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Third Session, Thirty-Eighth Legislature

This version is based on the printed bill that was distributed in the Legislature after First Reading.   It is not the official version.   If accuracy is critical, you can obtain a copy of the printed bill from Statutory Publications.

Bill 51

THE LABOUR-SPONSORED INVESTMENT FUNDS ACT (VARIOUS ACTS AMENDED)


Explanatory Note

(Assented to                                         )

HER MAJESTY, by and with the advice and consent of the Legislative Assembly of Manitoba, enacts as follows:

PART 1

THE CROCUS INVESTMENT FUND ACT

C.C.S.M. c. C308 amended

1           The Crocus Investment Fund Act is amended by this Part.

2           The headings for Parts 1, 2, 3 and 6 are repealed.

3(1)        Subsection 1(1) is amended

(a) by repealing the definitions "Class "G" Special Share", "eligible investment", "entity", "investment shortfall", "original acquisition date", "qualified Manitoba business entity", ""registered retirement income fund", "registered retirement savings plan" and "taxable Canadian corporation"" and "valuation date"; and

(b) by adding the following definition:

"eligible business entity" and "eligible investment" have the same meaning as in The Labour-Sponsored Venture Capital Corporations Act; (« entreprise admissible » et « placement admissible »)

3(2)        Subsections 1(2) to (12) are repealed.

4(1)        Subsection 2(2) is amended by striking out ", 181(2)".

4(2)        Subsection 2(3) is repealed.

5           Subsection 3(2) is amended

(a) in the part before clause (a), by striking out "business of the Fund" and substituting "Fund must carry on all material aspects of its business with a view to earning a return for its shareholders.  Its business";

(b) in the part of clause (a) before subclause (i), by striking out "that will make investments in qualified Manitoba business entities with a view to earning income and" and substituting "with a view to"; and

(c) in subclause (a)(ii), by striking out "qualified".

6(1)        Subsection 4(1) is amended

(a) by replacing clause (a) with the following:

(a) set out the authorized capital of the Fund, which must include Class "A" Common Shares and Class "L" Special Shares the rights, privileges, restrictions and conditions of which satisfy the requirements of The Labour-Sponsored Venture Capital Corporations Act for such shares; and

(b) by repealing clause (b); and

(c) by replacing clause (c) with the following:

(c) provide that 1/2 of the members of the Board are to be appointed by the holder of the Class "L" Special Shares, and at least four members of the Board are to be elected by the holders of the Class "A" Common Shares.

6(2)        Subsection 4(1.1) is replaced with the following:

Amendment requires minister's approval

4(1.1)      The articles of the Fund shall not be amended without the minister's approval except

(a) to create a new class or classes of shares or to amend the rights, privileges, restrictions or conditions attaching to a class of shares other than the Class "A" Common Shares; or

(b) as required by subsection (1.2).

Transitional — articles to be amended within 60 days

4(1.2)      Within 60 days after this subsection comes into force, the Board must cause the articles of the Fund to be amended

(a) to make them consistent with subsection (1); and

(b) to remove any entitlement of the government, as the holder of any shares that, by their terms and conditions, are issuable only to the government, to elect any member of the Board.

Despite The Corporations Act, the articles may be amended as required by this subsection by a resolution of the Board and without the approval of the Fund's shareholders. As soon as practicable after the articles are amended, the Fund must take all steps necessary to comply with the amended articles.

6(3)        Subsections 4(3) and (5) are repealed.

7           Sections 4.1, 4.2 and 9.1 are repealed.

8(1)        Subsection 11(1) is amended in the part before clause (a)

(a) in the French version, by striking out "du du" and substituting "du"; and

(b) by striking out "by by-law".

8(2)        Subsection 11(2) is amended

(a) in clause (b), by striking out "total fair market value of its investments in a qualified Manitoba business entity" and substituting "total cost to the Fund, immediately after the acquisition, of its investments in an eligible business entity and entities affiliated with the entity";

(b) in clause (c), by striking out "qualified Manitoba" and substituting "eligible"; and

(c) by striking out "and" at the end of clause (d), adding "and" at the end of clause (e) and adding the following after clause (e):

(f) not acquire or hold an investment in an entity that is engaged in selling or promoting the sale of shares of the Fund, or in another entity that is related to such an entity.

9           Sections 11.1 to 15 and Parts 4 and 5 are repealed.

TRANSITIONAL AND CONSEQUENTIAL AMENDMENTS

Transitional — registration as LSVCC

10(1)       On the coming into force of this Part, Crocus Investment Fund is deemed to be a corporation registered under The Labour-Sponsored Venture Capital Corporations Act.

Transitional — eligible investments

10(2)       For the purposes of The Labour-Sponsored Venture Capital Corporations Act and sections 11.1 to 11.5 of The Income Tax Act, an investment that

(a) was owned by Crocus Investment Fund immediately before this Part came into force; and

(b) was an eligible investment under The Crocus Investment Fund Act when the corporation acquired the investment;

continues to be an eligible investment of the corporation until the corporation disposes of it.

Transitional — ineligible investments

10(3)       For the purposes of The Labour-Sponsored Venture Capital Corporations Act and sections 11.1 to 11.5 of The Income Tax Act, an investment that

(a) was owned by Crocus Investment Fund immediately before this Part came into force; and

(b) was an ineligible investment under The Crocus Investment Fund Act when the corporation acquired the investment;

continues to be an ineligible investment of the corporation.

Consequential amendments, C.C.S.M. c. I10

11          Subsection 11.1(1) of The Income Tax Act is amended

(a) by replacing the definitions " approved share", "Class A share", "eligible investment" and "labour-sponsored venture capital corporation" with the following:

"approved share" means a Class A share

(a) the original acquisition of which occurred while the issuer of the share was registered under The Labour-Sponsored Venture Capital Corporations Act and that registration was not under suspension, or

(b) that was issued by Crocus Investment Fund before it became registered under The Labour-Sponsored Venture Capital Corporations Act; (« action approuvée »)

"Class A share" and "eligible investment" have the same meaning as in The Labour-Sponsored Venture Capital Corporations Act; (« action de catégorie A » et « placement admissible »)

"labour-sponsored venture capital corporation" means a corporation that is or has been registered under The Labour-Sponsored Venture Capital Corporations Act; (« corporation à capital de risque de travailleurs »)

(b) by repealing the definition "Crocus".

PART 2

THE LABOUR-SPONSORED VENTURE

CAPITAL CORPORATIONS ACT

C.C.S.M. c. L12 amended

12          The Labour-Sponsored Venture Capital Corporations Act is amended by this Part.

13(1)       The definitions "Class G special share" and "specified active business" in subsection 1(1) are repealed.

13(2)       The definition "eligible business entity" in subsection 1(1) is amended

(a) in the French version, by striking out "entreprise" and substituting "entité" in the part before clause (a); and

(b) by replacing subclause (a)(i) with the following:

(i) property used in an active business carried on in Canada by the entity, or by another entity related to it, in which

(A) of the full-time employees employed at that time in the business or in a similar business carried on by another entity related to the entity, at least 50% are employed in Manitoba, and

(B) of the total of the salaries and wages paid to employees employed at that time in the business or in a similar business carried on by another entity related to the entity, at least 50% is reasonably attributable to services rendered in Manitoba by the employees,

13(3)       Subsection 1(5) is amended in the part after clause (b) by striking out everything after "if the references" and substituting "in subclause (a)(i) of the definition "eligible business entity" in subsection (1) to "Manitoba" were read as "Canada" and the reference in clause (b) of that definition to "related to" were read as "affiliated under section 251.1 of the Income Tax Act (Canada) with"."

14          Section 4 is amended by replacing subclauses (d)(ii) and (iii) with the following:

(ii) for authorized capital that includes Class A shares and Class B shares,

(iii) that 1/2 of the corporation's directors are to be elected by the holder or holders of the Class B shares, and at least four of its directors are to be elected by the holders of the Class A shares,

15          Section 4.1 is replaced with the following:

Amendment requires minister's approval

4.1(1)      The articles of a labour-sponsored venture capital corporation shall not be amended without the minister's approval except

(a) to create a new class or classes of shares or to amend the rights, privileges, restrictions or conditions attaching to a class of shares other than the Class A shares; or

(b) as required by subsection (2) or by subsection 4(1.2) of The Crocus Investment Fund Act.

Transitional — articles to be amended within 60 days

4.1(2)      Within 60 days after this subsection comes into force, the board of directors of a labour-sponsored venture capital corporation must cause the articles of the corporation to be amended

(a) to make them consistent with subclauses 4(d)(ii) to (v); and

(b) to remove any entitlement of the government, as the holder of any shares that, by their terms and conditions, are issuable only to the government, to elect any member of the board.

Despite The Corporations Act, the articles may be amended as required by this subsection by a resolution of the board and without the approval of the corporation's shareholders.  As soon as practicable after the articles are amended, the corporation must take all steps necessary to comply with the amended articles.

16          Clauses 5(1)(g) and (4)(e) are amended by striking out "section 4.1" and substituting "subsection 4.1(1)".

17          The following is added after section 5.1:

PART 2.1

GOVERNANCE AND REPORTING

Board charter

5.2(1)      The board of directors of a labour-sponsored venture capital corporation must develop a charter that describes the role of the board and how it differs from the role of management of the corporation.

Independence of chair and vice-chair

5.2(2)      No employee of a labour-sponsored venture capital corporation or of a manager of a labour-sponsored venture capital corporation's business shall act as chair or vice-chair of the board of directors of the corporation or of any committee of the board.

Corporate governance policies and practices

5.3(1)      The board of directors of a labour-sponsored venture capital corporation must develop corporate governance policies and practices having regard to what are generally considered to be best corporate governance practices for public companies, and must adhere to those policies and practices and periodically review and update them.

Disclosure of governance policies and practices

5.3(2)      A labour-sponsored venture capital corporation must include a complete description of its corporate governance policies and practices in all communications to its shareholders generally, and in its communications to prospective shareholders, and must make that description available for inspection by any other person upon written request.

Conflict of interest for board members

5.4(1)      The board of directors of a labour-sponsored venture capital corporation must establish conflict of interest policies and procedures for members of the board, and for committees of the board, that are in keeping with best corporate governance practices for public companies, and must adhere to those policies and procedures.

Conflict of interest for employees

5.4(2)      The board of directors of a labour-sponsored venture capital corporation must establish conflict of interest policies and procedures for officers and employees of the corporation that are in keeping with best corporate governance practices for public companies, and must monitor adherence to those policies and procedures.

Policies to be available for inspection

5.4(3)      A labour-sponsored venture capital corporation must make its conflict of interest policies and procedures available for inspection by any person upon written request.

Committees

5.5(1)      The board of directors of a labour-sponsored venture capital corporation must establish the following committees:

(a) an investment committee, to assist the board in

(i) developing and evaluating the corporation's policies and procedures for the acquisition, management and disposition of investments, and monitoring its adherence to those policies and procedures,

(ii) selecting and evaluating providers of investment management services, and

(iii) evaluating proposed acquisitions and dispositions;

(b) a valuation committee, to assist the board in

(i) developing and evaluating the corporation's valuation policies and procedures, and monitoring its adherence to them,

(ii) monitoring the corporation's compliance with all applicable regulatory and statutory requirements regarding the valuation of the Class A shares and the corporation's investments, and

(iii) selecting a valuator and evaluating the valuator's independence, qualifications and performance;

(c) an audit committee, to assist the board in

(i) overseeing the accounting and financial reporting processes of the corporation,

(ii) ensuring that management has implemented an effective system of internal financial controls, and monitoring management's reporting on those controls,

(iii) establishing an effective system of control over travel and other expenses of the corporation incurred by senior employees and board members,

(iv) monitoring the corporation's compliance with its legal and regulatory requirements,

(v) selecting an auditor and evaluating the auditor's independence, qualifications and performance,

(vi) facilitating any audit or investigation and reviewing the findings, and

(vii) developing policies and procedures for receiving and dealing with complaints and submissions, including those made anonymously or confidentially by employees of the corporation, in respect of the corporation's internal financial controls or its accounting or financial reporting;

(d) a governance and nominations committee, to assist the board in

(i) enhancing and evaluating the corporation's corporate governance policies and practices, and monitoring its adherence to them,

(ii) determining the appropriate size of the board and its committees,

(iii) developing criteria for independence of board and committee members,

(iv) developing financial, investment and other competency criteria for board and committee members, and providing educational opportunities to develop those competencies,

(v) recruiting qualified nominees for board and committee positions, and

(vi) developing policies and procedures for receiving and dealing with complaints and submissions, including those made anonymously or confidentially by employees of the corporation, in respect of matters not covered by the policies and procedures referred to in subclause (c)(vii).

The board may assign additional duties or functions to these committees.

Board may establish other committees

5.5(2)      The board of directors of a labour-sponsored venture capital corporation may establish any other committee it considers necessary or advisable.

Composition of committees

5.5(3)      The board of directors of a labour-sponsored venture capital corporation may appoint to any committee of the board one or more persons who are not members of the board but have the necessary expertise to assist the committee in performing its functions, and may fix the remuneration for such committee members.   But a majority of the members of a committee must be board members, and the chair of a committee must be a member of the board who is not the board chair.

Composition of certain committees

5.5(4)      In the case of a committee referred to in subsection (1),

(a) at least one member must be a person elected to the board by the holders of the Class A shares; and

(b) no more than 1/2 of the members may be persons appointed to the board by the holder or holders of the Class B shares.

Annual report to shareholders

5.6(1)      In its annual report to shareholders, a labour-sponsored venture capital corporation must include the following:

(a) a description of the manner in which the corporation has carried on the businesses to which it is restricted by its articles, and the extent to which it has met its business objectives for the year;

(b) the particulars of its compensation for senior employees and board members;

(c) the particulars of its travel and other expenses incurred by senior employees and board members;

(d) a description of the corporation's policies and practices regarding the use of its financial and other resources for non-income producing purposes, the extent to which the resources were so used and the purposes for which they were used;

(e) a description of the risks associated with making investments in the corporation;

(f) a description of the corporation's process for valuing its Class A shares.

Public access to annual report

5.6(2)      A labour-sponsored venture capital corporation must make a copy of its annual report to shareholders available for inspection by any person upon written request.

18          Section 6 is amended in the part before clause (a) by striking out "by by-law".

19          Section 7 is repealed.

20          Section 8 is amended

(a) by replacing the section heading with "Restrictions";

(b) by striking out "or" at the end of clause (b), adding "or" at the end of clause (c) and adding the following after clause (c):

(d) acquire or hold an investment in an entity that is engaged in selling or promoting the sale of shares of the corporation, or in another entity that is related to such an entity.

(c) by renumbering it as subsection 8(1) and adding the following as subsection 8(2):

Restrictions re workplace

8(2)        No person shall, in a workplace, engage in advertising or promotional activities for the sale of Class A shares.

21          Subclause 9(1)(b)(i) is replaced with the following:

(i) 15% of its shareholders' equity or of the fair market value of its investment assets, and

22          Subsection 12(2) is amended by striking out "and" at the end of clause (a), adding "and" at the end of clause (b) and adding the following after clause (b):

(c) a report, in a form approved by the minister, as to the corporation's compliance with

(i) this Act and the regulations under this Act,

(ii) sections 11.1 to 11.5 of The Income Tax Act and any regulations under that Act that relate to those sections, and

(iii) any agreement between the corporation and the minister,

along with a written statement from the chair of the corporation's board of directors, the corporation's chief executive officer and its chief financial officer attesting to the accuracy of the information in the report.

23(1)       Subsection 18(1) is amended

(a) by repealing clause (b); and

(b) by adding the following after clause (o):

(o.1) providing transitional rules for matters arising from amendments to this Act;

(o.2) modifying, extending or limiting the application of this Act or sections 11.1 to 11.5 of The Income Tax Act to corporations and their shareholders in the event of a merger, amalgamation, plan of arrangement or other reorganization involving two or more labour-sponsored venture capital corporations;

23(2)       The following is added after subsection 18(2):

Minister may delegate

18(3)       The minister may delegate to any person or body of persons any power conferred or duty imposed on the minister under this Act, except the power to make regulations under subsection (2).

PART 3

COMING INTO FORCE

Coming into force

24          This Act comes into force on the day it receives royal assent.

Explanatory Note

This Bill amends The Crocus Investment Fund Act and The Labour-Sponsored Venture Capital Corporations Act to

  • provide for good governance of Manitoba's labour-sponsored venture capital corporations (LSVCCs), including Crocus Investment Fund;
  • enhance the reporting and disclosure requirements for LSVCCs; and
  • streamline the regulation of LSVCCs and the administration of the LSVCC tax credit program.

Governance

The Bill requires the board of directors of an LSVCC to develop governance policies and practices having regard to best corporate governance practices for public companies, and to adhere to those policies and practices.

The board must establish the following key committees to help it carry out its functions:

  • an investment committee
  • a valuation committee
  • an audit committee
  • a governance and nominations committee

The board may also establish other committees as it sees fit.

Although the board may appoint non-board members to a committee to provide expertise where necessary, the chair of each committee and a majority of its members must be members of the board.  In addition, the board chair cannot be the chair of a committee.

No employee of the LSVCC or of its fund manager may be the chair or vice-chair of the board or of any committee of the board.

In addition, for each of the four key committees,

  • at least one committee member must be a director elected by the Class A shareholders; and
  • no more than one-half of the committee members may be directors appointed by the labour sponsor.

The board must develop conflict of interest policies and practices for members of the board and its committee, and for employees of the LSVCC.  They are to be in keeping with best corporate governance practices for public companies.

Each LSVCC must amend its articles to provide that

  • at least four of its directors must be elected by the Class A shareholders; and
  • one-half of its directors must be appointed by the labour sponsor;

and to eliminate the government's entitlement to elect a director.

Enhanced reporting and disclosure

The reporting and disclosure requirements for an LSVCC are enhanced as follows:

  • by requiring a description of its corporate governance policies and practices to be included in communications to shareholders and prospective shareholders;
  • by requiring its conflict of interest policies and procedures to be available for inspection upon request;
  • by requiring its annual report to shareholders to include the following:
    • how the LSVCC has carried out its mandate, and the extent to which it has met its business objectives for the year,
    • details of its management and board compensation,
    • details of its travel and other expenses incurred by management and board members,
    • its policies and practices regarding the use of resources for non-income producing purposes, and how the resources were used in the year, and
    • the risks associated with investing in the LSVCC;
  • by requiring its annual report to be made available to the public; and
  • by requiring an annual compliance report to be filed with the minister, certified by the board chair and two key employees as to its accuracy.

Regulatory and administrative efficiency

This Bill removes administrative and regulatory provisions from The Crocus Investment Fund Act and makes Crocus Investment Fund subject to The Labour-Sponsored Venture Capital Corporations Act.

Other Amendments

The Bill clarifies the mandate of the Crocus Investment Fund to carry on its business with a view to earning a return for its shareholders.

The Bill prohibits Crocus Investment Fund from making an investment in an entity that would result in its cost of all investments in that entity and any related entity exceeding 10% of the fair market value of the Fund's investment assets.  This rule already applies to a corporation under The Labour-Sponsored Venture Capital Corporations Act.

An LSVCC is prohibited from investing in an entity that is engaged in selling or promoting the sale of shares of the LSVCC, or in a related entity.  Advertising and promotional activies in the workplace for the sale of Class A shares are also prohibited.

The Bill also makes consequential amendments to The Income Tax Act.