Mr. STEWART (Edmonton):

I was intensely interested in section 48 for the very reason given for the present discussion.

Mr. CAHAN:

That section stands.

Mr. STEWART (Edmonton):

I understand that, but the minister has taken this occasion to discuss the matter with another member of the house and I want to say this to him. I wish he would reconsider some of his statements, particularly as regards the inadvisability of going to the trouble of supervising the capitalization of companies. Some authority will have to undertake this unless, as he points out, he has surrounded the organization of companies with the safeguards and penalties that will make it impossible for companies to evade the law. Eight or nine years ago I raised this very question in the House of Commons and I was told then

I do not blame the minister who at that time made the reply-that such provision could not be incorporated in the

Companies Act. Well, we have reaped the whirlwind in consequence since that date, companies having been allowed excessive capitalization whereby they have exploited the public. I feel very strongly on this particular feature of the bill. Surely it is possible so to supervise the capitalization of companies obtaining charters from the dominion government so as to ensure that the sort of thing that has gone on, not only in connection with the Burns company but with half a dozen other concerns, where the public have been exploited in Canada, shall be prevented. I say this now in the hope that some provision will be made in this bill that will make that sort of thing impossible.

Mr. CAHAN:

Section 48 stands. I think we have gone as far as it is possible for this parliament to go, if in the future any companies are to 'be incorporated under the authority of dominion legislation.

Mr. HANSON (York-Sunbury):

The crux of the evil complained of, under the capital structure set up in the letters patent, as I apprehend it, or in the borrowing powers that may be asked for by by-law, is the writing up of assets taken over from one company by another. Unless you meet that evil and provide for supervision over that aspect of the matter you will never meet the situation which at present confronts the investing public of Canada. You can put what you like into the requirements of the prospectus, but. unless there is a true valuation on the assets being exchanged by the old company for the securities of the new, or something of that character you will never prevent the crying evil which is complained of here and elsewhere. After very careful consideration, I believe I am correct in saying that this is the point to which we ought to direct attention. I will say this however, that if you do try to do that you will have a wholesale job on your hands; more than that, you will drive out of the federal jurisdiction the incorporation of practically all these companies. Unless therefore you can get uniformity as between the dominion and the provinces, I do not see any chance in the world of remedying the evil, and it is a great evil, which is complained of.

Mr. COOTE:

In connection with Burns and Company Limited, the preferred shareholders, who are going to lose most of their equity, formed the preferred shareholders protective committee. That committee issued a letter to the preferred shareholders in which they asked them to subscribe to a fund to be used for the purpose of carrying out an investi-

Dominion Companies Act

gation and, if necessary, of taking action against the Dominion Securities Corporation who sold the securities. They claim that the prospectus of the company did not disclose the true position of the company. This circular came to the attention of the Dominion Securities Corporation, who floated the securities. The Dominion Securities Corporation have issued a circular letter to the preferred shareholders and I wish to quote the postscript, because it refers to the suggestion made by the minister that any company that floated securities improperly, or at least in connection with which proper information had not been disclosed, might be held liable for damages. Such action is contemplated and suggested by the protective committee to which I have referred, and this is what the Dominion Securities Corporation say in a postscript to their letter to the preferred shareholders:

We feel further that we should point out with reference to the form of power of attorney accompanying the circular of February 27. 1934, that if you give such power, and action is brought in your name and on your behalf, you may thereby incur a liability for substantial costs in addition to any funds which you contribute as suggested in the circular.

Here is the corporation that floated the securities issuing a warning to all preferred shareholders, discouraging them from getting together to take legal action if they have any ground therefor. As an hon. member suggests, it is a threat to the shareholders. I bring this to the attention of the minister So that when we come to discuss section 48 he will perhaps take it into consideration to see whether some better security or protection can be afforded shareholders who wish to take such action.

Mr. CAHA1N: The clauses with regard to prospectus will stand for to-day and may be discussed further in connection with section 48 if hon. gentlemen wish to renew the discussion.

Mr. CAHAN:

Hon. gentlemen will see as we go through these clauses that we are inserting penalties. For instance, in clause 54 we are inserting a penalty for misrepresentation:

Liable to five years' imprisonment or to a penalty not exceeding $1,000, or to both such imprisonment and such penalty.

We are in this revision increasing the penalties very considerably.

Mr. HANSON (York-Sunbury):

So far as I can see there is no change in this clause.

Mr. CAHAN:

In this particular one the penalty may be the same, but in other clauses we are increasing the penalties very materially.

Mr. DUPRE:

I move in subsection 5 to strike out all the words after the word "part" in the 36th line.

Mr. CASGRAIN:

What is the effect of the amendment?

Mr. CAHAN:

This amendment is proposed because we think the latter part of the subclause does not add anything to the force of the previous part. The subclause reads:

(5) Holders of such preferred or deferred shares shall be shareholders within the meaning of this part, and shall in all respects possess the rights and be subject to the liabilities of shareholders within the meaning of this part.

That broad statement is regarded by the best counsel whose advice I can obtain as being clear and definite and the suggestion is made that the addition of the following words is unnecessary:

But in respect of dividends, and in any other respect set out in the by-law as authorized by this part, they shall, as against the ordinary shareholders, be entitled to the preferences and rights given by such by-law.

Of course they are, because the other provisions of the statute confer those rights upon them provided they are given by bylaw, and the best legal advice T can obtain is that the addition of those words after the word "part" simply befogs the issue.

Mr. CASGRAIN:

Who was the counsel that advised that because for the information of the committee-

* Mr. CAHAN: I have had the advice of many lawyers in various parts of the country who have given the very best of counsel. This has also been before the leading accountants, professional institutes and professors of colleges and their advice has been digested to the best of our ability. The matter has been under discussion now for a year and a half.

Mr. CASGRAIN:

Too many cooks spoil the broth.

Mr. HANSON (York-Sunbury):

Although the minister states that these additional words are regarded merely as redundant and of no force or effect so far as the legislation is

Dominion Companies Act

concerned, they have been in the statute for a long time; I do not know that there is any decision on the point and I do not think it will do any harm to leave them in.

Section stands.

Section 60 agreed to.

Section 61 stands.

On section 62-Notice of changes in capital structure to be filed.

Mr. CAHAN:

This clause has been the subject of considerable discussion and I have proposed a clause in substitution therefor. Clause 62 was before this house in 1930 and some difficulty has arisen with regard to the construction of it. I have not changed its purport, but I have, I think, made it clearer. For instance, the old section 62 which was reinserted in the original bill reads:

When any class of shares is created or

becomes subject to redemption or conversion into any other class-

The difficulty has arisen, I believe, in the courts as to whether "redemption" covers the words "purchase for cancellation" and so I have inserted the latter words to make the meaning abundantly clear. The clause will now read:

When any class of shares is created or

becomes subject to redemption or purchase for cancellation or conversion into any other class-

Simply for purposes of clarification we have inserted the words "purchase for cancellation," which in the ordinary course was deemed to be included in "redemption."

Mr. DUPRE:

I therefore move to strike out this section and to substitute therefor the following:

62. When any class of shares is created or becomes subject to redemption or purchase for cancellation or conversion into any other class, and such redemption or purchase for cancellation or conversion is effected, notice thereof, setting forth the number of shares of the class redeemed or purchased for cancellation or converted and the number of shares and the class into which conversion is made, shall be filed forthwith with the Secretary of State.