Proceedings of the Standing Senate Committee on
Transport and Communications
Issue 10 - Evidence for February 9, 2005
OTTAWA, Wednesday, February 9, 2005
The Standing Senate Committee on Transport and Communications, to which was referred Bill C-4, to implement the Convention on International Interests in Mobile Equipment and the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment, met this day at 6:17 p.m. to give consideration to the bill.
Senator Joan Fraser (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, the committee is resuming its study of Bill C-4, to implement the Convention on International Interests in Mobile Equipment and the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment.
[Translation]
Yesterday, we heard from representatives of Air Canada and from Export Development Canada. Today, it is our great pleasure to welcome the Minister of Transport, Mr. Jean Lapierre. This is the first time the minister is appearing before the committee, and I am sure that you will join me in wishing him a warm welcome. The minister is accompanied by Ms. Nada Vrany, who is Director, International Air Policy, Transport Canada, by Mr. Gilles Lauzon, General Counsel, International Aviation Law Secretariat, Justice Canada, and by Ms. Mireille-France Blanchard, Senior Legal Policy Analyst, Corporate and Insolvency Law Policy, Industry Canada.
The Honourable Jean C. Lapierre, P.C., M.P., Minister of Transport: I would like to thank you for giving me this opportunity to address the committee on Bill C-4, but before getting into the substance of the bill, given that this is my first visit to the committee, I would like to briefly outline my priorities as the new Minister of Transport. I would first of all like to stress that the efficiency of our transportation system is absolutely key to Canada's competitive economy. Transportation users look to the federal government for leadership. Since I assume the federal portfolio of transport minister, I have focused on three key issues I consider fundamental to the future of our transportation system, beginning with promoting security and safety in our transportation system.
Security is a new component, and in this area, Transport Canada has an enviable reputation around the world. But in terms of security, since the events of September 11, a whole new aspect of our mandate has arisen. This is therefore my number one priority.
My second priority is to enhance trade corridors and improve strategic infrastructure. I refer to trade corridors, because if we increase security, there is always a risk that we will create delays at the same time that will impede mobility. In this regard, if we increase the number of trade corridors — and we know that our neighbours to the south represent the lion's share of our international trade — we increase security measures but we jeopardize our trade. This is not an improvement. Finally, we want to encourage transportation, but we want it to be sustainable.
[English]
Safety has always been our top priority, but over the last few years, security has emerged as a critically important factor in the success of our transportation system. In today's environment of heightened security and awareness of potential threats, transportation security is paramount. You cannot think about transport without thinking about security, but security has to go hand in hand with efficiency. Our vigilance in the way we manage our transportation system must be coupled with common sense.
Therefore, my second priority is to ensure that borders do not become barriers. The challenge is to find ways to provide a transport system that is as safe and secure as possible. At the same time, we must respect the need for the efficient flow of goods and people within our country and across our borders.
More than $1.5 billion worth of trade crosses the Canada-U.S. border every day. The lion's share of that trade — more than 60 per cent — is currently moved by truck. This is why it is imperative that our trade corridors work smoothly. However, the combination of growing trade and new security measures has led to increased border congestion. Transport Canada remains committed to developing and implementing initiatives to improve the secure and efficient flow of traffic along key trade corridors.
My third priority is to promote sustainable transportation. We need to find ways to get the economic benefits of an efficient, accessible and secure transportation system for Canada while reducing the adverse environmental effects of transportation activities and infrastructure.
[Translation]
We know that transport is responsible for 25 per cent of pollutant emissions.
[English]
Our sustainable development strategy addresses a wide range of environmental issues, from climate change to clean air and water and managing our contaminated sites. We have many new programs in place to reduce emissions, to promote better transportation planning and to advance the development of new technologies.
These three priorities reflect my efforts to help build a safe, globally competitive and sustainable transportation system for Canada and Canadians. I am sure we will have many more opportunities to discuss the considerable activities and issues in Canada's transportation system, but today I would like to talk about Bill C-4.
[Translation]
It is my privilege to speak to you today about Bill C-4, which, despite its technical nature, is an important bill insofar as it will bring about reduced financing costs for Canadian airlines and offer better protection for lenders and aircraft manufacturers supporting aircraft purchase initiatives. This is not the type of bill that is usually greeted with great enthusiasm, but it is key as it will create a more level playing field with United States competitors for our Canadian airlines when they move to refinance or expand their fleets. The U.S. industry already benefits from lower financing rates as a result of provisions in the US Bankruptcy Code that increase creditor certainty.
These are simple and valuable goals. In the time I have with you today, I intend to describe the process that lies ahead of us to make these positive changes, and to elaborate on why this legislation will lead to positive developments for our airlines and travellers.
Passage of this bill would move Canada one step closer toward ratification of the Convention on International Interests in Mobile Equipment and the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment.
[English]
Also referred to as the Cape Town convention and protocol, these treaties will promote the use of modern commercial finance rules that, for the most part, are already in place in Canada for international transactions involving aircraft and aircraft engines as high-value mobile equipment.
The convention and protocol represent a significant advance in international aviation financing that is of vital importance to Canadian aviation, and aerospace interests particularly, given the challenges faced by the industry today.
As you may be aware, the International Air Transport Association has reported that since September 11, 2001, the aviation industry worldwide has sustained losses of more than U.S. $35 billion. The Canadian airline industry was not immune to these staggering losses. Many in the industry were burdened by such events as the SARS outbreak, the war in Iraq, fears of terrorism and record-high aviation fuel prices. The industry continues to reiterate the need to cut costs in order to remain competitive. Furthermore, stakeholders have been calling on the government to do its part to assist the industry.
I believe that this initiative takes an important step toward giving the industry some assistance in its effort to streamline costs.
[Translation]
The convention and protocol, once fully implemented, will help facilitate the modernization of the airline fleets around the world and will extend modern commercial finance rules to international transactions involving air frames, aircraft engines, and helicopters. The economic benefits of implementing these treaties will have a global reach. Airlines in less developed countries will also be able to modernize their fleets by accessing asset-based financing where it would not otherwise be available and by accessing aircraft financing at reduced financing rates, in cases where financing could be available.
Airline travel will be safer and cleaner as newer, more efficient aircraft replace those currently in use. Furthermore, it is expected that there will be increased exports for countries with aircraft manufacturing industries, including Canada, as aircraft orders increase.
The convention and aircraft protocol were negotiated under the joint auspices of ICAO and UNIDROIT, the International Institute for the Unification of Private Law. This is an organization that studies the needs and methods for harmonizing and coordinating private state law and to prepare for the eventual passing by various states of rules of private law.
For its part, the ICAO is a Montreal-based United Nations agency specializing in the technical and economic regulation of civil law.
[English]
The convention and protocol were concluded in November 2001 at Cape Town, South Africa, and to date have been signed by 28 states. Canada became a signatory on March 31, 2004. It is useful to remember at this point that for international conventions of this type, signatures are akin to declarations of intent. The legally binding step occurs when the signature is formally ratified by the state.
The convention came into force on April 1, 2004, when it was ratified by the requisite three states. However, the convention will have no practical effect until the aircraft protocol comes into effect. In accordance with its terms, the protocol will come into effect when eight states ratify it. Currently, five countries, including the United States, have ratified the convention and protocol.
The convention is designed so that it can apply to a number of classes of high-value mobile equipment. Through adoption of an equipment-specific protocol, the only protocol adopted so far is the aircraft protocol, which applies to airframes — meaning aircraft bodies — aircraft engines and helicopters that exceed a minimum size or power threshold.
The underlying principle of the convention and protocol is that if the risk that financiers incur in extending credit is reduced, the financing cost to the debtor will also be reduced. Currently, financiers of high-value mobile equipment rely primarily on the laws of the state specified in their agreements to govern recovery of payment and/or the underlying assets in the event of a default.
This arrangement is not without risks for the financiers, since national laws differ in how they recognize security interests and the choice of applicable law.
[Translation]
In many states, the risk is significant because laws either do not protect lenders in the event of default and insolvency or are highly unpredictable.
For aircraft, this uncertainty is compounded by the fact that aircraft by their very nature move from one jurisdiction to another.
Therefore, it is nearly impossible for a financier to know with certainty the location of an aircraft on the date of default or insolvency, and the rules that will apply. This uncertainty increases the cost of aircraft financing and is reflected in the interest rate charged to the debtor by the financier.
Adoption of the convention and protocol will increase certainty by providing financiers with the number of default remedies regarding aircraft financed by debtors situated in those states that have ratified the international instruments.
These include the right, if there is a default, to take possession or control of the asset, to sell or grant a lease in the asset, to collect or receive income or profits arising from the management or use of the asset, and to procure de- registration of the aircraft and the export and physical transfer of aircraft objects.
The availability of some of these rights will depend on the declarations a state files when it deposits its instruments of ratification. The end result of providing greater certainty, clarity and confidence for asset-based transactions is expected to include increases in flows of capital, at a lower cost to the borrower, with the resulting business opportunities for manufacturers.
As a general matter, the convention adopts asset-based financing practices that are already in practice in Canada. In other words, few legislative changes are required for Canadians to benefit from this regime as it applies to taking of security interests in mobile aircraft equipment.
[English]
Nonetheless, in order to implement some of the provisions of the convention and protocol in Canada, certain amendments are required to federal legislation. More specifically, amendments are required to the Bank Act, the Bankruptcy and Insolvency Act, the Companies' Creditor Arrangement Act and the Winding-Up and Restructuring Act. The amendments to the Bank Act will remove any suggestion of conflict between the rules of the convention and protocol and certain Bank Act financing rules that are not customarily employed in aircraft financing.
The adoption of amendments to Canada's insolvency legislation to introduce rules mandated by the protocol will help level the playing field for our domestic airlines and aircraft manufacturers whose competitors in the United States already benefit from comparable provisions designed to increase certainty for creditors.
Creditors' certainty will be further enhanced through the creation of an international registry for recording rights in aircraft equipment. Creditors and purchasers will establish the priority of their interest by filing a notice of those interests in the international registry. Once an interest has been filed and become searchable in the registry, the purchaser's and the creditor's interest will have priority over unregistered interests and all subsequently registered interests.
The international registry will be accessible by Internet 24 hours a day, 7 days a week, from anywhere in the world. Fees will be collected for filing a notice of an interest or prospective interest, for searching the database, and for other services connected to use of the registry.
[Translation]
ICAO is expected to provide ongoing oversight of the International Registry as its Supervisory Authority. This will work to ensure the integrity of the Registry and a reasonable fee structure.
The effect of implementing Bill C-4 and the convention and protocol will be to reduce creditors' uncertainty, and thereby reduce the interest rate they charge to account for their risk. The increased certainty provided by the convention and protocol will be particularly beneficial for developing nations, since their airlines generally pay higher interest rates and enjoy the least favourable terms.
Furthermore, it is expected that Canadian airlines and aircraft manufacturers stand to benefit from the increased certainty that is provided by this international legal regime and subsequently will be able to reduce their costs. The convention and protocol are strongly supported by the Canadian aircraft manufacturing industry, the airlines, and by the financial community.
Stakeholders have voiced their support for the convention and protocol, and continue to collaborate in efforts to support the development of the legislation to gain the greatest benefit for Canada's economy. As I have said before, this convention and protocol will also require provincial support before the federal government decides to ratify them. Some complementing provincial implementation legislation will be required before the convention and protocol can take effect in respect of Canada. Both Ontario and Nova Scotia have passed legislation to implement the convention and protocol.
[English]
In response to comments made by Senator Tkachuk during his second reading address, I would like to note that while no other province or territory has pertinent legislation on its legislative calendar, it should be expected that other provinces with aviation interests will pass similar legislation in due course. It is also important to note that provinces implementing the convention and protocol will have to file declarations for those matters that fall within their jurisdiction.
In conclusion, honourable senators, I wish to recall that Canada played a leadership role in the development of the convention and protocol because stakeholders supported the objective of these instruments. Since the protocol is not yet in force and the international registry is not yet operational, Canada continues to actively engage the international community to ensure that the best interests of Canadians will be served. The passage of Bill C-4 will speed the entry into force of these agreements and accelerate the realization of benefits to our economy, the developing world, and the safety and security of international aviation.
I will be pleased to answer any questions you may have.
[Translation]
The Chair: Thank you very much, Minister. Regarding the comments you made at the beginning of your presentation, you must know that there are other Senate committees which will no doubt be interested in the priorities you have described, including the ad hoc committee which is considering Bill C-36, that I am somewhat happy to be sitting on.
[English]
Senator Tkachuk: On parallel legislation in the provinces, considering that Quebec would have a fairly strong self- interest in passing this proposed legislation if it is as good as you say it is — and I think it is — have they given an indication that they will have it on the legislative timetable in the near future? Is there a problem of jurisdiction?
Mr. Lapierre: I have not seen any problem of jurisdiction. Perhaps Mr. Lauzon can speak to that.
Mr. Gilles Lauzon, General Counsel, International Aviation Law Secretariat, Justice Canada: We have not been made aware of any particular jurisdictional problem with Quebec. We have worked hand in glove with Quebec in the negotiation of this convention, as we did with all the provinces. Part of the negotiation team was made up of Quebec lawyers; one in particular, Michel Deschamps, with McCarthy's, was designated by the Government of Quebec to participate in the negotiations. There have been ongoing consultations in every phase of the negotiation process. There has been a series of meetings that have lead to the development of this convention. For each one we consulted the provinces, including Quebec, and whenever they came back to us with comments, those comments were part of the instructions to the Canadian delegation, things to obtain at the next meeting.
Quebec has been heavily engaged in the process. As I said, their man is part of the negotiating team. They even went so far as to have a second individual on the negotiating team, in the person of Madame Suzanne Potvin-Plamondon, who is the head of the Quebec personal property registry. She was an expert in the field. She has recently set up the new Quebec registry under the new Quebec Civil Code, and she was able to help us a great deal. This registry has been set up along lines that are very familiar to Quebecers who are working in this area.
This convention, as far as we can see, meets the needs of Quebec. Why Quebec has not taken the same steps as Ontario and actually enacted a piece of legislation is really a matter on which I cannot speculate.
Mr. Lapierre: I will undertake to raise it with Premier Charest at the first occasion, and the occasions occur very often. I will raise it with him because obviously it would be useful.
Senator Tkachuk: Say hello for me.
Mr. Lapierre: I will. Good, old friends.
Senator Tkachuk: I will ask another, more general policy question. Who is overseeing the implementation? In other words, we are the fifth, or there are five countries who have implemented it, and there are 20-some that have signed on to it. Is there a place to find out where everybody is? In other words, does it look like other countries will be coming on, or will we be sitting there all alone with the other four? What is happening with the rest of the world, so to speak?
Mr. Lauzon: What is happening with the rest of the world is we are not all alone out there by ourselves, because we have the United States there. That is our main trading partner, and certainly it counts for a very large part of the world aviation industry. We are certainly not out there on a limb alone. The Americans would be on board with us if we joined in.
You are probably curious as to what is happening in Europe. The information that we have is that Europe is becoming like Canada. It has sort of a central Parliament, and it has state Parliaments. The jurisdiction is divided. Right now, our impression from conversations with different European countries is that they are waiting for Brussels to move and to adopt certain necessary implementing legislation. In particular, this refers to the rules in the convention on jurisdiction, which Brussels is having some hard time getting its mind around. I am sure that with time they will come along to it. This Brussels connection in Europe, at least according to the information we have, seems to be slowing down the process.
We know that there are other countries, mainly Third World countries, who are thinking of coming on board. That is not totally unexpected, because while Canada and the United States are showing an example by coming on board, it is not in Canada and the United States that the big changes to legislation will occur. The Third World countries have rather, how shall I say, developing legislation. They do not have the legislation to accommodate creditors.
Senator Tkachuk: The real law is still getting there.
Mr. Lauzon: Yes. This will point the way in the right direction. They see that there is a financial carrot there to amend their law and to make it more creditor-friendly. They are the ones who are coming on board.
If you were to read the message that President Bush sent to the U.S. Senate when he asked the Senate's advice and consent for ratification, because that is the process in that country, you will find that the list of benefits is mostly geared towards the outside in the sense that it will make the world a better place to do business in. That is the thrust of his message. It is not that this will create some sort of upheaval in U.S. law. It is simply that this will make a better place for U.S. business.
Senator Tkachuk: I will have one more question on bankruptcy. Let us say some of the Europeans countries do sign. The effect of this legislation is to move the creditor up. When we talked with EDC, we talked about the asset of the airplane and the financing, and it allowed them to retrieve that airplane quickly and to either release it or resell it. That is okay if there is a big liability sitting on that airplane, but what if there is a low liability sitting on that airplane and the plane has a high asset value? Let us say British Airways goes broke and the plane is in Toronto. I would think that as soon as they know that plane has a high asset value because there is not a lot owing on it, there will be a whole bunch of lawyers and court injunctions and everything by workers and all the other creditors to grab that airline and to prevent this protocol from taking effect, because it is worth a lot now. I am sure you have thought about all this, but I would like to know how this will work. It will be a big scramble.
Ms. Mireille-France Blanchard, Senior Legal Policy Analyst, Corporate and Insolvency Law Policy, Industry Canada: The reality is that when this bill is actually adopted, that 60-day stay period, which is a fixed stay period, basically gives the creditor a hammer. After that 60 days, no matter what, the creditor has the power to go and repossess the aircraft unless the debtor cures all the defaults that he has under the contract and also agrees to continue the payments in the future. There would be no litigation, because the creditor has that automatic power to do that.
We do have examples of the system already in place in the U.S. As you probably know, the U.S. bankruptcy code has provisions that are very similar to what we are looking at adopting here through Bill C-4.
Senator Tkachuk: I did not know, but thanks.
Ms. Blanchard: What happens in practice is that it could be an emergency filing under Chapter 11, where the debtor on a weekend says, ``I absolutely need to have that stay so my creditors cannot act against me, and so I absolutely need to file now,'' and then all creditors are stayed, including aircraft lessors, but only for that 60 day stay period.
What will happen in practice is that since the debtor company knows that the creditor will be able to come and repossess the aircraft, which in the case of an airline company the major part of the assets are the aircraft and the aircraft equipment, then the debtor will be basically forced to negotiate with its creditors a lot earlier on in the process.
In the States, as I said, we have examples of that. We are not aware that there have been any other cases that have resulted in any other conclusion. What happens is that the debtor negotiates with the creditor for some sort of arrangement. The creditor never actually went and repossessed the aircraft. The debtor was able to negotiate a better term. All of the creditors that we are aware of in the U.S. were able to receive full payment under their loan, but it took longer.
With the Air Canada case, there was a CCAA filing that lasted a year and a half and the creditors were not paid for a very long period, I think it was over nine months, the debtor company was able to take advantage of that situation and not deal with its creditors. With this system, it would have to deal with its creditors a lot sooner.
Senator Phalen: Thank you, minister. I would like to ask a few questions around the registry. I would first like to ask which of the provinces are the stakeholder provinces.
Mr. Lauzon: I am not sure I understand the question. Which of the provinces are the stakeholder provinces?
Senator Phalen: Which provinces would have the most interest? Quebec for sure, because of Bombardier. What other provinces would be involved in that?
Mr. Lauzon: I think the main aviation provinces would be the provinces that have the greater interest in this entire convention, not just in the registry. You are talking basically in terms of Ontario. You are talking in terms of Quebec. Obviously Nova Scotia thinks it has, and it is the headquarters of an airline. Of course you have Alberta with WestJet. We understand also that British Columbia is also indicating some interest in going ahead with this. To our knowledge, those are the main provinces.
Senator Phalen: In respect to the registry, my understanding is at this point all the provinces have a right to register. Is that correct?
Mr. Lauzon: The right to register is not in a province. The right to register is in the individual who holds the mortgage.
Senator Phalen: Does the province not have legislation in place that allows for that?
Mr. Lauzon: It is the debtor that is important, so if the debtor is situated in Quebec and Quebec has passed the proposed legislation, people there will be able to have access to the registry.
Senator Phalen: That is the international registry?
Mr. Lauzon: The international registry. On the other hand, people in a province that has decided not to participate will not have access to the international registry. They will continue to register in their local provincial registry.
Senator Phalen: That is the answer to my question. Can we have multiple registries?
Mr. Lauzon: We can. It is not the objective, but it is possible.
Senator Phalen: In respect of the international registry, what happens when there are multiple security interests in a single piece of equipment?
Mr. Lauzon: In the case of a bankruptcy, the priority among those multiple security interests will be according to the time of registration. The first one registered will be the first one to be paid from the value of the asset.
Senator Phalen: This relates to the minister's speech and to a statement made here yesterday by Jim McArdle. I would like to read this to you to remind you what was in the minister's speech. When Bill C-4 was introduced in the House of Commons, the speech stated that:
New rules will reduce the risk associated with financing and provide greater certainty to creditors and aircraft manufacturers. This will lead to larger amounts of credit being made available to airlines at lower cost and, further, consumers will also benefit through increased airline service and/or lower fares.
Yesterday, Mr. Jim McArdle, of Export Development Canada, testified that:
...unlike Ex-Im which has offered an across-the-board rate reduction and exposure fee reduction in a country that has adopted the convention.
We have not gotten to that stage yet. He further said that:
As of yet, we have not determined whether or not we would be able to make any kind of broad statement in that regard.
Can you comment on the difference between what was said in the House of Commons regarding the lower lending rate resulting from this proposed legislation and what Mr. McArdle said yesterday?
Mr. Lauzon: They were talking about slightly different things. When the minister spoke, my understanding is that he was talking about the general principle. If you reduce the creditors' risks, then the cost of credit goes down for the debtor. That is what he just said in his presentation now. That is a given fact.
Studies have demonstrated that. We have been asked to indicate some of those studies and we have made them available to you. They demonstrate this quite clearly.
I may be wrong, but I think the witness yesterday was thinking in terms of a precise assessment of how much. He has not been able to determine it as of yet. I can understand Mr. McArdle's position because they have a different approach from their competitor, Ex-Im Bank. Ex-Im Bank was able to make calculations and offer people up to a one- third reduction in the exposure fee if they came from countries that have ratified the convention. Mr. McArdle's organization is not in a position to make that precise a calculation. The way they do business is different. Given experience, the way I understood it, he was suggesting that in time they would have a precise view of the matter.
Senator Phalen: I wanted that point cleared up because that was one of the selling points of this whole measure for me.
The Chairman: No one will hold you to this, but would it be your estimate that the reduction in Canada could be as much in percentage terms as it has been in the United States, on average and over time?
Mr. Lauzon: I am not an expert on these matters and it would be pure speculation on my part. However, if you institute rules that are the same in Canada as in the United States, you should normally anticipate comparable results.
Senator Merchant: Welcome, minister, and the rest of you.
This is a very technical file. I do not pretend to exactly understand all the implications, but I understand that the ratification of the convention and the protocol will simplify matters. Contrary to what Senator Tkachuk said, I read somewhere yesterday that this would actually involve fewer lawyers. Right now, you have a lot of lawyers involved in these kinds of transactions. This was supposed to simplify it.
Senator Tkachuk: I will believe it when I see it.
Senator Merchant: I am not a lawyer, but I am related to many lawyers, so I speak on their behalf.
Minister, I would like to use the letter that was sent to our chair by the CBA. While they support the ratification of the convention and the protocol, they raised four issues. You probably have them in front of you. I can read them to you if you do not. You know them.
How are you dealing with those four issues?
Mr. Lapierre: As a lawyer myself, I have a bit of a conflict of interest here. We hope that this will make things simpler. The whole purpose of the exercise is to create more security. On the details of the CBA submission, lawyers want lawyers to talk, so I will hand that question to somebody who practices law or knows about it more than I do.
Ms. Blanchard: Industry Canada has been in contact with representatives of the CBA for many weeks now. We are well aware of the issues raised in the paper. We have been studying these recommendations and discussing them with the CBA in consultation with insolvency law experts as well as aircraft financing specialists.
Our view is that these recommendations are not essential to the implementation of the convention and protocol in Canada. The CBA made nine recommendations. I do not know if you have it in front of you, but on page 20 they enumerate nine recommendations. Recommendations 6 to 8, which deal with declarations that Canada may make before ratification of the convention or protocol, will be dealt with, as I understand from Justice, later on in the process when Canada is getting ready to ratify.
Recommendations 4 and 5 deal with terminology issues that are more technical in nature. Therefore, they are not essential at this time.
Recommendations 1 to 3 deal with provisions that are not addressed in Bill C-4 and, therefore, raise policy issues that go beyond the scope and purpose of the bill. In this regard, we note that the CBA's last recommendation suggests that these issues be considered in the context of further amendments to the BIA and CCAA. We will continue to discuss these recommendations with the CBA in the context of our ongoing insolvency law reform process.
Industry Canada is presently involved in a broad reform process of Canada's insolvency legislation — the BIA, or Bankrupt Insolvency Act, and the CCAA — following the tabling of a report by the Standing Senate Committee on Banking, Trade and Commerce in 2003. We are looking at them and will be addressing them in that context, as required.
Senator Merchant: This letter was written on February 7, which is just a couple of days ago. Are these still the issues that they are concerned about and on which you have not been able to come to an agreement with them? I will put to you the four issues that they outlined.
The first question was whether the proposed amendments to the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act are effective in implementing the policy objective.
The second was the impact of the proposed amendments to the BIA and CCAA on the affected stakeholders; third, the impact of certain declarations that Canada may make under the convention and protocol on insolvency law and practice in Canada; and fourth, whether amendments to the Canadian insolvency regime ought to take place outside of the ongoing insolvency reform process. Those are the four that they have sent to us.
I was wondering, are you still —
Ms. Blanchard: I believe so. I was given the CBA's submission yesterday morning by someone who was present at the hearing.
The Chairman: Do you have a copy of their letter to this committee?
Ms. Blanchard: No. I have the submission and not the letter.
The Chairman: The letter lists on page 2 the actual formal recommendations, and on page 1 lists those four points to which Senator Merchant refers for general consideration.
Ms. Blanchard: Actually, I did not have that letter. Comparing the document that I received yesterday with the documents that we have been sharing with the CBA for the past few weeks, it is the same recommendations as you have on page 2 of the letter, the page with the bullets. That is to what I was referring. Yes, it seems to be the same issues.
Senator Merchant: You have some issues that are not resolved yet, and are you working on them?
Ms. Blanchard: That is right. We would address those in the context of our insolvency reform process, as the CBA has recommended.
Senator Merchant: Thank you.
The Chairman: For the record, I should probably say that representatives of the CBA were invited to appear as witnesses before this committee and it was their choice to send a written submission but not appear in person.
Senator Tkachuk: If amendments are made to this bill later in the process, do the provinces then have to pass further legislation to take into account those changes?
Ms. Blanchard: No. We are still working on discussing possible drafting instructions with the CBA. The way that we are looking at this now is that those changes would not affect what is currently contained in Bill C-4. They would relate to other provisions in the BIA and CCAA, basically to help this process, but those provisions are not dealt with in Bill C-4. I hope that is clear.
Senator Eyton: Thank you, minister and colleagues, for appearing tonight. I am sorry I missed your preliminary comments because you were reviewing a portfolio that is regarded as one of the most key and challenging portfolios in the country, and I wish you luck in dealing with all of the problems that you will face.
My questions are relatively simple, although my head is awhirl thinking of the permutations that can apply to this bill as it is.
I would like to ask about the registry. First, has a registry system under the protocol been developed and is it ready to be implemented? We know there have been registry systems that did not work well. This is an international one that brings into effect all of the complexities of laws from other countries and other players. Is it up and running, and how will it be accessible?
Mr. Lauzon: That is a very good question. Is it up and running? I think the answer is no, not yet. Is it getting ready to be up and running? The answer would certainly be yes.
We are getting to the final stages. There have been a series of meetings in Brussels and Montreal on this subject. Final regulations that meet Canada's concerns have been adopted for the operation of the registry. A company has been identified through a selection process to operate the international registry. It is a company called Aviareto Inc., of Ireland, which has links to, and therefore knows, the aviation world.
There are still some matters to be sorted out in relation to that registry but the concept is very much on track. It is not operational. There is a plan to make it operational, at least for trials, within the next few months.
Senator Eyton: I take it that we either have the software for this complex registry system or you are confident that it will be developed in time.
Mr. Lauzon: This company had already developed prototype software before it made the bid, so the software is developed. It is now being refined and fine-tuned. In fact, I believe the company has a plan to get certain people to start registering now, even though the convention is not in force, just to gain some experience and try to weed out some problems.
Senator Eyton: I would have thought that was vital. If it does not work, you have nothing.
Mr. Lauzon: Exactly. We think it is vital, too. It is important because these are very high-value transactions. It has to be right.
Senator Eyton: You alluded to an Irish company that had some experience in this area. Perhaps the suggestion is that that is why it was selected. I would have thought it important to get the right company in the right locale with the right connections, and I am talking about the Internet. I assume these are Internet-based registrations.
Mr. Lauzon: That is correct. These are definitely Internet-based registrations. The registry will be operational 24 hours a day, 7 days a week, because of the different time zones around the world.
It has to be perfect. We are watching it closely.
Canada is part of a small number of countries that are overseeing this process. We are doing our best to ensure that it is top-notch, simply because of the value of the transactions and because this is the first registry for rights of this nature in the world.
You said that you presumed the company was accepted because of its experience in the aviation world. That was a factor. This is a company specially incorporated to operate the registry, but it is controlled by an organization called SITA that dates back to the early 1950s, and basically, its job was communications between airlines. The airlines had this network of communications for billings as well as reservations.
Senator Eyton: Was it a competitive selection process?
Mr. Lauzon: It was a competitive selection process. There were four competitors. If are you interested, I can give you their names.
Aviareto Inc. was certainly one of them. There was a Spanish government agency called Registradores de España. There was a Singapore company called Crimson Logic and a Canadian company called CSRS, Canadian Securities Registration Systems, from Burnaby, British Columbia.
Senator Eyton: And we did not win.
Mr. Lauzon: We did not win. We should have but we did not.
Senator Eyton: This is just curiosity, but there has been much discussion about financing of airplanes, and how the financing package is sometimes used for a competitive edge.
There is some mystery attached to the form of the subsidy or support. Might this registry system be extensive enough that it could provide details that would create greater transparency in financing of aircraft?
Mr. Lapierre: That would be helpful because we could see how creative some countries are.
Senator Eyton: How much information would be contained in the registry?
Mr. Lauzon: Very little, because of its international nature. You would have the name of the debtor, the name of the creditor and the nature of the transaction and very little else. The idea is to put everybody on notice that there have been transactions. It is not like a land titles registry, especially the old type of land titles registry, where you record the documents. The Americans have that system now, where you record the documents and the government analyzes them. It is a slow, antiquated system.
This new system is based on Canadian models, Personal Property Security Act models and the Quebec Civil Code. It is strictly bare-bones information so that you know that there is a transaction and you see the parties to get the details. This is very user friendly when you consider it has to be used in jurisdictions all over the world with all sorts of legal systems and you do not want to have to get involved in analyzing any particular transaction.
Senator Eyton: My last point is really one of wonderment. You have 28 countries that are now subject to the protocol or have accepted the protocol, which leaves another 150 that have not. What are the ambitions in terms of coverage? I see 28 and then another 150, and then I look at the sub-states, for example, provinces with their own provincial legislation that does not quite fit. I want to note here and put on the record that airplanes fly. They can go somewhere else. I look at that and say, ``Boy, that is a challenge for lawyers, pilots, financiers and everybody.'' I am surprised that at this stage it seems like a marketing ploy, whereby financiers say, ``Oh, that is worth a point or a point and a half less.''
Mr. Lauzon: What is worth a point and a half less is not just the registry, there are other things involved. As far as the registry is concerned, to concentrate on that issue, eight states ratifying this convention will put that registry into effect. The long-term objective is to get everybody on board so that you are very sure of what is going on in the world. You know what rights are registered on a piece of equipment.
I have been made aware of something recently. The people who do aviation financing are rather clever. They will make it a term of a contract that the transaction should appear on the registry, whether it is a convention transaction or not. Of course, you will say, ``Okay, it will appear on the registry, but it will not enjoy the benefits of the convention.'' That does not seem to faze them. The important thing is to have a tool whereby they can find almost everything that is on an aircraft. Whether it can be enforced or not, they think that this is a gold mine.
Through a contractual system, the big lenders of the world intend to ensure that almost everything appears there, whether or not it enjoys the benefits of the convention, just so they have a record. That seems to make them feel comfortable.
Senator Trenholme Counsell: I know very little about this, so I do not have a lot to ask. I am learning a lot.
I have been listening, and from the little that I have been reading in the newspapers and paying attention when people discuss some of the aviation issues, it seems that Brazil is a big player. I have not heard Brazil mentioned tonight or seen it in any of the lists.
[Translation]
Is there a problem with Brazil?
[English]
Mr. Lauzon: I wish I knew the answer to that question. I can tell you from what I have seen, the Brazilians have been active participants in the negotiations. Whenever there were subgroups that took part in setting the regulations for the international registry, they were there. They had delegations of three people, which was more than Canada had for those small meetings. They were present throughout the negotiation process.
This is what we know of Brazil. We know that with Embraer, they should be very interested in this, in promoting ratification of this convention and in showing some sort of example and ratifying it themselves. I imagine that Brazil is one of the countries that could benefit from implementing some of the principles in this convention.
Whether or not this is before the Brazilian Parliament right now I cannot say. I do not know.
Senator Trenholme Counsell: For information's sake, are they the third or fourth largest player in the world in the aviation industry, in the manufacturing industry?
Mr. Lauzon: In the manufacturing industry they come after Canada. They would be number four.
Senator Trenholme Counsell: This is what we are talking about. They are actually behind Canada, not ahead?
Mr. Lauzon: Unless the figures have changed recently. My impression was the big four were Boeing, Airbus — and I think Airbus has slipped ahead of Boeing — and then comes Bombardier and Embraer right afterwards, but they are very important players.
Senator Trenholme Counsell: There is really no information on what is happening vis-à-vis this convention in Brazil.
Mr. Lauzon: That is correct.
Senator Trenholme Counsell: I need some clarification. We need a laugh every day and we know what we laughed about yesterday. Are you talking about seizing an entire aircraft or certain pieces of equipment on the aircraft when debtors are in default?
Ms. Blanchard: I think it would depend on the case. If the creditor has a security on the whole package, then the creditor would basically seize the aircraft. If the creditor has security on parts of the aircraft, in theory, the creditor would have the power to seize those. That returns to my earlier point, that in reality, the fact that the creditor has a hammer is probably a big incentive for the debtor to negotiate. The debtor wants to keep the aircraft, to keep the company functioning, and the creditor does not want to seize the aircraft. In reality, he will not want to keep the aircraft. That situation could change, but most of Air Canada's fleet is old, and for the moment, they do not have a very high resale value. It would mostly be a factor in the negotiating process between the debtor and the creditor.
Senator Trenholme Counsell: I thought it was somewhat comical, if I was reading it correctly. If you do not make the payments on your car, they do not take the seats or the CD player or whatever, they seize the car. I was trying to determine what they took. Seriously, if one reads this correctly, do they take the plane or do they take off the door or the seats? It says ``mobile aircraft equipment.'' Why does it not say ``aircraft?''
Mr. Lapierre: When they talk about a piece of equipment, it refers to the entire aircraft. It is not piece by piece.
Senator Trenholme Counsell: I just wondered. I do not think it is totally clear.
Mr. Lapierre: You can fly a piece of equipment without any problem.
Senator Trenholme Counsell: You passed the test, minister, thank you.
[Translation]
Senator Chaput: I want to make sure I understand you correctly. Canada is becoming the 28th country or state to sign the Convention on International Interests in Mobile Equipment. The goals, from what you have said and what we have read, are very commendable. There would be certainty for creditors and lessors. There would even be positive outcomes for airlines and consumers, because we are dealing with the issue of competitiveness and the economy. All of these things are very positive.
The Canadian government introduces its bill. The bill is passed and we deal with the provinces. If the provinces decided not to pass implementation legislation, would the stakeholders still be able to benefit from some advantages resulting from the convention?
Mr. Lauzon: The answer is yes, in theory, they would still be entitled to some advantages. A state or a province that has not signed, or anyone, can look into the registry and have access to information within it for a fee. In that regard, there would be an advantage. The provinces or states having signed the convention will have access to all the advantages.
To give you some context, this convention includes a special feature negotiated by Canada: it does not have to be implemented by the entire country. A convention can be implemented for part of the country in the case of a federation like Canada. Canada therefore ratifies the convention for three or four specific provinces. This is why provincial implementation legislation is important. It determines in which regions of the country the convention will apply.
Mr. Lapierre: In practice, it is rare for provinces to be able to do something for their industry for free. I do not see why anyone would be opposed. It is only a matter of finding time in the House. It is not the type of bill which elicits great controversy. As you will have noted, there have been very few editorials on this subject. A stakeholder such as Bombardier would probably be the first to put pressure on the government of Quebec to solicit its support and have the convention adopted. It is the type of legislation which harms no one and is good for all.
Senator Chaput: Does this bill have any negative points? We talked about the bill's strengths, but what are the possible challenges or problems the bill poses?
Mr. Lapierre: People who do not pay their debts are the negative aspect.
Senator Chaput: Is it possible that this international registry might eventually be adopted throughout the world, regardless of whether or not a country has ratified the convention?
Mr. Lapierre: In my opinion, this instrument will be useful for everyone. As a universally available tool, everyone will want to consult it, particularly those who work in the field. For now, we will not necessarily see the systematic application of the tool, because I assume that the players are not everywhere.
Mr. Lauzon: Indeed, the players are not everywhere. Some countries have no interest whatsoever in this type of instrument because they are too small to have a large number of airlines. Generally speaking, the goal is to cover the entire world, especially third world countries that need to carry out reforms to their system and their civil rights in their dealings with creditors. Bear in mind that in such a case, the field of aviation is limited. Let us hope that changes will be made soon to cover other fields. This convention will be beneficial for the economies of small developing countries.
Once the aviation sector realizes the benefits of such a system, which treats creditors decently and is good for the economy, this type of system may spread like wild fire.
The Chairman: I am not a lawyer, as you will be able to tell from my next question. Under the heading ``Interpretation'' in clause 2, subsection (3), the bill reads as follows:
In interpreting the Convention and the Aircraft Protocol:
(a) the Official Commentary on the Convention on [...] as approved for distribution by the Governing Council of the International Institute for the Unification of Private Law (UNIDROIT);
[English]
I do not know enough about the UNIDROIT to be entirely certain about the implications of this, but it seems to me that when we are handing over the interpretation of our law to a commentary — not the text of a treaty, a commentary — drawn up by somebody else, it is a rather open-ended arrangement. Are we likely to face changing commentaries? I want to understand how the system works. I do not remember ever seeing such a provision in a bill before us.
Mr. Lauzon: This is what it looks like; it is a document. It is a finite document and nobody will modify it. UNIDROIT has produced it, so it exists in both English and French. This was an official commentary by Sir Roy Goode, CBE, QC, Professor Emeritus of Law at Oxford University.
I think you have all noticed that this convention and this protocol are very technical and difficult to understand. It was felt it was appropriate to develop a commentary to help people understand how the different clauses were developed and what they were intended to mean.
Professor Goode was what is called the ``rapporteur'' for UNIDROIT. He prepared a report that led to the development of the convention. He was also the chairman of a series of drafting committees that elaborated on this. At the conference they empowered him to develop a commentary. Professor Goode developed this commentary, which runs to 200 or 300 pages, and circulated it to certain states, including Canada, so that we could review it and determine if we were comfortable with what he was saying. In turn, I circulated the document to all the people who had been members of the Canadian delegation over the years to ensure that this was a faithful reproduction of what was said and what was intended.
That is how this document developed. That is how this document was finally approved and formally circulated by UNIDROIT.
The Chairman: Are we quite sure it is a one-off deal? This is not like Beauchesne's, which changes from edition to edition? That is what I had in my mind. That is not likely to occur.
Mr. Lauzon: No, it is a one-off document. It is here for good. The law says that we may refer to it to help us understand the convention. If it was decided that it had become out of date, then I suppose people would stop referring to it. However, our view is that this is a one-off document. It was produced by a very eminent jurist from Oxford. There is a consensus that this is a valid document to help us interpret the convention.
Senator Tkachuk: I wanted to follow up on what we had talked about earlier when I was asking questions. We ended up with Brussels, I think it was, and the European Union. The signatories from Europe signed on as individual nations. Is Ireland a signatory?
Mr. Lauzon: No.
Senator Tkachuk: That is odd. Mr. Lauzon, you said there is some difficulty because of the slowness of the European Union. Even though they have all signed on individually, will the implementation require passage in their individual Parliaments plus Brussels? That could be our in grandchildren's time if we are counting on Brussels to do this. Does it require both?
Mr. Lauzon: Yes, Senator Tkachuk. That is the reality of Europe today. Do not forget, the signature does not really bind you in international law. It is not a contract. It is a declaration of intent. Those countries went into this thinking this is a good convention, so they signed it. Now they have to go back and get their local Parliaments and the Parliament in Brussels to adopt it. It may take some time.
Senator Tkachuk: That should not stop a good idea.
Senator Eyton: My question is really an expression of regret. Given that Montreal is now the host city of the International Air Transportation Association, it represents the world in the airline business. Montreal also has the happy circumstance of having an independent and good judiciary who are familiar with both common law and civil law. We have somehow missed a tremendous opportunity. It would have been well located in Montreal, close to headquarters, in a sense, of the industry and those special skills. I do regret it. Minister, I do not know whether you have any comment to make.
Mr. Lapierre: I share your sentiment. Obviously, Montreal would have been a good place for it. I do not think there were even any Montreal companies in the bidding, were there?
Mr. Lauzon: There was a B.C. company that was planning on setting up the registry in Montreal. The company is a good one. They operate the registry for the Bank of Canada, so they had excellent credentials. They also operate services for the different registries across the provinces for personal property security. This company was willing to set it up in Montreal to be close to IATA, but that is not the way things panned out.
Senator Eyton: That is too bad.
Senator Tkachuk: I hope it was not the influence of the European Union.
Mr. Lauzon: I do not think it was the Europeans.
Senator Phalen: Senator Tkachuk was talking about how many states were necessary to implement this. I want to know how many provinces are necessary. Would the stakeholder provinces be sufficient to pass this proposed legislation in Canada?
Mr. Lauzon: This would be speculation on my part. I do not know. This is a matter which will be determined by cabinet. It stands to reason that if you have the provinces that have a real interest in the matter on board, then that is your list. I cannot pre-judge what cabinet might decide in that respect.
Mr. Lapierre: I must say that I have not had any representation from any province objecting to this. It has been pretty quiet on that front. Obviously, the interested provinces will go ahead. After that, I am sure we will be able to make the recommendations.
[Translation]
The Chairman: I would like to sincerely thank tonight's witnesses. Your respective testimonies were extremely useful. We are sorry for having kept you a little longer than we had anticipated.
[English]
Mr. Lapierre: I will have to come back soon because I have a few pieces of proposed legislation that I will want to share with you — The Air Canada Public Participation Act, the Canada Transportation Act, the Canada Airports Act and a few others. We will see each other often, I hope.
The Chairman: We also have communications to worry about on this committee. Do not swamp us with just transportation issues.
Senators, our next meeting will be on Tuesday, February 15, in this room at 9:30 a.m. An opportunity has been extended to the provincial governments to appear on this bill at that time. If they choose not to do so, we shall proceed directly to a clause-by-clause consideration of the bill. The committee will proceed after that in camera to consider business related to its study of the Canada news media.
The committee adjourned.