by Alan Gahtan
Bennett Jones

This article first appeared in The Lawyers Weekly - February 27, 1998

Task Force Year 2000 released its report, A Call for Action in early February. The Task Force of 14 chief executives, which was formed in September 1997 at the invitation of Industry Minister John Manley, was originally planning to make its report public in the spring, but moved up the deadline by four months because of the urgent situation. The report reviews the various actions that have been taken by securities regulators, the CICA and others, and makes key recommendations to give impetus to the actions that must be taken by Canadian business and industry in order to address the Year 2000 computer problem.

Lending Institutions

The Task Force notes that the Canadian Bankers Association informed them that Canadian chartered banks are incorporating Year 2000 criteria into standard risk assessments for loans. This will likely promote the development of formal Year 2000 action plans and encourage companies to take Year 2000 preparedness seriously at the management level. The Task Force recommends that all lending institutions, whether federally or provincially regulated, should require the availability of a formal Year 2000 action plan from corporate borrowers as a prerequisite for loans (with a target implementation date of April 1, 1998). It also recommends that all levels of government should require their lending bodies/programs to make the existence of a formal Year 2000 action plan a condition for securing grants, contributions, loans and loan guarantees, where applicable.

Government

The Task Force recognized the important role government can play in respect to encouraging the private sector to take appropriate action to address the Year 2000 problem. It recommends that regulators at all levels of government should complete by April 1, 1998, an assessment of the impacts that Year 2000 computer failures in their regulated industries would have on their regulatory objectives; revise, where appropriate, their compliance assessment procedures; and exert, where possible, moral suasion on the importance of Year 2000 preparedness.

In response to the growing shortage of computer professionals, particularly those with Year 2000 related skills, the Task Force recommends that governments should adopt immigration laws, regulations and policies to create a specific category of temporary employment authorization permitting persons with specialized Year 2000 skills and experience to work in Canada exempt from the employment validation process; thereby permitting foreign workers to secure such temporary employment authorization directly at the port of entry.

Although Industry Minister John Manley had indicated last fall that there would not likely be any special tax breaks for costs incurred to fix Year 2000 problems, the Task Force recommends that the federal government consider introducing revenue neutral tax encouragement measures with a primary focus on small and medium-sized enterprises (SMEs) as soon as possible.

Insurance

The Task Force recommends that the insurance community should provide its corporate clients with early notification of the importance of the Year 2000 issue and of the requirement for the availability of a formal Year 2000 action plan. It also recommends that insurers make the issuance/renewal of insurance policies contingent on the availability of a formal Year 2000 action plan.

The Task Force notes that the Insurance Bureau of Canada (IBC) has undertaken a number of initiatives to assist its members in preparing for the Year 2000 problem. A user group has been established to facilitate the sharing of information between members. The IBC is drafting a questionnaire to obtain basic information regarding the steps being taken an applicant or policyholder to address the Year 2000 problem. The IBC is also working on language that will be used to exclude coverage under certain types of policies.

Securities Industry

Recognizing the importance of Year 2000 disclosure by publicly held companies, the Task Force notes that the Canadian Securities Administrators issued a notice providing Year 2000 disclosure guidance for lawyers and accountants in January 1998. It indicates the need to include a discussion in the risks and uncertainties section of the management discussion and analysis (MD&A) in annual reports on how a company is addressing the Year 2000 problem. Such a discussion would need to reflect the fact that the directors of a corporation have made Year 2000 preparedness a priority.

The Task Force advises that securities commissions should assure themselves that companies under their jurisdiction are, in fact, reporting on Year 2000 issues in their MD&A and that these disclosures are adequate. It recommends that all securities commissions, during 1998 and 1999, should review a 20 percent representative sample (at a minimum) of annual reports of the companies they regulate to determine if such disclosure is being made. The Task Force also recommends that all securities commissions, either as a matter of regulatory mandate or administrative policy, should promote Year 2000 preparedness as a consideration in the due diligence process associated with mergers and acquisitions.

Legal Duties and Obligations

In order to avoid the possibility of unwelcomed legal action, the Task Force urges business leaders and owners to promptly seek legal advice to help assess the legal implications of Year 2000 problems for their business.

"Canadian firms should be cognizant of the legal duties, obligations and potential liabilities that may arise in connection with a lack of Year 2000 preparedness. As a matter of corporate governance, firms should determine the nature and extent to which their business is subject to specific commercial, professional, industrial and regulatory obligations before a comprehensive remediation plan can be designed and implemented. The Year 2000 management team must work closely with its professional advisors and consultants to ensure that the foregoing obligations are satisfied and legal liabilities are minimized to facilitate the practical commercial resolution of Year 2000 disputes and conflicts that may arise."

Communications

An important objective of the Task Force is to communicate the importance of the Year 2000 problem, and encourage the private sector to transform awareness into formal action. In this regard, the Task Force will implement a $4-million communications campaign. It also called on the media to continue to report on the efforts of all parties in meeting the Year 2000 challenge, monitor the effective implementation of Task Force recommendations and, in the case of electronic and print media, to develop and distribute regular messages of public interest to increase awareness and encourage action.

The Task Force is also seeking assistance from national, provincial and regional associations who have been asked to immediately take a more proactive awareness and support role on Year 2000 preparedness and publicly report on initiatives taken if they have not yet done so.