-at page 39 of their report, after reciting certain difficulties that they believed existed, and also referring to constitutional questions that might arise, used these words:
But whatever may be the solution of this constitutional problem, it is clear that growing public resentment necessitates further social control of the financial operations of companies. Accordingly, it is urged here that, within its legal competence, the dominion should to the very limit give leadership with a strict act. We feel that the prestige of a dominion incorporation. is such that the provinces will follow such a lead.
The Secretary of State, apparently taking that as the basis of the situation w7as quite prepared to consider favourably the recommendations that they made, and although he has stated that many of these recommendations do not meet with his ideas, he nevertheless has brought them to the house for consideration. In doing that, although it may be an extraordinary proceeding, he has given us an opportunity of discussing the various recommendations.
At page 40 of their report the price spreads commission, in dealing with suggested amendments, say:
Companies Act-Mr. Bothwell
Therefore, in an effort to remedy some of the abuses discussed in the previous sections of this chapter, and pending some satisfactory solution of the problem of uniformity, we recommend certain changes to the Dominion Companies Act, irrespective of what the provinces may do.
These changes are based on -the assumption that limited liability company legislation involves three sets of obligations, as follows:
a. upon the company to create a non-withdrawable fund of capital, which would operate as security for bondholders, for creditors and shareholders.
And a little further down on the same page:
To strengthen and make more effective the first obligation, we recommend either the abolition of shares of no par value, or the requirement that the full consideration received for no par value shares would be credited to the capital account.
And further on:
The alternative proposal to complete prohibition, namely, the abolition of the right to allocate any part of the consideration received for an issue of no par shares to distributable surplus, would achieve the same objective.
In the amendments that have been brought down it appears to me
and I have gone through them carefully-that those recommendations hav-e not been carried out. The no par value share is still permitted, and- the distributable surplus is still permitted. Under section 4 of the bill provision is made in these words:
In the absence of other provisions in that behalf in the letters patent, supplementary letters patent or by-laws of the company, the issue and allotment of shares without nominal or par value may be made from time to time for such consideration as may be fixed by the board of directors of the company; and in fixing the. amount of such consideration, the board, subject to the provisions of this part, may provide in the contract of subscription for such shares that the consideration received therefor shall be deemed to be capital, excepting a part, if any, not exceeding twenty-five per centum thereof, which shall be set aside as distributable surplus;
In regard to this question of distributable surplus it strikes me that that provision of the bill now before us will permit a company, immediately after it is incorporated, before it has been able to earn- anything out of which to pay dividends, to use twenty-five per cent of its capital set-up for the purpose of paying dividends. That is the effect of it. To that extent the company starts out by paying part of its capital back to bondholders or shareholders or whoever shares in these dividends-in other words, starts out depleting its capital. Surely there can be no excuse for that. I heard the comment of the Secretary of State on the point this afternoon, but it does seem to me, as it does to many writers on the subject, that here is
no excuse for such a proceeding. There may be an argument in favour of no par shares; it seems to be a debatable question, but it would seem that the power to issue no par shares gives to promoters of a certain class just the opportunity they are looking for in order to pour water into the company. A no par value share is an elastic sort of thing. It is something like a rubber ruler. This was discussed last year when the bill was before the house; a full description was given of what can be done by a -company with no par value shares, and I do not intend to repeat the arguments that were used at that time. The minister has had them put to him, and- he is still opposed to amending the act to do away with no par value shares.
The next suggestion to which I should like to refer is found at page 42 of the report of the commission:
It is well known that a company customarily sells its shares, not to the public either direct or through agencies, but outright to an investment house. The investment dealer, in retailing the securities to the public, is not acting on behalf of the company, but is selling its own property and is not, therefore, subject to the new prospectus clauses. This, to a great extent, nullifies their value and should be altered.
The amendment made to section 73 of the act seems to provide for that; I think the minister has endeavoured to carry out fully the recommendation- of the committee in that respect. Then- on the same page I find this statement:
Furthermore, we believe that every prospectus should st-ate in clear detail all commissions, fees and other remuneration received by the promoters, underwriters or middlemen. The net consideration received or to be received by the company should be clear to the investor.
So far as I can find out that recommendation has not been implemented in any way.
Mr. -OAHAN; If the hon. gentleman- will allow me, I do not intend to discuss these clauses at length, but those matters are dealt within the balance sheet, and the balance sheet must be incorporated in the prospectus, so that whoever made that suggestion had not carefully read the -provisions of the 1934 act. I assure the hon. gentleman that now they must appear in the prospectus which is issued. If he looks into the -matter I am sure he will agree with me.
Mr. BOTHWE-LL: I am glad to have that explanation from the minister, and as we go through the bill in detail in committee n-o doubt other matters that may not be clear to us at the moment will be explained. The
Companies Act-Mr. Bothwell
next recommendation, to which I wish to refer is at the bottom of page 42:
We recommend also that steps should be taken to simplify the capital structure of corporations, by limiting the classes of shares that may be henceforth offered to the public, to common and preferred-without any of the numerous subdivisions that now so often confuse and' mislead the investor, and facilitate the concentration of control in the hands of entrepreneurial groups. Allied to this provision would be a stipulation that every share offered, both common and preferred, should bear equal voting rights. Management shares should be prohibited.
Some of the recommendations contained in that paragraph have been carried out. It is recommended that management shares should be prohibited; that has been provided for. Equal voting rights as between common and preferred shares is also provided for, but I am opposed both to the recommendation of the committee and to the amendment as it now exists.