1934-05-30

Hon. ALFRED DURANLEAU (Minister of Marine):: Mr. Speaker, on May 17, the Prime Minister made a statement with regard to the imperial shipping committee's fifth report on Hudson bay marine insurance rates, 1934, and tabled two copies of the report. I desire to tell the house that a limited number of printed copies of the report are now available to hon. members interested and they may apply for same either to the distribution office or to the Department of Marine.



QUESTIONS

[Stage Direction]
(Questions answered orally are indicated by an asterisk).

Mr. MARCIL:: 1.	Has a new mail contract been entered into by the Post Office Department for the mail service between Black Cape station and' Black Cape post office in Bonaventure county?
2.	If so, were tenders called and who were the tenderers?
3.	To whom was this contract awarded?


Mr. SAUVE:: 1.	Yes.
2.	No, in conformity with the Post Office Act, the price of the contract being less than $200.
3.	Theo Leblanc at S195 per annum on the recommendation of Hon. Dr. E. Paquet, P.C.



BERSIMIS-SEPT ISLES POSTAL SERVICE

Mr. CASGRAIN:: Has the Postmaster General received any requests or petitions from citizens of the north shore of the St. Lawrence river with respect to the establishment of a bi-weekly postal service, with the use of horses, between Bersimis and Sept Isles, also with respect to the establishment of an air mail service with Matane, on the south shore, as a starting point, which would provide for the transportation of first class mail between Matane and the important communities on the north shore, from Godbout to Natashquan?


Mr. SAUVE:: Yes, request has been received in both cases and the matter is under consideration.



MOTION FOR PAPERS


Mr. BOTHWELL (for Mr. Donnelly):: For a copy of all correspondence, letters, telegrams and other documents, passing between the Canadian Legion, British Empire Service League of Shaunavon, Saskatchewan, or any representative thereof, and the Department of Public Works and the Department of National Defence, together with a copy of correspondence passing between the said two departments or between any person and either of the said departments, relative to the lease-or renewal thereof-of the armoury at Shaunavon, Saskatchewan, since August, 1930.



BUSINESS OF THE HOUSE


[Stage Direction]
On the orders of the day:
Right Hon. W. L. MACKENZIE KING (Leader of the Opposition):: I should like to ask the hon. member leading the government if he can advise the house as to whether or not there will be recognition of the King's birthday by this parliament? The birthday comes on Sunday, but there has been some rumour to the effect that the house might not sit on Monday. Is the hon. member in a position to advise the house?


Hon. HUGH GUTHRIE (Minister of Justice) :: The Prime Minister will be in his
place to-morrow, at which time he will answer the question. I have not heard a discussion of the matter.



MARKETING ACT

Hugh Guthrie: It was the intention to bring on
the marketing bill to-day for third reading, but last night an hon. member sitting opposite said he had not received a copy of the re-

Dominion Companies Act
print. I have not one before me, but if there is any desire that the matter be delayed for another day or two, I have no objection.


William Lyon Mackenzie King: Looking into
Hansard I observe that the hon. member indicated other measures to be taken up before the marketing bill.


Hugh Guthrie: The others will not take much time.


William Lyon Mackenzie King: I doubt if hon. members have had an opportunity to read the revised marketing bill. I think it had better stand for a day at least.


Hugh Guthrie: We will let it stand.



INQUIRIES ACT AMENDMENT

[Stage Direction]
Hon. LIUGH GUTHRIE (Minister of Justice) moved the third reading of Bill No. 84, to amend the Inquiries Act.
Motion agreed to, and bill read the third time and passed.

[Stage Direction]
The house resumed from Tuesday, May 29, consideration in committee of Bill No. 64, respecting dominion companies-Mr. Cahan- Mr. Gagnon in the chair.
On section 12-Different classes of shares.
Mr. BUTCHER:: I would ask the minister whether he does not think it would be advisable to reduce the number of securities provided for in this section. Subsection 1 reads in part as follows:
The letters patent or supplementary letters patent of a company may provide for shares of more than one class and for any preferred, deferred or other special rights, restrictions, conditions or limitations attaching to any class of shares;
It seems to me, Mr. Chairman, that our securities system might be very much simplified, and I am wondering if we could not reduce the number of securities. The vast number that we now have lead only to confusion and mystification, in my opinion. We have bonds and debentures, preferred shares, common stock, class A, class B, and perhaps other classes of preferred and deferred shares, also cumulative and non-cumulative, voting and non-voting shares, and sometimes in different series, and the directors have the right to fix before the issuance of the securities the designation, the rights, the restrictions, and the limitations and conditions attaching to each series. It appears to me, Mr. Chairman, that all this kind of thing must lead to
confusion in the minds of investors, the majority of whom are perhaps not well versed in the exact meaning of these terms.
It also seems to me that it is the less-reliable companies that desire to avail themselves of this great variety of securities, and it has occurred to me that it would be possible to reduce this number so that whatever classes of securities are offered for sale might be clearly understood by the investing public. I may be mistaken but in my view we could probably get along very well with only three or four different classes of securities, say bonds and debentures, one class of preferred stock and one class of common stock.
It also seems to me that it should be possible to have the nomenclature of securities very much simplified, and perhaps provide a definition in the act as to the exact meaning of each particular class, so that the person who buys a bond may know exactly under all circumstances what that bond covers. Perhaps it should be secured upon the real estate and other physical assets of the corporation. And the same with regard to debentures, and precisely the same with regard to preferred and common stocks. I would suggest that something of that sort might be arranged by the minister. I have no intention of moving any amendment but I should like to hear the minister's opinion of my suggestion.


Mr. CAHAN:: I appreciate the suggestion of the hon. member for Last Mountain. He has also discussed his proposition with me outside of this house. I think, however, it is very difficult indeed for this house to reform the whole of the business methods of the civilized world. There is not a country I know of, especially an English-speaking or French-speaking country, in which these various classes of securities are not issued.
With regard to the issue of securities it is I think quite impossible to define by statute what specific property a bond or a debenture may cover. In the one case it may cover only real estate; in other cases it may cover real and personal property. In the one case it >may be issued under certain conditions with regard to redemption, and in other cases it may have other qualifications. We are but a small part of the commercial world and therefore if our companies are to secure the funds necessary for their legitimate operations they must be in a position to issue securities in which the investing public are accustomed to deal. I doubt very much indeed whether apart from mining shares, which are dealt with on a different basis throughout the world from the shares of ordinary commercial and industrial companies, there is really any mis?
Dominion Companies Act

understanding on the part of the investing public as to the nature of the securities which they are purchasing.
In this statute we have provided that no sale [DOT]of any shares may be made by or on behalf of a company to any person in Canada or elsewhere until the prospective purchaser has received from the company or its underwriters a prospectus setting forth every particular relating to that security. But in my experience no prospectus issued in the past has been the sole basis of an application for shares. I notice in the city of Montreal, for instance, that shares to the amount of millions have been taken up within twenty-four hours when all the applicants themselves certainly did not receive a prospectus or even read a prospectus. The ordinary course in such a city is that one who desires to invest will ring up on the telephone an investment broker in whom he has confidence and will ask him. "How do you look upon this proposed issue? Do you think it a safe investment?" And on the information then given hundreds and even thousands of men make applications for securities and complete their investments. They trust to the judgment of those who study these prospectuses, and who have available in addition experts who make inquiries and thereby satisfy their principals as to the nature and value of the proposed investment.
In the case of this bill we have gone further than any other act of which I have cognizance. We have provided that no application for a company's shares can be accepted unless a prospectus has been placed in the hands of the applicant. It is then his option whether or not he reads it. Further, we have made the company which issues the prospectus liable with respect to any misrepresentation made therein, whether the misrepresentation induces an applicant to subscribe or whether he subscribes without regard to the contents of such prospectus. We have gone very far indeed.
We are in this dilemma. While the government, I think with the approval of the majority of the committee, has endeavoured' by this bill to effect very radical reforms, we must proceed somewhat slowly because there are nine provincial legislatures and under the judicial decisions to date, each of those legislatures is authorized to legislate for the incorporation of companies. Each and every one of the nine provinces has an act in force to-day under which these various classes of shares are authorized. We cannot reform the whole business community by one bill such as this but we have gone as far as we now think it possible to go to attain the end

which we have in view. I have my own views as to the legislative jurisdiction of the various provinces but perhaps hon. members who are lawyers will not agree with them. My own view is that this parliament might pass an act preventing a provincial company from entering into either interprovincial or international trade and business. But that is not the opinion * which prevails throughout the country. Some day I trust that that issue will be decided1 by the highest court in the land. In the present bill we have attempted to prohibit or control those company methods which have proved more or less inimical to the public interest, and I think we might well leave it to a succeeding parliament to decide in the future whether there are the other practical evils which might be prohibited or controlled.
Since this bill has been proposed and has received publicity, I am confident that tens of applications have been made to the provinces rather than to the office of the Secretary of State for incorporation. If I did not misunderstand an hon. member, he told me today that his firm had placed seven applications for incorporation with the provincial governments rather than apply to the Secretary of State knowing, as he suggested, that I would not grant 'him all the privileges and powers which he desired and which would be granted freely under one or other of the nine provincial companies acts. I am anxious to go with the committee as far as possible as this is not a party issue, but I suggest to the hon, member for Last Mountain that his proposal to wipe out these various classes of securities would be inimical to the public interest and would not attain the end which he has in view.
I should like to speak frankly to the committee. When conducting a law business in the city of Montreal in times past, I have applied to the Department of the Secretary of State for certain powers and privileges and my application has been refused by the Under Secretary. Within twenty-four hours I have by a night cable to London secured the powers which I desired under the English companies act. I thus organized a company through a firm of solicitors in London and within a week had an office in Canada from which was conducted the very business which the Under Secretary of State refused my clients the power to do under our Companies Act. If you propose to legislate against English, French or American Companies doing business in this country under the authority of their several charters, you create at once a very difficult situation because by

Dominion Companies Act
international comity we are bound to recognize the status of these foreign corporations. Therefore, I suggest that we remedy such evils as we can at the present time and live in reasonable expectation that the amendments and reforms incorporated in this bill will be adopted by the several legislatures of Canada and that we proceed step by step to solve the problems of company organization which now confront us and thus secure those reforms which the conditions of commercial and industrial life in this country now render reasonably necessary. I trust the hon. gentleman will not press too far the suggestion which he has made.


Mr.   ILANSON@York-Sunbury: I find myself in great agreement with the ideals presented by the hon. member for Last Mountain (Mr. Butcher), but like the Secretary of State (Mr. Cahan) I have been able to visualize the difficulties which lie ahead before we arrive at that utopia which he and I would like to see brought about in this country. There is no doubt that grave abuses have grown up through the ingenuity, the brains and the ability of great lawyers and great financial men in this country, but I think the reading of the history of joint stock companies will indicate that the greatest evolution in company law has not developed in Canada. My reading indicates that England was the home of the joint stock company and that most of the evolution has come from that jurisdiction. Perhaps as much evolution in company law has occurred in the United States of America and Canada has naturally become engulfed in this evolution.
I think the Secretary of State has gone a very substantial distance in endeavouring to take care of some of the abuses which have developed in Canada. With the present bill we are taking a distinct step forward, but until there is an amendment to the British North America Act, until there is a community of interest between provincial and federal jurisdiction and we get uniformity in the laws of the country, I do not think we can develop the idea expressed by the hon. member except step by step, leading the way. I think it was a misfortune-that may be too strong a term to use, but I think it is a distinct disadvantage at all events-that the decisions of the courts of the country have given joint jurisdiction, or rather, I should say, that there is jurisdiction both federally and provincially in relation to companies. If there is one sphere of jurisprudence that should be centralized it is that in connection with the creation and the working of joint stock companies. Unfortunately the decisions of the law courts are against that theory; and unless we can, by conference, by agreement with the provinces, arrive at uniformity in legislation I do not think there is very much more that can be done at the moment in respect of the abuses, which are really well known in Canada, in relation to the issue of securities by joint stock companies.
I think that the Secretary of State, and any government that is in power in Canada in the years that are to follow, ought to use his and its best endeavours to induce the provinces to agree on uniform company law, since not one of them is willing to give up its jurisdiction over the subject matter. If that could be attained, by conference, by agreement, by good will, the investing public of Canada might be protected against being exploited as it has been in the past.
On the whole, I think the bill before the house is a distinct step forward, though only a step. I am supporting the provisions of the bill on that ground, as being a distinct advance in protecting the public even from themselves. I should like myself to see the whole system simplified. I must say I have been puzzled many times by the ingenuity of men in evolving the schemes that have been evolved for the issue of securities in Canada; I am being educated every year into something new. The general public, the layman, the ordinary investor cannot be expected to follow all that has been evolved in the last few years, especially in the last fifteen or twenty years; and until there is centralization of jurisdiction in Canada, or until there is agreement between provincial and federal jurisdiction, I fear that the federal government can only lead the way step by step.
The question of educating the public along this line is important. The government I think is doing good work in bringing down this bill. I regret it has not been able to persuade the provinces to follow suit. But in Canada we are rather jealous of our jurisdiction and the provincial governments are especially jealous of theirs. On general principles, one cannot find fault 'with them for that, and we can only express regret that there has not been agreement to support a bill which would be uniform throughout the whole country, and which would simplify the procedure and the evolution of company law in Canada and at the same time render a service to the investing public. Even if we could attain that ideal, however, we must not lose sight of the fact that, as the minister has said, Canada is only a small part of the
Dominion Companies Act

great commercial world. Nothing is easier than to go from this jurisdiction to a foreign jurisdiction to attain the powers that are being sought; and if we refuse them here that is exactly what happens. I suggest therefore that all that this parliament can do is to proceed step by step and try to do its best in an endeavour to bring the provinces into uniformity in the matter of legislation as time goes on.


Mr. RALSTON:: As the Secretary of State will quite frankly admit, the weakness of this bill, from the point of view of the protection of the public, is in this, that while it imposes very serious prospectus provisions in respect of securities which are being marketed by the company itself, it does not go further and carry those provisions through when the stock of the company is being sold by a purchaser of that stock from the company.	.


Mr. HANSON (York-Sunbury):: I understood from the remarks of the Secretary of State that the bill did cover that point.


Charles Hazlitt Cahan: Only in one particular.
This bill deals with the issue of shares or securities by a company or by an underwriter on behalf of the company. After such shares are issued and are owned by shareholders who purchase them, the subsequent dealings between shareholders are not provided for in this bill because the prevailing opinion of the legal profession is, I think, that this parliament, except by its criminal legislation, has no jurisdiction with respect to such resales. During the last eighteen months, while debating this matter with various officers of the government, with representatives of the provinces and with leading counsel in the dominion, I have not heard a suggestion to the contrary. But in respect of criminal legislation we have introduced in this bill a provision which if it is intra vires, if it is sound criminal legislation, prescribes and penalizes attempts to sell securities by house to house canvass. Sales by such canvassers are made a criminal offence. We shall discuss that later on.


James Layton Ralston: I thank the Secretary of State for that very dear statement. What I have said can be taken then as quite correct, namely, that the moment shares get beyond the control of the company, either directly or through a broker-someone disposing of them on behalf of the company-then the prospectus provisions cease to apply. That seems to me to be the weakness of the bill. As the Secretary of State has properly said, that weakness is there not because of any hesitancy on his part nor, I take it, on the part of this house

to go as far as we can possibly go, within the ambit of the legislative jurisdiction of this parliament, to afford protection. I had almost the temerity to suggest, notwithstanding the Secretary of State's intimation that no one had suggested it before, that it is possible-I will put it no stronger than that-that it might be incidental to dominion company law to follow through the shares of a company, which had been incorporated by this parliament or under the authority of this parliament, and attach to those shares incidence which would impose a responsibility on those dealing with them, even though they had passed out of the hands of the company. That, I know, is a long shot and of course it means a privy council decision. But when I remember that even now the provisions in this Companies Act, which impose liabilities on directors for payment of dividends that impair capital, are being attacked in the courts and have as a matter of fact been held by the Court of Appeal of Ontario to be ultra vires, I realize what a difficult course we have to pursue. With all respect to the Supreme Court of Ontario, I should have thought that that was part of dominion company legislation which might very properly be said to be within federal jurisdiction-that is to say, the imposition of certain responsibilities upon the directors of companies which are incorporated under the authority of this parliament. It would seem to me that that might well be within dominion jurisdiction. Even that, however, has been held by the Court of Appeal of Ontario to be ultra vires. That leaves us with this situation that either we put into this bill something which pretty nearly everybody agrees is at least of very doubtful legislative validity or we take what appears to be a comparatively short step, as has been mentioned by the hon. member for York-Sunbury (Mr. Hanson), in the direction of trying to set an example and to indicate the objective which we all are seeking to attain.
As the Secretary of State has pointed out- and this weighs with me-if we should put into this bill something of that kind, something which would attempt to impose responsibility upon the subsequent owners of those shares right straight down the line so long as they are shares of a dominion company, then it is inevitable that the Secretary of State will not have very many applications for incorporation of companies until the provinces change their laws so as to bring them into line with our legislation. This would mean, it seems to me, that the Dominion Companies Act would be a dead letter and we have to decide really whether we will forego whatever

Dominion Companies Act
prestige and revenue may be involved in the incorporation of dominion companies for the sake at least of setting an example and say: We do not propose to countenance this sort of thing and intend to do all we can, that is in a legislative way, to prevent it. After a good deal of thought I agree with the Secretary of State in concluding that no practical purpose would be served in attempting to go this further step, first, because certainly it is doubtful from the point of view of jurisdiction, and, second, because of the fact that in respect of the handling of shares it would have no practical effect on the protection of the public since the public would not have an opportunity to buy shares in dominion companies because the companies would be incorporated by the provinces.
That brings us to what our alternatives are: first, to amend the act and to put into it this legislation which we think is of doubtful validity. Probably we can cast aside that alternative. The second is to attempt to secure agreement with the provinces and I agree that is still a long way off because, from the reports I have had of the conferences which were held and which I presume were at least semiprivate, we are not a great distance along the road of getting uniformity in letter although we may have uniformity in spirit. The provinces are not prepared to act as rubber stamps for dominion legislation and to enact the same laws as we put into force, but I hope, in view of the fact that we have in most of the provinces a Securities Frauds Prevention Act or something similar, the provinces themselves are coming or have come to the point of view we are endeavouring to express here and we may trust to see substantial advance made along the line not perhaps of uniformity in letter but of uniformity in spirit so that the public of each province may be protected by provincial laws against those who are operating in the provinces in dealing in stock. That is the second alternative. The first is to amend the act and we all admit that is impracticable. The second is so far as possible to secure agreement with the provinces at least in respect of the spirit of this legislation and to endeavour to get the provinces to legislate accordingly if they have not already done so.
The third is along the lines the Secretary of State has mentioned. I believe we could go further than he has mentioned with regard to criminal legislation and I am not sure that is not a solution at the present stage. I am not certain whether the criminal legislation should not go further than the section
which is in the act and which I understand applies only to house to house canvasing, or whether we should not seriously consider putting not necessarily into the Dominion Companies Act but into the criminal code as part of the criminal law of Canada some more stringent provisions with respect to the selling of stock in any company, whether incorporated in England, Australia, Nova Scotia or the Dominion of Canada, I care not. There is an absolutely certain dominion field of jurisdiction which this parliament has which might be explored and used to advantage in connection with what we regard, at least in some cases, as a very serious abuse of the confidence the public put in those who sell stock. I invite the Secretary of State to consider that phase of the matter not so much in connection with this bill, because with all respect I do not believe in inserting criminal provisions in every piece of legislation we pass. I would rather see criminal legislation where it belongs, that is in the criminal code, and further consideration might well be given to the matter of drafting a section in the criminal code which would deal with at any rate the more flagrant cases of which all of us have had some knowledge or have heard some reports; such legislation might substantially benefit the public in regard to this particular matter.
While I am on my feet let me add to that: There is perhaps a tendency in these modern days for us to set up too many different pieces of machinery, boards, commissions, inquiries, and to utilize the Department of Secretary of State in connection with things which really belong to the recognized and existing tribunals, namely, the courts, which have been set up and established in this country for years. Everybody knows the procedure there; access to the courts is easy and there is an attorney general in each province for the purpose of enforcing the criminal law. We might use that machinery which is there now and supplement it with the appropriate provisions in the criminal code.


Mr. COOTE:: I would like to congratulate the hon. member for Last Mountain (Mr. Butcher) on the suggestion he has made to the minister in regard to cutting down or limiting the number of kinds or classes of shares and securities which may be offered to the public by any company. There are far too many kinds and the public are certainly much confused and very often misled. I have heard of companies that had two and, I believe, even three classes of common shares, preferred shares debenture stock, bonds, and
Dominion Companies Act

in some cases two different classes of bonds. The ordinary man, when he buys a bond, thinks he is getting a first mortgage on the plant of the industrial corporation. That, however, does not always turn out to be the case. The highest priced lawyers in the land are paid by these corporations to devise new methods continually to baffle the investor and very often-and perhaps this is a strong term -to mislead the investing public. I think it is a great mistake to allow shares of no par value to be issued; all shares should carry a par value and the percentage of that par value which must be received by the company should be fixed in the Companies Act. That is, there should be a limit upon the amount of commission or brokerage which could be charged by those who sell the shares to the public; in other words, who float the company.
I would be willing to go and perhaps it is time to consider going even further than the hon. member for Last Mountain suggested. It would be indeed a good thing to require these companies to issue one class of securities. Let them finance themselves on one class of security; let them confine themselves to issuing par value shares of common stock so that every investor may take the same chance in the industry. Let every investor have an equal voice in the affairs of the company. Very often now two classes of common shares are issued, one class carrying all the voting power and quite often shares of the latter class are held by men who subscribed absolutely nothing for them; they got them as a gift for promoting the company. The result is that the people who put up the money take all the risk but have no voice in the management of the company. That situation should be corrected now that we are putting through a new companies act.
I noticed what the minister said about proceeding slowly, something to the effect that we cannot reform the business practices of the world by any legislation that we can pass here. That is true, and perhaps we cannot reform it entirely for Canada, but as far as this legislation is concerned I think we have tried long enough to reach some agreement with the provinces. Apparently we cannot get that by waiting. Any act we pass should be one that we consider a proper act. If those who wish to incorporate companies pass by the dominion government and go to the provinces to get their charters, the public will soon come to realize that if they want shares in a company that is properly inspected before its charter is granted they will prefer to invest in securities of companies with dominion incorporation.


Mr. BOWMAN:: By that time they will
have no money left.


George Gibson Coote: I remember this matter being debated in this house ten years ago, quite a lengthy debate, and from all sides great regret was expressed over the watering of stock and the swindling of the public that had gone on. In the succeeding ten years nothing has been done. AVe were told that we could not take any action because the companies would be incorporated by the provinces, they would do the dirty work. I thought at the time that we had better let the provinces have that dirty work if they wanted it. I think the time has come when we should pass a proper Companies Act here, and if we cannot get the provinces to come into accord let them assume the responsibility of giving charters to companies not properly organized. During the last ten years the swindling of the public has been, I suppose, three or four times as bad as it was before.


Charles Hazlitt Cahan: Will the hon. gentleman
repeat that statement?


George Gibson Coote: I say that in the last ten
years I think the public was swindled by stock promoters and stock jobbers out of a greater amount of money than in the ten years previous.


Charles Hazlitt Cahan: Not with respect to dominion companies.


George Gibson Coote: I do not know whether
some of these companies were incorporated under provincial charters, but that process is going on. I suppose after a while the public might get educated into refusing to buy securities at all, but that is not a situation that we want to see develop. We wrant to see the public ready to put money into any worthy enterprise. But I think this parliament is not doing its duty if it does not see that its Companies Act is proper, whether the provinces wish to keep step or not. I am sorry if we cannot persuade the provinces to come into line, but for my part I would like to see the dominion do its duty in any event. There are many instances that could be brought before the committee of improper financing of companies, and the issuance of too many classes of securities, but perhaps it is not worth while detailing them at this time. But in connection with this particular section which deals with that I would suggest that the minister give more consideration to the proposal advanced by the hon. member for Last Mountain. I am not sure that I heard him correctly, it is difficult to hear at this end, but it seems to me that if com-

Dominion Companies Act
panies were allowed to issue one class of bonds, one class of preferred shares and one class of common stock, that should be enough.
I do not see why they need to issue more than one class of common stock, or different classes of bonds. Certainly I think we should put a stop to the issuing of any class of common stock that carries all the voting power; those who put their money into the shares of these companies, whether they be class A or class B, should surely have the same voting power in regard to the management. I hope the minister will give further consideration to that suggestion, for it seems to me a very worthy one, and one that could perhaps be adopted without driving all the companies wishing incorporation to the provinces.


James Layton Ralston: Might I give my hon. friend an example with regard to the issue of various classes of securities? I have in mind a reorganization which is now being headlined in the newspapers, that of Price Brothers in Quebec. There you have a situation in which there are outstanding first mortgage bonds; the proposal is that first mortgage bonds shall be issued again to the holders of those bonds. You have also people who are putting in new money, you have to have some class of security to represent that new money, and the proposal is that it shall be debentures. Next you have those who are creditors of the company at the present time, unsecured creditors, what are you going to do with them? You cannot give them the same class of security as any I have previously mentioned. Certificates of indebtedness are being issued to them. Next you have the preferred shareholders; to them preferred shares are being issued, and to the common shareholders common shares are being issued. So there you have five classes of securities issued to perfectly reputable classes of security holders, all of whom have interests in the company and have put in cash to the extent of millions of dollars. My hon. friend will not say that is a case in which the right to issue different classes of securities to represent appropriately money already put into the company should be denied.


Charles Hazlitt Cahan: In my experience during the last four years it is only in cases of such reorganizations, which usually are subject to approval by the court, that these many different classes of shares have been issued by the one company. They are issued for the sole purpose of recognizing and reconciling the differences of divergent interests in the undertaking.


Richard Burpee Hanson: I agree with what the hon. member for Shelburne-Yarmouth (Mr. Ralston) has said as to the necessity for different classes of securities in case of reorganization of a company. As he suggests, that is a perfectly legitimate transaction. The evil is not there. The evil arises in the case of incorporation of new companies and the expansion of presently existing companies, in their efforts to finance and get new money. But the greatest evil that has arisen in this country has been the mad effort on the part of promoters and exploiters and investment banking houses to get hold of legitimate family businesses, yoke them up with other family businesses and unload them on the public, and themselves be rewarded for so doing. There is where business itself in Canada has been greatly injured. If we can do something to prevent that, either by amendment to the criminal code, making it more stringent, or by some other method within the constitutional purview of the parliament of Canada, I am all for it.


Harry Butcher: I was quite aware when I made my suggestion that I would appear very unsophisticated, but at the same time I still feel that we should do something to restrict the numbers and kinds of securities that companies are permitted to offer. I am very pleased indeed with the sympathetic consideration that has been given to my suggestion by some hon. members, including the Secretary of State (Mr. Cahan). I am entirely in agreement with his statement that considerable business will be lost to the dominion if my suggestions are accepted, but I believe with other hon. members that it would be better for the Dominion of Canada in its Companies Act to set a good example than to continue to get business by not doing so. I also believe that it is scarcely true that the provinces are less careful than the dominion. The provinces themselves, I believe, in many cases say quite the contrary. I remember one particular case, that of the securities offered by the O. J. Brooks companies some years ago. I remember in the province of Saskatchewan an effort was made by the local government board to prevent the sale of those securities. It was found that they could not prevent the sale because the company had dominion incorporation, and the province therefore could not restrict the sale of shares within its borders. I am very much impressed at this time by the absolute necessity of conceiving the very best Companies Act that can be conceived. There is not the slightest doubt that the corporate system is growing. A few
Dominion Companies Act

years ago men worked individually; then they worked in partnership, then a simpler form of joint stock company was formed, and then the very loosely formed association, the corporation of to-day, came into existence.
Reading recently from the book entitled The Modern Corporation and Private Property, by Berle and Means, I was quite startled by the exceedingly rapid growth of the corporate system in the United States. I believe I would not be wasting the time of the house if I were to quote some statistics. It is not my purpose to prove that the same thing is going on in Canada, although we know that to a lesser extent it is. I am making the reference to show that if ever there was a time in the history of Canada when it was important to evolve the very best company law, this is the time. As we are meeting on common ground to-day, and in a non-partisan spirit, I believe the house will excuse me if I give expression to some further views, which may be regarded as even more unsophisticated than those I have already given.
I shall not quote from Berle and1 Means' book, but shall give some statistics I have culled from it. In the year 1800 there were only 335 profit seeking corporations in the United States. Of these, 219 were turnpike, bridge and canal companies; 36 were furnishing water, fire protection or dock facilities; 67 were banks or insurance companies, and only 6 were engaged in the manufacturing industry. The remaining 7 were not classified. In 1842, less than one hundred years ago, the stock of one of the largest corporations in the United States was owned by 390 people. In 1899 the United States census reported that 66-7 per cent of all manufactured products made in the United States were made by corporations. In 1919, twenty years later, 87 per cent of all manufactured products were made by corporations, and in 1933, last year, it is estimated that 94 per cent were made by corporations.
In 1899 it was estimated that 65 per cent of the wage earners were in the employ of manufacturing corporations. In 1929, it was estimated that 92 per cent were so employed. Between 1905 and 1925 it was estimated that the percentage of total wholesale sales made by corporations was increased from 30 per cent to 40 per cent, and in retail sales from 15 per cent to 30 per cent. Phenomenal strides have been taken since. We are informed that in 1929 there were 300,000 non-Snancial corporations in the United States, and that 200 of the largest, or less than seven-hundredths per cent of them, owned prac-
tically one-half of the combined corporate wealth. Of the 300,000 non-financial corporate institutions, 200 actually owned 42-9 per cent of the total wealth. The total assets of these 200 largest non-banking corporations amounted in 1909 to $26,000,000,000. Ten years later, in 1919, it had increased to $43,700,000,000, and ten years later, in 1929, it had increased to $81,100,000,000. I shall repeat those figures. In twenty years the total wealth of the 200 corporations had inccreased flrorn $26,000,000,000 to $81,100,000,000.
A few moments ago I referred to one of the largest companies in the United States in the year 1800. At that time there were only 390 shareholders in that company. At this date there is a company in the United States with assets aproaching $5,000,000,000, or an amount equalling approximately twice the national debt of Canada or the total wealth of thirteen states of the union. That company employs 450,000 persons, and had 567,694 shareholders as of December 31, 1930.
At the beginning of 1930, 42 railroads, 52 public utilities corporations and 106 industrials owned total assets amounting to $81,074,000,000. These same 200 corporations -and in my opinion these are staggering figures-owned 49-2 per cent of the total corporate wealth of the United States, 38 per cent of all business wealth other than banking, and 22 per cent of the total wealth of the whole country. When one remembers the value of land, and remembers also that that is only to a very small extent owned by corporations one can see what tremendous strides have been made in the acquisition of wealth by corporations. I shall quote the following paragraph from page 41 of the book:
The trend of the recent past indicates, however, that the great corporation, already of tremendous importance to-day, will become increasingly important in the future.
The conclusion is still further confirmed when we examine the ways in which the growth of the large companies takes place, and compare their growth by each method with that of other companies. A given corporation can increase the wealth under its control in three major ways: By reinvesting its savings, by raising new capital through the sale of securities in the public market,-
And that is what we are particularly interested in to-day.
-and by acquiring control of other corporations by either purchase or exchange of securities. While there are numerous other ways, these three so far outweigh other methods that they alone need to be considered.

Dominion Companies Act
And at another point it is stated:
Just what does this rapid growth of the big companies promise for the future? Let us project the trend of the growth of recent years. If the wealth of the large corporations and that of all corporations should each continue to increase for the next twenty years at its average annual rate for the twenty years from 1909 to 1929, 70 per cent of all corporate activity -would be carried on by 200 corporations by 1950. If the more rapid rates of growth from 1924 to 1929 were maintained for the next twenty years 85 per cent of corporate wealth -would be held by 200 large units. It would take only forty years at the 1909-1929 rate or only thirty years at the 1924-1929 rate for all corporate activity and practically all industrial activity to be absorbed by 200 giant companies. If the indicated growth of the large corporations and of the national wealth were to be effective from now until 1950, half of the national wealth would be under the control of big companies at the end of that period.
Later on in the book Berle and Means say that this immense wealth is controlled by
2.000	individuals, or directors, but of those
2.000	directors only a comparatively small number actually direct.
Under these circumstances it seems to me that while these conditions do not exist in Canada to-day, yet there is the growing tendency for corporations to replace individuals and partnerships, and therefore I think that one needs no justification for urging that the very best that can possibly be done should be done by the dominion in this matter. I give the Secretary of State credit for trying to do it, and I believe most hon. members at this time are trying to make helpful suggestions.


Charles Hazlitt Cahan: In reply to the hon. member for York-Sunbury (Mr. Hanson), I wish to say simply that in my experience these diversified securities are not issued by the one company, except in respect of readjustments of capital by compromises which heretofore have been under the sanction of the court and compromises which now may be made under the legislation which I introduced only a short time ago, namely the Companies' Creditors Arrangement Act, 1933.
I have exercised with very great care I think the direction of the companies branch of the department of the Secretary of State, and in only two or three cases at the utmost- I think it is only two-in four years has the matter of the fraudulent sale of company's securities which has been brought to my notice been the sale of the securities of a dominion company, yet in the readjustments which have taken place in the last four years compromises have been necessary as between companies and creditors, and in respect of those compromise arrangements which have come before
me I have thought that the best interests of all the shareholders concerned would best be conserved by the secured creditors taking preferential shares, and the unsecured creditors taking another class of shares not so well secured. The creditors of the company which was in financial difficulty would thus be induced to come in and participate as owners of the stock of the company in order that the debts and liabilities outstanding, very burdensome and so very onerous as would necessarily result in financial disaster, should be removed and that there should be an increase of capital and an increased issue of stock, resulting in an increase in the net assets of the company by the discharge of the secured liabilities outstanding.
The last four years have proved to my mind conclusively that every effort should be made to induce those who are making investments in company undertakings to make their investments in one kind of stock or the other, because when liabilities in the form of bond issue after bond issue are incurred, the company in days of prosperity may be able to carry all its liabilities, but when sudden stress and strain comes there is only disaster awaiting, a disaster which in many cases could and would be avoided if instead of investors in the company being bondholders they were shareholders participating as partners in the entire enterprise.
As to the suggestion that new criminal code provisions be imposed by parliament, I have brought that to the attention of the Department of Justice, and I think it was two years ago, possibly three, that the Minister of Justice introduced- an amendment to the criminal code which I think has been more or less efficacious. It is quite possible that the criminal code may be extended and applied to suppress new evils as they arise, but at the present time I think that every province except one has in operation a security act, sometimes known as the "blue sky law" which applies to the sale of shares from one individual to another. Before proceeding very much further in extending the criminal code I think we must ascertain whether these provincial laws will operate effectively or not. The provincial governments have had an interprovincial conference of their own, and recently at Toronto they had another meeting. I understand that they are proposing quite radical amendments to their laws in order to remedy the evils of which complaint is made, and we are waiting to see what may be done in that direction by provincial authorities before extending our own criminal code and creating new crimes.
Dominion Companies Act

We are doing the very best we can, I am confident of that, and as I said at the outset we cannot reform all the existing evils by one piece of legislation. As we have done the best we could in preparing this bill I should like to have it adopted as a consolidation and improvement of existing laws in order that we may ascertain within the next year or so just how effectively it may be applied. So far as the present government is concerned we are just as anxious to wipe out the evils of which hon. gentlemen complain as are those who make the complaints. But when dealing day by day with these companies with their difficulties and readjustments we should take a broader view. We must not make it impossible for companies to operate successfully. We must not impose such penalties upon directors as will make it impossible for any man of sane, sound business judgment to accept the position of director. Therefore I am somewhat anxious that we should not go as far as was proposed yesterday with regard to making individual directors personally liable for the accounts of the company. We have large companies operating in Canada. Think of one of our large railway companies, for instance. Suppose the man who is going to assume office as a director of that railway company is faced with the fact that he becomes personally liable for a year's wages to a large number of the employees of the company. If directors have to face these contingent liabilities how can you expect any man of sound, sane business judgment to accept a directorship and assume personally these large corporate liabilities in view of their personal obligations to their families and to others? So when hon. gentlemen are discussing the subsequent provisions of this bill I trust that they will still keep their attention upon the end to be achieved and regard this measure as silnply a sincere and honest and intelligent effort to reach that end, fully realizing that the proposed act will not wipe out all the evils of which hon. gentlemen complain.


Harry Butcher: I wish to move an
amendment, Mr. Chairman, to subsection 3 of section 12. I know this amendment will not meet with the approval of the Secretary of State or probably of many of my hon. friends on this side, but I am going to move it because I believe it would be a good plan to delete this particular subsection.


Charles Hazlitt Cahan: So that we may not be confused, the amendment proposed by the hon. member is to subsection 3 of section 12, and that will come before the amendment I have proposed


Charles Edward Bothwell: May I suggest that
we pass subsection 1? It has been discussed and there are no further comments to be made.
Subsection 1 agreed to.
Subsection 2 agreed to.
On subsection 3-Shares without par value.


Harry Butcher: This subsection reads:
All or any part of the authorized capital of a company, except shares having priority as to capital or being subject to redemption, may consist of shares without nominal or par value.
As I said just now, this amendment may not meet with general approval but I cannot see why shares of no par value are necessary. I know it is customary on the north American continent to issue such shares, but there are older and perhaps in some matters wiser jurisdictions under which such shares are not now issued. When Great Britain was considering the revision of its companies law in 1930 or 1931 the question was raised as to whether shares of no par value were advisable or necessary, and it was decided that they were not, I know that if we should delete this particular subsection and not permit shares of no par value to be issued in Canada we would be doing something unusual on the north American continent. But we have done other unusual things and I believe it would be wise to do an unusual thing in this instance. I have just been reading a book dealing with company law written by F. W. Wegenast, K.C. This book is well known to lawyers, and it is evident that the author does not like shares of no par value. At page 453 he refers to what he considers the inadvisability of issuing shares of no par value. He then tries to anticipate some of the reasons which may be given by the proponents of this type of share. At page 454 he states:
It is said that a no par share instead of representing an interest measured by a money value, represents a proportional or fractional, or aliquot part of the net value of the company.
It is claimed that the scheme is calculated to provide for the issue of the shares at their actual instead of a theoretical or fictitious value.
It is said that the scheme by putting the company's accounts on the basis of an actual instead of a fictitious value is calculated' to prevent the practice of stock watering.
It is said that the scheme is calculated to prevent the issue of shares at a discount.
Mr. Wegenast comments upon the possible objections to the discontinuance of this class of share. He states that there is always doubt and mystification as to how much the

Dominion Companies Act
shares are supposed to represent, in other words, what those who hold them are supposed to have paid for them or are liable to pay for them. At page 457 he states:
It would seem that the scheme of no par shares has made it, if not legally, at least practically, easier for promoters to obtain, or to retain, for themselves, the common stock of the company at the expense of inexperienced investors, for little or no substantial consideration. This is the one item with which an experienced investor concerns himself, because it almost invariably represents the voting control of the company. Inexperienced investors are likely to concern themselves less over an issue, to a promoter, of say 10,000 shares of no par value, than if the issue were
10,000	shares of $100 each, although the voting power and the right to profits represented in each case may be the same. And it was no doubt in the minds of those who propagated the scheme that the courts would probably feel less concerned about the consideration for no par stock than for ordinary stock with a par value.
I could not express myself with regard to this particular class of share in a more emphatic or more concise manner than Mr. Wegenast has in the passage I have just quoted. For these reasons, Mr. Chairman, I move the amendment which is now in your hands.


Charles Hazlitt Cahan: 
Mr. GEARY:: 1926.


Charles Hazlitt Cahan: -authorized no par value shares. It was a government measure introduced after a long study by a committee under the chairmanship, I believe, of the late Under Secretary of State, Mr. Mulvey, K.C., who published a report in relation thereto and I may say that in that report he set forth in very great detail the differences of opinion existing with regard to no par value shares, and then presented very cogent and convincing arguments in favour of the creation of such shares under the authority of the Companies Act of Canada.
I was not then a member of parliament but I was interested as a lawyer advising a number of companies, and I will suggest the argument that convinced me at the time that he was right. I had been incorporating company after company which entered upon large construction enterprises, either industrial, hydro electric or electrical enterprises, in various parts of the world. It would have been impossible to carry out a single one of those enterprises, under the system which then prevailed, by the issue of common and preferred shares. As to preferred shares, the dividends could not be paid out of capital, and as to common shares, there were no income available. The promoter-and there are promoters and promotions that are commendable-was forced in such a case to tell the investing public, "You can hope for no return upon your capital for the next three or four or five or six or seven years, according to the duration of the construction contemplated by the company."
When I was called in for advice, I advised them to make a small capital issue, which gave control of the company, it is true, but to carry on their construction by the issue of bonds secured upon all the capital assets of the company-with what result? They would make a bond issue of five or ten million dollars as the case might be and the proceeds of the sale of that issue of bonds were used to carry out the construction work. The proceeds of the bonds could lawfully, under either English
Dominion Companies Act

law, American law or Canadian law, be used in part to pay the interest on the bonds during construction, and that interest, which was really a part of the cost of construction, was charged up as part of the expenditure for construction. But investors were induced to take the bonds, to pay for them at par, knowing that there would be no income available for that company for a term of years, knowing that for a term of years the money which they paid in to the treasury of the company would be used in part to repay to them the annual interest accruing upon the bonds which they had purchased.
One evil in connection with the carrying out of such enterprises as those I have mentioned was that they began by creating a large capital indebtedness; and with the experience I have had during the last four years in this office, after examining with care reconstruction scheme after reconstruction scheme brought in to me for approval, I am of the opinion that the real evil of our present company organization and management is the creation of large and oppressive capital indebtedness, which a company may carry in times of ordinary prosperity but which it cannot carry in the years of depression such as those we have endured since this government came into office. That was apparent years ago, and parliament then decided that no par value shares should be authorized, and that a company issuing no par value shares could receive from the shareholders a certain sum of money, say, S50 a share, for the no par value shares, and that, with the consent of the shareholders, there could be set aside a certain portion of the $50 paid in as distributable surplus to provide a certain definite income to the holders of the no par value shares during such periods of construction as those I have suggested.
One result of that measure, which was passed by a previous parliament, has been that in organizing various large enterprises that scheme has been carried out, and the proceeds of the no par value shares have in part been set aside as a distributable reserve. And those reserves, to my knowledge, have carried company after company through these four years of depression, so that to-day a number of them are again entering a period of more secure prosperity; whereas, if they had resorted to the old method of obtaining capital funds by issuing bonds or debentures, secured or otherwise, such as I have indicated, they would have created a capital indebtedness which would have crushed them down during the last four years.

After making an exhaustive study of this no par value share aspect of the matter, we thought that we would preclude the issue of no par value shares having a preference as to capital and would continue the no par value ordinary or common share.


Charles Edward Bothwell: Would it not be possible, in the case the minister cites, under bylaws of the company or under the authority of the court, to issue shares with a par value, sold at a discount? Suppose the original shares were $100; could they not say, "Now you want to sell a share, equal to the S100, to be sold at the price of $50." In order to carry the company through if they want to issue more stock, would it not be possible to do that and to let the public know what they are getting instead of issuing a no par value share but really a fifty dollar share in comparison with the hundred dollar one?


Charles Hazlitt Cahan: The hon. member has suggested the alternative, but I think if in 1926 the then government under the leadership of the present leader of the opposition (Mr. Mackenzie King) as a government measure had introduced into this house a new companies act authorizing the sale of shares at a discount, I do not believe, even though a government measure, it would have been sustained in the house. We have to deal with the prejudice of the public which until to-day has been against issuing par value shares at a discount. When this measure was introduced into parliament, it followed a report on the matter prepared for Mr. Taft, then President of the United States, by a committee or commission presided over by Arthur T. Hadley, president of Yale university. That commission was regarded as being equipped by intelligence and experience to make a profound study of the whole question and to make a report. I am discussing this from the point of view not of throwing blame -upon any previous parliament, but of considering what parliament then had before it. This is the -report of that commission:
We do not believe that the retention of the hundred-dollar mark, or any other dollar-mark, upon the face of the share of stock, is of essential importance. We are ready to recommend that the law should encourage the creation of companies whose shares have no par value, and permit existing companies to change their stock into shares without par value whenever their convenience requires it. After such conversion any new shares could be sold at such price as was deemed desirable by the board of directors, with the requirement of publicity as to the proceeds of the sale of such shares and as to the disposition thereof; giving to the old shareholders, except in some cases

Dominion Companies Act
of reorganization or consolidation, prior rights to subscribe pro rata, if they so desired in proportion to .the amount of their holdings.
As between the two alternatives of permitting the issue of stock below par, or authorizing the creation of shares without par value, the latter seems to this commission the preferable one. It is true that it will be less easy to introduce than the other, because it is less in accord with existing business habits and usages; but it has the cardinal merit of accuracy. It makes no claims that the share thus issued is anything more than a participation certificate.
The objections to the creation of shares without _ par value are two in number: first, that their issue will permit inflation, by making it easy to create an excessive number of shares; and, second, that it will produce a division of-
On. this phase of the matter, the commission was dealing with railroads and it uses the word " roads ";
-roads into two classes, those whose shares have a par value and those whose shares have not. The second of these objections does not appear to be a very serious one. There are listed on the stock exchanges to-day, side by side with one another, shares of the par value of one hundred dollars, shares of the par value of fifty dollars, shares with very much smaller par value, and a few, like the Great Northern Ore certificates, with no par value at all. The share sells in each case simply for what the public supposes it to be worth as a share.
It was that report, I think, that had a great influence upon the decision of the house at that time.
To-day there are hundreds of companies with shares of no par value outstanding. Every province authorizes the issue of shares of no par value, either preferred or common, but we in practice have precluded the issue of shares, preferred as to capital, of no par value, and I think that has had a very salutary effect. Hereafter, if a man buys a share of fixed value which is preferred as to capital and which is liable to redemption he knows that at the end of the redemption period he will receive the one hundred dollars par value of that preferred stock; or in case of winding up he will receive proportionately with other preferred shareholders dollar for dollar up to one hundred dollars per share. I think that policy should be maintained and as a step in that direction we are precluding by this measure hundreds and hundreds of companies that now have shares of no par value from making additional issues of such shares, preferred as to capital. We are doing that as an experiment with a view to ascertaining how it will likely work out, but I think that is as far as parliament should go at the present time. There seems to be a good deal of misapprehension in this respect.
I notice an article in the Canadian Bar Review dealing with this very question and I might read a short extract;
As a general rule, a company cannot issue its shares for less than their par value, so that the company is supposed to have received on the issuance of its shares a sum of money equivalent to their par value.
That applies to companies generally. It does not apply to English companies under the present English Companies Act under which shares are allowed to be issued at a discount.
This is only actually true in the simple case where the shares of the company are paid for in cash. Where the shares are issued for a consideration other than cash as is most often the case, the rule holds good only in theory, for the actual value of assets acquired is usually a matter of estimation only and may be less or more than the par value of the shares issued therefor. Even where par value has any significance at the outset, it does not necessarily continue to bear any close relation to the market value of the shares, which will depend on different and variable factors, such as earnings, increase or decrease in capital assets, management and other matters affecting the company. As a share of stock, from the point of view of the shareholder, represents a proportional fractional interest in the assets and earnings and control of the company, it is considered to be more logical to state the capital stock of the company in such a way that the actual value of every share has to be ascertained without reference to any arbitrary or theoretical value assigned to shares such as is inherent in shares having par value. This is accomplished by expressing the capital of the company as a specified number of shares without any nominal or par value and having each share certificate state only the number of shares which it represents and the number of shares which the company is authorized to issue. Thus, if there are
100.000	no par shares authorized all of which have been issued, a certificate for 1,000 shares represents a one-hundredth interest in the aggregate equity for shareholders; if only
50.000	shares have been issued, a certificate for 1.000 shares would represent, a one-fiftieth interest and so on.
Then it goes on to discuss the matter pro and con. I would like to say that we have, gone quite a long way in the face of the opposition of a great number of companies which are financed on the basis of issuing shares, preferred and ordinary, of no par value. When this bill is passed no additional shares can be issued preferred as to capital. I suggest to hon. gentlemen that we try this experiment. We cannot wipe out all the evils associated with company promotion at once, but I think a really sincere effort has been made in this bill to go to the full extent that is possible under existing conditions, when

Dominicm Companies Act

nine other legislatures in this country are permitting the issue of no par value stock, both preferred and common.


Charles Edward Bothwell: We appreciate the explanation given by the Secretary of State in this connection. Possibly a further explanation may help solve the difficulties in the minds of some of us. However, I am anticipating what I was going to say. I think it was unfortunate that when the Companies Act was passed back in 1924 the issue of no par value shares was permitted. If I am correctly informed it was the Dominion Companies Act that led the way in Canada in permitting the issue of no par value stock, and that lead was followed later by the provinces. However, it is apparent that in this bill an effort has been made to remedy some of the evils that we believe have arisen out of that practice.
In dealing with the next subsection, I want to mention also section 45, in order to understand just what is meant by those sections. The explanation given opposite subsection 4 is:
The new subsections are designed' clearly to define what is capital in the case of a company having shares without par value. This is essential for the purposes of the balance sheet and for the purposes of a reduction of capital under sections 49 and following of the bill.
Now subsection 4, dealing with no par value stock, says:
Where the authorized capital of a company consists, in whole or in part, of shares without nominal or par value the paid up capital of the company shall, with respect to those shares, be an amount equal to the aggregate amount of the consideration received by the company for such of those shares as are issued, exclusive . ..
Then coming to section 45, dealing with the liability of shareholders, it says:
(2) The liability of a shareholder in respect of any share held by him in the company, in respect of which he is liable as a shareholder, shall be limited:
(a)	in the case of a share with nominal or par value, to the amount unpaid thereon;
(b)	in the case of a share without nominal par value to the amount of the consideration for which the share was issued by the company which is unpaid thereon.
What I would like to know, and have been unable to find out from this bill is this. Will the minister or the Under Secretary of State, in connection with the issue of a charter to a company that is issuing shares of no par value, have knowledge of the value of the no par value shares, the price at which they are being sold to the public; and will the liability of the shareholder under that section 45 at any time be fixed? How

will the public ever get any information under this act as to how much a shareholder is liable for who holds shares of no par value?


Charles Hazlitt Cahan: The hon. gentleman may not obtain information as to whether one particular individual has not paid up, except by examination of the books of the company. But by the annual return which we insist on receiving from these companies, which is kept in the Department of the Secretary of State, and of which we freely give copies to every applicant, it can be seen with respect to every company that issues no par value shares the number of shares - issued, the price at which they were issued and the amount paid up thereon, the deficiency being the amount for which the shareholders are liable.


Charles Edward Bothwell: But at the time of incorporation there is no information of that kind given the department, it only comes in the annual return?


Charles Hazlitt Cahan: Quite so. The fact is that before its incorporation the company is not in a position to give that information. When the company is incorporated we know that it is empowered to issue, say, 10,000 shares of no par value. Then the company sells those shares at a certain price, and the proceeds enter into and become part of the assets of the company. Then if the subscription price is not paid up in full there must be shown on the books and in the returns the unpaid liability of the shareholders, exactly as in the case of par value shares.


Harry Butcher: The minister rightly says that shares may not be sold at a discount. But is it not a fact that the same end may be achieved by the directors by resolution varying the price of shares from time to time? Does not that have precisely the same effect in certain cases as selling shares at a discount?


Charles Hazlitt Cahan: In practice I would state that all sorts of shares are sold at a discount. Supposing a company puts out one thousand shares of $100 each, making a capital of $100,000. These are shares with a fixed value. But suppose the company loses money or gets into difficulty or requires new capital; it applies to the Secretary of State to reduce its capital. It may reduce it by cancelling one share in four or five, but the usual case is to reduce the par value, say from $100 to $80, and then to issue the new shares as $80 shares, so that all will participate equally to that extent. That is the practice that has

Dominion Companies Act
prevailed ever since we have had a Companies Act in which a fixed par value was insisted upon. Suppose no par value shares are issued at say $40, and the company has lost certain of its assets and requires new money, the company may issue further no par value shares at a price of $30, ranking in respect of dividends pari passu with the shares of the first issue sold at $40. No company can live in times of reverse and strain unless it has some such way of raising new capital. If a director uses that means in order to defraud a company or to obtain any benefit for himself, he is guilty of malfeasance and is personally liable. But if the company issues those shares in good faith for the purpose of obtaining new capital to carry on the enterprise in days of stress and strain, then it seems to me perfectly commendable.


Harry Butcher: But in the first case to
which the Secretary of State referred, namely that in which the par value share is to be sold at less than par value, the authority of the Secretary of State must first be obtained, whereas in the case of the no par value share the price may be varied from time to time by resolution of the directors. Is that correct?


Charles Hazlitt Cahan: I think it is usually by
resolution of the directors if, in the first instance, the directors are so empowered by the shareholders by by-law or otherwise. But if a company applies to the Secretary of State to reduce its capital, what shall he do? Perhaps I may take a hypothetical case, so as to give a clear view of the matter. I ask the company to present to me a balance sheet down to the date or within a month of the date of the application. Such balance sheet must first be certified by the auditors of the company and must be sworn to as being correct by the officers of the company having control of the books and accounts. Then I examine first to ascertain if there are creditors outstanding. If I find that there are creditors outstanding I demand a further detailed statement as to those creditors, and unless a waiver from each creditor of any substantial amount is filed, I give notice to all the creditors in order that they may come in and make their complaints against any such reduction. But when once I ascertain from the statements returned to the department that there has been a loss of capital I would not hesitate in every case to grant supplementary letters patent merely to confirm that actual reduction in capital. No officer in the department can undertake to place his judgment against the judgment of a director of a company, substantiated by an 74726-223$
auditor's return, and an appraisal duly certificated and sworn to, and in such case I have not interfered.


Harry Butcher: Before closing my remarks on the amendment, with the permission of the committee I should like to quote from the manuscript I have in hand. It may be within the memory of hon. members that a few months ago a series of articles appeared in the Financial Post under the pen of Mr. F. W. Wegenast, and I wrote him asking for the dates of those articles. In reply he very kindly sent me the original manuscript from which the articles had been taken. With regard to the no par value shares he says this:
Stock-watering means pretending in one form or another that more capital was put into a company than actually was put in. The remedy obviously is to stop the pretence-to state the facts. From this standpoint the invention of so-called no par scheme was no doubt a retrograde step: but in fairness it should be pointed out that the argument in support of the scheme was that it removed the delusion that the par value of stock really represented something. The answer of course is that perhaps the law should have made the delusion a reality rather than remove it.
I believe the Secretary of State agrees with that. Then, the manuscript continues:
The reality at which the law aimed was that a stock certificate for one hundred dollars should mean that one hundred dollars had been originally invested. It was never supposed that in time the value might not be less or more than one hundred dollars. Under the no par scheme the shareholder is at sea, net only as to present amount but also as to the original amount of the capital represented by his certificate. True, he can go to the balance sheet, but the balance sheet is more, rather than less, confusing than it was before. The first step in prevention of stock-watering may therefore be to abolish the no par scheme-


Charles Hazlitt Cahan: Or to insist upon a proper
balance sheet being presented, as I do insist.


Harry Butcher: Yes, quite soor perhaps, without in terms abolishing it, make provision for having the stock certificate show on its face the original amount of the capital represented by the share, or fraction, which the shareholder holds.


Charles Hazlitt Cahan: Would the hon. member
allow an interruption? That very fact would lead, I believe in all sincerity, to the grossest fraud, because if you were to place upon the certificate the value of the assets represented by it at any one date, under the conditions which have prevailed in the last four years the real value, a month hence or a year thereafter would not be the value
Dominion Companies Act

placed upon the certificate. Therefore it would lead to more misrepresentations than exist under present conditions. That is my answer to the argument.


Mr. EULER:: Would that not be true of
any of the securities issued by the company- the value of, say, preferred stock certificates for $100 or $1,000?


Charles Hazlitt Cahan: It is not printed as being
the value of the assets on that date. I have had the point before me and have argued it for days within the last three months. The hon .gentleman is suggesting that you place upon the certificate what the value of the aliquot proportion of the assets would be at the time the certificate was issued, a different thing from saying that this share is issued with a fixed par value of $100. The very fact the par value is represented on the certificate, which my hon. friend mentions, indicates, as everybody knows, that although $100 is paid for it, yet that $100 on the certificate does not represent and does not purport to represent the aliquot portion of the assets of the company behind it.


William Daum Euler: The small investor does not always know.


Charles Hazlitt Cahan: I think that is quite true.
We are now dealing with the psychological side of the matter.


Harry Butcher: With your permission,
Mr. Chairman, I shall continue the quotation.
The plan of having the directors fix the issue price of the stock could be maintained, but provision could be made for a form of certificate which would set out the amount of capital which the stock originally represented. If it should be objected that this would complicate matters if stock was afterwards issued' for a different price the answer would be that that was all the more reason why the facts should be published.


Charles Hazlitt Cahan: All I can say is that when we get down to the question of annual returns if the hon. member can suggest any amendments which will give more clear and specific information to shareholders than that which we are insisting upon, I shall give very favourable consideration to his suggestions.
Amendment negatived on division.
Subsection (3) of section 12 agreed to.
Subsection (4), (5) and (6) agreed to.
On subsection (7)-Shares to be allotted at price fixed by board or letters-patent.


Charles Hazlitt Cahan: There is an amendment
proposed and printed in connection with this

subsection. The subsection stood, in consequence. I would ask the hon. gentleman to allow this amendment to pass on division. It has been fully discussed.


Charles Edward Bothwell: There is just one question in connection with subsection 7 and 9, with regard to the distributable surplus. It rather seems to me that unless a company sells its stock at a premium there should not be immediately upon the organization of a company a distributable surplus or a sum . of money that could be set aside as a distributable surplus. I am not sufficiently conversant with the actual practice of company law to know just what the reason is for that particular distributable surplus. I could understand it if the stock was sold at a premium.


Charles Hazlitt Cahan: I tried to explain it before in the course of the previous discussion. If the shares are sold at $50, and $40 is set aside as the capital and $10 set aside as a surplus which will not be deemed capital, then if the company paid dividends or otherwise distributed that surplus of $10 the directors would not be individually liable for any illegal reduction of capital, but the $40 would appear in all the returns as being capital and the $10 would appear in the returns as being a sum which was not fixed capital but was a surplus that could be distributed in extraordinary times without reduction of capital.


[Stage Direction]
Amendment agreed to, on division.
Section as amended agreed to.
On section 8-Conditions precedent to issuing of letters patent to be established.
Charles Hazlitt Cahan: The hon. member for York-Sunbury (Mr. Hanson) suggested that notice should be given before the Secretary of State exercises any arbitrary authority under subsection 4 of section 8. Although the practice and regulations of the department insist that there shall be notice I accept the suggestion of the hon. member for York-Sunbury, and perhaps he will move the amendment which I drafted providing for notice.


Richard Burpee Hanson: I move, Mr. Chairman, that subsection 4 of section 8 be struck out and the following substituted therefor:
The Secretary of State, after giving reasonable notice to the applicants, or to their authorized representative or agent, may give to the company a corporate name different from that proposed by the applicants in any case in which the proposed name is deemed by the Secretary of State to be objectionable.

Dominion Companies Act


Charles Hazlitt Cahan: I accept that amendment, Mr. Chairman.


[Stage Direction]
Amendment agreed to.
Section as amended agreed to.
On section 14-Incidental and ancillary powers.
Harry Butcher: I was going to ask the Secretary of State whether this whole section is not unnecessary. Is it not a fact that any company incorporated under letters patent has all the rights of a natural person except those that are withheld?


Charles Hazlitt Cahan: Except where otherwise
noted these are simply a transcript of the powers which are provided by special statute at present. The sole object is this: In granting a charter now, instead of writing out all these subclauses we give them the powers mentioned in paragraphs (a), (b), (c), (d), (e), et cetera, and they make a selection of them according to the necessities of the undertaking for which the charter is granted. That is the present practice and has been for many years.	[DOT]


Charles Edward Bothwell: Paragraph (q) of section 14 says:
[DOT]-and in particular to guarantee the payment of dividends, or the payment of the principal of and interest on debentures or other securities, mortgages and liabilities of any such company;
It seems to me that a great deal of fraud might creep into the handling of a company where one company is permitted to guarantee the dividends of another. I can understand that an occasion might arise when it might be necessary and advisable to do that, but in my opinion it should be done only upon application to the department of the Secretary of State, or something of the kind, rather than that the company should be granted this power upon incorporation.


Charles Hazlitt Cahan: I agree with the hon. gentleman that the view he has just expressed is the view that occurred to me when this matter was first presented to me. I am not going to insist against the opinion of the house upon the retention of the right to guarantee dividends, but I will state fairly to the house the argument which was advanced to me. Take the case of a company having relations with another company; it may be a subsidiary company or not. It may be a subsidiary enterprise constructing some part of the equipment of an automobile, a company specially organized for the construction of that particular piece of machinery, and yet a larger automobile company may wish to
ensure the success of what I. call this subsidiary company. The only guarantee that it can now give under the act is to guarantee the indebtedness of that subsidiary company. The subsidiary company may create an issue of bonds, and the other company then can now guarantee the principal and interest on the bonds. At present it can guarantee only the principal and/or interest on a debt and liability. It was represented to me that in view of the present financial conditions it was necessary to obviate the creation of additional indebtedness in such cases and that a subsidiary company could in many cases secure the additional funds necessary to carry the enterprise through if it could issue say preference shares and a guarantee could be given with respect to the payment of dividends on those preference shares over a term of years and thus help the subsidiary company through a temporary crisis. I indicated my clear intent by underlining that part of the subsection and I ask the committee whether this amendment may not afford a reasonably convenient way for carrying some of these subsidiary companies through their present troubles.


Charles Edward Bothwell: Would not it be much
safer when the occasion arises to have application made to the Secretary of State to have such protection granted? I can quite see where in certain cases it would be advisable to give a company these ancillary powers, but it seems to me we are opening up the opportunity for fraud.


Charles Hazlitt Cahan: If the committee is of that opinion, I am not at all disposed to insist upon this subsection passing. However, when you force these companies to apply for supplementary letters patent you are putting them to additional expense and all that sort of thing.


Charles Edward Bothwell: Could not this subsection be allowed to stand in order that we might see if we could not draft a clause to meet the situation?


Charles Hazlitt Cahan: Paragraph (q) of section
14 will be allowed to stand.


Harry Butcher: This particular provision is very emphatic. It reads in part:

and in particular to guarantee the payment of dividends, or the payment of the principal of and interest on debentures or other securities, mortgages and liabilities of any such company.
The law is quite clear that no company may pay dividends out of capital, but I think this paragraph permits an evasion of the law. Imagine two companies, company A and
Dominion Companies Act

company B. Company A may not guarantee dividends to its own shareholders but under this section it may guarantee the dividends of company B. Company B may reciprocate and guarantee the dividends of company A, and by this means the capital may be depleted. I am glad the Secretary of State is going to reconsider this particular paragraph.


Charles Hazlitt Cahan: I should like to meet the
hon. gentlemen in order that I may direct their attention to a decision of the English courts dealing with similar sections, in which it is provided that if company A guarantees the dividends of company B, any payment which it makes in respect of those dividends is not a liability of company B. Therefore, the principle of protecting the capital of a company against the payment of dividends out of capital is not infringed by such a provision as this.
Paragraph (q) stands.
On section 15-Financial assistance to shareholders or directors.


Charles Hazlitt Cahan: Through a misprint, an
amendment is necessary to paragraph (c) of subsection 1 of this section. In the thirty-fourth line the words "of the" are left out.


[Stage Direction]
Amendment agreed to.
Harry Butcher: It is an accepted principle of law that the capital of a company is to remain inviolate except when reduced by supplementary letters patent. Does not this Section seem to violate that principle? I think it provides facilities by which the capital of a company may be depleted without the formality of obtaining supplementary letters patent. Paragraph (b) provides for the making of loans to employees with a view to enabling them to purchase or erect dwelling houses. Paragraph (c) provides for the purchase by trustees of fully paid shares in the company to be held by or for the benefit of employees or salaried directors of the company. Paragraph (d) provides for the making of loans to persons in the employ of the company to enable them to purchase fully paid up shares in the capital stock, to be held by themselves by way of beneficial ownership. I may be mistaken, but it seems to me that these paragraphs afford an opportunity of reducing the capital of a company without going through the formality of obtaining supplementary letters patent.


Charles Hazlitt Cahan: These clauses were in the bill passed in the session of 1931. At that time one of the largest companies operating
f\Ir. Butcher.]
in Canada, the Consolidated Mining and Smelting Company, desired, first, to advance money to enable its workmen and employees to build houses of their own and, second, to enable their own employees to acquire a certain interest in the shares of the company which were then very low. These provisions were introduced in a bill which appears as chapter 26 of the statutes of that year. I do not think they enable a depletion of capital because the amount so advanced for the building of homes or for the purchase of shares in an indebtedness which must be repaid, and provisions are made for repayment. It is merely a temporary loan to help employees out of a difficulty. I do not know whether the hon. member was present, but the matter was thoroughly discussed at that time and it was the general opinion of the house that this was a proper exercise of powers by a company.
Section as amended agreed to.
On section 16-Commission on subscriptions.


Harry Butcher: In connection with paragraph (c) I would suggest that it might be advisable to fix the maximum commission payable. I am not going to move an amendment but I would suggest that it might be advisable to have this paragraph read that the amount or rate per cent of the commission paid or agreed to be paid shall not exceed, say, ten per cent or something of that kind. This might with advantage be included in the subsection.


Charles Hazlitt Cahan: At one time we had in our Canadian statutes a maximum fixed rate for commissions. I forget what it was. but the result was that each company fixed the maximum. If you allow them to fix a rate of 15 or 20 per cent, and put that in the statute, every company will fix the maximum allowed. Inasmuch as the payment of the commission must be authorized by letters patent and is in the discretion of the Secretary of State, we thought that applications might be allowed to the Secretary of State, and that before any commission was authorized by letters patent it would be the duty of the Secretary of State to inquire into all the conditions of the undertaking and to fix the commission to be allowed. Hereafter, it will be observed, the payment of the commission must be first authorized by letters patent or supplementary letters patent. I should like to try that as an experiment for a time.


[Stage Direction]
Section agreed to.

Dominion Companies Act
On section 18-Contracts of agent binding on company.
Charles Hazlitt Cahan: I should like to have the opinion of some of the lawyers on the other side with regard to this section, particularly the hon. member for Vancouver Centre (Mr. Mackenzie) and the hon. member for Shel-burne-Yarmouth (Mr. Ralston). Section 18 as at present on the statute books provides, in subsection 1:
Every contract, agreement, engagement or bargain made, and every bill of exchange drawn, accepted or endorsed, and every promissory note and cheque made, drawn or endorsed on behalf of the company, by any agent, officer or servant of the company, in general accordance with his powers as such under the by-laws of the company, shall be binding upon the company.
Recently there was decided in the Supreme Court of Canada the case of the Bank of the United States vs Ross, 1932 Reports, page 150, which seems to place upon the one who does business with the company the burden not only of examining the letters patent of the company but of examining its bylaws, to ascertain whether the agent or officer of the company is empowered to do the thing which he purports to do.


James Layton Ralston: He is generally empowered.


Charles Hazlitt Cahan: I have received a good many suggestions from business and commercial men throughout the country who say that in the present conditions of business one who is dealing independently with a commercial company should here, as in England, be allowed to deal with the agent who has either express or implied powers; that is to say, if the company is holding out a certain official as having authority to sign cheques, to accept bills of exchange or to make purchases for and on behalf of the company, those who are dealing with such agent at arm's length, knowing that he has that implied power and is exercising it to the knowledge of the company, should not be compelled to go to the company and demand the disclosure of the by-laws under which he is acting. The general contention is that if a company holds out one of its servants or officers as having certain powers then, in his exercise of such express or implied powers, the company should be bound, and that if the company engages officials and agents who act fraudulently, when apparently acting on behalf of the company, the company employing such agents who act fraudulently should be bound with respect to their fraudulent transactions. The company can insure its officers and agents; it can obtain indemnity against the frauds of its own agents; but the contention is that once it
holds out an agent as having express or implied authority to act on its behalf, then it should be bound by all contracts entered into on its behalf by such agent.
I confess I am strongly of that opinion, but it is a matter respecting which I am in the judgment of the house. Until 1932, I think I am safe in saying, it was not necessary for one dealing at arm's length with an agent of a company to search out the contents of the company's by-laws in this regard. Apparently it is now necessary, and what I suggest by way of amendment is to strike out the words "as such under the by-laws of the company" and insert "either express or implied" so that the provision would then read:
Every contract, agreement, engagement or bargain made, and every bill of exchange drawn, accepted or endorsed, and every promissory note and cheque made, drawn or endorsed on behalf of the company, by any agent, officer or servant of the company, in general accordance with his powers, either express or implied, shall be binding upon the company.


Mr. JACOBS:: Does the Secretary of State propose to change the decision of the supreme court by act of parliament?


Charles Hazlitt Cahan: I am proposing to change
the effect of it. I don't think it has ever before been decided in Canada that one dealing at arm's length with an officer of a company, held out as having certain powers, should be bound to search the by-laws of the company to ascertain what the particular powers of that particular agent were in fact.


Samuel William Jacobs: Has the decision of all our courts been always against the contention?


Charles Hazlitt Cahan: I can only say that so far
as I am aware it has never been held that anyone, in dealing at arm's length with an officer or agent of a company, held out as having certain powers in respect of notes, cheques and ordinary purchases made by an agent, was bound to search the by-laws of the company to ascertain what the powers of such agent were. In other words, one could depend upon the implied powers of the agent to perform on behalf of the company the particular transaction. I will let the clause stand if hon. gentlemen would like to look into it further. I appreciate assistance.


Samuel William Jacobs: Before we pass this legislation would the Secretary of State not look into the question whether the Judicial Committee of the Privy Council might be invited to pass upon it?


Charles Hazlitt Cahan: We have no need to refer
such matters to the Judicial Committee of the Privy Council as this parliament has
Dominion Companies Act

jurisdiction. There is nothing sacred about this particular section, which is a section of Canadian law and is not usually found in any other company law. It was probably inserted in some discussion in committee such as we are having to-day when some member suggested the insertion of the word "by-law" and it was put in.


Mr. LAPOINTE:: There is nothing retroactive in this? There is no case pending?


Charles Hazlitt Cahan: The case is decided. This
bill has no retroactive effect.


George Reginald Geary: I would like to call the
attention of the minister to subclause 2. If j-ou make the change in subclause 1 and read it in connection with subclause 2, dispensing with the seal, you have made the contract very informal. This is contrary to all the trend of practice in the old country so far. In municipalities the seal is necessary and it should be necessary in a company in the case of a contract of any importance. One can easily see in this case there is no formality whatever. As the minister says, a man held out by a company as having certain powers who is negotiating or dealing in regard to an important contract has bound the company if he enters into the contract and should not have done so. I have always been averse to dispensing with the necessity of a seal. Certainly if we are going to make the change which the minister now suggests in subclause 1, the whole thing is going to be reduced to a situation that I think is wrong.


Charles Hazlitt Cahan: The hon. member makes a
strong contention, but this is a reproduction verbatim et literatim of the section as it now appears in the companies act.


George Reginald Geary: I know, but we are discussing it.


Charles Hazlitt Cahan: The business of the country is carried on without the sanctity of seals.


George Reginald Geary: And lawsuits are incurred.


Charles Hazlitt Cahan: It is provided in subclause
2:
In no case shall it be necessary to have the seal of the company affixed to any such contract, agreement, engagement, bargain, bill of exchange, promissory note or cheque, or to prove that the same was made, drawn, accepted or endorsed, as the case may be, in pursuance of any by-law or special vote or order.
The complexities of business life at the present time are such that those dealing with companies must rely upon the holding out of agents as authorized to conduct certain business such as buying, selling, drawing

cheques, making notes, accepting bills, and it seems to me that we should make the company responsible for losses arising out of the frauds of its own agents. That is all I am suggesting.


George Reginald Geary: I am not of course making
any observations with regard to everyday bills of exchange, notes and that sort of thing; I am directing my observations entirely to important contracts, contracts of substance, which often become the subject of litigation.


James Layton Ralston: I discovered this section only recently and I was called upon to advise in connection with it. Fortunately in the case I had, the by-laws were such as to make the compapy responsible for the acts of the officer. I was surprised that there was a section of that kind in the act because I had always thought a company was bound just the same as an individual was bound by the act of an agent within the general scope of his authority. That is the usual rule or more properly within the apparent scope of his authority. Perhaps that is a more accurate way of putting the rule.


Charles Hazlitt Cahan: The apparent scope of his authority.


James Layton Ralston: So far as I am concerned, I see no difficulty on the score raised by the hon. member for Jacques Cartier. If that case is decided, it is decided and that is the end of the matter. What we are doing here is to decide what shall be the law in the future. My inclination is the same as that of the Secretary of State, that with respect to a dominion company the same law should apply as to acts of an agent of an individual or of a provincial company which is not subject to this section. I think we might dispense with subclause 1 and probably subclause 3 as well and simply insert the provision with regard to dispensing with the seal, because the company is bound by the act of its agent without that enabling subclause 1. If the Secretary of State would prefer to leave the clause as it is, then it might be well to use the words of the English common law, namely that the company is responsible for the acts of the agent within the apparent scope of the authority of such officer or agent.


Samuel William Jacobs: I agree with what the hon. member for Shelbume-Yarmouth (Mr. Ralston) has said except as to his statement that I am the member for Jacques Cartier. I am the member for Cartier. I want to be correct in every respect.

Dominion Companies Act


Charles Hazlitt Cahan: I will consent to allow this clause to stand in order to see whether with the assistance of hon. gentlemen a better draft can be made.
Section stands.
On section 38-Transfer may not be restricted.


Charles Hazlitt Cahan: We held up clause 38 in passing until we had later decided as to the terms of the clauses with regard to registration. Those have now been decided by an amendment which has been approved and I think clause 38 might now pass.


Harry Butcher: Would the minister mind defining "a recognized stock exchange"? I understand there are all kinds of stock exchanges and some of them that were in existence a while ago have now gone out of existence. There are some curbs: the Montreal curb, the New York curb and so on. Will all of these be recognized exchanges?


Charles Hazlitt Cahan: I cannot define it. This has been on the statutes for many years. There are certain stock exchanges which are recognized by law, have a corporate existence and capacity, and there are others which are not so recognized. I suggest that no difficulties have arisen and I am using exactly the same term as has been used before, am I not?


Samuel William Jacobs: The courts should decide upon that question.


Charles Hazlitt Cahan: The real effect of it is this, that if the shares of a company are listed on a stock exchange and those shares are not fully paid, every person who buys them has full and ample notice that he is buying them for what they represent in assets and is by such purchase assuming the liability with respect to the unpaid part of his subscription for the shares. So a distinction is made in that respect.


Harry Butcher: It had occurred to me it might be a little more important to define those words because of the change in the clause. There is quite a material change between the old section 80 and the present clause. There are certain special rights belonging to shareholders under subsection 2; rights not conferred under the present act. Perhaps it would be necessary in the interest of shareholders to define what a recognized stock exchange is. I may be wrong, I am simply asking for information.


Charles Hazlitt Cahan: I have replied to the hon. gentleman as best I can. If he wishes the section to stand I shall let it stand for further consideration.


Some hon. MEMBERS:: Carried.


[Stage Direction]
Section agreed to.
On section 39-Transmission by will or intestacy.
Charles Hazlitt Cahan: This section stood, and I had proposed an amendment, which is printed, to give recognition to a transmission by notarial will in the province of Quebec, of which a copy duly certified in accordance with the laws of that province is presented. It was an oversight in the old aet, and difficulty has from time to time been caused owing to the fact that the Dominion Companies Act did not recognize the transmission of an estate by what is called a notarial will. When copying this again I overlooked it for the time, but it has been brought to my notice, therefore the proposed amendment has been printed. I shall ask the Minister of National Defence (Mr. Sutherland) to move the amendment to section 39.


Mr. SUTHERLAND:: I move in section 39 to-
-strike out the words after "testamentary" in the thirty-third line to the end of subsection (1), and substitute therefor the following words:-
"or, in the ease of a transmission by notarial will in the province of Quebec, a copy thereof duly certified in accordance with the laws of said province, or the said other judicial or official instrument, or an exemplified copy thereof or extract therefrom under the seal of such court or other authority, without any proof of the authenticity of such seal or other proof whatever, shall be produced; and a copy thereof, together with a declaration in writing showing the nature of such transmission, signed and executed by such one or more of the persons claiming by virtue thereof as the company may require, or, if any such person be any other company, signed and executed by an officer of such other company, shall be deposited with an officer of the company or other person authorized by the directors of the company to receive the same."


[Stage Direction]
Amendment agreed to.
Section as amended agreed to.
On section 45-Limitation of liability of shareholders.
Charles Edward Bothwell: I do not know whether there is any liability fixed on the shareholder
Dominion Companies Act

by this section. It seems to me that the wording means that if there is. any liability on any shareholder it shall be limited, in the case of shares with nominal or par value, to the amount unpaid. I have drafted a new clause, which I had better move in order to bring it to the minister's attention.


Charles Hazlitt Cahan: I have a copy of it, but I would like to explain.


Charles Edward Bothwell: I am not pressing the change; it was only to have the matter considered. I should be glad to hear the minister on that point.


Charles Hazlitt Cahan: I would like the attention of the legal members to section 45 as drafted. It provides:
45. (1) The shareholders of the company shall not. as such, be responsible for any act, default or liability of the company, or for any engagement, claim, payment, loss, injury, transaction, matter or thing relating to or connected with the company.
That is the law at the present time.
(2) The liability of a shareholder in respect of any share held by him in the company, in respect of which he is liable as a shareholder, shall be limited:
(a)	in the case of a share with nominal or par value, to the amount unpaid thereon;
That seems to me to be clear and definite. It has been the law for many years.


Samuel William Jacobs: That is the law.


Charles Hazlitt Cahan: Yes; I do not think there is any confusion about it. That is, if he is the owner of fixed par value shares of say $100, and only SSO has been paid up thereon, he continues liable with respect to the unpaid balance, namely $20. That has been the law and no confusion in the interpretation of it has been brought to my notice. Then:
(b)	in the case of a share rvithout nominal or par value to the amount of the consideration for which the share was issued by the company which is unpaid thereon.
In that case he signs a subscription for a share without nominal or par value, agreeing to pay X dollars therefor. If he agreed to pay $50 and has paid up only $40, he continues liable for the balance remaining unpaid thereon. To ascertain what that balance is it is necessary to see first his subscription agreement, to know what he agreed to pay, and then to ascertain how much he has in fact paid.


Charles Edward Bothwell: I am satisfied with that explanation, Mr. Chairman, if the committee see it in the way the minister does. I was not able to get that wording quite clearly in my mind.
Then another question in regard to that section. The old section 45 has been deleted from the act. It reads:
Every shareholder, - until the whole amount of his shares has been paid up, shall be individually liable to the creditors of the company to an amount equal to that not paid up thereon; but he shall not be liable to an action therefor by any creditor until an execution at the suit of such creditor against the company has been returned unsatisfied in whole or in part.
2.	The amount due on such execution, not exceeding the amount unpaid on his shares, as aforesaid, shall be the amount recoverable, with costs, from such shareholder.
I understand from the explanatory note that no action has been taken on that old clause for a number of years, and the suggestion is made that a creditor of the company has other remedies than under the companies act; he can take proceedings under the Bankruptcy Act or certain provisions of the Winding-up Act. But under the Bankruptcy Act a creditor cannot take proceedings against the company unless the indebtedness to him exceeds $500. Is that correct?


Charles Hazlitt Cahan: That is my recollection.


Charles Edward Bothwell: And he cannot take
proceedings under the Winding-up Act unless the indebtedness exceeds S200. Although action has not been necessary or has not been taken under old section 45, nevertheless it may have served a good purpose by being in the act. The fact that it was not used I submit is not an argument for omitting it. I believe it would have a salutary effect to leave that provision in, and would protect creditors the indebtedness to whom is under $500 or $200.


Charles Hazlitt Cahan: The reason for the omission is that I was quite convinced that creditors are well protected under the Winding-up Act and the Bankruptcy Act, and that it was perhaps inexpedient to allow one creditor of a company to select a particular asset and appropriate it to himself; that if a company reached such a stage it was better that it should come under the supervision of the court, which under either act I have mentioned will provide by order of the court for an equitable distribution of the assets. In

Questions
my opinion it is better to preclude any creditor from obtaining any special preference by bringing a special action. In recent years whenever such action was attempted other creditors refusing to hold off came in and brought the company under the Winding-up Act or the Bankruptcy Act for the express purpose of securing an equitable distribution of assets.


[Stage Direction]
Section agreed to.
Progress reported.
At six o'clock the house adjourned without question put, pursuant to standing order.
Thursday, May 31, 1934