Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 24 - Evidence, September 18, 2003
OTTAWA, Thursday, September 18, 2003
The Standing Senate Committee on Banking, Trade and Commerce met this day at 11:00 a.m. to examine the administration and operation of the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act.
Senator Richard H. Kroft (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, I should first like to explain that I carry with me the apologies of the Conservative members of the committee. They have had an emergency meeting called for 11:00 a.m. and will be unable to be with us. They hope to be here later. That depends on the course of the meeting.
Senator Prud'homme: For the record, there is no rule that this committee, unlike some other committees, cannot sit if the two parties are not officially represented.
The Chairman: No. Thank you.
Let me now welcome our guests from Edmonton. Professor Dunlop, special law counsel to the Alberta Law Reform Institute, and Mr. Lown, director, are joining us today by videoconference.
Good morning, gentlemen, and thank you for being with us. I believe you have a principal focus in certain areas relating to this legislation.
Before we get into the substance of your presentation, I will ask you to just take a moment, one or both of you, to explain your particular interest in this area and how you became attracted to it, what led you to the point where you are now presenting on this subject. That information would be helpful to us as background.
Mr. Peter J.M. Lown, Director, Alberta Law Reform Institute: Honourable senators, thank you for the opportunity to appear. I shall be representing the institute this morning in the presentation. My colleague, Professor Dunlop, is the subject matter expert whom the institute has retained as special counsel in this area.
I have provided for you on the back page of the brief some information about the institute, which is best described as the law reform agency for the Province of Alberta.
In terms of deciding whether to review this topic, the institute looked at a number of factors, including the possible confusion about the exigibility of certain items, the apparent unfairness if the exigibility of rules varied according to the source of the product in question, and that the exigibility rules might vary from province to province and thus a mobile population might be caught by changing rules.
As a result, we decided this was an area that the institute should take on as a project. We retained Professor Dunlop because of his expertise in this area. We are at the stage of being about to publish a final report. We are awaiting draft legislation from legislative counsel office in the Department of Justice, at which stage the report would go out.
It is very unusual for us to publish the recommendations that would be contained in the final report prior to its official release. In this case, the timing of your committee's review and the information that we may have in the report suggest that we should make an exception and share with you the policy recommendations that the institute board has made.
Those recommendations are contained at page 13 of the brief that we have presented to you.
The Chairman: We thank you for that.
Mr. Lown: We were also persuaded by the thinking of the Uniform Law Conference of Canada, which regarded the question of future income plan exigibility a matter of more national concern and something that should be dealt with by a number of provinces acting through the auspices of the Uniform Law Conference of Canada. That is the background as to why we have looked at the subject matter. That may also tell you who we are in terms of our involvement in it.
The Chairman: I would now ask you to proceed into the substance of your presentation, following which we will move to questions.
Professor C.R.B. (Dick) Dunlop, Special Counsel, Alberta Law Reform Institute: Honourable senators, I thought, rather than working through the brief, which I gather has been circulated, I would begin with a couple of general observations and then talk in more detail about our first observation.
The first observation is that our focus is not exactly yours. We are primarily concerned with Alberta law and Alberta legislation. In this project, our focus was to review the enforcement of money judgements in Alberta, particularly the issue of exemption of future income plans, and to propose reforms, if necessary.
The Board of the Alberta Law Reform Institute and the researchers did not directly consider changes to the Bankruptcy and Insolvency Act to be your mandate. We did not directly consider whether the recommendations of the task force should become part of the Bankruptcy and Insolvency Act, BIA. We did, however, look at the task force report as a possible model for reform of Alberta law. In the end, we disagreed with the task force on several points. Our reasons for taking that course may be of some assistance to you.
Our function today, honourable senators, is not to persuade you to take any particular approach to the issues that you must decide. We are here only to report on our conclusions, to share our experience with these issues and to be of any assistance to you. I should say that the recommendations we pass on to you today were decided by the board of the institute, just as recommendations of the Law Commission of Canada would be the decisions of the commissioner's. Our job is to pass them on and to explain the reasoning that led to them.
The basic recommendation that we have arrived at is for a total exemption of Registered Retirement Savings Plans, RRSPs, Deferred Profit-Sharing Plans, DPSPs, and Registered Retirement Investment Funds, RRIFs, from creditors' remedies. Our position, and the recommendation that we will make to the Alberta government, is that there should be a total exemption of the plan and its contents from execution, or ``enforcement'' as we call it in Alberta, and from equitable execution — receivership — as a remedy of unsecured creditors. We will also propose a total exemption of money payable from the plan from garnishment.
This sounds like a generous and unlimited exemption, but there is a limit: Our position is that once money is paid out of the plan — not just payable but paid — or once property is transferred out of the plan that money or that property should be exposed to creditors' remedies and the exemption we propose should not apply.
The logic of that goes back to our sense of the purpose of the exemption. The exemption is for funds or money in a plan for a retirement savings — for saving for retirement — plan recognized by the Income Tax Act. For those funds and that property we think the exemption should exist. Once the funds are taken out, they are no longer dedicated to retirement. Once the property is taken out of the plan, it is available for any use. Thus, we say the exemption stops at that point and the assets are totally accessible to creditors, subject to the general rules in our Civil Enforcement Act.
Honourable senators, I do not wish to go into the details of the brief in this opening statement; however, we would be pleased to answer questions.
Senator Moore: Gentlemen, welcome. In the list of products, RRSPs, DPSPs and RRIFs, is there consideration of Registered Education Savings Plans, RESPs? I do not see them mentioned and we have had evidence from another witness that the contents of such plans, including the earnings thereof, should be exempt from attachment in bankruptcy proceedings. Do you have thoughts on that or did you consider that in the deliberations of your group?
Mr. Dunlop: Early in the project, we had to define the scope of our project. We decided at that time to restrict ourselves to plans that involve retirement savings. We thought that other tax-exempt or tax-favoured plans might also be the subject of an exemption. However, for our purpose, we wanted to stick to saving for retirement as one issue. It is really a case of deciding what our policy is, and there may well be a legitimate policy for exempting RESPs or other kinds of tax-exempt plans from execution and garnishment. However, we thought it was enough to concentrate on retirement savings. That was the consideration that led us to exclude RESPs. It was not a decision in policy that they did not deserve exemption.
Senator Moore: RESPs were not formally considered in your study. Do you have any personal thoughts on it that you would wish to share with us?
Mr. Dunlop: I would have some difficulty answering that, sir, without thinking about all the other possible candidates for exemption. Certainly, the board did not address the subject.
Senator Moore: That is fine.
Mr. Dunlop: I can see an argument for exempting tax-favoured plans, but it is only a possibility at the present. I cannot give you a firm, personal view.
Senator Moore: Does your colleague have any comments from the institute on that subject?
Mr. Lown: I can only confirm Professor Dunlop's comments, that, in defining the scope of the project, we did confine it to future income plans. Our policy for future income plans was to say that if saving for that purpose is encouraged, and the two major elements of encouragement are tax deferral and exemption from creditors, then we wanted to follow that policy through so that it applied appropriately. You may be able, by analogy, to argue that there are incentives and encouragements to savings plans for educational purposes and, therefore, to ask the question of whether the incentives of tax deferral and exemption from creditors should apply equally in those areas.
I can give you the policy framework, but I have no personal views on the policy issue.
Senator Massicotte: I just wish to understand conceptually where you come from. Basically, you are saying that any monies that are legally restricted and used only for retirement reasons would be excluded from any claim by any creditors. I gather the annuity monies emanating from those products would also be included. Am I correct?
Mr. Dunlop: We restricted ourselves to RRIFs; we did not deal with the exempt status of annuities that are not RRIFs. If insurance companies sell them, they would be exempt under the exemption provision in the Insurance Act. Our policy was that money or property in an RRSP, a DPSP or a RRIF should be exempt and the money payable should be exempt.
Senator Massicotte: I gather that if it is an RRSP, self-managed or whatever, and if it is not withdrawn early in retirement, then it is excluded. However, if it is cashed in for some reason, it is not excluded; is that correct?
Mr. Dunlop: That is correct. If the owner of the RRSP turns it into a RRIF, or transfers the property to a RRIF, both plans would be exempt. Indeed, the transfer of the money would be exempt.
If, however, an individual withdraws the money, no matter what the stated intention, our view would be that that money is now no longer in a plan dedicated to retirement but is now in the hands of the debtor who may use it for retirement or may use it for something else. Therefore, it should be exposed to execution or garnishment if it is in a bank account.
Senator Massicotte: What do you do with these assets? An individual has a self-administered RRSP and has no idea of whether the funds will be used or when. How do you deal in a case where there is a discretion to withdraw or not? What should a trustee decide to do or a court decide to do?
Mr. Dunlop: We had to look at that question because the task force has made the argument that for an RRSP to be exempt in bankruptcy it must either be locked in, which is unlikely in the case of an individual RRSP, or it must become locked in. In other words, the bankrupt must elect to lock the plan in.
We considered that, because it would have been possible. I talked to Robert Klotz, who has been before your committee, about this. He said in his draft that led to that part of the task force report that it is certainly possible for a provincial legal system to restrict the exemption to RRSPs or even to create an opportunity to elect to transfer the plan from unlocked to locked.
We considered that and rejected it. First, as a matter of policy, if the money is in a plan dedicated to retirement but has not been taken out, our view is that it falls within the purpose of our exemption. The fact that the plan is locked in or not is incidental to the purpose that the money is in the plan. It is intended for retirement.
People get into trouble and then they cash their RRSPs. On the hand, they may not get into trouble but want to buy something or further their education and thus they cash their RRSPs, often for very good reason. Our view is that they may have good reasons, but once the money is out of the plan, it is fair game for creditors.
We thought about the possibility of creating an elective locking-in system in provincial law. We concluded that it was difficult to imagine how that would work. Personally, although the institute board has not addressed this, I have some difficulty understanding how the lock-in regime will work in the Bankruptcy and Insolvency Act. The pension superintendents are unlikely to be interested in ensuring that a locked-in RRSP continues to be locked in. That is not their mandate. Their mandate might change, but at present it is not their mandate. The trustee wants to close the file and move on. What he or she does not want to do is have a kind of continuing brief watching the plan to make sure that it stays locked in. We have some difficulty with how practical it would be. In any event, in policy, we thought it better to say that, if the money is in the plan, it is protected. If it is not in the plan, it is not. I hope that answers your question.
Senator Massicotte: Your entire argument, which is very strong, is to say that there is some insurance product out there that is basically a retirement product and, therefore, protected from creditor claims. You are that, therefore, that a sense of fairness would allow a non-insurance product to have the same treatment.
I gather initially that an insurance product was excluded from creditor claims because it was dependent on the decease of the party; it was for the benefit of the spouse or the family. That was the sense of equity and fairness.
With specific provisions in certain acts — I am not sure if it was intentional — we now have pension products that are deemed to be life insurance products somewhat still tied into the deceased, but it has gotten very general.
I gather your argument is this: I know the original intent was a life insurance product for the beneficiary of the deceased. You are saying, ``Let's include pension products.''
Summarize for me why pension products generically should be excluded from the party for which there is a claim, for which there is money being lent to, which holds a very strong moral obligation. Why should those assets be excluded completely, irrespective of whether it is pension?
Mr. Dunlop: There are a couple of points there. Let me go to the development of the insurance exemption. The work that I did, and it is dependent on work done by others, shows that the life insurance exemption is yet another case in which we have borrowed from the Americans. We borrowed the idea from American legislators. It was originally intended, in the 19th century, to protect the widow and the children when the wage earner died, to ensure that the insurance at least is safe from the creditors. It very quickly was extended from that.
From Confederation, insurance companies in Canada have sold not only classical life insurance, but also annuities. Insurance companies viewed that as part of their business. Some annuities were more closely related to life expectancy and had insurance elements with them. Others were less closely related to life insurance elements.
The insurance industry assumed that they were all life insurance and, therefore, exempt. The Supreme Court of Canada disagreed. In a case in the 1950s, Gray v. Kerslake, the Supreme Court said, ``Oh, no, annuities are not insurance.''
The insurance industry convinced the superintendents to change the uniform life insurance act to define ``life insurance'' as including an annuity and an agreement to enter into an annuity. By extension, an RRSP, if it is properly drafted, includes an opportunity for the insured to elect to create an annuity.
Once that amendment was in place, creditors, including CCRA, said, ``We are terribly unhappy. We would like to go to court and challenge this.'' The courts, after a little uncertainty at the first, have been very clear. They say that the legislatures across Canada have spoken. RRSPs sold by insurers are life insurance because the act says so, and they are exempt because the act says so. Wonderful arguments have been invented to try to get over the plain words of the section, and the arguments have failed.
However, as all of that happened, the market for RRSPs began to develop. I rely on conversations I have had with other people, including Ed Rothberg, who has also been before you. As I understand it, the insurance and non- insurance vendors of RRSPs began to copy each other's plans to the point where the plans today are very similar.
Two things have happened. First, the insurance element is more attenuated, more strained, to the point where it is very difficult to find it in some RRSPs. Second, the products sold by insurers and non-insurers have increasingly come to resemble each other.
It is interesting that all the reform projects we looked at, no matter what their ultimate result, say that the distinction between total exemption of insurance products and total non-exemption of non-insurance products would not hold water today.
Comparing RRSPs to pensions is a different issue. Again, the Alberta Law Reform Institute differs somewhat from the task force. The task force says pensions are different. They are different because, among other things, they are locked in. Individual RRSPs are almost without exception not locked in. That is a big difference.
We concluded that the emphasis should be placed on the similarities. The similarity is that both are plans to save for retirement; and both are recognized and given exemptions by the Income Tax Act. Both are for the same purpose and, therefore, both should be treated similarly. Not only is proposal driven by the gap between insurance and non- insurance RRSPs, but also by the gap between pensions and non-insurance RRSPs. We say the exemption for that kind of savings plan should apply across the board.
One last point: The exemption for pensions and money payable from pensions is usually a total exemption. The exemption for insurance RRSPs and payments out is usually total. Once the money is paid, once the pension cheque is delivered, the creditors have a shot at it; but until it is delivered, the exemption applies. Therefore, our argument is that non-insurance RRSPs ought to be treated the same.
Senator Massicotte: To follow up, I understand the argument of comparing why one would be excluded; it is very convincing. However, what is the argument of why pension or future benefits on retirement should be excluded from the claim of creditors. Where the moral obligation — I lend you a dollar, I want it back, is very strong, why should those assets be protected? I appreciate the argument of marginal decisions, but if the whole this is wrong, why would you make it worse if the concept is not right?
Mr. Dunlop: I think the way we tackled that issue was, first, to ask whether there was any call that we could discern for change in the exemption of pensions or money payable. By and large, there was not, although we did have one person who suggested that at least money payable from a pension might be subject to garnish. We asked ourselves whether there was any call for a change in the insurance RRSP exemption, and we could not discern a call there.
You are quite right, senator, that what is at stake here are two policies in conflict. On the one hand, there is the clear policy of Canadian society, and to some extent Canadian law, to encourage people to save for retirement, taken together with the economic developments of the past 20 or 30 years, which suggest that saving for retirement is going to be even more important than it was. On the other hand, there is a legitimate policy on the part of judgment creditors to have an effective and efficient judgment-enforcement system. The more exemptions there are, the less efficient judgment enforcement becomes. That is absolutely true. We had to confront that policy clash.
We concluded that we had, to some extent, protect the creditor by saying that, once the money is paid out, it is fully available. However, we did say that if the money is in one of the three plans we looked at, it should be exempt. We were encouraged by the lack of criticism or outcry, even in the creditor community, respecting the exemptions of pensions and insurance RRSPs.
I am aware that you have heard stronger pro-creditor views. All I can say is that this institute board, looking at this issue, thought that the proper compromise — and it will obviously have to be a compromise — was that if the money is in the plan, it is okay, if it is not, it is not.
That is the best answer I can give, and Mr. Lown wants to add to it.
Mr. Lown: This issue was very squarely before the institute board. You can imagine that, with 14 board members, none of who is afraid to express his or her view, that it was quite well aired as well.
We have, relatively recently, had a major overhaul of our enforcement system, so that the civil enforcement act simplifies, rationalizes and makes more efficient the process of collecting debts in Alberta. We hope we went from being criticized as being a very difficult place for creditors to operate to one in which the field is much more level and the rules are much more obvious and clear.
That issue was before our board. One of the elements clearly involved in the discussion was not so much the analogy to insurance products — we almost recognized that the legislation has created an exemption for insurance products. That is a fact. We did not really enter into a great debate as to whether we should change that policy or whether it was justified. What the board did do, and this comes back to our emphasis on purpose, was to say that if you have products that are intended to create the equivalent of pensions they should be entitled to the same protection as pensions. That then comes back to saying this: How clearly do you follow the definition of the product for purposes of tax deferral? Very clearly. How clearly do you follow the loss of the protection? Very clearly, if the plan is cancelled.
I think your previous question talked about the iterations of a plan. When you reach a certain age, the plan has to change. It no longer becomes an investment vehicle; it becomes a way of paying out the corpus of the plan at that stage. It was very much our policy to say that if the purpose is to save for the future and if protection is attached then it should attach to a method that is self-driven or self-directed equally as much as it would apply to the contribution that one would make to a corporate pension plan. In fact, we probably concluded — I think safely — that de facto many of these products are as locked in as other pension plans are legally locked in.
Mr. Dunlop: That is the case for at least two reasons. One is that if you take the money out you get a tax hit; the second is that if you take the money out under our proposal your creditors will have a shot at it. There is a third reason, which is that you may actually want to save for retirement and want to continue to do so. So, for a number of reasons, we are not sure that the locking-in/not-locked plan distinction is as significant as the task force believes it to be.
The Chairman: Thank you. I have a couple of questions. I very much appreciate the approach you have taken here. You have stepped back and looked at what I have found to be some of the inconsistencies. Certainly, I welcome the analysis of the distinction or non-distinction between insurance product and other insurance products — I have been struggling with that one — other than seeing it as a tribute to the effectiveness of the insurance lobby over a century, and also the recognition that pensions are pensions, whether in a different form, and the issue of whether or not it is equitable to protect one and not the other. I find very helpful the global approach you have taken on this.
I would like to discuss a couple of specific things. You talked about the lack of practicality in trying to lock in everything and require that it stayed locked in. We have not really had that addressed effectively yet. You point out that once they choose to withdraw funds from the plan they then become subject not only to tax but also to the availability of the creditors at that point.
What did you have in mind in that point? That is only meaningful if it is done prior to the point of the discharge of the bankrupt. I would presume that, while the exposure is there, one would have to be desperate or careless to draw funds out from the protection of the plan. However, once the process is complete and the bankrupt has been discharged from the obligation, what are you saying about that, other than it being for the short term of the bankruptcy trusteeship.
Mr. Dunlop: We were directing our thinking towards the provincial system and not towards the Bankruptcy and Insolvency Act. I agree with you that the bankrupt is unlikely to attempt to cash the RRSP, particularly as the trustee will indicate to him that it is property of the bankruptcy, unless there is an election.
The particular aspect of the task force that was bothering me, and I was thinking again of the provincial system, is just how long this surveillance of the RRSP will continue, and who will do it. I did not see a practical answer to that.
In the provincial system, the same problem arises. There is no trustee, but the creditors presumably can keep an eye on things. However, there is some merit to saying: ``No, the machinery is a bit cumbersome and a bit difficult to work. Anyway, our policy is different. Our policy is that whether the plan is locked in by law or de facto it falls within our policy goal and therefore should be exempt.''
The Chairman: Let me take you to the front end of the process. There have been various rules, suggestions and guidelines as to the availability to creditors of funds that have perhaps been accelerated into the fund, bulked up at that end. You have not addressed that, as I understand it, other than to say that we have existing law dealing with fraudulent conveyance and that that is the way to address this. If that were done, I take it you would say, obviously for the purpose of defeating creditors in an improper fashion, that that is the way to deal with it, rather than setting clawbacks or caps. Is that the essence of your position?
Mr. Dunlop: We thought about a clawback. The board had difficulty in accepting a clawback as part of provincial law, at least.
The problem with the clawback is that you have a debtor who has presumably, not to speak of his intent yet, followed the rules of the Income Tax Act in putting money in the plan. That much is the case. In other words, that money falls within our exemption.
It is true that there are difficulties in proceeding under the Fraudulent Conveyance Act or Fraudulent Preference Act. Where there is a fraudulent intent, a fraudulent effect or the transaction was conducted when the person was insolvent, the transaction in effect would be fraudulent.
There are difficulties with fraudulent conveyance law in this province, partly because Alberta, in a spirit of respect for history, uses as its legislation the Statute of Elizabeth I. We are talking Shakespeare and Ben Jonson. Lawyers in the 21st century find themselves reading an almost impenetrable Elizabethan statute to decide whether they can commence litigation in Alberta.
The law of fraudulent conveyances and preferences needs review. The institute has on its list of projects to be dealt with quickly the problem of fraudulent conveyances and preferences. The commercial community is excited by some recent decisions, including the decision of the Supreme Court of Canada in Ramgotra, the Saskatchewan decision. They are troubled by these cases.
Looking again at the provincial situation, it would be better to attack the problem at its root. The problem at its root is fraudulent conveyance and preference law. It needs to be brought out of the 17th century and into the 21st. That is a legitimate reform project and an urgent one.
We did not see a clawback as solving the problem in a fair way. The difficulty with the task force recommendation of a three-year clawback is that it may be too generous to some bankrupts and too harsh for others. Some bankrupts have been in trouble for 20 years, and they have been on the verge of insolvency forever. Three years is a gift for them. On the other hand, there are many people in bankruptcy and many people in money trouble who got into trouble within the last 12 months. Simply saying that three years is the rule — or even two years or one year — seems to sweep aside the fundamental problems and just give a number. Three years before the date of bankruptcy, three years before the writ of enforcement and we clawback any money paid into the RRSP.
Our difficulty with the clawback is that we thought in principle it was wrong to change the exemption arbitrarily and clawback money paid into the plan within a certain number of months or years. Second, a clawback would not address the real problem, which is the antiquated and inefficient way in which fraudulent conveyance and preference law has developed.
Mr. Lown: It would be fair to say that, in light of the policy and the purpose on which the policy was based, and notwithstanding the age of our fraudulent preferences law, the board was not prepared to conclude that every transaction within a certain time period should be assumed to be a fraudulently intended transaction. Therefore, the proper basis for review is an updated and modernized fraudulent conveyance legislation, rather than a time frame automatic assumption.
The Chairman: Thank you. I have a question to give us an idea of the scope and scale of the problem in your work. Did you gather any statistics on how many RRSPs or other types of future income vehicles are subject to attacks by creditors? Do we have any sort of idea of the scale of this issue?
Mr. Dunlop: We did not gather any statistics or numbers. We relied on statistics from other sources, such as the task force. We relied on anecdotal comments about whether RRSPs are commonly found in the estates of judgment creditors.
Many lawyers and many trustees told us that the debtor either did not have a RRSP or had drawn the RRSP down, had withdrawn substantial sums of money, perhaps all of it, to stave off the creditors. The common experience was that either there was no RRSP or it was a very small one. There are exceptional cases, but the likely case based on anecdotal evidence is that either the plan did not have any money in it or it did not have very much money.
Senator Prud'homme: It is always a pleasure to talk to people from Alberta because I am a great fan of your province.
In passing, you mentioned that the board has 14 members, but I counted only 13. I noticed that the institute's legal staff consists of various people, one of them P.J.M. Lown. Are you also a member of the board?
Mr. Lown: Yes, that is correct.
Senator Prud'homme: Are not you then in a better position than anyone else, such as a consultant, to ultimately influence the judgment of the institute's board?
Mr. Dunlop: Do you mean that I was in a position to sell them something?
Senator Prud'homme: Who is Mr. Lown?
Mr. Dunlop: I tried to sell them things that were —
Senator Prud'homme: Not you. There is a Mr. Lown on the board of the institute. He is also a Q.C., a director and a member of the legal staff. That would mean that you advise. Am I right? There is nothing wrong, but I want to make sure that you do advise, as a member of the legal staff, and that there are 14 board members at the institute, although I count only 13 members.
Mr. Lown: I should clarify. First, the institute may have a board of 14. We actually have one vacancy at the moment, so there are 13 persons on this list. Second, the board appoints the director as both its chief executive and chief operations officer. That person is expected, along with his administrative responsibilities, to do some research. On some topics, I may be the counsel advising the board. On other topics, I am, despite my role in shepherding the research along as the gatekeeper of what gets to the board, merely one of a number of votes dealing with the question of what the board decides to do on policy. I do the minutes and I shepherd and gatekeep what goes to the board. Therefore, I am quite open to the suggestion that I may have more influence on what happens than others would have. I try to be as fair, open and above board as possible.
Senator Prud'homme: I have 40 years of political experience. The gatekeeper is always very important. Is there a discrepancy between provinces that we should look into? Is that a major concern for you? Prince Edward Island runs it one way, Alberta runs it another way, and Quebec and Manitoba have different laws. Does that represent a problem for your institute in interpreting the various ways to bypass protection for people who invest?
Mr. Dunlop: There is a serious problem in diversity of commercial and corporate law in this country. The Uniform Law Conference of Canada, ULCC, is attempting to solve that problem bit by bit by preparing draft statutes that, hopefully, will be accepted by other jurisdictions. As you know, some provinces go one way and some provinces go another way. The efforts of the Uniform Law Conference of Canada may not be uniformly successful. Certainly the ULCC and the Canadian Bar Association, CBA, are both acutely aware of the difficulties in doing business in a country in which the laws vary radically on what is essentially the same agreement or the same transaction.
Having said that, the flip side of the coin is that we are evolving a new role. There is some merit in permitting provinces to experiment and to try out different solutions. Ultimately, it is hoped that uniformity will prevail. Sometimes, uniformity can occur too soon, the result of which can be a uniform precedent that does not find acceptance generally. While I am enthusiastic about uniformity in commercial law, it is absolutely essential for businesses and for individuals, particularly in a society where people move from jurisdiction to jurisdiction, to accept a certain amount of flexibility and a certain amount of experimentation.
In respect of exemptions, that is particularly true. Exemptions are odd because they most clearly reflect the history of communities' different economies and even different values. It is not surprising that Alberta and Saskatchewan have extraordinarily generous exemptions for farmers. It is not a surprise that fishers are given benefits in provinces close to the sea. Those kinds of local differences show themselves in exemptions.
On the other hand, RRSPs are not that different from Alberta across to Prince Edward Island. They are marketed nationally, and they are governed by two federal statutes — the Bankruptcy and Insolvency Act and the Income Tax Act. There is a greater argument in some areas for a uniform approach than there is in other areas.
I have answered your question, sir, by not answering it by suggesting that it is a more difficult issue than it would appear on the surface.
Senator Prud'homme: Is there consultation between the various players in Canada? Do you meet with others from similar organizations in other provinces with a view to eventually trying to develop a set of rules that could apply equally across Canada?
Mr. Lown: In terms of the relationships between agencies responsible for law reform proposals, yes. There is both a formal and a day-to-day exchange of information and proposals. On a more formal basis, the ULCC, and I can put my hat on as its past president, represents all the governments of all territories and provinces, and Canada, to attempt to bring some harmonization to the law. The ULCC has a specific, commercial law strategy arising out of the agreement on internal trade that barriers to internal trade should be removed to the extent that they can be removed. The Uniform Law Conference of Canada has a number of active topics that are intended to make the whole area of commercial law as harmonized and uniform as possible. There are short-term and medium-term objectives in different areas, but there is much dialogue on how to harmonize the commercial law context and landscape in Canada.
The Chairman: With that, I will draw this session to a close. We have another video conference witness awaiting us. I want, most sincerely, to thank you for your participation this morning and for the brief you supplied. It has been most helpful. I think you have brought a very interesting perspective to our work. Again, thank you very much and good luck with your work as it goes forward.
Mr. Dunlop: Thank you for the invitation, sir.
Mr. Lown: Thank you.
The Chairman: Our next witness is Professor Janis Sarra from the University of British Columbia. Welcome, and thank you for joining us this morning.
Please proceed with your opening remarks.
Professor Janis Sarra, University of British Colombia: Honourable senators, thank you very much for the invitation to have a discussion with you about bankruptcy and insolvency law reform.
I am assistant dean and associate professor at the Faculty of Law at the University of British Columbia, and my areas of teaching and scholarship are in insolvency law and corporate law. I should also preface my remarks by saying that I acted as one of the academic reporters in the submissions on behalf of the Insolvency Institute of Canada, and also the Canadian Association of Insolvency and Restructuring Professionals, both on the business side of reform and on personal insolvency reform.
Today, what I wanted to talk about was something not addressed in those submissions, and something that is, in my view, a discrete but very important aspect of the review process, and that is the public interest aspects of corporate restructuring.
As honourable senators will be aware, there have been a number of major corporate insolvencies, both in Canada and in the United States, that have raised a number of serious issues for many stakeholders — senior creditors, workers, trade suppliers, tort claimants, pensioners and equity investors.
One of the important challenges for the Senate committee is to recommend reforms that find the appropriate balance between the multiple interests implicated in the firms' financial distress. Public interest, I think, is implicated in bankruptcy law reform in a number of ways. Insolvencies such as Air Canada raise the question of continued access to national transportation systems at an affordable cost, and also questions around sovereignty in terms of delivery of air service. Other insolvencies such as Algoma Steel and Consumers Packaging Inc. certainly raise questions of the availability of domestic products in terms of steel and glass containers, as well as affecting whole economic regions of the country.
My third example is the Red Cross case, which you will all be very familiar with, in which more than 20,000 people were harmed by tainted blood. It raises public interest questions, not only in terms of finding some justice for them regarding claims and insolvency, but also concerning the whole issue of how you devise a system that, in that case, ensured the continued delivery of a safe blood system.
Bankruptcy and, by implication, the availability of an effective workout tool through both proposal provisions of the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act are essential in thinking about bankruptcy reform and how the system works now and how it might be improved.
There is no question that the loss of business certainly has implications not only for the individuals affected, but also for the tax base in terms of social services and health care costs and other costs. I want to focus on the CCAA this morning because it has been the principal restructuring tool in Canada for the last decade and, in fact, has been a very effective tool and has been used in terms of the major workouts. My submission is basically that the legislation has worked very well, and that the Canadian courts have done an excellent job of balancing complex interests implicated in firms' financial distress.
In particular, the courts have used both the statutory framework, which you will know from all of the submissions and all of your discussions is minimal in nature, and their inherent jurisdiction to engage in supervision of these large workouts and in finding the right balance of interests implicated. They have also been very careful across the country to balance those interests in the context of a much larger bankruptcy and insolvency regime, where there is a hierarchy of credit and claims.
Until very recently in my scholarship, my position was that the language to engage in this balancing of public interest was adequate and that the courts had been doing an effective job. I have been monitoring the Senate committee hearing and the transcripts. I realize that most of the submissions that you are receiving, including those that I have been a participant in as an academic reporter, have spent a lot of time trying to clarify the rights of creditors and, in particular, senior secured lenders in terms of CCAA workouts. I endorse a number of these recommendations. In many cases, such as debtor finance and governance of the corporation, these would be very helpful to give the courts some direction.
The other side of that is that codification of that in the absence of codifying a public interest notion will actually tip the balance in the current system away from the multiple stakeholders to which I referred and towards a specific set of creditor interests, that of senior secured lenders.
I am suggesting that the Senate committee needs to think about this quite carefully. In forming your recommendations for legislative reform, you should think about how to best balance these interests.
I want to touch on three issues in the last part of this opening statement that I think are important.
The first is codifying. It is a shift in my previous scholarship. If we are going to put in place all of these other protections for secured lenders, then we need to give the court express jurisdiction to exercise a discretion and to consider the public interest. They have certainly been doing this in their decisions both at the superior court and the appellate court levels. It has been a helpful exercise. In some cases, parties bring forward evidence in terms of the social and economic costs of particular strategies. The courts, in some cases, have asked their monitors under the CCAA to provide some of that information. This information paints for the court the larger picture implicated if the debtor corporation is not given a reasonable window in which to see if it can devise a viable business plan that is acceptable to its creditors. I would ask the committee to consider codifying that as it moves into thinking about specific language.
Second, I wish to address two aspects of the question of workers. First, there have been recommendations to actually allow debtor corporations in the workout process to set aside unilaterally collective agreements. There is some danger to this. There is no question that, during the workout process, one needs to have an ability to compromise collective agreements just as there needs to be ability to compromise all sorts of credit arrangements and executory contracts.
Work collective agreements are unique. We have a deferred compensation system in Canada, which means at the point of financial distress, the workers have already contributed their human capital, broadly defined as not only their labour, but also their loyalty, ideas and long-term employment. They contribute those things often deferring things such as their pension benefits. It becomes critical in the working out of a business plan where everyone is making compromises that the collective agreement becomes one of the reasons why everyone has to also consider the interests of workers.
The second aspect of workers is that, somewhat to my disappointment as I read the transcripts, there has been almost no discussion about a national wage adjustment system or alternatively revisiting how much is in the current wage preference in the Bankruptcy and Insolvency Act.
As I am sure honourable senators know, the statistics vary, but generally in bankruptcy, whereas senior secured lenders realize anywhere from 75 cents to 100 cents on the dollar, workers on average realize about 7 to 15 cents on the dollar. There is a real question about how we apportion the losses on bankruptcy. Similarly in a restructuring, how should one value the contributions in terms of the workout. More empirical study is needed. I basically am trying to speak for a whole host of people who perhaps do not have the information or resources to participate in these hearings.
The third issue that I wanted to mention with respect to the public interest is a key challenge for the committee, that is, achieving the appropriate balance in terms of liability protection for those governing the financially distressed corporation.
Certainly, while we want to recognize and protect the good faith and duly diligent efforts of directors and officers during the workout process, I am concerned that a blanket safe harbour during this time would actually create the wrong incentives for directors and officers as they are approaching insolvency playing their trade suppliers and other creditors who are not aware of the financial trouble.
The facts underlying the recent People's Department Stores Inc. (Trustee of) v. Wise case in the Court of Appeal in Quebec emphasized this. The Supreme Court of Canada has granted leave to appeal in that case. I am confident that they will give everyone much direction on the scope of director and officer liability under current legislation. A key thing for the Senate committee to think about is a balance between fairness and efficiency in the design of effective workout strategies.
Those are my opening comments regarding the public interest. I would be very happy to assist the Senate committee in any way that I can in terms of the reform process.
The Chairman: Thank you very much for that opening presentation and for your offer of continuing assistance. Perhaps to give you a modicum of assurance on the last section of your points, we had a very full session yesterday with representatives of several of the major unionized groups, the CAW, CLC and others. That transcript will not have reached you yet, I do not think, in spite of the wonders of technology. You may find that many of the thoughts that you felt had not been fully heard are now part of the record. If they have not, it might be useful to hear from you on that point.
Senator Massicotte: You are basically suggesting giving greater priority to the claims of employees. Would you go into more detail as to exactly what that entails? You are talking about wages for past efforts and time. You include severance and unfunded pension obligations. That is the issue of claims.
Would you allow union contracts to be opened up? You basically said that a problem exists, there is a bankruptcy or insolvency, and every stakeholder must be flexible to achieve a solution. How far would you go? Would you give some details?
Ms. Sarra: I realize that they are connected, but let me address them one after the other.
In terms of the wage preference, the stronger solution is some sort of national wage protection fund based on the success of unemployment insurance and other social safety nets. There are a number of ways we could fund it. You can do it experience rated, not unlike workers compensation, or it can be put more broadly across the tax base. That would resolve the problem of workers individually having to file their wage claims. It creates a more uniform safety net for employees. That would be my first preference.
On wage preferences, the studies show that what workers get out is minimal — these are wages that are owed to them. It is a problem because it has quite a ripple effect in the economy due to lost jobs and lost tax base. We need to think about strategies around wage preference not only because of the direct harms to the individuals but also the ripple effects on the economy.
There are many models internationally. Many continental European countries have national wage adjustment systems. We need to think seriously about where Canada is situated in that.
The issue of collective agreements is an important question. You will see that I have tracked many of the CCAA cases of the last decade, which was the basis of a book that was published in the spring. In all of those cases, the collective agreements have been compromised. It requires the parties to say that these are ongoing executive contracts, these are arrangements where we owe things on both sides. Either performance or money is owed. We actually need to strike a new bargain.
It is similar to secured credit arrangements. Secured creditors are able to bargain a new deal that might be a mix of both new debt arrangements and equity so that they are possible beneficiaries of any upside value generated by the workout. Collective agreements are also a means of workers collectively through their union representatives bargaining to see what compromises need to be made and, in exchange for that, what upside value should be generated.
My concern about some of the submissions you have had is the notion that unilaterally setting them aside actually removes that very valuable mechanism that has been a key in a number of workout processes. You want to think very carefully. The statute states that if you want the company to survive you will have to bargain all creditors; at the end of the day, if the creditors do not vote in the requisite statutory numbers in favour of the plan, the corporation will go belly up. At that point, the collective agreements are already terminated. That is the bargaining incentive on the side of the unions. The flip side is the fact that they exist; that is the bargaining incentive on the side of the debtor corporation.
Senator Massicotte: On the first part of your answer, obviously, in respect of unpaid wages you are saying there should be an insurance fund. Would that fund also be available for severance and unfunded pension plans?
My second question, to the latter part, is this: What is the process for achieving a new arrangement with the employees? Is it a single negotiation with both parties present before a judge under the CCAA, if you wish, who has the right to impose?
Ms. Sarra: First, with respect to severance and unfunded pension liabilities, I would say, yes, it should be available. I would put a caveat on the unfunded pension liabilities because there is a live issue currently in Canada about the level at which some of those monies should have been in trust and whether there should be other remedies. Part of that is an issue, further back in the process when the company is still solvent and whether it is appropriately making actuarial calculations to ensure that there are sufficient monies.
As honourable senators are aware, in the early CCAA cases there were actually pension surpluses. That was an avenue for the debtor corporation and creditors to fund the workout. Now, we are seeing a shift in the post-Enron period where a number of companies are realizing that they have underfunded their pension liabilities, and these are potentially huge claims.
It seems to be a pretty pressing problem. However it is cast, these are some of the most vulnerable claimants in the system because they have finished their contributions in terms of their labour to the corporation and they are very much counting on those pensions to get them through the remainder of their lives. Either they have to be part of a national adjustment system or, it seems to be given, if anything, almost a super priority.
In answer to the second question, what happens now is a variety of things. I think sometimes the parties actually work it out, especially if they have had a long and healthy collective bargaining relationship with their unions; however, sometimes they have not had that. The courts have been effective in utilizing judges, not the supervising judge who is managing the whole case but a judge who is familiar with the legislation and frequently familiar with labour relations. They have them go through a dispute resolution process quite separate from the main proceeding. That was extremely successful in Red Cross, in Algoma Steel and, as you probably know, although Air Canada is still in the process, a very successful part of moving the process forward in the current Air Canada proceedings.
Senator Moore: Ms. Sarra, you mentioned at the outset that codification of certain things could tip the balance in favour of major creditors. You cautioned us to be careful. Could you put on the record specifically those things you would not codify? You are trying to preserve the flexibility of the judge to be able to work with the parties to achieve the survival of the company, with everybody giving a bit but keeping the entity alive so that jobs and productivity are preserved. What items would you not codify?
Ms. Sarra: I would not codify, in the important debtor-possession financing question, anything that gave the lenders, who would be primed, a veto over the process. At the end of the day, they have a veto over the process because they hold the claims in a separate class and, without them, you could not have a workout.
In the short term, in that brief window where the court has said, ``You have a stay on the claims. We will see if we can devise a viable plan,'' any provisions on debtor-in-possession, DIP, financing should not end the proceedings prematurely.
The idea that the court would look at a current governance of the corporation, force the debtor corporation to do some initial financial accounting and, perhaps, obtain a monitor's report are all good recommendations. Certainly, notices to creditors before they are primed have been a real problem. It is getting better, but there has been a real problem with ex parte orders, which primes and trumps current lenders in order to give priority to the DIP lenders. That should not happen without notice to the parties.
Some recommendations suggest that if you do not reach an agreement with the senior creditors then the court should not grant it. That would basically kill any restructuring. The courts frequently say that the interim financing is in place to allow the corporation to continue operations for a brief but realistic time while they devise a workout strategy. If you do not have that DIP financing, and few people would finance something if their interests were under water right away, then the corporation goes black immediately. Then there is much greater pressure to simply liquidate the assets and not sell as a viable concern. That is probably biggest one, in my view.
You may also want to think about how the nature of secured lending has changed in the last five years. This concerns not only multiple stakeholders but also some of our senior, secured creditors in the country.
In the early cases, the primary lenders were the chartered banks, under their GSAs and other secured interest. Banks, which are few in number in Canada, have ongoing relationships with businesses and with communities and so they were quite willing to engage in a fulsome discussion about the compromises.
In recent years, there has been a huge influx of distressed debt lenders from the U.S., but, not to take away their ability to enter the Canadian market, they are buying up shares, buying up loans and credit over multiple classes of debt in order to influence the workout process. Their interest is quite different, which is to maximize the short-term value of their claims. They are driven by other considerations.
Some of that delicate balance that we had of national interest in trying to devise plans is shifting, already, even without legislative reform. Any measures that would grant them a veto would actually have serious distributive consequences in the process.
The last point I would mention is this delicate notion of where you apportion the liability with directors and officers. There is no question that there is a live issue about who they are accountable to at the time the firm is financially distressed. Most judgments in Canada have stated that at the point of financial distress, insolvency or in the vicinity of insolvency, directors and officers have an obligation to consider the interests of creditors or, alternatively, to act in the best interests of the corporation that they have now but to consider the prejudice to the interests of creditors. That will help in the development. The Quebec Court of Appeal, as I mentioned, has recently said no to that because it is always shareholders, always.
That is a good move. There has been some talk about codifying that in statute. The tricky part is this: If you say ``best interests of the creditors directly,'' then you are talking about the best interests of the senior secured lenders, unless you put something else in the statute that says you have to consider multiple interests or you have to consider the public interest.
My own view is that our goal in a workout under the CCAA is to maximize the value of the whole enterprise. The director and officer obligations to act in the best interests of the corporation, but maximize value as much as possible for everybody, is healthier language than narrowing it strictly to ``creditors,'' which would be translated as ``senior lenders.''
Senator Moore: I find it interesting that, in most cases, the directors who are doing the workout are the same people who are responsible for the situation. I do not see many instances where the board is changed, people with a different focus, maybe with the focus of primarily trying to get it worked out and looking after the creditors. Do you have any comments about that, about the makeup of the board in the workout situation?
Ms. Sarra: Certainly. It is interesting. I would have agreed with you until about four years ago. I think that is something that has been shifting. First, corporations have now started using chief restructuring officers as a key part of the restructuring strategy, and they are also often staying on for a period of some years after the restructuring. These are highly skilled professionals who, basically, as part of their package know that some faces have to change. Those people who govern well while a firm is financially solvent are not necessarily the people who are best to be the directors and officers to turn the company around, as you have observed. I do think there is some shift in the construction of boards afterwards.
In Canada, because 65 per cent of our corporations, even where they are publicly traded or closely held, there are some tensions around family-owned or closely held businesses retaining some elements of control. Therefore, some balancing is there, but I think there is a shift. I think that everyone, from workers or unions to senior creditors, are starting to pay attention to what the governance structure of the new corporation or the revised corporation will look like. It is a very positive development.
[Translation]
Senator Biron: You are suggesting that RRSP?s should be deposited in life annuities, meaning that they would be unseizable by a trustee or by creditors. Did I get you right?
Mrs. Sarra: I don't answer in French because, now that I live in Vancouver, I don't speak French very often.
[English]
You are raising the question of RRSPs and already vested pensions, and whether or not this provides sufficient protection?
Senator Biron: Yes.
Ms. Sarra: I did not catch the last part of the —
Senator Biron: You are suggesting that the RRSP be transferred in an annuity.
Ms. Sarra: Are you talking about business bankruptcy?
Senator Biron: No.
Senator Massicotte: I think the question he is asking is about personal bankruptcy. For individuals, upon bankruptcy, you are suggesting RRSPs be exempt from any claim from creditors. Could you explain that a little bit and state why?
Ms. Sarra: Okay.
Senator Massicotte: From reading your paper, I presume that is what you were saying, right?
Ms. Sarra: Okay, sorry, I have not, to this point, actually addressed personal insolvency. My reference is to the cases where the companies have underfunded their own pension plans — this is not something where they are separately in a RRSP — and what we do about those unfunded liabilities. I apologize if I misunderstood the last question, but I was talking about the actual corporations in a workout and what we do with the pension claims.
Senator Massicotte: The question is individuals.
Ms. Sarra: In terms of personal bankruptcy — which I actually did not include in my submission, but I am happy to comment on — as you know, what happens now is that pension plans for individuals are exempted in personal bankruptcy but RRSPs are not. Certainly, there have been submissions on the personal insolvency law reform side to say that we should treat equitably RRSPs and pension plans operated by companies, and I support this move. I think it is actually quite important.
Years ago, the vast majority of employees were protected by company pension plans. As the nature of the workforce has changed, individuals are left to direct their own pension savings more and more. Hence, there have been incentives created for people to contribute to RRSPs, et cetera. Therefore, it seems to me that we should treat RRSPs the same way we treat pension plans, in terms of protecting individuals. If they go bankrupt, their creditors certainly get access to the vast majority of what assets they have remaining. However, want to encourage people to save for their retirement; we want to ensure, even where they have had financial distress at age 50 or 55 or 40, that at the point at which they become pensioners they have a base of income.
The Chairman: With respect to the CCAA and large corporate restructurings, although you have indicated some areas where you feel the specificity of legislative direction would be helpful, I take it from your written and oral presentation that, generally, the flexibility inherent in the rather spare legislation that we have now is a positive in your view as opposed to one that would go the other way — perhaps more of a chapter 11-type of approach. I take it you see the flexibility inherent in the system as a positive thing, by and large — and I include that by virtue of the favourable comment you had as to the way the courts have administered these matters.
If I am reasonably accurate in that, I should like you to comment on the degree to which that is uniformly true across the country and across the courts. You have the advantage of operating outside of Toronto or Montreal, which gives you, obviously, clarity of view and objectivity. Looking across the courts as you do from an academic point of view, do you see that the strengths of a flexible system are being realized fairly across the country and across the courts? We are aware because, if only from the news, we see the very large issues of the very large restructurings and the very small number of judges attached to those cases. There are great demands placed on the judges who have to deal with this kind of a system. I invite you to make any comment as to how well the flexible legislation is working more broadly across the system.
Ms. Sarra: My own view is that it is working very well across the system. That is not to say it works perfectly — and there is no question that a sizeable number of the cases go through the commercial list in Toronto. That is very much a function of the highly skilled judges the commercial list has; however, they have also developed a very expeditious process for having these files get on immediately, and having a supervisory judge. However, I agree that it taxes the system.
I am engaged in the early part of a five-year study studying all of the CCAA cases across Canada, going back four years and forward probably a couple of years. I have been examining all the judgments and we have been slowly getting access to all the files of the cases. I have law students working with me. I think it is fairly clear that there is a fairly high degree of consistency. There were certainly questions about a decade ago about whether some of the courts in some of the smaller regions really were undertaking decisions that were somewhat non-traditional, but I think that has changed as a function of two things. The first is that the electronic age has meant that the judges right across Canada have easy access to each other's decisions, and I think parties do as well. There is a real uniformity. One sees a real convergence in the case law in how a number of issues are dealt with, whether it is post-petition trade credit or debtor-in-possession financing — when you actually grant the initial CCAA stay. There is growing consistency across the country.
Second, it is important to note that the National Judicial Institute, which is the educational body of the judiciary, has done much work to ensure that the judges in the regions that do not get to hear the CCAA cases as often, because the head office is not located there or it is not directly implicated, are getting the benefit of the wisdom of the judges and other parties on the big cases nationally. They have done a very good job. It has worked remarkably well as a flexible restructuring tool.
It is much more cost effective than chapter 11 in the U.S. Any judge or practitioner will tell you that you need $1 million minimum for lawyer and other professional costs to start the proceedings.
Senator Massicotte: We hear many claims and all are very strong relative to the division of assets under CCAA. The principal debate is super-priority ahead of the secured creditors. All relate to people who provided services but did not get paid. You also have a secured creditor — capital or money — that is also not getting paid.
We talked about financing earlier. The trend in Canada is asset lending, predominantly secured. Small businesses are complaining that there is not adequate funding. In fact, there is very little junk-bond financing in Canada. There is no market here for high-risk lending and very few lenders do so. There is BDC and so on.
Have you any generic comment about how we should limit, to ensure that providing super-priority to anyone will hamper increasingly financing to a sector that is already finding it difficult to lend? Air Canada is using long-term lending and leasing of planes. Any comments of where the balance should be achieved there?
Ms. Sarra: Yes — and that is a really good question. I do not think it is an easy task. In addition to access to credit, we also have to think about long-term cost of credit. The balance really needs to be one where we recognize the relative strength of parties to protect themselves in the bargain upfront. Senior and high-risk lenders obtain a fair bit of access to information as part of their bargain in security arrangements. They are able to sense quickly and early, before anyone else does, where there is financial distress. Senior lenders do much to get the corporations to start adjusting a number of its governance practices as part of what their regular monitoring is in credit arrangements.
To shift somewhat in terms of super-priority for those parties that cannot do that is not going hurt the credit system in the long term. I have interviewed a number of senior lenders for my research. They want certainty in the system. They want to sense that this is the priority, and they will adjust their credit arrangements.
There are other reasons to make credit available in Canada that are much more attached to both our domestic and international capital markets. However, senior lenders are troubled currently by the bit of uncertainty around where exactly all of these balancing of priorities will lead.
I do support some of codification recommendations that have been made.
We should be careful to respect the current kind of hierarchy in the Bankruptcy and Insolvency Act. We might adjust the amounts or might put in place other measures that help adjust balance, such as a national wage adjustment system.
Those measures would not put us in danger of jeopardizing the credit system in any way. I would be very surprised if any senior banker or the more sophisticated bondholders and venture issuers would disagree with me.
The Chairman: Any further questions? There being none, thank you very much. It has been very helpful and very stimulating. We very much appreciate your joining us this morning. We look forward to your assistance on an ongoing basis.
Ms. Sarra: Thank you very much. I would be happy to help in any way in which I can be of assistance.
The committee adjourned.