June 14, 1935

LIB

James Lorimer Ilsley

Liberal

Mr. J. L. ILSLBY (Hants-Kings):

Mr. Speaker, I realize that the atmosphere of the house is such that it is difficult to make a speech on such a subject as the Companies Act at this hour of the evening, but there are a few observations that I would like to make on the bill. I want to congratulate the Secretary of State (Mr. Cahan) on the very full explanation that he gave of the bill on the second reading this afternoon and tonight. He took the recommendations of the price spreads commission one by one, stated the reasons why he disapproved or approved of them, as the case might be-he did not approve of very many-and explained the-bill very fully.

Companies Act-Mr. Ilsley

I do not intend at this stage to deal section by section with the bill that is before us, but I think the time is opportune to review the history of this companies legislation. About a year ago the Secretary of .State introduced a bill Which he regarded as the last word in a companies act, a bill upon which he put a great deal of time and a great deal of work, which embodied the suggestions he was able to get from the profession, and which he considered1 was as good a piece of work as could be done by this parliament on company legislation. Members from this side of the house offered certain suggestions. One of those suggestions was that no-par shares should be prohibited. Several amendments were proposed, notably by the hon. member for L'ast Mountain (Mr. Butcher) who had made a particular study of company legislation, but very few if any of those amendments were accepted by the Secretary of State. That was the first chapter in the attempts of the government to put the Companies Act in shape.

The second was the radio speech of the right hon. the Prime Minister (Mr. Bennett) in the early part of January. In the reform speeches, so called, which went out over the radio in the early part of January the Prime Minister made a great point of the defects in the Companies Act. By implication he attacked the work of his colleague the previous spring. I have his words hero, and so that there may be no mistake about it I want to put them on Hansard. Speaking of the Prime Minister the report in the Ottawa Citizen says:

Turning then to what he termed "the social and economic evil commonly called 'stock watering.' " Mr. Bennett said this constituted a definite impairment of the economic system.

"Notwithstanding the legislation of recent years, the protection of the investor must be improved," the Prime Minister declared. "It is still inadequate. There must be stricter government regulation of finance in this field so that improper practices may be detected in time and effectively dealt with. The ravages of the promoter who operated in the period of 1922 to 1930 cannot now be repaired'. But we can at least see to it that he does not again operate in the same way.

Our Dominion Companies Act will, therefore, have to be strengthened. There must he drastic simplification of capital structure so that the investor will be able to understand the nature of the stock or security he is purchasing. At the next session of parliament, the Companies Act will be amended so as to abolish the right to issue shares of no par value. The searchlight of publicity must be focussed on every issue of securities offered to the public. Adequate machinery must be set up to inquire into and report on corporate developments which tend towards consolidation

and concentration. In other words, the door must be locked before, not after the horse is stolen.

Between 1922 and 1930 a great many of our people were the victims of practices against which the law provided no adequate safeguards. From time to time, attempts have been made to cure these persistent and recurring evils. None have been wholly effective. The many victims of stock promotion, in the years before the crash, are the certain proof of that. The problem bristles with difficulties. But the government will enact legislation at the next session of parliament which it confidently expects will, with the wholehearted cooperation of the citizens of Canada, stamp out this evil in corporations operating under dominion authority.

Those are the resounding words which the Prime Minister uttered in January last. That is the second chapter in the government's activities in the reform of company law.

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LIB

Ian Alistair Mackenzie

Liberal

Mr. MACKENZIE (Vancouver):

Cabinet solidarity.

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LIB

James Lorimer Ilsley

Liberal

Mr. ILSLEY:

I should like to refer to the two points stressed by the Prime Minister. The first point was the abolition of shares of no par value, and the second point was the drastic simplification of capital structure so that the investor might be able to understand the nature of the stock or security he might purchase. I have no doubt that the Prime Minister then had in mind the abolition of the right to issue class A, class B and other classes of shares. Those were the two specific reforms the government was going to introduce in the Companies Act. The Prime Minister made an attack by implication upon the work of his colleague the Secretary of State. In the previous spring after the consolidation of the act had been completed the Secretary of State said that that was as good a job as could be done by any parliament.

We come now to the third chapter, the price spreads committee which later became the price spreads commission. This body heard certain evidence, not very much, in connection with the operation of dominion companies. The opinion of the commissioners was that the concentration of business in Canada in the hands of the great corporations was one of the most notable phenomena of the present day. The commissioners then went on to consider what evils might be corrected by amending the Companies Act, and they made certain recommendations. The Secretary of State stood up this afternoon and, if I understood his argument correctly, argued that according to the reference they had no power to consider amendments to the Companies Act. Upon a literal interpretation of the terms of the reference no doubt that would be correct, but broadly speaking they certainly

Companies Act-Mr. Ilsley

had the power because that is the legislation of which individuals avail themselves when they form themselves into companies. It was impossible to consider intelligently the problems before the commission without giving some consideration to the Companies Act. The Secretary of State said that many other witnesses should 'have been brought before the commission, that he should have been consulted and that we should have gone about our work in a different way. There may 'be quite a bit of force in the suggestion that the Secretary of State should have been consulted to a greater extent, but I would remind the house that w-e sat for fourteen months, with the exception of four months in 'the summer, and dealt with a wide range of subjects. It was impossible to get as much evidence as we would have liked to get about the matters before us, but after a great deal of discussion the commissioners decided to make certain recommendations, and it is the implementation of those recommendations which is now before the house.

This afternoon the Secretary of State went over this bill, section by section, and subjected it to the most masterly analytic and' devastating criticism. I listened attentively to his remarks, and in recent years I have never heard a more able attack upon a piece of legislation than that made upon this bill by the hon. gentleman this afternoon and evening. What- is the meaning of this? The hon. gentleman directed his attack to two points. The first was the suggestion that we should abolish no-par shares, and the other was the suggest tion that we should abolish classes of stocks. These were the two specific reforms which the Prime Minister advocated over the radio last January, but they were destroyed by the Secretary of State this afternoon in the devastating rebuttal to which he subjected them. Talk about cabinet solidarity, talk about unity of effort, talk about the strong position taken by the government; was anything like this ever heard of before in the Dominion of Canada? Why does the Secretary of State sponsor this bill when he does not believe in it? Why does he sponsor a bill the principle of which he disapproves? I commend to hon. members and to the country generally a comparison of the speech made by the Prime Minister last January and that made by the Secretary of State this afternoon and this evening. I think such a comparison will show how much unity and solidarity there is in the government of the Dominion of Canada at the present time. I can only speculate, but I suppose the government decided in cabinet council that

they must make some sort of pretence at carrying out the recommendations of the price spreads commission, otherwise the hon. member for East Kootenay (Mr. Stevens) would raise such a row throughout the country that there would be no government; there would be no Conservative party left. I cannot imagine there being any other motive for the exhibition before the house this afternoon.

I felt a little sensitive this afternoon as I listened to the Secretary of State attacking with his masteriy ability this price spreads commission report and the legislation based upon it. I realize that there were certain weaknesses in the constitution of the commission and the committee. I do not think I am guilty of violating any confidences when I say that I think we should have had at least one corporation lawyer to advise us. Unfortunately, there is a feeling that most corporation lawyers have a single line of approach. It is believed that their business is to act for persons incorporating companies, for promoters, for investment houses and the like, to see that they do not get into trouble, no matter who else may. It may have been that the judgment of my colleagues was sound when they felt that we should take the line we did and go ahead without the assistance of a highly experienced corporation lawyer.

I have no doubt that there is considerable force in much of the criticism to which the Secretary of State gave utterance this afternoon, but I would point out that there must also be considerable force in some of the criticism which the price spreads commission uttered against the existing Companies Act. The Secretary of State admits this when he introduces this important bill, which amends the legislation which he said last spring was the last word. I should like to refer to some of the recommendations of the commission. Recommendation No. 9 contained in the summary of recommendations reads:

The prospectus provisions of the present act should be altered to place upon a company and its directors the responsibility for representations made on any offering for general public subscription, whether made on behalf of the company or not. If this change cannot be made through the Companies Act, it should be made a criminal offence to offer for public subscription securities of a company, with federal incorporation if those securities have not been subjected to the prospectus obligations of the Dominion Companies Act.

The Secretary of State has exhibited a great deal of ability in the way he has drafted the sections of this bill to carry out those recommendations. But he has stated that this bill impinges upon the field of property and civil rights, and he states also that he has never

Companies Act-Mr. Ilsley

been in favour of a dominion parliament filching under the guise of criminal legislation jurisdiction which belongs to the provinces. He sponsors' the bill, but he went on to damn practically every section and almost pleaded with the house for leave to withdraw certain parts and to amend others which would destroy to a great extent the effect of the bill. Is this government- legislation or is it not? Is this one of the great reforms? I go back to the Prime Minister, who said:

In other words, the door must he locked before, not after the horse is stolen.

And further he said:

The ravages of the promoter who operated in the period of 1922 to 1930 cannot now be repaired. But we can at least see to it that he does not operate again in the same way.

And this is the bill that does it. This is the reform promised us over the radio-the reform of the Companies Act of this dominion. The second recommendation is:

All shares offered, both common and preferred, should bear equal voting rights.

That recommendation must be taken with a grain of common sense, and that grain of common sense is that shares having the same par value or issue price, representing the same amount of investment, must have equal voting rights. The Secretary of State spent a good deal of time attacking the recommendation and the bill-because the bill carries out the recommendation-on the ground that it would never do to give a five dollar no par value share the same voting right as a one hundred dollar preferred share. It does not require an elaborate argument to establish that fact, and if the wording of the commissioners who brought in the report is ambiguous in any respect it is the business of the draftsman advising the government to set right such a detail. The next section is:

Management shares should be prohibited.

The minister accepts that recommendation without change. The next recommendation is:

When the management of a company have become aware of the serious impairment of the capital of that company, they should be required forthwith to inform the directors of that fact, who shall be under obligation immediately to call a meeting of shareholders and put the above situation before them.

The Secretary of State spent some time this afternoon pointing out that this was wrongly worded. He said there might be cases of serious impairment when the shareholders should not be told about it. He remembers a case where the capital of a company with which he was acquainted was impaired to the extent of

$3,000,000, and if the fact had not been kept from them there would have been a panic. And so he drafts the section, properly, in such a way as to define serious impairment. But the whole matter was done in such a way as to give the impression that those who were on the commission or who made the recommendation had no understanding, or at any rate only a primitive understanding of what they were talking about.

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CON

Richard Burpee Hanson (Minister of Trade and Commerce)

Conservative (1867-1942)

Mr. HANSON (York-Sunbury):

That is true, isn't it?

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LIB

James Lorimer Ilsley

Liberal

Mr. ILSLEY:

I imagine we could get a lot of assistance from the hon. gentleman who made that remark. The next recommendation is:

Directors should be prohibited from speculating in the shares of their companies. They should be required to disclose annually to their shareholders the extent to which they have directly or indirectly purchased or sold their company's shares during the year.

That recommendation the Secretary of State criticized very severely but adopted, and I congratulate him upon the skill with which he defined the word " speculating." He did that very well. Then there is this recommendation :

The first permanent directors of a company should be held responsible for all business transacted by the provisional directors.

That is accepted, but in such a way that a coach and four can be driven through it at any time; and from what I could gather from the minister's remarks, that is true of a good many sections. In connection with one section he said, " I can think of six or seven ways to get around that section." I do not know, therefore, what to say about this legislation; I do not know whether it is worth accepting or not. I think there are some good features about these recommendations and some good features about the legislation, and I am inclined to think the legislation is a little better than the minister would lead us to believe. His strictures upon his product are a little too severe; this is a sort of baby left on his doorstep by the hon. member for East Kootenay, and he is very much concerned about what to do with the child-

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LIB

Ian Alistair Mackenzie

Liberal

Mr. MACKENZIE (Vancouver):

The unwanted child.

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LIB

James Lorimer Ilsley

Liberal

Mr. ILSLEY:

Yes, the unwanted child. I would remind him, however, that there are a good many people in this country in whose ears there still resounds that radio speech by the Prime Minister wherein he said, "No longer will there be stock watering in this country; no longer will the horrible conditions that existed between 1922 and 1930 prevail"-

Companies Act-Mr. Ilsley

not between 1030 and 1935 but between 1922 and 1930. We were told that radical amendments would be made to the Companies Act.

I have two or three criticisms of this bill. I do not believe that the government has tackled the problem of stock watering in an effective way. I do not believe that the Prime Minister, when he delivered his radio speech last January, had in mind any idea as to how to tackle it. If he had anything in mind then, why does he not embody it in legislation, instead of sending the Secretary of State into this house with a measure which he damns, not with faint praise but with positive censure in every sentence of his speech? How will they stop stock watering? We offered two or three suggestions, one of which was that there should be set up a securities control board. The Secretary of State did not say anything about that this afternoon. It is to be through the dominion trade and industry commission, but it is not to sit and function on issues except when directed to do so by the Secretary of State. If we are to have an effective means of stopping stock watering, why did he not state this afternoon what he had in mind? There are certain sections of the bill through which a coach and four can be driven or around which anyone can get if he only exercises enough ingenuity.

When we come to the different provisions of the bill I may have a suggestion or two to make to improve some of the sections. In the meantime I make these general observations on this whole absurd situation. I have never seen or heard anything like it, and I have been in this house since 1926. Possibly I am speaking with a little more heat on this subject than I otherwise would had it not been for the occurrence earlier in the evening, but I want to make any constructive suggestions that can be offered. What can we expect, however, of legislation launched in this pessimistic, deprecating spirit?

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LIB
LIB

James Lorimer Ilsley

Liberal

Mr. ILSLEY:

What can we expect of legis-.ation launched in a spirit which makes it impossible for the legislation to do anything much-under the administration of this government at least-no matter what is said. I do not know whether it is intended to go into committee to-night on the clauses of the bill, but I would suggest that we go into it at a time when more than three members of the price spreads commission are present. It is not for my friend from Swift Current (Mr. Bothwell) and myself to defend the legislation against the Secretary of State; it is not for us to give him permission to withdraw it, as he seemed to think this afternoon, when he

looked at us and said, "I do hope that hon. members will consider the withdrawal of that section or that amendment so as to make it different from the way I drafted it." The price spreads commission made certain recommendations and he proceeds to tear them to pieces because they are in conflict with his own bill of last spring. And then he says, " I embody them in this legislation but I hope the house will allow me to withdraw parts of the legislation because I think they will do a whole lot of harm."

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Motion agreed to, bill read the second time and the house went into committee thereon, Mr. Morand in the chair. On clause 1-Short title.


CON

Charles Hazlitt Cahan (Secretary of State of Canada)

Conservative (1867-1942)

Mr. GAHAN:

I move that the committee rise, report progress and ask leave to sit again.

Progress reported.

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EXTERNAL AFFAIRS


The house in committee of supply, Mr. Morand in the chair. Tokyo- Representation, including salaries and allowances for minister plenipotentiary, secretaries and staff, notwithstanding anything to the contrary in the Civil Service Act or any of its amendments, $68,800.


LIB

Thomas Reid

Liberal

Mr. REID:

When this item' was up on

a previous occasion, I asked some questions regarding this appropriation and it was allowed to stand for the time being until the Prime Minister's return.

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CON

Richard Bedford Bennett (Prime Minister; President of the Privy Council; Secretary of State for External Affairs)

Conservative (1867-1942)

Right Hon. R. B. BENNETT (Prime Minister) :

I have a note of the questions. The

hon. member for New Westminster (Mr. Reid) asked1 why the government itself did not advance the money and make the payment for the building at the time. Mr., now Sir Herbert, Marler came here on his leave and he expounded to us the very great necessity of a building. Money was then costing us approximately five per cent, and we told him that the pressure of economic conditions was such that we did not feel we could provide the money until there was an improvement in revenue. He said that if we would permit him, he would construct the building and he himself would arrange a 'oan with the bank at five per cent; which would include charges of all kinds. The last money we borrowed at that time was costing in that vicinity. This year, at the earliest moment we felt we could do so, it will be

Supply-External Affairs

remembered we placed an item in the estimates of the Public Works department to pay that.

The next question was as to the number of employees in the office. There are twelve employees in all. The other question was as to how many rooms there were in the building. There are thirty-six. I am told by those who have visited Tokyo that the building is excellent, and its cost was within $549 of the estimate given, by Sir Herbert Marler. It was felt that while under the circumstances it was a departure from the ordinary rule, nevertheless as we had a very, shall I say inconvenient building at the time, it was desirable, as a site was available, to construct the building that was erected.

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LIB

Thomas Reid

Liberal

Mr. REID:

There is a good deal of

doubt, especially in British Columbia, whether title to land in Japan is given to foreigners.

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CON

Richard Bedford Bennett (Prime Minister; President of the Privy Council; Secretary of State for External Affairs)

Conservative (1867-1942)

Mr. BENNETT:

So far as ordinary

tenure to individuals is concerned, I cannot say, but so far as the Dominion of Canada is concerned, I can say that we have title to the land on the same terms as has the British embassy.

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LIB

Jean-François Pouliot

Liberal

Mr. POULIOT:

May I put on record a

return given in connection with the Tokyo building? It is dated April 9, 1935, and is as follows:

1. What percentage of interest has the Canadian government paid and still pays for the amount spent for the building of a Canadian legation in Tokyo?

The Canadian government has paid interest at the rate of 5 per cent on the cost to the government of the Canadian legation in Tokyo and will continue to pay interest at that rate until the principal is paid, which is provided for in estimates 1935-36, vote 96-Public Works, chargeable to capital.

2. What was [DOT] the percentage of interest of the last issue of dominion bonds?

The last issue of dominion bonds previous to the agreement entered into by the government for the purcha'se of certain lands in Tokyo, Japan, and the erection thereon of buildings suitable for legation, purposes yielded, on the two maturities, 5-17 per cent and 5-13 per cent.

The interest yield on the last issue of dominion bonds in October, 1934, was as follows:

2 year bonds, to yield 2-57 per cent.5 year bonds, to yield 2-90 per cent.8 year bonds, to yield 3-43 per cent.15 year bonds, to yield 3-81 per cent.

This is a return, sessional paper No. 326 of this year. What is most extraordinary is that the government for a time was ready to pay five per cent interest on the expenditure for the building when' it could borrow money at a much cheaper rate. This was not a sound

business proposal, and it was only after the opposition drew the attention of the government to the matter that it decided to pay the capital sum and inserted in the estimates an item of $200,000 in order that no more interest might be paid. This is one more occasion when a constructive suggestion from the opposition is accepted by the government. If it accepted all the suggestions that come from this side of the house, it would be in much better shape now and so would the country.

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CON

Richard Bedford Bennett (Prime Minister; President of the Privy Council; Secretary of State for External Affairs)

Conservative (1867-1942)

Mr. BENNETT:

I am afraid that statement cannot be allowed to go uncontradicted. The fact is that long before the return was moved for, the anticipated discussion had taken place in council and provision been made for payment to Mr. Marler for the money advanced.

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June 14, 1935