Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 19 - Evidence - Meeting of November 23, 2005
OTTAWA, Wednesday, November 23, 2005
The Standing Senate Committee on Banking, Trade and Commerce, to which was referred Bill C-55, to establish the Wage Earner Protection Program Act, to amend the Bankruptcy Insolvency Act and the Companies' Creditors Arrangement Act and to make consequential amendments to other acts, met this day at 5:15 p.m. to give consideration to the bill.
Senator Jerahmiel S. Grafstein (Chairman) in the chair.
[English]
The Chairman: Welcome. We are here to consider Bill C-55, which, as you know, is a bill of some controversy. The full committee is here. As well, we have with us a minister and parliamentary secretary.
Our proceedings are being televised from coast to coast to coast by CPAC, giving Canadians the opportunity to watch our deliberations. Our proceedings will also be on the Internet, not only across Canada, but worldwide. This will be an international show of some interest to those interested in the subject matter.
We are delighted to have with us today the Honourable Joe Fontana from London, Ontario, and the Honourable Jerry Pickard, the parliamentary secretary to the Minister of Industry.
As you all should know, the genesis of this bill has a huge reservoir of interest in this committee, because we studied this bill and made serious recommendations to the government. It took us a long time to deal with that. We are delighted, as well, to have Senator Goldstein, counsel to the committee at the time, but, because of his great work at the Senate, has since been elevated to this place.
I should also like to introduce to you Senator Zimmer, an old colleague and friend from Manitoba. He is now serving on the committee for the first time. We want to welcome him. He is a newly appointed senator.
The Honourable Joseph Frank Fontana, Minister of Labour and Housing: Honourable senators, let me, first, thank you very much for, not only the hard work that you have undertaken, but the incredible work that the Senate has done on what I believe is a very important issue — our government believes this. I am joined by Mr. John McKennirey Gay Stinson, from the Department of Labour and HRSDC, respectively.
Senators, our government is listening carefully to the concerns of Canadian workers who suffer hardships when their employers declare bankruptcy. From coast to coast to coast, we consulted with Canadians. From Canada's labour unions, the insolvency community and the lending community, we heard the message loud and clear. We need to take action to change our insolvency system to better meet the needs of our economy and Canadian workers. Striking the right balance between the interests of debtors and creditors is the cornerstone of a fair and effective insolvency system in Canada. That is why our government introduced Bill C-55, a balanced and comprehensive package of reforms to Canada's insolvency system.
I should like to talk about how these reforms will improve the protection of workers whose employers attempt to restructure or declare bankruptcy. Our labour department, for 10 or more years, has been talking about a wage earner protection program.
Under the current system, too many Canadians workers are vulnerable when their employers undergo restructuring or become bankrupt. Many Canadians works suffer lost wages, reduced pension benefits and the uncertainty that their collective agreement may be unilaterally changed by a court. Every year, an estimated 10,000 to 15,000 workers are left with unpaid wage claims as a result of employer bankruptcies in Canada.
Under the current system, many workers have to wait — possibly as long as three years — until everyone else has been paid off. These workers often end up with a small fraction of the wages owed them. Overall, the average payout to workers is only 13 cents on the dollar.
Bill C-55 proposes an innovative approach to solve this problem. The centrepiece of the bill is a program to ensure the timely payment of unpaid wages. The wage earner protection program will protect Canadian workers' unpaid wages and vacation pay, up to a maximum of $3,000. It will get the money into the pockets of affected Canadian workers more quickly, usually in six to eight weeks, not the three years that is the average. Through this innovative program, 97 per cent — I repeat, 97 per cent — of workers will receive the full amount of wages and vacation pay owed to them.
The cost of this program is estimated to be $30 million a year. If there is a dramatic increase in the number of bankruptcies in Canada, it could go as high a as $50 million.
Under the wage earner protection program, the government will assume workers' claims against their bankrupt employer's estate. This means the government will recover a portion of its costs by making claims against the employer's estate.
The government will also raise the priority of unpaid wage claims to limited super-priority status through the bankruptcy process. This means that unpaid wages will be one of the first in line to be paid from the current assets of the bankrupt employer — ahead of secured creditors.
When unpaid workers apply to the WEPP, they will sign over their claims against the bankrupt employer to the government — up to the amount of payment they receive from the WEPP. The limited super priority for unpaid wages better balances the risk of bankruptcy between employees and other creditors of the bankrupt company. Right now, that burden weighs too heavily on the employees. They go to work each and every day expecting to be paid. They are not expected to be creditors to companies. It will help the government to recoup the costs of the wage earner protection program by making more assets of the bankruptcy available for employees' wage claims.
Honourable senators, pensions are an issue that concern many Canadian workers. Under the current scenario, when a company goes bankrupt, contributions taken from the employees' paycheques may not be paid into the pension plan for them. Contributions that the employer should have been made are only paid after almost every other creditor is paid.
The proposed reform package will remedy that situation. In a bankruptcy or receivership, contributions that an employer should have made or that were deducted from an employee's paycheque will now have to be paid into the pension plan. This measure will improve the protection of workers' pensions.
Bill C-55 aims at encouraging reorganization as an alternative to bankruptcies. In the long run, this approach will pay enormous dividends by saving Canadian jobs, encouraging better recovery for creditors and stimulating competition in our economy.
The proposed reforms also make important changes to the treatment of collective agreements in an insolvency situation. When employers try to restructure to avoid bankruptcy, these proposed reform provide a mechanism whereby employers and unions can be obliged to attempt to renegotiate collective agreements under the relevant labour relations legislation. However, obtaining a court order authorizing an insolvent company to serve a notice to bargain on the unions with whom it has collective agreements will not be easy. The employer will have to satisfy stringent tests to prove to the court's satisfaction that the restructuring cannot be successfully completed without concessions from the employees. Moreover, the union will have the opportunity to oppose the employer's application. Both parties — the union and the insolvent employer — must bargain in good faith over possible amendments to existing collective agreements. Nothing in these provisions will require a union to make or accept concessions, however. It will only oblige them to negotiate in good faith, given the circumstances.
I thank you for your consideration and look forward to your questions.
My colleague, Mr. Pickard, will continue.
The Honourable Jerry Pickard, Parliamentary Secretary to the Minister of Industry: Senators, it is a great opportunity to attend before the committee to discuss Bill C-55. This proposed legislation will introduce substantial amendments to Canada's two main insolvency statutes — the Bankruptcy and Insolvency Act, the BIA; and the Companies' Creditors Arrangement Act, the CCAA — and creates a proposed new statute, the wage earner protection program act, which will be under the responsibility of the Minister of Labour. The effect of this bill will be felt in personal and corporate bankruptcies as well as in corporate restructurings and consumer proposals.
The reforms introduced by Bill C-55 are intended to be comprehensive and to bring Canada's insolvency regime up to date. With this proposed act, we will be directly affecting the interests of many Canadians — large and small entrepreneurs, workers, trade creditors, lenders, consumers and investors.
This bill was introduced in the other place only after extensive consultations with stakeholders, practitioners, academics and other interested parties. As well, there was important work done by this Senate committee in 2003 that produced the report entitled "Debtors and Creditors Sharing the Burden: A Review of the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act." The report was instrumental in the development of many of the provisions included in Bill C-55.
The impetus for Bill C-55 can broadly be described as falling into four categories: better protection for workers; promotion of restructuring and alternatives in bankruptcy; elimination of inequities and reduction of abuse; and improvements to the administration of the insolvency regime.
Allow me to briefly describe in detail some of these objectives realized in the bill.
It is widely accepted that inadequate provisions exist for workers whose employers becomes bankrupt. Previous attempts to bring about better protection for workers have failed, as the Minister of Labour has pointed out. It is clear that changes had to be made in order to bring this bill forward. My colleague the Minister of Labour has explained the four points that I listed, so I will skip over them.
Experience has shown that restructuring provides much greater protection than liquidations through bankruptcy. Jobs are saved, creditors obtain better recovery and more competition is stimulated. Therefore, it is a cornerstone of Bill C-55 to promote restructuring. Bill C-55 encourages a culture of restructuring by increasing transparency in the proceedings, providing better opportunities for affected parties to participate, and improving the system of checks and balances to create greater fairness and efficiency.
To achieve its aims, the bill provides the courts with legislative guidance to ensure greater certainty and predictability with reference to such items as interim financing, the disclaimer and assignment of agreements, the sale of assets out of the ordinary course of business, governance arrangements of the debtor company, and the application of regulatory measures during the restructuring process. These issues were addressed in recommendations contained in your 2003 committee report and are largely reflected in the provisions of this bill.
As the committee recommended, the government has kept the two statutes, the BIA and the CCAA, separate. However, in most of the changes to corporate restructurings in the CCAA, parallel changes were made to the BIA proposal provisions, to ensure consistency.
Amendments are also proposed to the BIA to encourage individuals who enter into and fulfil consumer proposals rather than filing for bankruptcy. Bankrupts with surplus income will be required to pay more for the long term than is currently required, making the use of proposals more attractive. In addition, minor defaults in consumer proposals will be more easily corrected where the administrator believes it is in the best interests of the creditors and the debtors.
Eliminating inequities and reducing abuse are important as well, and the amendments proposed in Bill C-55 will address structural inequities found in the BIA and will attempt to reduce the scope for potential abuse by strategic bankrupts.
As recommended by the committee, the bill exempts all registered retirement savings plans from seizure in bankruptcy. RRSPs are a vital component of retirement planning for self-employed individuals and those workers whose employers do not offer pension plans. Currently, the protection to RRSPs varies depending upon the province of residence and the type of RRSP product. This leads to inequities in the treatment of debtors. Bill C-55 eliminates this inequity and provides the assurance for Canadians that their retirement funds will not be subject to seizure in bankruptcy.
Bill C-55 will also attempt to limit potential abuse by making it difficult for individuals with large tax debts to use the bankruptcy system to shed their income tax debt. In addition, the court will have the power to direct payment to a single creditor in exceptional circumstances where the trustee has failed to act diligently or where the bankrupt has attempted to defeat the interest of one of its creditors.
Finally, Bill C-55 includes many technical changes designed to improve the administration of the insolvency system. The role of the Office of the Superintendent of Bankruptcy is expanded to include oversight of the CCAA. The provisions related to receivers and the role and power of trustees and monitors are also further clarified. The proposed creation of a national receiver, with the power to act across the country, will greatly streamline the process to the benefit of creditors.
Mr. Chairman, these are some of the key features of Bill C-55. The bill has attracted considerable attention and broad-based support. The various briefing materials provided to the committee contain additional explanations on the content of Bill C-55.
On behalf of Minister Emerson, I thank the committee for this opportunity. We look to your consideration of this important legislative initiative. I will be pleased to respond to your questions.
I have with me, from Industry Canada, Gilles Gauthier and Joseph Allen, who will help with some of the more technical questions.
Senator Angus: Welcome, and thank you for appearing. You are aware, of course, that we are in an extraordinary time on Parliament Hill. You may also be aware of some of the concerns expressed in respect of this proposed legislation and the process that it has followed. In that vein, the chair has agreed to allow me to make a preliminary statement, after which I will go to questions.
Mr. Minister, and Mr. Parliamentary Secretary in particular, you will have been involved directly in the process of Bill C-55 in the House of Commons. Since yesterday, when it became known to senators, and members of this committee in particular, we have received an extraordinary number of phone calls, e-mails and letters from stakeholders expressing a general outcry that the bill would appear to be fast-tracking because of the impending election, et cetera.
I have been a member of the Banking Committee since 1993, and I have always been interested in the review and reform of Canada's insolvency legislation. I was an active participant in the report to which you referred, Mr. Pickard. Members of the committee were looking forward to a protracted and detailed sober second thought of this proposed legislation in February. Concerning those provisions to which you referred, Mr. Pickard, it is our sense that the brief part of this large bill, some 150 pages, dealing with wage earner protection and enhancing the protection of workers as preferred or secured creditors, is a small part of a much larger piece of proposed framework legislation. In hindsight, it would have been better had it proceeded as a separate bill. Efforts have been made during the last 24 hours to find a way to separate the wage earner protection portion of the bill because it is uncontroversial with its all-party support. It makes a great deal of sense and represents part of this committee's previous recommendations. Its intent is clear, subject to one or two minor technical problems. We have been working feverishly to find a way to split these two and have the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act and the reform of the bankruptcy laws deferred to a time when the committee is better able to give it the consideration to which it is entitled.
Unfortunately, it was suggested that that likely will not happen. If any of our witnesses this evening know of any way to move these forward separately and quickly, in respect of the wage earner protection program, it would achieve great favour among all members of this committee, I believe, and perhaps all senators. We find ourselves in what Senator Grafstein referred to this morning as a crise de conscience — a crisis of conscience. On the one hand, we have a constitutional duty to give sober second thought to this bill, which is impossible to do in one evening; on the other, we think that the wage earners deserve the special protection that this bill would provide. Hence, we are caught in a bit of a bind.
We members of the Conservative Party are absolutely appalled that we are being put to this crise de conscience and asked to pass a bill that we think needs more study. As well, over the last few hours, stakeholders have told us that the bill contains many serious flaws. My comments on this bad situation are said in good faith. I want there to be no mistake about how my colleagues and I feel about it.
Mr. Pickard, Minister Emerson would be the minister responsible for the larger portion of this proposed act. Is that correct?
Mr. Pickard: Yes.
Senator Angus: Do any of you know of any flaws in Bill C-55 that were brought to your attention because they would make it unworkable? They might have been oversights at the drafting table and in need of fixing.
Mr. Fontana: Senator Angus, I would ask my colleague to address a technical question. I appreciate all of the work that the Senate Banking Committee has done on a highly important issue. As senators are aware, wanting to make the necessary changes, as with any piece of proposed legislation, especially as it relates to bankruptcy and insolvency, has been a priority of the Senate and the House of Commons. We are in extraordinary times and so we have not had the luxury of sufficient time for committees to hear from all relevant stakeholders, as the House of Commons committee was preparing to do, even though I should tell you that extensive consultation before the drafting was complete had been undertaken. We all know that the devil is always in the details, and no piece of proposed legislation is as perfect as we would like it to be. We appreciate and are respectful of the fact that, when bills come before the Senate, they are often very much improved.
However, as you indicated, senator, the process is unlike the one to which we are all accustomed. The reason for that is because of something that is possibly impending, and we will have to wait until Monday. Therefore, there was an all-party agreement to move this through the House of Commons as quickly as possible, as imperfect as it may be, to essentially bring it before you so that we could have something that workers have been waiting for, for a good many years.
The proposed wage earner protection program act is a centrepiece in terms of protecting workers who each and every day go to work with only one social contract, that is, for every hour they work, they expect to be paid. I do not want to diminish the other pieces of this legislation, as they are important, but I can tell you all political parties in the House believe this is a very important piece of legislation and that we should pass it before the House of Commons and Parliament dissolves.
Senator Angus: The wage earner part?
Mr. Fontana: Yes.
Senator Angus: I hope you will keep in mind as you continue with your answer or your statement that the election has not started yet.
Mr. Fontana: Precisely, and believe it or not there are many good pieces of legislation we would like to proceed with.
In answer to your question, in order for the proposed wage earner protection program to work or to exist, changes must be made to the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act to put the mechanism in place.
Your question was, could it be split? Could a whole bunch of other amendments have been put forward, as we were discussing, even in the House of Commons? Yes, but with time. Unfortunately, we do not have the time.
I would respectfully suggest that, as imperfect as it is, given some of the hard work that you have done, there will be an opportunity to improve the legislation when Parliament resumes. I would hope that not only would we do that in the House of Commons, but also, because you started this process some number of months and years ago and have taken the initiative, we would welcome your input in a further report as to how we can amend the BIA and the CCAA.
However, because this is so important and because all political parties have understood it is so important, we respectfully ask you to pass it and, when Parliament comes back, we would engage this committee and Canadians to make the improvements that obviously would improve it.
Because time is not on our side and because Canadians and all political parties believe that this is absolutely important, I would respectfully ask that you leave it as is. Even if some amendments were proposed, unfortunately, they could never get back to the House of Commons for us to do the necessary work. We are caught between a rock and a hard place. I would hope that most Canadians would understand that sometimes legislation is never perfect, but the intent and the spirit and the guts of this legislation are very important to business as well as the employees and workers of this country.
Senator Angus: Thank you, minister. I did not interrupt, but I really directed my question to the other gentlemen. You did have your say, and I have to make this comment in the same spirit as my earlier one. You cannot make that commitment because you do not know whether you will be in power after the election is over. That is one of the problems the chairman and I have been grappling with. I appreciate your confidence and positive outlook about the people's resolve. My specific question —
The Chairman: One thing Senator Angus will tell you is that, no matter what, we will be here.
Senator Angus: Senators will be here.
Mr. Fontana: I am sure you will do the work that we have not done.
Senator Angus: Unfortunately, there was a mistake made. It would have been good in hindsight the parts of Bill C-55 had been separated. In any event, the question was: Are there any actual errors and glitches in there that you know of right now and that you could bring to our attention?
Mr. Pickard: Senator Angus, your comments are fair and bring forward the concern that many people would have. As you pointed out in your initial statement, we are in times that differ from the normal practice. We know that the work the Senate committee has done on this was very in-depth and detailed and provided the House and the department with a lot of very good material to move forward with. The department in drafting and the House of Commons in hearing this legislation have accepted something like two thirds of the recommendations that were brought forward by the Senate committee. That in itself shows the magnitude of how they have listened to the Senate committee.
At the same time, I have to point out that many of the circumstances that have been brought forward are affected by other departments and other provinces. Each province has its own impact in certain parts of this legislation. As a result, every recommendation could not be placed within the spectre of this legislation without a very wide public consultation, without dealing with shortcomings that may happen.
We had the responsibility of drafting the basis of Bill C-55, and then we had a basic responsibility to have witnesses looking at the provincial legislation it affects, looking at the other departments it affects, and looking at the institutions, the commerce, business and workers. Obviously, the scope of the proposed legislation does leave some shortfalls — I have no question about that, and I will not try to defend it all — because of the complexity in all the factors and people involved.
We do believe that most Canadians are supportive of Bill C-55 moving forward. We also believe that even though there may be shortfalls within the process — obviously, the hearings were not conducted as they normally would have been in the House of Commons committee — we have other avenues for work on this bill as well. We can look at the regulations, and we can deal with many of the issues within the regs to help deal with some of those concerns that are coming forward. There is still opportunity, because once the bill receives Royal Assent, implementation would not be until a later point in time. Therefore, there is a clear opening for legislative work to be done as well.
I would encourage the Senate — you are going to be here, and you said you were going to be here — to look at legislative opportunities to move forward on the bill as well. We also would encourage within the regulations and other opportunities in the House to move that forward as well.
This is not a finite, final issue. I believe there are opportunities to deal with it in a broader spectrum that comes forward. I appreciate all of you saying that there are some things here that need to be worked on; I am not in disagreement with that. I think the statement is fair.
Senator Angus: I think your answer was excellent. My colleague Senator Meighen will explore with you the possible ways of allaying the fears that have been brought to our attention by the stakeholders today.
I think you did agree that there are some imperfections. There is one in particular on which I have been heavily bombarded today by the financial services industry, particularly the banking sector, and that is the derivatives trading industry. Certain amendments were made to the BIA to continue, in effect, the technical things that have to happen at the end of a day when you are in these structured transactions globally. There is a balancing out at the end of the day for the banks to be able to finance the transactions. Canada has a big industry in derivatives and swaps and other structured products. I think the officials would know that.
I am told by the industry that they brought it to the attention of the officials — it might have even been Messrs. Allen and Gauthier — and they agreed they had made a mistake. When the amendment was made to the Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act was overlooked. Consequently, I am told by lawyers and so on representing the industry, they will not be able to give legal opinions to banks. These are the kinds of opinions that banks need to have before they will make the loans that finance these transactions.
Am I right in understanding that industry has brought this problem to the attention of the department?
Mr. Pickard: I would have to refer to the officials on that.
Gilles Gauthier, Director, Corporate and Insolvency Law Policy, Industry Canada: Indeed, we did receive some comments to the effect that the bill might, according to their view, have unintended consequences affecting eligible financial contracts. The intent of the legislation is not to affect the eligible contract exemption. Currently, under the Companies' Creditors Arrangement Act, eligible financial contracts are not to be subject to the stay of proceeding imposed. A view has been brought forward that, because of a change in another provision of the bill, it might have unintentionally diminished the protection afforded to eligible financial contracts.
However, there is a contrary view also.
Senator Angus: What is your view, sir?
Mr. Gauthier: The fact that the legislation is explicit in recognizing the different nature of eligible financial contracts, a court, looking at this, would accord precedence to that specificity as opposed to the general clause elsewhere in the bill.
Senator Angus: I do not know that. I do not know how Judge Farley, for example, would find on the issue; but we should not pass laws that are unclear, of that consequence. We have been told — and all of us have received the same stuff today — that the whole derivatives trading industry will be killed if the bill becomes proclaimed into law as drafted.
I believe there are other things that Senator Goldstein is much more conversant with than I — imperfections or areas in which the bigger part of the law, not the wage earner part, have to be improved. Perhaps, in terms of the proclamation period, there is a way to fix it. I do not know, but I will defer to Senator Meighen at this point.
Senator Meighen: I cannot help but reiterate a concern of many members of the Senate, and I think members of the House of Commons as well, that time does not seem to be on our side. In fact, we are in such a squeeze that it seems impossible to even consider splitting the bill and getting through immediately that portion upon which we all agree. This has been done in the past; it is not totally unheard of in parliamentary work. Bills are split because there are parts of them that, while they may be somewhat interrelated, can nevertheless be separated. You get what you really want to get into effect passed, and then go back on the more difficult portions.
The representations we have received are not just niggling little concerns about details; they are things such as serious reduction of credit, which we perceive with certain provisions. I will not read them all; you are probably as familiar with them as I am. These representations come from the Canadian Bar Association, the Canadian Bankers Association, the Canadian Life and Health Insurance Association Inc., the International Insolvency Institute, the Insolvency Institute of Canada and leading law firms; they worry that we will be offside internationally, as you were discussing a minute ago.
This has all of us in a crisis of conscience. Do we pass what independent, third-party, knowledgeable observers tell us is deeply flawed legislation; or do we not pass it and suffer the other consequences, namely, wage earners not having the protection that they have been long waiting for?
I say, again, there has to be a solution. The minister tells us that splitting the bill is not possible. With no disrespect, had we turned our minds to it earlier, even 36 hours ago, I think we could have found a solution. However, I guess I will take the word of those who know better than I that it is possible.
There is one solution, however, that has been touched upon — that is, an undertaking not to proclaim this bill until such time as we have the major imperfections straightened out following the election. We all seem to agree that, regardless of who wins the election, we are a like mind in seeking to get this legislation right.
The Chairman: Can I clarify? Are you suggesting that the whole thing not be proclaimed or just those provisions?
Senator Meighen: I was going to give the minister and his colleague an alternative.
The Chairman: I am just trying to understand this.
Senator Meighen: My preference, and I think the preference of many of us, would be not to proclaim the entire bill. When we get it straight, it can be proclaimed; and, indeed, I think it can be proclaimed with the retroactive effect, so that bankruptcies that have occurred and wage earners that have suffered can be put to right subsequently. I do not think there is any problem with that.
If that is not possible, for whatever reason, then, as a last resort, just proclaim the proposed wage earner protection program, and leave the rest of the bill for the necessary improvements that every independent observer tells us are required in order that we do not shoot ourselves in the foot.
Could I have your undertaking in that regard?
Mr. Fontana: If you go to the back of the bill, proclamation, as you indicated, can be done in various stages — and obviously is done by order-in-council. We want to work with you. I do not think any government, including all the political parties who support this, wants to do anything counterproductive. The fact that we have spent the year drafting and consulting is proof that we want to get the balance right.
The devil is always in the details. Some of the people from whom you are hearing will be coming before the House of Commons in any event to talk a little bit about that, in terms of how we can get it as perfect and balanced as we possibly can. For one thing, we want to ensure that business is not deprived of the capital they need to grow and to employ more people. However, at the same time, the proposed wage earner protection program legislation will protect those employees who go to work each and every day and who all of sudden find themselves in a precarious position.
Senator Meighen: That is right, but people are telling us that we are restricting credit.
Mr. Fontana: We can get into a long discussion as to how we are doing that. I think the balance is right. We are moving only to limit its super priority. As you know, there was a view from others that said go full priority, which would have been a little more difficult. We have tried to get to that balance. I think there is an explanation that, in most cases, credit is not going to be denied. In fact, predictability and better laws governing insolvency, et cetera, will make it possible for the lending institutions and small businesses to cooperate.
The direct answer to your question is this: There are provisions in the bill that would allow the government to proclaim, on a staged basis, those parts of it which it could. Therefore, I am prepared to tell you that I think we can do this, given your approval in moving it forward, regardless of who forms the government. Obviously, we would hope we are still there to be able to put in place what we have put in. However, at the end of the day, that is for a government to decide.
Senator Meighen: You said you thought you could do "this." I am not sure what "this" is. Is "this" to delay proclamation of the bill until we get the provisions straight?
Mr. Fontana: Yes. I indicated that the bill does provide for proclamation of different sections at different times.
The Chairman: Bear with me for a moment, because this is crucial. Having consulted with members on all sides and listened carefully to the debate on second reading, there is a clear consensus in the Senate that we proceed with those provisions dealing with the workers' protection. That is our desire. You have heard from Senators Angus and Meighen; you have not yet heard from our colleagues on the Liberal side, but we are equally concerned about how we deal with this, having in mind the unbelievable time bind that the other place has put us in.
Having said that, we have to live with reality. I am trying to clarify this for the understanding of all of us. I have heard two things. First, there would be a consideration for implementing only those provisions that deal with workers, the first section, subject to one or two of the provisions on the other side that are required in order to implement it appropriately. There are, and I think I heard you correctly, Mr. Pickard, provisions on the other side that are necessary to implement the proposed wage earner protection program act.
Mr. Pickard: My understanding is that we cannot separate the two aspects and maintain the balance that is required to move forward.
The Chairman: I understand that. However, we do know that there are certain provisions that are not flawed provisions that could, in effect, be implemented at the same time as the workers' protection to ensure a wholesome bill. It is not dividing the bill; it is dividing the proclamation or implementation of the bill. This is very important.
Mr. Fontana: If you look at the "coming into force" clause on page 147 of the bill, clause 141(1) states that clauses 1, 67 and 88 come into force "on a day to be fixed by order of the Governor in Council." That is the WEPP. Clause 141(2) refers to clauses 2 to 66, 68 to 87, 89 to 123 and 136 to 139, and that is the BIA. The third clause — and therefore one can stage these coming into force provisions — 141(3), is clauses 124 to 131, and that is the CCAA.
Hence, in answer to Senator Meighen and yourself, that is doable or may be doable, if we both want to achieve what it is that we want to do, namely, proclaim the parts of this proposed legislation at different times, taking into account what you have indicated.
Senator Angus: Are you prepared, minister, to undertake to not proclaim the BIA and CCAA part?
Mr. Fontana: Mr. Pickard indicated that there are certain provisions of the WEPP that are tied very much to the BIA and CCAA. Therefore, in order for the balance to be right and for the mechanism to work in the WEPP, we need those provisions — maybe not all the provisions of the BIA or the CCAA — that would make the WEPP operable.
Senator Meighen: I think we agree, but I have not heard you say, with the greatest respect, minister, that you are prepared to agree that only the clauses included in 141(1), plus those clauses in 141(2) and (3) that relate to the WEPP and are necessary for the WEPP's implementation, would be proclaimed, and that the other provisions would not be, pending remedial work.
Senator Angus: It could be the whole thing, though. We do not know.
Senator Meighen: The minister just said that there are some that are required.
Mr. Pickard: A compromise that may be reasonable is the date on which the implementation of the three clauses could occur. That is something that could be looked at. If we were talking about implementation in January, we would be in more of a pickle than if we were talking about implementation in June or May.
Senator Angus: Yes.
Mr. Pickard: We are on the same wavelength. We can resolve the problem.
Senator Angus: Let us have the commitment, then.
Mr. Pickard: I wish to point out that with respect to the limited super-priority that was a recommendation that came from the Senate committee. That is something that I believe needs to be discussed further. However, it was one of the Senate committee's recommendations back that we implemented.
When we look at this, there are complications in all parts of this legislation, but I do think that further investigation and discussion would be adequate if the timeline of implementation were out a bit.
Senator Meighen: If you said it would not be implemented before June 30 — I cannot speak for everyone, but I think you would have —
Senator Angus: It could be retroactive. This is not tax legislation.
Mr. Pickard: Let me point out, though, that in a bankruptcy situation, dealing with division of the assets, liquidation and other things, you cannot say, "We will come back and retroactively fix it up."
Senator Angus: That is not what Senator Meighen was suggesting. He was referring to bankruptcy occurring after June 30 but the credits built up prior to.
Mr. Fontana: Let me give this assurance to this committee —
The Chairman: Unfortunately, we are over our time. I committed to senators that we would get this question on the table so that the public would understand what we are trying to do here, in institutional interest and in the interest of the public.
Senator Angus: In keeping with the commitment, we do not accept that the commitment to have all this hearing televised has been kept. We are not saying it is your fault, but we reserve our right to deal with this. We want the public to understand what is going on here.
The Chairman: We thought we would commence at four o'clock and have adequate time.
The committee suspended.
The committee resumed.
The Chairman: I will ensure that all members of the committee are present before we have any votes, if we do.
Minister Fontana and Mr. Pickard, I want to ensure that I understand what is being proposed here, because this may be a Solomonic solution to a very complex problem.
Please correct me if I am wrong, but it is my understanding that, notwithstanding best efforts, if the government chooses to implement this bill to protect workers, it could not implement the bill sooner than June of next year.
Mr. Pickard: That is correct. June 30 would probably be the earliest time we could implement it. The reason for that is, first, as Minister Fontana has pointed out, putting all the background together with the WEPP will take a considerable amount of time. It will also take a considerable amount of time for our department to put together all the regulations that will affect the bill. Six months is probably the quickest that things could move forward. That interim would give the House and the Senate an opportunity to review all aspects and for you to move your agenda forward.
I believe a large percentage of your concerns have already been worked into the proposed legislation, but we do want to have your input. We want to move forward in good faith with the Senate and the House, with the understanding that this bill will not be implemented before June 30.
The Chairman: I should like to hear from the minister on this as well. It is not, Mr. Pickard, that we question your undertaking. It would be more comfortable for us to hear from a minister of the Crown as well.
My understanding of what you have just said is that, because of the normal complexities of a bill of this nature, this bill could not be proclaimed and therefore become the law of the land until the end of June of next year.
Senator Angus: No sooner than June 30.
The Chairman: We understand, trying to project the political winds, that there will be possibly a national election in the next period of time, and we would expect that, no matter what, the election should be finished sometime by the end of February.
Mr. Pickard: That is anticipated.
The Chairman: It would allow the Senate three months, April, May and June, when we come back to review this bill as a first priority of our business and, we hope, of the House's business at the same time. It may not allow us to perfect it but we can at least make sure that it is satisfactory vis-à-vis dealing with the concerns of the various stakeholders.
Senator Angus: Amendments would have to be made at that point; would they not?
Mr. Fontana: Let us not prejudge what may happen.
May I give you the undertaking that, with respect to the coming into force, the government would not issue an order-in-council before that would require the coming into force before June 30, 2006?
Senator Angus: It could be possibly later.
Mr. Fontana: I am saying not before June 30, 2006.
Senator Meighen: Can the regulations be worked on, not knowing what the final provisions of the bill will be, or can you do it piece by piece?
Mr. Fontana: Governments do that all the time in terms of preparing the regulations We believe, as my colleague has indicated, given an opportunity of further study, including briefings by our officials to senators and even to the House of Commons that — in fact, many of the concerns that have been raised, just like the one we heard from Senators Angus and Meighen — that there are explanations and further clarifications, and the regulations themselves might be the vehicle by which to achieve further clarification.
You will find that we can prepare those regulations — and, of course, if they have to be changed to reflect changes that may or may not occur after June 30, 2006, or before, then that will take place.
The Chairman: Minister, we cannot ask you to go further than this, but we have an undertaking from you, on behalf of the government, should the government return, because it is a governmental undertaking between now and then, that this bill would not be implemented any sooner than June 30, 2006. This would allow the Senate and this committee to recommence and re-engineer our work and come forward with hearings to perfect the bill as best we can. That would be our responsibility, obviously, not yours, and if the House chose to do something as well, we cannot deal with that. We can only deal with what is before us. There is a separation of Houses and there is a check and balance.
Do I understand correctly that that is an undertaking on your behalf with respect to this bill, in order for us to go forward to do what we must here, namely, approve the bill, with these strong undertakings in our observations to the Senate?
Mr. Fontana: Yes.
Senator Meighen: Would you give that in a letter, minister?
Mr. Fontana: I thought saying it publicly and having it recorded would be enough, but if you want me to bring a bible, I will do that, too.
The Chairman: It is important.
Senator Meighen: I just asked a question. It could have been yes; it could have been no.
The Chairman: Senator, I understand the point. I have been where you have been a number of times, and I do not disagree with you. However, it would be appropriate to receive some comment about that in third reading in the Senate before the entire Senate as opposed to just an undertaking here.
We will obviously indicate that in our observations as a condition precedent to our recommendations, but I think we cannot ask the minister to go beyond that. If he chooses to, he can, but it is up to him.
Mr. Fontana: I thought the commitment was fairly clear, and if you want that undertaking in writing or by the government house leader in the Senate, we will get that done before third reading.
The Chairman: Fair enough.
The Chairman: To be fair, I have allowed the opposition here ample time, because it was important for us to obtain a consensus on our approach. I should like to allow Senators Moore and Goldstein a few questions.
Senator Moore: In view of these constructive developments, I am not sure that I have questions rather than comments.
Minister, you probably have the feeling from around the table that no one is against the proposed wage earner protection program. We all want to see that happen, for good social labour reasons. I understand it needs some refinement, and others around the table who are more versed on that will speak to it and deal with it in our deliberations in the New Year.
My major concern is the welfare of our university students. This pertains, Mr. Pickard, to your comments respecting who this bill will affect. There is the matter of university students and the time period for them to get a certificate of discharge.
As you may know, this committee has before it Bill S-28, which I sponsored in the Senate. I did that following a discussion with Minister Emerson, with his encouragement, providing for the five years. That was the evidence we heard across the board from most people who were before us. Bill C-55 calls for seven years. Hence, I will be looking to have that changed to five years when this comes back to us.
None of the evidence said seven years. I do not know where that came from. The House of Commons committee did not hear from students. I will make sure that they do get heard here and that their interests are heard.
It looks as though we have a solution here today, so I will not say anymore about it. I just want you to know where I am coming from. I will continue to push that bill. I will be looking for somebody in the Commons to sponsor it. It could be you, Mr. Fontana.
Mr. Fontana: I support students, too.
Senator Moore: That is not quite what I wanted to hear, but I will leave it at that. We look forward to participation by all interested parties in the New Year when we sit down and properly go through this.
Mr. Pickard: If I may respond, senator, your points are well put forward, too. There is a balance required, and if it were my way of doing things and it did not infringing upon the total program, I would diminish that even more. However, concerning the balance, for those students who are on the verge of real problems and are hard-pressed, we suggested five years; seven years was suggested for those who are not in such dire straights, for those who have relatively good incomes and can thus repay the system, so the system will work. Otherwise, the further we reduce the number of years, the less likely many students would be to pay back any loans. That would truly hamper the financing of student loans in the future.
Senator Moore: That is not the record.
Mr. Pickard: Hence, there are two categories — one, seven years, which is a reduction from 10 years; the other category is five years, for those who are hard-pressed. We all sympathize with the student loan system and are trying to make it fair on both sides.
Senator Moore: Do not forget that the 10 years was originally two years. That time frame was too low because that was when all the abuse seemed to occur according to the information on record that we heard about from the witnesses. This committee recommended that it be changed to five years and that the court be allowed the discretion to confirm the discharge of all or a portion of student loan debt in a period of time less than five years, where the debtor can establish that the burden of maintaining the liability of some or all of the student debt creates undue hardship. We heard some quite interesting and moving evidence on that, Mr. Pickard.
Senator Goldstein: Virtually all of what I had planned to say has been pre-empted by the most excellent interventions of Senators Angus and Meighen. Therefore, I will not deal with the question of the proclamation and when it will come into force.
However, because it has not been said yet, I will say that I had a pleasure and honour of working with Mr. Gauthier, who is an outstanding public servant both in terms of his knowledge and his commitment to his work. Mr. Gauthier and his staff have had to deal with the many complexities and difficulties of the bill as well as the numerous competing forces of the various stakeholders. This stands as an excellent testament to the very fine work that he has done. I commend him in particular because I have been part of that process and it is been an honour.
That having been said, however, bankruptcy legislation is never a destination; rather, it is a journey. What has to be done with this and other framework legislation in this country and others is a constant and ongoing fine tuning and response to different challenges as they occur within the economy and the social fabric of the country.
For the moment, I am more interested in the social fabric of the country, and I share Senator Moore's great concern for students. I am disappointed that the committee's suggestion that a judge be permitted to shorten the period of time, when appropriate to do so, did not find its way into the text of the bill. It is my hope that this committee will consider it an appropriate amendment to the bill.
There are 40 or 50 other changes, many of which Industry has envisaged, as I understand. It would be useful if Industry were to share those suggested changes with this committee as a first submission as soon as the committee reconvenes, so committee members can consider them. In the final analysis, both Industry and we are interested in exactly the same objective — to create the best possible legislation for this country.
Mr. Pickard: Those comments are very well said, senator, and there is no question that Industry officials and others in government would be quite willing to appear in front of the Senate Banking Committee to help in any way with the setting of an appropriate direction and the work that is being done here.
It is a very good suggestion and, when you are ready to move forward, we have only to summon the minister and officials from Industry Canada, and they will appear before the committee to try to help in any way.
The Chairman: It would be useful if Industry could prepare amendments to the bill so that when we begin the first session, we would have them before the Senate.
Senator Angus: Yes. They could prepare the ones that we have picked up. It would save time.
The Chairman: It would save the public's time as well. That would be better than the committee attempting to develop those changes here when we come back. It would be useful to have them at the outset of the committee's hearings. In that way, the committee would know where Industry stands on the matter before it meets to consider the changes and determine whether there is agreement.
Mr. Pickard: That is precisely right because all senators know that the committee process in respect of Bill C-55 was short-circuited. Senator Angus, Senator Meighen, Senator Moore and Senator Goldstein have pointed out that normal process has not happened. We are eager to ensure not only that this proposed legislation moves forward but also to ensure that all concerns are addressed in the most appropriate way. Our discussions today deal with that aspect in a positive direction. I am pleased with the reception of senators in trying to move this forward.
Senator Angus: Mr. Pickard, I could say that the future Harper government feels similarly. We have a very good balance.
Mr. Pickard: I have agreed with many of your statements today, senator, but not all of them.
Senator Angus: I did not say when, in the future.
The Chairman: I have admonished the deputy chairman to be as non-partisan as possible but, from time to time, he strays, and I am not prepared to criticize him.
I want to get back to the substance of the clear undertaking by the government and officials to present their proposed changes to the committee as soon as Parliament returns. The committee would consider them at the outset of its renewed hearings on this subject matter.
Senator Goldstein: I want to make it clear that, independently of Industry's changes, I will have about 45 suggested changes to deal with.
Senator Tkachuk: In the normal process, if committee passes the bill now, followed by third reading in the Senate, would workers be protected in February or March or April 2006?
Mr. Fontana: They will not be protected that soon, but surely passage into law will give great comfort to those workers who, in some cases, have been waiting 10 or 15 years for the Parliament to pass such a bill making wage earner protection a government program. They might have to wait for the supporting regulations and other good work done here, but they know, as all political parties agree, that this would be an important piece of legislation.
Your next question might be: Why not wait until June 30, 2006, for another government to deal with this?
Senator Tkachuk: That will not be my next question.
Mr. Pickard: I was anticipating that it might be. I am simply saying that good faith would suggest that we pass the bill and that we work on an agreement for changes.
Senator Tkachuk: I am asking for information. In order for the Canadian public and workers to know exactly what is going on, I asked whether workers would be protected. Without the discussion we had, am I not correct that they would not be protected until June 1 or June 30 in any event?
Mr. Pickard: That is exactly right. However, there is another caveat. If Bill C-55 is not passed and the process starts over in April, say, it will probably be another half a year or year before it can be implemented. We still have to draft regulations to any bill that is passed. Proceeding with that now will shorten the time until implementation. We also need time to put rules and procedures in place for the WEPP. If you pass this legislation with the commitment that has been given today, you will allow the implementation much sooner than it would otherwise occur.
The Chairman: This is an important question as to the rationale for proceeding as we have discussed. Many of us are lawyers and we understand what lawyers, accountants and advisors do. When the law of the land is going to be changed, you do not wait for the law to be implemented. Rather, you start changing your own practices. Based on my own experience in administrative law, if I knew that a law was going to be changed in six months, I would change my practices as soon as possible.
Is it not fair to say, by sending a clear and unequivocal signal that this bill to protect workers will go forward at the earliest time possible, allows every astute business in Canada time to anticipate and start to prepare the financial wherewithal to build up the necessary funding to deal with this? Business needs time to plan.
Mr. Pickard: That is absolutely correct and very well stated.
The Chairman: I do not want to be a witness, but Senator Tkachuk has asked a very important question.
Mr. Pickard: It is a very important question and your comment on it, Mr. Chairman, is accurate. Whenever legislation is passed, others have much preparation to do, be it the department preparing regulations, bankers, law firms or others.
Senator Tkachuk: We all agree with the worker protection legislation, and I will get to that in a minute. However, most of us have agreed that there are serious flaws in the bill. We received letters from the Canadian Bankers Association, the Insolvency Institute of Canada, Stikeman Elliott, the International Swaps and Derivatives Association and the Canadian Bar Association. They all have a lot of concerns with the bill. Our esteemed colleague Senator Goldstein, who was an advisor to this committee when we studied bankruptcy, also has some serious concerns.
However, the proposal is to pass the bill with all of its flaws, even though it will not be implemented for six months. While I agree with the principle of the bill, I have serious problems with its substance.
I want to talk about the reason for passing this bill, that being specifically the protection of workers, and about the time periods. You refer in your written presentation to approximately 12,000 to 15,000 workers who will be affected over a period of a year. If it is delayed by three or four months, 4,000 workers may be affected. You also say that they usually only receive about 13 per cent of their wages and that under this legislation they will receive $3,000. That does not tell us the percentage. Does that mean that they will receive their full wages, half their wages, or what?
Mr. Fontana: Ninety-seven per cent of workers will receive their full wages, to a maximum of $3,000, whereas they currently get 13 cents on the dollar.
Senator Tkachuk: Does that mean that other creditors will receive less?
Mr. Fontana: Yes, but do not forget that currently 87 per cent of workers get absolutely nothing under the present provisions. With the new provisions, which provide for payments up to $3,000, 97 per cent of workers will get 100 per cent of their wages from the government, and the government will then pursue recovery from the bankrupt companies.
Senator Tkachuk: I just wanted to ensure that that is clear. Am I correct that, in the end, the government will pursue the trustee for the cash and that there will be people at the bottom of the totem pole who will receive much less cash? Are you saying that they will receive the same amount of cash? Are you saying that there will be more money given out but that everyone will receive the same amount? How will that work?
Mr. Fontana: While we are providing workers with assurances that they will get their money, the government can only recover a maximum of $2,000 under the CCAA and the BIA, even though workers will get a maximum of $3,000. The government is prepared to take a risk. We expect to recover up to 50 per cent of the bill that is being picked up by the taxpayer because we think there is a social responsibility. It may cost $15 million to $20 million net.
Senator Tkachuk: Someone asked whether, with the government collecting the money and moving up the credit chain, there would be less money at the bottom of the credit chain. The response given was yes, but I noticed that Mr. Gauthier was shaking his head, so perhaps you could clarify that.
Mr. Pickard: I think Mr. Gauthier could clarify that. Obviously, there is only so much money, and we have to talk about secured creditors and unsecured creditors, et cetera.
Mr. Gauthier can give you a clearer picture of this.
Senator Tkachuk: That would be good. Since we are going to be saying that this is great legislation, we should know a little bit about it.
Mr. Gauthier: The limited super priority of $2,000 will be applied against current assets. Indeed, secured lenders with security over inventory, cash or accounts receivable will be affected.
Senator Tkachuk: They will get less?
Mr. Gauthier: Yes, but only to the extent that they have security over current assets. If they are affected by the application of the limited super priority, they will also have the chance to recoup some money by becoming preferred creditors.
For the unsecured creditor, the impact is nil because if we kept the unpaid wages as preferred creditors they would have used the money there. For unsecured creditors, there is no impact whatsoever. The impact is only limited to lenders that have a security over current assets.
Senator Tkachuk: Who might they be? Give us some examples in an average bankruptcy.
Mr. Gauthier: Of course, it varies from case to case. Not all businesses have operating lines of credit; only the operating lenders will be affected. Typically, in their lending practice, they have already factored in a paycheque, because they want to make sure their lending is covered to a maximum extent. Hence, in their lending practice, they have already taken into account potential unpaid wages. Given that they already do that, the impact should be fairly small. We are limiting that claim to a maximum of $2,000 while they are now putting in a provision for unpaid wages for one pay cheque, so the impact is not significant. The difference between the two is not huge.
Senator Tkachuk: There will, however, be an impact?
Mr. Gauthier: There will be an impact on secured creditors.
Senator Tkachuk: Would that be a bank or someone taking a lien on the property or the asset?
Mr. Gauthier: It would not be on the property, only on the current assets — inventory accounts receivable.
Senator Angus: As I understand the present law in this country, whereby directors of companies are legally liable for three months of unpaid wages in the case of an insolvency, is this double protection or is this belt and braces; what is the distinction?
The Chairman: Senator Goldstein, as a former counsel to the committee, would like to clarify this.
Senator Goldstein: Let us deal with two different aspects, the first being the secured lender. There is no question, as Senator Tkachuk has pointed out, that, at least theoretically, he is watered down. In practice, however, he is not. Usually it is a bank, although it could be another financial institution, and generally these institutions are over-secured. In other words, the security they have covers more than the actual debt. The result, if everything suddenly stops, is that they find themselves with security valued at $10 million but a loan of only $8 million and therefore the $2 million differential will serve to pay the workers in that circumstance.
It is equally true, however, that the fact of using that $2-million cushion, in the example I have given, to pay workers, has the effect of diminishing the availability to other unsecured creditors, because otherwise, if the $2-million cushion were not going to pay workers, would go to the secured creditors. The burden, in practice, will not be on the financial institutions but rather on the other unsecured creditors.
Senator Tkachuk: He said it was not the unsecured creditors. I am using you as a witness only because you were the adviser, but we seem to have a difference on opinion.
Senator Goldstein: Senator, if I may with your permission?
Senator Tkachuk: Yes, Senator Goldstein, this is very interesting. He is providing fodder for the witness.
Senator Goldstein: There is a second proposition because Senator Angus alluded to it. The fund, which makes the payment, is going to be subrogated, substituted in the rights of the workers against the directors, so that where the workers had a right to go after the directors, that right is going to be ceded to the fund and the fund will have the right to go after the directors. Hence, the directors are not going to get out of this scot-free, if they have not made sure the wages have been paid, and I think that is appropriate.
Senator Tkachuk: Just so that it is clear, can we hear from Mr. Pickard on that?
Mr. Pickard: Could we get clarification from the officials at the same time, because I think it is important that their input is here?
Senator Tkachuk: Certainly, for example, printing companies have workers, too, and it would be a shame to take from one worker to give to another. Go ahead, however; it is not that we do not do it every day with the tax system.
Mr. Gauthier: I appreciate the comment from Senator Goldstein. The limited super priority is for an unpaid wage claim and that claim is currently ranked as a preferred creditor and therefore above an unsecured creditor. If someone today has $2,000 in unpaid wages, the secured creditor gets paid. After that, what remains will be paid to the workers, to the extent that there is anything left. If there is nothing left, of course, then there is nothing left for those below the line.
The change in the priority will mean that the workers, or the government through subrogating the rights of the worker, will have a chance to affect the secured creditors with the security over current assets. In the absence of that, they would have been the preferred creditor so they would have come before the unsecured creditor. Hence, for the unsecured creditor, the impact is basically nil.
Senator Tkachuk: I got an interesting letter from the Canadian Life and Health Insurance Association Inc., and, Mr. Pickard, you had talked about RRSPs. You said RRSPs would be protected but the Canadian Health and Life Insurance Association Inc. says, at least in my province in Saskatchewan, RRSPs and RRIF holders in life insurance companies will not be protected. This is a big concern for them, and I am sure you have seen the letter.
Mr. Pickard: On what basis do they say that? We have seen the same letter, and we do not agree with that.
Senator Tkachuk: You do not agree with that? So will this matter be resolved in court? Can we not clarify it?
Could someone tell me not that they do not agree with them but what their point is and what your argument is?
Joseph Allen, Senior Project Leader, Corporate and Insolvency Law Policy, Industry Canada: The issue that has been raised by Canadian Life and Health Insurance Association, and we have worked with them quite closely on this, is not what is in the bill but what is proposed by the regulations. What is in the bill reflects very closely what the Senate actually recommended in its report, which is that RRSPs would be protected across the country, subject to a clawback of contributions made in the last 12 months. In addition to having been recommended by the Senate, it is actually a recognition of what currently happens in practice.
In each of the provinces, there is fraudulent conveyances legislation that basically says and has been interpreted to say that, when an individual goes bankrupt, these funds are clawed back, the one year contributions are clawed back. This applies even in Saskatchewan, where there is a complete exemption. In discussions with the Canadian Life and Health Insurance Association, they have acknowledged that this one-year claw back is not their issue. They were more concerned about having RRSPs locked in and having a cap put on the value of the RRSPs. These are items that have been put out there for discussion with the association that would appear in the regulations, or at least it is contemplated that they would appear in the regulations. They have raised concerns and other concerns were raised by bankers about that.
These may or may not find their way into the regulations. In fact, these would have to be subject of consultation. They were proposed as a package of anti-abuse measures. The one that is in the bill reflects what the Senate committee had recommended, so this is not a change from what has been recommended. In fact, in discussions with them, they support that one-year claw back.
Senator Tkachuk: I only have one more issue. Mr. Pickard, you talked about taxes. When a company goes bankrupt, are taxes above wages?
Mr. Pickard: Recovery taxes, yes.
Senator Tkachuk: How do they fit in the lineup?
Mr. Pickard: In this particular case, the government will take responsibility in the nature of all and, as such, the workers would get their wage structure. It may cost the government in cases where there are not any physical assets that they could recuperate that $2,000 by. In fact, workers would have a super priority. Whether or not they are above or below taxation is irrelevant, because the workers would get their money guaranteed.
The Chairman: This really does not fit into securities. It is really a parallel claim that goes directly to the top. The taxes and priorities are over here. That is my understanding of that provision. I think it is important, and we will revisit that more precisely at the appropriate time. It is important to get it on the record now.
Senator Tkachuk: Of course, when you pay out wages, they have to file income taxes, so the income tax would normally just disappear into the ether. Now the government will be collecting income taxes on those wages that they will be taking off. That is a benefit, just so that is clear.
It says Bill C-55 will limit potential abuse by making it difficult for individuals with large tax debts to use the bankruptcy system to shed their income tax debt. How will it be more difficult?
Mr. Gauthier: Currently, an individual is eligible to an automatic discharge after nine months if there is no opposition from any creditor. Anyone with any amount of income tax or other debts is eligible to have all his debt wiped out at the end of nine months. That is what we call the full, automatic discharge.
Senator Tkachuk: Everybody is treated equally, including the tax department.
Mr. Gauthier: Exactly. The change is that someone with $200,000 of income tax debt will not be able to obtain an automatic discharge. The person will have to go to the court and seek the court's authorization for the discharge, and the court will be authorized to give him the full discharge or a partial discharge or no discharge at all.
Senator Tkachuk: It could never go away, sometimes.
Mr. Gauthier: If the judge so decides, depending on the circumstances.
Senator Tkachuk: An ordinary creditor cannot do that, but the government can.
Mr. Gauthier: It is a unique treatment for income tax debt. It applies only to individuals who will have over $200,000 of income tax, and the income tax will represent more than 75 per cent of its total debt.
Senator Tkachuk: If an individual has $200,000 worth of income tax owing, and he has $200,000 owing to the bank, for example, does one go and the other one does not? How does that work?
Mr. Pickard: The majority of debt has to be to the government. In other words, this person did not pay their taxes for five years or whatever time period.
[Translation]
Senator Biron: My question is a follow-up to Senator Tkachuk's question. Mr. Pickard, you say that current RRSP protection depends on the province of residence and the type of RRSP and that as a result, there are inequities in the treatment of creditors.
Are the proposed measures to protect RRSPs and RRIFs from creditors better than those found in the legislation of the various provinces? Do they provide greater protection against creditors?
Before, it was mostly insurance companies that were protected from creditors. Will the bill provide greater protection without letting go of anything that is already there?
[English]
Mr. Pickard: This bill, as I understand it, will bring consistency, number one, so that special rules that may apply in one province will not lay the RRSPs in danger. All Canadians under the Bankruptcy and Insolvency Act will have equal treatment. That was the perception that was not available at this point in time because of some anomalies in provincial legislation.
[Translation]
Senator Biron: One of the committee's recommendations was that education savings plans should be exempt from seizure in the event of bankruptcy. Certainly the harm done to the student and country are greater than those done to the creditors, because for the country, education is very important for development.
I think students should be able to count on their education savings plans.
[English]
Mr. Pickard: That is a very good question and point to raise. One of the difficulties that we have with the educational programs, RESPs, is that they do not have to be locked in and they are not part ownership of the student. They are the ownership of the person who puts the money into the fund and, therefore, the obvious could happen. An individual who realizes today that he or she is going bankrupt could put the maximum amounts in RESPs. The person could put in an amount today, put in an equal amount in January, the bankruptcy would go through and then the individual could pull it all out in March, just as an example. There is no lock-in. The ownership is with the person who deposits the money. They can pull it out at any time and use it for any purpose, not necessarily for education. It becomes an abuse question.
[Translation]
Senator Biron: Is there any way that once the benefactor puts money in an account, that money could be locked in for the student, so that the benefactor could not withdraw it?
[English]
Mr. Pickard: That probably would not resolve the problem, but there has been a tremendous amount of resistance to having those dollars locked in. They want them flexible and liquid. As long as they remain flexible and liquid, it is a huge opportunity for abuse. However, if what you say, a lock-in principal, were accepted by both the industry and the public, then, yes, we could resolve that problem easier.
Senator Biron: The intent is to give it to the student.
Mr. Pickard: Even though that is the intent, it is not the reality that has to happen. We need that reality to happen in order to protect fairness in the system.
Senator Harb: There seems to be a consensus that part of this bill is really bad and other parts are good. I think what is happening here should serve as a precedent for all future governments, that is, that we should never rush through legislation in the way this has been rushed through.
Like many of my colleagues, I have received letters from industries indicating that they have made requests to appear before parliamentary committees in order to express their views and they were denied that right. That is unacceptable in our democratic system; it should never happen again.
I want to paraphrase for the record a letter from one organization that tried to appear but was not able to, that being the Canadian Bankers Association. They indicated they were extremely concerned about the negative impact that the proposed super priority will have on credit availability as it would reduce liquidities and make it more difficult and more expensive for Canadian businesses to obtain financing. In their opinion, small and medium-sized business enterprises that employ approximately 10.3 million Canadian workers will bear the brunt of credit reductions. They indicated that the total amount of credit availability that would be lost as a result of this legislation is in the billions of dollars.
My question is to Mr. Gauthier through Mr. Pickard, specifically on that point. There is an example that was submitted by the Canadian Bankers Association, which said that a traditional lending formula that now is used by banks is that they normally give 75 per cent of eligible accounts receivable, plus 50 per cent of inventories, less all priority claims. If a company has $1 billion of accounts receivable, plus $1 billion of inventories, and $100 million of priority claims, under the present system, this company will be able to have 75 per cent times $1 billion, plus 50 per cent times $1 billion, less $100 million. That would give them the ability to have close to $1.15 billion — do you agree with that? If you apply the $2,000 super priority and use the same formula, the same company that has 500 employees, with $2,000 super priority per employee, will only be able to borrow $150 million.
Mr. Fontana: That is absolutely ridiculous.
Senator Harb: That is a fact. As a result of this, the availability of company A to borrow money from a banking or financial institution would be reduced by $1 billion.
Mr. Fontana: Are you asking us to agree to that statement?
Senator Harb: No, I am asking Mr. Gauthier if that is a fact or not.
Mr. Fontana: I will say it again; it is absolutely ridiculous. That is not factual.
Senator Harb: I wish to put that on the record as part of the proceedings. Perhaps the department could come back to us with a rebuttal of that fact. To be honest, I was very excited, like every one of my colleagues. However, I let it go with the understanding that, through regulations and through the enactment of the bill, we would be able to deal with some of those problems. However, when I read that particular example, I literally flipped.
I think, in essence, it will be hurting the very same people we are trying to help.
Mr. Fontana: Mr. Chairman, can I say something? First, I do not buy that premise or that example. I should like very much like to sit down with a bunch of bankers and talk about access to capital for small business and how this is going to affect them. I would love that opportunity, any time, any day — including with some business people.
Second, I should like Senator Harb, who obviously came from the other House, to understand this. It is for a government to want to take a little bit of this risk — because it is — on behalf of the taxpayers of this country, the working men and women who go to work each and every day and expect to be paid for that work and do not get paid. On average, we have indicated what that liability would be — six or eight weeks of wages, mostly for the low-income people of this country, mostly in the retail sector and a number of other areas that contain the working poor of our country. The Government of Canada is prepared to put up $30 million or $50 million and then hopefully recover something.
Surely, the senator would appreciate the fact that there are some shared values here. One, we want to protect workers; two, we want to make sure businesses thrive in this country; and, three, you have a government that is prepared to take a little bit of the risk so the workers in this country are protected. That is what we are trying to do.
I do not buy this whole notion that, by doing this, it will cause the banking institutions to stop lending and cause them difficulties. We have consulted with them. Yes, the devil is always in the details, yes, we look forward to your input, but I saw a lot of the same senators who helped build this consensus nod their heads when you read that example — that company A was going to be denied $850 million based on the premise that it would not be able to get access to capital because we were going to protect 500 workers. I am sorry; I cannot buy that premise.
Mr. Pickard: I wish to respond to some of the comments that have been made as well. First, I have to point out that, in the other place, we were unable to have hearings because of process. No one that I am aware of was denied access to hearings. That did not happen.
I personally met with the Canadian Bankers Association and talked with them about their concerns. It was pointed out to me that because there is a $2,000 or $3,000 potential loss per worker, they would not lend that much times the number of workers in a firm. However, we all know the practical situation of day-to-day business; every company that starts up does not go bankrupt. All loans take into account variables, and take them into account at the percentage rate that bankruptcies occur.
If we are looking at the logic in everyday practice, if one out of 20 companies goes bankrupt or one out of 15 companies goes bankrupt, we take that in as a percentage of the loan that we may reduce, or we add a percentage of interest rate to recapture that amount of money. I think that everybody should logically think through the normal practices, rather than the ultimate out here — that a bank would charge every business or reduce the loans to every business by that amount, which is ludicrous in my view. That is why we have competition in this country; and any bank that tried to do that would be out of competition pretty quickly.
Senator Harb: Having heard this, my understanding from Mr. Allen's statement is that he is already dealing with the industries on the development of the regulations, or talking or consulting with them.
Having served on the Joint Committee for the Scrutiny of Regulations, I know that often when a law is introduced and being proclaimed regulations are developed normally in order to fit with the spirit of the law.
Now you are working on the regulations with the understanding or assumption that the bill is going to be amended at some point in time. However, we do not know the nature of those amendments. When the legislation comes into force on June 30, 2006, your regulations may or may not be in line with that legislation. As a result, my unfortunate conclusion would be, notwithstanding anything, your bill would not come into action on June 30, but rather later, because the regulations have to follow the legislation.
When do you really expect your final regulations to fit in the spirit of the law, once the law comes into effect?
Mr. Pickard: Since I raised the issue, perhaps I could respond to it. What we have said, and what I had said, is that the due process requires a relatively decent time period for regulations. I also suggested that regulations in many respects can correct some of the shortfalls that are raised over work that is done.
I suggested that there is a potential for two sources — one would be legislative, the other would be regulatory — to ensure that all the concerns that are being brought forward are dealt with. I would hope that, in the spirit of doing things in the most reasoned way, we would be able to move forward with the regulations as soon as possible. If then we do not correct all the issues coming forward, there may be other changes to the regulations, as reports may come back from the Senate committee or as reports come back from the House or other people who are studying this legislation. My view is, let us not close doors or box everything in, but let us leave some liquidity and movement of getting the process correct and adjusted to meet the concerns that are being raised.
Senator Harb: I am comforted by the minister and the parliamentary secretary's comment, as well as the staff. At the outset, I was not intending to support it, but, frankly, with these comments, I have a level of comfort and confidence, and I will support this piece of legislation going through.
[Translation]
Senator Hervieux-Payette: Mr. Pickard, as a 10-year member of the Joint Committee for the Scrutiny of Regulations, I must caution you against legislating through regulations. Very often, departments may attempt to undo the damage through regulations.
This time, we have an opportunity to review the act and to do it in tandem, knowing that some regulations will have to be revised, but we must not go on the assumption that an act can be corrected through regulations. I want that to be very clear, because the committee recently acquired the power to eliminate regulations quite quickly. It does not have the power to amend them.
We are not looking to cause problems over this. I am going to support the bill on the basis that our work has not been pointless. We have heard witnesses for a number of months in our review of the Bankruptcy Act, which was starting to show its age, and we made some recommendations.
I am very happy that Senator Goldstein is here with us to examine such a technical act. I think that this time, you are going to witness a genuine partnership. I think we can achieve an act that is better than previous acts and better than those of our competitors. Do not forget that bankruptcy legislation can also put us at a disadvantage in terms of foreign investment and business growth.
So I support the bill, keeping in mind that the act precedes the regulations, and more importantly, that you should not legislate through regulations.
[English]
Senator Meighen: Just out of curiosity, we have had some helpful answers that might preclude some of the work we could do on our return in terms of amending the bill. I wonder if someone could tell me why it was decided not to follow the recommendation of the Senate committee and include in the bill a federal list of assets that were exempt from seizure. Every province has a different list. Our proposal, as I recall, was that the bankrupt would be able to decide whether to choose the provincial list or the federal list. This did not find favour with the powers that be, so I wonder if one of the powers that be could tell me why not.
Mr. Gauthier: Indeed, we did look at this. There are differences across the provinces, but it is not an issue that leads to jurisdictional shopping because you file for bankruptcy in your province of residence.
The provincial exemption list reflects provincial priority and provincial preference. If the federal government were to come forward with an optional list, basically there would have been some cherry-picking, perhaps creating additional uncertainty in the marketplace. It also would have been difficult for the federal government to come anywhere between the range of provincial exemptions that currently exists. Some provinces are more generous than others. For instance, in Alberta, you have equity on a home that is protected, but that is not the case in Ontario or in Quebec. Would the federal list be somewhere in the middle? That would have coloured the protection that people in Alberta already enjoy and create an uncertainty in the law. We felt that the system as is, while imperfect and recognizing that there may be differences between the provinces, amounts to a reasonable outcome.
Senator Goldstein: I wish to address three areas that you may want to consider, Mr. Gauthier, during the course of your further work on the bill and which we will want to consider while we are thinking during a regrettably forced vacation in December and January.
The first is that it was never the intention of this committee that a debtor be permitted to cherry-pick exemptions. It was never the intention that it would be a menu where you could pick one from Column A and one from Column B. It was intended to provide to debtors across Canada a federal option which we, correctly or incorrectly, considered to be appropriate for minimal protection of Canadians across Canada, leaving, for constitutional and other reasons, the specific right of specific debtors to choose the exemptions of their own province, but as a total menu and not by way of cherry-picking. With respect, we understand your approach. You may want to consider our approach, which is that Canadians across Canada have an absolute right, in our judgement, to an identical level of protection. That is the first area that you may want to consider.
The second area deals with the letter that we have all received, and I take it you have received, from the banks. Part of the legislative amending process is the dialogue where different stakeholders whose ox is being gored put their respective positions to the legislator, and that is a wholesome thing for them all to do. That having been said, however, it is your role and our role to try to separate the wheat from the chaff and understand exactly what they are saying. The example that Senator Harb was induced by that letter to put to you is an example that does not take into account the most fundamental of all of this, and that is that industries' figures, which I hope you will share with us, indicate that the average aggregate loss per year is, on average, $32 million but, in any event, no more than $50 million. It is therefore inappropriate, I would suggest, for banks or other lenders to tell us that they will cut credit of $100 million or $10 million when their aggregate loss altogether, throughout the country, for an entire year, would not exceed $50 million. I think we have to look at this with a little bit more realism.
The Chairman: I hope the stakeholders that are interested in this will hear our comments so that we can save some time in the public interest when we deal with this again.
Mr. Fontana: I thank Senator Goldstein for pointing this out. I wanted to do the math. I am sure that we can get into this. Five hundred employees times $2,000 maximum claim is $1 million. How a million dollars translates into a loss of credit of $750 million is beyond me.
Senator Tkachuk: It is a little unfair to make fun of what some of the people have put forward to us by letter. It was not their intent to make fun of the government. It was their intent to help us with the process.
What is sad about this whole thing is that they are not here to testify in their own right and answer from us the questions that we would put to them. That is the thing that we have failed in this place and that we are failing in putting this bill through the way we are putting it through.
The Chairman: Senator Tkachuk, you have raised the issues that obviously of concern to us. I do not want to pre-empt witnesses that may appear before us. We are simply putting questions on the record questions that they can respond to. This will allow the government and the witnesses to respondent to it.
What we are really trying to do is put evidence and concern on the public record. I think there will be a collective interest on the public, the stakeholders, the Senate, the House and the government of the day to come up with a bill that is in the best interest of all Canadians.
We are just trying to put together the issues of concern and some of the questions marks. I think Senator Harb has raised some. Senator Hervieux-Payette, Senator Biron, Senator Goldstein, and Senator Moore have all raised concerns. All senators have raised questions, including you, Senator Tkachuk. We are trying to put on the record, in the best we can in the tight time frame that we have, some serious questions that is we will have addressed.
We have an institutional memory as you understand it. We will not forget what was said and what our previous studies have been.
I want to thank everyone, minister, your associates, your officials who have attended. I want to thank Mr. Pickard, the minister and the officials from the department side because you have stayed as long as we chose for you to stay.
Normally, this is not our practice. We always have short time frames from very busy ministers. However, we all understand around this table that we are trying to act in the interest of the Canadian public at a very crucial time in our history.
Thank you for your patience and indulgence for participating and helping us reach what we hope is a resolution in the public interest. This will only be part of our recommendations. It is still up to the Senate and your colleague in the Senate to respond.
We will put him on notice about your undertaking. You have offered to provide us with something in writing. It is very important to us.
I want to thank the senators who have stayed this late. They have much more work to do tonight; therefore, we will continue.
I want to say something special to my colleague Mr. Pickard. He is a long and outstanding and distinguished member from my region, the Province of Ontario. Mr. Pickard, I do not know if this is your last attendance before our committee or not?
Mr. Pickard: I would assume so. I have decided that I am not running again.
The Chairman: I want to say that I knew this, and I hope I am not embarrassing Mr. Pickard by saying that, as a member of the Liberal Party, as a colleague of his from the region I represent, he is one of the many people that not only represent the region of Ontario but also the region where he comes from.
He has done us all proud and today was another splendid example of his commitment, not only in the general terms but his specific knowledge of this legislation. We want to thank you and wish you well on all your future endeavours on the behalf of the entire committee.
Mr. Pickard: Thank you, Mr. Chairman, and senators for working along with us. We very much appreciate your efforts in trying to get a positive resolution to this.
The Chairman: I want to specifically thank Minister Fontana. He comes from my region from the province of Ontario. I think it is important to thank him because Minister Fontana has allowed us to come to a resolution to bring together our concerns. I want thank you for that because had we talked to you a couple of days ago, I think we would have saved ourselves a lot of stress.
Mr. Fontana: Mr. Chairman, I am running again and you will see me again during this debate. I would like to thank each of you; it has been very constructive. Obviously, what you have put forward and will put forward will always help us build better legislation. You want to protect the workers of this country, at the same time make it possible for small businesses to flourish. Thank you for your hard work and your great knowledge of this particular issue. We look forward to working with you in the future.
Senator Angus: May I add a word on our side.
I thought it was a very civilized hearing tonight. We did have some anticipation or anxiety about how to find a compromised solution to this problem. I think we have found one. I thought your answers were measured and very good. We have complained lately and loudly about some of the officials and government people who come to the committee or either refuse to come after having said they would. This was very refreshing. I say that in all sincerity.
I would ask you to take a message back to your colleague, Mr. Goodale, who was one of the ones that said he would come but did not. However, he has redeemed himself for me, because I have read hot off the press that he has agreed to redress the problem of income trusts — the dividend tax is going to be reduced — and that the ways and means motion has been introduced and passed to this effect and that advanced rulings are now being given again. My good wishes to the members of the government and God bless you.
Mr. Pickard: You see, we do listen.
The Chairman: Minister, before you leave, just one further comment. The deputy chairman is very modest because those recommendations with respect to reducing dividends and tax measures were a series of recommendations by this committee in our productivity study. It was very clear when we had a very special hearing with respect to income trust that this measure had to be addressed and quickly.
We were delighted that the Minister of Finance has seen fit to follow the general direction and advice. Thank you so much.
Senator Angus has a statement to make.
Senator Angus: Honourable colleagues, pursuant to section 14 of the Conflict of Interest Code for senators, I would like to state on the record that I believe there is a possibility that I might have a private interest that could be affected by the issue that we are considering this evening. The general nature of the interest came to my mind when Senator Tkachuk mentioned a letter from Stikeman Elliott. As you know, I am a partner of Stikeman Elliott. I am not in any way personally, directly or indirectly involved with these matters, with the letter received, or indeed with the issue of derivative and structured products, which I gather the letter addresses, nor did I know the letter was being sent. I believe it had already been received when I found out we had a problem.
In keeping with our new code, I am stating that there is a possibility of a conflict.
The Chairman: In response, I am required to make the following statement:
Honourable senators, Senator Angus has made a declaration of private interest regarding the matter, that being Bill C-55, before this committee. In accordance with rule 32.1, the declaration shall be recorded in the minutes of this committee.
Thank you, Senator Angus.
Senator Angus: Thank you.
The Chairman: Is it agreed that the committee proceed to clause-by-clause consideration of Bill C-55?
Hon. Senators: Agreed.
The Chairman: Shall the title stand postponed?
Hon. Senators: Agreed.
The Chairman: Is it agreeable to the committee to group clauses according to the different headings in the legislation?
Hon. Senators: Agreed.
The Chairman: Shall clause 1 carry?
Hon. Senators: Agreed.
The Chairman: Shall clauses 2 to 123 carry?
Hon. Senators: Agreed.
Senator Angus: I want to make it clear before we proceed that agreement is being given because it is our collective understanding that observations will accompany our report that will talk about the undertaking made by the minister and the parliamentary secretary and that will outline our concerns. We are agreeing to clause-by-clause consideration because we understand that we will have another opportunity to study the substance of this bill.
The Chairman: Is that the understanding?
I am seeing nods in the affirmative from all senators.
Shall clauses 124 to 131 carry?
Hon. Senators: Agreed.
The Chairman: Shall clauses 132 to 135 carry?
Hon. Senators: Agreed.
The Chairman: Shall clauses 136 to 139 carry?
Hon. Senators: Agreed.
The Chairman: Shall clause 140 carry?
Hon. Senators: Agreed.
The Chairman: Shall clause 141 carry?
Hon. Senators: Agreed.
The Chairman: Shall the title carry?
Hon. Senators: Agreed.
The Chairman: Shall the bill carry?
Hon. Senators: Agreed.
The Chairman: Does the committee wish to proceed in camera to discuss observations to be appended to the report, without amendment, on the bill?
Hon. Senators: Agreed.
The committee continued in camera.