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Livent co-founder Garth Drabinsky leaves the Ontario Superior Courthouse in Toronto on March 25, 2009.Chris Young/The Canadian Press

Garth Drabinsky's plan to set up his own company presents no risk to the investing public because it would be a private firm structured for tax efficiency, according to a long-time friend and tax lawyer.

Norman Bacal, a retired tax lawyer who is now a trustee of a trust set up for Mr. Drabinsky's family members, told an Ontario Securities Commission hearing that his friend should have the right to set up a corporate structure for his business interests because it would lower his tax rate. Otherwise, Mr. Drabinsky's income from his work as a theatrical producer will be taxed at the higher personal tax rate, Mr. Bacal said.

"The whole thing is purely personal within the family unit," he said. "I can't see how the investing public would be impacted one way or the other."

Mr. Bacal testified on behalf of Mr. Drabinsky, who is facing an OSC hearing this week to consider penalties for his role in conducting a fraud at live-theatre company Livent Inc. prior to its collapse in 1998. The regulator is seeking to ban Mr. Drabinsky from trading securities in Ontario and acting as a director or officer of a company based on his 2009 criminal fraud conviction.

Mr. Drabinsky made a settlement offer to end the case, but it was rejected because the OSC did not agree with his proposals to be allowed to own and manage his own company and to trade public securities for his retirement accounts. His lawyer, Richard Shekter, argues Mr. Drabinsky needs more flexibility to direct a family company so it can be structured to minimize tax costs, arguing there is no danger to the public or the capital markets if he owns or trades shares of a private company. Under cross-examination Thursday by OSC lawyer Pamela Foy, Mr. Bacal acknowledged Mr. Drabinsky has been able to pursue theatre and television projects despite his current restrictions. Under the corporate structure designed to ensure Mr. Drabinsky doesn't manage any finances, production company Teatro Proscenium LP raises money from investors to produce shows. It has a contract to receive creative services from Ambassador Entertainment Inc., which is owned by the Drabinsky family trust on behalf of his wife and children. Mr. Drabinsky is paid as an employee of Ambassador.

Ms. Foy asked Mr. Bacal why the family trust structure was created and why Mr. Drabinsky couldn't just work directly as a consultant to Teatro Proscenium. Mr. Bacal said he wasn't involved in creating the family trust, but that it appears to be structured for efficient tax and estate planning.

Mr. Bacal also said Mr. Drabinsky is a "changed man" who is more humble and more spiritual than he was at the time of the Livent fraud. "Just listening to his life philosophy, I see somebody who I don't believe is any threat to the public."

Retired University of Toronto economics professor Lawrence Smith also testified on Mr. Drabinsky's behalf Thursday, saying he has been friends with Mr. Drabinsky for 15 or 16 years and invested in his Sousatzka stage production, which opens for previews on Saturday.

He said Mr. Drabinsky should not face restrictions on speaking to future investors about shows he is producing, because his involvement is a key factor for those willing to provide seed funding. "He's the one who has the creative vision and ideas of how things are coming together," Mr. Smith said.

Toronto businessman Geoff Beattie, who is a director of Royal Bank of Canada and General Electric Co., testified Thursday that he invested in Teatro Proscenium to help Sousatzka launch. He said he invested because he has known Teatro Proscenium CEO Richard Stursberg for a long time, and believes Mr. Drabinsky has the creative vision to produce a successful show.

Mr. Beattie said he likens Mr. Drabinsky to a "brilliant painter" and Mr. Stursberg to the businessman running the gallery displaying his work. "As long as someone else was running the gallery and dealing with me, I was comfortable participating," he said.

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