Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 8 - Evidence - Meeting of February 14, 2008
OTTAWA, Thursday, February 14, 2008
The Standing Senate Committee on Banking, Trade and Commerce met this day at 10:50 a.m. to examine and report upon the present state of the domestic and international financial system. Subject: Bankruptcy and Insolvency
Senator W. David Angus (Chair) in the chair.
[English]
The Chair: Good morning, ladies and gentlemen. This meeting is webcast on the World Wide Web and broadcast on the CPAC network. Happy Valentine's Day.
We continue our study of the bankruptcy and insolvency legislation as embodied in chapter 47 of the revised Statutes of Canada, 2005, and Bill C-12 forwarded to this committee in mid-December.
These bills have been passed, although they are not entirely in effect in law. A number of elements must be dealt with to make them operative. However, we are conducting a study as if these bills had not been passed; we are preparing a critique to see if they can be improved.
We are advised by the officials of various government departments that they are always on the lookout for ways and means of improving these important laws so that our bankruptcy and insolvency framework legislation can be a leading-edge state.
We have had a number of witnesses whose evidence leads us to believe there is a lot of room for improvement. In the Standing Senate Committee on Banking, Trade and Commerce we have an open mind.
I am Senator Angus, from Montreal. I am chair of this committee. To my left is Senator Harb, an Ontario senator. On the other side of the table is Senator Meighen, from Toronto; Senator Tkachuk from Saskatoon; and Senator Jaffer from British Columbia. Senator Jaffer is the newest member of our committee.
Our distinguished deputy chair, Senator Goldstein, is an acknowledged expert in bankruptcy and insolvency law. He is slightly delayed this morning. I hoped he would be here now. We rely heavily on his background knowledge. Here he is. We have many witnesses. In the interests of time, we will start now. Our first witnesses are from the Conference for Advanced Life Underwriting: Paul Bourbonniere, Chair, and Brian Henley, Vice-Chair, Government Relations. Both gentlemen have visited us before. We are always happy to learn from them.
Paul Bourbonniere, Chair, Conference for Advanced Life Underwriting: Thank you for allowing us to appear before you today. I am Chair of CALU and Mr. Henley is the Vice-Chair, Government Relations.
We come before you to offer our support for Bill C-12. Let me give you background on our organization. CALU is a conference of the Financial Advisors Association of Canada. That association has over 10,000 members from coast to coast.
We operate under the trade name, Advocis. It is the largest voluntary professional membership association of financial advisors in the country. Advocis members provide financial and product advice to millions of Canadians, and the members provide advice regarding estate and retirement planning, wealth management, risk management, tax planning and benefits consulting.
We trace our origins back to the founding of the Life Underwriters Association of Canada in 1906. Our association continues an uninterrupted history of serving Canadian financial advisors and, more importantly, their clients. It is committed to professionalism among financial advisers.
CALU was formed to meet the needs of Advocis members who specialize in advanced applications of life insurance and related financial services, including such areas as estate planning, business succession, employee benefits, wealth accumulation and retirement planning. Many clients of CALU members are owners of small- and medium-sized businesses. It is the concerns of those businesses that we want to make you aware of today.
We support Bill C-12 and believe it offers significant improvements over the proposed amendments contained in chapter 47, section 1 in the Bankruptcy and Insolvency Act for the following reasons: Bill C-12 does not propose to alter materially exemptions granted by the provinces and recognized by the federally legislated BIA. Additionally, Bill C-12 does not alter materially other section 91 provisions that reasonably protect creditors in cases of strategic settlements preceding bankruptcy. The previously proposed changes would have undermined existing certainty, encouraging prudent financial planning, incorporating exempt registered retirement savings plans, RRSPs, and registered retirement income funds, RRIFs.
Previously proposed changes in chapter 47, section 1 — rather than ensuring that all RRSPs and RRIFs were fully protected from claims and creditors — recommended that limits be placed on the amount that could be accumulated in these plans, that contributions made within a specified period of time prior to bankruptcy and which could be denied by the courts, be clawed back to satisfy the claims of creditors. These changes essentially favoured creditors over individual Canadians.
CALU believes that encouraging individual Canadians to plan strategically for retirement is an important societal goal. As a result, CALU believes that all RRSPs and RRIFs should have parity with equivalent retirement savings protections for registered pension plans, RPPs.
The limits originally proposed on the amount which could be accumulated in an RRSP, and not subject to claims of creditors, could be viewed as circumventing the provisions found in the Income Tax Act. The act states that where RRSPs involve a depository, the depository can have no right of offset as regards property held under the plan in connection with any debt or obligation owing to the depository. Additionally, the property under the plan, cannot be pledged, assigned or in any way alienated as security for a loan for purposes other than, at maturity, providing a retirement income to the annuitant. Similar provisions are found elsewhere for retirement income funds.
In our view, the Income Tax Act contemplates that RRSPs and RRIFs are intended to provide a source of retirement income to the annuitant and not to serve as a source of additional collateral to lenders. For this reason, CALU supports Bill C-12 in its removal of any proposed monetary cap on the amount that could be accumulated within an RRSP or a RRIF and not subject to the claims of creditors.
In addition, we have identified a number of important factors that have been considered in a development of Bill C- 12 and that overcome potential problems that may have been associated with the previous legislation. These factors may be summarized as follows:
The first point is fairness. Bill C-12 overcomes the potential for unfairness that would result from any policy change favouring creditors by forcing debtors into bankruptcy through the imposition of enhanced creditor rights, originally available and understood at the time, of extending the credit and/or at any time prior to bankruptcy.
CALU supports Bill C-12 in its recognition of the fundamental importance of fairness with respect to protecting the retirement savings of all Canadians — whether salaried employees or entrepreneurs — in the event of bankruptcy. Small business owners and their families are affected particularly due to the need to have a source of retirement savings not directly dependent upon the continued success of the business, particularly in volatile, economic times.
The second point is the principle of certainty. Financial planning requires a platform and a context of reliability and certainty for consumers, particularly as related to the timeframes and horizons involved in encouraging and advising Canadians to save for retirement. These propositions are long-term. The loss of certainty associated with the previous proposals would have affected particularly, and unnecessarily adversely, Canadians who rely on RRSPs and, as a consequence, disproportionately-impacted self-employed individuals.
Another point is consistency. CALU supports Bill C-12 in that it would not affect Canadians adversely who have responded positively to encouragements to save for retirement savings through the use of such prudent savings vehicles as exempt RRSPs and RRIFs. Canadians who have acted in accordance with the planning opportunities and capacities explicitly encouraged by provincial and federal governments would be affected disproportionately by any sudden imposition of a monetary cap on their capacity to save through the use of exempt savings in RRSPs and RRIFs.
The principle of legislative harmony is the fourth point. In our view, Bill C-12 improves the previous proposals by avoiding challenges that would have resulted from any efforts to impact the historically recognized jurisdictional balance of provincial and federal legislation. Previous proposals, through the insertion of a cap on the level of exemption, would have disrupted existing measures in place for protection against execution and seizure, and resulted in a conflict between provincial exemptions extending under the province's constitutional powers with respect to matters of insurance, and the federal government's powers over matters of insolvency.
CALU believes that Bill C-12 supports the fundamental view of the BIA as a process whereby insolvent debtors may obtain a discharge of their debts on turning over their assets to a trustee for distribution among creditors. One prime purpose of the BIA is to permit an honest but unfortunate debtor to obtain a discharge, subject to reasonable conditions. Under the BIA, a bankrupt is assumed to be an honest but unfortunate debtor. This assumption is subject to the evidence of strategic settlements leading to a strategic bankruptcy.
A debtor's action may result in the court ordering the inclusion of only certain exempt assets as the property of the bankrupt, such as RRSPs and RRIFs, under the BIA and/or terms for a conditional discharge. This way of dealing with strategic bankruptcies is reasonable, measured and powerful. The BIA is intended to assure a fair and equitable distribution, without undue preference, of the bankrupt's property among creditors.
In conclusion, my colleague and I want to commend the Senate — and this committee specifically — for exceptional work on this important issue. We would also be remiss if we did not note the role the deputy chair, Senator Goldstein, has played in shaping and moving this legislation to a successful conclusion.
It is an honour to appear before you and we will be happy to answer any questions.
The Chair: Thank you very much, Mr. Bourbonniere. Mr. Henley, do you want to add anything?
Brian Henley, Vice-Chair, Government Relations, Conference for Advanced Life Underwriting: No, I think Mr. Bourbonniere spoke eloquently about our positions.
The Chair: Additional members of the committee have arrived. My colleagues have been out buying flowers for their loved ones.
Senator Moore is from Halifax, Senator Massicotte if from Montreal and Senator Eyton is from Toronto. You can see from the smiles on their faces that I was right. Then, of course, our distinguished deputy chair is Senator Goldstein.
I note, gentlemen, that you have confined your input to section 32(1) dealing with RRSPs and RRIFs. Is it fair to conclude that section is the only part of the legislation that you either like or dislike? Do you have any representations you want to make to us on other aspects of the new laws?
Mr. Henley: We made previous representations in the past with regard to the overall legislation. However, as financial advisers, particularly advisers that practise in the financial planning or benefit consulting area, we deal primarily with people who amass assets to produce income for themselves and their families at retirement. For that reason, we focused on that major issue to our clients.
The Chair: Your document is clear and I refer to it. It will form part of the record; it is dated December 2007.
I ask this question because you are positive about amendments that have happened between Bill C-55 and Bill C-12. In this situation, did you see problems in Bill C-55 where you made representations to the government, and the government listened and changed the legislation, or did these amendments happen on their own?
Mr. Henley: I do not want to suggest we are that powerful, but we had concerns with the previous legislation. We made representations on behalf of our clientele and our membership. It appear they were listened to. Some changes, we believe, are positive for the Canadian citizen and the person planning for retirement.
The Chair: I put this information on the record because I think the issue of dealing with huge governments is a tricky and complicated thing. The process you followed was obviously a constructive one. You saw a problem with a bill that had not been proclaimed into law. The doors were open to register with the officials who also work constantly to improve the framework legislation. You made your points clearly; and the improvement is now in Bill C-12, and you are happy.
Mr. Bourbonniere: We are happy with the bill as it now stands. We are also pleased to be part of the process. Perhaps we represent what is potentially a consensus, but it is an outcome we are comfortable with.
Senator Harb: You spent an extensive amount of time talking about the previous provisions and the previous proposal. It seemed to have struck a chord with you, so you wanted to remind us how bad it was.
Is it your opinion that, perhaps, the Crown at the time thought it was okay to include RRSPs because somebody must pay the creditors? Every time a citizen pulls out an RRSP, the government takes its share of the pie immediately, and whatever is left is available to the creditor.
Is it your opinion that the government probably was motivated by something along those lines, or do you think it was less sinister?
Mr. Bourbonniere: Sinister is a strong word. The issue is one of fairness and equity. A number of people in this room go back to the late 1980s, when a lot of work went into the issue of establishing a fair and consistent regime for retirement saving. In particular, much work went into dealing with pension plans and RRSPs, to be as fair and equitable as possible. We saw issues, potentially, where this fairness or equity would break down; that was the concern.
Senator Harb: Say somebody goes to a trustee to deal with a financial situation that this individual is faced with. The individual wants to restructure. If this person wanted to pull out money from their RRSP to pay part of the creditors, do you think that withdrawal should be allowed? Do you argue, in essence, that when that money went into RRSPs, it went into a retirement account and, therefore, it should not be touched, even under those circumstances — that the government should say no, that money will not be on the table?
It could be tempting for someone to say to that individual, we understand you have $200,000 there. If you do this, I will not object. We were told a number of times that all it takes is for one player to say no to any kind of restructuring and then the individual is into multiple hoops.
Is it your opinion that, under no circumstances, should RRSPs ever be on the table; that the law should specifically state that no one, directly or indirectly, should have undue influence over somebody who is before a trustee to bring this matter to the table in terms of pulling out of their RRSP?
Mr. Bourbonniere: The whole area of not being permitted to use the RRSP as collateral goes in that direction. There are times when we do not think it is appropriate for the individual to be required to make that kind of withdrawal. Indeed, in the pension world, there are restrictions on liquidity. It depends specifically on how one crafts that kind of restriction.
The reality is that RRSPs are one of the last places that people would go; but people satisfy claims or indebtedness by drawing down their RRSP. That choice has a tremendous long-term implication too. The fact that they have chosen to use assets in the short run pays a huge price down the road; that is the other issue. They cannot recover or recreate that pool of capital.
The area is a sensitive one in terms of restricting the use in that regard; it is almost a case-by-case situation. We need to see the nature of any restrictions before commenting specifically.
Mr. Henley: If the restrictions are along the lines of a locking-in provision, I think we would withhold an opinion on that issue until further study, because that restriction would be contentious to the Canadian consumer.
The two of us are longer in the tooth, in terms of the advice business. We have a lot of experience, unfortunately, with individuals and small businesses that run into financial difficulty.
Based upon my 29 years in this business, I have seen few individuals who voluntarily cash in their RRSPs. It is a last- ditch effort. Frankly, normally we would advise them not to do so. However, circumstances arise whereby they will want to cash them in. With respect to your comment on the federal government tax issue, when anyone withdraws any significant amount of money from an RRSP, the federal government currently requires a withholding tax that is nowhere close to the actual tax liability incurred.
Senator Meighen: My brief question is somewhat tangential to your presentation. Other witnesses on this same bill suggested that the name of the bill is, unfortunately, bankruptcy and insolvency. They suggested it would be better named, insolvency and restructuring. Do you support that change if it could be effected?
Mr. Bourbonniere: Yes, we support it as long as the aims and objectives are consistent with the outcome. Wordsmithing is an art not a science, but that change would be interesting.
Senator Meighen: You are involved in providing restructuring advice, are you not?
Mr. Bourbonniere: Yes, but as I say, the outcome is important, not the label. For the wordsmiths in the audience, that change could be interesting.
Senator Jaffer: My understanding from those witnesses is that the reason for the name change is allow people to feel more comfortable about seeking advice.
Mr. Henley: I agree that the suggestion is a softer name but the topic is more of a marketing one versus a technical one; it is what it is. Few people, contrary to what the cynics might think, want to go into bankruptcy. Most people do many things to try to avoid it. The name of the bill is not as important as the content of the bill.
The Chair: Senator Goldstein, do you have a comment?
Senator Goldstein: Mr. Bourbonniere and Mr. Henley, thank you for your excellent presentation and the consistently positive role that you and your organization have played in the creation of these amendments as far as they affect the life underwriting profession. You have played a responsible, responsive and useful role, which everyone appreciates.
Some years ago, your predecessors were anxious to preserve a monopoly with respect to life insurance on annuities and were interested in protecting only that aspect by legislation, but you have abandoned that position and instead, have taken a socially correct position that all RRSPs deserve protection. For that, you deserve a great deal of credit because you placed public interest above your own interest; and that does not always happen.
I want to hear your observations on the issue of locking in. You recall that the personal insolvency task force suggested in their report that RRSPs be locked in, with certain minor variations. Details are not important. To provide for abuse on the part of a debtor, debtors should not be in a position to go into bankruptcy, not pay the creditors anything, come out of bankruptcy, find themselves with a significant nest egg of RRSPs and be able to spend it freely while the creditors obtain nothing.
The issue is trying to determine an equilibrium between the interests of the debtors in our society, who are largely victims of the system, and the creditors, who frequently are also victims, notwithstanding opinions to the contrary, because they have suffered losses that they need not necessarily suffer.
What is your view on trying to re-establish that equilibrium so that, in appropriate cases, people cannot walk away with significant RRSPs?
Mr. Bourbonniere: Thank you for your kind comments. Our watchword has always been to speak on behalf of the clients we serve, as opposed to our own interests.
With regard to the issue of locking in, we would be delighted to be part of a process to study the matter because it may be in the realm of unintended consequences. The model we are thinking of is an individual who begins a business at the age of 25 and, at the age of 45, runs into the financial trouble; someone who starts off as an employee and decides in mid-life to change careers; or employed individuals who run into other debt situations. At the same time, specific provisions in the Income Tax Act, such as the life-long learning program or the home-ownership program, deliberately allow for a withdrawal from an RRSP. Without sketching out all the what-ifs on a chart, there is a sense of unintended consequences. We are prepared to recognize that, absolutely, for something this important, we want to ensure that all potential contingencies are covered. Abuse of a system is the last thing any of us want to see.
It requires study and we would be comfortable contributing to the project. Some things I mentioned are at the top, in my view.
Mr. Henley: You also must take a good look at locking in as it ties into other kinds of retirement programs available to Canadians: for example, pension plans in the different jurisdictions and the different legislation. My practice is split about 40 per cent to 50 per cent in that area.
As an example, multiple jurisdictions have changed their legislation whereby they used to have locking-in provisions for all things after 24 months of participation but have now lightened up the requirements, depending which province you are based in.
The other area where we see many issues with small- and medium-sized businesses is in the family-owned business and the concept of succession planning. The Canadian lending community to date is great at lending money to put up a building or for a line of credit to operate a business. However, to access money to buy a business is a difficult exercise for small- and medium-sized businesses. If family members are involved, and parents who have been prudent to ensure that they take care of themselves outside the operations of the business, there are other issues. Those items are a few things that we are talking about, off the top of our head.
Locking-in warrants greater review and discussion before considering any such concept.
Senator Goldstein: Where there is a significant RRSP, which currently is exempt, do you approve of the possibility of a judge looking at this RRSP when the debtor in question comes to the discharge hearings, with a view to perhaps causing or suggesting to the judge, either legislatively or otherwise, that some portion of that RRSP, or an equivalent amount of money, be paid by the debtor as a condition of discharge?
I will ask the question specifically: I was involved some number of years ago, well before I came to the Senate, in a matter where the debtor had an RRSP of $2.6 million, resulting not only from savings but also from rolling in other gains. The person filed for bankruptcy and left $900,000 owing to creditors. He was about to walk away with $2.6 million in RRSPs, leaving creditors to which $900,000 was owing, nothing. A discharge hearing was held, and without going into the details, the result, on balance, was favourable to my client.
However, that situation does not always happen. I give you an extreme example to make the point. It does not happen frequently, obviously, but sometimes there is a significant disconnect and disproportion between what the debtor is left with and what the creditors have lost.
Do you see that situation being redressed by a judge?
Mr. Bourbonniere: Effectively, if it looks like a cap and walks like a cap, it is a cap. By leaving only a certain amount behind, effectively they have instituted a cap.
Through pension reform and the like, certain amounts can be put into an RRSP through contributions. Back in the day, you could roll over pension incomes and what have you. The opportunities for significant accumulations are there. Even today, we would argue that the RRSP limits penalize RRSPs versus individual pension plans. The opportunity is not what it would have been back then, unless one is fortunate in their investing.
That is another point. Most business owners take enough risk from 9 to 5 that once they accumulate money, they tend to be conservative in their investing. We perhaps have an opinion of these people as gunslingers, who take considerable risk in their investing, the way they do with their business, but they do not. In our practice, we find that they tend to be conservative. The opportunities to accumulate these large sums are not what they once were. On the face of it, I suggest that approach is too close to a cap for us to be comfortable with.
Mr. Henley: I realize that you cited an extreme example, senator, but we assume the lending institution, the debtor, assessed the risk of lending the money to the individual on the basis of the individual's ability to pay. Where one is not allowed to use RRSP assets as any form of assignment, collateral, and so on, we assume that the lending institution determined that they had a reasonable opportunity to have their debt obligation dealt with.
The Chair: Gentlemen, I think you made your point clearly. We are delighted to have such positive input.
Our next witness is Andrew J. Hatnay, counsel with Koskie Minsky LLP.
Welcome, sir. I know you have been in the room for the first part of this morning's hearing. We have a time bind, so we ask you to make your points concisely. My colleagues will question you in a similar concise fashion.
Perhaps you can tell us a bit about your law firm. Are you here as an individual or representing interests?
Andrew J. Hatnay, Counsel, Koskie Minsky LLP: I thank all the senators for allowing me to appear before you. I am a lawyer with the firm, Koskie Minsky, in Toronto. Koskie Minsky is a boutique law firm specializing in the representation of employees, unions, pension funds, as well as general litigation. The firm has built its history on representing employees and unions.
I am here today to assist senators, by giving you a ground view of what is happening in bankruptcies and insolvencies that affect employees and unions. I have been involved in many cases, representing employees, unions and pension funds in bankruptcy. Perhaps my experiences can be of assistance in letting you know what is playing out.
I do not represent any particular client, except for one who is in the gallery, the construction union, United Association. In a way, this presentation is a dual type, due to the timing. I will discuss where specific comments are applicable to the United Association.
As a general overview, the proposed changes to the Bankruptcy and Insolvency Act and Companies' Creditors Arrangement Act are good measures. Currently, as I believe you all know, there is next to no protection in the BIA for employees, and zero protection in the CCAA. This study represents a positive effort.
I am here today to highlight problems in the proposed legislation, which I would like to bring to your attention. My general thesis is that, although the proposed legislation is good, there are problems with what will be put into force, and it will not work as well as I would like it to work, and perhaps not as well as some people may think.
Let me start with pension plans. Underfunded pension plans of a bankrupt employer are a significant problem across Canada. Where a pension plan is underfunded and an employer is bankrupt, the pension plan must be wound up. An outside administrator is appointed to wind up the pension plan, and if it is underfunded, the administrator then will process the assets and simply send letters to all the retirees to say: Your benefits will be reduced. I am sorry. There is no money in the pension fund.
In the proposed legislation, there is the creation of the pension charge.
The Chair: Do you mean no money or not enough money?
Mr. Hatnay: There is not enough money. Members of an underfunded pension plan face pension benefit cuts.
Let us talk about the pension charge in the proposed legislation. The pension charge would create a secured-creditor status for amounts owing to an underfunded pension plan in the bankruptcy. In my brief, I explain that there are three components of funds owing to a pension plan: normal cost, special payments and windup payments. In a bankruptcy, if a pension plan is underfunded, they are looking at windup payments, as well as unpaid special payments.
The pension charge, as currently drafted, would assist pension plans only in a limited way, by allowing a secured claim to be created over unpaid normal costs. That is it. That assistance will not necessarily fix the pension plan; it will not necessarily stop the reductions from being put in place. Depending on the status of the pension plan and depending on the company, the pension charge will be of zero use, because sometimes companies pay the normal costs but they do not pay their special payments and they do not have enough money to pay windup payments. Therefore, the pension charge will not always assist.
I am happy to refer to the cases as I go along, to give you some real life experiences. This situation happened with a Quebec company that we represented, called Ivaco. In my paper, I quote from the Ontario judge, where he acknowledges that even if the changes are brought into force, it would not help the Ivaco pension plans, which were underfunded by tens of millions of dollars.
The message I give you is that the pension charge will be of only limited assistance. In some cases, it will not be of any assistance at all.
Second, I want to talk about the priority accorded the pension charge. It sounds good on paper; everyone wants to be a secured creditor. However, a secured creditor will not solve all the problems.
Secured creditors compete with other secured creditors. As you know, in a bankruptcy, everyone wants to be paid first. The way the priorities are set out that deal with the pension charge is not clear. It will be subject to the claims of 30-day suppliers, the claims for a deemed trust and claims for unpaid wages, which I will address in a minute.
Further — and this problem is the most troubling, from my perspective — clause 18 amending section 50.6(2) of the proposed legislation grants a bankruptcy judge the power to elevate the security of any lender to a struggling company. What this section translates to is that a judge can further subordinate the pension charge, depending on the specific facts of the case.
The Chair: To clarify, sir, say the case is made that a specific creditor should be given further security, that is to induce the creditor to give ongoing credit, is it not? It is not for the past credit, is it? I do not know. I ask the question.
Mr. Hatnay: I believe the way the section is drafted, it allows a judge not only to give security for credit about to be given, but also past credit. It gives a lot of power to the bankruptcy judge to set the priorities, in short.
The Chair: Retroactively.
Mr. Hatnay: I believe retroactively, as well.
Senator Goldstein: Mr. Hatnay, I do not read it that way and I do not think that was the intent.
The Chair: I wanted to make that point. Go ahead, because this point is key in restructurings.
Mr. Hatnay: I can take you to the clause, happily, if there is time.
The message I pass on is, even if a charge is given, which is good, it is only as good as the priority it is accorded. These subordinations I mentioned, as well as the power of a judge to set a priority, throw the pension charge into some uncertainty.
We can have a great pension charge that covers normal costs, but if it is subordinated to other claims and there are not enough assets in the estate, it will be worth a lot less. It may not be worth much at all.
I bring the priority issue to your attention because I think that feature is an important one. It is not enough to give a party or an entity security; the priority must be set as well.
The Chair: In the case of underfunded pension plans, there are other pre-bankruptcy remedies, I believe, depending on the cause for the underfunding.
Mr. Hatnay: Those remedies are limited. Let us talk about a non-bankruptcy situation with an underfunded pension plan. I can even raise with you the example of Stelco.
Stelco, a well-known steel company, functioned for years, if not decades, operating underfunded pension plans. I have used the example of someone with a significant credit card balance paying only the monthly payments each month. Stelco ran the pension plan so that it made only the bare minimum to stay onside the regulator; they were doing nothing incorrect from the law standpoint, but the plan was woefully underfunded. They entered CCAA, claiming insolvency, and they turned to their own underfunded pension plans.
To address your point, what could the members have done? They could have written to Stelco and said, we do not like this situation; increase the funding to the pension plans. Stelco or any other company could have written back saying, we are not breaking the law; we are doing everything correctly; nobody is denied a pension; and we do not have the money to fund the pension plan because we want to build a new steel mill. That response would be the end of it.
One remedy, pre-bankruptcy, could be to petition the government regulator to put pressure on a company perhaps to increase funding to the plan. However, in the Stelco example, they would be met with a response that the company is not doing anything illegal. The pension benefits are being paid so they will increase the funding to the plan.
Pre-bankruptcy remedies are limited. Stelco is a good example of the case where a company can go on for years with a deeply underfunded pension plan. The big problem starts when the company obtains insolvency protection.
Senator Eyton: My understanding with Stelco was that part of the arrangement contemplated a meaningful payment into the pension plan, as part of the overall restructuring.
Mr. Hatnay: That is correct.
Senator Eyton: You made it sound as if nothing was done. In fact, a substantial payment was made.
Mr. Hatnay: No, I did not mean to make that impression whatsoever. I only responded to a question about what can be done pre-insolvency. Therefore, I cited how Stelco existed pre-insolvency. It is correct that within the restructuring of Stelco, a plan was put into place to make significant contributions to the pension plans.
The only comment I would make is in the context of a restructuring. The process is entirely unpredictable. At Stelco, the result was favourable for the members, but there is no guarantee that can transfer to other companies.
That is always a concern of the law and, I would say, of retirees and pensioners because they look for certainty about what will happen to their pensions. It is difficult, as a lawyer, to tell them sometimes that we do not know yet; we are still arguing with the creditors; we are going in front of a judge; and this creditor is doing this and that creditor is doing that. At the end, that result with Stelco was a good one, but that does not always happen and the process is unpredictable.
I want to move on to the Wage Earner Protection Program. Again, the effort was good. I commend Parliament and the senators for putting this program in place, because presently there is next to nothing in the legislation, except for the small preferred claim in section 136, giving employees a $2,000 preferred claim over other unsecured creditors.
WEPP is comprised of two components: a $3,000 payment for unpaid wages and vacation pay; and the employee charge of up to $2,000, again for wages and vacation pay.
The immediate concern I draw to your attention is that the way the legislation is drafted, WEPP applies only to a bankruptcy, or where a receivership is appointed. I ask you to consider that situation because it is not a good one. There are many cases where a company is not a formal bankrupt under the BIA, which is a defined term, or no receivership is appointed.
Again, speaking as a lawyer who deals with these cases, a company called Axium Entertainment is in the public news. It is bankrupt in the United States. It has a Toronto office, which is closed. The company sent all its employees home — we received phone calls from them — without paying termination and severance pay.
The employees do not know what is happening. There is no trustee and no receiver; the company just shut down. The employees are in no different situation than they would be if a trustee or a receiver had been appointed. Their job has been terminated and they have been sent home, bewildered and upset. However, in that case, the Wage Earner Protection Program would not apply to them. It would not step in to help them.
I suggest that situation is a serious omission. Companies can close down without a receiver or trustee being appointed, and employees are terminated and sent home. They should have the benefit of the WEPP as well.
The second point I want to make about the Wage Earner Protection Program is the definition of ``wages.'' I have had many disputes with trustees, receivers and other creditors over the definition of ``wages,'' because these arguments come up in the context of the current BIA, again with respect to the preferred creditor claim in section 136 because of the way that language is worded — that an employee is entitled to $2,000 for unpaid wages. What are ``wages?''
A definition in the proposed act, I believe, is wages, vacation pay and ``other compensation owing to employees.'' It specifically excludes ``termination severance pay.'' On the definition of ``wages,'' I want to say a couple of things.
First, employees are owed much more than wages. They are owed health benefits; contributions to vacation pay trust funds in the case of unions, such as the client behind me; health and welfare funds; and group RRSP contributions. Many things are owed to the employee, not only hourly wages.
The United Association, who is the client here today, operates multi-employer pension and benefit plans. Those plans are all ones to which an employer is required to contribute. If an employer declares bankruptcy and amounts are owing to those funds, the concern is — and this concern applies to union and non-union employees — that the definition of ``wages,'' as currently drafted, is vague and insufficiently conclusive. The definition should be expanded to make it clear that it includes contributions owing for health and welfare, group RRSP and vacation pay trust funds — all the components of a employment contract. An employment contract, as you know, is not only wages but includes many other things. The definition is lacking.
I suggest that definition will lead to litigation and disputes over what ``other compensation'' includes? There is an opportunity now to make the definition clear, as it should be. That should be done.
The exclusion of termination severance pay applies to our union clients. As a practicing lawyer who has represented thousands of employees who have been terminated, termination severance pay is by far the largest amount owing to employees. To understand what ``termination severance pay'' is, let us back up for a moment and talk about employment and a company that is operating. In Ontario, the law is clear that an employer can terminate an employee with notice or for cause, but cause is not relevant for this discussion. ``Notice'' means that the law requires an employer to give a decent amount of notice to an employee before termination. The Supreme Court of Canada has written many cases about the importance of treating employees correctly and with dignity when they are terminated, and about the requirement to give appropriate notice. Notice is required to allow employees to recover and find another job. It is especially critical for lower income people.
The termination of employment in an active business is hard enough on an employee but it is extremely difficult when the business is in bankruptcy because the business shuts down and the employee faces zero termination severance pay. This situation has happened in many cases across Canada, such as Eaton's, Dylex and Irwin Toy. I have seen first- hand the white-faced employees in shock as they filed into our office. The situation is disastrous. On Monday, they were told the business was doing well and on Friday, they were told the business has failed and they needed to clean out their desks. For employees living on lower income, this situation spells disaster.
Generally, wages are not a big item owing to employees. Companies pay wages almost up to the date they become bankrupt. There is a practical reason that wages are not a big component. If employees are not paid their wages as expected, they stop showing up for work because they cannot afford to work for free. Conversely, an employer, even if facing a financial problem, wants to keep its employees paid to clean up, collect receivables or take the business as far as they can. They ignore termination severance pay. In the cases I have worked on, the wages have been tiny amounts and, in some cases, no amount at all. The WEPP, which does a great job collecting wages, will not be of any use to these people. It may be of help in the area of vacation pay, which is a modest sum owing to employees. The exclusion of termination pay is by far the biggest number owing to employees in lieu of notice. It can reach millions of dollars. In the case of Eaton's and Dylex, these numbers were huge. Employees need that money to find another job.
The specific exclusion of termination severance pay will significantly dilute the effectiveness of the WEPP for employees because that amount is big. Whether full termination severance pay should be included, or 50 per cent of termination severance pay, is something to talk about. However, its exclusion will truly dilute this program. I do not want that to happen. I do not want to see employees saying that WEPP does nothing for them. It sounds nice on paper but it does not help them. I am here today to bring that issue to the attention of the committee, for what it is worth.
The Chair: Does that conclude your preliminary remarks?
Mr. Hatnay: Yes.
The Chair: Excellent, sir; they were clear.
Senator Harb: The witnesses who appeared before the committee earlier also raised the issue of RRSPs but they talked about the consumer end of the equation. I am glad you raised it from the company point of view.
In your view, something in the regulations or legislation should be strong enough to deter an employer from doing anything with that sum of money that, in essence, belongs to the workers. You suggest that we should include something in black and white to say that existing companies contributing to an employee pension plan, for example, must make those contributions part of the termination package for the employee. It must be clear that the contributions do not belong to the employer. That situation applies to RPPs and RRSPs alike, as part of the employee's contract. Therefore, contributions must be set aside somehow, whether in a trust fund administered by a board or some other mechanism, to protect them. You say that the current legislation is insufficient. Is that your view?
Mr. Hatnay: You suggest something even better than I suggested. The suggestion that a employer put aside monies that it owes to its employees for contributions to a group RRSP, RPP, health and welfare funds, wages and other amounts is an excellent solution.
The Chair: However, in practice, is that not what happens, given the directors' personal liability for these amounts? My personal and vicarious experience has been that boards see these situations evolving and, in anticipation, they create what Senator Harb suggests. They put together the appropriate amount of money, given the terms of personal liability. Is that your experience?
Mr. Hatnay: That situation is rare, in my experience. Occasionally, companies take that action. You are talking about a prudent company that wants to do the right thing for its employees. I do not suggest that other companies are evil but, when a company is rumbling toward insolvency and is in crisis, management does not necessarily focus on employees' termination severance benefits. They might act in an unethical fashion as a result of the distraction. In my experience, putting monies aside for employee severance does not happen often.
The Chair: Senator Harb, I am sorry for the interruption. Public companies listed on the stock exchanges have independent directors who focus on personal or potential personal liability, as do other private companies with management. Do you refer more to the non-public companies?
Mr. Hatnay: No, I refer to the full range of companies. They cross the whole spectrum.
Senator Harb: Therefore, you are thinking the following: To be fair, if workers must fulfill their obligations and contracts by working and doing what is demanded of them, an employer starting now should have a clear rule that the employer must fulfill a commitment that will include contribution to the pension, to the RRSP, et cetera. However, once that contribution is made, it should be completely out of the employer's hands. It should be illegal for the employer to touch that money.
Mr. Hatnay: That solution would be an excellent one.
Senator Harb: It makes perfect sense.
Mr. Hatnay: You are talking about putting money into trust. In the provincial pension benefits acts of every province in Canada, the provinces put in place a protection for employees for unpaid pension contributions. They call this protection the deemed trust.
It operates in the following way: The province says any amount that an employer is required to pay into a pension plan but does not pay is subject to a deemed trust. That is your concept exactly, and I think it is a good one.
The purpose behind that protection is due to the provinces trying to separate out this money — even if it is not physically separated by the company but only notionally separated. The deemed trust does not apply in a bankruptcy, according to the Supreme Court of Canada. They said the provinces cannot legislate to alter the priorities in the federal BIA. Therefore, that ruling kicks this concept over to the federal Parliament and the senators to deal with.
In the case of Ivaco, the Quebec steel company, the deemed trust was rejected by the bankruptcy judge at first instance. The case went to the Court of Appeal, and the Court of Appeal again rejected the deemed trust. It was about to go to the Supreme Court of Canada but then the case settled. That issue would have been subject to litigation.
The deemed trust, in that case, was advanced within the CCAA. It was not a bankruptcy. However, the law as it stands now stipulates that all provincial deemed trusts have zero effect on bankruptcy.
Your concept is excellent but it requires an amendment by the federal Parliament.
Senator Harb: Hopefully we will take some notes at some point and reflect on that possibility.
My final point is the case where somebody has been with a company for 10 years and is entitled to one month for every year to a maximum of a number of years. One would say it is important for that kind of money also to be set aside as part of that trust so one does not find oneself in a situation such as the one you mentioned where the company shut its doors, went home and everyone else was left holding the bag.
That is also your view: That amount should also be part of it.
In essence, termination pay is part of the contract. If it is part of the contract, the company fulfills it but not at the end when it does not have money. It fulfills the contract as it goes along because, if workers fulfill their part of the contract, employers are responsible for fulfilling their part.
Mr. Hatnay: I agree with you. That position would be an excellent one, as well. It would be highly beneficial to employees if a company set aside money to cover termination and separation pay.
Senator Harb: That requirement eliminates the possibility of somebody foreseeing this situation and putting everyone on contract to avoid the problem.
Mr. Hatnay: It is always subject to manipulation, of course.
Senator Massicotte: Any time one improves somebody's creditor status, one obviously affects somebody else's. We are talking about a constant pull of money, and there is shortage.
In two of your recommendations, you propose improving the status of either severance or special payments under a pension plan, and you suggest they should rank higher.
Do we have any numbers? What ranks higher than those payments? Do we have general numbers saying X percentage is for creditors, Y goes to unsecured creditors and Z to preferred creditors?
Mr. Hatnay: I do not have firm numbers but generally the system, as it stands works the following way. Section 136 of the Bankruptcy and Insolvency Act sets out the scheme of distribution. It starts with subject of the claims of secured creditors. Then it goes to a preferred, unsecured claim to employees up to $2,000 for wages. The rest goes to unsecured creditors.
Senator Massicotte: Do you have numbers such as: In typical cases, 90 per cent goes to secured creditors, et cetera?
Mr. Hatnay: I am not aware of those statistics. All I can tell you from personal experience is that, as soon as a company becomes bankrupt, the first question asked is, ``Who is the secured creditor? How much are they owed and how much are the assets in the company?'' The trustee or receiver will quickly come to that conclusion and they will be quick to say, ``Unsecureds get nothing.''
Senator Massicotte: Secured creditors are predominantly banks or institutions with permanent financing of some sort?
Mr. Hatnay: Exactly: they are banks, lenders, et cetera.
Senator Massicotte: They are knowledgeable financial institutions with special arrangements.
A witness last week had experience with international bankruptcy law and, while he did not have a model, he said that the principal interest of most bankruptcy laws is to ensure that the secured lenders are enticed to help and lend. Economic growth depends heavily on lending. One priority is to ensure the secured lenders are protected to entice them to lend money.
Would that affect the position of secured lenders?
Mr. Hatnay: If a secured lender was sitting next to me, I am sure the lender would say, ``Do not do this because we will have to charge higher interest or may not lend in certain cases.'' There is always that spectre of a lender complaining against giving a priority to employees because they say it will affect the business.
By general observation, I would say this: The lenders to a company are not restricted to banks. There are a whole range of distressed lenders or sophisticated lenders who are all sophisticated financial entities. They can always find a way to generate a profit in most cases.
It is a bit of a red herring to say, ``If you give priority to employees for termination or severance, or if you give them more of a secured claim, it will cause us not to lend to a company.''
Personally, I have difficulty with that argument.
Senator Massicotte: Have you made a lot of bank loan applications or negotiated loans?
Mr. Hatnay: Personally? No, I have only made personal financing loans and things like that.
Here is an analogy for you: In insolvency, you may be familiar with a debtor in possession, DIP, lender. A DIP lender is one who comes forward to say, ``Even though this company is insolvent, I will lend money. However, I want top priority and I will charge high interest.''
The Ontario courts — and this situation has developed across Canada — have given these DIP lenders priority status essentially. They have come up with a solution to protect the DIP lender. That protection will also be reflected in the proposed legislation.
The example is one of an innovation, and the courts responding to assist these loans to be made that exist in practice. Companies and lenders continue to exist, even in insolvency, and lenders will be out there. It will not be a case where they will not lend and they will forego profit.
There is always the perception-is-reality concern. If enough people say that it will not work, people start to think it will not work. I have trouble accepting that argument. If the financials of a company work, and a sophisticated lender is at the table and can figure out how to make the company work, they will make it work to make money for themselves. It will not be necessarily at the expense of employees. I think measures can be put in place to assist employees that will not deter lending.
Senator Massicotte: This comment may be a personal one, but we are all subject to all kinds of information.
I appreciate your confidence that lending will not be affected, but in the last six months, nearly every central bank in the world, including our own, has issued statements that they are extremely worried about what is happening and that there will be a significant contraction of credit. We are talking about hundreds of billions of dollars.
Our own banks, and those in the United States and England, have tried to increase liquidity. If you look at how lending has occurred in our country with all this vertical product, lending is now going back to the old way. The concern is that our country could suffer immensely from this lack of liquidity.
I appreciate that you are not concerned with the secured creditors' position, but many sophisticated people are worried about the reverse, whereby there will not be enough loans. I heard in a presentation yesterday that $100 billion is missing in our country.
If you had more information — not anecdotal but specific information — about who wins and who loses, that information would help us, because we are balancing who will receive the money.
Mr. Hatnay: If it would be of assistance, I could research that for you and submit separate documentation. Those studies have been done. They are sophisticated economic studies. I have read them. I am not prepared to discuss them in this session, but I am happy to follow up.
The Chair: We would be pleased if you would send that information to the clerk. That would help us.
Senator Eyton: Following along the same line as Senator Massicotte, the question is whether credit is available, and the cost of the credit that may be available. Either factor might discourage investment and jobs, et cetera, so that is a concern.
You have three precise suggestions. Can you estimate for me — or inform the committee later, perhaps in writing — how much you take off the table with all these provisions, in an ordinary way? There is a certain quantum to a company's assets or to a bankrupt estate. Given these provisions, what is the effect? Do they take away 10 per cent, 15 per cent or 20 per cent of available security?
It seems to me that we must make that kind of analysis before we can judge whether we can afford to enact all these measures, taking proper consideration of lenders generally. I do not think the difference is significant between banks and other lenders. They all generally take the same approach; that is, they want some kind of a return, and where risk is high, they will charge more, or perhaps refuse the loan.
Mr. Hatnay: That information sounds similar to what Senator Massicotte requested. I am happy to address that question in a supplementary submission. I do not have a number. I will research it. I appreciate that the legislation is a balancing act. You must keep the economy going and maintain a positive lending environment.
I am here to tell you the other side of the equation; not to forget the employees. I understand your conundrum, and I can make further submissions if that would be helpful.
The Chair: Thank you. That is kind of you, sir. It would help us.
Senator Goldstein: Mr. Hatnay, thank you for an enlightening and balanced presentation. We all appreciate it and are grateful for it.
I wanted to address a number of issues, but I will address only one, and that is the super-priority that you suggest, or inclusion in the WEPP that you suggest, of termination and severance pay.
You recall that the concept of director's liability is limited to wages or salaries for services rendered, depending on the wording of various provincial statutes. In Schwartz v. Scott and Barrette v. Crabtree, the Supreme Court determined that termination pay was not for services rendered but for services not rendered.
If the WEPP were amended to expand its availability to termination pay and to various other pieces that are not for services rendered, the subrogation rights of the government against directors would be limited because the provincial statutes that impose liabilities on directors do not have that expanded definition.
Do you therefore agree that if we were to consider including termination pay — and we may well consider it appropriate to include termination pay — that every provincial statute would need to be amended to ensure that the federal government — meaning you and me, as taxpayers — would not find itself with monstrous liabilities to pay, with no recourse to anybody?
Mr. Hatnay: With regard to your first comment, I have been involved in a few cases that deal with director's liability. The case law is voluminous. There is case law to support that directors can be liable for termination and severance pay.
This is not the forum for legal debate and exchange of cases, but essentially where that comes from are Supreme Court of Canada decisions, in particular, from Mr. Justice Iacobucci, where he characterized what is termination and severance pay. It is simply pay in lieu of notice. What is notice? The employee is terminated after a month, but if the employer does not want the employee on the premises for a month, the employee is paid in lieu of notice.
Justice Iacobucci said this pay is wages; that is all it is. The employer can choose to have the employee work out the month, doing the job and providing services, or the employer can ask the employee to leave immediately, and many employers choose the second concept.
With respect, I do not necessarily agree that director's liability excludes termination and severance pay at this point. That is my first observation.
In terms of expanding WEPP to cover termination and severance pay, I do not necessarily share your concern about the problem. The definition of wages can be expanded to catch termination and severance pay. It would mean that the WEPP would pay out more money, which of course would be federal money, but the provision could be crafted in such a way as not to overburden the Canadian taxpayer; perhaps 50 per cent of termination and severance pay, 30 per cent or something. Something is better than what it is now, for sure.
Senator Goldstein: You do not see a constitutional issue in that approach?
Mr. Hatnay: No, I do not.
Senator Goldstein: You have suggested, correctly, that there is a gap in our system because corporations that do not go bankrupt and are not in receivership nevertheless find themselves having dismissed employees, directly or indirectly, and these employees have no recourse to the WEPP, which was your initial submission.
Do you agree that this issue is a constitutional one as well? The WEPP is created as a function of federal jurisdiction to deal with insolvency, and if we are not dealing with insolvency, then the federal government, with respect, has no great business venturing into salary guarantees, where is there no bankruptcy or receivership.
Where do you attach the jurisdiction of the federal government in an area that is otherwise clearly of provincial jurisdiction?
I agree there is a gap and we should try to do something about it. The question is where? More important, should the Government of Canada or the provincial governments do something in those circumstances?
Mr. Hatnay: Since the WEPP is put forward as a federal position, it should be the federal government.
Senator Goldstein: But it is tied to bankruptcy.
Mr. Hatnay: Your point is a good one. However, I spin it around to look at the problem.
The problem is, a company shuts down and terminates all the employees. They say, ``We are not bankrupt or in receivership. We are closing the door.'' In the example I gave you, the parent company is bankrupt in the United States. The company has offices all over the place and it shuts down the Toronto office.
In that example, the law could be amended that if a company closes down and its affiliate or governing mind is bankrupt, then the WEPP should apply.
I think the federal government has the power to institute some type of program to apply to these situations.
I do not see a constitutional problem only because the government is operating under the rubric of bankruptcy and insolvency.
Senator Goldstein: Could you solve the problem by having the employees petition the company into bankruptcy?
Mr. Hatnay: That would make the company a bankrupt, and then the WEPP would apply right away.
Senator Goldstein: So it is not a problem.
Mr. Hatnay: To the contrary: It is a huge practical problem. That issue was discussed in that case. You must remember: Employees who are terminated are thinking about their rent or mortgage. They are not thinking about hiring a lawyer to petition a company into bankruptcy, to attach the bankruptcy label to recover a few thousands dollars from the WEPP. Practically, that solution will not work.
I urge you to think of solutions that respond to the practicalities of the situation. I am happy to assist in any way I can. However, I do not think a receivership petition would work.
The Chair: Mr. Hatnay, first, I want to thank you on behalf of the entire committee for not only your clear presentation but your helpful and cooperative attitude. We look forward to receiving these other items. I gather you stand available if we have any questions when we prepare our report.
I welcome our new witnesses. I wish you both a happy Valentine's Day. Thank you for the Valentine you sent to us via The Globe and Mail this morning. It enabled us to have our breakfast with hearts and flowers from the University of Toronto. We have with us Jacob S. Ziegel, Professor Emeritus, University of Toronto; and your colleague, Anthony Duggan, Professor, University of Toronto.
You are not strangers to this committee. You have spoken with us in the public domain on December 18 and again on January 4.
I hope that in the fullness of time and in the intervening period, you will have come to see that you wrote your first article, perhaps without reading the observations that were made on our report with respect to Bill C-12, which addressed your own concerns. We took some umbrage to the public criticisms when you were not, perhaps, ``dealing with a full deck.''
We take our work seriously. We are trying to undertake a full and complete study of the merits and demerits of this legislation. Additionally, we are trying to help the government in a complex area where they are trying to combine social affairs legislation with things such as the WEPP, bankruptcy and insolvency legislation. The public policy makers have their reasons for doing things and the reasons go back several years, as you know.
As far as this committee of this particular Parliament is concerned, we deal with the legislation as it comes to us, and we deal with it seriously. We are not avoiding any obligations of oversight or review.
I know that deep down in your heart, Professor Ziegel, you know that well, as do you, Professor Duggan.
Having said that, we are delighted you are here and we are delighted you are following the evolution of this legislation. We are pleased that you share with us a desire to get it right.
Jacob S. Ziegel, Professor Emeritus, University of Toronto, as an individual: Professor Duggan and I are pleased to appear before the committee today to present our considered views on the Statutes of Canada, chapter 47 and chapter 12, and the views of seven other legal academics from five of Canada's law schools.
All but one of us have taught or are teaching Canadian insolvency law at various levels to Canadian undergraduate and post-graduate law students and practitioners. All but one of us are actively involved in research and writing the insolvency law in the area; and many of us have done so for many years.
Last year, Associate Professor Stephanie Ben-Ishai of Osgoode Hall Law School, who is also a member of our group of submitters, and Professor Duggan published with Nexus an edited collection of 15 analytical papers on many aspects of chapter 47, to which many members of our group contributed, and which address, in most cases and in greater detail, the concerns expressed in our written submission to this committee.
I also stress the following points: It is misleading to refer to chapter 47 and chapter 12, and the legislation they amend, as framework legislation. That term has been used in this committee and elsewhere. For the most part, the amendments to the parent acts and the Wage Earner Protection Program contain detailed and highly technical provisions coupled with the directives, bankruptcy rules and prescribed forms issued under the Bankruptcy and Insolvency Act. Canada's bankruptcy legislation is rapidly approaching the United States Bankruptcy Code in complexity and detail. This is another reason that we recommend, in our brief, that the time is right for a complete revision of the Bankruptcy and Insolvency Act. The act has not been revised since 1949. The job is necessary to make the act more coherent and easier to understand, to delete obsolete provisions and to eliminate many duplicate provisions within the BIA, and between the BIA and the Companies' Creditors Arrangement Act.
Contrary to the impression left by one of the senators, our submissions do not aim for perfection. In fact, as we make clear in pages 6 and 7 of our written submissions, we support the principle objectives of the legislation. When we differ in our submissions on particular amendments, it is because we believe they are based on false assumptions, adopt the wrong solutions or because, in our view, they suffer from important ambiguities or other drafting deficiencies.
As summary of our disagreements with the provisions in chapter 47 and chapter 12 in our recommendations for changes appear on pages 7 and 11 of our written submission. Our collective views have been a matter of record since we submitted them in an earlier form to the Industry Committee of the House of Commons in October 2005. Our submissions cover all the key features of the amendments to the CCAA and those on the commercial and consumer sides of the BIA. We also raise an important issue that has attracted surprisingly little attention concerning the appropriateness of using the Consolidated Revenue Fund to fund the new Wage Earner Protection Program.
Our key concerns are lack of transparency in the drafting of the bills that constitute chapter 47 and chapter 12; no consultative document was published seeking public comments on the draft bills before they were finalized; and no documents were published after the bills were introduced in Parliament to explain the purposes and reasons for the changes. We believe that Canada has much to learn in this area of the law from the best British legislative practices.
A related concern is that at least one of the changes in chapter 47 adopted in chapter 12 was inspired by political and economic pressures brought to bear behind the scenes. These changes involved changes to section 67 of the BIA concerning the bankruptcy treatments of RRSPs and RRIFs. The original proposals in chapter 47 were adopted after much discussion in the Personal Insolvency Task Force, of which I was a member, and themselves represented a compromise among different viewpoints. That compromise was reflected in chapter 47. We believe it is deplorable that the federal government yielded to the outside pressures. The changes were not debated in the House of Commons, were not considered by any House of Commons committees and were adopted without giving interested parties an opportunity to make submissions for the retention of the chapter 47 provisions.
My colleague, Professor Duggan, will now address you about our concerns involving the duplication of many provisions in the BIA and the CCAA, inconsistencies in the treatment of the same issues in different parts of the BIA and conceptual and functional difficulties about the treatment of voidable transfers and undervalued transactions in the BIA amendments.
After he has spoken, with the committee's indulgence, I will speak for a further few minutes about what I believe to be the unfairness and ill-considered nature of important amendments to the consumer insolvency provisions of the BIA and the failure of the amendments to address altogether a key aspect of the high incidence of consumer insolvencies in Canada.
The Chair: Thank you, Professor Ziegel. That presentation was delivered with your usual clarity, conciseness and interest.
I know you will understand where I am coming from with my following comment: The role of this committee when we oversee and review legislation is not to engage in a dialogue with the government about the rectitude, or otherwise, of their public policies on which they base the legislation but, rather, to determine whether the law, as drafted, gives effect to their policies, with which we, or the witnesses, may not necessarily agree. We take your point on the Wage Earner Protection Program. It came right out of left field but there it was. The program was a decision of a succession of governments, to get rid of any partisan input. The original Bill C-55 contained the provisions for the program and there was a hurry to pass it during the Liberal administration, and it was carried on by the current government. That is the government policy, whether they consulted the public or not. I suppose that is where you have the right forum in your comment in the national media. The committee's job is to ensure that they at least get it right in terms of how the policy is put down in black and white.
Anthony Duggan, Professor, University of Toronto, as an individual: I begin with a point of clarification in your opening remarks. For the record, authorship of The Globe and Mail piece was Professor Ziegel's alone. This piece was not a joint enterprise. I did not know about the articles until after publication — probably after you found out about them. I read today's article on the plane on the way to Ottawa. I do not necessarily disagree with what he says but if I had not said anything, it would have been on the record by implication, at any rate, that I was the co-author. I do not want to take either the credit or the blame.
The Chair: The first two articles were in the National Post, on December 18 and January 4, and another in The Globe and Mail today.
Mr. Duggan: I do not even know the details.
Our submission covers a great deal of ground and many details. Obviously, there is no possibility of touching on everything in it. With the committee's indulgence, I will pick out a few key points. I want to say a bit about the gifts, transfers and preferences provisions; perhaps a bit about the executory contracts provisions; and finish up with a word about the drafting.
On the gifts, transfers and preferences, this committee, in its 2003 report, recommended a single set of provisions to apply nationwide for preferences, gifts and transfers at undervalue. In other words, the BIA preferences, gifts and transfers provisions should apply in bankruptcy to the exclusion of provincial laws.
One of our concerns is that the reforms have not adopted this recommendation. We are aware that the Uniform Law Conference of Canada is currently looking at the provincial laws and, with luck, at the end of their deliberations they will come to the same conclusion that this committee reached in 2003.
With respect, I agree with this committee's recommendation. We think it should be implemented. There is an incidental point, though. If that were to happen at some point down the track, a new provision would be required in the BIA for cases where the debtor makes a gift or transfer at undervalue and there is actual fraud on the debtor's part.
In principle, if there is actual fraud, the trustees should be able to challenge the transaction, no matter how long before the bankruptcy happened. As the law presently stands, the trustee can challenge the transaction by suing under the provincial laws. However, if the provincial laws stop applying in bankruptcy, as we recommend, a provision must be included in the BIA itself to cover the case.
We make a number of points about this set of provisions, but most of the others are more technical. That point is the main one we want to emphasize.
I will turn now quickly to the executory contracts provisions. This point is a bit technical, but if you will indulge me on the technicalities, I want to draw from them a point about the drafting.
The starting point is to say that the present law is piecemeal, and the new provisions are a distinct improvement. While they are a step in the right direction, there are still gaps, inconsistencies and drafting problems. Here are some of our concerns.
First, there is no provision for disclaimer of contracts in straight bankruptcy proceedings. That means that for landlord and tenant agreements, the provincial laws will continue to apply as they do at the moment, while for other contracts, the common-law rules will apply. We do not understand that omission.
Second, the rules for disclaimer of commercial tenancy agreements in BIA proposal proceedings — section 65.2, a current provision — are different from the rules of disclaimer of other contracts, which are contained in the new BIA, section 65.11. There is one set of rules in BIA proposal proceedings for landlord and tenant agreements, and another set of rules in BIA proposal proceedings for other kinds of contracts. We do not see why these contracts should be treated differently.
Third, new BIA section 84.2 deals with ipso facto clauses in straight bankruptcy proceedings, but the provision applies only if the debtor is an individual. We do not understand that. As far as we can see, the provision should apply also if the debtor is a company. That may have been an oversight or deliberate; we have no way of knowing.
Fourth, in the new Companies' Creditors Arrangement Act, section 11.4, special rules for critical supplies, there is no corresponding provision for BIA proposals; we do not see why. If there is a need for a new provision for critical supplies in the Companies' Creditors Arrangement Act proceedings, surely, the need is the same in BIA commercial proposal proceedings.
That leads me to my more general point about the drafting, which is that we think the drafting is less than ideal. For instance, the executory contracts provisions should all be together in the same part of the statute because they are conceptually linked. As it stands, the disclaimer provisions are in one part; the ipso facto provisions are in another part; and at least in the Companies' Creditors Arrangement Act, the assignment provisions are in another part again.
That split in the provisions obscures the conceptual links between them. It can lead to misunderstandings on the reader's part. It may also lead to mistakes on the drafter's part, because if they miss the conceptual links, maybe they are not performing the job as coherently as they should.
Perhaps a more important point is the duplication that the current drafting involves. We will have three separate sets of provisions — one for straight Bankruptcy and Insolvency Act bankruptcies, one for BIA proposals and a third for Companies' Creditors Arrangement Act proceedings. It would be much better if we could have a common set of provisions for all three cases. As things stand — and I have heard a lot of people make this complaint — the reader must parse three separate sets of provisions to say whether or not they are the same.
A related point is that three separate sets of provisions puts pressure on the drafter to ensure that they correspond and that no accidental discrepancies exist between them. As it happens, there are several discrepancies in the current draft that refer back to the points I made a moment ago.
This is not only a question of tidiness; it goes to a key point of bankruptcy policy. An applicant's choice between different insolvency regimes when they are deciding whether to go bankrupt — whether to use the Companies' Creditors Arrangement Act or to start BIA proposal proceedings — should be made by reference to what is best for creditors at large. It should not depend on whether the rules governing executory contracts or the like are more favourable to the applicant in one regime than they are in the other. In other words, discrepancies between laws that apply in different regimes encourage parties to use the laws strategically, and not necessarily in the best interest of the creditors at large.
This duplication concern is not limited to the executory contracts provisions. It applies to several other aspects of the amended legislation as well — for example, the wage earner priority provisions, the pension contribution priority provisions, the subordination of equity claims provisions and the Crown claims provisions.
Let me finish with this observation: Having a common set of provisions for executory contracts, priorities and the like would mean integrating the BIA and the Companies' Creditors Arrangement Act. This point brings us back to the old chestnut. To mix metaphors, let me flog a dead horse once again.
I know that there is opposition to this suggestion, but I worry that the argument might be carried on at cross purposes. What I am talking about at the moment is integrating the two statutes, not eliminating the choice that the CCAA offers.
It would be perfectly possible to incorporate the substance of the CCAA as it presently stands into the BIA — for example, as a new Part III A or whatever number you want to pick. On that basis, parties would have the same choice of regimes as they do now, and the Companies' Creditors Arrangement Act proceedings would look the same as they do now.
On the other hand, it would not be necessary anymore to say the same thing three times over for each regime. The common features, conflicts and differences of the three regimes would be clear at a glance. I will now turn the presentation over to Professor Ziegel.
The Chair: Thank you for your learned and thoughtful observations. I know that we, along with the government and the drafting people, are fortunate to have people like you with so much knowledge and experience giving this kind of input. It sounds to me like your points all make good sense.
Mr. Ziegel: Let me begin by reassuring the senators that what appeared in The Globe and Mail this morning was exclusively my authorship. I do not know how the impression could have gotten abroad that it purported to reflect my colleague's views. They are two different enterprises and I assume complete responsibility for what appeared in The Globe and Mail, for better or for worse.
I am obviously anxious to hear the questions that I hope the senators will ask us. However, I want to spend a few moments on consumer issues for important reasons.
Two key issues have surfaced in Canadian bankruptcy law over the last 25 years. One involves how we restructure insolvent companies to try to rehabilitate them to save jobs. The other, at least equally important, is the problem of consumer insolvencies.
Those problems have exploded over the last 25 years. As we note in our submissions, and I state again in The Globe and Mail this morning, we have gone from a low figure in the early 1970s of about 3,000, to around 100,000 a year now. We are among the highest rate of insolvencies in the western hemisphere; we are higher than the United States. That ought to give us keen concern.
That problem is not generated by the Bankruptcy and Insolvency Act, but it is a problem that the act must address and cope with. The point I tried to make in the article in The Globe and Mail and in our submissions is that we continue to entertain what I think is the false impression that problems are exclusively in the sphere of the consumer. Therefore, the focus has always been, what do we do with the consumer? How can we improve the education and conduct of the consumer? How do we wring out surplus income from the consumer and what conditions do we impose on the discharge from bankruptcy? We do not say these questions are wrong, but they are too single minded. There must be an equation. It takes two to tango. The other important party to consumer insolvencies are the creditors. They extend vast amounts of credit and make it too easy for consumers to amass huge debts with which they then cannot cope.
We urge the committee, in its deliberations, to be highly sensitive to the responsibilities of creditors to act more responsibly. We have not attempted to spell out in our submissions how creditors could be made to behave more responsibly. I have suggestions of my own, and if time permits, I would be only too happy to provide them to the committee.
Let me focus on specific issues addressed in our submissions. In regard to the extension of the automatic discharge from a nine-month to a twelve-month period, this issue is not a technical one, senators. I regard it as an important policy issue with practical implications.
Current statistics show that at least five per cent of consumers who are subject to surplus income payments are not able to meet their prescribed payments within the nine-month period. As a result, they are obliged to continue making payments beyond the nine-month period, sometimes for a substantially longer period. Therefore, they do not receive the benefit of the nine-month discharge that the act was intended to provide them.
Our submission suggests that by extending the automatic discharge period from nine months to twenty-one months, you will complicate the problems immensely. In the case of consumer proposals, we know there is already a high delinquency rate of 35 per cent or more. I think it is safe to predict that by extending the period of automatic discharge from nine months to twenty-one months, this problem will grow proportionately.
I think the government made a serious mistake in going along with this change. It was not thought through. It did not emerge from the government itself, a social body or an independent study. It came from trustees who were worried about being ambushed by consumer bankruptcies. Their intentions may have been honourable. However, knowing as many trustees as I do, it is my strong belief that they did not think through the implications of making this basic change to the automatic discharge period.
I know this committee has heard various witnesses talk about the student loan problems. I will not retrace with you what will be familiar grounds. However, I make two points.
In our submission, we suggested that instead of having registrars and courts wrestling with the difficult problems about what to do with delinquent student loans, the government should establish an independent debt relief committee or commission. It would be made up of people who are knowledgeable about the economics and the problems of student loans, and students would have the options of making their applications to the committee for early debt relief.
The other point, which is perhaps more of a personal observation than a representative one, is that statistics show that a high percentage of the delinquent loans are related not to regular university studies but to students studying at private vocational colleges. Neither the federal nor provincial governments have focused nearly enough attention on the kind of guidance the students should receive before they seek these federally supported loans.
It seems to be inefficient to complain subsequently that the studies completed by the student in effect had no economic benefit. The student was unable to find a job and, therefore, obviously, is unable to repay the loan that was extended to that student. It is my belief that much more emphasis should be put on the initial phase of the transaction rather than after the trouble has emerged.
Finally, let me talk about the need for a new approach to consumer insolvencies. First, we emphasize the need for more empirical studies. The Office of the Superintendent of Bankruptcy has done a great deal of work in this area, and those of us who work in this area are much obliged. However, their resources are limited. We need considerably greater resources.
We still lack basic statistics in the area. We have remarkably little information about credit card operations, for example, other than knowing how many people have credit cards and how much money is outstanding. Our knowledge about how credit cards operate, delinquency rates, et cetera, is much less than in the United States. We believe that the need for empirical studies is greater than we have at the moment.
I noticed with interest the other day that the Competition Bureau has a budget of $47 million. I think it is safe to say that the budget of the Office of the Superintendent of Bankruptcy does not come anywhere close to that amount. If your committee could use its good offices to ensure that the Office of the Superintendent of Bankruptcy has more money available for empirical studies, and for commissioning further research studies, I think it would benefit all of Canadian society.
We also have an observation on terminology that gives us concern. We still stigmatize people who have to go bankrupt. We characterize them as ``bankrupts.'' In the Victorian age, there was no worse stigma than to call someone a bankrupt. I believe it still has a stigma, at least verbally, even if it may not have a stigma substantively.
I think it is time to change our terminology. We do not characterize a person who makes a consumer proposal as a bankrupt; we say the person is a debtor. We call that person an insolvent person. We see no justification to distinguish between the two groups of persons. The only essential difference between them is in their capacity to repay. It adds insult to injury to say to low income consumers that because they are not in a position to make a consumer proposal, we will stigmatize them as a consumer bankrupt. We think that is wrong and we think that the terminology itself should be changed.
Senator Massicotte: I read your brief. You talked about student loans. Tell me about the deficit in the pension fund. Where is it headed, given what has been approved? Should there be priority for the shortfall in any pension plan?
Mr. Ziegel: We do not address the issue in our submissions.
That question is a difficult one. I am not sure that the bankruptcy law is the ideal place in which to address the issue. I think it should be addressed well before the employer reaches that stage. If we have adequate supervision of pension funds, then the alarms should go off long before the company or the employer becomes bankrupt.
Obviously, I see the rationale for giving the deficits and the pension fund high priority in the distribution of available assets but, as economists have often pointed out, there is a trade-off. If any creditor's claim has priority in a bankruptcy, it means that the lenders will make less credit available, and that situation may have negative consequences.
We are looking for a solution to ensure that employers maintain their pension contributions and, at the same time, we also want to ensure that employers have adequate access to credit funds. If you are asking me how I would bring this about, I am not an expert on pension funds.
Senator Massicotte: How should we treat collective agreements? An amendment limits the right of the judge to open up a collective agreement or to disband it. Hopefully, there is enough motivation in the structure that the representative union and the employer find a solution. Is the structure enough to cause those people to come to a deal? It seems to say right now that no matter what happens, collective agreements must be respected. Is it in Canada's interests to leave the provision as it is?
Mr. Duggan: There needs to be some sort of end game at the final point where the court can intervene if negotiations break down. I am prepared to accept that in 90 per cent of cases or whatever, the parties can negotiate a solution, but I think we need some sort of capacity for intervention for the 10 percent of cases where parties cannot negotiate a solution, and that capacity is important from an upfront point of view. For people who are contemplating lending in the first place, it is important to give them comfort at the point where they are making the decision to lend that if things go horribly wrong and there is an issue over a collective agreement, if worst comes to worst, there is a safety net where judge can come in and say, ``This is what must happen.''
Senator Massicotte: I notice in your report that you do not recommend the model law in relation to cross-border transaction. You will be pleased with the fact that it was not carried forward. Why are you against the model law?
Mr. Ziegel: You misunderstand our position. We strongly support the model law. We do not support the changes made in the Canadian version of the UNCITRAL model law. No justification was given. Some amendments were made in Bill C-12, and that is good and we support those amendments, but there are still deviations from the model law for which no explanation was given. This position goes back to our initial complaint that there was not sufficient transparency in the drafting of Bill C-55 and Bill C-12. If the drafters said, ``These are our reasons,'' we might have been able to respond to the reasons, whether we agreed or disagreed, but we do not know the reasons.
Senator Massicotte: It has not been carried forward. Is that a major, serious error?
Mr. Ziegel: Insofar as it interferes with uniformity. The purpose of the model law is to ensure maximum uniformity among the subscribing countries. They are creating bad precedents for each country: If Canada can make changes, so can the United States, the U.K. and all the EU countries. They then end up not with a model law but with checkerboard legislative provisions, and they may not be much better off than before the model law.
Senator Massicotte: Do you recommend that we come back with the model law?
Mr. Ziegel: Basically, or at least, I want to know the reasons that persuaded the drafters to make changes. I am not aware of what the reasons were.
Senator Harb: I hope you do not take it personally, but looking at certain aspects of the brief as well as your article today, at best, I think of some Stalinist approach, and at worst a Marxist-Leninist approach in the way you deal with the whole notion of creditors and investors. From both the article and the submission, you seem to zero in on the fact that, to a large extent, we should put a bigger part of the blame on the creditors, and a lesser part of the blame on those who use the benefit that the creditors offer. If there is a big candy bar somewhere, and a bunch of kids walk in and over-indulge on the candy bar, the idea is that I should go after the grocery store owner who sells the candy bar rather than focusing on the fact that candy might be bad for them.
My question is with respect to page 27 and 28 of your brief. Here again, in certain circumstances, you seem to want to put the investor and creditor on some sort of almost unequal footing whenever there are bankruptcy questions. You talk about the fact that the investor also takes a risk. You forget one important element, which is that in today's world, an investor can take a risk when the company does well, but also can take risk and do well when the company fares badly. I bring to your attention the whole notion of a derivative investment.
I want you to understand how complex this matter is, if it were to go your way. We will have a Pandora's box that we will never get out of. In essence, when a creditor advances money to a company, the creditor cannot support the company any more under any circumstances. If the creditor is the one who put in the money first, that is what will come first.
With what the committee has done with the protections for workers and employees and so on, that is legitimate, in a sense, but to go further — what you suggest to bring the investor on an equal footing — would be farfetched, because it is more complicated than dealing with workers or creditors. Investors sometimes can make money on the way up or the way down, but creditors, in essence, are protected. They will not benefit if the company does well because they are lending the money.
I submit to you that while I respect your view, I totally disagree with it, and I would like to hear your rebuttal.
Mr. Duggan: Can I say something about that issue? This is the subordination of equity claims issue. I mentioned that you may have heard, or will hear from a colleague, more detail about this.
The point we are making is not necessarily that investors should be treated like ordinary creditors. We are not saying that. All we are saying is that the issue is complicated and it merits further consideration. It merits further consideration because we have provincial securities laws that have put in place measures for the protection of investors against being defrauded by false statements, prospectuses and so on. They are given a right of action for damages or rescission in cases where they have been defrauded. On the one hand, the provinces offer this protection under the securities regulations rubric, and on the other hand, the bankruptcy laws effectively withdraw that protection in the situation where it is needed most. The provinces give to investors this right of action for damages. The bankruptcy laws say, if the debtor ends up bankrupt, your claim will be deferred. It seems to me there is a clash of policies there. What needs to be sorted out is which policy takes precedence. We are not saying that investors should receive this protection and be treated like ordinary creditors. We are saying the two conflicting policies need to be addressed head-on and reconciled. There probably needs to be some input from the securities law experts on this issue, because in the end, it boils down to whether it is more important to encourage confidence amongst investors or more important to encourage confidence amongst creditors, and that decision is a stark policy choice.
Mr. Ziegel: I entirely agree with my colleague.
The Chair: The colleague you mentioned will come here on February 27 and deal with some of those matters.
Mr. Ziegel: If I can follow up on what Mr. Duggan said on this issue, first, there is no question of subordinating the claims of investors, or putting them on the same basis as wage-earner claims. The claims are in a different position. An investor's claim will be that of an ordinary creditor. Wage-earner claims have preferential status under the BIA. They had it before the current amendments and they will continue to have it; in fact, wage-earner claims will have an even higher priority. It is misleading, with respect, to suggest that anything in our brief suggests homogenizing the claims of investors with those of wage earners. The two categories are different.
Also, senator, with respect, you overlook the fact that under the law, prior to Bill C-55, investors were treated as ordinary creditors if they could prove that they were induced to invest on the basis of fraudulent misrepresentations. So Bill C-55 is the one that has changed the prior situation. It is not we who are trying to change the law. There is a basic difference.
I am surprised that you suggested that anything in our submissions or anything that I have said has Marxist- Leninist origins. It is the first time I have ever remotely heard this suggestion. I find it totally unacceptable, with respect. You used the analogy of a candy bar to suggest a consumer who may be inveigled by advertising. We are all surrounded on a daily basis by advertising to buy this or that and to go here or there. To suggest that these consumers somehow are being greedy and irresponsible, whereas the advertisers and creditors emerge spotless seems to be, with all respect, a complete distortion of the current marketplace. Speaking for myself, and I think for my colleagues, we feel absolutely no need to apologize for persuading the committee to strike a better balance between the positions of creditors and the debtors than currently appears in our legislation.
Senator Harb: Nowhere did I say the word ``greedy.'' You are the one who said it. Reading your article leads to the conclusion that, in essence, those who provide the credit are the ones who are greedy. Living in a capitalist society, it is buyer beware. It is the responsibility of the person who provides the credit to set the terms of the credit, but in the end, the choice is the consumer's. Cars are built for speeds of up to 220 kilometres per hour, but that does not mean buyers of those cars are allowed to jump in and drive at those speeds. They look at the rules of the game and they play accordingly. Dr. Ziegel, you know that. You have been in the business for a long time.
For us now to turn around and say that, as a committee of the Senate, we must start dictating to creditors what to offer and what not to offer is totally unfair.
Mr. Ziegel: First, you have painted far too broad strokes as to what we have in mind. I said that we have not attempted in our brief to spell out what we would regard as responsible lending practices.
Let me remind you that this issue of responsible lender conduct has aroused great concern in the European Union. In fact, the statement issued by the EU on credit policies has embraced the concept of responsible lending, as has the British government in its most recent consumer credit legislation. The Belgium law has specific provisions dealing with delinquencies.
This topic is a big one. I wish we had time to go into it further. I would love to debate it with you, because I could not be further removed from your concept of the so-called unrestrained market. If you were correct, then we would not even have misleading advertising legislation. The market would be a free-for-all. I would have thought that we have gone way beyond the concept of an untrammelled, unrestricted market. As I say, this topic is one for lively debate and I would welcome the opportunity to debate the whole issue with you.
The Chair: I thank you both, Senator Harb and Professor Ziegel.
[Translation]
The die is cast, everything is clear and the debate begins.
[English]
My job as chair is to take from your wise input that there is a need to strike a balance in all these matters. In terms of the balance between differing social philosophies and the organization of our society in 2008, another forum might be the best place.
I am loath to terminate without Senator Goldstein having a full word. We may invite you back, gentlemen. You do a great service. It is refreshing to have the candour and the frankness. The policy-makers must decide, and that is what makes the party system work.
Senator Goldstein: Thank you both, Professor Ziegel and Professor Duggan. It encourages me to know that our continued confidence in you is fully justified. We are grateful to both of you, and to others who intervene in this process, for giving us guidance, help and the benefit of your approaches. We do not always necessarily adopt your approaches, because many of these issues are value judgments. As we saw a few minutes ago, there are different approaches with respect to those judgments, of equal interest and perhaps even of equal validity.
I would have liked to have dealt with many issues that Professor Ziegel raised, predominantly, but we do not have time for that.
I want to adjust one impression that may have been left. I am concerned that, after hearing you, our listeners may think that Canadian insolvency legislation, insofar as it relates to personal bankruptcies, is retrograde and not as consumer friendly as one would hope.
I think you will both agree with me — but especially, Professor Ziegel, I know will agree with me — that in comparison to other systems like, specifically, the United States, which is consumer hostile in its bankruptcy legislation, we stand out as a fair, reasonable and balanced consumer bankruptcy and insolvency system. You would not disagree with that, would you? You want to make the system fairer, from your perspective, but you would not disagree that, objectively speaking, the system is fair and balanced?
Mr. Ziegel: As I indicated, extending the discharge period from nine to twenty-one months, in my view, will be a retrograde step.
Senator Goldstein: I do not want to debate it with you. You know the reason, because when you sat on the committee that I chaired, we spent seven hours dealing with precisely that issue, and only that issue, and you are aware that there are two sides to that argument. However, I will not go into it now.
The Chair: Notwithstanding that the Winding-Up and Restructuring Act, which deals with the insolvencies of certain financial institutions, and which is an old, archaic and, I submit, outdated piece of legislation, somehow was left out of this bankruptcy framework legislation reform, do you think it would be constructive if we were to hear some evidence about that act? We have had some approaches informally in the last 24 hours, and I wonder what you think.
Mr. Ziegel: While the act theoretically can be used by many types of Canadian companies, in practice it is used by few companies other than those that are obliged to make use of the Winding-Up and Restructuring Act. I have not studied the act in detail for a considerable time, though I certainly am familiar with it.
If the evidence shows that it causes significant problems — and I do not think it does — then of course we should update it. However, I am not aware of problems. I suspect that Senator Goldstein is more knowledgeable about these things than I am, but I am sure that the companies that either interact or might be required to interact with the Winding-up and Restructuring Act would not be slow to press for reforms and updating, if they felt there was a need.
Mr. Duggan: Yes, it should be brought into the fold. At the moment, it is the poor sister. There should not be arbitrary differences between the rules that apply in competing regimes. If we leave the Winding-up and Restructuring Act out — that is, if it is not part of this review — how will we be sure that, as we move forward on the other fronts, we do not leave the Winding-up and Restructuring Act way behind?
The committee adjourned.