members of the committee, we thank you for your attention. I hope you will recommend that Bill 6 be brought forward for third reading without delay. I would be pleased to answer any questions.
The Chair: Thank you very much for your presentation. That allows us approximately four minutes per caucus, and we begin with the official opposition. Questions? No questions. From the third party, Mr Martin, any questions? No? From the government caucus, any questions?
Mrs Lillian Ross (Hamilton West): No, I don't think so either. Thank you very much for your presentation.
The Chair: Thank you very much for taking the time to bring your position forward today.
CERTIFIED GENERAL ACCOUNTANTS ASSOCIATION OF ONTARIO
The Chair: I now ask the Certified General Accountants Association of Ontario to come forward. In case you may not have heard, you have 20 minutes for your presentation. If you could identify yourselves for Hansard prior to beginning, we would appreciate it. Thank you for taking the time to come out today to give us your position. You may begin.
Mr Ralph Palumbo: My name is Ralph Palumbo. I am in-house counsel and the director of government relations and legislative affairs for the Certified General Accountants Association of Ontario. With me here today is Gordon Fuller, the association's executive director.
At the outset, let me say that we welcome the opportunity to present our views on the provisions of Bill 6 and we congratulate the government for undertaking this important initiative.
To place the issue in its proper context, let me briefly outline a little bit about CGA Ontario so you will see that the association meets the requirements, in our view, of section 6 of the bill.
CGA Ontario is an association of professional accountants representing approximately 11,000 certified general accountants and approximately 11,500 students across Ontario. It is recognized by statute, that being the Certified General Accountants Association Act, 1983. Our members are bound by a code of ethics and a mandatory professional development program which requires lifelong learning and upgrading. In addition, CGAs who offer their accounting services to the public are required to maintain professional liability insurance and are subject to regular reviews of their accounting practices. Finally, CGA Ontario maintains a rigorous discipline process governing all of its members.
As to where our members are found, they are found everywhere in the economy: in industry, in commerce and in finance, in all levels of government, as well as in offering their accounting services to the public as independent practitioners.
As you may be aware, CGA Ontario has been involved in policy discussions with the Ministry of Consumer and Commercial Relations and the Ministry of the Attorney General through submissions we filed in the spring of 1997 and then a further paper in November 1997. We were pleased to present our proposals then, and we understand that they were well received.
Since Bill 6 deals with the establishment of limited liability partnerships, let me focus on that issue alone. As you've heard, the premise of the bill is that members of a profession should be permitted to organize themselves into what are called limited liability partnerships. As you're aware, in general partnerships all partners are liable for all of the partnership's debts and liabilities. With the LLPs, that is not the case. It has long been felt that it was unfair and too onerous a penalty to impose liability on a partner and expose his or her personal assets to seizure by creditors for acts of negligence committed by someone else, that is, his or her partner. Therefore, the bill proposes that partners in limited liability partnerships are not liable for the negligent acts of another partner.
We would like to make it clear that CGA Ontario supports Bill 6 and the notion of limited liability partnerships. That is not in doubt. However, there is one omission that concerns us greatly.
Section 6, as you've heard, provides that a limited liability partnership may carry on business in Ontario only for the purpose of practising a profession. However, for that limited liability partnership to practise that profession, its governing statute must expressly permit it. In that regard, Bill 6 mentions only one professional group, and that is the chartered accountants. Since their governing statute doesn't expressly permit such a partnership to practise the accounting profession, Bill 6 amends that act so the LLPs can be formed.
Our concern, of course, is that Bill 6 fails to provide members of CGA Ontario with that same opportunity. Our governing legislation doesn't expressly provide for LLPs, doesn't expressly provide that our members may practise the CGA profession as a limited liability partnership. We believe this is an omission which should be rectified. Frankly, we do not believe there is any reason why the two accounting designations ought to be treated differently. Either the principle applies to all professions that meet the requirements of section 6 or it applies to no one. It is for that reason that an amendment to our legislation is required.
In our view, the opportunity to practise as an LLP ought to apply to the independent practices of our members. As it now stands, Bill 6 seriously and unnecessarily differentiates or distorts the reality of the accounting profession, since chartered accountants are not alone in offering services to the public through practice firms. That is why we are asking today that the committee recommend that the CGA act of Ontario be amended in the same fashion as the CA act.
We're aware that the impetus for the bill was a concern expressed by chartered accountants that large liability claims were making it extremely difficult to obtain the professional liability insurance that would cover those claims. However, we believe a distinction must be drawn between the impetus for the bill -- how it came about and why it came about -- and how it is applied. Surely the bill ought not to focus solely on chartered accountant firms that operate as partnerships when other groups that meet the requirements of the act require some protection as well. I understand that chartered accountants are concerned that unless limited liability partnerships are permitted, they will continue to be exposed to personal liability for the negligent acts of their partners. However, CGAs have the same concerns. Many of our members practise in partnerships, and they ought to be protected from liability concerns, the very liability concerns that Bill 6 attempts to deal with.
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One other matter deserves your consideration, I believe, that there is a view that the issue of LLPs is only applicable to large multinational accounting firms that face large liability claims. In our view, neither the size of the accounting firm nor the amount of potential liability to which they may be subject should determine whether they're covered by Bill 6. While we understand the reality of large liability claims, CGA firms face similar worries. In fact, we would argue that even a small judgement against a small firm and its partners can affect its ability to carry on its operations.
Furthermore, even if smaller firms were able to obtain adequate liability insurance, that is no reason to deny them the protection afforded by Bill 6. If the bill is intended to avoid the possibility that an accountant's personal assets be subject to seizure because of the negligent acts of partners, then that principle ought to be applied to both large and small firms and to firms operated both by chartered accountants and certified general accountants.
I'd also like to point out that not all chartered accountants practise and operate in large firms. Many operate in the same manner as our members, that is, in smaller firms. The bill recognizes that, because section 13.1 talks about "Two or more members of the institute...," recognizing that small firms require this protection as well.
We're here today because CGA Ontario believes that Bill 6 ought to be amended by including a provision similar to that contained in section 13.1 of the bill. We want the bill to expressly cover CGAs who practise in partnerships. This amendment doesn't affect the bill in any way, nor does it take anything away from members of the institute. It's simply a complementary amendment.
Lastly, let me leave the committee with one final thought. If certified general accountants in public practice are left out of Bill 6, how do we go back to our members and explain that the provincial government has decided that their competitors, the chartered accountants, are protected by the legislation while they are not? How do we tell them that their personal assets will continue to be subject to claims as a result of negligent acts of their partners while their competitors have no such worries? How does the government frankly defend that? All we're asking is that there be a level playing field. That's all we're asking. It has nothing to do with any issue other than that. Our members are in the marketplace. They offer their services like other accountants and there's no good public policy reason to treat them any differently.
Again, we're here to respectfully urge you to support the amendment that I've outlined. I thank you very much for your time and consideration.
The Chair: Thank you very much for your presentation. That affords each caucus approximately three minutes for questions, and we'll start with the third party. Mr Martin.
Mr Tony Martin (Sault Ste Marie): I'm intrigued somewhat with the issue of the playing field and how perhaps this legislation may tilt somewhat in favour of the chartered accountants in your view and going back to your members to say to them that the chartered accountants have a different set of parameters within which they operate than you do. Are there any specific areas you could point to that would in fact make that true?
Mr Gordon Fuller: I'd say that in basic principle what we're looking at is a piece of legislation talking about how individual business people can operate in partnership with each other. The general principle of that is that they should be limited in terms of liability vis-à-vis the actions of each other and it should be applicable in the context of professional practice, in all kinds of professional practices in this province and across this country.
We don't believe the legislation should be directed to one particular type of function based on a demonstrated need at a particular point in time. This is a business form of incorporation, and to distinguish and differentiate between different types of business organizations in a professional context is inherently wrong. The legislation shouldn't be focused simply on one particular issue but on the broader issue of whether professional practices of any kind are entitled to similar types of protection, and if not, why should you discriminate in favour of one particular form and against other forms?
Mr Martin: There is also a concern raised about the introduction of the amendment here that suggests that because your act does not govern the profession of certified general accountants --
Mr Fuller: If I may quickly, that was not the concern. The CGA act governs the profession of certified general accountancy, but the act itself does not specifically provide for limited liability partnerships. In that sense, we're in exactly the same situation as under the chartered accountancy act.
The Chair: We'll now move to the government caucus.
Mrs Ross: Thank you very much for making your presentation. It's my understanding that this LLP proposal has been on the books for some time. How long have you known about the fact that CAs have requested LLPs and were working with the ministry to come forward with that?
Mr Fuller: We've known for the last two years. We have been in discussions with the ministry people, with staff in the ministry. We've made two submissions on these issues. We have continually asked to see copies of the legislation that was being proposed. We never got those copies. Otherwise we would have made these points six months ago.
Mrs Ross: One of the requirements under this act is the insurance issue. Can you tell me what sort of mandatory minimum insurance CGAs are experiencing?
Mr Fuller: We have mandatory liability insurance in place for our CGAs who offer services to the public. Minimum coverage is $1 million, with a $3-million aggregate per claim.
Mrs Ross: Just for the record, as parliamentary assistant to Minister David Tsubouchi, I want to tell you that we are prepared to work with you to come forward with LLP legislation to assist you in what you're trying to do.
Unfortunately, the amendment that is put forward contradicts certain parts of this act and we're not prepared to come forward with that amendment, but we're prepared to work with you and develop policy and check the policy and the insurance and all those things that have to be checked out to make sure we protect the consumer, because the ultimate thing at the end of the road is that we protect the consumer in any legislation we bring forward. So I give you my commitment on behalf of the minister that we will work with you and expedite that process as quickly as we can.
Mr Fuller: We appreciate those comments very much. Can I just quickly ask what is in contradiction?
Mrs Ross: I guess I'll have to ask our technical expert to talk about that.
Mr Crozier: On a point of order, Mr Chair: Has the amendment been introduced?
The Chair: No, it has not.
Mr Crozier: So we're not really discussing the amendment.
Mrs Ross: I'm sorry. I heard Mr Martin talk about it.
The Chair: There is an amendment coming.
Mr Crozier: If the Chair wants to let it go, I'm not going to be a stickler, but it's difficult to discuss an amendment when it isn't on the floor.
Mrs Ross: Sorry, that's my error. I apologize for that.
My understanding is that 44.2 -- sorry, we can't even talk about it at this point. Let me just put on the record again that we will work with you to ensure that LLPs come forward as quickly as possible to help you in what you're trying to do.
The Chair: We now move to the official opposition.
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Mr Crozier: I just have one general question. I should say for the record that I am, and am proud to be, a life member of the Certified General Accountants Association. I just wanted everybody to be aware of that.
When you mention that there has been an omission and then say in the second- or third-last paragraph that you don't disagree with it but that "all professions that meet the criteria found in section 44.2" should be included, that's not to imply that every profession in the province that may want to do this at a later date has been omitted.
Mr Palumbo: We don't know which professions are interested and which aren't. I was simply making the point that, as I looked at 44.2, we have a statute that governs us, we have liability insurance.
Mr Crozier: Essentially, you're talking about certified general accountants throughout your submission, right?
Mr Palumbo: Yes. Although, frankly, I was also speaking generally that the statute creating LLPs, and I'm mindful of Ms Ross's comments, ought not to be directed solely to one group. Presumably it's a statute that applies province-wide to groups that can meet the requirements of section 6. My point is that I'm here specifically to speak about CGAs because I don't know about other groups. Surely the focus of the bill isn't on one group and that was really the point.
Mr Crozier: The amendments to the Partnerships Act do apply to everybody.
The Chair: Thank you very much for your presentation. We appreciate the time for you coming forward.
DELOITTE AND TOUCHE
BDO DUNWOODY
WELCH AND COMPANY
The Chair: We have a joint presentation next. If the presenters could come forward and identify themselves and the organization they are with, we would appreciate it.
Mr Don Craig: My name is Don Craig. I'm a partner with Deloitte and Touche.
Mr Tom Ambeault: My name is Tom Ambeault. I'm a partner with BDO Dunwoody in Sault Ste Marie.
Mrs Eleanor Guenette: My name is Eleanor Guenette. I'm a partner with Welch and Company in Belleville.
Mr Craig: I will speak first. As I indicated, my name is Don Craig. I'm a partner with Deloitte and Touche and the office managing partner in Kitchener. I thank you for the opportunity to speak to you today.
I became a CA in 1976 and a partner in 1983. I practise in a large national firm and many of our clients operate in a global economy. With 14 offices in Ontario and approximately 230 partners, I'm sure you can appreciate it's difficult for me to know exactly what every one of my partners is doing every day of the year.
Personally, I spend a significant amount of my time auditing financial institutions, and financial institutions have been the source of a number of large lawsuits in Canada where there have been failures. I also audit a number of public companies, serving as the audit partner on those.
I have no problem taking responsibility for my actions or my failure to act properly in conducting my work as an auditor, but the question which troubles me, and which this act I think will correct, is should I also be responsible for the actions of each one of my partners? There is no doubt that if there is a lawsuit I will be affected. The firm name will be affected. The partnership's assets are at risk. But should my personal assets also be at risk?
Like many of you, I've worked very hard over my lifetime and I feel I work very hard every week. My wife doesn't work outside the home. In two years my son will be off to university and also wants to become a chartered accountant. Three years from now my daughter will be attending university. I am the primary support provider in our household.
Unfortunately, any large lawsuit where I was sued and my personal assets were at risk could cause significant hardship for my family. Would my children be able to attend university? I don't know. I could get to retirement at age 60 or 65 and have my net worth wiped out under the present situation where my personal assets are exposed as a result of a lawsuit, and this could happen even though I was not part of the engagement team.
Even the pressure of a lawsuit against the firm where I knew my assets were exposed could put unreasonable pressure on our home life as our family worried about our personal finances until the lawsuit was settled. I'm sure you're aware that many of these lawsuits, after they're started, which could be four or five years after the fact, could go on for 10, 12 or 15 years, so from the date of the action it could be 12 or 15 years later before I knew whether my personal assets would be safe.
As I said, I will take responsibility for my actions or failure to carry out my job, but I would like some protection of my personal assets if my partners fail to perform their jobs properly. I believe the amendments to the Partnerships Act and to those practising accounting under the Public Accountancy Act will provide me with that protection and I hope the bill will be passed soon.
Thank you very much. I believe my colleagues will speak and then we'll answer questions.
Mr Ambeault: My name is Tom Ambeault. I'm with BDO Dunwoody in Sault Ste Marie. I became a chartered accountant in 1980 and a partner in that firm in 1990. Locally, we have seven partners, and in Ontario we have 206 partners in 57 offices throughout Ontario. With that number of offices, you can tell we're not centred in Toronto but are throughout the province and have a pretty representative sample of all partnership in the province. I am married with two children, one 14-year-old and one 17-year-old.
My area of practice is auditing, accounting and valuations, and that is in the aboriginal, the non-profit and the small-to-medium-sized entrepreneurs. I perceive this area of expertise to be for the most part risk-averse; that means it's not subject to a large amount of lawsuits, unlike for someone who would audit a large public company. The Sault Ste Marie office has been in existence for about 45 years under predecessor names other than BDO Dunwoody, and to date we have not had one claim against our firm.
So why am I in favour of Bill 6 to amend the Partnerships Act? What it does is limit my financial obligations for circumstances for which I am not responsible. I'm not held accountable for the acts of my partners, who could be doing something unknown to me and for which I would suffer financial consequences that could be severe and severely restrict my right to earn a livelihood.
Further, because there are risk-averse areas and high-risk areas, it could cause divisions in a partnership. Those divisions may have one area of the practice not wanting to be in partnership with another, high-risk area of the practice. Therefore, in a small centre like Sault Ste Marie where we are risk-averse, we would not want to be in partnership with a high-risk area, and therefore it may limit the amount of services we could bring into Sault Ste Marie.
The other thing is that personal assets would be protected. At my time in my career and my wife's career, retirement is not too far away and we have education of the children. We wouldn't want to see that affected by a lawsuit or something done by others which we were not responsible for.
Another thing is that my retirement is based upon the ability of the profession to attract bright people to replace me, because it is those people who replace me in the profession who are going to pay any pension income I might have. The fear of entering a profession where all your financial assets could be wiped out would be considered a negative and would therefore restrict the number of new entrants into the profession. Also, I would like to know that once I'm in retirement, all my property is still not at risk for a potential lawsuit. As Don said, these things go on for 10 years or more and I basically wouldn't be off the hook until that period had elapsed.
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Mrs Guenette: My name is Eleanor Guenette. I'm a partner in the Belleville office of Welch and Company. I obtained my CA in 1986 and became a partner in 1989. There are 11 partners in my office and a total of 39 partners in my firm in Ontario. I am married and have two children. My daughter, Jennifer, is six years old and my son, Bryson, is two.
Our practice in Belleville serves a wide variety of individuals, small owner-managed businesses and not-for-profit organizations. I am responsible for accounting and auditing services for many small businesses and not-for-profit organizations, as well as preparing personal and incorporate tax returns for my clients.
I am in support of this bill and believe it to be a fair bill. This bill will give me peace of mind, knowing that my house and other assets I accumulate over my working life will not be at risk due to a claim brought against my firm as a result of an act of another partner. Since each office in our firm is run independently and each partner is responsible for his or her own clients, it is unfair to hold all partners in a firm financially accountable for the inappropriate acts of one partner.
In Belleville, our clients are of the size that perhaps you may say this is not a problem for our firm. However, we have offices in other centres, including Ottawa, where they deal with larger clients, so if a claim were brought against one of my partners in Ottawa, it could adversely affect me. At this stage of my life, I don't have a lot of assets; however, I hope to accumulate them, and again, it would give me peace of mind knowing it would not be at risk and not affect my family.
Thank you for the opportunity to present today. I appreciate it.
The Chair: I thank all of you for coming forward with a presentation. We have a little over three minutes per caucus for questions and answers, and we begin with the government caucus.
Mrs Ross: Just one quick question: Would limited liability change the way you do business at all, with respect to the way you treat your clients?
Mr Craig: Absolutely not. I think the program put forward by the institute with respect to notifying our clients of the LLP legislation is a good one, but it would not at all change the standards by which we conduct our work on a daily basis and the routine. I will still be personally responsible if I am negligent, so I would be foolish to change the way I approach my work.
As I indicated, I do a lot of public company work and a lot of financial institution work and they tend to be the high-risk clients, so not one thing would change.
Mr Crozier: I have a question that I hope the smaller firms could answer. Throughout the discussion there has been on this, albeit it was limited here today, it's been suggested that the need for limited liability partnerships would appear to be, or some would say it is, more related to the size of the firm than to the simple need for limited liability partnerships. Since you represent different-sized firms, you may have a view on that.
Mr Ambeault: Since you asked for the smaller-sized firms, and I think we're representative of that, potentially the size of the firm may indicate the size of the insurance coverage and the ability to extend beyond the insurance limits. There would probably be an eye towards viewing a potential claim that way, so a larger accounting firm may attract a larger lawsuit. The legal profession would look at the size of the coverage and the extent to which they could carry it on and the financial ability of those to pay.
Mrs Guenette: To add to that, I think this issue affects all partners in firms across the province, large or small. It's a dollars issue. Also, there's the fact that just in Ontario we cover so much territory that, as Don said before, you can't know what your partners are doing on a day-to-day basis.
Mr Martin: I assume that the reason any of your firms would be into partnership would be to share some of the responsibility and the load and to work together; ultimately, I suppose, to do more work and take more risk in the work you do. I would also think people would be attracted to you as a firm that offers service by your size and reputation etc.
Once this act is passed and there is some relief for you re some of the liability that hangs over you at this point -- you talked to it a few minutes ago rather briefly -- how do we protect the consumer? What kinds of guarantees do you have within your organization, particularly the bigger organizations, that there isn't somebody out there doing things they shouldn't be doing that would ultimately put a customer at risk and who may be destroyed because of that, who can't come back and recoup the losses they've incurred because they can only go so far in terms of what and who they can sue?
Mr Craig: I think our firm is similar to the other firms. All of our reports and key working papers require a second-partner review before they're issued. We have an in-firm working paper quality control review, from members from outside the office every couple of years, and we have an institute practice inspection about every three years to make sure we're keeping up with our standards. We have a number of built-in quality control checks. The closest one to the report, as I indicated, is the second-partner review of every report and the key working papers, to make sure we've done enough work to support our opinion and protect the users of that report before it's issued. And we will continue to maintain adequate insurance that's far in excess of the minimum required by the institute.
Mr Ambeault: Currently we have a questionnaire in regard to clients, on whether they are acceptable clients, to avoid high-risk situations. You indicated that we were looking for more-risk audits, and we are looking for less-risk audits.
Mr Martin: I may have presented myself incorrectly there. That wasn't what I was saying. I was saying that you bring in partners so you can share some of the risk that may be out there. My concern was, how do we assure those people who take you on to do their audit work that at the end of the day, under the new scenario that will unfold when we pass this act, you are going to continue the due diligence you do now because you are personally on the line?
Mr Ambeault: Personally, if anyone were to do anything, they are unlimited in liability; the individual would be unlimited. By doing any acts, they wouldn't be protected.
Mr Craig: The individual partner doing the work is still completely responsible, and all their personal assets. It's only our other partners who are not responsible for a negligent action.
Mrs Guenette: What we're saying is that this would not change the level of work we currently do. All our firms have systems in place to make sure it's not just one person who looks at the work. Probably all three of us have second-partner reviews in-house before the statement can be issued, to make sure sufficient work was done. This act would not eliminate any liability for the engagement partner, so the engagement partner is on the hook still. They are not going to reduce the work because they still are at risk, and we have standards in place in our profession to make sure a minimum amount of work is done before any report is issued.
The Chair: Thank you very much for taking the time for your presentation today. We appreciate hearing your views.
At this time, I understand we are currently waiting for legal counsel to come forward because of the joint presentation that was made. We're waiting for legal counsel to show up before we can proceed with clause-by-clause, so I'm going to call a five-minute recess. We will be back in five minutes.
The committee recessed from 1630 to 1636.
The Chair: We'll move to the clause-by-clause section of the bill. Are there any comments, questions or amendments to any section of the bill and, if so, to which section?
Mr Martin: Yes, I have an amendment that I believe has been circulated to all the members. It's to section 7.1 of the bill. Do you want me to move it now?
The Chair: Just prior to that, seeing that there has been an amendment put forward to section 7.1, we would ask, are there any comments or questions to sections 1 through 6? Seeing none, shall sections 1 through 6 be carried? All in favour? All opposed? Sections 1 through 6 are carried.
We'll move to section 7. Are there any comments, questions or amendments to section 7?
Mr Colle: I move approval of 7.
The Chair: Mr Martin -- oh, it's a new section, 7.1. We have to review section 7, at which time we move to 7.1, so I'm informed.
All those in favour of section 7? All those opposed? Carried.
Member for Sault Ste Marie, if you'd like to put your amendment forward.
Mr Martin: I move that the bill be amended by adding the following section:
"7.1 The act is amended by adding the following section:
"Limited liability partnership
"44.5 Despite any other act, two or more members of the Certified General Accountants Association of Ontario may form a limited liability partnership or continue a partnership as a limited liability partnership for the purpose of practising as a certified general accountant."
The Chair: There has been some research done on this particular amendment and it appears that the amendment put forward is beyond the scope of the bill. As such, it is therefore the position of the Chair that we must at this time rule that amendment out of order.
Mr Martin: Could I just make a couple of comments, then, Chair, if you would indulge me?
The Chair: Yes, I will allow some comments.
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Mr Martin: If it's going to be your ruling that in light of the fact that the certified general accountants do the same work as the chartered accountants, after this bill is passed they will be in a position of different risk and liability and so will be operating under different parameters. I would suggest that in competing for the business they compete for with chartered accountants, the playing field will not be level any more.
I would ask Mrs Ross, the parliamentary assistant to the minister, to encourage the minister to continue to live up to the commitment you suggested he is making here today and work with this group as expeditiously as possible so that they might be covered in the same way by the statutes of this province to do business of this nature, so that there isn't this difference of legislation covering two groups that for all intents and purposes do the same work.
Mrs Ross: Could I make a couple of comments?
The Chair: Yes.
Mrs Ross: A couple of things. One is that the act states specifically under 44.2, "A limited liability partnership may carry on business in Ontario only for the purpose of practising a profession governed by an act...." The CGAs currently are not a profession governed by an act, so that's one of the things they would need to do, to be established as a profession governed by an act. I understand there are discussions taking place with the Ministry of the Attorney General around that and they certainly need to look at the policy implications of that type of thing.
We're certainly prepared to work with them, and the minister has made that commitment to work with them to include them in LLP as quickly as we can.
I think there are a couple of things that have to be looked at, and some of the considerations are the liability exposure of the profession, the difficulties in obtaining adequate insurance and the level of sophistication of the clients they service. Certainly we're prepared to work with them and do what we can to assist them.
Mr Bob Wood (London South): I understand there was a governmental and ministerial process for each one of the professions that wishes to come into this act, and I understand that the only profession for which that has been completed are the CAs at the moment. So I think it's premature to consider any other professions until we go through the ministerial process and establish the appropriate way of accomplishing inclusion. I certainly encourage the ministries to work as quickly as possible with all professions, including the CGAs who come forward to be included, because I think it is a good act that all should be able to avail themselves of. There certainly should be no suggestion of an unlevel playing field.
I might say the only reason that the CAs are in and others aren't is, as I understand, that they have completed the process and no one else has as yet.
Mr Colle: For the record and just one point of clarification: There's something that was passed February 23, 1983, that said, "An Act respecting the Certified General Accountants Association of Ontario." I heard the parliamentary assistant say that one of the reasons there's a problem is that there's no act. I'm just wondering -- this doesn't make sense to me. Maybe legal counsel could straighten that out.
Mrs Ross: Do you want me to just quickly respond from what I know, which is limited? My understanding is that they have the right to practise as certified general accountants under the Certified General Accountants Association of Ontario, and that is not a public act but a private act. Perhaps legal counsel can tell us what the difference is.
Mr Michael Wood: Perhaps at this time you might want to ask the advice of the ministry counsel as well, but I can certainly provide you with some advice. Specifically to answer your question about the difference between a public act and a private act: A private act receives a PR number and can only deal with special matters, matters of localized interest to a corporation or a smaller entity. The procedure for getting a private act is different from getting a public act. To get a private act, you have an applicant who makes an application and it is considered by the standing committee on private acts.
I understand there are some other key differences between the public act which governs the chartered accountants and a private act such as this one which governs the certified general accountants, namely, that to practise as a certified general accountant you are not required to be a member of their association, unlike the situation with chartered accountants where under the public act governing chartered accountants you are required to be a member of their association in order to practise as a chartered accountant.
I would stress that this piece of my advice that I've just given is my best understanding. You would want to confirm that with a ministry counsel.
Mrs Ross: In my notes here it says that in order to acquire the right to form LLPs, they would have to be established as a profession governed by an act, and that would be a public act. That would require passage of that act certifying them as a profession and that would have to come under the Ministry of the Attorney General.
The Chair: Seeing no further discussion, shall sections 8 through 11 carry? Carried.
Shall section 12, the short title of the bill, carry? Carried.
Shall Bill 6 carry? Carried.
Shall Bill 6 be reported to the House? Agreed.
That concludes today's hearings. We appreciate your taking the time to come out today.
The committee adjourned at 1647.