Securities Act marginalizes Quebec
THE COST OF TRANSLATING OFFICIAL DOCUMENTS is driving non-francophone business away from the province
AMontreal businessman was set to invest in a Ontario-based company this month when he learned he couldn’t. He was stunned and outraged. Quebec law would not allow him to do what he wanted with his money. Why? The Mississauga-based startup company had not translated its prospectus — the document that proposes a business venture — into French.
The law that prevents the businessman from investing $100,000 in the company, a newly formed real estate investment trust, has existed since 1984, the time of the Lévesque government. Yet few Quebecers are aware of it.
As the businessman’s investment adviser, Simon Hale, first vicepresident at CIBC Wood Gundy in Montreal, puts it: “Normally my (Quebec) clients don’t hear about it because I won’t call them about stock issues that are not eligible in Quebec.”
The law in question is Quebec’s Securities Act. It states that all prospectuses and such other docu- ments as takeover bids, “shall be drawn up in French only or in French and English.” (Article 40.1.) The law does not only apply to companies located elsewhere in Canada: A German, Italian or Chinese company, for example, would also need une version française before seeking investors in this province.
For many companies, especially small ones, the translation costs are too high.
The Mississauga company, which is seeking a $2-million private placement for dealings in commercial real estate, estimates it would cost $50,000 to translate its documents. Some companies’ prospectuses are several times longer — some go on for 300 pages — making the cost much higher. Note, too, that legal costs often accompany translation expenses: Lawyers have to pore over translations meticulously to see if errors have been made in interpretations.
The businessman prevented from investing in this startup is an anglophone who asks for privacy; let’s call him John. He calls the law “intrusive” and an infringement on his right to invest freely.
“Ludicrous” is how one anglophone financial expert describes the law. He says, “Most people in Quebec who have money understand English, and they should have the right to choose where they place their money.”
Yet the reason for the translation requirement is hardly trivial. Prospectuses are often filled with jargon and complexities. Translations can be useful even for bilingual francophones. As a spokesman for the provincial agency that regulates Quebec’s financial markets, Autorité des marchés financiers, notes, “We need to keep people from making ill-informed decisions.” Absolutely.
But here’s a problem. As the AMF spokesman, Sylvain Théberge, also observes, companies outside Que- bec are increasingly unwilling to prospect for investors here largely because of the translation costs. “It’s of concern,” he says. He estimates that a surprising 50 per cent of stock offerings by companies in the rest of Canada avoid Quebec.
To be sure, most of these companies are small. But today’s corporate baby can be tomorrow’s dynamo. And the Securities Act effectively keeps Quebecers from reaping the handsome dividends.
The law also adversely affects this province’s deficit-ridden treasury. Other jurisdictions can sometimes benefit. Thus John points out that the Mississauga company anticipates dividends of 8.5 per cent in its first year; he could be paying taxes on that to Quebec. Instead, he’s considering getting his son who lives in Ontario to front for him by investing the 100 grand; Ontario would get the tax revenue.
Is there a way to reconcile francophone Quebecers’ legitimate need for lucid information on investments with the legitimate expectations of others to invest where they please, with young companies’ legitimate need for thrift and with the Quebec government’s pressing need to maximize revenue?
I asked Yves-Thomas Dorval, head of the Conseil du patronat, if he knew of a solution. He thought a moment, then — speaking for himself, not the Conseil — he came up with an intriguing compromise.
He stressed the francophones’ need to obtain insightful investment information, but he said they ought to be able to get that from a French summary — of, say, one or two dozen pages — of the prospectus. If they needed further detail, they could ask their investment adviser or other expert; such specialists tend to have an full command of English, given English’s role as the international language of commerce. Sounds sensible. The ability of Quebecers to do business in French is important. But the Securities Act goes too far. It makes no sense for Quebec to needlessly marginalize itself from the global economy.