Income trust liability to be limited

(December 18, 2003) When Ernie Eves called this past fall’s Ontario election, he killed a bill that would have limited the liability of income trust unitholders. Many analysts said then that the theoretical unlimited liability was the reason the trust sector had not yet fully developed.

Pension funds, for instance, had not invested in trusts to the extent they may have wanted simply because of the implied threat. This kept billions of dollars out of the sector.

But on Wednesday, December 17, Ontario’s new Liberal finance minister Greg Sorbara delivered a financial statement to the Ontario legislature, which included a commitment to limiting the liability of trust unitholders.

In the statement, Sorbara promised to “propose technical legislative changes to clarify that investors in publicly traded trusts will not be liable for the activities of the trust.”

“We are very pleased to see that the Ontario government plans to give the same protections to income fund unitholders that it gives to shareholders in publicly traded corporations,” said Stephen Probyn, chair of the Canadian Association of Income Funds (CAIF). “CAIF has been encouraging governments across the country to provide this protection from liability, and we’re happy to see Ontario commit to this.”

While the move is welcomed by Leslie Lundquist, portfolio manager for Bissett Income Fund, she says that it comes as no surprise.

“It’s tough to see if there is going to be a monetary benefit,” she says. “My opinion is that investors have been expecting this news for a very long time. I think all of the good news is already priced into the market.”

Even with the question of unlimited liability settled, Lundquist does not expect the major institutional investors to make a mad dash into the trust market. But with the legal hurdle soon to be out of the way, she says the big players might start to examine individual trusts on their own merits.

“I think a fair number of pension funds and other institutional investors sort of stopped the analysis as soon as they’d taken a look at the potential for unlimited liability,” she says. “Once that roadblock is removed, the decision process can restart. Ultimately, some of them will decide trust investments are viable for them.”

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com