Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce

Issue 14 - Evidence

OTTAWA, Tuesday, November 26, 1996

The Standing Senate Committee on Banking, Trade and Commerce, to which was referred Bill C-5, to amend the Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act and the Income Tax Act, met this day at 10:05 a.m. to give consideration to the bill.

Senator Michael Kirby (Chairman) in the Chair.


The Chairman: Honourable senators, with us today are two witnesses who are appearing together as a panel. From the Faculty of Law of the University of Toronto we have Jacob Ziegel, who is a professor emeritus; and from York University, Osgoode Hall, we have Mr. Iain Ramsay, who is a law professor.

Senators, you have two submissions before you, one of which is by Professor Ziegel himself. The other is by Professors Ziegel and Ramsay and several others, including professors from Dalhousie, the University of Saskatchewan and UBC. I have asked the two witnesses to highlight both papers in their opening statements. Instead of dealing with them sequentially, we will have a general discussion of all of the issues raised in both papers. They will take approximately 20 minutes to do that, after which we will have a discussion of the policy issues that have been raised.

Thank you very much for taking the time to be with us today. We will try to let you get through your opening statement without interruption; however, we do not always allow that. Following your opening statement, we will proceed to a discussion.

Please begin.

Mr. Jacob S. Ziegel, Professor of Law Emeritus, Faculty of Law of the University of Toronto: Mr. Chairman and honourable senators, Professor Ramsay and I are grateful for this opportunity to appear before your committee today, because we think it important that you should have the benefit of receiving some independent, if critical, views concerning the consumer bankruptcy and other provisions in Bill C-5.

We also received a courteous hearing before the Commons committee. Unfortunately, that committee did not address most of the issues that we attempted to raise, except to suggest that some of them deserved further study on a future occasion. That is one of the reasons we are anxious to have another bite at the cherry, to see whether or not we can persuade this committee to address some of those issues.

Honourable senators, you have before you two sets of submissions, as your chairman has mentioned. The submissions in the first set are made on behalf of myself, Professor Ramsay, Professor Elizabeth Edinger of the University of British Columbia, Professor Ronald Cuming of the University of Saskatchewan, and Professor Vaughan Black of the Dalhousie University Law School. The second set of submissions represents my own views and other aspects of Bill C-5. After I have made my oral remarks, I will, with your permission, ask Professor Ramsay to add some remarks of his own.

First, I will deal with the collective submissions, which are concerned exclusively with those amendments in Bill C-5 and related problems concerning consumer bankruptcies and proposals. The underlining assumption of the amendments in Bill C-5 is that consumer bankruptcies have become a major legal phenomenon in Canada. With this we agree entirely, although we would add that the economic and social problems generating the insolvencies are in our view at least as important as the legal results.

Where we differ fundamentally from the drafters of Bill C-5 is in our diagnosis of the causes of the escalating number of consumer bankruptcies. The drafters appear to believe that it is because going bankrupt and obtaining a discharge from one's debts has become too easy and too attractive, particularly in light of the 1992 amendments to the legislation. Therefore, Bill C-5 proposes to put in place a complex, bureaucratic and, in our view, coercive set of provisions with a view "to encouraging" a much larger number of insolvent consumer debtors to make consumer proposals under Part III, Division 2 of the Bankruptcy and Insolvency Act.

Even if enacted, we do not believe that the provisions will have this effect. We believe all the available evidence -- and we cite a good deal of it in our submissions, most of it derived from government sponsored studies -- shows that 90 per cent or more of consumer bankrupts are helplessly insolvent, have negligible assets, live in the shadow of poverty and have no foreseeable prospects of being able to pay off a significant part of their indebtedness within a reasonable time frame. There is no doubt that there may be some individuals who seek to take advantage of the existing rules, but they do not represent the vast majority of consumer bankrupts. The studies we cite show that the most commonly assumed causes of consumer bankruptcy are unemployment, the ready availability of consumer credit and inability to budget properly. There is not much Parliament can do about the persistent high levels of unemployment. According to the government sponsored studies, up to one-third of consumer bankrupts are unemployed. In our view, Parliament can and should express its concern about the abuses of credit granting practices and manifest that concern in the Bankruptcy and Insolvency Act.

In our view, consumers' ability to budget properly is closely linked to the ready availability of consumer credit at, it would appear, all levels of income. Pages 28 and 29 of our brief contain two random samples of contemporary credit advertising that could be multiplied many times and which raise this question.

How can we expect consumers to adopt prudent and thrifty spending habits when all the advertisements tell them constantly they do not have to wait, that the desirable good or service, or a straight loan, is theirs for the asking, frequently without a down payment and with repayment and interest liabilities being postponed for six months or more.

It is and should be a matter for keen concern that nothing in Bill C-5, and nothing that we have seen in the minutes of Working Group I of the Bankruptcy and Insolvency Act Advisory Committee, addresses any of these concerns. The only response we have seen is an emphasis on the need for consumer debt counselling and a requirement of it as a prerequisite to the discharge of first-time bankrupts.

We do not oppose counselling facilities. Quite the contrary. However, we believe it is a mistake to make debt counselling mandatory in this case, when we do not impose the same conditions on any other type of bankruptcies or on directors and officers of companies whose inexperience or lack of financial skills may have led to the downfall of the enterprise.

In the light of our diagnosis of the current problems, our submissions offer the following recommendations:

First, the provisions in the present Bankruptcy and Insolvency Act enabling a trustee to apply to the court for payment under section 68 and enabling the court, under section 173, to suspend a discharge or impose payment or other requirements as a prerequisite to discharge are sound. They should be left as they are. We would, however, add a clause to these provisions to entitle the court to take into consideration the nature of the bankrupt's indebtedness and the extent to which the creditors may have contributed to the debtor's financial problems.

There appears to be a common misconception that the 1992 amendments confer the right to a discharge on first-time bankrupts. This is not correct. The right only exists if the creditors, the trustees or the Superintendent of Bankruptcy do not object. If creditors do not often object, it is because they know the bankrupt's position is hopeless or they do not find it worthwhile to oppose.

Second, consumer proposals should be made more attractive to those consumers who can benefit from them, by offering more carrots and fewer sticks, by adding a number of amendments to the consumer proposal provisions of the BIA. We list our recommendations in the brief, Mr. Chairman.

Third, to simplify the administration of small estates, we recommend doubling the current ceiling for the availability of summary administrations from $5,000 to $10,000 without prejudice to further increases by Order in Council.

Fourth, we emphasize the need for further and updated studies on the phenomenon of consumer bankruptcies. We urge, in particular, the updating of the Brighton/Connidis study, a major study again commissioned by the federal government, to which we refer in No. 32 on page 26 of our submission.

I should add, Mr. Chairman, that our brief does not discuss student loans for two reasons: first, we have not studied the subject sufficiently carefully; second, we did not feel we had enough expertise of our own to be able to add much to this important facet of consumer bankruptcies.

In my own brief, I focus only on those areas not already addressed in our collective brief.

There are two major problematic provisions in Bill C-5. The first deals with the retention of the Companies' Creditors Arrangement Act as a separate set of reorganization provisions. The second deals with the new Part XIII of the BIA dealing with international insolvencies. Let me say a word about each.

The House of Commons committee studying Bill C-22 in 1991 recommended very clearly -- and you will find this on page 4 of my brief -- that:

The Companies' Creditors Arrangement Act be repealed within three years of the coming into force of the commercial reorganization provisions of Bill C-22.

That was a clear recommendation. It was not equivocal. It was not qualified. It was not made contingent on having any particular event. The House of Commons committee based its recommendations not only on the recommendations of earlier committees, including advisory committees established by a previous government, but also on the recommendations of witnesses who appeared before the committee.

Nevertheless, the House of Commons committee's recommendations are being totally ignored without any persuasive explanations, other than that practitioners working this area like the ability to work within a totally independent Companies' Creditors Arrangement Act.

I argue that, conceptually and functionally, that is bad; that whatever is good about the CCAA -- its flexibility, its judicial control -- can easily be incorporated by adding a new Part III, Division 1A to the BIA. I find it of keen concern that this possibility was never explored or discussed. Again, I ascribe it to the fact that those lawyers most active in the area simply did not see it in their interest to do so.

Nevertheless, a government's role as an impartial observer of the scene should be to take a less jaundiced view of the desirability of integrating, within the same Bankruptcy and Insolvency Act, all of the relevant provisions governing bankruptcies and reorganizations.

Let me turn to Part XIII dealing with international insolvencies. Canadian lawyers have been active for many years in seeking to promote better cooperation and a higher degree of recognition of foreign insolvencies among the relevant countries.

As far back as 1984, in Bill C-17, a highly respected member of the Ontario bar, in fact, Canada's leading expert in international insolvency, prepared a set of provisions, which appeared in section 316 of Bill C-17, dealing with this topic in a very balanced, sensible and coherent manner. That is not true of Part XIII. Part XIII, in my view, is the result of a strong pressure group that was much more interested in protecting a certain interest than in adopting what I regard as a coherent and balanced set of provisions. What we have now is a set of highly ambiguous, even opaque provisions. I have looked at them many times. I have great difficulties in making some sense of some of the key provisions.

For example, the court is told that it can make an order enjoining seizure of assets within Canada as a result of foreign insolvency proceedings. However, the court is not told what is to happen to those assets after the enjoindering order has been made. That is a key issue.

My recommendation to this committee is that we should reinstate the earlier provisions of Bill C-17 because of their greater clarity and coherence. I emphasize that those provisions will not prejudice Canadian creditors. The matter will be left to the discretion of the judge, which is where it should be left.

At a third level, my brief deals with a number of unresolved issues -- what I call loose ends, but that is a euphemism -- which should go to the integrity and the balanced nature of modern bankruptcy legislation.

The first issue I deal with under this heading concerns wage-earner protection for unpaid wages. This is a long story that has been on the Canadian scene since 1975. Here we are in 1996 and we still have not resolved it. There was a proposed new act as part of Bill C-22 in 1991 that would have dealt with this, but it was much opposed by a variety of interests for ill-conceived reasons. The end result was that nothing was done in 1992. Bill C-5 does have provisions for the protection of directors, but not a word about ensuring that wage earners will be adequately protected in respect of their unpaid wages in the event of the bankruptcy of an employer.

I feel keenly -- and I am not a worker so I can take a totally detached view -- I feel keenly that some of the most vulnerable creditors in our society have not been fairly dealt with in Bill C-5.

Next, under the heading of "Unresolved Issues", is the question of unpaid suppliers' claims on a reorganization of the debtor. Bill C-22 adopted what appeared to be a strong provision in favour of the protection of unpaid suppliers where the debtor became bankrupt within 30 days of the supplies being made available to the debtor. Unfortunately, while that provision may be more or less adequate in the case of a straight bankruptcy, it is totally inadequate in the case of a reorganization, because the present section 81.1 makes it clear that the suppliers' right to repossess unpaid-for goods is suspended in the event that reorganization proceedings are initiated. In fact, in critical cases, a debtor will always resort to reorganization where unpaid suppliers have significant claims. It has happened time and time again. It happened in spades in Re Woodwards Ltd.

If Parliament was serious in seeking to protect unpaid suppliers in 1992, it should have followed through its good intentions by ensuring that that right is also protected where the debtor seeks reorganization rather than straight bankruptcy. At pages 13 and 14 of my brief, I have a specific and straightforward proposal concerning how that re-balancing can be achieved.

Finally, the last part of my brief looks towards Phase III of the BIA amendment process. First, I say that it is time to complete the long, drawn-out process of revising Canadian bankruptcy law. Second, I make some specific proposals as to how that Phase III should be organized. My concern is that while the government's intentions in setting up working groups and advisory committees were unquestionably the best, in practice the process has significant shortcomings, and I offer some suggestions on how those shortcomings should be addressed when work on Part III begins.

With your indulgence, I will now ask Professor Ramsay to make some remarks of his own.

Mr. Iain Ramsay, Law Professor, Osgoode Hall Law School, York University: I will focus on the issue of consumer bankruptcy.

Policy making in relation to individual bankruptcy should be based on assumptions about those involved in the process. These assumptions should be based on the norm rather than the exception, as revealed by systematic rather than anecdotal knowledge about the system.

One could hypothesize three types of individual debtors who use the bankruptcy system: the unfortunate, who has suffered a change of circumstances often from causes outside his control, such as income interruption; the amoral calculator, who is trying to get as much as possible out of the system and will use bankruptcy in a strategic way to avoid debts; and, finally, the inadequate, a word I am not happy with, but which describes a person who is in bankruptcy because of personal failings, such as an inability to manage finances.

There is significant evidence that the unfortunate is the norm in Canada, although there is still limited empirical evidence on this issue. There are undoubtedly those who have overextended themselves on credit, but they are often imprudent rather than irresponsible. There is also a minority of amoral calculators. What concerns me is that current reforms and the 1992 act have a tendency to conceptualize the bankrupt either as an amoral calculator or as an inadequate person. The latter conceptualization is reflected in the emphasis on counselling. The counselling directive is premised on the assumption that debtors are irresponsible or inadequate persons. The counselling directive states that the purpose is to "assist them in adopting more responsible practices with respect to financial matters and avoiding reoccurrence." While counselling may be a valuable option for those who believe they can benefit, it is not clear why it is appropriate to be compulsory for the many unfortunate bankrupts or for those individuals, for example, whose bankruptcy is associated with a failed business but who go into individual bankruptcy.

The elaborate provisions in the bill intended to recover surplus income and to pressure individuals to adopt a proposal rather than bankruptcy assume two things: first, that debtors are at present not contributing sufficient income to their estates, and, second, that individuals who can pay a substantial proportion of their debts are choosing bankruptcy rather than a proposal to repay their debts. There is therefore an underlying assumption that these individuals are trying to manipulate the system by going into bankruptcy rather than choosing a proposal.

There is little empirical evidence to substantiate that assumption. Data collected by the bankruptcy branch indicate that over 56 per cent have no surplus income and over 80 per cent have less than $200 per month. In addition, the simple fact is that existing Canadian legislation already makes ample provision for individuals with significant surplus income. Those individuals will often face a conditional discharge because of opposition from the trustee or creditors.

There will undoubtedly always be some individuals who abuse the system, but the present proposals on surplus income are a cumbersome and potentially costly method of attacking the tail end of the bankruptcy statistics. The search for surplus income should be balanced by the basic idea in modern bankruptcy of the fresh start for the individual bankrupt. Cutting into the fruits of a debtor's human capital reduces incentives to work. Remember, we are not attempting to punish individuals who declare bankruptcy.

There is also the danger that the impact of the proposed reforms may simply be to discourage individuals from using bankruptcy at all. There may be social costs attached to that, because the creditors may still not be repaid and there will be continuing problems of overindebtedness. Individuals lose their incentive to work, there is personal stress, there are problems of breakdown of family relationships, and there is the encouragement of deviancy in the sense of avoiding debt repayment and only working in the informal economy.

The proposals on surplus income will still allow for the exercise of significant discretion by creditors, trustees and the official receiver. In other words, they are unlikely to completely standardize or streamline the process, reduce costs, or result in similar treatment for all debtors. In addition, the alternative dispute-resolution mechanism of mediation may possibly increase rather than reduce the costs of the process.

The model for modern bankruptcy should be a streamlined process with bright-line rules. Bankruptcies should be processed swiftly, with little paper work but with auditing carried out on a random basis, similar to the situation provided for in the Income Tax Act.

In relation to proposals, there should be more positive incentives to repay. There is presently little incentive. There is little difference at the moment, for example, between a credit rating for a bankruptcy and a proposal. There are few opportunities in consumer proposals to deal with secured credit, whereas with a commercial proposal, one does have the opportunity to deal with secured credit.

In conclusion, it is unfortunate that neither in 1992 nor in the present amendments has there been a serious attempt made to think through systematically the role of consumer bankruptcy in the contemporary economy. For example, one recent major U.S. study drew attention to the perilous position of women who had declared bankruptcy. It commented on the fact that "the economic circumstances of women are the worst we have examined". We know that in Canada now almost 40 per cent of bankrupts are women, but we have no empirical data on their socio-economic position when they go into bankruptcy.

No empirical studies were undertaken in 1992, and although some limited material appears to have been conducted by the superintendent as a background to these amendments, it seems to have had little effect on the policy-making process. In other words, there seems to have been little serious attempt to assess the workings of the 1992 act on the basis of objective evidence.

For example, no attempt was made to find out the systematic impact of rises in bankruptcy rates on credit granting practices, which is a complex issue. We do not know what the impact is. Moreover, I am not aware that any cost-benefit analysis of the new proposals on mediation was conducted.

I may be wrong in what I am saying and the proposals may work, but if they do work, it will be policy making by accidental wisdom rather than by systematic analysis.

The Chairman: Professor Ramsay, you appear to be reading from a prepared text. If so, could we have a copy of it?

Mr. Ramsay: I will send you a copy.

The Chairman: Thank you. That would be helpful.

Professor Ramsay, in your remarks, I believe both you and Professor Ziegel have dealt with the assumption that credit is easy to obtain. You include the advertisement at the back of your brief and you say that this may be a cause of bankruptcies. Therefore, the people who make credit too easy to obtain should bear some responsibility for bankruptcy. I have a philosophical question for you -- and, incidentally, if either of you wishes to comment on any question, please feel free to do so.

Your logic is based on the following assumption, namely, that creditors or governments, through their legislation, should bear some responsibility for saving people from themselves. From a political, ideological standpoint, is that real? I accept the fact that 50 years ago governments tried to save us from everything. That is why we had prohibition and a variety of other laws.

Is that really the philosophical position you are taking in the late 1990s? If so, I am happy to debate that with you. It is important to understand whether one of your underlying principles rests on the notion that government should save people from themselves.

Mr. Ziegel: First, allow me to draw your attention to the graph on page 17 of our collective brief. We show the high correlation that exists between the growth in consumer bankruptcies and the growth in consumer credit.

The Chairman: I do not dispute that.

Mr. Ziegel: Fine. Remember that the BIA itself is what you described as government legislation. The question is whether government should lend its powerful aid to make life even more miserable for consumer bankrupts than it already is. I would say that the government should not. This bills makes the government legislation a bill collector for creditors.

If creditors find it in their interests to hand out consumer credit in such vast amounts and to make credit so widely available, and, obviously they do because at the present time the outstanding balances of consumer credit in Canada are a staggering $120 billion plus, then they must also take the risks that go with it. They do, of course. The large credit grantors have a good idea of the risks, delinquency rates and losses, and they adjust their credit charges appropriately. So we see absolutely no reason why Bill C-5 should serve as a handmaiden for the credit industry.

The Chairman: Therefore, you would not argue my philosophical position. Your argument is that just as one has "buyer beware", there should also be "credit grantor beware", and, to that extent, this particular bill is skewed too much in favour of those who lend money, thereby reducing their risk excessively.

Mr. Ziegel: There are highly bureaucratic and coercive provisions in Bill C-5, which, for no good reason, completely bypass the judicial system built into the existing act and which will not accomplish their goals. This is part of our philosophical and operational concerns. These complex provisions are not supported, as my colleague has rightly pointed out, by any empirical work. All the empirical studies that have been done, including the studies commissioned by the federal government itself, show precisely the reverse. It will be a futile exercise and will involve engaging in a lot of bureaucratic paper shuffling, largely to no good end.

Mr. Ramsay: The basic point is that credit granting by large institutions is made on an aggregate basis. Basically, they calculate a certain bad-debt ratio. That is done on an aggregate basis, not an individual basis. Our argument is that bankruptcy is an accepted part of the credit economy and should be treated on an aggregate basis as well, in terms of writing off these debts in a relatively straightforward way rather than using this complex, individualized system, which will be quite costly.

Remember that the creditors themselves have their own sanctions. They use credit ratings and they have significant information to sanction individuals who do not repay. Stating it at a philosophical level, bankruptcy is part of the system. Let us treat it in an aggregate way in the same way that creditors treat the lending process, which is based on aggregates and is done on an actuarial basis.

The Chairman: I must pursue that with you with one other question. Credit granting is a statistical issue. One can understand using the aggregate to determine the probability and the risk in order to make collective decisions. But surely bankruptcy is an individual issue. If you lend money to 1,000 people and four go bankrupt, they are individuals. It is not the collective 1,000 that is involved in that situation. I do not know how you can deal with a bankruptcy at the collective level, although I understand totally and statistically how you deal with risk at the collective level.

Mr. Ramsay: Individuals who are going bankrupt rarely have any surplus income. The point we are making is that it should be treated on an aggregate basis. It should be a simple process of allowing the debtor to write down the debt and get a fresh start. The proposals tend to make the process more complex by attempting to invidivualize and to find individuals who have a bit of surplus income. The argument is that the costs of doing that are simply not worth the benefits.

Initially, you raised with Mr. Ziegel the issue of regulating credit and being paternalistic. You could have two basic methods of attempting to deal with consumer credit. If you were concerned about it, you could attempt to regulate debtor behaviour or creditor behaviour.

Concerning an attempt to regulate debtor behaviour, for example in terms of providing certain information to debtors, quite a lot of economic analysis suggests that individuals systematically underestimate the probability of defaulting. It is difficult to stop people from using credit. Given the other macroeconomic factors where people have unemployment, et cetera, you will have people at risk of defaulting. It is difficult to prevent bankruptcies in terms of altering debtor behaviour. You could attempt to alter creditor behaviour, however, by restricting the amount of credit outstanding. That would be difficult to do, and creditors would find many ways of getting round it. It might be possible, but I do not think it would be politically acceptable. You might then conclude that, if you cannot prevent these risks from occurring, you see bankruptcy as a way of protecting individuals who have systematically made a mistake or are often subject to causes outside their control, such as unemployment.

Senator St. Germain: Are you advocating, gentlemen, that we legislate behaviour?

Mr. Ramsay: No; in fact, quite the opposite.

Senator St. Germain: I am trying to listen to your testimony between the lines to figure out what are you saying. You never speak of individuals assuming responsibility. I am not saying that the creditors do not have a responsibility, as you pointed out in the ads you included in your submission, but never once have you spoken of education on the part of the individual, which I think is key. There are many things in our society that Big Brother decides to take over, but he takes over half way through the process as opposed to going to the root cause of the problem. I should like your comments on that.

I do not believe that we or any other body can legislate behaviour in any way, shape or form. As a society, we have lulled our entire citizenry into a state of complacency. However, the chickens are coming home to roost now. We have had to cut back on some of our social programs. Individuals, in many instances, are not assuming the responsibility they should. I am not minimizing the responsibility on the part of the debtors, when I say that.

Mr. Ziegel: We are not talking about seeking to regulate the debtors. With all due respect, we are pursuing a bit of a red herring here. We are talking about what we should do about individuals who are completely over-indebted.

Statistics are cited in great detail in our brief. That is where we should take our starting point, with some very basic and well-accepted empirical studies. The question is this: What should we do with people who are grossly over-indebted, living in the shadow of poverty, and who would not be able to pay their debts, even if you gave them five or more years? That is the basic question.

Are we in favour of education? Of course we are. The question is why are these people so grossly over-indebted? We are not talking about a marginal group, Mr. Chairman. We are talking about 75,000 consumer bankrupts this year in Canada. We had close to 66,000 last year. The number of consumer bankrupts tripled between 1985 and 1995. The graph I referred to earlier shows the growth in consumer bankruptcy. It is not a recent phenomenon, but it is closely associated with the growth in consumer credit. We should be concerned about the impact of what I regard as the single largest and most important factor contributing to this vast growth in consumer bankruptcies. It seems to be an inherent contradiction to say that the consumer should become more educated and more self-assertive at the same time as he is being given every incentive on a day-to-day basis to spend more because he does not have to pay immediately.

Senator Oliver: I have a couple of questions dealing with public policy. I should like to get your views on public policy issues. The first relates to the section dealing with wage-earner protection for unpaid wages when an employer goes bankrupt. I listened with interest to your comments on that issue. You said that we have had 21 years in which to deal with this problem, and yet the Parliament of Canada has not adequately dealt with it in Bill C-5. You also said that you would like to see in your preferred remedy an amendment to unemployment insurance. I wonder whether a 10-cent-a-week levy on all employees in Canada is the proper way to deal with the default of an individual corporation not being able to pay for its workers. Is that good public policy for Canada?

Mr. Ziegel: We are talking in terms of an insurance system. We have lots of insurance systems.

Senator Oliver: The contributory insurance plan was the first option, but your second option would be an amendment to unemployment insurance.

Mr. Ziegel: That would not necessarily involve a levy on the employees. It could be a joint levy on employers and employees, or it could be simply on employers. I am merely restating the proposal which was part of Bill C-22 in 1991. That recommendation was made also by a high-level government study committee back in the 1980s. This system has been adopted in many European countries. There is nothing novel or unique about my recommendation.

Senator Oliver: Would your recommendation be a levy on employers?

Mr. Ziegel: Yes, I would make it either on employers or employees. You could have one or the other. My preference would be to make it on the employers, but it would be fair to make it on employers and employees.

In 1991 terms, we are talking about pennies compared to most other impositions which are made on employers and employees. The starting point is this: Do we have a problem here? Obviously, if there is no problem, we do not need to worry one way or the other.

However, we are not talking about a single employer, senator. We have a minimum of 14,000 business bankruptcies a year and a large number of businesses that never become legally bankrupt but, nevertheless, result in workers going unpaid. Indeed, if there were no problem, then directors would not be complaining about being held personally liable for unpaid wages. Clearly, there is a problem. Your committee is aware of it because your committee has recommended amendments to the Canada Business Corporations Act to relieve directors from personal liability where the directors have not acted negligently. I accept that, provided we make some adequate provision to protect unpaid wage earners in bankruptcy.

Senator Oliver: Is there anything we can do within this statute rather than going to an unemployment insurance statute or compulsory insurance scheme to resolve this issue? In other words, is there anything you would recommend by way of secured priorities for the wages of workers within this statute?

Mr. Ziegel: It is a circular game, senator, because if you elevate the status of unpaid wage-earner claims, you are doing it at the expense of other groups. We have had this game of circularity for many years. Is has never proven satisfactory.

Senator Oliver: What would be your preferred priority?

Mr. Ziegel: It has been suggested from time to time that wage-earner claims should be given super-priority status in bankruptcies. It has been strongly opposed by other creditor groups on the ground that it would undermine the credit-granting process to businesses. The banks have made this point in spades. The banks have indicated their preference for some kind of insurance scheme, but, unfortunately, they have not pressed for it, because they are not sufficiently concerned about the status of unpaid wage earners. That is the basis of the problem. Everyone is willing to recognize the problem, but no one is sufficiently engaged to do something about it.

Senator Oliver: Professor Ramsay, in your paper, you use strong language to deal with mandatory counselling in the act. You say that a precondition of their entitlement to an automatic discharge is objectionable in principle and strongly discriminatory and has been shown to be ineffective in practice. On the other hand, when Professor Ziegel was making his comments, he said "We do not oppose counselling facilities." What do you oppose? Do you oppose merely the fact that it is mandatory?

Mr. Ramsay: I did not actually write that. Professor Ziegel wrote those words.

The basic thrust of my concern in relation to counselling is that, certainly, I am not opposed to voluntary counselling, but it is not clear why it should be a mandatory part of the discharge process for individual bankrupts. Counselling is given because we presume that the majority of individuals who go bankrupt need counselling. However, to the extent that the limited empirical evidence suggests that the norm in relation to consumer bankruptcies are individuals who have suffered a change of circumstances, it is not clear that they have necessarily been involved in irresponsible credit. It is simply that they have relatively high debt loads. They suffered a change of circumstances and could not get back to their normal position. Consequently, they had to declare bankruptcy. In addition, there is a substantial minority of individual bankruptcy cases that are really business related -- for example, guarantees of small businesses.

Senator Oliver: Such as when, in the process of downsizing, you become unemployed.

Mr. Ramsay: In those cases, it is not clear why you would necessarily mandate counselling, because counselling is a response to problems of irresponsible credit. In other words, it could be made available. Those individuals might want counselling. It is not clear why you would make counselling a mandatory part and add it to the costs of bankruptcy. Counselling usually costs $85 a session and there are two sessions required.

In other words, I am echoing Mr. Ziegel when I say that counselling is fine, but why do we add it on as a mandatory part of the bankruptcy process?

Mr. Ziegel: Mr. Ramsay is quite right. I was responsible for that passage. The senator is also quite right: we use strong language. I make no apologies. This is another example of clearly discriminatory legislation.

Bill C-22 as originally drafted did not envisage mandatory counselling. It was left on a voluntary basis. It was only changed in committee hearings as a result of some representations from creditor groups. The concept was never thought through.

All western countries have consumer bankruptcy legislation of some description. However, Canada is the only country in the western world that makes counselling mandatory. It is a placebo. We pretend it is good for their souls. We pretend that there are wicked consumer bankrupts who have plotted the undoing of their creditors and now the least we can do when they go bankrupt is to ensure that we try to save their souls.

We do not look at what creditors have done. There is no statutory requirement I know of to ensure that creditors are educated in the proper credit granting process. Quite the contrary. Creditors can advertise up to the hilt, encouraging people to get into debt. However, if the people to whom the advertisements and blandishments are directed on a daily basis accept these overtures, then we describe them as needing education. That turns everything on its head.

We argue that, if you are to impose educational requirements on one group, why not on the others? Hundreds of companies go bankrupt every year. Why do we not submit them to some sort of educational process that addresses their responsibilities as operators of businesses?

As my colleague said, look at the universe of consumer bankruptcy. Review the causes of bankruptcy. What will you say to the 30 per cent of bankrupts who do not have a job? Will you say, "You should not be losing your job"? It seems to me the proposition is simply untenable. Is it plausible to say to someone: "Your income has dropped from $50,000 to $20,000; you now have difficulties in making your mortgage payments; therefore, we will now educate you as to how you can prevent these reversals in your income situation"?

It seems to me that education is not the proper response in that area; it is simply that misfortune has befallen the individual. But even if we decide that some form of counselling should be mandatory, it should be done on a much more focused basis than it is at the moment. We are using mandatory counselling as a placebo to make us feel good, to overlook the fact that one of the primary causes of the escalating number of consumer bankruptcies is a close correlation with the volume of consumer credit.

Senator St. Germain: We live in this country, so we can differ in our views. When I raised the education, I was not referring to the counselling aspect; I was talking about education in our educational systems before the problem arises. After the problem is there, it is redundant to try to counsel people.

Have you conducted any studies in regard to credit cards? Credit cards seem to make life virtually easy for all of us, but to what extent do the high interest rates attached to those credit cards actually affect bankruptcies of individuals? The exorbitant rates that they are charging and the ease with which they make credit available is an area that our major lending institutions should address.

I remember years back, when you went to a bank for a loan -- say a loan for $100,000 to do a subdivision -- there was no bonus, or finder's fee or administration cost. At that time, individual people lending money were called loan sharks by the banks because they charged bonuses and asked for balloon payments, and so on. But those are the very things the banking institutions are doing today. You will not get a loan from an institution today without paying a bonus, or making a balloon payment, or paying an administration cost.

What studies have you done? Do you have any data on the correlation between the extremely high interest rates charged on cards and the individual bankruptcies that are occurring?

Mr. Ziegel: I have not done any study, certainly not recently. Some statistics are available that show that credit card issuers figure prominently on the lists of creditors in consumer bankruptcies.

Do high rates of interest for credit cards also play a role? Unquestionably, they do. This raises an entirely separate issue, namely, the cumulative effect of high interest rates on debt burdens. The senator is absolutely right. If a consumer is paying 30 per cent on a credit card, and a significant number of credit cards carry these high interest rates, and if the debtor then falls behind in his payments, then 30 per cent if compounded over a number of years could quickly double itself and therefore add greatly to the consumer's debt burdens.

Mr. Ramsay may want to supplement my remarks on this point.

Mr. Ramsay: I do not think there are any specific studies on the impact of credit cards on bankruptcies. Credit cards are obviously a major form of unsecured lending for individuals who may not be able to borrow from other institutions.

It is possible that a credit card could let some individuals ride through a tough period that they are facing because they are able to borrow money on the credit card. Obviously, it is a high interest rate that they are paying. To the extent that there are statistics, I do not have them at hand, but I was going through some statistics from the bankruptcy branch. For example, the average amount outstanding on an individual bankruptcy is approximately $4,000 on a credit card. I am not confident about that statistic, but certainly not all individuals who go bankrupt have credit card debt. I am not sure of the exact statistics. Over half do, but not all individual bankrupts have credit card debt.

It is difficult to make correlations between high credit card debt and bankruptcy. You would have to work out exactly what you were trying to study. If you wanted to study what triggers bankruptcy, I am not sure that having high credit card debt would necessarily trigger you to go into bankruptcy. Clearly, people who borrow on credit cards pay high interest rates. There is no doubt about that.

Senator St. Germain: Correct me if I am wrong, but would you agree from your knowledge and studies on this subject that many people, when they find themselves on the brink, just take their cards out and run them up to the maximum, because they figure they are going down anyway? I visualize this as a problem. I may be way off base, but I know of individuals who were on the verge of bankruptcy and just went out and ran their cards up. They said, "We are going down anyway, so we might as well go for the big one."

Mr. Ramsay: There is a danger there in terms of statistics as to whether the individuals that one knows are the statistical norm.

Senator St. Germain: I realize that.

Mr. Ramsay: As well, if someone has a high credit card debt, what do we interpret that as meaning? It may be that, yes, they went and ran up high bills, although I do not know if there is any systematic evidence on that. But it may also be that they are simply trying to live from month to month using their credit card. It is difficult to interpret what a high credit card debt means. They may have been using it to finance their business.

Senator St. Germain: Professor Ziegel, looking at UI premiums as a form of insurance for directors' liability, in lieu of directors' liability for lost wages, we are living with the Canadian Airlines issue right now where all the directors have resigned. That is bound to have had an impact on their bookings and the day-to-day operation and the possible recovery of a major corporation in Canada. Are you aware of any other options than the form of putting it on the payroll? As you know, several experts say that payroll taxes are regressive in themselves in that they discourage people from starting up businesses, because they are another form of direct taxation. Is there any other avenue that you can think of for attacking this problem?

Directors' liability is a major problem, and we must deal with it. When you have a major board like this resigning in the face of having to assume the responsibility for back wages and so on, it is serious.

Mr. Ziegel: I wish to emphasize again that, if the problem of directors' personal liability is a live issue, it is precisely because unpaid wages is a live issue. That is and should be the starting point for our concerns. How do we address that? As I mentioned earlier, over the years a number of alternative proposals have been made for addressing the problem, but the only two viable alternatives are to confer super-priority status on unpaid wages or to have some form of insurance scheme.

Secured creditors and creditors generally are much opposed to conferring super-priority status, because it upsets the distribution of funds on an employer's bankruptcy. Most creditors would argue, and I would agree with them, that our priority scheme is already enormously complex and getting more complex each year because each group of creditors wants to be treated specially.

Bill C-5 has taken one group of creditors -- spouses and children subject to support entitlements -- and conferred a new form of priority in their favour. This is what I described earlier as a circular game in which one group seems to leapfrog over another group in order to obtain super-priority status. If you set aside the feasibility of creating yet another form of super-priority, the only other viable alternative I see is some form of insurance.

I do not buy the argument you mentioned. It is not really meant to be a tax. It is a premium. All of us pay premiums every day for every kind of insurance -- for our lives, our cars, our homes. I have never heard anyone describe taking out an insurance policy as regressive. Insurance companies would be appalled to hear their business described in this fashion. Remember that unemployment insurance itself is a form of insurance. It is simply a self-serving argument on the part of those who have not really seriously addressed their minds to the problem of unpaid wages.

Bear in mind, too, that today almost any business in the country can go bankrupt, with the possible exception of the banks. Even in the past 15 years, a large number of financial institutions have gone bankrupt in Canada, no doubt also owing substantial amounts of money to their employees. We are dealing with a pervasive problem.

I would offer absolutely no apologies for rolling some form of insurance scheme into the unemployment insurance fund. The costs and the dislocation would be minimal compared to any of the alternative schemes that have been canvassed over the years.

Senator Meighen: This is addressed to both of you. Is this bill, absent the changes that you have advocated, fundamentally flawed?

Mr. Ziegel: In important respects, yes. I am sorry to have to say it, but it is my honest opinion, and I am one who was involved in two of the working groups leading to the bill. I made my views known at that time, so I am not being inconsistent.

I have keen concerns, and I have expressed them not only in this brief but elsewhere, that the process of drafting the bill was not a balanced one. Some groups received a much better hearing than others. Let me emphasize that I am not accusing anyone of bad faith. It is not a question of bad faith; it is a question of each of the interested parties pursuing its self-interest. This is what you normally find in the legislative process. My concern is that, in that pursuit of self-interest, important groups, including particularly the group of consumer bankrupts and unpaid wage earners and suppliers, because of their inherent weaknesses or problems of organization, found that their concerns and interests were largely ignored.

Senator Meighen: That feeling is coming through from witnesses themselves. Some feel they have not had their fair say. I apologize for dealing in the realm of parliamentary practice and practicality, but that is what we face. I am trying to get an idea of the point at which this act would become no longer fundamentally flawed. What if your suggestions with respect to consumer bankruptcies and unpaid suppliers were dealt with? Is it all or nothing in your view? Would we have to fold the CCAA in in order to proceed with a better act? Would we have to deal with the international insolvency section as well, or are we simply dealing with the unpaid suppliers, the consumer bankruptcy section, and perhaps unpaid wage earners and the surcharge? If we dealt with those, would we consider that three-quarters of a loaf is better than none?

Mr. Ziegel: Unquestionably. I would say even a half a loaf. The starting point is to persuade some committee to play an independent role and not simply to become a rubber stamp for the government.

One of the many concerns I have is that, although there were a number of committees, not one of them, according to my recollection, issued a report; nor did their steering committees or the government itself. All we ever got was a series of recommendations from the various committees, endorsed, or not endorsed, by the advisory committee, and then that in some fashion was rolled into what is now Bill C-5. There was no attempt by anyone to prepare an explanatory document so that a reader not close to the discussions would know why certain changes were adopted or not adopted.

With all respect to those involved, I think there was a significant lacuna here. It is not the way I would go about trying to sell modern legislation. However, I accept that that is water under the bridge. Much as I should like to have seen a report explaining what was done and why, I am concerned about the defects I have identified, and to have offered solutions to them.

Certainly, the bill can be saved. I think it should be saved. At the same time, what we regard as the key flaws should be addressed.

Mr. Ramsay: I agree with many of Mr. Ziegel's points. It is a pity that there has not been an attempt to establish a modernized consumer bankruptcy statute independent of the Bankruptcy and Insolvency Act. To the extent that the Bankruptcy and Insolvency Act deals with individual consumers, the provisions are still within the act itself. Individuals are still subject to many of the same objections to discharge, for example, as business bankrupts. In the discharge section, for example, going right back to 1919, many of the provisions that are applied to consumer bankruptcies do not have a great deal of relevance, but they can be used.

I regret that neither in 1992 nor now has there been an attempt to say: "Consumer bankruptcies are a modern phenomenon. Why don't we have a separate regime, one that is clearly separate from the existing Bankruptcy and Insolvency Act, or have at least a chapter of the act that is separate for consumer bankrupts?" Instead, we have a kind of mixture of rather antiquated provisions and modern provisions. In fact, this legislation will add further objections to discharge that may be raised by creditors in relation to consumer bankrupts.

Senator Meighen: I should like to take advantage of your presence here today to ask a fairly narrow question on the CCAA. It has to do with what I understand was a change inserted at the last minute in clause 124 of the bill, which deals with an extension of an order. The point I am trying to get at is that the applicant has to satisfy the court that no creditor would be prejudiced materially if the order being applied for were made. It has been represented to me, and it seems to strike home, that it is impossible to do that, particularly under the CCAA, if we are dealing with bankruptcies in excess of $10 million.

Do you agree with the position that to have to make that case is virtually impossible? You will have to reorganize the affairs of a very large company in 30 days, which is extremely difficult if not impossible.

Mr. Ziegel: I would put the problem, senator, in a wider setting. That is to say: Why do we restrict the problem to the CCAA? Does it not also arise in the context of all reorganizations? Under Part III there are fairly circumscribed provisions concerning the extension of time for reorganizing businesses. The debtor applicant also has to satisfy the court that it will be able to make viable proposals. The creditor is also entitled to oppose it. This is another reason we should have an integrated regime for reorganizations within the BIA and not one regime within the act and a substantially different one outside.

Senator Meighen: Are you saying, professor, that the reorganization of the affairs of an individual debtor is no less or no more complicated than the reorganization of the affairs of Canadian Airlines, for example?

Mr. Ziegel: We are talking about business reorganizations. Part III, a new part of the Bankruptcy and Insolvency Act that was added in 1992, is directed primarily to business bankruptcies. The CCAA is an older reorganizing regime first introduced in 1933. As I explained in my own brief, the House of Commons committee in 1991 recommended that the CCAA should be repealed within three years. That has not happened. Nor have we been given any reason why it has not happened.

While I accept that in the case of large reorganizations we need greater flexibility and the court should have greater discretion, I do not see why those requirements cannot be met within the context of Part III of the BIA, specifically applying to larger business bankruptcies. That is the point that I am making.

The point you raise as to how much discretion should be left to the court is not a problem that is peculiar to large bankruptcies; it also applies to small bankruptcies. We are creating invidious distinctions, saying in the case of small business reorganizations that we will have one set of provisions dealing with extensions of time while in the case of large commercial reorganizations we will have a different set of criteria. I have conceptual problems with that.

Senator Kenny: I thought that Professor Ramsay's comments about policy making not being as a result of accidental wisdom was a novel approach. It is one that we will have to look at carefully in the future.

Provisions for unpaid wages is an area of continuing concern. Could you give the committee the options you see for protecting employees? There has been discussion of having a fund established and going to something outside this piece of legislation to do it. How does that compare to just putting them at the front of the list and saying, "Look, for all intents and purposes, these are innocent people and natural justice says that they should be kept whole"?

Could you compare those two options and give the committee others, if there are others, to take care of workers?

Mr. Ziegel: I tried to address the question earlier in response to questions asked by Senator Oliver and one of the other senators. As I explained, attempting to put employees ahead of all other creditors would attract a lot of opposition, because there are also lots of other worthy claims, such as spouses and children with outstanding support payments. There is also the consideration that most businesses today have outstanding secured credit. Under the existing provisions of the BIA, secured creditors have first priority over the assets of the debtor. Frequently, a secured creditor will sweep up all the available assets and nothing will be left for any other type of creditor.

In the case of business bankruptcies, even if you put wage earner claims ahead of all other unsecured claims, that would not protect wage earner claims against the effects of secured claims.

Senator Kenny: If I hear you correctly, or if I were to translate what you have said into political language, you are saying that workers on an hourly wage and spouses and children should stand behind banks who make billions of dollars. Is that the message you are giving the committee?

Mr. Ziegel: Not at all.

Senator Kenny: I misheard you, then.

Mr. Ziegel: I am trying to be realistic. As I indicated earlier, the banks have made it clear on earlier occasions, when this issue has been discussed before parliamentary committees that, if a finances-secured claim were subordinated to the claims of wage-earners or any other group of creditors, that would affect their credit-granting process.

Senator Kenny: Yes, and as Senator Taylor says: So what? Or as I might say: Who cares?

Mr. Ziegel: You know better than I do that parliamentary committees have been very critical of the banks' credit-granting process. They have accused the banks of being discriminatory and of not making credit sufficiently available to small businesses.

It seems to me that if you were to introduce a new form of super-priority interest, ranking even over secured claims, that would reinforce the banks' complaint that now you are making it more difficult than ever for them to extend credit to otherwise credit worthy businesses.

Senator Kenny: Square the circle with your comments earlier about the correlation between the easy access to credit and the bankruptcy then.

Mr. Ziegel: The easy access to credit was in the consumer context. I was not discussing business credit. They are two things; they are apples and oranges; they are very far apart.

Senator Kenny: Okay.

Mr. Ziegel: There are other complications about super-priority claims. It can sometimes take months to enforce them. Meanwhile, the wage-earners are not being paid. There are also methods of evading them. It is not fair to single out banks, but "sophisticated credit grantors" know how to work their way around these super-priority claims by requiring the debtor to incorporate its business separately or to put the wage-earners as employees of one company and the assets in another company.

It becomes dreadfully difficult and I am not sure at the end of the day that the exercise is worth it. I am sorry to be sounding this familiar refrain, but, in my view, the insurance-type approach is the cleanest and also the most efficient and effective.

Senator Kenny: There is no third alternative in your view?

Mr. Ziegel: There are none that I have seen. As I say, we have had 21 years of history in this area. We have had umpteen reports. I was trying to recall what your Senate predecessors did as far back as 1976 when they then examined Bill C-60. It also had provisions dealing with unpaid wage-earner claims.

As I said earlier, this has become a very hot potato politically. No one wants to touch it anymore.

Senator Kenny: We will see lots of bank folks coming here, but we will seldom see many workers coming here from companies that might be going under. It is very difficult to get a balanced set of witnesses.

Mr. Ziegel: I fear you may be right on that point. To the extent that a business is unionized and the employees are well organized, presumably the employees, to some extent, would ensure that they do not continue working once the employer fails to make payments.

It is perhaps in the smaller businesses that one must worry most about the vulnerability of unpaid wage earners because frequently they are not represented by any formal union or other employee representatives.

Senator Kenny: Related to this is another class to which you make reference. There is protection for lenders or continuing lenders who provide credit facilities during the proposal period. These are "good guys" too. They are trying to keep the operation functioning. Could you elaborate for the committee what sort of protection is reasonable for these folks?

Mr. Ziegel: It is not my brief that refers to the status of lenders during a reorganization phase. You are probably confusing my brief with someone else's brief.

Senator Kenny: Do you feel competent to comment on the issue?

Mr. Ziegel: Chapter 11 of the American bankruptcy code does deal with the issue and does confer super-priority status on what is called approved Chapter 11 financing. To some extent, Canadian courts are already attempting to address the problem, but on a very limited basis. I would support a Chapter 11 type of approach provided the secured Chapter 11 financing has the court's approval, because that will give other creditors an opportunity to be heard and will allow the court to be satisfied that this interim financing will be in the overall interests of the estate and, therefore, generally redound to the benefit of all classes of creditors.

Senator Kenny: The last area that was of interest to me was your feeling that there was very little merit in mandatory counselling. Perhaps mistakenly, I had the impression that mandatory counselling in some instances was of value, that it did assist some individuals in terms of how they organized themselves. You are of the view that it is of no merit at all.

Mr. Ziegel: We say in our brief that it is highly discriminatory in its effect, because we only impose it on one class of debtors. We do not impose it on creditors, even though there is overwhelming evidence that some types of creditors are less than responsible in their credit-granting processes. We do not impose it on directors of companies that have gone bankrupt even though the reports frequently point to inadequate directorial behaviour. We do not distinguish between causes of consumer bankruptcies, whether because of illness or unemployment or a sharp reduction in income or otherwise. We ignore all these causes. We simply say, as a doctrinal rule, that we will impose this form of mandatory counselling.

There is no evidence that it does have the desired effect. A question was asked of trustees in bankruptcies as to what they felt about the effectiveness of mandatory counselling. I believe I am right in my recollection that about half of them expressed great skepticism about its long-term effects.

Senator Kenny: In terms of the lenders, it seems that rather than education for them, the solution is to penalize them financially and let them learn the lesson that way. In terms of the borrowers, is there any evidence -- this is a broader question than the scope of this bill -- that Canadians generally are educated anywhere in the process from Kindergarten on in terms of how to handle credit?

When the committee raised the question of education, you immediately thought in terms of counselling. That is a reasonable response given your background, but what about the broader question of how we educate Canadians in society to handle credit and to deal with these issues?

Mr. Ramsay: I am not sure I can comment very knowledgeably on the education issue. Obviously education is valuable. However, as I said in reply to another question, even with education, there is some evidence that individuals often systematically tend to underestimate low-probability events like the possibility of default; they are focused primarily on getting the credit, even with education.

In other words, it is not just an individual aberration. It is just that as individual consumers, we are not that good at thinking through the long term or taking into account the potential for recessions, rises in interest rates, or rises in unemployment. But I would certainly agree that education clearly is important. However, I do not know, and I really cannot comment on, how significant it is likely to be in reducing bankruptcy levels, for example.

Senator Kenny: Have you ever seen any studies on this?

Mr. Ramsay: There may be studies. I have not reviewed them. I did have one point that I wanted to make in response to your question on wage-earner protection. I am really not knowledgeable about this issue, but the point was made that, if you gave super-priority, that would affect credit-granting practices of the banks or other financial institutions. Of course, that is one of the points that are always raised in relation to, for example, making bankruptcy or other forms of debt write-off easier. It is said that that would just result in creditors passing the costs on.

From an economic theory viewpoint, that is probably correct. To the extent that creditors face higher costs, they will try to recoup them. However, I think it would be interesting if you tried to find out from the financial institutions exactly how factors like bankruptcy relate to their credit-granting practices. I think the real world is much more complex than that. They could react to higher bankruptcy levels by, for example, restricting access to credit or pushing up interest rates. It may be that if there is a competitive environment, then it is difficult for them to push up interest rates because they might lose their best customers.

In other words, although economic theory posits this very simple relationship, I am always disappointed that we never get sufficient information from financial institutions as to how, in fact, these factors work through systematically into their credit-granting practices, which are often affected by both internal competition and other broader forces in the economy that may foster the development of credit.

Senator Kenny: That is a very interesting observation. My feeling is that the big club is waved at us but it is never explained to us exactly how the big club would work. I think your point is very telling.

Mr. Ziegel: I should like to add a supplement to that. I do not wish to be an advocate for the banks, although I have bank shares; they can speak very capably for themselves. However, imagine the position of a bank that is asked today by Canadian Airlines to extend a new line of credit, and assume you had in place a provision in the BIA that gave wage earners superpriority over all other claims, secured or otherwise. Surely a prudent credit manager would say, "I am terribly sorry, but you are asking me to lend you $10 million or $20 million when I know that, if you do not survive, you will have at least several million dollars worth of wage claims. We know it because your directors jumped ship over this concern, but you are asking me to run that risk." What would the bank do? If it were to say, "Because of this high risk, we will double our usual interest charges," it would immediately be branded as usurious, so the bank, fairly predictably, would say, "Sorry; so long as we have this provision in the Bankruptcy Act, we cannot help you. Better get rid of this particular provision."

That is why I say there are no free lunches in this world; if you confer preferred treatment on one group of creditors, it is always at the expense of another group of creditors. Eventually, all you are doing is getting an overall neutral effect. That is why I personally much prefer the insurance route. As I indicated, it is the route that is adopted in many other countries. We have never tried it in Canada. Somehow we perceive it to be the ultimate embodiment of evil. I just do not see it that way, with all respect. I think it is time for the government to bite the bullet, as it does on many other occasions, and I am convinced that, once the government has done so, a year hence we will wonder why we did not do this 10 or 20 years ago. We will find that, compared with all our other expenditures and deductions, this one will be one of the smallest.

Mr. Ramsay: My comments were primarily directed to the consumer issue, not to the wage-earner issue.

Senator Stewart: We have been talking recently about remedies. I want to go back to the analysis of the problem. My question is addressed primarily to Professor Ramsay. I look at Table 1 in the presentation and I see that in 1966 consumer bankruptcies numbered 1,903. In 1995, consumer bankruptcies numbered 65,432. There seems to be an almost consistent rise, year over year, with, of course, some peaks and some hollows in those statistics.

If I heard Professor Ramsay correctly, he said that three explanations for the problem are current. One is that wittingly -- perhaps unwittingly, but wittingly for the most part -- consumers are assuming financial obligations too high for their incomes. Second, there is an inability on the part of many consumers to manage their financial affairs. Then, as I understood him, he said we should not put too much emphasis on these two explanations of the problem. We come then to the third, and that is that these consumers who have gone into bankruptcy have been unfortunate.

I take it that the word "unfortunate" means here that their economic circumstances are not what they had anticipated when they assumed certain financial obligations.

Senator Oliver: They became unemployed by downsizings, for instance.

Senator Stewart: That would be one possible explanation, Senator Oliver.

My question is, given the fact that we have the statistics that I have mentioned, what is the basic explanation for this change, for the increasing unpredictability of economic circumstances? That seems to be the problem that you put your focus on: the increasing inability of consumers to predict their economic circumstances. Do you have an analysis of the cause of that increasing unpredictability?

Mr. Ramsay: You are asking a number of questions. The first is an explanation of the aggregate rise in bankruptcies over this long period of time. If you look at the statistics, you will see that there has also been a very significant rise in consumer credit and a very significant rise in the debt-income ratios of individuals. Over the past thirty years, generally, bankruptcies have gone up significantly during recessions and then have come down again; but the statistics show that they tend to be on a continuing upward rise. What explains that? One explanation is the rise in debt-to-income ratios. Another factor is the fact that there has been a reduction in real disposable income of Canadians. The result is that more Canadians have relatively high debt levels but lower real disposable incomes than in the boom times of the 1960s and 1970s.

At the same time, however, there probably have been changes in the economy. There are greater numbers of self-employed individuals who are more subject to the vagaries of the employment market. We have high unemployment statistics as well. In other words, we do not have a complete explanation of the rise, but it is a combination of these factors. Given the fact that you have a larger number of people with higher debt-to-income ratios and the greater possibility of changes like unemployment, et cetera, you have a larger number of people who may be subject to the possibility of going bankrupt.

Senator Stewart: Both the question and the answer are relevant, because they relate closely to the question of remedies. If, in fact, the explanation of the rise in consumer bankruptcies is as Professor Ramsay has suggested, the implication would seem to be that mandatory education is a remedy that does not fit this problem at all. It has little relevance to this problem. Perhaps that is a better way of putting it. Would that satisfy you?

Mr. Ramsay: I am not denying that there are different types of bankrupts, but I am saying that for the norm it is not a particularly relevant remedy. The individuals who are going into bankruptcy are not doing so because they have been irresponsible.

Senator Stewart: Reference has been made, perhaps four or five times, to the advertising practices of lenders. I happen to believe that in the case of the tobacco industry, for instance, it is not improper for the government to intervene to restrain advertising. Starting with that bias, I say to myself, "Well, how could Parliament exert a salutary effect upon the consumerism promoted by people who want to lend money?" Have you given any thought to the kind of regulatory regime such a control on advertising would require?

Mr. Ziegel: Nothing in our briefs asks Parliament to impose restrictions on credit advertising. We say that if credit grantors find it in their pecuniary interest to grant consumer credit in these vast amounts, and again I emphasize that we are talking in terms of $120 billion outstanding balances per year, it is not Parliament's job to act as the bill collector for those credit grantors. Our key objection is that these provisions in Bill C-5 dealing with consumer bankruptcies and with mandatory deductions on the part of the trustees should not be the responsibility of Parliament. We have characterized them as coercive provisions, and they have been strongly opposed by the Canadian insolvency practitioners associations for the same reasons and others. They should not be the responsibility of Parliament.

If credit grantors find it in their interest to do it, they must accept the consequences. The consequences are that, when people get over their heads in debt, we will not stand in the way of their going into bankruptcy and obtaining a discharge, subject to the existing provisions, which still leave the courts with an enormous amount of discretion. In all of the discussions on Bill C-5, I have never seen anyone going to the judges, or the government, to the best of my knowledge, going to the judges, to ask what they think about all this and whether or not they think we should supplant the existing judicial procedures under the provisions of the act and introduce this much more complex bureaucratic procedure. It seems to be a one-dimensional approach to the problem.

I emphasize again: Nothing in our brief talks about restrictions on advertising. We simply say: As you sow, so you should reap. If the sowing leads to over-indebtedness, then creditors must be willing to accept the consequences of an increasing number of consumer bankruptcies.

Senator Taylor: I have two quick questions, which I will just preface by a comment. I would think that Canadian Airlines' debt would be a lot smaller today had the banks known at the beginning that the employees were lined up ahead of them. That is to follow through with your logic.

I appreciate what Senator Oliver started and Senator Kenny finished. I thought it was very fruitful. If we get anything out of the committee at all, the protection of wage earners would be something valuable.

You separate corporate bankruptcies from consumer bankruptcies; yet there is a great transfer there. For instance, if you start a small business, the bank usually likes to get not only your personal guarantee but maybe also your mother-in-law's guarantee. So there is a bleeding from the small business we are trying create over to consumer credit.

Mr. Ramsay, have you given any thought to the idea of limiting what a creditor can collect on a personal guarantee to a corporation? It could be limited, for example, to a certain percentage of the income, or something like that. Everyone's eyes are bright when they start out. They have great hopes when they start a small business, and they will sign anything the bank puts before them. They may think they are just borrowing money to start up a new knitting factory, but when it does not work the whole family goes down the drain. Have you thought at all about limiting that transfer?

Mr. Ramsay: That is a separate issue from bankruptcy, although the issue of guarantees in the context of small business is significant.

Senator Taylor: That often causes a bankruptcy.

Mr. Ramsay: Yes. The issue of guarantees in relation to small businesses is a significant one. There has been much litigation in the past few years over the enforceability of these guarantees. One thing that is really clear is that even supposedly sophisticated business people often do not know all the implications of signing a guarantee. Moreover, the guarantees are not always taken at the outset of a business; they are often taken when the business is almost going down. The guarantor is then asked for a guarantee in order to get a little more money to keep it going.

One of the basic problems there is in terms of individuals being fully informed of the implications of signing guarantees. One could, for example, suggest things like cooling-off periods for these guarantees, but if you say, "Well, ban guarantees," then you are faced with the problem that the banks will not lend the money. That may be true.

I am looking at it from the perspective of trying to prevent problems. In terms of bankruptcies, the statistics from the bankruptcy branch show that, according to the trustees, about 4 or 5 per cent of bankruptcies are caused by guarantors, or are related to situations where one person has guaranteed the business, has gone bankrupt, and they are left holding the guarantee and then they have to go bankrupt.

So the guarantee issue clearly causes some bankruptcies. It is a difficult issue to address in terms of protecting the guarantor while at the same time realizing that many people, for example in relation to small businesses, only have their house as security. If they could not guarantee or offer the security of their house, they might not receive the credit.

Senator Taylor: I am surprised that it is as low as 4 or 5 per cent. It almost approaches blackmail as the business gets into trouble. You say that you then must sign away your guarantees.

Mr. Ramsay: That is in relation to individual bankruptcies.

Senator Taylor: This may be a quantum leap, although we have touched on it before, but looking at Chapter 11 as opposed to the CCAA, we see, for instance, that Olympia & York has just come out of Chapter 11 in the U.S. and it is going on.To me, it is almost a classic example of the American system versus the Canadian system. What is left of Olympia & York in Canada is zilch. A good many people were burnt, yet under Chapter 11 in the U.S. it may have taken five years but it survived. I think at one time there were 65 lawyers involved. They did all right. Lawyers always do all right. They are like undertakers. They come in some time or another, and they are going to get you. The fact is that it did survive and it is going now.

I am not a lawyer, as you can probably guess, but would it be absolutely ridiculous in Canada to have the choice of the CCAA or Chapter 11?

Mr. Ziegel: We are shifting the debate 180 degrees, senator, but, no, I think there is nothing inherently wrong with our approach to reorganizations in Canada other than the issue I have raised of leaving the CCAA approach wholly outside the Bankruptcy and Insolvency Act.

I do not think it is reasonable to try to use the Olympia & York situation as a meaningful comparison. The U.S. assets of Olympia & York were much higher in relation to the outstanding debt there than was true of the Olympia & York assets in Canada. In fact, an effort was made to salvage Olympia & York in Canada, but it failed, partly because of the intransigence of the then owners of Olympia & York, and given the enormous indebtedness as compared with the limited amount of collateral, it turned out not to be practical. The U.S. situation was entirely different, and I do not think that difference bears on the difference between Chapter 11 and the Canadian approach to reorganization regimes.

This is a very complex subject, and I would be very reluctant to enter into it here today. If you want to invite me back on a later occasion, I would be delighted to discuss with you the relative virtues of Chapter 11 and the Canadian approaches.

Senator Taylor: It may be unfortunate that I used Olympia & York as an example, because that allowed you to go off on a tangent.

Mr. Ziegel: I am just trying to avoid what is really a very complex set of issues. I do not want to mislead senators by suggesting that one can answer the question in a sentence. You would have to deconstruct Chapter 11. You would need a detailed analysis of the Canadian approaches, and only when you had done that could you reach a meaningful conclusion.

Senator Taylor: I was just trying to find out whether it is possible for the two systems to coexist.

Mr. Ziegel: A significant number of Chapter 11 features also exist in Canada. In many respects, I think the Canadian system is superior, because it is much more expeditious. It does not waste as much in resources, and, since you mentioned earlier the question of lawyers' fees, I can assure you that lawyers' fees in the states with respect to Chapter 11 are vastly larger than they are in Canada. Creditors emerge much better from the Canadian process than they do from the American process. I would say overall that the Canadian approach is a more moderate and better balanced approach than the Chapter 11 approach.

You are pressing me to express a personal opinion, and you will get it for what it is worth. At the same time, however, I wish to add the caveat that this is a very technical and complex area which does not lend itself to easy generalizations.

Senator Taylor: I think you answered it when you said that creditors are happier in Canada than they are in the U.S.

The Chairman: With respect to the eight specific recommendations you gave in the joint paper, I want to make absolutely sure I understand the one at the bottom of page 5, which relates essentially to the U.S. cram-down provision.

Mr. Ziegel: This only deals with consumer proposals.

The Chairman: I understand that, but I want to make sure I understand the concept. I know how the cram-down provision works, and that is essentially what that is.

Mr. Ziegel: Under our recommendation on page 5, the court does the cramming down, not the debtor. The court's decision is always subject to appeal. We also add an explanation. We feel that the cram-down is necessary, because often there is only a single secured creditor in the case of consumer bankruptcies as compared to the commercial situation.

Bill C-5 seeks to encourage consumers to go for consumer proposals. This part of our brief says that you are not giving the consumer positive encouragement; you are only giving him negative threats. If you are serious about wanting to make consumer proposals more attractive, then you should change the provisions governing consumer proposals. We give a number of examples. These are non-exhaustive examples.

The Chairman: Clearly your provisions focus very heavily on the consumer bankruptcy problem and on the lack of data and lack of studies. It is also very clear that the resolution of that problem could not be achieved in time to get a bankruptcy bill through Parliament between now and April or May, or whenever Parliament is dissolved.

Recognizing that practical reality, would your advice be that one simply await the completion of such a study and a more thorough analysis of the consumer issue, or, option two, would your advice be that Parliament adopt some of your recommendations, such as unpaid suppliers and a variety of other things, and in fact recognize the practical reality of introducing a bill before Parliament dissolves? Given those two choices, a bill with modest amendments of the kind you talked about but not dealing with your major concerns and getting that through Parliament before dissolution, versus maintaining the status quo because your major areas of change were not dealt with, which option would you vote for?

Mr. Ziegel: I will preface my answer by saying that I think you have misunderstood this part of our submission. We do not say you need further studies in order to address amendments to Bill C-5. On the contrary, we say that these proposed Bill C-5 amendments fly in the face of all the available evidence, by which we mean the studies done on behalf of the government itself. We say those studies simply do not support the suggestion that --

The Chairman: I do not mean to interrupt you, but I did not misunderstand what you said. I was saying that your changes vis-à-vis consumer issues, other than some of the minor ones, are sufficiently massive that clearly they could not be achieved in time to rewrite a bill prior to dissolution.

Mr. Ziegel: With respect, senator, we are not asking for changes. We say this existing status quo dealing with consumers is basically sound and satisfactory.

The Chairman: I understand.

Mr. Ziegel: The trustees have not asked for them. Who has asked for them, other than perhaps the Crown? I am not sure the creditors have asked for them. It seems to be the conception of perhaps a number of government administrators. As far as I know, they do not reflect the constituencies. Certainly the debtors have not asked for them. The trustees have not asked for them. Not all the creditors by any means have asked for them. Someone at the government level seems to have decided that there are far too many consumer bankruptcies and, by hook or by crook, you must discourage consumer bankruptcies regardless of what the existing studies show.

The Chairman: Your solution would to be keep the current provisions vis-à-vis consumers and make the other set of changes. You did not say that, but I wanted to make sure that that is what I read you to say.

Mr. Ziegel: Yes.

The Chairman: Professor Ramsay, do you wish to comment?

Mr. Ramsay: I agree with that position.

Senator St. Germain: Do you think we could get more detailed information, in spite of the fact that these gentlemen have brought a lot to the table, so that we can make educated recommendations on the root cause of some of the problems? I honestly believe we do need a little more information to make an educated recommendation. The government is concerned, and, when you go from 1900 to 65,000 bankruptcies in a period of thirty years, that is a concern that must be dealt with.

I compliment the government on recognizing the fact that this number of bankruptcies has to have a reason. If we do not accomplish anything else in this committee, I would like to be able at least to have this type of information brought forward.

The Chairman: I have asked Gerry Goldstein, our researcher, and Margaret Smith, who worked with the committee, to talk to officials in the department about that issue in the next day or so.

Mr. Ziegel: I urge honourable senators to study our brief carefully. You will find that it is full of the kind of data you are looking for. Bankruptcy is only a word. You must look at the realities behind the bankruptcies. You must ask yourselves whether these people are generally insolvent. Are they heavily over-indebted? What are the alternatives? Will Bill C-5 resolve these problems? We say it will not, that these people are generally insolvent -- and you do not have to attach a particular word to it. We say that Bill C-5 will not change the reality of those insolvencies greatly, as we would all wish it would.

You can try to address some of the causes of the insolvency, and we give you our thoughts about some of the factors, but many of the factors are beyond our control. The question of unemployment is out of our control. Declines in income are beyond our control. However, we do say that one aspect is very much within our control, and that is the ready availability of consumer credit as a contributing factor to a large number of bankruptcies. Clearly, government should not be a bill collector for industry, and credit grantors must be willing to accept the consequences of their own policies.

The committee adjourned.

OTTAWA, Thursday, November 28, 1996

The Standing Senate Committee on Banking, Trade and Commerce, to which was referred Bill C-5, to amend the Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act and the Income Tax Act, met this day at 11:05 a.m. to give consideration to the bill.

Senator Michael Kirby (Chairman) in the Chair.


The Chairman: Honourable senators, our first witnesses this morning are from the Credit Union Central of Ontario.

Mr. Jonathan Guss, President and Chief Executive Officer, Credit Union Central of Ontario: With me this morning are David Guiney and Lorrie McKee.

Thank you for giving us the opportunity to discuss Bill C-5. I will begin with a discussion of general practice, and then I will ask Mr. Guiney to explain what I have said so that you will understand it more clearly.

The Credit Union Central of Ontario has two roles. We act as the central banker for credit unions. We have assets of $1.3 billion. We are also a trade association for approximately 400 credit unions in Ontario with assets of $8.5 billion. I am speaking today on behalf of a coalition of credit unions and caisses populaires in Ontario with assets of $14 billion and approximately 1.7 million members.

As you know through your work on the white paper, with the demise of the small trust companies, we are really the only domestic alternative to the chartered banks.

Ontario Central is a member of the Credit Union Central of Canada. I bring apologies from Bill Knight, the president and CEO of that organization, who could not be here this morning.

We are here today, at the direction of our members, to discuss one aspect of the Bankruptcy and Insolvency Act, and that is the wage assignment security. More specifically, we are here to ask that you repeal subsection 68.1(1). That provision takes away or expropriates a valid security interest granted to us under provincial legislation: the wage assignment. We need the repeal of that provision so that we can enforce our security interest, the wage assignment.

The Chairman: I want to be clear. The section 68.1 that you want repealed is the section 68.1 that was put into the legislation in 1992?

Mr. Guss: That is right.

The Chairman: You are really asking us to fix a problem that the 1992 act created for you and which the current set of proposals leaves intact.

Mr. Guss: That is right. You will see why as I move along.

The Chairman: Most of the people appearing before us in connection with Bill C-5 comment on actual elements of the bill. In this case you are asking us to what you are commenting on is a change we made in 1992 which you are asking to have fixed and which is not touched in the current bill. Section 68.1(1) is not touched.

Mr. Guss: That is right.

On September 25, we appeared before the House of Commons Standing Committee on Industry. We were told that section 68.1(1) would not be repealed. I would say that members of that committee and officials of Industry Canada appeared to be sympathetic to the case but the government had developed its positions already on the amendments to the act. Consultations have been taking place for three years. I regret that we missed those consultations. We were not at the table during that period but I would say it is never too late for justice and perhaps that is why we have a Senate. That is why we are appearing before you.

At the end of the day, the amendment we put before the house committee was not recommended by officials but they suggested we appear here and ask the Senate to deal with it.

Simply put, our issue is one of equity. In the 1992 review, as you just explained, Mr. Chairman, the Government of Canada argued that the wage assignment security was disruptive to the efficient administration of a bankrupt estate. Through the introduction of section 68.1(1), it invalidated this type of security after the date of the bankruptcy.

By way of context, I would like to make three quick points and then show you what happened. The first point is that credit unions in Ontario are granted the right to take a wage assignment by the province's Wages Act, so we have a right under provincial legislation. The recognition is unique and it recognizes our special relationship with our members.

The second point is that we have a priority right under the provincial Personal Property Security Act.

The third point is that the Supreme Court of Canada has affirmed the enforceability of the wage assignment under the Personal Property Security Act. It has been tested and the Wages Act and the Personal Property Security Act, which give us that special right, have both been upheld.

As a result of the 1992 change to the act, which eliminated the enforcement after the date of bankruptcy, we calculated the credit unions have experienced increased loan write-offs considerably. We have taken the losses. They were ultimately paid for by other members of credit unions, and we have learned to adjust.

Based on our losses and pressure from our regulators, we have been forced to write down loans, even when we have a wage assignment security. We have been forced by the regulator to write them down before they go bad, even if they never go bad.

Along comes the 1996 proposal and, under these changes, which have already been approved by the House, the trustee in bankruptcy is given power to seize a bankrupt's wages for the benefit of unsecured creditors. They are most often creditors who charge at least double the rate of interest that credit unions would be charging. They are finance companies and credit card companies. They are charging 17, 18, 20 per cent interest. The finance companies can charge as high as 25 or 30 per cent. They are creditors who never negotiated such a right. They are creditors who charge high interest because they expect there to be a loss. Credit unions charge interest rates related to prime. They are much lower. Credit unions negotiate with borrowers up front so that they understand what they are giving away.

Finally, we work hard to minimize losses among our members. All in all, the government took something away from us and now in 1996 is giving it to unsecured creditors.

We feel we have never been given a satisfactory explanation of the changes in 1992. We have been told that it was too disruptive to have a bankrupt's wages diverted to the credit union. With the new amendment in this bill, we can only ask how is it less disruptive to divert wages to unsecured creditors than it was to give us our rightful rights that we originally had?

In short, we saw the 1992 amendments as an expropriation of our rights to acknowledged security interests. We learned to live with that change but it is very difficult to understand in 1996 why these rights are being transferred to the benefit of trustees and unsecured creditors.

I will be blunt. The unsecured creditors, mainly credit card companies and finance companies, uniformly charge high interest rates and get a windfall. Small community-based credit unions, owned and controlled by their members, take the hit. That is why we are here today. I hope our request is fair. I think it is reasonable. We simply ask that you restore our pre-1992 rights and the relationship we have with our members.

I do not think that others should benefit at our expense.

With that, I will turn it over to Mr. Guiney and he can back-fill a bit on the actual situation.

Mr. David Guiney, General Counsel, Credit Union Central of Ontario: As Mr. Guss mentioned, I am legal counsel in two of Ontario's credit unions and I take the majority of calls when loans get into trouble. I am here today to give some meat to the bones of our argument by giving you a concrete example of the impact of section 68.1(1). With your indulgence, I will make it short and to the point.

You have to imagine you are a lender at a credit union. You have 15 years of experience making loans to people on a daily basis, and you have a routine and a great record in making good loans. You have before you a couple who have come for a loan. Perhaps they are borrowing money for their wedding. They tell you they do not have any other assets to give as security for the loan but they do have jobs at the plant where your credit union is located and they say to you, "We are willing to do what we can to get the loan. Is there anything we can do?" A loans officer in Ontario can make a loan by securing it against wages. There would be a wage assignment.

The Chairman: How many provinces other than Ontario allow wage assignments as security?

Mr. Guiney: No province in the country, other than Ontario, allows wage assignments. In Ontario, only wage assignments to credit unions are enforcible.

The Chairman: I am trying to understand how broad or how narrow this particular problem is.

Mr. Guiney: A loans officer feels secure enough to make loan to this group because they have good jobs. Often times people prosper because of such a loan.

The wage assignment is a pledge of 20 per cent of a member's wages to the credit unions in the event of a default. It is enforcible if a loan is in default. It is only unenforcible now because of section 68.1(1) if that default is the result of a bankruptcy. We are able to enforce it if someone does not pay the loan, as long as they have not gone bankrupt. The credit unions rely on this ability.

Let us take an example of a couple who are having difficulty in the 1990s repaying their loan. The credit union is not a charity; it is a business. We are lending out other people's money. It is our job to make sure we recover the loan or as much as we can. We work with the couple, as we often do, to rewrite the loan and make it easier for them to deal with it. However, one night might look in the TV Guide and see the trustee in bankruptcy advertising that he can solve their problems. They visit the trustee in bankruptcy, and the trustee says one way to get rid of this problem is to declare bankruptcy. They do not have very many assets. The credit card debt they have rolled up does not have any security, so they will declare bankruptcy and not lose any of their personal property. By the way, the 1992 act eliminated the wage assignment, so they can get out of the wage assignment as well. By declaring bankruptcy, they can avoid enforcement of the wage assignment.

Senator Kenny: Could you describe to the committee what long-term problems may be encountered if they decide to opt for the enticing ad and declare bankruptcy?

Mr. Guiney: The problems in the long term are hard to judge. Someone's credit rating obviously is hurt very badly by a bankruptcy. It should be more difficult for them to get credit. I can assure you that, in the long term, these members will likely lose their membership in the credit union if they default on the loan. They are not likely to be able to rejoin the credit union or borrow money from it ever again.

On the other hand, I think it is safe to say that many creditors are still prepared to grant credit to people who have been declared bankrupt. Credit card companies will take it into account, but I think there are many cases where people who declare bankruptcy are still able to get credit shortly thereafter.

Senator Kenny: Within the next year?

Mr. Guiney: I am not in position to give you a straightforward answer. I do not have the data. I know what our credit unions do when they react to a bankruptcy, which is to restrict the credit available to that person.

Senator Kenny: For how long?

Mr. Guiney: The bankruptcy means a bad credit rating for a period of five years.

Senator Kenny: These people know that if they opt for the easy pill, they will have all sorts of grief for the next five years.

Mr. Guiney: Correct.

The Chairman: You referred to the fact that one of the proposed amendments makes your situation worse than it was in 1992. Which specific amendment are you referring to? I assume it is section 68.

Mr. Guiney: Correct. It is the amendment to section 68.

The Chairman: You did not identify it specifically. I assumed that is what it was.

Mr. Guiney: That was the correct assumption.

What happens in the case of our couple who, before 1992, would have had to repay part of the loan through the enforcement of the wage assignment is that they can walk away from the loan. We are referring to subsection 68.1(1) which is attached to the brief. It is drafted in very general terms. In effect, it says no wage assignment is enforcible after the date of bankruptcy. To me, that is an interesting drafting. Given that the only wage assignments enforcible in Canada are Ontario credit union wage assignments, the bill might as well have said Ontario credit unions cannot enforce wage assignments. This section is focused on our business.

The trustee, whether or not he convinces them to declare bankruptcy will explain to them that, under the Bankruptcy Act, the public promise they made to give their wages as security for a loan is no longer enforcible. No law requires them to live up to their promise. They will, therefore, declare bankruptcy.

The loans officer would inform me, as general counsel, that the trustee in bankruptcy has denied our ability to enforce the wage assignment.

In that case, the regulations pertaining to credit unions require that the credit union immediately write off the loan. The loan is a loss to the credit union for that year. It is a hit that the credit unions take that they ordinarily would not take.

As Mr. Guss mentioned, the transfer which occurs in 1996 will see us take that hit and for that hit to go directly to the bottom line of trustees in bankruptcy, who, after all, receive a percentage of recoveries, and also to the other unsecured creditors who never negotiated for this right. We think the scenario portrays an inequitable situation.

Senator St. Germain: Do you have any information as to what percentage of loans you would make on the premise of wage assignments?

Mr. Guiney: The data is not conclusive, but in our brief we indicate that the level of liquidity in the credit union system of Ontario -- the amount of money that the credit unions have taken as deposits that they cannot lend out now because it is not prudent to do so -- has never been higher. It is now 23 per cent, which is three times the legal minimum. Our conclusion from drawing those points together, is that we are not making many loans now that we formerly did make.

Senator St. Germain: Do you have any information as to the percentage of your write-offs as a result of not being able to seek this recourse?

Senator Oliver: What is the amount of those losses and write-offs?

Mr. Guiney: It is difficult to give firm numbers. Remember, our claim is not that we are losing money and in trouble. We are claiming that it is inequitable for you to shift the economic benefit of access to wages from us to unsecured creditors.

To answer your question directly, we have included data in our brief which shows that, in 1993, the year after the 1992 amendments, credit union levels of allowances for doubtful accounts increased by 17 per cent over the year before when wage assignments were enforcible.

The Chairman: Without meaning to be argumentative, in fairness we should point out that was 1992-93, which was a significant recession year in Ontario for a whole variety of reasons. I am not disputing your numbers. One can legitimately question a cause-and-effect relationship between the change to the Bankruptcy Act and the data. However, lots of other data shows that many other people who had nothing to do with credit unions had troubles in 1992-93.

Mr. Guss: Our argument is one based more on a priori logic. A right was taken away. We adjusted to that. Now you are actually transferring that right to someone else.

I know you would like to have numbers, but I want to talk about what we call "character lending". Credit unions do what we call "character lending". By that I simply mean that we make loans based on our assessment of the character of the person to whom we are lending.

Most of our competitors make character loans as well, but when they make character loans, they make them to well-established people in the business community. We are making character loans to people on the plant floor from the community.

Our competitors charge much higher rates for this type of lending. What has happened as a result of the disappearance of this right is that our regulator has said that if we have an unsecured loan on our books, we must write it down. Now we are being told that when we make a loan with a wage assignment, it is unsecured because it will disappear if there is trouble. The end result is all of our loans with wage assignments are treated by the regulator as unsecured, and we are forced to write them down. It is actually having an effect on the lender at the street level.

Senator St. Germain: The first loan I ever received was a 100-per-cent mortgage on a house in British Columbia and that was from a credit union. It worked out very well. However, what is throwing me off is that, in regards to the white paper, you wanted to ensure that you could organize so that your reserves would correspond to those of the banks. In British Columbia, where you say this does not exist, there has been phenomenal growth in the credit union industry, in spite of the fact that they have wage assignments. They are challenging the banks very effectively.

The Richmond Credit Union is currently running ads. As a matter of fact, while meeting with the chairman of one of the top banks, one of the big six, he told me how effective these particular ads were.

If you want to level the playing field, do you not think that everything has to be level? I understand that you do character lending, but you cannot have it both ways. Would you care to comment on that?

Mr. Guiney: If I could address the question first on a technical basis, it is fair to say that the B.C. credit unions are not suffering without the wage assignment. There is no question about that. You must look at the special development of the Ontario credit union system to determine the different approach we are taking. Our credit unions were developed through the 1940s and 1950s and through their relationship with the plants. In many cases, the credit union started in the human resources office of a plant. Many have grown to a size we are quite proud of, some in the hundreds of millions of dollars, but they are still quite small. It is the relationship of the plant and the credit union to the employee which has traditionally given credit unions the right in Ontario to exercise this wage assignment. That is why the Province of Ontario has passed specific legislation in this regard, and that legislation is excerpted in our brief.

We are here today to ask you to level the playing field, not in the sense of giving everyone equal rights because the banks have advantages that we do not have and which we will never have, such as Bank Act security -- the ability to take security and register it nationally under the Bank Act. We are saying our security, which is provincially recognized, should not be dealt away by the federal government and that it is equitable for us to continue to exercise that right.

Senator St. Germain: Are you saying that the Ontario Credit Union Central and the Ontario credit unions are vastly different from the credit unions and the way they operate in British Columbia by virtue of this plant orientation? We have organizations such as VanCity and the Richmond Savings and Credit Union.

Mr. Guss: We are not vastly different, but we are different because of our traditions. We are starting to be more like them. We are starting to have a community base, but we came from the traditional plant base. What is different is that in B.C. they may have 120 credit unions; perhaps they are down to 100. Here we still have 400 credit unions. Of those, 215 are still under $10 million. We have a very large number of small credit unions. We have 150 that are more like a B.C. community credit union. We do not have any comparable with VanCity or Richmond, but we are very proud of the Niagara Credit Union, which has 15 branches, and the Metro Credit Union, which has eight or ten branches in Toronto. The CS Co-op in Ottawa is very large and has about 15 branches. There are some very good credit unions here, but they have come from a different tradition.

Senator Kenny: I was confused at first when you were talking about writing down the loans. I thought you were saying that when the individual went bankrupt, you had to write down the loan, which seemed perfectly logical. You are telling me that, when you issue the loan, you have to write it down immediately because it is deemed to be unsecured.

Mr. Guss: Not completely, but we have to take an allowance immediately.

Senator Kenny: Is that allowance based on a proportion of those that ultimately fail? Is there some correlation between the allowance and the failure rate?

Mr. Guss: I would say no. We are being forced to take an allowance larger than our actual loss experience on this type of loan. That is not an issue with this committee; that is an issue with the provincial government.

Senator Kenny: Fair enough, but you raised it before this committee. Presumably the solution is getting the writedown to be realistically in line with the actual loss experience.

Mr. Guss: That is right.

Senator Kenny: Can you provide the committee with information about the importance of loans against future streams of income? I appreciated your example of the newly-wed couple. We can understand how they do not have anything to secure a loan against, but how many people borrow against future streams of income?

Mr. Guiney: The answer is that every loan, or at least 99.9 per cent of the loans made by credit unions in Ontario, are secured by a wage assignment.

Senator Kenny: It is a big deal.

Mr. Guiney: Yes, senator.

Senator Kenny: When making a loan against a future stream of income -- presuming these loans are repayable over a period of time -- is it reasonable to have a covenant that the borrower will substitute real assets as they are acquired over time and not have the loan secured against the stream of income? Is that a reasonable alternative for you?

Mr. Guiney: It is theoretically possible. It is difficult to have a borrower renegotiate a loan on terms which are less than official.

Senator Kenny: I am not suggesting any renegotiation. I am saying that, when the loan is made, you inform the borrower that when he or she acquires assets you can recover, they must assign to you the right to do that.

Mr. Guiney: That is theoretically possible. You must remember that the access to wages is available to all creditors. A bank can garnishee up to 20 per cent of a person's wages if the request is granted by the courts. The wage assignment allows the credit unions the convenience of avoiding that.

Senator Kenny: I find myself struggling with this as a committee member because I recognize that the only way these people have access to credit is by promising some portion of their future stream of income to you. I recognize that when an individual declares bankruptcy, he is not in good financial shape. However, you are saying that, notwithstanding the fact of bankruptcy, you want to continue to go after part of his income.

When a person declares bankruptcy, the other creditors pick up whatever pieces they can, but they find that there is little left. Is that a fair comment, or are they walking away whole after this exercise?

Mr. Guiney: I think that is fair. In a bankruptcy, generally, there is very little to recover.

Senator Kenny: Notwithstanding there is very little to recover you would still like to reach into their wallets, although they are supposed to be getting a fresh start.

Mr. Guiney: I think that slightly misstates our proposition. Our proposition is that Bill C-5 gives access to those wages through the amendments to section 68 to trustees and to credit card and other creditors who are unsecured to begin with and who charge a high rate of interest. That right was normally ours prior to 1992, and we think that the credit unions are more entitled to that right than trustees or other creditors. That is why we are asking you to turn back the clock. We are here because of the 1996 amendment which gives that access. I agree with you that there are concerns about persons in bankruptcy not having sufficient to live on, but the government itself has introduced legislation which gives access to those wages.

The Chairman: Your answer to Senator Kenny's question twigged in me what I think is troubling at least myself, and perhaps some of my colleagues. You are jumping back and forth between the 1992 amendment, which clearly left you worse off -- I do not dispute that -- and the proposed 1996 amendment which you think would make your situation worse than it was even after 1992. That is the piece of your argument I do not understand. It is self-evident you were worse off after 1992. In answering Senator Kenny's question on the current change, you very quickly routed yourself back to 1992.

Let us assume for the moment that the 1992 change is in place. Your brief does not do that. In the executive summary of your brief, it says that the change proposed in Bill C-5 exacerbates your current situation, but it does not explain how.

Senator Oliver: They are saying that now unsecured creditors, through the trustee, can have the benefit that they used to have.

The Chairman: Let us assume that the 1992 amendment is now in place. Explain precisely why, if this bill is passed at the end of the year, you would be worse off in 1997, which you claim, than you were in 1995.

Mr. Guiney: I think it is fair to say we would not be worse off. We are not opposing the amendment. We are simply saying that, if we had been told in 1992 that the reason we had to give up our right to the wage assignment was because it was disruptive and unfair to bankrupts, we do not understand why that same reason is not applied to the access of trustees and unsecured creditors to their wages. If our wage assignment was disruptive, theirs must have been. I agree with you that we will now be an unsecured creditor.

The Chairman: Therefore, your statement in the executive summary that it further exacerbates the damage done to credit unions by section 68.1(1) is not entirely correct. It does not further exacerbate it although you will not be any better off.

You gave me the answer I thought you would give me, which is that it does not make you any better off or worse off. The debate is about the decision made in 1992, not the decision to be made by the passage of Bill C-5.

Mr. Guss: Yes. However, there is a relationship.

Senator Kenny: I can understand the problem you are describing. However, your credit union members who have declared bankruptcy must have an opportunity to get a fresh start.

Why do you not devise your loans so that, eventually, you will not rely entirely on that future stream of income and solve your problem that way, rather than making life more difficult for someone coming out of bankruptcy?

Mr. Guss: I should let Mr. Guiney, our counsel, answer that question, but I will have a go at it. From a practical perspective, if you sit down with someone and say, "We will lend you $10,000 now, unsecured, but when you buy a house, you have to give us a piece of the action," the fact is they can buy the house, not tell us, take out a mortgage through another institution, and we simply would not have any security on the house. It is very difficult to get a present right to a future asset.

Senator Kenny: You are saying that my proposal is just impractical.

Mr. Guss: It is probably impractical.

I would like to discuss the point Senator St. Germain raised earlier, which is leveling the playing field.

People would say that in 1992 all we did was level the playing field. However, in 1996, you are unleveling the playing field in the sense of giving those rights to somebody else. You are now ignoring the underlying policy reasons that drove the change in 1992. The underlying policy was that you should not be grabbing these people's wages. With the 1996 change, you are saying that the wages can be grabbed and, not only that, they can be given to this group of unsecured creditors.

The Chairman: You and your legal counsel have given diametrically opposed answers to my question. You may wish to reflect on that.

Senator Oliver: Senator Kenny has already very ably asked the question I wished to put, but I have a question about priorities and how your assignment works.

Your assignment form appears to involve more than a mere assignment of 20 per cent of all wages. On reading it, it appears to me that it is like a demand promissory note and a summary judgment all in one. You use the language "...all such other monies to the Credit Union, and I hereby irrevocably authorize the Credit Union which may be proper and necessary for the recovery of any amount or amounts...". It is substantially more than a mere assignment.

If there were garnishment of the borrower's wages to cover this 20 per cent, and if there were a maintenance order -- and I understand that in Ontario that would be secured to the level of 50 per cent -- what would be given priority? I understand from looking at Schedule III that 80 per cent of a person's wages are exempt from seizure from garnishment. Where does your 20 per cent fit into the garnishee provisions?

Mr. Guiney: Our 20 per cent would fit in depending on how the credit union had written the wage assignment. If it had registered it under personal property secured, it would have a priority against unsecured parties making a claim against wages.

Senator Oliver: Would it have priority over a maintenance order?

Mr. Guiney: It would be behind a maintenance order, and it would be behind a garnishee which had been delivered to the debtor prior to the delivery of the wage assignment.

Senator Oliver: You might be down, then, to the 40 percentile.

Mr. Guiney: Although the wage assignment is exercisable, it does not give us first right in every case.

Senator Kenny: If a person is working for 40 per cent of his wages, the incentive to work must be greatly diminished.

Mr. Guiney: If someone is subject to a support order, you cannot take more than 20 per cent. The notice of garnishment would go in. The first 20 per cent would go to the other creditor, and the credit union would get zero.

Senator Kenny: You are merely talking about it being extended in terms of time.

Mr. Guiney: Yes.

Senator Oliver: Your form seems like a form of demand promissory note and summary judgment wrapped in the guise of the assignment of a wage. Would you comment on that?

Mr. Guiney: It is obviously a policy in Ontario to allow the credit union to enforce this type of assignment without having recourse to the courts. It is no different, therefore, from a chattel mortgage or any other type of security that a lender can take on physical assets. In essence, it is on a level playing field with all other recognized forms of personal property security.

The elements of the assignment of wages you are referring to are the elements which provide that the credit union can set off against money standing to the account of the member in the case of a default. That provision mirrors the statutory provision of section 43 of the Credit Unions Act, which gives credit unions that right.

Senator Oliver: If a person had a Christmas bonus coming of $500, under the language in your assignment, could that be seized?

Mr. Guiney: Only 20 per cent could be seized.

This is the way we approach things. Once the money hits the account, it is no longer wages. If it were to stand in the account of that member for a period of time and a default occurred, we would then use the section 43 Credit Unions Act set-off to take the money, but we could not use the wage assignment.

Senator St. Germain: If one declares bankruptcy, how do unsecured debtors such as credit card companies benefit over the wage assignments under the present system of 1992? You keep referring to this. Are you referring to this on the strength of repealing the 1992 scenario, or are you making it on the basis of what has happened since 1992? You keep saying that the advantage is being given to unsecured debtors. If bankruptcy is declared and the trustee establishes what is to be paid, how would you lose?

Mr. Guiney: In 1992 the Government of Canada made us an unsecured creditor. Since 1992 we have been in the same boat as the credit card companies and all the other finance companies which do not take security. The government changed our status by declaring us to be an unsecured creditor. That is how we were initially damaged. To add insult to injury, the reason given for the change was that wages and assignments thereof were disruptive to the bankruptcy administration process.

In the 1996 amendments, the government seems to have ignored that reason for not touching a person's wages and introduced a provision that makes it easier for all creditors to have access to wages through the trustee in bankruptcy.

The Chairman: They only have access to surplus income. That is a big difference.

Mr. Guiney: Absolutely. Our question is this: Why has the government expropriated our right to enforce the wage assignment under the 1992 provision and then ignored the policy that justified that expropriation by introducing a 1996 provision which gives everyone the right to the wages which used to be our exclusive right? That is the damage done to us.

The Chairman: I understand your complaint about 1992. Your complaint about 1996 and your interpretation is that excess income should initially only be distributed to people who had security on wages, namely yourselves, as opposed to excess income being available for distribution to all unsecured creditors. That is essentially your position, correct?

Mr. Guiney: Correct.

The Chairman: You arrive at that logic by drawing a correlation between surplus income on the one hand and wages income on the other hand. You are saying that, if there is surplus income, it is wages earned income; therefore, if anyone is to get any piece of that, you ought to come first because you originally had it secured.

Mr. Guiney: Correct.

The Chairman: I understand your situation. Thank you very much for appearing today. Sorry it took us a while to get to the root of the issue, but we now understand it.

Senators, our next witnesses are from the Association of Workers' Compensation Boards of Canada. Their spokesperson is David Stuewe.

Mr. David Stuewe, President, Association of Workers' Compensation Boards of Canada and Chief Executive Officer, Worker's Compensation Board of Nova Scotia: Mr. Chairman, I would first like to introduce Mr. Douglas Carr who is general counsel for the Alberta WCB. Mr. Maurice Cloutier is legal counsel with the CSST of Quebec, and Mr. Graham Steele is general counsel for the Workers' Compensation Board of Nova Scotia.

At the outset, I would outline what the association of workers' compensation boards is. As a collective of 12 boards, we meet on a regular basis to try to address problems of common concern and to try to improve the overall system for the whole Canadian economy.

As a result of payments to injured workers, approximately $31 billion in liabilities is being carried by the 12 boards. We receive $6.5 billion in annual premiums. We cover about 986,000 accidents a year, almost 1 million accidents, which statistic is, in itself, a shame in this country.

Bill C-5, especially sections 73 and 74, will take about $15 million to $20 million out of current assessments which are received and recovered through bankruptcies, and could have the impact of increasing the assessments in this country by about one cent, which is $24 million coming out of the economy to pick up for the lost income.

Senator St. Germain spoke about fairness and equity. The Association of Workers' Compensation Boards of Canada agrees completely with that objective. However, it has been clearly demonstrated in the letter that Minister Manley sent to Minister MacDonald last week that Minister Manley's advisors are ill-advised and do not understand the historical importance of workers compensation. They have not looked at the empirical facts before us which indicate who pays. That is the main issue we want to address.

We are concerned about the detrimental impact this amendment will have on the economy. We know that is one of your responsibilities, as members of this committee, to look at the economy. We will be put in a position where we will have no alternative but to move early if we are to protect the interests with which we are entrusted.

The WCB premiums -- and this is the meat of the argument -- are not paid by employers. I will go through this historically.

Section 73(2), says the WCBs can take security. Workers compensation boards have no leverage to do that. We are required by law to provide benefits to workers irrespective of whether the premiums have been remitted. Why would an employer ever give us security? We are on the sidelines in terms of the legal process.

In his letter, Minister Manley said that employers pay for workers' compensation benefits. However, if you consider the history of how workers' compensation boards originated in Canada, and if you look at the court cases since 1992, you will arrive at a very different answer.

The government argues this amendment is trying to correct a problem created by the 1992 amendment. They assert that WCBs are Crown corporations. Senator Oliver will know that is not the case because he has acted on behalf of some workers' compensation boards. They are not Crown corporations. Workers compensation boards were historically created out of a compromise because employers wanted to purchase from employees immunity from lawsuits as a result of a workplace accident and the employees agreed. In typical Canadian fashion, we set up a neutral third party to administer this money.

The WCBs were established to be the neutral third party for simplicity and for administrative efficiency to receive the money. We dole out that money as people are injured.

The paper I submitted to you and to Minister Manley yesterday provides empirical research. This is the John Burton paper and entitled: "Who actually pays for workers' compensation, the empirical evidence."

John Burton is out of Rutgers University in the United States. He reviewed a number of studies that dealt with how people pay.

I was conservative in my approach by noting in my letter that only about 56 per cent to 58 per cent of the funds actually come from workers. His study shows is that, over three years, whatever workers' compensation cost increases are provided, empirically, those come out of workers' wages. We see a reduction in wages somewhere in the package. A business person recognizes that you have a salary bill and a benefits bill. That is the total amount on the table.

We think the government has misunderstood who pays. This has been reinforced by the failure of their 1992 amendment. In that amendment, they thought they dealt with this problem. The matter went to court and the decision was that WCBs were not Crown corporations. WCBs were given the priority and we have been able to recover money.

Our concern is that, if this bill proceeds, we will be relegated to unsecured creditor status and we will not even have the right to get security. This is important when we talk about level playing fields. The employer has no reason to give a security because he or she knows that we are legally obligated to pay funds to the injured worker.

This bill has not leveled the playing field. It has created a playing field where the workers compensation boards acting on behalf of workers of this country are relegated to the sidelines.

I have spoken to the CFIB about this. Those of you from Nova Scotia will know Peter O'Brien.

The Chairman: That is the Canadian Federation of Independent Business, which is a small business national association.

Mr. Stuewe: Yes. The national association, collectively, has gone in with the banks on this one. The changes here will give to the secured creditors, predominantly the banks, access to revenues that the WCBs have historically collected. The CFIB Executive-Director Atlantic is concerned with the potential that this change will increase the costs of the Workers' Compensation Board. In Atlantic Canada, payroll taxes -- I am sure you have heard about them -- are the biggest inhibitor to job creation. This will probably result in a one-cent increase in rates across the country. That means that $24 million will come out of the Canadian economy.

As administrators, we have a fiduciary responsibility to take care of injured workers and the funds they have given to us. Because we cannot take security, we will have no status, and we will have to move early, which will be disruptive to the economy. That means we will have to walk into relatively unstable situations and make them even more unstable in advance of a bankruptcy, to protect our interests, or else we will have to raise rates, and we think that would not be good for the economy.

I can go into a fair amount of detail on the legal aspects. My colleague, Doug Carr, who wrote the brief, would be willing to take you through, from 1948, all the court cases and the changes. The bottom line is that this is not creating a level playing field. The advisors to government do not understand because they have not considered the historical basis for workers' compensation, nor have they looked at the empirical evidence. They have created a situation which, by definition, will force us to the sidelines, which will cause us to either take $24 million out of the economy, or to be disruptive to firms that are struggling to stay in business. That would be most unfortunate.

We hope you and your colleagues in the Senate will consider this and ask the House of Commons to reconsider this issue. Unfortunately, we did not have an opportunity to make a presentation to the House committee. We very much appreciate your time today.

The Chairman: I want to touch on your last point for the record. Why did you not appear before the house committee?

Mr. Stuewe: Unfortunately, we were advised of the hearings too late. We made a presentation to a committee which was comprised of industry people, headed by the banks.

The Chairman: You mean BIAC?

Mr. Stuewe: Yes.

The Chairman: You were not turned down by the House of Commons. By the time you knew of the hearings, they were effectively over?

Mr. Stuewe: That is correct. They were in their second-last day.

Senator St. Germain: You answered my question. It was unfortunate that you did not appear before the Commons committee.

Senator Oliver: What you are asking us to do is prepare an amendment to clauses 73 and 74. Do you have a draft?

Mr. Stuewe: There are two options.

Senator Oliver: Do you have a draft or could you read what you are seeking so we can analyze it?

Mr. Stuewe: You should either give us a status similar to that held by QPP, CPP or EI, or just delete clauses 73 and 74. That will put us back where we are now because the courts have ruled that we have that priority.

The Chairman: What you are really saying is that, in 1992, an attempt was made to change the priority, given the WCB contributions.

Mr. Stuewe: That is correct.

The Chairman: That was the intent of the change in 1992. The courts, in fact, have ruled in specific cases in ways which undo that intent and act as if the change made in 1992 never occurred. In fact, you do have priority. The proposed amendment in Bill C-5 is designed to restore the intent of the change made in 1992 in a way that deals with the court decisions. Is that an unfair description of the problem?

Mr. Stuewe: That is the problem, Senator Kirby. The interesting point is that, in 1992, the department did not understand workers' compensation. They want to make the change but, in making this change, they have put us in an even worse position because we cannot take security.

The Chairman: It would helpful if you had a text of the amendments you would like. If we do nothing, you are content that the current court cases have restored your priority. However, your preference would be to have a clear statement that you have the same priority as the QPP, CPP and EI; is that correct?

Mr. Stuewe: That is exactly it, senator. We believe that workers' compensation is part of the very important socio-economic safety net of this country. If we wish to ensure efficient operation and be able to deal with the problems that we have encountered, particularly from the banks, we would ask you to make it very clear that we are similar to QPP and CPP.

Senator Oliver: Has anyone a document on this?

Mr. Stuewe: We would be more than willing to prepare one and to get it to you expeditiously.

Senator St. Germain: Is everyone across the country in agreement?

Mr. Stuewe: Yes. I believe you will find that is so, not only at the CEO level but at the government level, which is important. Letters have been sent by six Ministers of Labour. The others are in the process of writing letters. I have some of those letters with me today, if you would like me to circulate them.

The Chairman: You do not necessarily need to give us what evidence you have today but if we could have it before the government witnesses reappear on this issue next Thursday, it would be helpful.

Your description of the history and origins of the WCB is the most lucid description of it I have ever heard. Thank you.

The committee adjourned.

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