CONTENTS
Thursday 4 June 1992
Labour Sponsored Venture Capital Corporations Act, 1992, Bill 150
STANDING COMMITTEE ON FINANCE AND ECONOMIC AFFAIRS
*Chair / Président: Hansen, Ron (Lincoln ND)
*Vice-Chair / Vice-Président: Sutherland, Kimble (Oxford ND)
Caplan, Elinor (Oriole L)
*Carr, Gary (Oakville South/-Sud PC)
*Christopherson, David (Hamilton Centre ND)
*Jamison, Norm (Norfolk ND)
*Kwinter, Monte (Wilson Heights L)
*Phillips, Gerry (Scarborough-Agincourt L)
*Sterling, Norman W. (Carleton PC)
Ward, Brad (Brantford ND)
Ward, Margery (Don Mills ND)
*Wiseman, Jim (Durham West/-Ouest ND)
Substitutions / Membres remplaçants:
*Johnson, Paul R. (Prince Edward-Lennox-South Hastings/Prince Edward-Lennox-Hastings-Sud ND) for Ms Ward
*Owens, Stephen (Scarborough Centre ND) for Mr Ward
*Grandmaître, Bernard (Ottawa East/-Est L) for Mrs Caplan
*In attendance / présents
Also taking part / Autres participants et participantes: Evans, Jim, executive director, revenue services and operations division, Ministry of Revenue
Farrell, Julie-Luce B., senior policy analyst, policy and planning branch, Ministry of Financial Institutions
Lambert, Joe, legislative specialist, small business development corporations program, Ministry of Revenue
Marrs, Bob, manager, employee ownership, Ministry of Industry, Trade and Technology
Whitehead, John, senior budget adviser, Ministry of Treasury and Economics
Clerk / Greffier: Decker, Todd
Staff / Personnel: Campbell, Elaine, research officer, Legislative Research Service
The committee met at 1014 in committee room 1.
LABOUR SPONSORED VENTURE CAPITAL CORPORATIONS ACT, 1992 / LOI DE 1992 SUR LES CORPORATIONS À CAPITAL DE RISQUE DE TRAVAILLEURS
Consideration of Bill 150, An Act to provide for the Creation and Registration of Labour Sponsored Venture Capital Corporations to Invest in Eligible Ontario Businesses and to make certain other amendments / Loi prévoyant la création et l'inscription de corporations à capital de risque de travailleurs aux fins d'investissement dans des entreprises ontariennes admissibles et apportant des modifications corrélatives.
The Chair (Mr Ron Hansen): The standing committee on finance and economic affairs will be looking at Bill 150, an Act to provide for the Creation and Registration of Labour Sponsored Venture Capital Corporations to Invest in Eligible Ontario Businesses and to make certain other amendments.
Last Thursday we heard from witnesses before this committee and our research officer has before you a copy of a summary of recommendations on Bill 150.
Also, Mr Gerard of the United Steelworkers of America sent a letter to the clerk here stating that the brief that was put forward by their lawyer was sufficient and that he felt it wasn't necessary to appear before this committee this morning.
Also in front of you are three amendments from the Liberals. If you take a look at the third page, it says, "government motion." Would you cross out "government motion" at the top, because this is a recommendation from the Liberal Party. It was just a typing error.
Also in front of you, marked "no. 2" with Bill 150, Labour Sponsored Venture Capital Corporations Act, government motions -- there are a few more motions in here, so perhaps you can disregard number one on there and refer to number two for any amendments to the bill.
There was a lot of confusion on some of the recommendations that came from the presenters last week, and to get some clarification it was decided by the committee to have a question period by the three parties with ministry staff. It looks like we will have approximately 35 minutes for each party. What we can do is start off with the Conservatives, go to the Liberals and then to the government body. If you wind up using 20 minutes, I'll keep that 15 minutes to the end, or whatever the case may be, because sometimes you might run out of questions in the 35 minutes. Mr Kwinter, it looks like you're not going to run out.
Mr Kimble Sutherland (Oxford): When has an opposition party ever run out?
Mr Monte Kwinter (Wilson Heights): I have no idea what you're talking about. I don't understand the questions we're asking.
The Chair: There were questions of the different presenters, there were some questions on their presentations, that I believe there was clarification. We can start off with Mr Sterling. Could we have the ministry staff come up here from the ministries of Industry, Trade and Technology and Treasury and Economics? For the purposes of Hansard, would you identify yourself please?
Mr Bob Marrs: Bob Marrs from MITT.
Mr Norman W. Sterling (Carleton): Mr Chairman, this is the first time we have seen these amendments, correct?
The Chair: There are some revised amendments, I believe, at the end there.
Mr Sterling: At the end?
The Chair: Maybe, Mr Evans, you could fill us in on the additional ones?
Mr Sterling: How many amendments do we have here?
Mr Jim Evans: I believe last time there were 42. There are 48 now.
Mr Sterling: Is it your proposal to proceed by just asking questions about these particular amendments? This is the first time I've seen these amendments. Maybe I should have received them before, or I have received them in the mail but they were not brought to my attention. When did we first get these amendments?
The Chair: The original ones, on the number one copy, were a couple of weeks ago. These additional amendments just came out today.
Mr Sterling: How many additional amendments are there?
The Chair: Six amendments.
Mr Sterling: I am not prepared, quite frankly, to cross-examine --
The Chair: We're not going clause by clause on the amendments.
Mr Sterling: No, I realize that. I would prefer if the government people would just briefly go through the more significant amendments and then I would be able to ask some questions.
The Chair: That would be fine.
Mr Joe Lambert: I'm Joe Lambert. I'm with the Ministry of Revenue. I'll go over the amendments, relying on a summary of the amendments we've prepared as part of a package for use by the various ministry staff members.
The first major amendment has to do with amendments related to the formal vote of employees on proposed investment, as to whether they want to form an employee ownership labour-sponsored venture capital corporation to take an ownership position in their employer's corporation. Section 4 is the basic section. There are a number of sections. There are over half a dozen sections that are being amended as a consequence of the basic policy-related amendment.
The proposed amendment is to provide for a formal vote by the eligible employees of the business on whether to register an employee ownership labour-sponsored venture capital corporation under part II of the bill and to make the proposed investment in the employer corporation. The vote will be conducted by the Ontario Labour Relations Board after the following have occurred:
First, there has to be a review of the proposed investment by the Employee Ownership Advisory Board. Second, there has to be a preparation and distribution to the eligible employees of disclosure documents setting out particulars of the proposed investment and the business plan, investment plan and human resources plan. Third, there has to be advice provided by an independent adviser on the proposed investment.
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Due to the proposed voting procedures, the formal certification of the employee group that represents the employees under the act will no longer be needed, and amendments are being proposed which will delete references in the bill to "employee group." That's the cause of about six or seven amendments. They're basically filtering through the bill to delete references to "employee group."
The basic amendment that precipitates these consequential technical administrative amendments is the change to the voting procedures, which is section 4, so I would refer you to section 4 in relation to the basic amendment.
Mr Sterling: I think we had raised an objection, first, with regard to who could vote and who couldn't vote. I would assume eligible employees would include every employee of the business?
Mr Lambert: Yes. Every employee who is eligible would be entitled to vote, according to the definition provided in the act as to what eligible is.
Mr Sterling: Does that exclude anybody?
Mr Lambert: They'd have to be permanent employees, basically.
Mr Sterling: Okay. It doesn't matter whether they're management, not management, etc?
Mr Lambert: No, it doesn't matter whether they're union members or not.
Mr Sterling: They're part of the union or not part of the union?
Mr Lambert: No, it doesn't.
Mr Sterling: Was it before that they had to be part of the union?
Mr Lambert: No, it wasn't a requirement before. The basic difference, the change we've made, is that previously the way section 4 was drafted, when the vote actually occurred, all that was required was that if a majority of the union members who turned up for the vote voted in favour of the buyout, then the buyout would proceed. The amendment now requires a simple majority of all those who are present at the vote. The amendment was made to provide for a more democratic voting process.
Mr Sterling: I don't have all the questions at this point.
The Chair: Okay. Government side.
Mr Paul R. Johnson (Prince Edward-Lennox-South Hastings): We're not dealing strictly with amendments right now, are we?
Interjection.
Mr Johnson: Okay. Fair enough. I would like to just speak to the point Mr Kwinter raised in the House recently.
Mr Sterling: Could we just go through the bill or the amendments and ask questions about the particular sections?
The Chair: I understood there were just questions this morning on any parts of the bill and this afternoon it will be clause-by-clause.
Mr Sterling: It makes more sense to me to go through it.
Mr Sutherland: For the purposes of procedure, if there are specific questions on the amendments or the new amendments and we want to go through them first and then leave whatever time is left to comment on any of the issues that were raised last week, that's fine too.
Mr Kwinter: Mr Chairman, I'm sorry. As I say, it's been confusing to me as to what you are trying to do. If you're looking for general questions, I certainly have some I want to discuss, and I prefer to discuss them before the government responds. Then you can respond to my concern. When we started out I thought we were going through the various amendments and having questions on that.
The Chair: I understood that was Mr Sterling's request, to ask on some of these amendments, but I took it that it was open questions here this morning.
Mr Kwinter: The question I want to ask is the one I asked in the House, and I want to clarify that I have no particular problem with this bill. It came forward. It was supposedly a labour-backed initiative. We have three amendments, which indicates how little concern we have with it, and we were quite prepared to move these amendments and hopefully get support for them.
Where my concern is -- quite frankly, I was stunned sitting here the other day when the Ontario Federation of Labour came in and the Canadian Auto Workers came in and announced that this bill is not going to have their support, that it does not address the intent of their initiative. I was the minister at the time when they came in to see me. They told me that they wanted to get the support of the government for a fund to address social matters, to be sponsored and backed by labour. I said I had no problem with that and, "If you can go out and get it organized, great," and they went ahead and did it.
Somewhere along the line -- when I spoke to Mr Gindin and I said to him, "Where did this this go wrong?" He said, "I don't know where it went wrong, but it has absolutely gone wrong." We have a bill that is supposed to be sponsored by labour and benefit labour and two of the largest constituencies in the labour group are saying, "Not only are we not going to support it, but we are going to actively encourage our members not to support it." If these two large groups, the Ontario Federation of Labour and the CAW, are not supporting it -- there has been some discussion that they are not supporting one aspect of it but they are supporting the other. I have read through their testimony to this committee and there is no question in my mind that, by and large, they are not going to be supporting either part, the establishment of the fund and the provisions for worker investment in their companies.
So my question is, if it's supposed to be a labour-sponsored initiative and labour is not supporting it, why bother? It's no secret that when I asked the question in the House and the Premier responded, he got the impression that for some reason or other I was against this bill in principle. I sent him a note saying I have absolutely no axe to grind with this bill. If it goes forward, if labour is supporting it and it does what it's supposed to do, good luck to them. It's my own personal view that this bill is not going to accomplish what it sets out to to do, but that's fine. Let them do it and if they can get the support of workers and investors, good luck to them. I wish them well.
would like to see a bill that at least provides some protection for the people who are participating, but where I have a serious concern is how you can possibly expect this initiative to succeed when the people it's supposed to benefit and the people who are supposed to be sponsoring it are saying, "We don't see any benefits and we're not going to support it."
My question to the government members is, if that is the case -- and this isn't an opinion on my part, I'm just reporting what happened here in committee. I've gone through the transcripts and there's no ambiguity. This is exactly what was said. If that is the case, it would be my suggestion that this bill should be withdrawn and reworked. Get labour in and ask them, "Okay, what's wrong with this bill and what can we do to get you to support it?" and then come back and present it again. To me it is absolutely absurd that we are imposing a bill on a group that is not going to support it.
What is the purpose? This isn't a make-work project for committees. This is supposed to answer a concern and to provide a vehicle whereby labour organizations can create a venture capital fund and make provisions for their employees to buy into companies with a certain amount of protection and stability. Certainly it is meant to address their concerns and needs. If they are not supportive, and not only not supportive but are saying, "We are actively going to discourage our members from participating," again I ask the question, why bother? Let's get something that is going to serve a purpose. That, Mr Chairman, is my question.
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Mr Johnson: In response to what Mr Kwinter said, first of all you're premising most of your comments on an assumption that -- what was it you said? You said this is labour-backed and --
Mr Kwinter: "Labour-sponsored" is the term.
Mr Johnson: Okay, labour-sponsored, and that this a labour initiative. Well, let's get one thing straight. This is not a labour initiative; this is a government initiative, and it allows an opportunity for more than just those people who are labour or unionized to invest --
Mr Kwinter: On a point of order, Chair: The title of the bill says "An Act to provide for the Creation and Registration of Labour Sponsored Venture Capital Corporations." It's not my interpretation.
Mr Stephen Owens (Scarborough Centre): It is more than just a person who carries a union card. A worker is a worker is a worker, whether he's unionized or not.
The Chair: Okay. Let Mr Johnson reply to it.
Mr Johnson: I understand what the title is. The title in itself could be open to interpretation, but what in fact the bill says is something else. We've had the CAW and the OFL come in here with some concerns certainly, but their concerns may be based on the fact that they expected that labour would have more involvement than in fact it has.
I'm saying that the LSIFs are opportunities for more than just labour to invest in business. It allows people outside of what you're suggesting to invest in business. Some of their concerns suggest that maybe this legislation doesn't go far enough, based on their assumptions of what this legislation should be. Obviously it's something different from what they think it should be and that's why they have some concerns, but the OFL supports the employee ownership labour-sponsored venture capital corporations; they have some concerns with the LSIF part. The United Steelworkers support the concepts of worker ownership in Bill 150. I think that was clear from their presentation.
For you to come before this committee and say that labour is opposed to this, holus-bolus, I think is wrong. That's not how I heard it. I certainly did hear some concerns. I can't refute that, but I think there is a lot of support from labour, and I think the focus of this bill isn't on labour. This is not a labour bill. This is a bill that allows for investment in small and medium-sized businesses in the province, and not investment from just labour but from people who have capital they would like to invest. To suggest that it's exclusive to labour and that it was a labour initiative is wrong.
Mr Kwinter: I think your whole statement is absurd. If that is the case, then I would suggest you change the title, because I can read as well as you can and the title says it is labour-sponsored.
Interjection.
Mr Kwinter: Just a second. It's a labour-sponsored fund. If two of the largest components in the labour movement are not going to support it, how do you expect an outsider to support it? To suggest that this isn't just a labour-sponsored bill -- then I suggest to you that you change the title of it, because to any uninformed potential investor looking at this it says "labour-sponsored."
You can give me all the interpretations you want. To say to me it doesn't necessarily mean it's labour-sponsored even though it says it is labour-sponsored is absurd. It's either labour-sponsored, which it says in the title of the bill, or it isn't. It would seem to me that it's a non-starter if the bill says right in its title that it is labour-sponsored and labour says -- not all of labour: "We are not going to sponsor it, and we're going to discourage our members from participating." I think you have a problem.
I want to reiterate that I have no axe to grind. If that hadn't happened, if they had come forward and said, "We think this is great, we are supportive of it and we would encourage all committee members to support it," I would have said, "Wonderful." But that isn't what they said. My concern is that this thing is going to happen from a legislative point of view, but it's not going to happen from a practical, economical point of view because it's not going to get the support of labour. If labour isn't supporting it, again I say, why bother?
Mr Johnson: I hear what Mr Kwinter says, and I just have to say I disagree with him. I know there were some presentations made by labour here, and I think it's clear they had some concerns, and indeed that's what you're suggesting. I don't think that all labour or all labour representatives are opposed to this. I think even those who are opposed see some merit in some aspects of this bill. To suggest that this be withdrawn in its entirety I think is inappropriate. I think it has a lot of merit and I think it has a lot of support within the labour movement, quite frankly.
Mr Sutherland: I don't believe we had the Canadian Federation of Labour in but certainly we had the working capital ventures fund, which I believe is the arm they've set up to deal with the issue; if I'm wrong please correct me. Certainly there's some sense that members of the Canadian Federation of Labour and their Ontario components have some support for this bill. If I go back to the comments from the Steelworkers, I didn't think the Steelworkers expressed strong disapproval of it. They had some ideas where there should be some changes. Certainly the Steelworkers, also a significant union and labour group in this province, have expressed support for the initiative of labour-sponsored ventures and employee ownership. So there are elements that did express some concerns, that they weren't as supportive because, as Mr Johnson said, it didn't go as far as they want it to. But there are certainly some other significant elements out there that are supportive.
Mr Bernard Grandmaître (Ottawa East): If I can follow up on my colleague's concern, if the two largest unions in this province are not supportive of this legislation, can we find out from the government who supports this type of legislation? How many groups or individuals were part of the creation of this bill?
The Chair: We'll go back to Mr Sutherland again.
Mr Sutherland: I just said some of the people who are supportive of it. The OFL as an overall umbrella group made its comments that it has some concerns because it doesn't deal with the question of democratizing the workplace. To suggest that all its affiliates will follow that is not necessarily the case, given the fact that the Steelworkers have said they're supportive of this type of initiative; they're an affiliate of the OFL as well. So there are some elements that are supportive and there are other elements that don't see how they can benefit from it.
Mr Sterling: Can I get on a different tack and ask some other questions here?
The Chair: Yes.
Mr Sterling: Do you want to stay on that?
Mr Johnson: I have just one point to make to follow up on some of the comments and arguments. In response to Mr Kwinter's concern, I want to say too that Mr Kwinter did say this was supposedly labour-backed. Those were his words.
I also wanted to say that there's also been some concern about only labour having been the sponsor of this. In the amendments I think you will see that worker cooperatives are also being viewed as a group that will have an opportunity to be a sponsor of this program under this bill. I just want to make that point so it isn't lost or so it isn't missed.
The Chair: We have one reply from Mr Sutherland.
Mr Sutherland: No, I want to ask a couple questions of staff members.
The Chair: Do you want Mr Sutherland to go first, or would you like to ask your question first, Mr Sterling?
Mr Sutherland: We've got lots of time. Go ahead.
Mr Sterling: Thanks, Mr Sutherland. I understand there would be a little embarrassment on the part of the government because of its close affiliation with the trade union movement, but I don't know whether that's totally irrelevant to whether this investment vehicle is offered.
At any rate, during some of the presentations, particularly by the Ontario Securities Commission, and a number of other submissions, I raised the point as to the backstop for the investor in terms of the employee ownership labour-sponsored venture capital corporations; in other words, where there's a buyout. If Spruce Falls doesn't work, if Algoma doesn't work, my concern was, when we have the government putting the stamp of approval on the investment -- in fact, I think there has to be an order in council passed in order to indicate that approval -- is there anything in the act that I'm missing which outlines the obligation of the government on failure?
Mr Marrs: I think the regulations or the disclosure document will have what is called in Securities Act parlance a health warning that will relate to the non-assumption of any liability in relationship to the securities offered.
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Mr Sterling: My greatest concern is the plight smaller communities in particular will be put into in terms of the plight of the worker, who will not only be encouraged to invest but will now be enticed to invest because we are giving him or her some financial incentives to invest. The OSC, if I recall correctly, said there should be a clear indication in the legislation what the obligation of the government was; in other words, there should be a clear indication in here that if the investment fails, the investor cannot come to the government and look for compensation.
Have you considered that kind of section? I think it's key to this whole legislation. Mr Wiseman, who was here at the last hearings when we discussed this, indicated he considered it caveat emptor. I want it emphasized totally as to what the obligations of the government are. I don't think whether my party was in or their party was in or any other party that they would let the thing fall completely apart; I think that's a political decision. But if we're dealing with investment decisions then I think the investor should know what the legal obligations are. There is no legal obligation in here for the government to bail out if it goes down?
Mr Marrs: No, there's nothing specifically in the draft.
Mr Sterling: So no obligation, no section in here indicating that.
Mr Marrs: No. I think where that gets addressed, to the extent it gets addressed, will be in the disclosure document and the health warning.
Mr Sterling: Can I ask another question?
The Chair: Ms Farrell might be able to respond to your question a little bit better.
Ms Julie-Luce B. Farrell: You know we are currently working on draft regulations; they haven't been tabled and what not, so we're developing this as we're going along. As far as I understand, the health warnings that are currently being developed go much more to the risks. It's a warning as to the risk these investments carry. There's nothing, as far as I know, going to the government's liability or lack thereof, so far. Nothing has been provided in terms of direction to us to draft this.
Mr Sterling: I'd be interested to hear from the parliamentary assistant. Is there any consideration in a policy point as to whether or not there should be some statement of obligation or understanding with the investor what this stamp of approval by the government means.
Mr Johnson: There isn't anything specific, but I think we have to stress, as with any investment, that it's as you said: caveat emptor, buyer beware. That goes along with any kind of investment one might make. With the Ontario Securities Commission, when you're dealing with that kind of investment, within the act there is an avenue or there is a way people can get a health warning on how their investments might be affected. Within this legislation, within Bill 150, that would be the place to put any substantive regulation that would guarantee that, but there is no expectation that the government is liable for any of these investments. I think it becomes just an issue of buyer beware. But maybe Joe Lambert or --
Ms Farrell: I could read into the record the proposed health warning, and that would give you some indication of how this is going to be structured. The statement is supposed to be in bold print, and it will read something similar to: "No securities commission or other securities regulatory authority in Canada has in any way passed on the merits of the securities offered in this disclosure document, and any representation to the contrary is an offence. Neither the Ontario Securities Commission, the Employee Ownership Advisory Board under the Labour Sponsored Venture Capital Corporations Act, nor any other department or agency of the government of Ontario assumes any liability or obligation to any person proposing to purchase the securities offered hereunder."
This is not settled language, but that's the direction in which we are aiming in the proposed code.
Mr Owens: In terms of the regulations the OSC is working hard to prepare, I think that draft language answers your concern. I think the problem we're struggling with as members of the committee is, what is the process that's going to lead up through the valuation process and the kinds of tests that are going to be applied? I gather it will be the Ministry of Industry, Trade and Technology putting together the valuation process. To me, that would be where the question would lay as to what tests of viability are going to be employed.
I think we've all recognized, especially with the employee ownership option within this bill, that we're not just talking about somebody investing in Maple Leaf Gardens or whatever. We're talking about communities, we're talking about homes, we're talking about people's entire savings, so I think perhaps we should be taking a look at the process prior to where the OSC kicks in. The OSC can draft the regulation and the health warning with respect to the caveat emptor provision, but I think before we get to that point there needs to be a fairly clear and precise process of valuation. I certainly have a question with respect to that as to where we are on that.
Mr Sterling: With regard to Mr Johnson's trying to paint a similarity with the present OSC dealing with a normal prospectus on companies, there's a major, major difference here. A person promoting a company doesn't have the strength when he's promoting that company of saying, "The Ontario government has given this a stamp of approval." As I see it, the way these shares are going to be marketed is on the basis of there's a prospectus, "And in addition to the prospectus we're giving you something else. We're giving you the stamp of approval of the Ontario government through its employee ownership board." That's the way it's going to be seen, Paul, regardless of whether you like it or not. There's going to be a government regulation through order in council saying that this is a good investment.
Second, when you're dealing with a prospectus in terms of a normally marketed corporation, in general you are dealing with people who have invested in other shares as well. If you want to call it more sophisticated with regard to the risks, they've probably won on some and lost on some, and therefore they view it as a caveat emptor kind of situation; in other words, "I put my money into this new corporation. I've won on some and I've lost on some, and therefore I may lose on this one."
Third, you're dealing with an emotional decision on the part of the investor as well as a financial decision.
All of those point to an investor putting in the money on the basis of other than an experienced financier putting his money up and expecting a return. Therefore I think it's incumbent, in terms of the legislation, to protect that investment to the realities of what he or she is doing.
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Mr Owens: Don't underestimate the sophistication of the person who might be involved with this within a company.
Mr Sterling: I guess I'm trying now to protect the weakest of them all.
Mr Owens: There may be issues with respect to language and things like that, but that's an issue we're looking at dealing with. But we shouldn't undermine or underestimate the sophistication of individuals who are out there in the workforce. If we reflect on some of the recent spectacular business failures of the sophisticated investor that we've seen, I think there's good reason to be concerned about that as well.
Mr Sterling: I only have the experience of going through the Re-Mor/Astra Trust fiasco where people put up their life savings without asking the very basic questions, "Where is this money going?" and "What guarantees do I have?"
Mr Owens: In terms of the kinds of commonsense questions one would ask, how does one legislate common sense? This is again where I make my comments on the valuation process. It's my opinion that that process is the linchpin in the whole bill in terms of developing the viability. I'm confident in what the Ontario Securities Commission has developed as a regulation and as a health warning. But the linchpin is valuation, and the people who are marketing particularly the LSIFs are acquainted with the process and are able to communicate those processes to the potential purchasers.
The employee ownership stuff, as you quite accurately point out, is a whole different ball game. There's a whole different process that needs to take place around that.
Mr Sterling: I think the OSC was very skittish about it. They don't want anything to do with this if they can get away from it. I think that's the bottom line of all this. We're co-opting them into it. We're saying, "You're not only going to have a prospectus, Mr Investor; you're going to have a prospectus plus this," which is a stamp of approval. If you say that to the investor, then I think the warning to the investor, in fairness, has to be more than the normal warning you would have on the front of a prospectus when you're reading.
Mr Evans: I think the Ministry of Revenue does have some operational experience in relation to these issues. They derive from the administration of the Small Business Development Corporations Act from the early 1980s. In that case, we paid grants to the investors. In this case, it is a question of tax credits. But the communications plans for the small business development corporation administration and for the worker ownership administration will both emphasize that the intent here is that the government is sharing the risk with the individual investors and is not making its own investment in the corporation. So it is directly to the investors. The purpose of the grants and the payment is limited to that point.
We've been working within that framework now for some 10 years. Although there are obviously examples where people have lost considerable amounts of money and they inquire of the ministry, the position of the government has always been in relation to the administration of both grants and tax credits that we are sharing the risk and we are making payments directly to investors to do so. We're not doing it into the company as a question of defending or underwriting liability of the company.
Mr Sterling: I think the analogy is that there are significant distinctions to be made in terms of the type of investment we're talking about in these two vehicles.
The Chair: We'll go on to Mr Sutherland.
Mr Sutherland: Mr Sterling said that, you know, you're saying it's a good investment. I think what you're saying is that it's a calculated risk; that it's met some basic criteria but there's always still that risk element there and it's not an outright endorsement or a guaranteed return on the type of investment that's going on here.
If I could change tack for one minute, I want to ask some questions, or at least one question, about some of the testimony we heard last week, particularly the Canadian Federation of Independent Business testimony. They indicated to us in their presentation that they thought it was -- I think they used "almost deceptive" to say this could benefit small and medium-sized business. They seem to think that because of the way it was set up and the different processes you had to go through, it would not be feasible for small business. I'm not sure what definitions they're using for small business.
I was wondering if you could comment. If we used the MITT model, which I believe is 100 employees or less, as the definition of a small business, how would you respond to their claim that small business will not be able to take advantage of this?
Mr Lambert: The purpose of this vehicle is basically as a venture capital vehicle and venture capital investment principles are going to apply. It's not true venture capitalism because of the element of tax credits and government incentives being provided in that manner, but venture capitalist investing principles are going to apply and commercial investment principles are going to apply.
When a labour-sponsored investment fund type of venture capital corporation is investigating whether or not a particular small business is a viable target, it may indeed preclude consideration of some of the small businesses that are members of that federation, the 80,000 to 90,000 members.
Just by the nature of the investment style of venture capital corporations, the size of the investment they have to make to make it worthwhile, to make it commercially viable for them to get the kinds of returns they want, a lot of the small businesses simply are going to be too small and won't warrant consideration. The average investment by venture capital corporations is somewhat in excess of $500,000. If you measure small businesses in terms of just simply employees or if you measure small businesses in terms of the size of the capital that's already there, $500,000 investments from venture capital companies are going to preclude a lot of them from being considered.
We don't have a stratification of the small businesses that make up the CFIB, but there's no denying that a labour-sponsored investment fund with a particular kind -- it depends on the investment strategies they develop. There may very well be labour-sponsored investment funds that have a strategy which entails investing in companies that do indeed penetrate down to the level of the much smaller small businesses that form part of the CFIB. That remains to be seen. Where we could anticipate different kinds of labour-sponsored investment funds that will have varying kinds of investment strategies, that may very well indeed penetrate those lower levels, those smaller businesses.
Mr Sutherland: But if you take the MITT definition, is there a potential for a company with fewer than 100 employees to take advantage of this and still be somewhat viable to go through this process?
Mr Marrs: The only point I'd make of the Working Ventures target companies -- I think there were two there and Joe would have the details -- but my recollection is that those were at the small end of the scale. They were nowhere near the $50 million in total assets and weren't anywhere near the 500 people, but I don't have the exact numbers on it.
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Mr Evans: As further amplification of what my colleagues are describing, we are not able to influence the objectives of the venture capital funds themselves. What is important in the structure of the act is that we don't provide structural impediments, within the act and within the regulations pursuant to the act, that actually prevent or make it less attractive for a labour-sponsored investment fund to make an investment in any particular part of the segment.
I believe, in terms of the description of the regulations or the investment code, that it is the intention to be sufficiently flexible so that the protection that is provided is appropriate to the size of the company or the sector of the industry involved. We are going to be most careful not to introduce structural impediments but that does leave, as my colleagues have shared, the question of the investment objectives of the individual funds.
The Chair: Mr Lambert, did you want to reply to that?
Mr Lambert: No.
The Chair: I thought someone else was going to have a reply down there.
Mr Lambert: I was reading.
The Chair: Oh, okay. I was just looking to the left and I thought it was Mr Lambert who had a reply. Yes, sir.
Mr John Whitehead: I'm John Whitehead from Treasury. I might just add to Jim Evans's comments that there are a good many small businesses, by our understanding, that may well be members of the CFIB that are two-, three-, four- or five-person operations, often in the retail sector. One of the major policy objectives of this program was of course to generate funds to permit businesses to restructure and reinvest and preserve and create jobs.
A good many businesses probably won't be seen as viable targets by venture capital investment funds, but there will be a good many small businesses that will. I suspect they will be in small manufacturing or processing operations, specialized fabricating and things like that perhaps as opposed to retail, which does compose a good chunk of the small business sector. But as Jim said, there is no structural impediment They can invest in whatever they see as appropriate.
Mr Kwinter: I want to get back to Mr Sterling's comments about a recourse statement. He mentioned the same case that I mentioned in previous hearings that is sort of etched indelibly in my memory because I suffered with it for a couple of years. That was several years after it happened and it just didn't go away. I was picketed everywhere I went. The Ombudsman even took up the case and made a recommendation that cabinet should in fact compensate these investors. Cabinet refused to do so and then the Ombudsman, in one of the rare opportunities, tabled it in the House.
What happened is that these people felt they had invested in a trust company that had been regulated by the Ministry of Financial Institutions. They felt that the Ministry of Financial Institutions had an obligation to make sure that company stayed viable. When it failed they felt that the government was responsible. The Canadian Commercial Bank in Alberta had exactly the same thing and the federal government bailed that one out to the tune of $1 billion.
When Robert Wright, the chairman of the Ontario Securities Commission, was here, he said, and I quote: "I do not want to be taken as saying that I see a need for recourse for the investors, because I think that is very much a matter for the people who set the policy and who pass the legislation to decide. All I meant to say was that I think it should be clear whether or not there is recourse."
I suggest to you, given the unique situation where the investment is going to be scrutinized by an advisory committee, it's going to go to a vote and then it's going to go to the cabinet for official approval, just that act of having every single one of these proposed venture capital investments or employee buyouts go to the cabinet for approval is going to present a potential problem, because there are going to be unsophisticated people out there who, through peer pressure, whatever happens, are going to be convinced that this is a way for them to save their jobs or this is a way for them to do something.
They are going to invest their hard-earned savings, and -- God forbid, and I don't wish any of these to fail -- if it should fail, you are immediately going to be confronted by someone saying: "What's going on here? I invested my hard-earned money. The government approved it. I was under the impression, and I don't care what you tell me about the fine print, that I was going to be protected."
I think the general health provision disclaimer is not good enough. I think there should be a specific reference to the fact that notwithstanding cabinet approval, notwithstanding all these things, there is no obligation on the part of the government as to the long-term viability and the financial security, so at least some poor minister in the future will be able to take the thing out and say: "Look, there was a specific provision that says we have no obligation. I feel very badly that you lost your money, but we as a government have no obligation."
As I say, for someone who lives through it -- it was a decision not of my making, but I still had to suffer the thing and I'm just trying to prevent that from happening in the future. We've got an amendment we're putting forward, but I would like to get your comments as to where the problem is with that.
Mr Whitehead: I'd like to focus on one aspect of the process. I'm not familiar with the case you're discussing, I think thankfully, but the Employee Ownership Advisory Board is there not just to help the government make a decision about its propensity to provide a tax credit in respect of a specific situation, it's there as well to provide a process for employees to have to go through to learn exactly what they're getting into. The provision of human resources investment and financial plans for the proposed takeover is going to be quite a rigorous exercise, we expect, and one that may well turn a number of people off early in the game.
Early in the process of coming up to the decision about whether to invest one's money or not, a number of people may look at this and say: "Gee, you know, it's going to be awful tough. It looks awful risky." Part of the hope of the Employee Ownership Advisory Board is that people will be well aware going in, because of the demands that board will place on them, of the difficulties they may face in concluding a deal.
The other thing I think I would point out is that these deals could go forward anyway. The only real thing at issue here is whether a tax credit is provided in respect of the investments made. The government is not proposing to say, "You may not conclude this particular deal." The government is saying only, "You may conclude this deal with the benefit of a tax credit," or without. In that sense I think it's different than the kind of situation you were talking about.
The Vice-Chair (Mr Kimble Sutherland): Any additional comments from any of the other staff members?
Mr Marrs: In terms of the process, I can talk to that a little bit. I wouldn't want to minimize the fact that a government body passes on it. Certainly the concern you raise is valid. The board or the minister would not intend to communicate directly to the employees as part of this process, and I guess it would be a misrepresentation, an offence, for the promoter group, the insiders of the employee group, to represent that it had passed. But clearly the language will be there in the event of a failure, and if you were the employees who lost and you were looking for a recourse you might well look to government if you thought you could make a case.
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Mr Sterling: Can I just have one more comment? I guess one of the reasons I feel so strongly on this is that, as I see it, it's a fairly complicated process. You're going to involve large deals, but basically they're going to be, as I see it, not where employees are taking over a really profitable corporation but where corporations are in trouble. I would like it to be otherwise, but there's going to be an impetus for those people to be first in line.
So you add all of these things up and you say: "Gee, there's got to be some additional warning or understanding to the investor that the government's part is the 20% incentive that it's giving. That is our risk. If you lose your 80%, don't come looking to the government."
That's a harsh statement to say, but whether it's in bold red -- I'm not sure how you do it -- or the minister phones every investor or just what, but there's got to be some method of going above and beyond what we normally have seen on prospectuses in terms of risk. I don't know if you have any other suggestions as to how you could --
Mr Marrs: That's a fair comment. I guess I would add that there is a provision for an independent adviser who will, independently of us and independently of the promoting group, meet with the employee investors before they make an investment decision. That will be after there's a receipted disclosure document. It will be their job, to the best of their abilities, to make sure the deal is well understood and the risks are well understood.
Mr Gerry Phillips (Scarborough-Agincourt): I will pursue that same line. I thought the Steelworkers made a very good presentation to us last week. Their strong advice to us incorporated a couple of things. One is that they said it's wrong to set up this advisory board. The role of the advisory board is to register an opinion that the proposal is reasonably commercially viable over the period covered by the proposal and is equitable to the employees in the circumstances. The Steelworkers said that's wrong; that shouldn't be done by a government advisory group.
The second thing the Steelworkers told us was that we are setting a trap for disputes with other governments by having orders in council approve these employee purchases. Their lawyers in the US have already gone to whatever the appropriate US federal authority is and have been told that if, for example, the Algoma arrangement had been signed by an order in council, it would be subject to various trade restrictions. I'm wondering why we wouldn't take the advice of the Steelworkers, who I think perhaps have the most experience with this, and rethink this particular proposal.
Mr Marrs: There are two points there, the establishment or non-establishment of the board, and I think Mr Kwinter made that point a couple of weeks ago. I interpret the Steelworkers to say there should be a board but they shouldn't turn anything down. That was my interpretation of their position.
Mr Phillips: No, that isn't what they said.
Mr Marrs: Those were my notes. I guess that was a decision made by cabinet -- and maybe others can speak to it -- but certainly I'm sure that decision of a board or no board came up and probably it turned on the issue of the unique nature of these investments.
Mr Phillips: And the second point?
Mr Marrs: On the countervail issue, I think they had a legal opinion from a law firm in the United States that clearly pointed to the order-in-council section of this act. I'm not an expert, but I'm not sure that's any different from what the development corporations do in terms of getting approval for a number of their loans. They get orders in council. I think, in terms of countervail, the issue it turns on, the first was: Was there a benefit given? Clearly if the Steelworkers or other groups got tax credits, they received a benefit. Second, is somebody harmed and does he lodge an action? So I think it's wrong to think you somehow escape the countervail because you have ministerial discretion or you don't, if a factor's of significant benefit in the case of Algoma.
Mr Phillips: So you have a legal opinion that says the Steelworkers are wrong?
Mr Marrs: I do not have a legal opinion.
Mr Phillips: The government does, though?
Mr Marrs: Not that I'm aware of.
Mr Lambert: I think Mr Marrs's suggestion was that the Steelworkers had the legal opinion from a firm in the United States, a countervail specialist.
Mr Phillips: Yes, but I'm just assuming that the government has developed a similar legal opinion that says they're wrong.
Mr Lambert: I don't know that we specifically addressed their legal opinion.
Mr Phillips: But surely an important element of this is, will we be subject to countervail by the government?
Mr Lambert: The principle of whether something's subject to countervail revolves around how focused the government assistance is. In this case the government assistance is generally available to any group of employees in any kind of business that decides to pursue an employee buyout. It's not sector-targeted, it's not industry-specific, it's not firm-specific; it's generally available. My understanding at the time the policy was being formulated with respect to that particular issue was that as long as you're dealing with incentives that are generally available there's less likelihood countervail will be a problem. But there's also the consideration that regardless of whether there's specific government assistance being provided to an industry or to a business or whether there's just a perception of government support, countervail will occur anyway. In other words, an action will be taken first and the facts will be ascertained later. In a lot of cases the facts aren't necessarily relevant; it's the perception.
To summarize here, I think the Steelworkers were particularly sensitive to the threat of countervail because they're in an industry which is very sensitive to that sort of thing, so they had particular concerns. But as I said, if countervail revolves around government support of a general nature, then that's what we have here. It's a tax credit that's available to employees in any business or industry who decide to pursue a buyout. That would be the defence. We would rely on that principle and we would suggest that we had fulfilled that principle in that respect. It's a generally available program that has general application.
Mr Phillips: Can I pursue this, Mr Chairman? The steel people, who, to repeat myself, have more experience, say, "Listen, we want to use this vehicle for additional employee buyouts, and this" -- I think these are the words they used -- "is a serious problem with the bill." Why we would want to proceed to incorporate a serious problem without having a legal opinion that says it's not a serious problem perplexes me.
The second thing is that I think they were saying that the role of the advisory group shouldn't be to approve everything but that it should be different from this advisory group. I don't think there's any doubt that if I were an employee and I'd exercised the right to buy my company and five years from now I got these minutes that said, "What was the role of the advisory group," and it was to determine that it was commercially viable and equitable to the employees in the circumstances, I wouldn't hesitate. Again, I would welcome what legal opinion we've had on what protection the government has, but I would say: "Listen, you put your stamp of approval on this thing as being commercially viable. It's gone down the tubes and I've lost all my money. I'm holding you accountable for it."
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Mr Lambert: That stamp of approval, as you put it, isn't really a stamp of approval in that sense. All that's happening is that a group of representatives from three sectors of the province -- labour, business and government -- are looking at an investment proposal based largely on projections, suppositions and assumptions and, relying on that and their knowledge of the industry that particular business happens to be in, are trying to arrive at a conclusion as to whether or not there's commercial viability. That's not necessarily an approval and not necessarily implicit of a guarantee that in the event the business fails the government is liable to replace the investments.
It seems to me that whether or not this program is there, whether or not there's an explicit liability, if a business fails, with this program being in place or not, the government has liabilities that are existent anyway. The employees would be able to avail themselves of that general government support.
Mr Phillips: Of course.
Mr Lambert: I just wanted to make that point, and while I'm on a roll here, I just wanted to suggest that one of the points of the program, particularly on the employee ownership side, was to try to encourage more worker participation.
Also, because of the nature of the program, there's a certain amount of capitalist principle involved. If the employees don't have a real financial commitment to the investment, that will affect their decision. Employees going into one of these deals know they're on the line, net of the tax credits that are being provided, net of the incentive that's being provided, and that will hopefully encourage them to perform the due diligence that any capitalist would undergo in deciding whether or not to make the investment. Therein lies the essence of the decision. If you impose a government guarantee or an explicit government liability if the investment fails, it seems to me it'll distort the investment decision.
Mr Phillips: You don't have to sell me on the importance of employee -- I ran companies and all the employees owned them. I had a small position, and all of my employees, all the people who worked with me, owned it. I'm committed to it, I believe in it, but in my opinion, as the Steelworkers said, let the employees figure out whether it's viable or not. In my opinion, don't have a government agency that is going to be the overseer of this thing and say whether it's viable or not. There will be degrees of viability, and I have complete confidence that employees have the wherewithal to understand the risk they're taking. There may be some instances where a third party would say, "Frankly, we've got some concerns about whether that is commercially viable or not," but the employees may say, "We can make it go."
It's not a question of convincing me of the importance of employee ownership; it's who should have the responsibility. I'm just saying I think the Steelworkers made a fine presentation of saying, "You should put the onus on the workplace partners to make that determination, not some bureaucracy at Queen's Park that is going to make that determination."
I think the Steelworkers said there should be somebody who says they have met the criteria of the regulations so that they've fulfilled it, there's been complete disclosure to the employees, they understand exactly what's happening. But to put a stamp on this as commercially viable by somebody outside the workplace, I just have real questions.
The government has the votes, the thing is going to proceed, and it's probably a bill that one has difficulty opposing, but I thought -- I'm repeating myself, Mr Chairman -- the Steelworkers, who know this stuff, make good points, and we've chosen to go against the recommendations.
The Chair: Mr Sutherland.
Mr Sutherland: I'm sorry; I don't have a question right now.
Mr Johnson: I'd just like to add a few comments with regard to the investor protection question. I know Mr Kwinter made a quote from Mr Wright of the Ontario Securities Commission some time ago, and I'd like to quote Mr Wright again. It's with regard to employee ownership and investing in companies and protection features:
"They are investor protection features and I would go so far as to say that in my view, and this is a personal view, they are more appropriate and better than the requirements in the existing Securities Act when applied to these kinds of purchases of securities."
I think he would be an expert in securities and investor protection and I think that comment has some merit. He's suggesting that within this bill there are a number of features that would amount to significant investor protection leading up to that point in time when the decision is made whether the particular company is expected to be, with reasonable expectation, commercially viable.
Of course, I just want to reiterate that a part of what offsets the risk, and it's only a part, is the tax credit and I think that's already been mentioned.
I recognize that some of my colleagues in the opposition have been around here longer than I have and undoubtedly have more experience. I've heard what Mr Kwinter has had to say and I respect his experience and the situations he's been in within his ministry when he was minister. I recognize that there have been some problems in the past and it may be that in the past there wasn't the significant protection that was required to ensure investments were secured and there was adequate protection.
The Small Business Development Corporations Act, I guess it was from 1979, certainly has allowed for investments that have gone awry, I might say, and presented some problems with regard to securities of investments.
I think also that as we've been speaking about the guarantees or protection one should have under the circumstances, I believe you've been talking about some of your concerns that have to do with funds on deposit and depositors in institutions. What we're talking about now is equity positions and I think there's a difference there. All the avenues this bill has made available with regard to the research: the fact that there is a business plan, a human resources plan, a feasibility study; there are independent advisers; MITT has an advisory board and review board; the Ministry of Revenue has some involvement; the Ontario Securities Commission will administer provisions of Bill 150; there's a health warning.
I think after all these are taken into consideration, surely if something did not have a reasonable expectation of being commercially viable, it wouldn't go forward. It wouldn't get that stamp of approval, I would think, so it wouldn't become a problem. It wouldn't become problematic at some point later on. Those things that appear to have a marginal, or whatever, expectation of success, I guess, may get that stamp of approval. What I hear is, you're suggesting that every single company is going to get the stamp of approval and that would suggest that even companies that can't be expected to be successful will get cabinet approval and I think that's wrong. I think that --
Mr Sterling: You just proved our case. You've absolutely just proven our case, Paul, by saying --
Mr Johnson: Absolutely?
Mr Sterling: Yes. What you have said is that they won't give approval to anything that could fail. That's what we're arguing; that's how the guy in the street is going to interpret it. You've interpreted exactly --
Mr Johnson: No, in my opinion, you're misinterpreting what I'm saying. I'm saying that the things that appear to have the best opportunity for success would be approved, once it's taken through this complete scenario that I've just laid out for you.
Mr Sutherland: If you remember the comments earlier about "a good risk," I think that's the way -- you need to keep in mind -- it's a good risk based on some commonly accepted process; the evaluation processes and those types of things. But again, no guarantee.
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Mr Kwinter: I really think you've missed the point. I have no quarrel with all of that. What I'm saying is that once it's all done and the matter -- it could be the greatest investment going and then it fails after all of this. Then somewhere along the line there is going to be some disgruntled investor who is going to say: "All these wonderful things that you've just told me were in place and failed. You didn't do your due diligence, because why did it fail?'" I can tell you that in the environment we're living with right now, six months ago if anyone had suggested Olympia and York was going to be in trouble, it would have been unheard of. All I'm saying is here's an opportunity to put a provision in this bill that just makes sure the government isn't liable.
But I want to get back to another thing, because I now have found the transcript. We are talking about labour support. You and a couple of the members on the government side were saying they didn't approve of some things, but generally they were in support. Mr Gindin said, when he was asked about this, that he was "more interested in stopping it and getting it changed." This is the bill. This is the assistant to Bob White, the president of CAW, who says that his interest in this bill is stopping it and getting it changed.
Right after him, Mr O'Neil, who is the secretary-treasurer of the Canadian Auto Workers, said: "If you're asking whether, if this happens to pass, we will encourage, in fact we'll discourage workers and will lay out what we think are the consequences of investing in this program. So we will not be supportive; there's no question that at the end of the day we will not be supportive of this bill if it gets passed."
That isn't sort of maybe on the one hand and maybe on the other hand. They're saying, "We are not going to support it; we are not going to encourage our members to participate." That surely has to send out some kind of signal that maybe we should take a look at this thing and do something to get the support of the people who were supposed to be sponsoring it and who are supposed to be the major beneficiaries.
The Chair: Mr Owens, you had your hand up for a response. Or did you have a question?
Mr Owens: In terms of the liability issue, frankly I don't think we'll ever be able to protect or keep that one disgruntled or group of disgruntled former shareholders from claiming they have been misrepresented or that they felt they were investing in something that was viable and then failed and that it's the responsibility of the pedlar of the security or the person doing the valuation. I just cannot think of any way you could possibly do that in any investment. You're a person who has been in business for a long time and the Minister of Financial Institutions. I think you clearly understand that in terms of that person who feels he or she has been wronged, you're never going to be able to prevent that.
I think in terms of the language again, with respect to the warning that Julie read earlier from the OSC, it says clearly, "No securities commission or other securities regulatory authority in Canada has in any way passed on the merits of the securities offered in this disclosure document and any representation" etc." That's draft. That's looking to be strengthened.
On the next draft is the suitability for investment: "The securities offered hereunder may be highly speculative in nature and may not be a suitable investment, applying the usual investment criteria and having regard to income, net worth, age and source of investment funds of the investor." How much plainer can you get?
Mr Johnson: I would just like to make a point. Maybe we could conclude the back-and-forth bantering we have over this concern and tell Mr Kwinter and Mr Phillips that the government is prepared to accept your first amendment to section 6, which would, I think, alleviate some of your concerns.
Mr Phillips: That's a start, and that's fine. I'm just saying that the Steelworkers came in here last week and made a strong pitch. You've chosen to ignore it, and all of what you've said earlier just reinforces our concern.
Somebody five years from now will get the Hansard out and say: "When was that hearing? It was assured that MITT would look at the commercial viability, the advisory board would look at the commercial viability etc." The Steelworkers are saying to us: "Listen. That's not the right approach. You should put the responsibility in the hands of the workplace parties to do that, not in the hands of some bureaucracy down in Toronto to do that. We're going to be handcuffed if we want to work with one of our locals on buying out one of our operations, because if it's got to meet all those criteria, it ain't going to meet it."
We're all prepared to take a risk. It may not be commercially viable. We're prepared to take a risk, and they're telling us, "You're going to handcuff us." I'm just saying that if you want to do that, you've got the power to do that, but you may undermine what I think the Steelworkers saw as the objective.
Mr Sterling: Could I move to another one of the amendments of the Liberals? I'm not even sure in accepting the amendment that's going to -- I mean, that says something in the statute, but I'd really like some warning bells to the investor. But let's go on to something else.
Under one of their amendments, the last amendment, which I consider to be the most important one and the one I have a great deal of empathy with, that is, the employee organization definition, we have heard that the government is willing to include workers' co-ops. Therefore the previous objection we once heard in this committee with regard to the fact that the federal government had not agreed to give its 20% to any expanded definition of an employee organization falls by the wayside, because worker co-ops are not included within the federal program. Therefore we're creating two stages here of labour-sponsored venture capital plans. On the one hand, if it's put forward by a union, the investor gets 40%. If the workers' co-op puts it forward, we get 20%. I think those were the old figures. I don't know if those are the same figures now or not.
The Liberals have put forward an amendment which I understand comes from the Saskatchewan legislation, which includes three kinds of groups that may participate, a trade union, an association of trade unions or an association of employees that is not a trade union but that is recognized by the employer of the employees as a representative of the employees. I would assume that the third one would include workers' co-ops, as I would read it. What is the objection to the expanded definition?
The Chair: I think Mr Evans can answer that.
Mr Evans: I'm not sure I can answer that question directly, but I can provide some amplification of the question of the 20%. The 20% is the provincial tax credit. The question of whether there is a matching 20% federal tax credit remains untested at this time. There are other provinces with definitions that provide for investment co-ops or co-ops of some kind or another to establish investment funds, but to the best of my knowledge, none of those has yet has been instituted or carried forward so we would understand whether in fact the federal government would provide a 20% matching credit. It's simply unknown to us at this time.
Mr Sterling: That's fine. I hope they can get the extra 20%, but I assume that the inclusion of the word "co-ops" is done on a basis that it's not assured that you're going to get the 20%.
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Mr Evans: Broadly speaking, we believe that using the definition of "worker co-op" within Bill 150 at least has some parallels as to the spirit and intent of the legislation. It would be our hope that the federal government would consider the matching credit and we think that "worker co-op" broadly describes a position that is not inconsistent with the original bill.
Mr Sterling: I now have the corrected Liberal motion --
Mr Phillips: The latest version.
Mr Sterling: -- the latest version, which includes the trade union association non-profit corporation -- I guess there are two additional here -- "all of whose shareholders are employees of the same employer; or any other association of employees or class of association of employees that is prescribed in the regulations." What's the objection?
Mr Sutherland: At this time I'm not sure exactly what they are. Maybe Mr Owens can comment. If not, maybe we can get back to you this afternoon and give you some more response to that, okay?
Mr Owens: I would appreciate that. I don't even have a copy of the newest version of your amendment. Perhaps I could get a copy.
Mr Phillips: Neither of them are dated, so I apologize for that, but it's essentially the Saskatchewan model that --
Mr Owens: The quick response is that in terms of the tax credits, they're apparently for the expanded version that you folks are putting forward. There are no matching tax credits available. I'll double-check that and we can discuss it this afternoon.
Mr Sterling: We know that. What we're saying is, why be bothered with that. What's the difference?
Mr Owens: If we bothered with --
Mr Sterling: No. Why is it matching? What's so pervasive about the argument that there have to be matching federal -- we don't know it for sure in terms of worker co-ops, which you've already agreed to.
Interjection: It makes it more attractive.
Mr Sterling: It makes it more attractive for the investor, but if somebody can set one up with less financial attractiveness to the investor why not let him?
Mr Johnson: It's an interesting comment that Mr Sterling raises. I think that if a worker cooperative were to set up some kind of LSVCC, then not being as attractive may suggest that there wouldn't be the interest to invest. Part of the risk, again, is offset by the tax credit, whether it be an Ontario credit or a combination of both. I recognize your point as a valid point but we'll get back to you with regard to that.
Mr Phillips: I want to make sure everybody has the right copy, so before I leave here --
The Chair: Is that the one that says "government motion" on the top?
Mr Phillips: Not yet.
The Chair: No, there was a typing mistake. I asked everybody to strike out "government motion."
Mr Phillips: Okay, and just by way of background, this is essentially the one that's in Saskatchewan, which was one of the earlier groups. Originally there was some objection by the government, I gather, to include anybody who didn't currently qualify for the federal matching tax credits. But as my colleague said, it's fairly clear now that this is not going to be restricted because the co-ops, as I understand it, currently don't necessarily qualify and that the government's said that's no longer necessary.
What's heightened our sense of urgency on it, I guess, is that the Premier has talked about this as being an important tool in the economic renewal, although there was some confusion the other day in the House. I don't think the Premier understood this bill as well as some others do. But now that the Ontario Federation of Labour has said it won't participate in it, it seems we're going to be fairly restrictive in terms of the numbers of organizations that will manage the venture capital funds. So it seems, as I say, that the sense of urgency may have been heightened a little bit in not restricting it just to unions to be able to run the venture capital funds. There may be some other employee groups that would want to step in and fill the breach.
Mr Sutherland: He's making a comment, in terms of the Premier saying it's an important plank. I think what we've said is that it is a plank of economic renewal. It's one of the tools that make it more available. You've wondered about the restrictions on those who haven't tax credits, and we've said that we will take that and try to get back this afternoon with some more additional comments as to whether there are further objections still.
The Chair: Any more questions?
Mr Sterling: Just on the other Liberal amendment, is there any comment that you'd like to make on it at this point in time?
Interjection.
Mr Sterling: Okay. Fine.
The Chair: Fine. The committee will adjourn until --
Mr Sutherland: Mr Chairman, just before we do that, on another point of business, Mr Phillips last week requested to see whether the Treasurer would be able to appear before this committee before the end of June. Since Mr Christopherson was away last week, I took the initiative and talked to the Treasurer. He verbally has given some indication that he'll try to make an appearance here. That may be on the last day that the House and the committee are sitting.
Mr Phillips: You mean the end of July or early August?
Mr Sutherland: I'm going on the basis of the schedule of June 25.
Mr David Christopherson (Hamilton Centre): Dreaming.
Mr Sutherland: He's given verbal assurance, if we can work it around his schedule, that he would be willing to appear before the committee.
The Chair: Okay. This committee is adjourned until 3:30 and we'll be going through the clause-by-clause.
The committee adjourned at 1147.