The House resumed at 8 p.m.
House in committee of the whole.
SMALL BUSINESS DEVELOPMENT CORPORATIONS ACT (CONTINUED)
Resumption of consideration of Bill 49, An Act respecting Small Business Development Corporations.
Mr. Chairman: Are there any amendments to Bill 49?
Hon. F. S. Miller: Mr. Chairman, there will be some amendments that can be called housekeeping or clarification amendments. There were some questions raised in second reading that perhaps should be answered. It is up to the member for London Centre whether he wishes to pose them or whether he would be happy to have me answer some of them at this point.
Mr. Peterson: I would be pleased if the Treasurer would --
Mr. Chairman: If the Treasurer would care to, he could reply to them. Then I will call for the sections and the members can ask questions on any section.
Hon. F. S. Miller: Do you want me to wait for them?
Mr. Chairman: Go ahead and reply.
Hon. F. S. Miller: There are certain things that I touched upon that perhaps would save a lot of questions.
During the debate, the member for London Centre said I was not sure where the money would come from, I think that was one of the questions he posed. I was informed by my staff that during the budget lockup this question was raised. The fact is that we have money available in the Employment Development Fund that can cover any requirements in this first year. Then we would have an opportunity to budget for future years based upon the first year.
The second issue he talked about was the Canadian Federation of Independent Business. The federation met me in the pre-budget period, but I can honestly say they did not get themselves involved in the drafting of this legislation per se.
Mr. Peterson: They are taking credit for it.
Hon. F. S. Miller: I am happy they do. I am glad they feel they have had some influence with the government. You will discover this government always is able to listen to worthwhile contributions.
You then went on to say: “I think the legislation is politically high profile, but from an investment strategy viewpoint not many investment people will take advantage of it.” We have received opinions from many sources that this is attractive enough legislation to work. There is no question about it. I might say at noon today I had one corporation talk to me and say they would be forming an SBDC almost at once when we have passed this legislation. I am told a number will be formed.
Investment counsellors are confirming that. We were quite pleased to see this one commentary on it -- perhaps you had an opportunity to see it -- from an investment counsellor or from a CA firm that has a 35-page booklet on it, pointing out the advantages to their counsellors. They have a slide presentation to go with it. I will say in all sincerity I am going to see their presentation. I have not had an opportunity to do so yet. It was not made with any co-operation from my ministry. It will be, I hope, useful to any of us who want to see it. I am sure this company would be pleased to show us a chartered accountant’s interpretation of the way this act could benefit potential clients of theirs or investors.
You went on to say that you thought that only private companies would qualify. There is no restriction limiting SBDC investment to private companies, but I think it is safe to say we would assume almost every eligible corporation of fewer than 100 people would be a private corporation. There is technically, however, no prohibition on them being public corporations.
You questioned the saleability of SBDC shares. I can only say that I think you will find that an SBDC that has been successful will have very little difficulty selling its shares.
Mr. Peterson: They will start selling at a discount right away.
Hon. F. S. Miller: Prior to my days as a cabinet minister, I had been a member of at least two investment corporations which, had SBDCs been around, would have been SBDCs. Over the years I have seen one in particular -- it was started in the 1950s and still is going on today -- in the town of Aurora --
Mr. Peterson: Investing in small business only?
Hon. F. S. Miller: Yes. The other is in the town of Bracebridge and, while I am not a shareholder and have not been since about 1972, it has had at least four or five share changes. It is held by 10 people, and I think that is about the size you will find many an SBDC becomes in terms of shareholders.
We have always found it quite easy, when one shareholder dies or wishes to sell his or her shares, to find replacement buyers in the community. I have no reason to believe that SBDCs will face any difficulty either. In most cases they will be narrowly held, if not by true definition -- we define “narrowly held” within the act, as the member knows -- certainly most will have 10 or fewer shareholders, I would assume. I am reasonably sure they will find no trouble marketing them.
The member went on to comment about the size of the corporation, saying 100 employees is wrong. Our original venture investment corporations legislation limited the size to 30, and that was too small. We quite honestly admit the 100 employees may be too small or may be too large. We will only find out through experience. It was suggested to us at one point that we should have as few as 10 employees as the qualifying level.
It is interesting to note that federal government statistics show that 80 per cent of all Canadian-owned manufacturing companies have fewer than 100 employees; so really 80 per cent of Canadian companies qualify on that kind of basis. It is even more interesting that 90 per cent of the members of the Canadian Federation of Independent Business have fewer than 100 employees.
The member questioned whether grants should be available to the small businessmen themselves. I think the words used were: “I am personally not sure, if we really want to develop high-risk propositions, that we should not let the entrepreneur have a tax advantage. If he is creating jobs and doing something here, why are we so anxious to exclude him?”
The purpose of the legislation is to encourage individuals and corporations to invest their savings in equity rather than in the relatively safe instruments currently available to them that are tax havens. We are not trying to make non-arm’s-length transactions available to allow one to make money out of the government by lending it from oneself to oneself. I hope that would be accepted by both parties, since I believe that would simply allow for a fair amount of abuse of the system and would not achieve what we are trying to do, which is to get other people’s money into somebody’s business; not one’s own money put in with a reduction.
Mr. Laughren: Thirty per cent?
Hon. F. S. Miller: Yes; tax treatment.
Mr. Laughren: That’s not something to be sneezed at.
Hon. F. S. Miller: There are three taxpayers involved in a normal SBDC transaction: the investor who purchases the shares, the SBDC itself, and the company in which the SBDC invests money.
Mr. Laughren: Which then invests in another SBDC.
Hon. F. S. Miller: I suppose one can go on and on.
Mr. Laughren: One could and would.
Hon. F. S. Miller: The first thing is the 30 per cent grant; the member asked a question about that. We are told that the grant, the tax credit, will not be taxed as income by the Department of National Revenue. They have already sent out an interpretation bulletin, IT-273, and confirmed this to our staff. They will not tax that 30 per cent as income. The second part was whether the capital gains tax on an investor’s share would be taxed from the 70 per cent level on the 100 per cent level. The current ruling, as I think I told the honourable member, is that it would be taxed from the 70 per cent level. The capital gains would apply when it was sold. That is one I would like to discuss, as I mentioned earlier, with the federal government when the time permits, hoping they might change their ruling.
Mr. Peterson: Can the minister tell us about the negotiations? I am just interested.
Hon. F. S. Miller: Those were strictly staff negotiations. They were done in a fairly loose way over the telephone, talking back and forth around the time the legislation was in the preliminary drafting stages, and also right after it was announced in the budget.
Very often staff will give what they feel will be a ruling; but until senior officials have had a chance to look at it they can’t confirm that it is so. Therefore, at one point we thought there had been an agreement that the 30 per cent would not be taxed for capital gain. Later on somebody else said they felt it would have to be. I have not tried to go the political route and discuss it with a minister. I would do that once we have this legislation through and once things have settled down in the Ottawa scene.
Mr. Laughren: If you get it through.
Hon. F. S. Miller: Well I hope it will go through.
You can, of course, take the borrowing costs, if you borrow money to buy your SBDC shares. That is a deductible expense as it is for any other investment.
If the investor receives dividends from an SBDC I am told they are treated as any other investment dividends would be treated for purposes of the Income Tax Act.
The SBDC itself, as we see it, would have three major sources of income.
Mr. Peterson: Is there any other way you can get the money out of an SBDC besides dividends?
Hon. F. S. Miller: I suppose there could be ways of getting it out on a salary basis. I don’t know whether that has been ruled on or not; I don’t think so. In most corporations, they are entitled to put somebody on payroll. The question is, if you take it out you are going to pay income tax on it at whatever rate you pay taxes on income anyway.
When I have had a small corporation, I very often found it cheaper to leave it in the corporation than to take it out on a personal basis.
We assume the SBDC would have dividend income; interest on any debt, investments of any form or from the trust fund, and any management fees it may charge to companies with which it is affiliated would be treated as normal income by the SBDC.
Mr. Peterson: For which they will pay full rates -- small business rates.
Hon. F. S. Miller: Yes, because it is a small business.
Dividends are tax-free to the SBDC. There are a couple of technicalities in that, depending on whether the SBDC is public or private. If the member wishes to have those technicalities we can get into them, but the Income Tax Act covers them.
Interest income is naturally taxed in the SBDC and is deductible by the small business. Management fees are taxed as normal income in the SBDC.
I think that really clarifies the kind of things the honourable member was asking on the tax side, or I hope it does.
The next question was why there is a minimum of $250,000. Secondly, the member said $5 million is probably too little. I have said before we have chosen those limits believing they are practicable, hoping they are and realizing experience will tell us if they are not. They can be subject to change with the consent of this Legislature. We simply wanted to put the maximum on to prevent large corporations from using this as too convenient a vehicle.
The 40 per cent, 70 per cent investment requirement I think was questioned by both opposition critics. We want to ensure that capital on which the government has made a grant is put to work. That’s why limits were put in, I think that’s obvious. The venture investment corporations had an 80 per cent level; we dropped this to 70 per cent, hoping that 70 per cent would be realistic.
The 40 per cent requirement within one year we believe will be practical because we would assume that many SBDCs would have searched out potential investments almost in advance of being formed.
We do have discretion to relax the 40/70 limit if the minister of the day feels the SBDC is complying with the spirit of the act. There is some discretion should he feel they’re doing their best and particular conditions have caused them not to be able to go ahead.
I hope that’s covered some of the points. I would be glad to answer any others as time goes on.
Mr. Chairman: We’ll now come back to the proper procedure of committee. Are there any questions, comments, or amendments?
On section 1:
Mr. Peterson: On section 1(8), how are you defining “affiliated corporation” in this act? What does that “affiliated corporation” mean?
Hon. F. S. Miller: “Affiliated” is spelled out here. I’d have to look for the section.
Mr. Peterson: I couldn’t find it. I’m not saying it isn’t here, but I couldn’t find it.
Hon. F. S. Miller: I went through it all a few minutes ago and I found the definition or affiliation. It’s section 1(4) -- do you have it there?
Mr. Chairman: Perhaps the member for Brantford might proceed on section 1(1).
Mr. Makarchuk: While the member for London Centre is perusing his navel, I wonder if the minister could explain, on section 1(c), debt obligation, why he hasn’t considered the idea of promissory notes or term notes being considered as a debt obligation. Is there some specific reason?
Hon. F. S. Miller: I would assume that section 1(c) does permit those. It’s spelled out there.
Mr. Makarchuk: Am I correct in understanding that the phrase “or other similar obligation” would include an ordinary promissory note?
Hon. F. S. Miller: Yes.
Sections 1 to 3, inclusive, agreed to.
On section 4:
Mr. Chairman: Hon. F. S. Miller moves that clause (c) of section 4 of the bill be amended by adding at the end thereof: “and not more than $5 million.”
Mr. Peterson: Supposing someone comes and wants to create one for less than $250,000. Does the minister feel he has the discretion to allow that? Supposing it was a small venture in a small town? Would he feel he had that flexibility?
Hon. F. S. Miller: My impression is I would not have that flexibility under the act at the present time. And my staff are confirming that.
Mr. Peterson: Would you like to have that right now?
Hon. F. S. Miller: I would rather not have right now. I would rather have a short while to see what kind of demand there is at this floor. I can only assure the member I will be pleased to come back to this House if either the member’s party or the NDP or our own operation shows us this floor is too high.
Mr. Peterson: It’s very important to me to understand who you feel are going to be the major takers on this proposition. Do you see that it’s going to be a sort of populist capitalist movement in small towns of people participating in one company, the kind of investment club you described earlier in which you are a participant? Or do you see it as more large companies using it as a tax shelter device? Obviously, there is going to be a mixture of all of those? They will all look at it, I assume. In your conversations since you published the act and from the inquiries you have had I’m interested in whom you see principally using this device?
Hon. F. S. Miller: That’s not easy to be sure of. I sense there will be a number of large corporations willing to form SBDCs. That by itself does not worry me, because they must invest it in small corporations, that is the major purpose of this. But I sense that the greatest popular appeal will be to groups of friends in professions who wish to have other interests in life besides their own particular business and will find a vehicle of this type both an enjoyable exercise and a potentially good investment.
Around this province, I think you’ll find many groups of businessmen who, without the benefit of a small business development corporation grant have entered into some kind of investment in their community. I just sense this will attract more of them to do that.
Mr. Peterson: To whom do you feel the small business development corporation will sell its shares in the small business? The majority shareholder or the people there now have the first call on that. Do you visualize a secondary market for shares in small companies? How do you see that?
Hon. F. S. Miller: I don’t really perceive a large secondary market in these companies because they’re too small in most cases to do that. You may get the odd one that runs to the $5 million limit that tends to get a number of shareholders. Again, my little company, Santa’s Village, is traded now because you’ve got up to 350 people, and at that point, to hand them out, the I’ll-find-a-customer-for-my-shares approach doesn’t work. You get to the point where somebody has to create a secondary market for you, and it’s not too hard to find someone to create a secondary market when you get to that level.
Mr. Peterson: When an SBDC goes into a small business, do you see a lot of complicated, buy-sell guaranteed arrangements for getting in and out; for example, bringing on book values ahead of time and that kind of thing? Or is that something where you just say: “Look, let the marketplace take care of that. I just don’t want to get involved ministerially.” I guess you’re not prepared to do that? I’m interested in your vision of how this will work. You haven’t convinced me it’s going to work yet.
Hon. F. S. Miller: That’s one where we have thought through the process and wondered whether we needed to try to complicate it by saying we would not allow guarantees, for example from the small company receiving it, when preferred shares are bought. We came to the conclusion that at this point we would rather allow the marketplace to try to determine what kind of agreements are made between sellers of shares and purchasers of those shares, rather than have us set down in concrete a bunch of rules that may not reflect the way the market is going to function.
Mr. Peterson: In that circumstance, you visualize the majority are going to go for supplementary letters patent and create a new class of preferred shares which is going to be the financing mechanism? In the majority of cases I gather that’s how you see it; or it could be a common share thing or it could be some kind of interest-bearing share. In other words, it wouldn’t be dividend-passing but it would be interest-passing.
Hon. F. S. Miller: It could be a dividend per share.
Mr. Peterson: It could be. There are all sorts of varieties of preferred shares; some are dividends. They could, theoretically, have some kind of security they pay interest on. Do you visualize that?
Hon. F. S. Miller: I would like to see -- and my staff will be much more knowledgeable on this -- the kinds of shares that may be issued by a corporation that had voting rights. I would like to see which of those were able to pay straight debt. I suspect that you’ve got an incompatible requirement there when there is a straight pass-through of interest without pretax being collected in the company paying that debt obligation.
I don’t really see the preferred share being as attractive to most potential investors as the common. The preferred is a possible one, but I would gamble that most of the people getting into these corporations are gamblers to a degree. They are going to want to see the equity value go up, and as you know, with preferred shares in most cases that is not likely because of the obvious advantages preferred shares have by their very definition.
Mr. Peterson: You may be right, but you have created a problem that I want to discuss with you. At that stage, when you have issued, let’s say for the sake of argument up to 49 per cent of the common shares to someone else, first of all you have diluted your own equity and you have driven your price-earnings ratio down, assuming there are earnings. Then when you do declare a dividend you cannot do a preferential dividend; you have to dividend out to all stockholders. Frequently, these little companies we are talking about are so squeezed for cash they don’t want to declare a dividend and they can’t treat one shareholder differently than they treat another shareholder.
I am just questioning the prospect of dividends in a lot of these cases. If they are all that successful that they are going to be making that money they probably wouldn’t have to go to this kind of financing mechanism anyway, which very frankly is probably going to turn out to be a very expensive one for the small business.
Hon. F. S. Miller: Again, if the company elects to go the common share route, to purchase common shares in somebody else’s company, the odds are very good they aren’t going to want to drain it of cash unless it can afford to pay dividends. Even so, let’s suppose for some reason or other the SBDC wanted a dividend paid in the company: first, it hasn’t got control, so that the decision to pass the dividend through --
Mr. Laughren: They haven’t got a majority.
Hon. F. S. Miller: You are right, they haven’t got a majority; I’ll take that back, they may have control. They can make this kind of decision, if the SBDC shareholders through any persuasion or control convinced the small company it should pay a dividend and if the other shareholders really don’t want that dividend, then they can use a very common mechanism. The dividend is paid and received by all shareholders because it must be. All shareholders of the class must receive it, but those who do not wish to retain it because of their interest in the small business can lend it back to the corporation under any terms and conditions they wish to. That is done reasonably regularly.
Does the member for Nickel Belt have another point?
Mr. Laughren: I was just paying tribute to a member in the gallery whom some people might not recognize, the member for St. Catharines (Mr. Bradley).
Mr. Peterson: He is a great member.
Mr. Laughren: I just wanted to comment on what my colleague from London Centre was saying. While people might not want to give up equity, they may have no choice. Small businessmen do not willingly give up equity; they do so because they have to in order to achieve more capital in the enterprise.
What needs to be on the record is that we understand that people do not go to either a bank or an SBDC in order to get money unless they are to the wall to start with. Maybe that is an extreme way of putting it, but surely the problem with many of the small business enterprises is that when they do go to a traditional lending institution they are told: “You don’t have sufficient equity in your enterprise, therefore we will not make a loan to you.” The addition of money into the enterprise would then allow them to achieve a certain credibility in the financial institutions where they want to borrow money.
It is a problem if we only look at it as a problem for the business enterprise that does not want to give up equity without looking at the reasons why anyone would give up equity. In this case I think it is because they want to borrow money, while if they had their druthers they would druther not do it; but in fact they probably have no other choice.
Hon. F. S. Miller: Mr. Chairman, that’s very true. The choice between a preference share and a common share in terms of the equity sold is important at that point, because the one has an easy route to be purchased back by the original company, therefore regaining their total ownership at some future time.
There’s one other thing, though, that will make many a businessman be glad to get an equity partner or a preferred-share partner these days instead of going to the bank for a loan, even when the money is available. That is, at today’s interest rates it’s often cheaper -- often it’s the only way a company can survive -- to avoid large payments on interest for a period of time.
One must recognize, as I said the other night, that because of the 30 per cent refund on a preferred share, if the coupon rate on a preferred share is say, 10 per cent -- which would be high -- then the return to the investor is in the range of 14.2 or 14.3 per cent. In effect, it’s a mechanism for the investor in a preferred share to get the going rate of interest without necessarily charging the going rate of interest to the recipient.
I think there are a couple of advantages to small businesses in going this route. Many a company -- and I think the summer resort business is a classic example of this -- simply can’t pay today’s interest rates on borrowed capital.
Mr. Laughren: What do you know about that?
Hon. F. S. Miller: I know a fair amount about that one.
Mr. Peterson: The minister is assuming that the SBDC will take a coupon rate on its preferred shares at less than market. I’m not sure that’s a particularly valid assumption. I mentioned the other night -- and I’m happy that my friend from Nickel Belt mentioned it tonight too, although we haven’t got to that section yet -- that I think the minister has really missed a bet by not allowing some debt participation.
When I was speaking on this the other night I determined that my friend the Minister of Transportation and Communications (Mr. Snow), who is a very sophisticated businessman and brings a great deal of experience and success to this House, has quite a different philosophy of business than the minister’s. Both ministers are successful, but he is of the view that he would never give away a share of equity.
We must have something to work with that kind of an entrepreneur, who wants to do it on his own, who doesn’t want to divest himself of equity or to disperse his equity. I think my friend from Nickel Belt is right. I feel fairly strongly that the minister has missed an important bet, an important possibility of making this act workable -- something I question anyway.
Hon. F. S. Miller: Mr. Chairman, I’m glad that the honourable member says I’m successful. I am broke but successful, because I have a great family, a nice life and a lot of other things.
Mr. Laughren: If you’re successful, it’s because your investments are in a blind trust.
Hon. F. S. Miller: That’s partly the case. No, they’re with a blind trustee; there’s a slight difference. However, let me only say this: We can argue for a long time, and I may have to come back into this House and tell the honourable member he was perfectly right --
Mr. Peterson: Would you promise to be humble when you do it?
Hon. F. S. Miller: I promise to be humble. Am I not always humble?
Mr. Makarchuk: Mr. Chairman, I would like to raise a point as a matter of clarification. The member for London Centre says there will be no debt participation, but the minister is saying by definition that participation by debt will be permitted. As I can see it right now, what will be happening is that, instead of the SBDC becoming an equity corporation. I think the emphasis will be increasingly that the investment will be in terms of promissory notes. You can get it in both ways. The small businessman will be in a position to keep control of his corporation without having somebody tell him; at the same time, extra cash might be available to him at a more or less reasonable rate, or a more reasonable rate than what’s available now.
Hon. F. S. Miller: The limitation on the debt is in the percentage of the total capital in the SBDC permitted to be in that form, and in the legislation that is limited to 30 per cent of the total invested capital. Seventy per cent must be in eligible investments of the equity type. I think that’s the correct figure.
Motion agreed to.
Section 4, as amended, agreed to.
Mr. Chairman: That completes section 4. There is an amendment to section 9. Are there any comments on sections 5 to 9?
On section 5:
Mr. Makarchuk: I have something on section 5(4). What happens if there are groups of people involved in setting up an SBDC -- this is assuming the operation has been in existence for a while -- and all of a sudden it is decided that funds will be cut off, that there will be no more government funds available for the 80 per cent? Is it going to be advertised that “This is your last chance,” or “You have got 30 days,” or something; or by a cutoff date for any new SBDCs to come on stream? Otherwise, some people may have gone part way, gone through the legal formalities, have lined up the money and everything else, and then find out that they have been cut off.
Hon. F. S. Miller: I would hope that the honourable member would realize that is a mechanism by which this House will have some measure of control over the money spent on SBDCs in future years, because it will become a budget item in a ministry vote, and as such an amount of money would be set each year.
Mr. Makarchuk: It is not in this year’s budget.
Hon. F. S. Miller: No, it isn’t in this year’s. It is in my ministry vote this year under the Employment Development Fund money. It is not set as a specific line item because in this first year we are not able to set a figure for it; but this is the mechanism by which one stays within a vote and item number in government. It is the kind of control we expect on all governmental spending; otherwise it could be completely open-ended.
Obviously, we would have to advise corporations that the budget funds had been used up if, as and when the budget in any one year had been totally used. I don’t know that one would be able to advertise 30 days in advance, because in fact what is the use of doing that if the applications already coming on stream can’t be handled. One would simply have to say, through the process of registration, that the registration can be accepted and can be used in the next budget year but it couldn’t be used in the immediate budget year.
Mr. Makarchuk: That is the element of concern here, the fact that there will be some people who will be going through the process of setting it up, will almost complete the whole operation and then be told by the government, “You are too late, we haven’t got the funding”, or, “We have cut out the funding.”
We have seen this happen in other programs. The home repair program is a good example, where the people are told, “Yes. funds will be available for repairs to your home from the government.” They go ahead, they get the estimates, do all the things that have to be done in order to qualify; they fill in the forms, send them in and then are told, “There is no funding available.” That gets them annoyed and everybody else annoyed, and people become rather concerned about the whole function of government.
What I am asking here is that surely some kind of mechanism can be installed so people who are embarking on an SBDC will know that they have got the chance to go through the thing, put it together, and that funding will be available from the government; otherwise they could be told, “You are cut off. This is the date you are cut off,” and that’s it.
Hon. F. S. Miller: Again, that kind of problem can be found in almost every vote in this House in that there can be demands in excess of the amount this House allots for a vote.
Obviously, through the mechanisms of Management Board, the Minister of Revenue has the right to recommend changes in the amount of money, and if Management Board, in its wisdom, says that the program is worthy of a supplementary vote, fine. If it is given extra moneys that are found in somebody else’s vote, fine.
There can be no fiscal responsibility in government -- I quite agree if we are getting to the point where we are oversubscribed we have a responsibility at that point to let it be as widely known as possible so that people won’t be going through the motions only to find the money was gone before they started. That is not easy to do in this world, because I think we would have to admit one could put advertisements in every paper in this province and still have people miss that fact.
Mr. Laughren: The reason I am concerned about this section is that it is self-serving. It has nothing to do with the fact of whether or not it is a good piece of legislation, or whether or not the small business community will be attracted to this. The reason I say it is self-serving is that no one will ever be able to say to the Treasurer of the province of Ontario. “Your program was a success,” or, “Your program was a failure.” That is why the Treasurer has it in here in such an open-ended fashion. If he doesn’t put a ceiling on it, how can anyone say to him, “Your program was a failure”? Nobody can say it.
The Treasurer frowns. I notice he is doing that more often lately.
Hon. F. S. Miller: It is the job.
Mr. Laughren: Yes, it is the job.
Mr. Makarchuk: Is the pay good?
Mr. Laughren: There must be a ceiling on this program. I don’t believe the Treasurer has that kind of authority in the government that he can have a program without a ceiling.
Hon. F. S. Miller: That is what I am trying to say, there is a ceiling.
Mr. Laughren: What is the ceiling?
Hon. F. S. Miller: We tried to explain that in this first year we have not got a specific vote in a budget. I have $200 million in an Employment Development Fund. I have mentally set aside $20 million for this purpose, hoping it will be used for this current year. I think the size of a future year’s allocation will be a measure of whatever priorities government is giving to economic stimulation that year, plus the measure of the demand in the business world for this kind of SBDC.
I think I can paraphrase Mr. Parizeau when he said in his budget he didn’t know how much it would cost him for his program this year, but he hoped it would cost a lot because he wanted to see it work.
Mr. Peterson: It cost him nothing because it was a dog. That program of Parizeau’s is a dog. It’s not a dog, it is un chien.
Mr. Laughren: I understand the Treasurer wants it to cost a lot. It does seem to me you are saying the program has a mental -- for lack of a better term -- figure of $20 million you think will be spent on it. Are you telling us if it goes above $20 million it will not be allowed? Are you telling us the Employment Development Fund really only has $180 million in it? What are you telling us about this program? Is it directly subtracted from the EDF?
Hon. Mr. Miller: Mr. Chairman, this is an employment development function too, and as such I think it is as useful, and perhaps even more useful.
Mr. Laughren: How many jobs?
Hon. F. S. Miller: How can one say how many jobs are going to be in any one corporation?
Mr. Laughren: What is your prediction? You’ve got $20 million in money, how much in jobs?
Hon. F. S. Miller: The fact is that $20 million of our money would mean 2.33 times that many dollars of investors’ money. That would be $47 million, so that would be $67 million going out before we spend $20 million. Is that right?
Mr. Laughren: Something like that.
Mr. Peterson: Some of these companies are in existence.
Hon. F. S. Miller: Okay, but that is $67 million of extra investment capital.
Mr. Peterson: They will sell some shares and pay off the bank.
Hon. F. S. Miller: That is possible, but again that is replacing debt by equity. I think the honourable member would tend to agree that no one would do that in a small company unless they had very good business reasons for doing it, for all the reasons the member just spelled out a few minutes ago. Anytime I can borrow money at the bank and can afford it I am like my colleague, I am not selling shares to other people except where I have a reason to give an employee an incentive to be my employee. In each of the businesses I have owned I have always sold 49 per cent of the shares to the person who manages my business at whatever cash they have because I get the most competent, loyal, interested, low-paid -- no that last one isn’t correct --
Mr. Makarchuk: That was the accurate one.
Hon. F. S. Miller: -- partners possible.
Mr. Laughren: Mr. Chairman, what is bothering me about this, and I am glad the minister is coming around to it finally, is there is not a single proviso in this whole legislation that talks about job creation. I suspect the minister would agree that is a very serious problem in Ontario. There needs to be job creation. If there was job creation there would be the spinoff benefits of job creation which we don’t need to detail here.
Mr. Peterson: Save that for your main speech.
Mr. Laughren: No, but the Treasurer has made absolutely no projections at all on the number of jobs to be created. There is absolutely nothing in the bill that says a company can’t accept the money from an SBDC and invest it in another SBDC as a corporation.
Hon. F. S. Miller: I think you are wrong.
Mr. Laughren: No; I am not wrong. If the SBDC puts $100,000 in a business, that business can then take that $100,000 -- there is no requirement that they expand the operation or reduce their debt -- invest it as a corporation in another SBDC, and receive a 30 per cent write-down on its corporation tax in the following year by investing in another SBDC. That other SBDC then invests in a company, and that company can then invest in yet another SBDC and have a 30 per cent write-down.
That’s what is bothering me about it. While we are supporting the bill in principle we can see enormous potential for kiting of funds from one place to another. Surely that should be a worry to the Treasurer.
Hon. F. S. Miller: I will get a legal opinion on that in a second. That is the kind of thing I am not going to offer an opinion on until I have had a lawyer send me a note on it.
Mr. Laughren: Would you be worried if I am right?
Hon. F. S. Miller: I can only say this: I suppose it is conceivable that some money invested in a small business will by its nature -- Yes, section 9 (d)(i) prevents reinvestment of the money. I was pretty sure we had it plugged.
Let’s get away from your chain-letter type of thinking for a second and talk about what happens to money put into small corporations. The amount of money required to create a job varies greatly from industry to industry.
Mr. Laughren: Half a million dollars in some cases.
Hon. F. S. Miller: Sure. I have seen it even more than that. In the big petrochemical plants in the Sarnia area, I believe the cost is $1 million per job. We are now talking of very highly automated, capital-intensive companies. Most of Ontario’s small businesses are not as capital intensive as that. If one looked at the tourist industry 10 years ago we estimated that $5,000 to $6,000 created a job. I would guess today it would be closer to $15,000 per job created.
In most instances, when a company receives an infusion of capital it will do something with that capital like buy a machine or add on to the premises. Almost every time that addition requires extra people; there are very few instances where you can simply use capital without labour.
Mr. Laughren: Mr. Chairman, I think I am jumping ahead when I respond to the Treasurer here. He implied that my comments about the reinvestment of funds was covered by section 9(d). I don’t believe that’s correct. I suspect the Treasurer got that information by a memo from his staff, but section 9(d) says that the investment must not be used by the small business for the purpose of relending. I think that’s what they are hanging their hat on.
Investing in another SBDC is surely not “relending.” It is an investment by a company in another corporation. I doubt if that would be legally interpreted as a lending operation. I could be wrong; I am not a lawyer, thank God. But I really wonder if that is the proper interpretation. I don’t see it being covered under section 9(d)(ii), or 9(d)(iii), or 9 (e).
Hon. F. S. Miller: If the honourable member is in doubt, or if our lawyers on examination of 9(d)(i) feel he has a valid point, and he may have, I am certainly willing to see that an amendment be put in there to clarify it for him.
Section 5 agreed to.
Section 6 agreed to.
On section 7:
Mr. Makarchuk: Would the minister indicate what coercive powers he will exert on the SBDC if, at the end of the first year, they haven’t got their 40 per cent out and at the end of the second year they haven’t got their 70 per cent? What action is he going to take against them? How is he going to do it?
Hon. F. S. Miller: Mr. Chairman, if I’m not wrong, there are a couple of sections that will deal with that. Section 8 deals with the trust moneys and would allow us to deregister a company and take back the amounts of moneys given to the shareholders as a grant, if I’m not wrong. Also, section 28 sets out conditions under which we can deregister a company if it hasn’t managed to meet our targets, and also where the spirit of trying to meet them has not been visible.
Do you remember I said earlier there would be a discretionary power for the Minister of Revenue to decide if there were good reasons?
Mr. Peterson: That’s putting a lot of pressure on the member for Parry Sound (Mr. Maeck).
Hon. F. S. Miller: Let’s be honest. If there isn’t at times the right to use discretion then very often some silly but required statutory moves are taken. I don’t think you’ll find the civil service, which would recommend those kinds of things to the minister, would do it lightly, unless they had a good reason to recommend a waiver of the 40 per cent/70 per cent sections.
Mr. Makarchuk: Mr. Chairman, again what concerns me is you could deregister the SBDC, but isn’t that really in a sense defeating the whole purpose of the operation? It leaves in your hands some rather arbitrary powers, sort of ministerial discretion or civil servant’s discretion, and it again leaves things up in the air.
The investor, the person who will be putting money into the SBDC, may be under a certain amount of apprehension with the knowledge that if they do not get their 40 per cent of the funds out in the first year they could be delisted and the whole thing falls apart. They would have to turn back the 30 per cent and everything else. After going through all the rigmarole of setting up the corporation with all the legal requirements to fulfil, et cetera, they’re behind the eight ball; they would be losing money strictly because the minister has this kind of discretion.
Hon. F. S. Miller: Mr. Chairman, there are also abuses open in the other direction. I think one has to have a balance so people couldn’t use an SBDC as a convenient vehicle to get their 30 per cent cash rebate and invest in Canada Savings Bonds or a trust account with certificates of deposit paying 10.25 per cent -- or whatever the rate may be on a given day -- effectively giving them, say 15 per cent and not achieving any of our goals. Therefore, there has to be a requirement for investment in eligible investments. The only counterbalancing force would be the right to appeal, to say “We are unable to meet those criteria at this point because of the following reasons, which are valid.” I have enough trust in our system to believe that will function fairly.
Mr. Peterson: We’ve already discussed the 40 per cent 70 per cent and we all have little problems with it. I don’t know what more we can say, but I want the minister to explain to me how he figures, and I know it’s only partially on this section, but let’s discuss it now, the trust fund payout is going to work.
The money goes into the SBDC, there’s 30 per cent set aside in trust. It semi-relates here, maybe we can discuss it here or maybe you would rather discuss it with section 8, it relates to the two.
When is the minister going to release that trust? At the point the 40 per cent is released the first year or at the point the 70 per cent is released? How does that relate to when you’re going to pay the guy back his 30 per cent bonus for investing?
Hon. F. S. Miller: If you read section 8(2) I think it explains the mechanism by which the release is made. It says: “The minister shall permit payment from the trust fund of an amount equal to three-sevenths of the purchase price by the small business development corporation to acquire any eligible investment, provided that the minister is satisfied . . .”
As the company starts investing from day one, as I would read it, they are able to get that money back. In most cases you won’t be dribbling your money. You will be making discreet purchases in companies for considerable amounts of money. Each time you put $50,000 or $100,000 into the company you would then get back three-sevenths of your trust fund or it would be released on that basis.
Mr. Peterson: When do you get the thing back from the government?
Hon. F. S. Miller: When do you get it back from the government?
Mr. Peterson: There’s a section in here that says on registration, I believe. I was wondering about the timing of the three things.
Hon. F. S. Miller: Let me try and find the section. It’s in here quite a bit further on, as I recall. I may have to have somebody who has written the bill tell me the section number. Payment of grants, section 21, I think that’s the one we’re going to talk about. Do you mean how you get your 30 per cent?
Mr. Peterson: Yes.
Hon. F. S. Miller: It’s in section 21, as I understand it. I’m looking for confirmation. That’s right, yes. The details will be there. If you want to discuss it when we get there, fine.
Mr. Peterson: I’m just trying to relate the three things. I thought this was a good chance to explain the point at which I make my investment in the SBDC related to the time I get my cheque back from the government, related to the time the SBDC makes its investment in a small business. How does that relate to the time when the money is released from the trust? It seems to me the timing of all of that is important. I don’t pretend to be able to relate all of those sections together. My point is, if the guy is not going to get his 30 per cent back for two years or until such time as the investment is being made, or coming up to the 70 per cent level, you can see that the immediate reinforcement is somewhat delayed, and like a Pavlovian dog, he will react a little later than he is supposed to. Can you help me out with that?
Hon. F. S. Miller: I can’t give you an exact timing on it. I would like you to read section 21 carefully.
Mr. Peterson: I read it, that’s why I asked you.
Hon. F. S. Miller: Okay. It doesn’t prescribe times. It says: “The minister may pay a grant equal to 30 per cent of the amount of money actually paid by the applicant to the small business development corporation for equity shares.” That, to me, would mean, I would think, on acceptance of the registration of the company. I would guess that’s the time. Yes, I’m told that’s right.
Mr. Peterson: Your administrative plan then is to get that bonus back as quickly as possible upon the registration of the SBDC. I wanted that clearly on the record.
Hon. F. S. Miller: That’s possible, because the 30 per cent is held in that trust fund so the risk is not that great. That is, 30 per cent of the invested capital of the SBDC remains in trust if they don’t go ahead and make any investments. We always have something against which we can lay claim if that company doesn’t try to reinvest its money.
Mr. Peterson: The only thing I can’t understand is at what point is the person entitled to invest 100 per cent in the trust fund?
Hon. F. S. Miller: He can invest 100 per cent. I think the three-sevenths ratio soon runs you out of money. The three-sevenths ratio, if my mathematicians have done their work correctly, will exhaust the trust fund as you reach 100 per cent of the invested capital.
Mr. Deputy Chairman: Does any other member wish to speak on section 7? Shall section 7 stand as part of the bill?
Mr. Peterson: No.
Mr. Deputy Chairman: You’re not satisfied yet?
Mr. Peterson: Maybe I’m sort of crazy, but I just want to pursue this a bit. At the point the SBDC has invested, assuming they invest 100 per cent, the trust fund has been paid out, or at least it’s been dispersed; what protection does the government have if there is something untoward going on? The whole object of the trust fund was to protect your investment in the original investor. What is your protection at that point except you can sort of move in on the SBDC and take its assets or the shares it holds in other companies? Do you have any ideas on that?
Hon. F. S. Miller: I let my mind wander for a second, Mr. Chairman, I was thinking of an answer to another question. I’m sorry I didn’t hear you pose it clearly enough.
Mr. Peterson: I didn’t pose it very clearly because I don’t understand it. I thank you for giving me another opportunity to do the same.
We have these provisions in the act to pay out on the trust fund on a specified ratio. The reason for the trust fund is to protect the government’s interest in the little bonus or prize they give to the investor, but that protection the government holds is gone as soon as all that money has been paid out. As soon as you have qualified and you have gone up to more than 70 per cent then you can invest the rest in equities, or whatever, of other small businesses, the small business or whatever. My point being, what protection does the Ontario government have if there is something untoward at that point? It doesn’t have any access to a liquid pool of cash to get its money back.
Hon. F. S. Miller: There are clauses in here that we have for the winding up of a company, and we have clauses requiring an average amount of money of 70 per cent to be retained in eligible investments. I think it is section 24, recovery of grant or tax, that would apply to the winding up of a corporation, it spells out the amounts we get back, because in not every case will the company make a profit; they can go bankrupt and we won’t get anything back. But you realize when we wind up these corporations we get our 30 per cent back.
Mr. Peterson: How do you get it back?
Hon. F. S. Miller: Section 24 spells that out if you want to go through it. In other words, it is a deferral of tax. If you leave a corporation existing for ever, we never get our money back. But if the company wants to wind up its investment and wind up the SBDC, then that money is no longer available for placement in the market and, therefore, no longer should the credit apply. There is a mechanism then, if the company winds up its assets, to get back the 30 per cent, because they are no longer complying with the intent of our policy. You can understand that, if you didn’t have a clause like that in there, you could have people who could wind up a company very quickly, having achieved their objective of gaining 30 per cent and, in effect, disappear.
Mr. Peterson: So you are just making a loan to the investor.
Hon. F. S. Miller: You are, in effect, making a loan to the investor of 30 per cent at zero interest, as long as he leaves the moneys in the marketplace.
Mr. Makarchuk: He could still disappear, but by the time you catch him it would be too late.
Hon. F. S. Miller: Sure.
Section 7 agreed to.
Section 8 agreed to.
On section 9:
Mr. Deputy Chairman: Hon. F. S. Miller moves section 9(1)(c) of the bill be struck out and the following substituted therefor:
“(c) the investment is the purchase and acquisition from a small business by the small business development corporation of equity shares issued by the small business, but where the equity shares are issued as part of a transaction involving the purchase or redemption, directly or indirectly, of any previously issued equity shares of the small business or an affiliated corporation, the investment is an eligible investment only to the extent that the investment represents net new equity capital calculated in the manner prescribed.”
Hon. F. S. Miller: That mouthful really prevents companies from buying back a class of shares, reissuing another class of shares, and having somebody claim 30 per cent without any more money having gone into the company. It simply cleans up the wording of the section we had here. The intent is the same, but the lawyers in looking at it claimed we should rephrase it.
Mr. Makarchuk: Mr. Chairman, I would like to speak on section 9(1)(a). This is a matter that was raised in the speeches. What assurance does the Treasurer have, despite his statement that it has to be resident in Ontario, Canada and so on, that he can prevent the setting up of quasi-Canadian corporations -- front companies, really -- which in effect are paying a great deal of their income in terms of some other means, outside of wages and salaries, to a foreign corporation. They could be management fees, licence fees, patent fees, royalties, et cetera.
Those are the other avenues available, and that is a problem right now in terms of whether we have some control over whether the corporations are paying their fair share of taxes because they are in the position to manipulate the internal pricing within the thing. Although it ostensibly will be a Canadian or an Ontario corporation, it can still be milked dry or be a front for a foreign operation, and really you’re not any further ahead. They still have, in addition to that, received the advantage of the 30 per cent grant from the government.
Hon. F. S. Miller: The kind of problems the honourable member describes certainly exist in the multinationals where they are either totally owned by a foreign company or controlled by one. In a case like this, we have two clauses in the act. One is the section to which he is referring that says, “75 per cent of the salaries must be paid in Ontario.” That doesn’t protect ownership at all.
A second section a little further on -- it’s section 9(f)(i) -- says: “An eligible investment is a small business in which no more than 25 per cent of the total number of issued and outstanding equity shares of the corporation are owned by foreigners, and no more than 10 per cent owned by any one person.” I would have to say under those conditions, with the limitation of 10 per cent in one individual’s hands and a sum total in foreigners’ hands of 25 per cent, the kind of agreement you just talked about becomes almost academic. I won’t say there won’t be legitimate charges for a royalty or a patent right of some type, but the likelihood one is transferring moneys to another tax jurisdiction almost totally disappears.
Mr. Makarchuk: I won’t argue with that. My legal knowledge isn’t that profound, and my consultant, Mr. Warner, is in agreement with me. It’s like the Bank of Sark, if you remember the story, where they had the office upstairs and the waitress who worked in the restaurant downstairs occasionally answered the phone and she was the Bank of Sark. They channelled through countless, well not countless, but many millions of dollars in the process. This, it seems to me, despite the fact you’ve got the shareholders and so on, offers no protection. Assuming they were paying it out in equity or in dividends, et cetera, then there is some control, but it seems to me there is no protection in this legislation for the kind of milking that can happen and does happen. Right now, it happens, with the multinationals with their branch plants; and I’m glad the minister acknowledges that as a fact.
It still seems to me this can happen in this bit of legislation. I’m not sure what kind of an amendment we could put in this, but perhaps it could be something to the effect that the payment in royalties, patents, research fees, et cetera and so on to a foreign corporation shall not exceed more than 25 per cent of the total salaries and wages, or something of that nature. That would put in a restriction. Whether the figure of 25 per cent is a proper figure or a fair figure or one that will not hinder the operation is something very difficult to ascertain at this time. I feel there should be some concern about this, and, although at this time the minister is not prepared to do something about it, it’s something that should be watched.
Hon. F. S. Miller: We’ll watch it.
Mr. Makarchuk: We should be certain it is an Ontario operation and the money does stay in Ontario, or the great percentage of it stays in Ontario.
Hon. F. S. Miller: I agree, our intentions are the same. We will watch it, and if we felt the protections built in in terms of ownership weren’t adequate then I think we’d have to consider other means.
Mr. Peterson: One more time for the record, I want to say I think the prescribed list may be a little tight. One of the problems, of course, as was said before, is as soon as a company is successful there are no longer eligible investments. We want to encourage labour intensive industries here and manufacturing is a questionable term. Who knows what manufacturing means these days?
Hon. F. S. Miller: I’m listening.
Mr. Peterson: There are various different gradations of it. I think we should be a little more flexible and I think we should also consider some kinds of service industries. After all, we’re looking for employment, which is the fundamental object of this act, and I think we’re being a little tight. Number two, I would like to see a loosening of the act in terms of investing in the debt of prescribed companies.
Number three, the fact you can only own 49 per cent is also a limitation that may or may not, over a period of time, be a hindrance in this particular case. It certainly prevents some of the bigger syndicates from becoming involved, and it is something I think we will have to take note of and maybe look at a year from now if this bill comes back before the House. But that is just for the record, because I don’t know the answers to those questions any better than the Treasurer does.
Would you explain to me what 9(1)(g) means?
Hon. F. S. Miller: Just by coincidence, Mr. Chairman, that is what I was over talking to the lawyers about.
The wording to me, as a non-legal person, is difficult to interpret. The other night I asked my lawyers about it because you brought it up in your opening comments, and I guess there are times when I have to trust them.
Mr. Makarchuk: You know what Shakespeare said about lawyers, don’t you?
Hon. F. S. Miller: What did he say, Mac?
Mr. Makarchuk: He said first we shoot all the lawyers -- or kill them.
Mr. Martel: You know what Bob Nixon said about the lawyers. Take all their QCs away from them.
Hon. F. S. Miller: The clause there allows us to prevent some of the things the member for Nickel Belt referred to earlier -- that was the reinvestment of an SBDC into an SBDC, et cetera -- because we are able, through regulations, to prescribe the classes that would not qualify.
Mr. Peterson: This gives you the power to prescribe what won’t qualify, as opposed to what will qualify. So you are going to have a list of everything in the whole world that won’t qualify.
Hon. F. S. Miller: No, no, no. I think we could by exception name a non-qualifying company. In other words, if it wasn’t listed it doesn’t mean it doesn’t qualify; but if we specifically say this doesn’t qualify, it doesn’t.
Mr. Peterson: Is this common wording in other acts that allows you, if you don’t like one particular chap or you figure he is violating it, to name him?
Hon. F. S. Miller: Yes. It is called a basket clause.
Mr. T. P. Reid: From a basket case?
Hon. F. S. Miller: It is the kind of phraseology that my lawyers tell me has been acceptable to cover eventualities that may arise and may require a regulation to cover them. I think the honourable member for Nickel Belt named the very kind of thing that would be required.
Mr. Laughren: How do we know that is going to happen?
Mr. Peterson: Would that be a specifically drawn regulation? Could you give me an example? I don’t think it does cover the kind of thing my friend from Nickel Belt was asking about.
Hon. F. S. Miller: I am saying a regulation would be written to prescribe that. In other words, we can write a regulation saying a small company can’t --
Mr. Laughren: I want it to say that the member for Nickel Belt will decide which corporations are eligible.
Hon. F. S. Miller: That is certainly more specific.
Mr. Peterson: I am going to try it one more time, and I will read it:
“An investment shall be an eligible investment if the small business is not of a type prescribed by regulation.”
So that means that under this section you can draw up regulations to say who will not be eligible.
Hon. F. S. Miller: May I say to the honourable member, since I am not a lawyer either I have had trouble, as he is having trouble, reading the English and getting the interpretation from it that my lawyers assure me is there.
Mr. Martel: You are bringing it in and you are not sure?
Hon. F. S. Miller: All right. Look, my friend, I know the limitations of some of my abilities -- some of my abilities, or some of my limitations.
Mr. T. P. Reid: Didn’t you talk to that corporation lawyer from Sudbury?
Hon. F. S. Miller: I want only to say this: in the next few minutes I will have three of them consult over here. If, in fact, what they have been telling me is not so, I guarantee you that we will come back to it before we pass this bill tonight. Is that fair enough?
Mr. Peterson: Can we set that one aside?
Hon. F. S. Miller: Yes, I will be glad to set it aside, or come back to it, as we see fit. We have the most competent of all the legal people in Ontario sitting over there, so I am sure he will guide us.
Mr. Deputy Chairman: Well, we will set aside the whole section and come back to it.
On section 10:
Mr. Peterson: This is one I have got to come back to.
“A small business development corporation shall maintain its assets in eligible investments” -- well, we have already established that -- “liquid reserves” -- okay -- “equity shares that were eligible investments at the time they were acquired by such small business development corporation” -- fair enough -- “debt obligations of any small business that is an eligible investment, or such other form as may be prescribed.”
This allows an SBDC to invest up to 30 per cent -- i.e., the non-70 per cent part -- in the debt obligation of a small company. So, in fact, it allows them to go in with a package of debt and equity, or it allows them to invest -- why do you need that? Why is that clause important in there? Why not just say “debt obligations of any business?” That could be an SBDC or it could invest in the debt of any other company, could it not? Couldn’t a small business development corporation buy Hydro bonds?
Hon. F. S. Miller: Not the way that reads. I don’t think that would be a liquid reserve by my definition.
Mr. Peterson: As a liquid reserve it would qualify.
Hon. F. S. Miller: It could be prescribed, but it is not as such.
Mr. Peterson: What do “liquid reserves” mean?
Hon. F. S. Miller: We would have to go to an accountant to get a proper definition, but I would have thought that bonds did not qualify.
Mr. Peterson: I think they do.
Hon. F. S. Miller: Bank accounts, certificates of deposit, those things which can be immediately made into money.
Mr. Peterson: So can stock of Bell Telephone.
Hon. F. S. Miller: Bell Telephone stock cannot be put into cash at a predictable price.
Mr. Peterson: Is the Treasurer telling me that is the legal definition of “liquid reserves”?
Mr. Laughren: I would like to propose a toast to free enterprise. Look at those two pretending they are free enterprisers.
Mr. Peterson: What is the Treasurer suggesting the 30 per cent trust fund be invested in? Suppose they are in a hiatus period.
Hon. F. S. Miller: First of all, they may be simply keeping themselves partly liquid, waiting for another equity investment. Therefore, in that period of time they may wish to keep it in something like a bank certificate of deposit, which would by my definition qualify as a liquid reserve. Secondly, they may wish to do what the honourable member suggested in his speech under the second reading, that is, make a package mixed up of equity and debt instruments for a specific company. That is why clause (d) refers to debt obligations of companies that are eligible, rather than debt obligations of any company, such as the member mentioned in the case of Hydro or Bell Canada.
Mr. Peterson: I just want to make sure I agree with the Treasurer on this. I am addressing this to the lawyers on the bench. Are you telling me that trust fund cannot invest in a treasury bill for example? That is not liquid.
Hon. F. S. Miller: The trust fund could. The moneys in the trust fund are quite different from the moneys that have been released from the trust fund. That is the only difference. In the trust fund we have it in a form that we can get it in a hurry, whereas once the company has reached its 70 per cent equity level it is free to either invest the other 30 per cent in equity or to invest it in these forms of debt.
Mr. Peterson: But the Treasurer can see there is going to be a time lag. We have two years to invest up to 70 per cent. I think the realities of the marketplace are that in some instances at least somebody will form one of these things, collect all the money and be sitting there looking around for investments. What are they going to do with that money sitting in the pot while they are waiting for the right deal?
Hon. F. S. Miller: Again, it can earn interest while it is waiting. The interest accrues to the small business development corporation; it does not accrue to anybody else, it does not accrue to the government.
Mr. Peterson: But they cannot buy Bell Telephone stock.
Hon. F. S. Miller: No.
Mr. Laughren: Is the Treasurer not worried that he is undermining the private enterprise system?
Hon. F. S. Miller: Yes.
Mr. Laughren: I really worry about that.
I wonder how the Treasurer can sit there one day talking about the virtues of the free enterprise system while the next day he gives a 30 per cent write-off to people who invest in it.
Hon. F. S. Miller: As the member for Nickel Belt knows, I am really a member of his party. He should not be exposing my real colours.
Mr. T. P. Reid: With some of the crazy people they’ve got in that party you could get in.
Mr. Laughren: We have often talked, in this party, about the need to stimulate the private sector. Here we are, socialists, and we have never had the audacity to come out and say that we will give 30 per cent right off the top and after that they can earn profits in whatever they invest in.
Mr. T. P. Reid: You sound like a free enterpriser.
Mr. Laughren: That really does my head in. But there he is, he sits there extolling the virtues of the free enterprise system and saying to the Canadian Federation of Independent Business: “Look, we believe in the free enterprise system. We believe that the private sector can exist with less government intervention. If only governments could get out of the free enterprise system, then the free enterprise system would function the way it is supposed to.” Don’t get me going. Rule me out of order, Mr. Chairman, before I get rhetorical.
Hon. F. S. Miller: I’m on your side. Just cool off.
May I just point out that the point raised by the member for London Centre was accepted by the legal staff and there will be an amendment to section 9(g) to clean up the wording so that you and I can understand it. I can table that now and go back to that section, since we deferred it a few moments ago, with my other amendment, if you wish.
Mr. Chairman: We are on section 10 at the moment.
Mr. Makarchuk: On section 10(1)(d), the reference to, “debt obligations of any small business”; I may be reading this wrong, but what is there to prevent me from lending the money to the small business development corporation and then borrowing it back from them? I have got my money and I’ve got my 30 per cent. This is the way it appears. It is as if private enterprise has run amok in a situation like this.
Hon. F. S. Miller: No. It says quite specifically, “debt obligations of any small business that is an eligible investment.” Therefore you can’t be lending it back to the original shareholders. They are covered by a whole bunch of clauses that discuss affiliates, associates, et cetera, to prevent that kind of thing.
Section 10 agreed to.
On section 9:
Mr. Chairman: Hon. F. S. Miller moves that section 9(1)(g) be struck out and the following substituted therefor: “(g) the investment is made in a small business that is not of a type prescribed by the regulations.”
Mr. Laughren: You are going to have to explain the difference.
Mr. Lawlor: I hate to intervene at this very late stage of these proceeding, but why the hell isn’t there a wider range? You are restricting it to manufacturing and prescribed tourist activities, et cetera. The people who came into my law office in the old days when I had such a thing and who are still in the constituency are in service industries of divers types. I don’t think you should place the weight there by any means, economically speaking what we need is manufacturing; nevertheless, the growth of jobs and the future expansion of the economy to a very considerable degree rely upon that.
In the prescribed sphere at least, who does the minister not designate and elaborate? Not every hotdog stand in the province can have an investment potential here, nevertheless many people in quasi-manufacturing -- the division between the service and the manufacturing is a very amorphous thing, I think. Sometimes in the little plant out there, they call it a service industry, they are providing what are fundamentally services, yet there’s an element of manufacturing context. They’re making new products, whether they’re napkins or whatever; sometimes they’re quite inventive. That’s where the gravamen of much of the future development of this province lies, yet in this legislation as I read it and as I say, I’m one of the latter-day saints in the matter --
Mr. T. P. Reid: Later or latter?
Mr. Lawlor: -- having hardly even read the legislation. Nevertheless, I would like an answer on that in order to satisfy myself that the legislation has even a modicum of common sense.
Hon. F. S. Miller: Mr. Chairman, the very fact I moved it indicates it has a modicum of common sense. You would admit probably that’s all it indicates.
The truth is, this was discussed at some length in the discussions as to what kinds of businesses should be encouraged. We could swing, and we did, all the way from why not let them invest in any small business anywhere, be it a grocery store, be it a hardware store, be it a marina -- which I think would be covered under tourist activities in my definition -- be it a plumber’s business, those kinds of things. In fact, we believe it is quite easy, through subclause (iv) of clause (b), to widen the terms of reference for the kinds of businesses that will become eligible investments as experience dictates.
We set our first priorities as these types of investments, not necessarily ruling out the willingness to go to others if there was not enough demand for investments in these kinds or if we concluded we should be stimulating others. But with relatively scarce funds, one might say, one would like to see them go into these categories first of all, since we believe there are more real creators of wealth within the economy.
We leave the option open under that one section to expand as experience allows us to make those choices.
Motion agreed to.
Mr. Chairman: There was a previous motion amending section 9(1)(c).
Motion agreed to.
Section 9, as amended, agreed to.
Section 11 agreed to.
On section 12:
Hon. F. S. Miller: I have an amendment to section 12, to get rid of some redundant wording.
Mr. Ruston: The bill is all redundant.
Mr. Chairman: Hon. F. S. Miller moves that clause (a) of section 12(3) of the bill be amended by striking out at the end thereof:
“and none of the shareholders are associates or affiliated corporations.”
Mr. Peterson: I’d like your interpretation of section 12(2). In your opinion, does this mean that no business can invest in someone with whom they have either a buying or selling relationship?
Hon. F. S. Miller: That section really prevents sweetheart deals, where you could become the only shareholder of an SBDC. You can invest in 49 per cent of a little company and say: “Okay, my condition for investing is you buy everything you need of a certain product from me because I own or have an interest in such and such a company.” What we’re saying, in that section, as I understand it, is that unless the company is widely held, i.e., you own 10 per cent or less you may not do business with a company in which an SBDC of which you’re a shareholder owns shares.
Mr. Peterson: That’s my understanding too, but someone with whom I’ve chatted and who is very keen on this whole thing and thought it was wonderful said, “Gee, I already know companies that want to set up SBDCs to invest in their suppliers.” I hasten to point out to them, because they will probably read Hansard, that’s clearly prevented in section 12(2) as I read it. I just want a confirmation from the minister.
Hon. F. S. Miller: I can see it being a genuine way of milking a relationship. Yes, I would say that if there were strenuous objections I’d be willing to delete it, but I think the protection is better in than out for the time being.
Mr. Lawlor: What you’re taking out, as far as you’re concerned, is a redundant clause. In 12(1)(a), you’ve already excluded a major shareholder, which you’re defining in this particular context, and then, you go on to say, “or an affiliated corporation or an associate.”
There are good reasons for conflicts of interest and for playing with the moneys that are available from the government by way of collusive practices and what not. When you come to define major shareholders you’re saying the ground is already covered in the previous clause and therefore it is not necessary. Is that correct?
Hon F. S. Miller: I think you’re referring to a different section, apart from my amendment. The amendment I just proposed does refer back to words already contained in 12(1)(a). It talks about 12(3)(a) and not 12(2).
Mr. Lawlor: That’s what I say, you’re defining major shareholders and you don’t feel that the extended definition that you’ve given to that is necessary in the 12(3)(a) context, because the ground has already been covered. Is that correct?
Hon. F. S. Miller: Yes.
Mr. Makarchuk: On that same section: On the one hand I can see the concern and the need to prevent sweetheart deals because they’re receiving public funds. However on the other hand, as the minister well knows a lot of business operations do not necessarily operate on the sweetheart deal but operate on the principle of “I’ll scratch your back and you scratch mine. I’ll buy from you and you’ll buy from me, and we’ll all exchange a lot of things.” That goes on all the time. If you’ve been out selling industrial supplies you really see the situation. On the one hand I can see the concern, but on the other hand if I may take the other side --
Mr. Laughren: I don’t think you need to. Mr. Makarchuk: -- in this case I could argue quite reasonably that to encourage or possibly channel some of this public funding into the small businessman or let the small businessman get some advantage that 10 per cent limitation might not be the best figure in the book. It’s an absolutely safe figure, I would say.
Mr. Ruston: Conservatism, the NDP slogan.
Mr. Makarchuk: On the other hand, the minister knows and I know the reality out there is that there is a sweetheart deal going on all the time.
Mr. Bradley: Another form of socialism.
Motion agreed to.
Section 12, as amended, agreed to.
Sections 13 to 20, inclusive, agreed to.
On section 21:
Mr. Laughren: Have we gone all that way?
Hon. F. S. Miller: We did call the sections. I will gladly back up if there is something you wish to cover.
Mr. Laughren: I was just wondering about a point on section 17.
Mr. Chairman: Does the committee agree to go back to section 17?
On section 17:
Mr. Laughren: I am stretching the leniency of the chair here. I am sure, but I am worried about ensuring that all information pertaining to SBDCs is available to people who have a concern about them. In section 17 we are talking about the SBDCs filing with the minister, in the form that the minister prescribes, information that he wishes.
What I am concerned about is that the minister -- the Ministry of Revenue, I believe, is the ministry maintaining the files on the SBDCs; I may be wrong but I think that is correct -- I am concerned that there be some way for the individual investor out there to find out through the Ministry of Revenue just what is available through SBDCs, what SBDCs are investing in what kinds of small business, so that there is what the economist would call more information on the buyer of the service. I am worried about it becoming a closed shop kind of operation, if you will pardon the expression, within the investing community.
Hon. F. S. Miller: I would have to check the rules on private corporations, but I thought they had the right to refuse to divulge that kind of information as part of the rules, and that we weren’t doing anything specific here except making sure that changes affecting the basic owner’s investment portfolio were duly reported to the Minister of Revenue for purposes of making sure the requirements of this act are complied with. In other words, apart from that we are not giving them rights we don’t normally give other private corporations.
Mr. Laughren: Talking about giving rights you don’t normally give; you don’t normally give this 30 per cent write-off on the part of the taxpayer out there either, so don’t talk about this as though it is a normal corporation out there. The public at large has a 30 per cent interest in what you are doing here. I would think the Minister of Revenue perhaps could comment on what he intends to provide to the public at large in the form of information about the SBDCs because we all have a stake in them, and whether they are a success or a failure. There is a greater obligation in this case to make sure information is available to us when we want to find out about what SBDCs are investing and where they are investing, both for the taxpayer and for the investor.
Hon. F. S. Miller: I would say the information basically will be available in sum total, but not in the specifics.
In other words, you wouldn’t have the right to know what the SBDC belonging to the member for London Centre and his 10 colleagues in the front row of the Liberal Party are investing in; or those that the member for Nickel Belt invests in. But in sum total: first we would have, as Revenue Canada has, access to confidential information; the Minister of Revenue in Ontario will have confidential information to make sure the public interest is protected.
In terms of confidentiality, though, those investors have the right to keep those investments confidential, provided he is satisfied they have obeyed the law and the spirit of the law.
Mr. Laughren: I don’t want to belabour it, Mr. Chairman, but would the two ministers over there agree that there is a major investment by the public, particularly if it is a successful venture? If the SBDCs do go over as well as the Treasurer thinks they will, there is a major investment on the part of the public in these, because of the 30 per cent either direct tax write-off, or tax write-down in the case of corporations. Therefore there should be more information available. Would they be prepared to table in this Legislature on an annual basis, a fully detailed report on the SBDCs and where they are, who they are, who the major investors in the SBDCs are and where they are putting their money?
Hon. F. S. Miller: I don’t think I could agree to do that. I would provide whatever information would normally be available on a corporation. I can’t promise to give more information; because I sense, in all honesty, your party traditionally has been one of the greatest protectors of individual privacy, whether it was OHIP or something else. I would suggest to the honourable member this falls into that kind of category. Certain things under the Income Tax Act have been private --
Mr. Laughren: There is a little difference, Frank.
Mr. Makarchuk: You are trying to pre-empt us by putting it that way.
Mr. Lawlor: We would like a little less privacy and more publicity, please.
What in blazes is the role of the Ontario Securities Commission? What does the Minister of Revenue know about disclosures in this area with respect to dividends and the purchase, surrender, redemption or conversion? Conversions of equity stock can be quite intricate pieces of business converting to various types of redeemable portfolios.
The securities commission is peculiarly clued in as to that whole realm of dividends and disposition and sale of stock. I would have thought they would have been brought into this picture as a better vehicle than the Ministry of Revenue. Every day of the week they are handling this type of conversion; they play with equity stock and a wide range of other stuff. They know it intimately, in a way the Ministry of Revenue knows nothing about or is not particularly sensitive to. It strikes me as strange the OSC is not given the pivotal role in this section.
Hon. F. S. Miller: Far be it from me to tell the honourable member, because I can’t spell out what the OSC does or does not control, but it seems to me the great bulk of its dealings are related to stocks of public companies dealing in the marketplace, protecting investors who may not have the ability to know some of the shenanigans that can go on in the field of financing public companies for sale. This section, if one notices, has a key word in it, that the minister shall be advised at least 21 days “prior” to these changes occurring. This is because of the requirements that the portfolio on average meet the investment ratios prescribed in the act.
Mr. Lawlor: The whole problem of timely disclosure is involved here. Setting up an arbitrary time limitation, et cetera, on the 21-day basis involves this very kind of thing, and these are at least quasi public companies. This is not the same as Eaton’s running its own show in the disposition of its internal equity position and the range of types of shares -- preferred, common, convertible, whatever it may deal with. Here there is given special credence and special privileges, and a certain recompense by investing in it.
I put it to the minister the ministry involved is not particularly competent in this area and you’ve got a vehicle in place which can make almost instantaneous decisions with respect to the very manipulations involved in this range of powers and dispositions outlined in the act. Why in blazes isn’t the securities commission involved in the thing as the approving or disapproving body rather than the ministry that has been designated under section 1 of the act?
Hon. F. S. Miller: I’m not a match for the honourable member. I can only say we have consulted with the OSC in the drafting of this act, or so I am told, and they are satisfied with it.
Mr. Lawlor: The Minister of Revenue (Mr. Maeck) might enter into the debate to give us good assurances. Don’t pre-empt the poor fellow. The Minister of Revenue can give us assurances that he had adequate staff, thoroughly clued in to the range of security matters. I thought the government relied fundamentally upon the securities commission, who are a fairly shrewd bunch. Have you got people who are able to handle the disposition of these matters with respect to redemption procedures and with respect to various forms of stock?
Hon. Mr. Maeck: At the risk of being called out of order by the chairman, not being the man who’s bringing this bill through, I would advise the member for Lakeshore that I am not sure whether we have the expertise or not, but we would obviously have to obtain it if we don’t have it in order to carry out the intentions of the act.
Mr. Lawlor: What in blazes is the point of doing that if it is already in place? If the securities commission, which causes a great deal of public expenditure and does on occasion blunder, as with Atlantic Acceptance Corporation and numerous other enterprises, why don’t you, since it is in place, give the proper body the proper disposition of affairs? I am just making it up as I go along.
Hon. F. S. Miller: I was afraid of that.
Mr. T. P. Reid: Anyone who has read your poems would believe that.
Mr. Chairman: Order.
Hon. Mr. Maeck: When this act is in place and we start to move into the administration of it, it would be much more simple, in my estimation at least, to deal with it in one ministry rather than delaying all of the things that have to take place by delegating part of the work to another ministry or another group. It is much more simple to handle it within the one ministry; I think that is the intent of the whole bill.
There are other sections of this bill, I suppose, that could have been designated to another ministry or another branch of a ministry, perhaps better so than the Ministry of Revenue, but if we get into that situation, where we are asking one branch of another ministry to do one thing and another one to do something else, then we will have to compile the information. We would like to see this thing flow as smoothly as possible and I believe that is the only way it can be done.
Mr. Lawlor: For such a modest human being, you still have Parkinson’s law on the brain; you know, the expansion of your little empire. You are going to have to bring in a whole new battery of experts. You, on your own admission, have said we will in order to supervise and estimate and be able to make a disposition of the very matter in question.
Mr. T. P. Reid: Being optimistic, they will not have that many takers.
Mr. Lawlor: Well, so be it, but don’t pretend to us you are particularly assiduous with respect to cutting back the peculiar powers of your particular ministry. You are expanding, not contracting. You have to. Part of my philosophy is that the contemporary world does force certain terrifying options upon us. Doesn’t it?
Mr. Laughren: I am voting NDP next time. Mr. Chairman: Section 17 was carried previously, as were sections 18, 19 and 20.
On section 21:
Mr. Chairman: Hon. F. S. Miller moves that section 21(2)(b) of the bill be struck out and the following substituted therefor:
(b) The applicant is ordinarily resident in Ontario.
Hon. F. S. Miller: That simply will clarify that and the language in that clause is put in conformity with that used in other sections.
Mr. Lawlor: What the hell does that mean? Do you mean not in Mexico? You know what they do in Mexico; they say not ordinarily resident in Mexico, which means they are ordinarily resident in Ontario. By that way, all legislation with respect to foreign disposition of stock ownership and the advantages with taxes that are accrued go to certain New York corporations.
Mr. Makarchuk: I am concerned about this. What assurance does the minister have that, again, it is really residents of Ontario who are getting the grants and the money is not really channelled somewhere else? The people can be the front people and living or ordinarily resident in Ontario, whereas the money is going somewhere else, down to the Bahamas or Luxembourg or Switzerland.
Hon. F S. Miller: There are income tax phraseologies that are traditionally used. One has to define where one’s residency is. The term “ordinarily resident in” means this is their home base; it is defined as meaning 183 days or more a year in Ontario. That is the kind of thing one runs into with people who go to Florida for the winter; they are Ontario residents who may be out of the province for some extended period of time in a second home, but their home base is here for tax purposes, for citizenship, for a number of reasons.
Mr. Makarchuk: I am sure the Treasurer is aware that every year the Department of National Revenue indicates that between $3 billion and $4 billion of extra Canadian dollars is floating outside the borders of Canada that ordinarily should not have been there. Obviously that money gets out there, and what I am concerned about is that the Treasurer is setting up another framework for the channelling of what are essentially not private funds but public funds into possibly some foreign jurisdiction outside of the use of the people of Ontario.
Hon. F. S. Miller: Again, I assure the honourable member we have all those protections in this act.
Motion agreed to.
Section 21, as amended, agreed to.
On section 22:
Mr. Chairman: Hon. F. S. Miller moves that section 22(1) of the bill be amended by inserting after “under” in the fifth line “Part II of”.
Hon. F. S. Miller: Mr. Chairman, the explanation is in our briefing papers. That amendment makes it clear that the tax credit available to corporate investors is applicable against corporations income tax, not other taxes.
Motion agreed to.
Section 22, as amended, agreed to.
On section 23:
Mr. Chairman: Hon. F. S. Miller moves that section 23 of the bill be amended by inserting after “under” in the fourth line “Part II of”.
Motion agreed to.
Section 23, as amended, agreed to.
On section 24:
Mr. Peterson: Mr. Chairman, this is the last section I have any remarks on; so this will be my final shot. I think it is important that people who are investing in these things understand section 24 and realize that the government is going to get them in the end. This is, as we established before, a loan, by the government of 30 per cent tax-free for a period of time and at the point at which the SBDC wishes to cash in its chips, they have to pay it back to the government. That is one of the reasons that I believe, if people truly understand it, it is not going to make it all that attractive to the investor.
Unfortunately, I missed the opportunity to speak on section 17, but I will just say peripherally at this time that there is so much ministerial discretion in that section -- and, coming down to section 24 -- there are so many encumbrances on the free flow of capital seeking out a genuine investment opportunity, as there is in section 17 -- that it really bothers me. There is so much checking out 21 days ahead of time, deals will come and deals will pass, and we’re going to have all these conditional agreements by SBDC -- the Treasurer has made it frightfully complicated.
As I said earlier, it is my belief there will be lots of inquiries but, when the legislation is fully explained to those inquiring and they realize what they have to go through, it is going to become a far less attractive kind of vehicle than the Treasurer has visualized.
All of my reservations have been because it has become so complicated and so terribly restrictive. Now, when we come down to the last and final encumbrance, we find it really only is a loan from the government anyway. I understand the philosophy: They want to keep the money in circulation, presumably creating jobs, creating wealth and all that kind of thing. There are going to be winners and losers in this kind of proposition. But, as soon as they want to cash in their chips, they have to pay back to the government.
In those circumstances perhaps the minister should consider a time limit -- 10 years, five years, 15 years, whatever it is. This thing presumably runs in perpetuity. It could happen 50 years from now. Somebody winds one of these things up and it is going to be lost in grandmother’s will, or hidden somewhere in the attic. They find it and say, “Oh my God, I’ve got to go back and pay the Ontario government.”
Hon. F. S. Miller: Not them, the corporation pays it.
Mr. Peterson: Yes, the corporation does, but on the winding up there will be no net difference, if someone is a participant in a corporation. A lot of these things are small and will be handled by individuals. It is going to be the equivalent of that individual having his own private investment vehicle and paying to the government. It has made it fairly complicated, I think, and is one more impediment to an otherwise very nice idea.
I don’t have any idea how to clean it up, or how to amend this section. I am conscientiously avoiding trying to amend this bill tonight, because I don’t think it can be amended to work very much better than it is going to, given the philosophy inherent therein. I don’t think any number of amendments we could make tonight would improve it that much, so we decided to adopt the government’s point of view. We wish them well and hope they are right. If they are, then God bless them; it is probably a good thing.
I just want to put that reservation on the table about this particular section 24, understanding that is only a loan, not a grant.
Mr. Makarchuk: On section 24(3) where there is concern on the winding-up of the operation that the SBDC is wound down and the minister will try to get his 30 per cent back. What concerns me, naturally, is the fact that the money may not be there. It seems to me that it is not very difficult, if they are keeping their money in liquid assets in banks, in notes, et cetera, that they could milk the thing completely dry, walk off with their investment plus 30 per cent of your money, then when the government tries to go after them there really isn’t very much it can do. It can’t really collect something that doesn’t exist.
There is a penalty section which provides for a fine of $2,000 for an individual and $20,000 for a corporation. When you are dealing in sums from $250,000 to $5 million, those amounts are not really large, even at $20,000. That’s a licence to steal, in effect.
Perhaps the minister might accept a suggestion to include jail sentences up to two years to individuals or corporations. The Minister of Consumer and Commercial Relations, I see, is thinking of all sorts of ways it could be used for community purposes.
Mr. Martel: We’ll let Gord Walker look after it.
Mr. Makarchuk: Anyway, it might provide, shall we say, some type of restrictive effect on people who may be just interested in trying to milk funds, make a quick buck and get away with it? The idea of a jail sentence might be a deterrent. Another thing is that it would probably improve the cross-section of the jail population, which would also improve the society in which we live.
I see that the Minister of Consumer and Commercial Relations agrees.
Mr. Lawlor: If the minister is not going to reply to those comments, I have a question or two. Where in blazes does this fit into the federal bankruptcy scheme? I am looking at section 24(3), on page 16:
“Where the registration of a small business development corporation is revoked or where the corporation proposes to wind up or dissolve . . .” Winding up is part of the bankruptcy procedure. Dissolution is forced upon them. The government wants its 30 per cent back. Does the minister have the weirdest, wildest or most esoteric notion of where the government stands in the pyramid? Is it a preferred claim, or is that spelled out? Or is it with the common claimants to the winding up of the particular corporation?
Have you got legal advice or any other advice as to where you stand in the pyramid? As you know, there are 60 people who have various, divers, conflicting claims, and everybody thinks they’re number one in the pyramid. Do you think so?
Hon. F. S. Miller: I don’t know at what point I am in the pyramid, Mr. Chairman. I would say we have set forth in some of the sections the member may not have been present for the techniques by which permission must be obtained. When we discussed them the member for London Centre said we were making it too difficult. We’re now hearing we’re not making it difficult enough, because assets cannot be transferred around, decisions can’t be taken without giving 21 days’ prior notice to the Minister of Revenue.
I suspect there’ll be chances to milk, chances to convert, chances to do anything except legitimately go broke, which will happen with lots of business. If they legitimately go broke, we don’t get our money.
Mr. Deputy Chairman: Any other questions in connection with section 24?
Mr. Lawlor: What a seraphic human being you are.
Hon. F. S. Miller: I don’t know what that is.
Mr. Lawlor: A will-o’-the-wisp.
Mr. Deputy Chairman: That’s a comment, not a question.
Section 24 agreed to.
Mr. Deputy Chairman: Is there any other section of the bill that any member wishes to discuss?
Bill 49, as amended, reported.
BUSINESS CORPORATIONS ACT
Consideration of Bill 34, An Act to amend the Business Corporations Act.
Hon. Mr. Drea: Mr. Speaker, I understand that with the score two to one there might be a delay before the critic comes in here. During that time, I would like to draw to the attention of the House that I will be submitting three amendments to this bill. Two of them are entirely technical; the third one is necessitated by a very recent court case in Alberta.
The first amendment I will move is --
Mr. Martel: Could you wait about one moment?
Hon. Mr. Drea: I’m just going through it. I’ll come back again. Okay?
For the information of the House, the first amendment will be that section 7(1) (b) (ii) of the act, as set out in section 5 of the bill, be amended by inserting “known” after “the” in the first line. The description in subclause (i) includes the word “known” and this just brings it into conformity.
The amendment to section 22 of the bill is introduced because of a court case in Alberta. We want section 266(a) of the act, as set out in section 22 of the bill, to be amended by adding the following subsection:
“(2) Articles filed by the minister under the act shall have effect from the date of the certificate endorsed thereon, notwithstanding that any action required to be taken by the minister under this act with respect to the endorsement of certificate and filing by him is taken at a late date.”
This involves an Alberta court case which is CPW Valves Instrument Limited versus Scott, 5 Alberta Law Report, 2, 1978, 271.
Mr. T. P. Reid: Very important.
Hon. Mr. Drea: Interpreting the Alberta Companies Act has caused some concern about the certainty as to the date of incorporation of a company under Ontario law. It is necessary in the commercial world that a businessman be able to rely upon the date of incorporation without fear of a court looking behind him. This amendment is intended to ensure that notwithstanding this court decision in Alberta no one will attempt to have the courts here find that a date in the certificate of incorporation is not in law the date of incorporation.
Finally, section 271(j) of the act as set out in section 25 of the bill is to be amended by adding at the end thereof, “permitting punctuation marks and other marks referred to in subsection 3 of section 8.”
The reason for that is just to bring the regulatory authority or the authority to make regulations, which is that section, in conformity with the way the act is set out in an earlier section.
Finally, section 271 is to be amended by adding thereto the following clause: “(1) prescribing the matters that the minister shall take into consideration in determining whether a name is contrary to section 7.”
Now that we have attendance here, perhaps we could revert back to clause by clause.
Mr. Deputy Chairman: Mr. Minister, just before you do that, may I have a list of the sections in the amendment?
Hon. Mr. Drea: I’ll give you a complete set, Mr. Chairman.
Mr. Deputy Chairman: All right. The first section you have an amendment to is section 5. Have the opposition got copies of these amendments?
Hon. Mr. Drea: Yes; we gave them to the House leaders.
Mr. Deputy Chairman: Oh all right, it’s just the chair; and we now have them.
Are there any questions in connection with Bill 34 before section 5?
The member for Hamilton Centre.
Mr. M. N. Davison: I have a question, Mr. Chairman, concerning section 2 which deletes subsection 5 of section 4 of the act.
Section 1 agreed to.
On section 2:
Mr. M. N. Davison: It was a very brief question of the minister. Because that deletes section 4 (5), which is one of the clauses or sections which requires the affidavit, but is not in the same group of sections from which we’re removing the affidavit requirement, was it felt by the ministry staff there was no need for the affidavit with regard to whether or not the person was a natural person or over the age of 18, as opposed to the other kinds of affidavits we’re removing?
Hon. Mr. Drea: Yes.
Mr. M. N. Davison: Very concise.
Section 2 agreed to.
Sections 3 and 4 agreed to.
On section 5:
Mr. Deputy Chairman: Hon. Mr. Drea moves that section 7(1)(b)(ii) of the act, as set out in section 5 of the bill, be amended by inserting, after “the” in the first line, “known.”
Hon. Mr. Drea: The reason for that, as you will see, is that in subclause (i) it reads: “The name of a known body corporate.” We want to make it in subclause (ii) “known” as well to keep it consistent between the two subclauses.
Mr. T. P. Reid: I’ve got a lot of questions about that.
Mr. Deputy Chairman: I don’t think the minister could answer them.
Mr. T. P. Reid: They’re good questions.
Mr. Deputy Chairman: Does the member for Hamilton Centre have any questions regarding the amendment?
Mr. M. N. Davison: I had no questions until I heard the explanation. I’m probably misreading the amendment, but in (i), the phrase is, or the way it will read is, “the name of a known body corporate,” and in (ii) “known name.”
Hon. Mr. Drea: In (ii) “known name”; same thing. It just brings it into conformity.
Mr. M. N. Davison: I’m not sure it’s the same thing but I support your amendment.
Mr. Deputy Chairman: Does the member for Lakeshore have a question regarding this section?
Mr. Lawlor: I confess I have read this for the first time at this moment.
You say it’s a question of the names and designations of corporations and the policy of your ministry with respect to accepting names as they come in.
“The name of a known body corporate, trust, association, partnership, sole proprietorship or individual whether in existence or not.” How can it be known whether -- I find there’s a little ambiguity in the phrasing that’s all. If it isn’t in existence, what do you mean by “known”?
Hon. Mr. Drea: Reserved, Mr. Chairman. Maybe someone who has reserved the name; they can reserve for a certain period of time, pending the actual documents being filed.
Mr. Lawlor: That’s as far as it goes?
Hon. Mr. Drea: Yes.
Motion agreed to.
Mr. M. N. Davison: Mr. Chairman, as I read the essence of section 5, it is going to give regulatory power to the minister, rather than a clear statement by way of stature, as to what words and names are okay, as it were. I take it part of the reason for that is to provide some sort of flexibility so that he is not wandering back into the Legislature every time some new situation crops up.
If the minister will look at section 8(1) (b), (c) and (d) of the current act, clause (b) talks about a name not being able to imply a connection with the crown or the federal or provincial governments, and clause (c) involves political natures and parties --
Hon. Mr. Drea: If I could answer the member, the final amendment deals with that.
Mr. Lawlor: What on earth is the minister doing sitting over there? I object.
Hon. Mr. Drea: Mr. Chairman, I could bring a table down in front for my advisers, but I thought I would save time, with the consent of the House, by being here; it might speed things up.
Mr. Lawlor: Oh, I see. Your left ear is exposed. Okay.
Hon. Mr. Drea: Under the present act, the onus is on us for making sure the name is not a name that should not be used. This is called the subjective test. The difficulty is that now the law firm, or whoever is doing it, is totally responsible. We want to put into the statute the authority to put in a regulation that will outline a list of prohibited names, such as “royal,” et cetera; and that is in the final amendment.
Mr. M. N. Davison: I understand what the minister is doing; he is going to be using the new section 271(g) for that purpose, which gives him the power by regulation to prohibit the use of any words, expressions, et cetera, in the corporate name, and I assume he will draw up a list in the regulation.
My concern is this: The three specific ones I pointed out, section 8(1) (b), (c) and (d), make it unlawful to have a name that may imply a connection with the government, that has a political nature or political element in it and, as in clause (d), that uses the word “co-operative,” for obvious reasons. Those are in the statute now; the Legislature has decided that. I assume the minister is going to build that into his regulation.
Hon. Mr. Drea: In the final amendment, yes. If my friend will read the final amendment, it says: “Prescribing the matters that the minister shall take into consideration in determining whether a name is contrary to section 7.” That will be in the act, and then the regulatory part will spell out all of the things that are now the subjective test by law firms which are not in the act.
Mr. M. N. Davison: My question very simply is, will those specific three areas be in the regulations?
Hon. Mr. Drea: Yes.
Mr. M. N. Davison: And the minister is making that commitment?
Hon. Mr. Drea: Yes, and more.
Section 5, as amended, agreed to.
On section 6:
Mr. M. N. Davison: On section 6, Mr. Chairman, I have two brief questions.
Regarding the change to sections 8(1) and (2) of the act, when I read section 8(1) against section 8(2), I am wondering, when a company is known by a name in another language, does the word “Limited,” “Incorporated” or “Corporation” have to appear in English after the foreign-language name, or will they be able to translate? As I read it, they cannot translate. Am I wrong?
Hon. Mr. Drea: In English.
Mr. M. N. Davison: What is the rationale for that?
Hon. Mr. Drea: I would think the rationale would be to make it abundantly clear in English that this is a limited liability or an incorporated company. The rationale -- notwithstanding the foreign language, whether it might be SA or some of the other things that are used -- is that there would be a clear part of the title in English that would show the exact state of the company -- that it is a corporate body.
Mr. M. N. Davison: I’m not sure that’s a terribly good reason, but I’m not going to move an amendment to it.
Mr. Lawlor: I am. Have you seen the French -- Canadian and French designations for limited corporations as to the way in which they spell it? The minister gives accreditation to bilingualism in this country and in this Legislature, and he doesn’t extend his designation far enough to cover what are peculiarly French Canadian, under their law. Why doesn’t he give recognition to that?
Hon. Mr. Drea: We will. At the moment we are working on a great number of statutes, including those with which the honourable member is very familiar -- the conveyancing of property and so forth -- to conform to the bilingual policies of this government. But at this time, in the Business Corporations Act it is in English, and that’s why we are putting this in for clarification. It’s all very easy to say in a short form of a title everybody knows it’s a corporation, but it may be a very long title. We want to make it very clear to people it is a corporation.
Mr. Lawlor: The minister is brighter and broader than that. He is cognizant of the French fact in this country, and of the interrelationship between French-Canadian corporations and our own and even those from France itself. I’m sure he’s seen the designations and the way in which they abbreviate the formality of their corporations. To give even glancing lip service to that might be a very wise move and a somewhat civilized one at this time in his history. Since he is changing his damn legislation anyhow, why doesn’t he take cognizance of these things?
Hon. Mr. Drea: It is not in the present act. Really we are --
Mr. Lawlor: You’re lucky the member for Ottawa East (Mr. Roy) isn’t here.
Hon. Mr. Drea: In all fairness, I don’t think the honourable member should point at me on the bilingual matter. I think my record as the Minister of Correctional Services, with bilingual services and so forth, stands for itself.
Mr. Lawlor: Keep up the record.
Hon. Mr. Drea: I also think that my record in this ministry is good, particularly when some of the legal forms and so forth which were once considered impossible are now being done. I’m pointing out to the honourable member rather succinctly that in the not-too-distant future -- hopefully part of it will be done in the fall session -- this Business Corporations Act will be entirely rewritten. At that time, which I think is the proper time, every step will be taken to ensure that the sections in it follow quite closely and indeed I would hope lead the way for the bilingual policies of this government.
Mr. Lawlor: All right, at least we’ve gone this far tonight. We’ve clued the minister in and we’ve placed a certain emphasis -- not that he’s not clued in but there’s a whole range of things which on the face of the matter have not been put under proper surveillance. His staff is aware now, he is aware now and I would anticipate a change.
Mr. M. N. Davison: If I can ask the second half of my question on clause (a).
Mr. Deputy Chairman: I’m sorry, I thought the member for Lakeshore was kind of cutting you out there but you sat down so I let him do so.
Mr. M. N. Davison: I’d like to thank the minister for his commitment to provide some change there to recognize the linguistic realities in the province. The new section 8(2) is a dressed-up version of the old section 7 of the bill, with the specific addition of regulatory powers in regard to non-English names. That will create a new section 271 clause, as I recall, by way of regulation.
Can the minister give me an example of what concern he has within the ministry about words that may crop up or special considerations or provisions that may crop up, when we are dealing with languages other than English, that would make the minister want to bring forward some prohibition that he wouldn’t have under all the other requirements of the legislation?
Hon. Mr. Drea: I will reply in just a moment.
Mr. M. N. Davison: I may not have put that terribly well. If a name is in English, there are numerous ways under the current act and the newly structured act in which you can prohibit somebody from using a certain name or phrase or word or whatever, in his corporate name. This gives you an additional power by regulation when the name is in a language other than English. I am just wondering, by way of example, why that is necessary.
Hon. Mr. Drea: I am instructed that it is because of obscenities.
Mr. M. N. Davison: That is what I thought you were implying.
Hon. Mr. Drea: Then why didn’t you ask if that was it?
Mr. M. N. Davison: Is that not covered by all of the regulatory and other powers that you have?
Hon. Mr. Drea: No.
Mr. M. N. Davison: Simply because the obscenity is in a foreign language, does that mean that all of the other sections of the act under which you could control it are non-operative?
Hon. Mr. Drea: It is the view that the use of a particular obscenity in a foreign language, where it is not readily recognizable, might lead us into difficulty if we didn’t have this specific section in there. It should almost be a test as to what the reasonable public would interpret it as, rather than people with a specialized knowledge of the language. You might get a language, for instance, that is quite popular in the world, but has very few practitioners here and therefore that particular word might be slang or might be a lot of things.
Mr. M. N. Davison: What the minister is saying is that under this special set of regulatory powers he would only make regulations or orders that reflected one of his other reasons for being able to do such with an English name. Is that right?
Hon. Mr. Drea: Yes.
Mr. Lawlor: I would have thought that the term, the obscenity in question, with the word “limited” afterwards would have cut back on the possibilities.
I just want to be a bit eccentric for a moment. One of the things I dislike is the term “Inc.” That is an Americanism of the most grotesque type and I find it insufferable. Did you feel you really had to bend to the winds of pressure? Up until the time of your ministry pretty well, that nefarious terminology, “Inc.,” was excluded from the English lexicon, at least in your department, but now it has become widespread. The Americans call all their corporations “Inc.” while we used to say “Limited” or “Ltd.” I find “Inc.” hangs rather more salaciously on the tongue. Does this bother you at all as the minister?
Hon. Mr. Drea: It bothers me. Unfortunately, by popular demand, many years ago it was incorporated in the previous act and it is now commonly accepted. If I had my druthers, it would be confined to “Limited,” rather than “Inc.,” which probably is an easier thing for the average person to understand. There is no question it is American. The decision was made many years ago. If you changed it now, it would be a profound inconvenience and a cost item to a great number of businesses.
Mr. T. P. Reid: And expensive.
Hon. Mr. Drea: Yes, very expensive.
Mr. Deputy Chairman: Shall section 8 now stand as part of the bill?
Mr. M. N. Davison: I assume it is section 6 we are being asked to carry. Is that not the case, Mr. Chairman?
Hon. Mr. Drea: Section 6.
Mr. M. N. Davison: The minister and I are agreed.
Mr. Deputy Chairman: All right, section 6, I am sorry. I thought we had made more progress than that.
Section 6 agreed to.
On section 7:
Mr. Lawlor: May I ask the minister: When he has his unincorporated associations in one branch, on the first or second floor of the ministry across the street --
Hon. Mr. Drea: Wellesley Street. Mr. Lawlor: -- and his corporation branch is hived off in another section, do they ever speak to one another?
Hon. Mr. Drea: Yes.
Mr. Lawlor: One can go in and register an unincorporated partnership, even if the partnership happens to consist of a single individual, and that name may already have been pre-empted by a limited or “inc.” corporation. Is there a trading of information to prevent the registration of the unincorporated corporation in terms of an already incorporated one? My impression is that these things are not working together in the ministry.
Hon. Mr. Drea: Mr. Chairman, those two branches do speak to each other, but there is no authority under the act to refuse the incorporation under that name. If one is going to restrict the use, for incorporation purposes, of one person or a partnership to only names that weren’t used by limited companies, then every partnership in the province would just be a six-numbered docket. Really, that is not fair in that type of incorporation, because the person usually wants a trade or a style name that will define the partnership, far more so than the limited liability corporation which can subsist for a while as a numbered company.
Mr. Lawlor: I could call myself, tomorrow morning, the Steel Company of Canada Unlimited and get registration through the ministry agency?
Mr. T. P. Reid: No; you misread the bill.
Hon. Mr. Drea: Yes, you’re quite right; but it doesn’t happen.
Mr. Lawlor: Tomorrow morning.
Section 7 agreed to.
On section 8:
Mr. M. N. Davison: Section 8 repeals the powers granted by the old section 11, subsections 1 and 2, which gave a person the capacity to reserve a name for a corporation for a period of up to 90 days. Can the minister tell me why he is removing that section of the bill and people will no longer be able to reserve corporate names?
Hon. Mr. Drea: Because they will be using the name search. There will be a printout on what names are available. It can be done over there. We don’t have the clearance on names any more.
Mr. M. N. Davison: It is not the clearance. It is the question of reserving the name.
Hon. Mr. Drea: We don’t have the names any more. They are in all those ANS, the six systems. One gets a computer printout on the name one wants and once one gets that one has it. One presents it to us and it is automatically cleared from the other search houses.
Mr. M. N. Davison: Because of the change over to the new system, will it no longer be possible for people to reserve a corporate name for up to 90 days?
Hon. Mr. Drea: Yes, it will be automatic. One goes to the search house, gets the printout on the name one wants and right there the computer no longer gives it to anybody else. It will be automatic over there, not with us.
Mr. M. N. Davison: Will it be a permanent reservation on the name?
Hon. Mr. Drea: Until it is registered, within a reasonable period of time. Obviously the search house would be in some kind of a quandary if a person started picking up all kinds of printouts, removing names from the computer and never did anything with them. Secondly, one is paying a fee in advance. One is paying a fee to the search house to do it; if one is not serious about it, it would be a very expensive proposition.
Mr. M. N. Davison: As I understand it, it will be up to these five or six companies in the automatic search process to substitute something for the old 90-day reservation policy. I take it the minister will keep his eye on that to see exactly what does happen.
Hon. Mr. Drea: As I said this afternoon, the federal government is doing exactly the same thing.
Section 8 agreed to.
Sections 9 to 20, inclusive, agreed to.
On motion by Hon. F. S. Miller, the committee of the whole House reported one bill with amendments and progress on another bill.
The following bill was given third reading on motion:
Bill 49, An Act respecting Small Business Development Corporations.
The House adjourned at 10:30 p.m.