THE STANDING SENATE COMMITTEE ON BANKING, COMMERCE AND THE ECONOMY
EVIDENCE
OTTAWA, Thursday, October 6, 2022
The Standing Senate Committee on Banking, Commerce and the Economy met with videoconference this day at 11:30 a.m. [ET] to study Bill S-215, An Act respecting measures in relation to the financial stability of post-secondary institutions.
Senator C. Deacon (Deputy Chair) in the chair.
[English]
The Deputy Chair: Honourable senators, welcome to this meeting of the Standing Senate Committee on Banking, Commerce and the Economy. My name is Colin Deacon, senator from Nova Scotia and deputy chair of this committee. I will be chairing this meeting.
I would like to introduce the members of the committee: Senator Bellemare, Senator Dawson, Senator Loffreda, Senator Marshall, Senator Massicotte, Senator Ringuette, Senator Smith, Senator Marwah and Senator Moncion.
Today we continue our examination of Bill S-215, An Act respecting measures in relation to the financial stability of post-secondary institutions. I have the pleasure of welcoming, via video conference, Dr. Virginia Torrie, Associate Professor, Faculty of Law, University of Manitoba; and Mr. Emmanuel Phaneuf, Partner at Raymond Chabot Grant Thornton.
Welcome, and thank you for joining us today.
Dr. Torrie, if you’d like to begin with your opening remarks, please.
Virginia Torrie, Associate Professor, Faculty of Law, University of Manitoba, as an individual: Thank you. I’m pleased to be here today to lend my expertise to the committee as it considers Bill S-215. I am an associate professor at the University of Manitoba Faculty of Law. My research expertise is in bankruptcy and insolvency, with a particular focus on the Companies’ Creditors Arrangement Act, or CCAA, and Canadian federalism as it concerns bankruptcy and insolvency law.
In my opinion, the CCAA — and commercial insolvency legislation more broadly — is simply not the appropriate vehicle for resolving the financial distress of a public university. The proposed bill is a step in the right direction in terms of precluding university access to commercial insolvency laws and developing a tailored framework for resolving the unique nature of financial challenges at universities.
Canada already provides such tailored bankruptcy regimes for certain types of businesses and institutions — for example, insurance companies, banks, securities firms and farm businesses. This is in recognition of the fact that there are limitations to a one-size-fits-all approach, and some institutions raise unique concerns, or are of too great an interest to the public, to have their fate left in the hands of commercial creditors.
Commercial insolvency proceedings generally work well when the debtor is a for-profit business, accountable to shareholders. But these proceedings are poorly suited to resolving the types of concerns that come up when a public university is in financial difficulty.
One example of this is the court-ordered embargo on Laurentian University’s requirement to comply with access to information requests during part of its CCAA proceedings. Here, the checks and balances ordinarily expected of a broader public sector institution — one that is reliant on taxpayer dollars — came into conflict with the narrower financial analysis that guides CCAA proceedings. It is an example of how the mismatch between the nature of the debtor and the nature of CCAA proceedings gets resolved by applying a commercial lens. This has the effect of undermining the mission and purpose of public universities.
The CCAA process is not set up to consider the largely non-financial objectives of an institution of higher learning; the consultative, collegial governance structure of universities; the accountability and transparency owed to taxpayers; and it is especially poorly equipped to deal with the particular vulnerabilities of university stakeholders, like students.
The CCAA facilitates negotiated solutions to business insolvencies, but these resolutions tend to reflect the relative bargaining power of parties who hold formal legal rights. The resolutions are worked out in the shadow of a commercial bankruptcy liquidation — which is also poorly suited to university insolvencies — and thus CCAA resolutions tend to work best for those with experience with the commercial insolvency system and relatively deep pockets.
Developing a bespoke process — as contemplated in this bill — would facilitate a fit-for-purpose university insolvency process, which could address the areas of tension that have been brought up by the Laurentian insolvency. It would also establish the forum for resolving public university insolvency, which in itself is an important governance check because it would take the choice of how to resolve the insolvency away from the managers who were unable to manage the university’s finances successfully, in favour of a more transparent process where all the parties concerned are on a more even footing.
Thank you. I look forward to your questions.
The Deputy Chair: Thank you very much, Dr. Torrie.
Mr. Phaneuf, do you have any opening comments?
[Translation]
Emmanuel Phaneuf, Partner, Raymond Chabot Grant Thornton, as an individual: Thank you for the invitation. I am happy to share my knowledge and experiences in insolvency matters that may affect the bill.
I am a partner at Raymond Chabot Grant Thornton and have been practising in the insolvency field for over 20 years. I have had the opportunity to be involved in various insolvency and college cases that have occurred in Quebec, including the Teccart Institute, of course, and the Lassalle Conservatory. So I will be able to share my experiences with respect to the bill, specifically.
Do the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act, CCAA, meet the needs perfectly? Possibly not. Could amendments be made? Could new legislation be proposed to address them? Possibly.
That’s it for my opening remarks. I am now available to answer your questions. Thank you.
[English]
The Deputy Chair: Thank you very much, Dr. Torrie and Mr. Phaneuf.
Colleagues, we will move on to questions.
Senator Massicotte: Last night I read les procès-verbaux and Bill S-215. Sorry; I was here for half of the last meeting. I’m chairing the Energy Committee and have a time conflict. It is not due to lack of interest.
I looked at the bill last night, so I am starting from zero. I have immense difficulty in trying to understand what this bill does. I am trying to understand how the bill gets us to the apparent solution. I don’t see a solution. I know we can be critical of the CCAA and the Bankruptcy and Insolvency Act, or BIA.
I was on a committee nearly 20 years ago where we reviewed both acts. If we look at the history — and maybe the gentleman from Raymond Chabot Grant Thornton, Mr. Phaneuf, can confirm — without the CCAA, as it used to be, and the Bankruptcy and Insolvency Act, you had no chance. If you are insolvent, you close the shop and somebody else takes over.
We introduced the CCAA and it had immense success. It gives people a chance to talk, to seek a solution and try to reorganize the company. It has been very successful. Companies and schools have survived as a consequence.
Without the CCAA, lenders won’t lend because they won’t feel secure. They are not a charitable organization, and you won’t get the money. In this case, I understand from The Globe and Mail, they had $90 million in loans. They would have gotten zero without the CCAA or without some form of security to the lender.
In most cases — and Raymond Chabot Grant Thornton can confirm — the CCAA only applies to general creditors. The secured creditor is secured and does not get involved in the CCAA process. It has a comfortable, secured position and maintains it.
I don’t know how we get anywhere with this bill. I guess it’s a sense of pride. I think what we want — without saying it — is for the federal government to guarantee all loans and give us any money we need when we need it. You’re not going to get that, and you’re certainly not going to get a private creditor to spend $90 million to help you out. Every two or three years it goes up by $2 million or $3 million. That’s where the problem lies. Maybe this should have been capped 10 or 20 years ago. There has been a chronic insufficiency of funds.
I would ask the witness from Raymond Chabot Grant Thornton about his experience. If we don’t have CCAA, what is the solution? We want the government to fund it all. Well, let’s ask them. I suspect they will say no, that it’s not necessarily their jurisdiction. But let’s not suppose that tomorrow they will say, yes, and have a clause in there that is fuzzy and that does not get us anywhere.
The Deputy Chair: So you’re basically asking the witness to respond to your thoughts?
Senator Massicotte: Yes, to see if it conforms.
[Translation]
Mr. Phaneuf: At first glance, both the Bankruptcy Act and the Creditors Arrangement Act provide the opportunity to file a proposal or arrangement with creditors. For your information, the Bankruptcy Act does not necessarily require a liquidation of assets. Significant legislative amendments made in 1992 and 2009 allow for proposals to be filed. The Bankruptcy Act is much more codified, however, than the Companies’ Creditors Arrangement Act. In the absence of these statutes, what would be the alternative if no other statute permitted restructuring? It would be chaos. Secured creditors would come in and collect their property and seize their assets. So it’s an end either way.
Yes, I have had some experiences. Take the Teccart Institute, for example, which was not doing very well. Basically, the Quebec Department of Education interfered in the file. The Bankruptcy and Insolvency Act was used. The use of that piece of legislation allowed us to finish the semester, to complete the courses, to offer the students the possibility to finish their courses and to do their exams. It allowed us to make a transaction, under the act, which was approved by the court. So it allowed the continuation and continuity of the activities of the CEGEP that had existed for 60 years.
In the absence of this act, the secured creditors would have exercised their security. I find it difficult to see how the mission of the Teccart Institute could have been continued. I don’t know if I have answered your question.
Senator Massicotte: Yes, thank you.
[English]
The Deputy Chair: Dr. Torrie, do you have any response to Senator Massicotte’s concerns?
Ms. Torrie: In the wake of the Laurentian insolvency, there needs to be a development of some kind of regime to deal with that situation. This bill doesn’t propose what that new regime will look like because that’s obviously a complex process. A year is contemplated for working this out in consultation with stakeholders. I think it would be very difficult to engage in that process if, at any moment, another Laurentian could happen. To my understanding, it creates the breathing room for that sort of deeper discussion. The broader point is, why not just use the CCAA?
For an entity that relies heavily on taxpayer funds, the CCAA process, which doesn’t provide transparency or even notice to parties that it’s happening, creates policy challenges there. There are examples in Canadian law of other regimes that are tailored to specific types of institutions from which, perhaps, we could draw in this instance.
The Deputy Chair: Thank you very much.
[Translation]
Senator Ringuette: My first question is for Mr. Phaneuf. The next one will be for Ms. Torrie.
Mr. Phaneuf, based on the experience you have described to us from a CEGEP in Quebec, in your opinion, it is critical that these institutions be able to access the CCAA. Correct?
Mr. Phaneuf: I think it’s critical that institutions have access to any kind of legislation, whether it’s the Bankruptcy Act, the Companies’ Creditors Arrangement Act, or new legislation that is more tailored to educational institutions. I think it’s critical that they have access to legislation to protect themselves, to take the time to restructure and come up with a plan that works for all stakeholders.
[English]
Senator Ringuette: I direct this question to Ms. Torrie but you can add any comments that you may have, Mr. Phaneuf.
We know that post-secondary institutions receive their charter from provincial governments. In your opinion, what should be the provincial participation in any insolvency process? Is there a need for transparency and full public disclosure in the provincial charter that is provided for these universities?
It seems that we are not looking at the provincial responsibility and involvement in solving and being transparent in these kinds of situations. Laurentian was a first. We are trying to assess, first, jurisdiction, and the charter that is provided to those institutions by the provincial governments and what should be included. At the end of the day, Mr. Phaneuf, you are saying that, from your experience, the last resort should be CCAA. From what we heard, it did not seem to be the last resort used by Laurentian but the first resort used by them, which created this kind of unease.
Could you comment on the provincial implication and the charter? I know that the provincial government has a full share jurisdictional responsibility in these situations, so where would they lie in either a new or an upgraded process?
Ms. Torrie: Those are big questions. One of the things about how bankruptcy legislation has been interpreted by the highest court is that once you are in a situation of insolvency, even a provincially incorporated institution can come under federal bankruptcy jurisdiction for the purpose of resolving the bankruptcy. This makes it somewhat challenging to resolve financial issues at a provincial level because there is always a threat that if the situation becomes worse, it will suddenly become a federal jurisdiction which makes it difficult sometimes to resolve things at the provincial level. Technical insolvency is the dividing line between federal and provincial jurisdiction. It is sometimes challenging when you are looking down the road and trying to solve things.
There needs to be a role for the provincial government. From what we know publicly about the Laurentian insolvency, the provincial government didn’t play a role. The CCAA doesn’t contemplate this because it doesn’t contemplate entities reliant on public funds. The new process would need to articulate and define what that role should be.
Assuming the province continues to fund Laurentian post restructuring, as it does all public universities, it is vital to have the government or the ministry represented because that’s a big part of the picture. If you are trying to put the university on good financial footing, understanding how the funding works will be vital.
That’s a complex question that would need to be worked out with stakeholders and thought through because it is new territory. However, I see the provincial government being very much involved. Having a federal insolvency regime for universities wouldn’t prevent a provincial government from intervening much earlier to do something, as it did with the Nippissing insolvency, for example.
Sometimes this sort of liminal space between being in bad financial shape but not technically insolvent is a very difficult area, jurisdictionally. How that has tended to be resolved is through an expansion of federal jurisdiction. Instead of teetering along hoping to resolve it provincially with the threat of it becoming federal, the courts have expanded the scope of federal jurisdiction a little bit to cover that gap. Again, that challenges the efforts to resolve it provincially. I hope those remarks are helpful.
Mr. Phaneuf: In terms of transparency, both the CCAA and the BIA are public processes. All the financials are available, all of that stuff is published on the website and monitored. That’s my first point. I think there is a lot of transparency in those processes. In terms of the implication for provincial governments, in the cases that I have done — they were deeply involved in the process to make sure we had all the financial supports to complete the courses and to make sure that the students would get what they should have gotten such as marks and credits. Thank you.
Senator Loffreda: Thank you to the panel for being here. It reminds me of all my great years at RCGT. I am glad you are here with your expertise.
I want to bring up an important issue, and maybe both panellists could comment on this issue. I am speaking totally on a personal note here. I’m not representing the banking community or any bank, but just sharing my banking experience in my 35 years in the financial industry. When universities went for a loan at the bank, the way they were evaluated — if it was a three-plus high, meaning high risk, the bank would evaluate it in the same way it would evaluate the provincial government. If the provincial government was a two-minus low, then the university would be evaluated as two-minus low. That affects interest rates and many factors.
With the situation at Laurentian University, if I was a banker — and again, I’m speaking for myself — I would be saying, forget the provincial government rating. Every university will be rated on their own credit risk. What would this entail? Higher interest rates for Canadian universities. It could affect everything from how much students pay to study, tuition fees, research, et cetera. It affects every university’s budget in Canada. I would feel, as a banker, going forward in the future because of this case — although it was a first case. If I was representing a bank, I would say something is needed, yes.
My question is here. Something is needed. I go back to what Senator Massicotte said. If we want the federal government or the provincial government to pay, let’s just ask them to pay.
Dr. Torrie, you did mention that the CCAA is not the appropriate vehicle. Mr. Phaneuf made great comments going forward. My question is, with Bill S-215 are there any possible areas of improvement? Should we go forward with Bill S-215 as a first step, or are there other areas that we need to explore? Like Senator Massicotte said, if you want the governments to pay, let’s ask them.
The other point that I want to make — and I know we are discussing federal and provincial legislation. Coming from Quebec, I have the privilege to be born and raised there, and I love it, but the Quebec government always says, “We govern ourselves.” I’ve heard this many times from all governments, from the CAQ, to the Liberals to the Parti Québécois. They all said the same thing. If not, they don’t get elected. So how do we get around those issues?
Mr. Phaneuf: One thing on Bill S-215 that I think we are missing is — we are discussing the BIA, we are discussing the CCAA, we are looking at section 4, we want to protect the employees, we want to protect professors. But we are missing something, the Wage Earner Protection Program Act, or WEPPA. There are a lot of provisions in that act that protects the staff and employees. That’s completely missing in what I am reading. Should it be included? It involves both the BIA and CCAA involved with that act. You can strip that out, I think. That’s my point. Thank you.
Ms. Torrie: I would agree about WEPPA being missing. I would also expand it to prevent receivership, which is another possibility that I’m not sure is fully prevented by this act.
In terms of whether Bill S-215 should go forward and if there are alternatives, I think any alternatives that we are looking at in a groundbreaking case like this are going to be essentially formulated with inspiration and ideas from existing frameworks, but essentially it is going to be a novel framework. I think Bill S-215 creates the space to have those discussions, and, I would favour that over just insisting that the provinces pay.
I think there is an opportunity here to really provide predictability and certainty, which is lacking for any university that’s struggling right now. From a lending perspective, predictability and certainty is generally favoured, maybe not as much as government backstopping, and that would be challenging.
The Deputy Chair: Thank you very much.
Senator Dawson: I’m just visiting. I want to congratulate Senator Moncion. Bringing up these types of bills raises the debate.
[Translation]
I too come from Quebec, like my colleague Senator Loffreda. It is quite clear that there will be no departure on the jurisdictional constitutional issue — it will not be a discussion. Mr. Phaneuf, you mentioned that you had been involved in bankruptcies of educational institutions. These were Quebec educational institutions, private and unsubsidized, for which the federal government had no responsibility, if I understand correctly.
Mr. Phaneuf: That is indeed the case. Both the Lassalle Conservatory and the Teccart Institute are private institutions. On the other hand, they are educational institutions that benefited from public funds and that were under the Quebec Department of Education.
Senator Dawson: I can well imagine that if a bill were passed — we know that Quebec has a special status in Canada — I do not think that legislation would be passed to establish that it does not apply to Quebec. I think that would certainly lead to a conflicting debate about the interests of the province of Quebec and those of the federal government. Have you had any experience in your bankruptcy cases with issues of federal or provincial jurisdiction — in other bankruptcy cases, for that matter?
Mr. Phaneuf: I would say that the main conflict issue is that property rights are provincial in nature, whereas the federal law that prevails is somewhat applied in a scheme of collocation. That’s where the main problem lies.
Senator Dawson: I just want to correct one thing, Mr. Chair. Unfortunately, our colleague has left us, but she had mentioned CEGEPs in her question. The educational institutions that Mr. Phaneuf had represented were not under provincial jurisdiction at all, in the sense that the provincial college and university system was made up of fully private institutions.
Mr. Phaneuf: Yes, you are right. They are, however, organizations that have received public funds. If we were to apply the definition that is included in the bill, they would be educational institutions that would meet the definition of educational institutions that would not be able to avail themselves of the provisions.
[English]
The Deputy Chair: As someone who is just visiting, thank you for your contribution.
[Translation]
Senator Bellemare: I am siding with the people who have a problem with the bill. Its intent is good, it is very laudable. It makes us sympathetic to the bill, but I see constitutional problems with it.
On the other hand, I am not an expert on bankruptcy issues at all. In subsection 4(1), I see a problem, because the federal minister is developing a proposal for federal initiatives, and really, also in paragraph (c), which proposes legislative changes, particularly where there is a risk of an institution going bankrupt, to reduce the risk, to protect students, faculty and staff going bankrupt or becoming insolvent. There is a constitutional discussion here, which is very important.
What I don’t understand about this bill — perhaps the two witnesses can enlighten me — is that yesterday we had witnesses from the academic community who wanted post-secondary institutions to be excluded from the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act.
Mr. Phaneuf and Ms. Torrie, do you think it would be a good idea to completely exclude institutions of higher learning from these provisions?
My second question is about section 7, where, in the bill, educational institutions are excluded, but it would appear that the exclusion of educational institutions only occurs when there is a risk of bankruptcy. It’s not a complete exclusion. So, do you see it the way I do, that the bill says it’s an exclusion, but it’s not a full exclusion, because it’s in effect whenever an educational institution is at risk of bankruptcy? I would ask you to enlighten me on those aspects of the bill.
Mr. Phaneuf: I can start, if I may. I think the question of complete or incomplete exclusion can be easily answered, in the sense that in order to take advantage of the provisions of the Bankruptcy and Insolvency Act or the Companies’ Creditors Arrangement Act, one must be insolvent. This is one of the criteria of these two acts. That answers the question of complete or incomplete exclusion. Now, as to whether or not the exclusion is necessary, I would tell you that it’s going to depend on the proposed alternative.
Failing to have an alternative, and as I see the bill, I’m a little scared. What happens if an educational institution becomes insolvent? Is there a bill that will address the specific needs of these educational institutions? I’m totally open and interested, but if there is no alternative, where do we go from here? It’s hard, with my eyes closed, to say, “Yes, I agree and we’re moving forward.”
Senator Bellemare: Thank you.
[English]
Ms. Torrie: Thank you. I think I concur with the remarks of the other witness. Federal jurisdiction comes into play when an institution is insolvent. And an institution that is not insolvent generally can’t make use of insolvency law.
Again, exclusions depends on the alternative. I think it’s clear from the Laurentian case that the existing commercial framework isn’t optimal for resolving financial distress at a university and, as I see the bill, this is a chance to develop a framework that would address that.
The bill is phrased as protecting employees and so on. The way I see that as a bankruptcy scholar is that, instead of the ordinary rules of distribution applying which we are used to in a commercial framework, there is scope as a matter of policy to prioritize different groups based on their particular vulnerabilities and the overarching mission and purpose of the university. But that framework isn’t in this bill. This would just create the space to have those discussions and develop that framework.
The Deputy Chair: Thank you very much, Dr. Torrie and Mr. Phaneuf.
Senator Marwah: Thank you to our witnesses for appearing before us today. I tend to agree that perhaps one size fits all for financial institutions is problematic for educational institutions and the CCAA is much more commercially based, and a more tailored approach is needed, perhaps. I congratulate Senator Moncion for highlighting this issue. I never thought of it before this bill came before us.
Having said that, I have two questions. What would replace it in the short term? You said the old one doesn’t work as well, but we don’t have a new one. What would we do in the meantime? We need something new. In that context when we need something new, who should take on the responsibility of developing the new guidelines and procedures, given the myriad of federal-provincial jurisdictional issues we have? How do we go about finding alternatives?
The Deputy Chair: Dr. Torrie, would you like to start followed by Mr. Phaneuf?
Ms. Torrie: That’s a good question, what would replace it in the short term. I don’t think anything specific is provided for in the bill in this regard. I don’t think there is a federal framework that would replace it in the short term. Universities would be left to work it out with the Ministry of Education in their province, as has been done before, or perhaps engage in early point exigency language and collective agreements.
As I understand your second question, how should we develop the alternative, can I ask for a clarification? Do you mean the alternative in terms of a federal insolvency statute or do you mean in this interim period?
Senator Marwah: That’s what I’m asking. Given the fact that education is largely provincial, should this be a provincial or a federal issue? Should the feds take the lead and then get into trouble with the province saying, “why are you interfering in provincial matters”? As Senator Bellemare said, there are some barriers here to getting a solution that crosses federal-provincial boundaries.
Ms. Torrie: Thank you for that. There are definitely multiple jurisdictions to be mindful of, for the reasons you point out. What I see as a scholar is that this is not something that the provinces can resolve on their own if federal jurisdiction kicks in at the point of insolvency. We now have the Laurentian precedent for an instance where a provincial, educational institution came under federal jurisdiction. I see, at a high level, a role for the federal government to facilitate discussions and provide that insolvency framework, but it would need to be mindful and have a role for the provinces to engage in terms of the educational missions of those institutions. I think that is a big and complex question that isn’t really fleshed out yet and would take some time to flesh out.
Mr. Phaneuf: I would have the same comments, basically that there is no alternative as far as I know. The alternative right now, if those two don’t apply, would be a kind of chaos, as I mentioned before. The bank would foreclosure, creditors would realize their securities. That would be something feasible if there is no proceeding that could be put in place to reorganize or think about restructuring the finance of the institution.
And how to develop it, which is your next question. I think we should start by looking at what didn’t work, what is not working within the BIA or the CCAA, and to point out what provisions don’t make sense or what needs to be added.
I do believe that both the BIA and the CCAA provide a lot of provision interest in terms of restructuring, a lot of tools available for a professional, debtors or secure creditors to step in and to reorganize the whole thing. To scrap and to start from a blind pitch would be an error. We should start with where we are right now and look at what is not working and what can be improved.
Senator Moncion: My question is about transparency. I would like to hear from Ms. Torrie about the transparency of the process with Laurentian University. From the accountant, how do you see transparency in a bankruptcy? Because I’ve also been in financial institutions for 38 years of my life, and I was in lending for quite a long time. I would have to say that bankruptcy of any type or the arrangements were not transparent.
I’d just like to hear you on this because it was one of the first comments that you made. I would like to hear Ms. Torrie first and then, Mr. Phaneuf.
Ms. Torrie: Thank you for the question. It is true that bankruptcies are public processes, but “transparency” is one of these words that when you talk about it in a commercial context, it has a certain meaning and sometimes, when you talk about it in a public sector context or a near-public sector, the meaning is somewhat different.
The CCAA process is public, but not all parties need to be notified that it’s going to happen. Groups, like labour, typically find out after the fact, so now they don’t have the chance to be there on the first day and make submissions about whether the process should be engaged at all. They don’t necessarily get notice of the comeback hearing, which happens very quickly. It’s true, those are public processes happening in a court, but if you’re not told they’re happening and you’re one of the affected parties, it might not feel very transparent from your perspective because that transparency comes after the fact.
CCAA processes involve many court hearings. There is also a cost — a sort of travelling burden — if you’re not proximate to the courthouse in Toronto or one of the major centres. Again, that goes to accessing the ability to engage in that process, in the way groups may wish to do so. Those are a few comments there, and I’m happy to elaborate if you have any follow-up questions.
Mr. Phaneuf: I have two things on transparency. First, the records of the trustee are part of the estate. That means they are public and available to all creditors and to any stakeholders. That’s the first thing.
With respect to restructuring under the CCAA, it is true that we don’t have to notify everyone. There is an initial order. The initial order would provide specifics on how it needs to be published, to whom we need to send notice and so on. In any CCAA case, the monitor would have to set up a website and publish the information on the website.
Of course, not all of the restructuring part could be made public. For example, if we’re doing a solicitation process to seek investors, we can’t give the offer we’ve received to everyone, but I would say most of the things are made for the court and are made available to everybody. That’s my point. Thanks.
The Deputy Chair: Thank you very much.
Senator Moncion: I would like to go back to the government involvement. When is the government involved in the process? The question is for Mr. Phaneuf. At what time was the Government of Ontario involved into the process? Because once a company or a university decides to use the Bankruptcy and Insolvency Act, it shuts down a lot of the negotiations that could go on between the province to work with the university to solve some of the situations. When the act is used, everyone is out of the picture until there’s a proposition in place. Could you elaborate on this?
Mr. Phaneuf: I won’t be able to give you an insight about Laurentian University; I wasn’t involved. But in the ones I’ve done, they were involved since day one, basically. That’s maybe my role as a court officer. I know for a fact that there will be consequences for students. So the first thing that I am going to do, if I’m filing for bankruptcy or whatever, is to communicate with the government to tell them, “There will be an issue with those students. Do you want to be involved? Are you willing to help in the process?”
There is nothing in the act, as far as I know, that obliges me to communicate with them, but as a court officer, I think my role obliges me to do it and to seek further advice and at least let them know what’s going on.
Senator Moncion: In the Laurentian process, what happened is that, in the first few months, once they went under the protection of the CCAA, the federal government and the provincial government could not intervene. Within the first few weeks of using the bankruptcy act, 58 or 68 programs and over 190 positions were cut at the university. That was done right at the beginning of the process. There was no transparency then because people received, by email, information about being laid off.
I’d like for you to comment on these ways of doing business in a bankruptcy or in the proposal that is being brought forward. The Laurentian process was an ugly process. Because there was no protection for anyone in this process, it became a very difficult project to follow. A lot of people were hurt in this, and the community was also hurt. Students were hurt. Some students were not even able to finish their programs because their programs were cut halfway through their studies.
I’d like to hear from you on this. Because of the way the act is in place right now, these things happen and a lot of people get hurt in the process. You’re saying the opposite, I think. You’re saying that students and professors are thought about. That is not what happened in this process. I want to hear you on this.
Mr. Phaneuf: Thanks for the question. I appreciate what happened. Within the BIA or the CCAA, there is no provision saying that the proposed monitor should seek advice from the government. That’s over and above the acts. Talking about what I’ve seen and what I’ve done in my files, we were thinking about the students and what’s going to happen with them. The government was concerned about that, and they funded the process. There was a receivership process. In the end, the students were taken care of and the employees also because we basically made a transaction and sold to another group who just continued the business. So there is nothing —
There is maybe one thing that could explain what happened. I am not aware if that is the case, but, most of the time, when people are knocking on my door, they are in deep trouble. Sometimes, they cannot even afford the payroll that is due tomorrow or the day after. From the cases I’ve seen, there is not plenty of time to react. We need to move quickly and make quick decisions on how to save cash to ensure that the employees who remain in the business can be compensated and get paid.
That may explain what happened. Again, I don’t know what happened with Laurentian University, but that could be an explanation. People are knocking on my door at the last minute, and we have to take drastic action.
That being said, there are provisions in CCAA. You go before the court to get an initial order. There is what Ms. Torrie mentioned — a comeback clause. You have to go back before the court within 10 days. Maybe at that stage — I don’t know who was advised or notified of the restructuring, but maybe at that time the court should have heard from the government or any stakeholders and added more provisions or anything that needed to be added to the order. Under the BIA and the CCAA, on both sides, you have to go back before the court to explain what is going on and why you are doing this and that. You have to explain and justify. That would be my answer.
The Deputy Chair: Thank you, Mr. Phaneuf.
Dr. Torrie, do you have something to add?
Ms. Torrie: I’ll add a couple of remarks here. Following on from the earlier question, the Auditor General of Ontario was met with refusals to comply with certain requests in order to get to the bottom of things. That goes to the transparency point. Bankruptcy might be transparent in a bankruptcy universe, but that might mean something very different than what is thought of as transparency for a university in the ordinary course.
Because it is such a rare event for a higher-education institution to encounter financial difficulty, we have these idiosyncratic responses that are developed on the fly. Laurentian University is one example where they decided to use the CCAA process. That creates a layer of uncertainty and lack of predictability. As a public sector institution, this challenges transparency at a broader level when you don’t really know how it’s going to resolve things.
Circumstantially, the fact that this was happening during the COVID pandemic was probably quite challenging on a number of levels. A tailored framework that creates predictability, certainty and incorporates transparency, as that’s understood in the public sector, would probably be very welcome here. Certainly, it would prevent a repeat of what we’ve seen with the CCAA process and Laurentian.
The Deputy Chair: Thank you, Dr. Torrie.
Senator Loffreda: These are important discussions, and I want to thank once again and give kudos to Senator Moncion for bringing these discussions forward. It’s not easy to get around many of the issues and problems we are having. Once again, thank you to the panellists.
I agree with Mr. Phaneuf’s comments. In my experience, I was lucky not to have many bankruptcies and insolvencies. That’s why I had a long career in banking. If you do, you don’t have a long career because —
[Translation]
— there is always a culprit, as they say.
[English]
Just to specify on transparency, we would know when the trustee called us — or we would get that call in the morning — what percentage we would be able to recuperate based on the percentage of the line of credit that was being used. They either don’t pay the suppliers, don’t pay the bank or don’t pay both. If our advances were on top, we were very concerned.
All that to say that one thing I didn’t hear — and we’ve been discussing this for a few meetings — is financial mismanagement. There is always financial mismanagement when there is a case of insolvency or bankruptcy. If we’re going to put together a projet de loi legislation going forward such as Bill S-215, how do you tell the government that despite the financial mismanagement, you have to continue supporting this university because of the students, the salaries and all that’s concerned?
This is a comment. It’s a bold suggestion. It’s a question put out to you. Is there a way around this? We are in a free market system. As an investor, if there is financial mismanagement, I would not reinvest. There are always consequences. Obviously, we would like all the students to finish their programs. In an ideal world, we would like everybody to be fully paid.
Could I have your comment on that? Because in putting forward a piece of legislation, I would want to ascertain that we cover all the bases. I’m not going to judge the case of Laurentian University, but I judge from the experience I have. Whenever there was an insolvency or a bankruptcy, there was financial mismanagement, and many times we did not throw good money after bad.
Mr. Phaneuf: Maybe I can start with an example — the case of Institut Teccart. As you are aware, the institute filed some year-end financial statements, which is the case for any company and was probably also the case for Laurentian University. With the financial statements, there were notices.
[Translation]
In French, it is called a notice on business continuity.
[English]
Basically, the auditor wrote down that there was a major risk that the company — Institut Teccart won’t be able to do business anymore because they are lacking funds, short-term liquidity and so on. That was published. It was in the hands of the Minister of Education of Quebec, and they did nothing about it. They just got a notice or a call from me. It’s minuit moins une. We need to do something.
Back to your question of whether there is something in the BIA and the CCAA to prevent mismanagement; I think there is nothing. Is there something that allows us to put away bad managers? Of course. There are provision in the act that allows me as a manager to tell the court that this guy is not doing a good job and needs to go out, even if he doesn’t want to. That is there. There is a provision about this. But to prevent prior bad management, I don’t think so. I think it also needs to be about what the provincial government will do on their side. Institut Teccart had a [Technical difficulties] — they got a notice that it’s going bad, and they did nothing until it just burst.
The Deputy Chair: Thank you.
Dr. Torrie, if you don’t have anything to offer, we might go straight to Senator Bellemare because we’re running short on time now.
Senator Bellemare, we have three minutes for both the question and answer.
[Translation]
Senator Bellemare: I would like a clear conclusion.
Do both witnesses encourage us, depending on whether we move forward on this bill, to investigate, to research, or to think about how to make special provisions in the Companies’ Creditors Arrangement Act for institutions of higher learning?
Do you think it is worth it or is there a risk of a real financial problem going forward, at these institutions?
[English]
Ms. Torrie: If I could clarify, I think if you go forward with the bill, it is worth investigating that. The tailored framework doesn’t necessarily need to be a stand-alone, separate statute. It could be a special section of an existing statutory regime. The Bankruptcy and Insolvency Act actually has several different types of processes under the one overarching statute. It is a worthwhile initiative to think through the unique problems that come up in the context of a University insolvency and develop something tailored but that fits in with norms in bankruptcy and insolvency law.
[Translation]
Mr. Phaneuf: I agree, in that the Bankruptcy and Insolvency Act or the Companies’ Creditors Arrangement Act could be amended to reflect the changes that are desired. Alternatively, legislation could be created, but there absolutely must be an alternative if it is decided to remove the ability to enforce both acts.
[English]
The Deputy Chair: Thank you very much to the witnesses. On behalf of all of our colleagues, we really valued your comments today. It was a timely interjection in our deliberations on this bill. Thank you very much.
Colleagues, we will move to a clause-by-clause consideration if we could. Thank you again to our witnesses for coming in and supporting us.
Senator Massicotte: Chair, can I get clarification? I forget exactly the process. Do you go through page by page or clause by clause? What if we don’t agree? There is a certain process that we must state at the beginning. I would be in favour, for instance, to delay it all and not have a vote on the proposed bill. Personally, if it came back that the federal government agrees with our process and is prepared to engage with us to try to find a solution — but I would say that we should punt on the bill and give it more time. I would prefer that. I don’t agree with proceeding at this point in time.
Senator Moncion: Can you explain this a little bit more so that I catch —
Senator Massicotte: I don’t agree with the bill, as it is. It is chaotic and dangerous — but if you came back — and I congratulate you for the effort —
Senator Moncion: It’s okay, it is nothing personal; this is business.
Senator Massicotte: But if you came back with a minister or someone from the government saying, “Yes, we’re pretty sure there’s a problem. We have to find another structure.” If you came back and had that consent and willingness from the federal government — I would favour the bill with some amendments. If we are forced to approve it right now, then I must say no. I don’t agree that the bill, as is, is a good one. I want to make sure I follow the right process to get to the right point.
The Deputy Chair: Thank you, senator.
Senator Dawson: As I mentioned before, I think the debate is worthwhile. The senior senator from Quebec, who has been here longer than me, is right, I think. I would rather the bill live and it continue to be debated than voting against it and not have this issue brought up. It is a worthwhile debate, but I don’t think that I could vote for the bill right now.
[Translation]
Senator Bellemare: I have exactly the same views. I am not prepared to vote for the bill as it is presented. I think it needs to be reworked.
[English]
The Deputy Chair: Colleagues, we are at a position where I’m looking for thoughts from Senator Moncion. I’m happy to proceed with clause by clause.
Senator Moncion: We are looking at bringing some amendments.
[Translation]
There is a lot at stake, and I thank Marie-Pierre who just sent me this information.
At this time, the bill does not create a legal vacuum. The government is being asked to propose an alternative to the Companies’ Creditors Arrangement Act and the Bankruptcy and Insolvency Act. That is what the government is being asked to do in this bill.
Now, we have amendments to make because we have heard the comments that were presented to us on the constitutionality according to the work done by the legal counsel. He proposed an amendment to the titles of the two bills. We also have an amendment that will be made to one of the clauses. We understand the situation with respect to the bill, the way it is written.
However, I am taking into account the proposal you just made and I would be willing to go further in the exercise to work with a minister to try to see how we can — there is a whole story behind this.
[English]
Am I allowed? We’re still in open —
The Deputy Chair: It is still an open discussion. We could break and go in camera for a conversation now.
Senator Moncion: I thought that’s what we did when we were doing clause by clause. It is up to you.
Senator Massicotte: I think we have come to an agreement to say that we will not vote on the bill. The principle should be this: Let’s get the engagement of the federal government, and if we can’t, then most of us would be — I have some amendments also to paragraph 4. I think it’s too vague. Let’s leave that to the end and find out about the bigger picture — are they onside to seek an alternative?
Senator Moncion: I would ask that we go in camera, please.
The Deputy Chair: If it is agreed, we will break.
(The committee continued in camera.)