July 4, 1935

LIB

James Layton Ralston

Liberal

Mr. RALSTON:

The Secretary of State

was good enough to send me a memorandum showing these amendments. There is one to which attention is called:

2. Page 2, line 4. Leave out the underlining of line 4. Underline lines 6 and 7.

Is that purely for the purpose of assisting us in considering the amendments?

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CON

Charles Hazlitt Cahan (Secretary of State of Canada)

Conservative (1867-1942)

Mr. CAHAN:

Yes. The only change was the striking out of the word "actively." In section 5 a change is made by substituting for the words "just and adequate consideration therefor" the words "the fair equivalent of cash to the total nominal amount of the shares so issued," and a provision is inserted that an application may be ex parte on summary peti-

4256 COMMONS

Companies Act-Senate Amendments

tion to a judge to determine whether such consideration was the fair equivalent of cash to the nominal amount of the shares so issued.

Then in the same section 5, a new subsection 11 has been inserted, as follows:

Nothing in the next preceding subsection shall be deemed to prevent the issue, under authority of provision therefor-

I think the expression "under authority of provision therefor" is a rather crude expression.

-either by letters patent or by-law, of any preferred shares to which are attached preferential voting rights, exercisable in a stated event only, although, in the stated event, an exclusive right to control or manage is attached to or is incident to such preferred shares.

Evidently the intention of the Senate is to provide in the case of holders of preference shares that if dividends are not declared upon the preference shares, it may be provided by by-law that the preferred shareholders shall thereupon have a larger direction and control in the management of the company.

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LIB

James Layton Ralston

Liberal

Mr. RALSTON:

Or the whole control.

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CON

Charles Hazlitt Cahan (Secretary of State of Canada)

Conservative (1867-1942)

Mr. CAHAN:

Yes.

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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:

Which is the usual term of the existing law in connection with certificates.

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CON

Charles Hazlitt Cahan (Secretary of State of Canada)

Conservative (1867-1942)

Mr. CAHAN:

In section 6 of the bill they have reinserted paragraph (f): "Classify or reclassify any shares without par value." In section 7 they have inserted in the 44th line the word "voting" between "dividend" and "return of capital," and have added to that this provision:

Provided that no limitations shall be imposed upon the right to vote.

It is rather casuistical, but I think we may accept it. Then in section 7 they have substituted the following for subsection 2:

(2) Without limiting the generality of the foregoing any such by-laws may provide that the holders of such preferred shares shall have the right to select a certain stated proportion of the board of directors or may give them such other control or may so limit their control over the affairs of the company as is considered expedient-

The remaining words stay the same. That is an express provision that certain rights may be given to the preferred shareholders with regard to the selection of a stated proportion of the directors and otherwise controlling the company.

With regard to section 9, I pointed out when the bill was before the house that in the definition of the word "underwriter" we had in

the act of 1934 provided a definition in two clauses which in the act are described as paragraphs (a) and Ob), and I stated that doubts were entertained whether the proposed paragraph (c) of the bill was within the competence of this parliament. The Senate have declared that paragraph (c), which appears on page 5 of the bill beginning at line 43, is in their opinion not within the competence of this parliament, and they have struck it out.

Again, where in the bill the draughtsman endeavoured to provide an indirect way of compelling allottees of the company's shares to comply with certain conditions with regard to their resale to third parties, by providing that the company should insist upon those allottees making a contract with the company that they would not distribute or resell except upon compliance with certain conditions, the Senate did not agree with that provision which appears on page 7 of the bill as subsection 4, and they have struck it out and reinstated the subsection 4 of the 1934 act.

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LIB

William Lyon Mackenzie King (Leader of the Official Opposition)

Liberal

Mr. MACKENZIE KING:

What does my hon. friend think of that?

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CON

Charles Hazlitt Cahan (Secretary of State of Canada)

Conservative (1867-1942)

Mr. CAHAN:

I wish my right hon. friend would not invite an expression of my personal opinion. In section 12 there was a provision with regard to declaration of dividends when the company is insolvent, that no account should be "taken of any increase in the surplus or reserves of the company resulting merely from the writing up of the assets of the company, unless such writing up shall have been made more than five years before the date of such declaration." The Senate have changed the words "more than five years before the date of such declaration" to "more than five years before the date of the declaration of the dividend," to make it clearer.

In section 14 they have made section 94A apply to a public company, and where the bill provides that in the case of any officer of the company becoming aware of any impairment of the capital of the company, he "shall forthwith inform the directors of the nature and extent of such impairment," they have inserted the word "substantial" before the word "impairment," so that it applies to a "substantial impairment."

As I have said, on page 9 of the bill in section 15 they have struck out the definition of "speculate," and they have revised section 96B so as to substitute for the words "a just and adequate consideration therefor" the words "the fair equivalent of cash to the total nominal amount of the shares proposed to be issued." Then there has been a slight

Companies Act-Senate Amendments

change on page 11 in paragraph (g) with regard to the balance sheet which reads:

(g) lands, buildings and plant, stating the basis of valuation, whether cost or otherwise, and, if valued on the basis of appraisal, the date of appraisal and the name of the appraiser and the amount, if any, by which the value of such assets has been written up.

They have changed that somewhat to read:

(g) lands, buildings and plant, stating the basis of valuation, whether cost or otherwise, and. if valued on the basis of appraisal, _ the date of appraisal, the name of the appraiser, and, if the surplus of the company has been increased as a result thereof, the amount by which the value of such assets has been written up within a period of three years prior to the date of such balance sheet.

That period of three years is a restriction which I think is reasonable. Then with regard to the writing up of good will, they have added a similar provision to the effect that this writing up shall be shown, in the balance sheet if it has taken place within a period of three years prior to the date of such balance sheet. In section 18 with regard to that provision they have inserted the words "in the case of a company not being a private company" so as to make the new section 113 subsection 1 apply to public companies only. That exhausts the lists of important changes or amendments which have been made.

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LIB

William Lyon Mackenzie King (Leader of the Official Opposition)

Liberal

Mr. MACKENZIE KING:

It seems to me from what my hon. friend has said that the original bill is either vastly disfigured or greatly improved. I wish he would tell us which.

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LIB

James Layton Ralston

Liberal

Mr. RALSTON:

Striking out the definition of speculation and still leaving ini the penalty for speculation seems to me to leave the act in a dangerous position. The only protection is that no action can be brought except with the consent of the Secretary of State. But as it stands, a director holding shares in a company is practically prohibited from dealing in those shares; for I should think almost everyone who sells or proposes to sell shares or who buys them does it for the purpose of making a profit, and I suppose that comes within the dictionary definition of speculation.

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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 bound to say that that section gave me some concern, but as it stands it appears to me it would be left to judicial determination whether or not in the facts of any case there was what in law is speculation. I appreciate the point the hon. member makes; it does impose very considerable obligations on directors who may be dealing in the shares of their companies. Yet

the test is this, is it not: Were they bought as investments or were they bought for the purpose really covered by the definition in the bill as it left this house? I have always appreciated the difficulty, and perhaps the hon. gentleman is more qualified by experience in recent years than I to appreciate it, of being able to determine by definition what constitutes speculation. We did endeavour to do it, but the Senate thought it was not wise to do so, and leaves it to judicial determination. I think it would be fatal to remove the penalty; it would 'be better to leave it there and trust to judicial discretion not to work a hardship on any person whose dealing with shares might possibly fall within what in some quarters would be regarded as speculation and in others as investment.

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CON

John Thomas Hackett

Conservative (1867-1942)

Mr. HACKETT:

I had hoped that the word "public" would be inserted in section 16, line 40, on page 10, between the word "any" and the word "company" otherwise all the restrictions which had been enacted in regard to public companies are going to apply to private companies, where it seems to me there is no reason they should apply.

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LIB

Jean-François Pouliot

Liberal

Mr. POULIOT:

If it does not apply to private companies what is the use of that legislation?

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CON

John Thomas Hackett

Conservative (1867-1942)

Mr. HACKETT:

If my hon. friend knew more about companies he would not ask the question.

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LIB

Jean-François Pouliot

Liberal

Mr. POULIOT:

I know about the hon. member for Stanstead (Mr. Hackett) and that is why I ask it.

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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 think that is covered. In subsection (2) of section 98B, page 9:

(1) The directors of a public company shall not authorize the issue and allotment as fully paid shares in the capital stock of the company v. .

It is a public company; it says so. The only one that is left out is the one to which the amendment was made, and the word "public" added to make it clear.

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LIB

James Layton Ralston

Liberal

Mr. RALSTON:

By the Senate just now.

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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:

Yes, exactly.

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LIB

Jean-François Pouliot

Liberal

Mr. POULIOT:

The only way to prevent speculation is to forbid speculation at all. That is the only way to cure all those evils

Motion agreed to; amendments read the second time and concurred in.

At six o'clock the house took recess.

Grain Board

After Recess

The house resumed a.t eight o'clock.

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CANADIAN GRAIN BOARD

July 4, 1935