Are Canadian corporations good 'Canadians'?
Question: Just exactly when is a Canadian (corporation) Canadian? Answer: Whenever Ottawa's Foreign Investment Review Agency (FIRA) says so. Q: Once classified as a Canadian and presumably a first- class corporate citizen, are you then going to stay that way?
A: Maybe. No. Or: No one knows for sure.
If you are confused or in doubt by now, reach for the phone and ask Dallas Hawkins II, the energetic president of Oakwood Petroleums Ltd. how he feels now that his company has been reclassified, presumably a second-class corporate citizen.
Mr. Hawkins thought he was securely wrapped in the maple leaf flag for all legitimate corporate intents and purposes. Some time ago, FIRA pronounced Oakwood, one of the most dynamic local junior oil companies, to be an "eligible Canadian person" in the corporate sense.
Mr. Hawkins, always preferring to be absolutely sure of things, dropped a line to FIRA to find out whether the agency's earlier opinion of his company's status was still good. It wasn't. FIRA quietly rolled up the flag and ruled that because Mr. Hawkins, a Canadian citizen but a US resident, owns 20.8 percent of the Oakwood stock, he is deemed to be in effective control of the operation here. That ruling spelled the end for Oakwood's eligibility to be considered Canadian.
The ruling appears to be part of the federal government's desire to "Canadianize" many businesses, especially energy, keeping their control in Canada.
It means that Oakwood, built on acquisition and until recently still showing a ferocious appetite for growth through more acquisition, can no longer do so.It -- and many other companies in similar situations -- cannot qualify for full federal incentives and may not offer itself as a partner in a deal where it seems that its nationality would be more important than its money.
Mr. Hawkins points out that nearly 80 percent of the stock is held by Canadians living here. (When fully diluted by counting outstanding preferred shares due for conversion later, Mr. Hawkin's share will drop to 15.8 percent.)
FIRA's ruling, which could apply to several small companies in situations similar to Oakwood's, could mean that majority shareholder residency is not enough to qualify the company as an "eligible person."
Mr. Hawkins said that to avoid penalizing Oakwood's present position or that of its Canadian shareholders, he will move here permanently.
The alternative is to pull out of the company, which in the current volatile situation could result in serious losses. Another alternative would be to hang on, but by doing so Oakwood might be excluded from virtually all future growth prospects.
Ironically, by staying put in Spokane, Wash., Mr. Hawkins would not be able to channel foreign funds through Oakwood into Canadian opportunities, certainly not at the same potential rate of return on investment enjoyed in the past. Mr. Hawkins says all the eight other company directors are Canadians, local residents, and nearly 90 percent of the company's assets are in Canada. Because this is still not enough to get the federal maple leaf franchise, Oakwood is in the process of voluntarily "Canadianizing" itself, and the corporate changes now being made would result in practically all of the company's assets and activities being concentrated here.
The main reason for residing outside Canada, Mr. Hawkins told FIRA commissioner, Gorse Howarth, was to "further the company's business interests abroad." His Nov. 7 letter to Commissioner Howarth informed FIRA of an aborted Australian business trip and that he "is returning to Canada forthwith" to avoid adverse repercussions for the company and shareholders. Mr. Hawkins thanked Mr. Howarth for "your consideration of one small company's problems."
But many other independents in a more vulnerable position are worried that if Oakwood, with such an obviously overwhelming Canadian content, can receive this kind of treatment , they have little chance to stay in business.