Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 2 - Evidence - Meeting of November 29, 2007
OTTAWA, Thursday, November 29, 2007
The Standing Senate Committee on Banking, Trade and Commerce, to which was referred Bill C-12, An Act to
amend the Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act, the Wage Earner Protection
Program Act and chapter 47 of the Statutes of Canada, 2005, met this day at 10:50 am. to give consideration to the bill.
Senator W. David Angus (Chair) in the chair.
The Chair: Good morning. This is an official meeting of the Standing Senate Committee on Banking, Trade and
Commerce. My name is Senator David Angus. I am the chairman of the committee, and I am from Quebec. Senator
Goldstein, the deputy chairman, is also from Quebec. Senator Meighen has a foot in Ontario and Quebec. Senator
Moore is from Halifax, Nova Scotia. Senator Harb, a former distinguished member of Parliament, is from the Ottawa
region. From Saskatchewan, we have Senator Peterson, and Senator Ringuette is from New Brunswick. Our clerk is
Dr. Line Gravel, and the others you see are our distinguished and able assistants from the parliamentary library.
Welcome to our witnesses. I would indicate that we are not only ourselves in this room 9 of the Victoria Building but
we are also on the World Wide Web. Our deliberations are going out on webcast and will subsequently be broadcast on
the network of CPAC.
Today, the Standing Senate Committee on Banking, Trade and Commerce will begin its hearings on Bill C-12, an
Act to amend the Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act, the Wage Earner
Protection Program Act and Chapter 47 of the Statutes of Canada (2005).
Bill C-12 is a reprint of Bill C-62 that was brought forward during the first session of the 39th Parliament and was
adopted at third reading by the House of Commons on June 14, 2007. The bill was sent to our committee on November
In November 2003, following a very in-depth study as part of an overall reform of Canada's framework legislation
on bankruptcy and insolvency, CCAA and related statutes being carried out by the stakeholders, we did our own
study. We were ably assisted by one of Canada's leading bankruptcy counsel, as he then was in the private sector, our
Senator Goldstein, who has since been summoned to the Senate and has reached his distinguished position as deputy
chair of the committee. I am sure he will be talking more about that aspect later. As a result of that study, we produced
a report to the Senate and to the ministers involved, the Minister of Industry and the Minister of Labour. In our
report, we made some 53 recommendations related to consumer insolvency, commercial insolvency and administrative
and procedural issues.
On November 25, 2005, Bill C-55 received Royal Assent with too much haste, if you will. When it reached this
committee with an exhortation to quickly review it and report it back without amendments in view of a forthcoming
election, the Banking Committee said, ``How can we carry out our duty of serious and sober second thought in review
of this bill? We cannot report this back without amendment because we have officials telling us they have some 68
amendments to propose to the bill.'' It was not ready for prime time, in other words. The bill was passed under the then
government and under Minister Emerson and Minister Fontana, I believe, as principal ministers involved in Industry
How did we resolve this? The government was asking for the bill. The then chairman, my predecessor, Senator
Grafstein, and myself and our colleagues on the committee deliberated and came to a compromised solution, which
was if the Minister of Industry, Mr. Emerson, and his colleague in the Department of Labour, as well as the Leader of
the Government in the Senate, Senator Austin, would give the committee a letter and file the letter in the Senate and in
the House of Commons to be a formal record, we would return the bill back on the condition that it would not be
proclaimed before the Banking Committee had an opportunity to review it. Therefore, it became a bill embedded in
chapter 47 of the Statutes of Canada of that year but not in force. The bankruptcy and insolvency community, as well
as the labour movement, who were waiting on these provisions of law and this overhaul of the framework legislation,
were left in a terrible dilemma. The review and study had taken place, but there was no new legislation.
The new government came in. We drew the situation to their attention. Minister Blackburn came on the scene, as
did Maxime Bernier as Minister of Industry, and Minister Blackburn was asked to sponsor the bill. All kinds of
technical problems raised their heads, and I will not go into detail.
The bottom line was that we were able to get the bill as originally drafted back to this committee in the same form
or, indeed with amendments as may have been required. It has found its way to legislative heaven and is here in the
form of Bill C-12. It includes a series of amendments to the original Bill C-55.
There were some amendments enacted into law in the last Parliament in Bill C-52, which dealt with the budget. It
dealt with certain urgent matters of concern to the financial markets dealing with structured derivative products. Legal
opinions were needed to enable leverage to take place with these products. Also, certain additional amendments were
added at the request of certain non-governmental parties from the province of Quebec.
We now have before us a series of amendments to the original Bill C-55, which came here in 2005. It has passed
through the House of Commons and has received second reading in the Senate, and we are now about to commence a
detailed and in-depth study of this bill on the understanding that it contains the amendments we would have arrived at
had we studied it two or three years ago.
This morning, we are beginning our consideration of Bill C-12. It is our pleasure to welcome the Honourable Jean-
Pierre Blackburn from Northern Quebec. He is the Minister of Labour and the Minister responsible for the Economic
Development Agency of Canada for the Regions of Quebec.
He is accompanied by Mr. Munir Sheikh, Deputy Minister of Labour; Ms. Sylvie Heartfield, Chief, Policy
Development; and Dr. Colin Carrie, Member of Parliament for Oshawa and Parliamentary Secretary to Minister of
Industry Jim Prentice. Also with him are Mr. Roger Charland, Senior Director, Corporate and Insolvency Law Policy
and Internal Trade; Mr. Matthew Dooley, Senior Project Leader, Corporate and Insolvency Law Policy and
International Trade; and finally, from Human Resources and Social Development Canada, Ms. Rosaline Frith,
Director General, Canada Student Loans Program.
Senator Goldstein would like to make a statement.
Senator Goldstein: For the purposes of the record, I believe that I do not have any conflict of interest with respect to
the consideration of this bill. However, I have been very active professionally in matters of bankruptcy and insolvency
in the past, and I am currently senior counsel — although I have no time to practise — to a firm with offices in
Montreal and Toronto which is also active in matters of bankruptcy and insolvency. I do not believe that in any way
disqualifies me from dealing with these issues because I have no personal interest, other than a professional interest, in
the bill. For the sake of good order and clarity, I thought this declaration should be on the record.
The Chair: Thank you, Senator Goldstein. All of those observing our proceedings today should be aware that we are
subject to the Conflict of Interest Code for Senators. Our Ethics Officer, Mr. Fournier, oversees the code. There are
procedures we are obliged to follow, not only for the sake of perception but to obviate real or potential conflicts of
interest. For the integrity of the Senate and that of our own deliberations, Senator Goldstein, that was a very wise
Mr. Blackburn, it is a pleasure, as a senator from Quebec, to welcome you to our committee this morning. Bill C-12
covers an area that is very important for the reasons I stated earlier, but also for other reasons. Obviously, all involved
stakeholders are looking forward to this bill.
We look forward to your comments.
Hon. Jean-Pierre Blackburn, P.C., M.P., Minister of Labour: Thank you, Mr. Chairman. I appreciate the courtesy
you have shown me in inviting me to appear before you in order to share my perspective as Minister of Labour and as
a representative of our government, because it is on behalf of our government that this bill was tabled.
You are right, Mr. Chairman, in having pointed out the background to this bill because it is true that many people
are waiting for it to be passed. We ourselves decided to fast track it in order to bring this bill before the Senate for its
final analysis, given that this was preceded by a lengthy process.
This is the second time that the process is starting over. Once again, this morning I had an opportunity to speak with
an important union representative who told me that he hoped the Senate would be able to move quickly through the
various stages of the bill, without wanting to prejudge its outcome. Of course, everyone is worried that there may be
elections at any time now, and because we are a minority government that is always a possibility. People are hoping
that this legislation will pass before any elections are triggered. However that is your responsibility; I am only passing
on a point of view to you that was given to me.
The Chair: Minister, you have touched on a very important matter, which we discussed in some detail last night at
an off-the-record committee hearing. We already understand that in addition to the amendments in Bill C-12, the
stakeholders have brought to the attention of the officials and the officials have determined on their own that the bill
could be further improved. We understand that there is an ongoing review of framework legislation procedure in your
department and within Industry Canada. The review might put you in position to say that you are prepared to come
back next year with a further small bill of amendments. Perhaps that could be backed up, to give us comfort, by letters
from the two ministers involved.
I only raise that to get your comments on it. Please carry on with your presentation with the knowledge that we have
been focusing on the need for rapid passage and, at the same time, probable need for other amendments.
Mr. Blackburn: It is in fact always a possibility that you, the members of the Senate, after having analyzed the bill,
will express your points of view or suggest certain amendments. That is your prerogative and we understand that fully.
Therefore, Mr. Chairman, I would like to point out that the bill makes changes that are needed to correct some
technical flaws that were identified in an earlier bill that the House of Commons passed.
The old Bill C-55, which is now chapter 47 of the Statutes of Canada, 2005, was first introduced in June 2005. Its
objective was to modernize Canada's insolvency system by amending the Bankruptcy and Insolvency Act and the
Companies' Creditors Arrangement Act, as well as to create the legislative framework for the Wage Earner Protection
Members from all parties understand the goal of chapter 47: to bring much-needed reform to Canada's insolvency
regime. As well, it introduced new measures of protection for employees when an employer becomes bankrupt and
there are insufficient assets to pay earned wages and vacation pay.
I think everyone would agree that it makes perfect sense to protect employees first and foremost in the case of a
bankruptcy. After all, we are talking about their livelihood and that of their family. They should be the first people to
Chapter 47 passed through both Houses of Parliament quickly and received royal assent in November 2005. It was
agreed to pass the legislation as quickly as possible on the understanding that such a complex piece of legislation would
require further review to ensure that it would accomplish its main objective without resulting in unintended
The bill that is now before us represents a major step forward in that review — a review that has included
consultation with the stakeholder community. That input has led to recommendations for a number of changes to
improve the original legislation. Bill C-12 makes a number of improvements to chapter 47. It addresses the kind of
technical flaws that often come up in legislation that breaks new ground, but that need to be corrected.
I would like to reiterate why the Wage Earner Protection Program aspect of the new bill is important and why all
senators should support it. The Wage Earner Protection Program is important because it addresses a common problem
that can arise when an employer becomes bankrupt and there are not enough assets available to meet the legitimate
claims of employees for unpaid wages and earned vacation pay.
In situations like these, through no fault of their own, workers can be left without the income to which they are
legally entitled, simply because there is not enough money available to pay them. Bankruptcy data show that this is
most often a problem in the case of small businesses. Some 70 per cent of corporate bankruptcies are in businesses with
less than 10 employees. Sectors such as retail, food services and accommodation are prominent among them.
If a business goes bankrupt, its employees are legally entitled to receive their back wages and earned vacation pay,
but the capacity to meet their claims depends on the value of the assets available in the bankrupt employer's estate. In
other words, if the employer does not have enough money, in most cases, the employees are the ones who end up with
Too often those assets are not sufficient to cover the legitimate claims of the employees. The data tell us that after a
bankruptcy, the average worker receives only 13 cents on the dollar, in total, and only after lengthy delays.
Bankruptcies and receiverships can take up to three years to resolve. Worse still, in bankruptcies, about 75 per cent of
workers receive nothing when their employer goes bankrupt.
A typical individual claim is not large — almost always less than $3,000 in claims for wages. But although the
amounts are not large, not receiving them can be devastating to someone who has just lost his or her job and needs the
money right away.
As senators and legislators, we can do something about this. For example, senators can support Canadian workers
and their families. You can protect employees whose wages may be at risk in the event of a bankruptcy by supporting
the important technical amendments that are set out in Bill C-12. This will enable the Wage Earner Protection Program
to be brought into force as quickly as possible.
The Wage Earner Protection Program has a single priority: to protect workers because they are the most vulnerable
parties in a bankruptcy. The WEPP will protect workers' unpaid wages and earned but unused vacation pay, up to an
amount equalling four weeks' maximum insurable earnings under the Employment Insurance Act, or approximately
$3,000 at this time.
The government estimates this will satisfy in full some 97 per cent of the typical claims that would arise on the part
of workers affected by bankruptcies. The program will ensure that workers get their wages quickly. This is vitally
important because it comes at a time when they really do need the money. When a company goes bankrupt, workers
have to find a job elsewhere, and this results in consequences in their life. In addition to losing their wages, they find
themselves with no prospects.
Meeting the legitimate claims of workers for unpaid wages or earned vacation pay will no longer depend on how
much is in an employer's estate.
The Wage Earner Protection Program is a good idea. All parties supported the concept when chapter 47 was passed.
And all should support the technical amendments in Bill C-12, because they are the changes senators wanted to make
and they reflect past decisions.
This program has also been welcomed by key stakeholders in the insolvency and labour communities. The Canadian
Association of Insolvency and Restructuring Professionals has written to the government expressing its support for the
The Insolvency Institute of Canada also expressed support for the WEPP in a submission made to the standing
committee along with some technical suggestions. And the National Bankruptcy and Insolvency Section of the
Canadian Bar Association has publicly expressed its support for the WEPP.
In the labour community, major groups such as the United Steel Workers of America and the Canadian Labour
Congress have also expressed their strong support for the WEPP.
In fact, the Canadian Labour Congress has been advocating for a program to protect employees' wages in the event
of an employer's bankruptcy for some time. In other words, there is widespread support for the bill. But at the same
time, there is also a shared recognition that the original legislation must be amended to achieve its original objectives
without resulting in unintended consequences.
These amendments include the following. First, we proposed to amend the WEPP Act so that program payments
reflect deductions which would have been applied to workers' wages had they been paid in the normal course.
WEPP payments will be reduced by an amount equalling an employee's EI and Quebec/Canada Pension Plan
contribution. This is not a major provision at all, but it is logical.
Secondly, Bill C-12 proposes to enhance the fairness of the conditions of eligibility. The WEPP Act, as passed in
chapter 47, made wage earners who were employed for three months or less ineligible for the program. we saw that this
was a problem, and we wanted to correct it.
This measure was intended to prevent abuse of the WEPP by employers who may hire workers in the period
immediately preceding the bankruptcy or receivership without intending to pay them.
However, it is recognized that this measure may unfairly penalize workers who have accepted a position with the
employer in good faith in the period leading up to the bankruptcy or receivership. It is therefore proposed that this
provision be replaced with a new eligibility requirement that individuals who are not dealing at arm's length with key
decision-makers in the business are ineligible.
However those relatives who are excluded will have the opportunity to establish their eligibility. Thirdly, the bill
explicitly proposes to allow trustees, receivers and other persons with a defence of due diligence when they have proven
that they have done everything in their power to fulfil their duties under the act.
In certain cases, there maybe insufficient assets to pay trustees and receivers. In such situations, insolvency
professionals may decline to take on the case, which would prevent those wage earners from accessing the WEPP.
Therefore, an amendment is proposed that would allow the WEPP to pay insolvency professionals, in certain cases
and under certain conditions, for carrying out duties related to the operation of the WEPP.
It is proposed that the WEPP act be amended to require people who have tabled information, or who have access to
payroll information, to assist trustees and receivers in performing their duties under the act. Furthermore, the WEPP
act would also make it an offence to fail to comply with this duty.
I would also like to take this opportunity to say a few words about the need to make some amendments through this
bill to ensure student borrowers are treated fairly when falling into bankruptcy. The federal and provincial student
loan programs assist many needy students each year but their continued ability to do so is tied to timely repayment by
Prior to 1998, many student borrowers were declaring bankruptcy. The losses to government due to these
bankruptcies were large and growing quickly — I believe that the amount was about $100 million at the time. As a
result, the bankruptcy and insolvency act was amended in 1998 to prevent the discharge of these debts for 10 years
following completion of post-secondary studies.
Chapter 47 will reduce the discharge prohibition period from ten to seven years and, in the case of hardship, five
years. These new time periods align with the debt repayment assistance measures available under the Canada Student
Loans Program and its many provincial equivalents. This represents a significant improvement for the plight of student
loan debtors and encourages them to take advantage of the debt management measures available with the student loan
regimes before considering bankruptcy and its longer term financial impacts.
It was always been the intention that the new waiting periods in chapter 47 would apply immediately, however, due
to a wording error, chapter 47 would not help those already bankrupt. We want to ensure that those who are already
bankrupt are covered.
This new bill would fix that problem by making sure that the seven-year period would apply to individuals who had
already filed for bankruptcy but had not yet been discharged. In addition, the five-year waiting period for those who
can show hardship will apply to all bankrupts, past, present and future. This will bring immediate relief for student
loan debtors who are currently in need of assistance.
To conclude, I am proud to support this new bill. When two departments are involved in introducing legislation, it is
always complicated. This bill was a joint responsibility between us, at the Department of Labour, and Industry
Canada. Each one waits for the other to act, and both have changes to bring forward. Everyone is acting in good faith,
but when two departments are involved, things are more complicated and everything takes longer. That is why I am
proud today; we have had to start over twice and get unanimous consent twice in the House of Commons to bring this
bill to the Senate, as you had initially requested. That is why I am proud to support this new bill.
It is now in your hands for final consideration. With your support, Canadian workers can finally be protected in the
event of an employer's bankruptcy.
The Chair: Thank you very much, Mr. Minister. Ladies and gentlemen, I think you would all agree that that was an
eloquent portrayal of the government's position with respect to the WEPP, or the wage earner protection elements of
the bill, but it is a very large bill. I think in terms of verbiage and language in the bill, Minister Blackburn, your
portion, the PPP part, is probably less than half of the bill, right, in terms of this bill but equally important.
Just to put it all in perspective and you have made your comments now, our practice usually is to have both the
witnesses and the ministers, give their presentations and then we will go to the questioning. However, I believe I am
right that Senator Goldstein needs to leave in a minute and he might want to question the minister.
Senator Goldstein: Thank you. I have been trying very hard to wait until the end of each hearing for my questions to
give the other members of the committee a chance to do so, but exceptionally today, because I have to be elsewhere at a
major event with respect to Darfur, I have informed the chair that I will have to leave shortly.
First, let me congratulate you and thank you for bringing the amending statute forth and for making the efforts,
which you did make successfully to have the bill referred to the Senate and from the Senate to this committee as quickly
I want to address for just a moment the very last part of your excellent observations, Mr. Minister, and I want to
deal with the issue of student loans.
The position which many of us take, and which I have clearly taken with respect to a private member's bill that is
presently before the Senate, is that the student loan program is a program, not a business. It is not meant or intended to
be profitable. It is meant and intended to aid students, and if students who find themselves with an impossible burden
of debt and find themselves unable to repay that debt, then the program has to accommodate those needs.
I say that because you indicated in your remarks that the reason the law was amended in 1998 was to force — I use
the term advisedly — students to wait 10 years before they can rid themselves of the burden of their student debts was
an amendment which you say resulted from what appeared to be a plague of student bankruptcies who would graduate
and then virtually immediately go into bankruptcy.
Without going into whether those statistics are accurate or not, because I have different statistics, it seems to me that
the discharge process enables the courts to stop those abuses and to stop students from going into bankruptcy for the
mere sport of doing so or go into bankruptcy because it is a simple way to start afresh.
That process remains intact, and that, with respect, is the process that should be used to discourage student strategic
bankruptcies. This committee suggested in its 2003 report that the 10-year period be reduced to five years. The bill
proposes seven years. The amount of time is not as important as the ability of the courts to be able to relieve
legitimately impossible or difficult situations.
You have recognized that by providing a five-year window so that after five years a student can apply to the court in
matters of financial difficulty and be relieved of the burden of his or her debts, in whole or in part. I would suggest to
you that it would be appropriate for that five-year limitation to disappear and for students to be able to go to court at
any point in time to be able to be relieved of their debts, if it is legitimate for them to do so.
I emphasize that part of it, ``if it is legitimate for them to do so.'' We have faith in the courts and in their discretion,
and we particularly and especially have faith in the judges who are actively involved in matters of bankruptcy and
insolvency who are very experienced people who do not readily permit abuses and would not count on its abuses.
The Chair: Is there a question, senator? Really, you are sort of a little bit off point here.
Senator Goldstein: I know. There is about to be a question.
Would you consider eliminating the five-year limitation and substituting instead an ability on the part of the courts
to make a determination at any time if there is severe and difficult hardship that a student is encountering?
Mr. Blackburn: Mr. Deputy Chair, as you know, this bill has gone through a number of hands and has been
analyzed a number of times. It is true that in 1995-96, the government said that students would have to wait two years
before filing for bankruptcy in order to be discharged. They realized that this provision had no effect. The government
of the day amended its legislation to increase the discharge prohibition period.
According to the statistics, 10,798 students declared bankruptcy in 1995-96, which cost the government $100
million. In 2004-2005, there were only 3,987. That is less than half as many as before. In the new legislation, the
prohibition period is reduced from ten years to seven. We feel that that period will be appropriate.
If a student wants to go to court and argue that five years would not be enough, the judge can always rule that the
period should be set at five years.
You are proposing that judges ultimately make the decision. I cannot say that that is an unreasonable argument; in
fact, it does have merit. Can we not try out the current provisions and make other changes later if necessary? Perhaps
the officials from Human Resources and Social Development Canada have comments on that question.
Rosaline Frith, Director General, Canada Student Loans Program, Human Resources and Social Development
Canada: The program is currently designed to ensure that someone who would fall into bankruptcy is given as much
assistance in terms of debt management as is possible. Therefore, any student that has difficulty repaying his or her
loan at the end once they have consolidated, and anytime thereafter for the first five years after leaving school, can
apply for interest relief; so can someone who falls into bankruptcy.
During that interest relief period, they do not have to make any payments on their Canada Student Loan, and the
government covers the interest cost associated with that loan. If there is any difficulty at the end of that five-year
period, they can go into debt reduction in repayment and an additional $26,000 can be reduced from their overall loan.
For most students, that would mean they have no loan at the end.
Right now, the average student loans, including the provincial loans, are less than $20,000. Therefore, in effect, the
design of the program is such that if students were suffering from hardship, there are programs available to help them
through that period so that they do not have to make any payments. That essentially reduces any burden on the courts
to have to deal with those cases.
At the five-year period, according to Bill C-12, with the amendments, a person would be entitled to immediately
seek to have their bankruptcy discharged. We believe they are fully covered under the current program with Bill C-12.
Senator Goldstein: Have you dealt with the study done by Professor Stephanie Ben-Ishai with respect to the Canada
Student Loan Program? Also, have you dealt with any of the literature submitted by a variety of student organizations?
I raise the question because they, with respect, dispute the figures and the ability of students to access the programs.
For example, if a student is in default because of financial difficulty — and you define default as three months of non-
payment — then the student is not admissible to any of those programs.
Ms. Frith: Default is defined as 270 days in arrears, which is nine months. Every action is taken to deal with those
students during that period to try and get them back into good standing. If there is a legitimate reason why they are
having difficulty repaying their loan during that period, then the service provider — or even Canada Revenue Agency,
should they already be in collections — will try to work out a repayment program that is reasonable and affordable.
I have dealt with many of the issues that come up around bankruptcy. The current program and policies deal
effectively with bankruptcies and try to take into account any difficulties students may be having in repaying their
loans. If they go bankrupt while studying full-time they are even still be eligible to receive student loans for an
additional three years so they can graduate. The program today is effective — but I say ``today.'' There are cases from
the past that are still experiencing difficulties.
Senator Goldstein: If the student is unemployed for nine months and cannot make a payment, what kind of relief is
available to that student? There is none.
Ms. Frith: If they were unemployed during that nine months, they would have gone on to interest relief, which
means they did not have to pay any interest — the government paid the interest and they would not have to make any
payment on the principal during that period. They can do that up to 60 months without moving into default. They will
be kept on interest relief for that whole period of time.
After five years, if they are still suffering a low level of income or unemployment, they can qualify for debt reduction
in repayment, which would carry them over for a further two years, more likely three. By that time, under this new bill,
they would be able to apply for their bankruptcy to be discharged.
The Chair: Thank you. We will be reporting to Minister Solberg about what a good job you did in handling those
Minister Blackburn, normally we would go on to the parliamentary secretary, but since your part of your bill is
fairly focused, I would like to have all senators have their chance to question you.
Senator Meighen: I thought we would hear from both witnesses, but I understand why we have to deviate. The
minister's time is at a premium.
Welcome to the Standing Senate Committee on Banking, Trade and Commerce, Mr. Blackburn. We have known
each other for quite some time, and I congratulate you on this initiative. Everyone needs to be aware that no legislation
is perfect. Perfection may be the aim, but there will always be flaws that creep in. During our hearings, you will hear
suggestions directly or indirectly for improvements.
That said, I feel that the changes proposed by your department as well as by Human Resources and Social
Development Canada incorporate the vast majority of the improvements sought by representatives from all the
political parties. The problem, if there is one, is as follows, and it is rather technical.
I am happy to move ahead with the changes you have proposed because I think they are of critical importance.
However, on a technical level — and I do not know who is best to answer this — if I look at clause 112 of the bill, there
are specific references to certain clauses in Bill C-52 that do not match. For example, there is reference to section 94(1)
of Bill C-52, which has no meaning because there was no such subsection in the final version of the bill. I understand
that is just a drafting error, if I am correct. I can give you more specifics, if you like.
What I really want to know, minister — perhaps this is better addressed to Mr. Carrie — can the bill be proclaimed
into force with those technical mistakes or must we have a technical amendment in order for the bill to come into force?
If that is the case, can we have some assurance we can have that very promptly?
Colin Carrie, M.P., Parliamentary Secretary to the Minister of Industry: Thank you for bringing that up and
bringing it forward. This is something that people will question us on. I would like to defer for the specifics to the
department because we have had discussions on this matter.
The Chair: I invite Mr. Dooley to respond.
Senator Michel Biron, from the beautiful province of Quebec, has also joined us.
Matthew Dooley, Senior Project Leader, Corporate and Insolvency Law Policy and Internal Trade, Industry Canada:
Thank you for the question. Yes, the bill can be brought into force in its current form. Unfortunately, when its
predecessor, Bill C-52, the Budget Implementation Act, was drafted, a change at the last minute that withdrew two
clauses threw off the numbering in Bill C-12 by two. Thank you for pointing that out. We have looked at it and are
comfortable with it because the budget implementation act is in force and the drafting of Bill C-12 simply refers to the
requirement that the clause referred to is in force. Bringing Bill C-12 forward in its current form will allow the sections
to come into force as intended. It is a technical flaw but not one that is fatal to the bill.
The Chair: It does not need a formal amendment by Parliament, which was the gist of your question, Senator
Meighen. Is that correct? Mr. Dooley, you are saying that it is such a technical and non-substantive change that under
the rules that apply, it can be done?
Mr. Dooley: Yes.
The Chair: That is reassuring to all of us.
Senator Meighen: If we were to pass this bill before us as it reads, my understanding is it could be proclaimed into
The Chair: We often put comments or observations when we report a bill to the House. Perhaps we could refer to
this change in the report of the committee. Certainly, if it can be done, it would accelerate the matter.
Senator Meighen: I believe that I heard such a change would not delay the process.
The Chair: That is right.
Senator Meighen: Minister, some people feel that, given the impact of insolvency legislation on the Canadian
economy, it needs to be revised periodically to make sure that it is fair and effective and still in line with identified
objectives. That being the case, is it desirable to have provisions in all Canadian insolvency legislation for a mandatory
Mr. Blackburn: Perhaps my colleague Mr. Carrie could answer that, since it deals more with his department's
Mr. Carrie: As you propose, this proposed legislation would undergo review every five years. Because of its
complexity, the review would be ongoing. I would ask Mr. Charland to comment on this.
Roger Charland, Senior Director, Corporate and Insolvency Law Policy and Internal Trade, Industry Canada: Thank
you for the question. As Mr. Carrie mentioned, the bill contains a five-year review clause; in five years, the government
must table a report in both Houses of Parliament on developments in the legislation and how it has been implemented.
That is the review process set out in Bill C-12.
In legislation on matters such as bankruptcy and chapter 47, there is always ongoing monitoring by the government
to see how the provisions and legislation are implemented over time and what impact they have had. Continuity is
ensured, as well as the review or report five years on, as set out in Bill C-12.
Senator Meighen: It seems to me that this kind of monitoring takes place with all legislation. Is five years not a bit
Mr. Charland: The ongoing monitoring does apply to all legislation, but not all bills set out the obligation or a
process for a report to be tabled in both the House and Senate in the fifth year of implementation. That is unusual. It is
true from a perspective of policy development or ongoing monitoring, but not all bills contain this kind of clause. In
this case, the legislation provides for a report to be tabled in five years in both Houses concerning the impact and
developments with respect to Bill C-12.
The Chair: It would be a more in-depth five-year review as opposed to the ongoing housekeeping amendments.
I am concerned that we are moving away from labour and speaking more to industry. A strong side of me wants to
have Mr. Carrie testify. Do you mind if we go to Mr. Carrie?
Senator Harb: Chair, if I may, I have to leave soon and I have questions for the minister.
I commend the minister for his presentation on the Wage Earner Protection Program, showing that it is important
for this committee to deal with it as quickly as possible, given the unanimity out there.
So many questions remain unanswered, some less than others, on chapter 47 and its content. Does the minister think
it wise for the committee to take the element dealing with Wage Earner Protection Programs Act and consider it
separately so that it moves through the Senate as quickly as possible, given the potential for a change of government?
That would allow the committee, as well as the government and the administration, to deal with the other
outstanding issues in light of the fact that chapter 47 will be studied soon. In that way, we can allow the stakeholders to
dialogue and discuss and we can bring it in a reasonable fashion to this committee so we can give it the thorough study
that it needs, rather than running like a chicken without its head because they are in a hurry to pass the bill. The more
they change, the more they remain the same. This is exactly what happened to this committee when the previous
government was in power. They came running to us to quickly pass the bill because waiting workers needed to be
protected. They said that they would fix the bill later.
We are hearing the exact same thing from this government. Chair, with your permission, I want to ask a precise
question of the minister. Will this bill deal with, in essence, the interests of both labourers and the people in the
community to support his proposal and allow us to deal with the rest of the bill in a logical, comprehensive fashion.
The Chair: I permit the question, Senator Harb, on the condition that you will allow me to point out that we have
explored on two occasions the possibility of carving out the Wage Earner Protection Act part of the bill and have been
advised that it is not possible; it is all or nothing.
The minister is proposing that we move forward with it all on the understanding that officials are preparing a list of
technical amendments that would improve the rest of the bill, depending on what we learn during the rest of the
committee's hearings. Subject to that, please pursue your question.
Mr. Blackburn: Senator Harb, do you think that I did not look at the possibility that we could draft our own
legislation in the Department of Labour without having to refer to other people? That would have been a lot easier and
faster and it would have already gone through the process. But that is not what we did; we have collaborated on this
and we have no choice.
But if we start to look at the other legislation on bankruptcy, insolvency, et cetera, we will be at it for ever. There is a
group in society that we want to protect, that is wage earners whose employers declare bankruptcy. What we want to
protect is their earnings.
If there are other flaws after one or two years of implementation, a report will be submitted to the minister
responsible indicating that the bill was well intentioned but it contains a flaw.
Then the minister responsible will make the necessary change to a given provision. We cannot review everything
because the process will never be finished, but we want to see if our objective is right and if the legislation to be
amended meets that objective. If so, we need to move forward. Moreover, the bill was giving unanimous support in the
House of Commons. I was not there at the time, before the current government was in office, but everyone said that
employees' wages had to be protected.
That is why we are back here today with the unanimous support of Parliament.
The Chair: Mr. Carrie, do you want to make a preliminary comment?
Mr. Carrie: When looking at this, we do have to balance the competing interests. The wage earner protection part of
it is very important in that balance. As Minister Blackburn said, we looked at all kinds of different ways of
approaching this and in the spirit of balance; it does have to be moved forward together.
Mr. Carrie: Thank you very much. I want to begin by congratulating you on your chairmanship of this very
important committee. As you said in your opening statement, you are a Conservative senator from Quebec. I believe it
has been over 30 years since the last Conservative had the chair. Is that correct?
The Chair: Not quite, but it is certainly close to 20 years. Thank you for your thoughts.
Mr. Carrie: I would like to thank you for this opportunity to address the committee about Bill C-12, an act to
amend the Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act, and the Wage Earner
Protection Program Act and chapter 47 of the Statutes of Canada, 2005.
I would like to begin by thanking Minister Blackburn for joining me here today and for his comments in respect of
the Wage Earner Protection Program Act. Mr. Chair, I intend to focus my comments on the insolvency law portions of
Canada's insolvency laws are an important part of our framework legislation and play a key role in our
competitiveness and economic performance in this era of increased globalization. With modern effective framework
legislation, the Canadian economy will be stronger and Canadian entrepreneurs will be better placed to compete
domestically and globally.
Former Bill C-55, now known as chapter 47 of the Statutes of Canada, 2005, or chapter 47, introduced broad
reforms intended to modernize Canada's insolvency regime. The objectives of chapter 47 were to facilitate the
restructuring of viable but financially troubled companies, to improve the protection of wage earners, to make the
insolvency system fairer and reduce abuse, and to improve the administration of the entire system.
In meeting these objectives, chapter 47 created an appropriate balance between the competing interests of debtors
and creditors and, as well, between different creditors. This is extremely important because it is crucial that our
insolvency regime be designed to function efficiently and provide incentives to discourage abuse.
As you are aware, however, chapter 47 received expedited passage through Parliament. As a result, it contains a
number of important technical flaws that prevent the government from bringing the law into force. Bill C-12, which is
before you today, will correct those technical flaws.
Bill C-12 is the product of extensive consultations with a panel of leading insolvency law experts, both practitioners
and academics. The panel assisted department officials in identifying the flaws and in determining workable solutions.
In addition, department officials received input from a wide variety of stakeholder groups, including, for example, the
Canadian Bar Association, the Canadian Life and Health Insurance Association and family law advocates.
In my comments, I have referred to chapter 47's technical flaws. That is deliberate. As Minister Blackburn has said,
Bill C-12 can be considered as a piece of housekeeping legislation. It is not intended to re-examine the policy elements
of chapter 47.
We have heard that insolvency reform is needed as soon as possible. Bill C-12 will achieve that goal. As I have said,
chapter 47 found an appropriate balance to the competing interests inherent in insolvency policy. Where chapter 47
can be improved is in the details. It is for that reason that Bill C-12 takes the technical route — to fix the details, not to
With that objective in mind, I would like to discuss some of those details that Bill C-12 will fix. I will focus on five
examples: interim financing, trustee's personal liability, national receivers, equity claims and transfers at undervalue.
With respect to interim financing, chapter 47 codified the process by which companies in financial trouble obtain
financing in order to give them breathing room while they restructure. Bill C-12 addresses two flaws contained in
First, Bill C-12 will require that secured parties be informed of any application for interim financing that may affect
their interests. It is a matter of fairness that they should be entitled to defend their interests.
Second, it will also make it clear that the special status accorded to interim financing loans will only apply to money
lent to help the company during the period of distress. Again, as a matter of fairness, debts that existed before an
insolvency filing will not be entitled to jump ahead of other creditors.
With respect to trustee's personal liability, chapter 47 also attempted to address the problem where a trustee or a
receiver is made personally liable for the obligations of the debtor. Trustees and receivers are insolvency practitioners
whose role is to go in after an insolvency filing, take over the assets of the bankrupt company and, in some cases, run
the business until a purchaser can be found. This is a going-concern sale. It is recognized that going-concern sales are
more beneficial than closing the business. Evidence shows that creditors receive better recovery and that more jobs are
Recent case law, however, has made it possible for the insolvency practitioner to be found personally responsible to
pay existing debts of the company in these circumstances. This is not good for the insolvency system, and it is not fair
to the trustee or the receiver.
The reform in chapter 47, however, did not do enough to prevent these obligations from being passed on to the
trustee or receiver. The result is that trustees and receivers may not wish to take on files where this risk is present. This
may leave creditors with smaller recoveries and employees out in the cold.
Bill C-12 makes it clear that a trustee or a receiver should not be personally responsible for existing obligations. To
ensure that workers are not left without recourse, however, Bill C-12 also makes it clear that their claims continue
against the new purchaser.
With respect to national receivers, chapter 47 created the concept of a national receiver appointed under the
Bankruptcy and Insolvency Act. The goal was to improve efficiency in the insolvency system by allowing one person to
deal with all of the debtor's property, wherever the property is located in Canada.
The provision in chapter 47 was not sufficient, however, because it did not provide a specific list of powers that the
national receiver could rely upon. This may lead to differing rules, depending on where the receiver is appointed.
Bill C-12 provides a list of powers to provide guidance to the appointing court. In addition, it offers flexibility for
the court to grant such other powers as the court thinks are appropriate on a case-by-case basis.
With respect to equity claims, chapter 47 introduced a reform to limit the rights of equity holders to receive
payments under a restructuring plan. In bankruptcy, of course, an equity holder has no right to be paid for their shares
until all claims against the company are paid. In a restructuring, because it is a matter of negotiation, the rights of
equity holders are not clear. It is possible for equity holders to get paid when other creditors are not. This is a problem
as equity holders should not have greater rights in a restructuring than they would in a bankruptcy. Bill C-12 will
First, a definition of ``equity claim'' has been introduced. This clarifies that equity claims include items like dividend
payments, return of capital, a right to have the company buy back your shares, a loss on the value of your shares and
the right to be indemnified by the company for losses on the value of those shares. Second, an explicit amendment is
included to prevent, during the restructuring, an equity claim receiving a payment unless all other claims are paid in
full first. Third, the right of shareholders to vote on changes to the corporate structure is removed. Instead, that power
has been given to the court. The Bill C-12 amendments will complete the reform started by chapter 47 by providing
more clarity and explicit rules.
Chapter 47 also made amendments to the anti-abuse mechanism in the BIA related to efforts by unscrupulous
debtors who try to shield their assets. Bill C-12 clarifies how the provisions will apply, and by doing so, makes them
more efficient tools against potential abuse. At the same time, an amendment is made to the definition of ``arm's length
parties'' to ensure that these provisions do not inadvertently capture legitimate family law agreements.
In conclusion, Mr. Chair, I have spent my time today explaining how Bill C-12 will improve on chapter 47. I have
done so because Bill C-12 represents the best opportunity to bring chapter 47 into force quickly.
While there may be some stakeholders who want to reopen the debate on how chapter 47 balanced the many
competing interests, doing so will only bring further delay when insolvency practitioners are telling us that insolvency
reform is needed right now.
As members of this committee are aware, chapter 47 contains a five-year legislative review clause that will provide
an opportunity to re-examine these and other policy debates.
Mr. Chair, on behalf of Minister Prentice, let me thank the committee for giving the opportunity to speak to this
important piece of legislation today. I am pleased to respond to your questions.
The Chair: Thank you, Mr. Carrie. Before I ask Senator Ringuette to proceed with the questioning, I think it is very
important that we get on the record the following clarification, because there is at least a modest misunderstanding
flowing from your last remarks.
The reality is that chapter 47 and Bill C-55 were never examined. We just flushed them through as requested on the
condition that the whole bill would come to us. We have many witnesses that are going to come and debate about the
substance of chapter 47.
It is not just technical amendments we are interested in here. It needs to be clearly stated that we have no intention
of not examining the substance and merits of Bill C-55 from a policy point of view because we never did. That was the
The reason it was held up when the election was being called and so on was because we already knew from the
officials that there were all these amendment that are set forth in Bill C-12. However, we had not yet studied them. We
get all these calls about the need to do so. Just have no illusions; we will do an analysis.
Senator Ringuette: I am pleased to see this bill that was introduced by my former colleague the Honourable Joe
Fontana two and a half year ago. This bill to protect employees' wages when employers declare bankruptcy is welcome
legislation, in my view.
I am interested in the provision relating to student loan programs.
I am looking at Ms. Frith because I think that she and her associate are probably the best people to provide the
answers I am looking for.
What would be the average interest rate for a student loan?
Ms. Frith: I am not sure of the average interest rate. I can tell you what the interest rate is for students graduating
today who would consolidate their loans. It would be prime plus 2.5 per cent for a variable rate; if they choose a fixed
rate, it would be prime plus 5 per cent. The bulk of students choose a variable rate, so today they are paying 8.75 per
Do not forget that is for the direct loans today. There are still people who are on the guaranteed loan regime and on
the risk-shared loan regime. They pay different interest rates, depending on when they graduated and consolidated
Senator Ringuette: The fixed loan would be prime plus what percent?
Ms. Frith: Prime plus 5 per cent, so an additional 6.25 per cent for prime.
Senator Ringuette: 11.25 per cent?
Ms. Frith: Yes.
Senator Ringuette: I think that would be okay for a luxury good, but an education is not a luxury good.
How many students have student loans?
Ms. Frith: We have over one million active files. We have about 340,000 new students coming into the system
Senator Ringuette: Concerning the two programs you mentioned earlier, to help the students, you have talked about
the nine months' interest relief. How much would that cost your department? Let us look at last year.
Ms. Frith: There is not a nine-month interest relief program. There is an interest relief program that can be used for
up to five years.
Senator Ringuette: Does it start after nine months?
Ms. Frith: I would have to come back with the exact figures. For 2004-05, I believe it was $64 million that the
government expended on interest relief.
Senator Ringuette: What about the other one — you said that it was the debt relief program.
Ms. Frith: Debt reduction.
Senator Ringuette: You said that they can apply to it after five years, actually after the 16 months' interest relief has
Ms. Frith: That is correct. That program only came into effect two years ago. I am sorry but I cannot remember the
exact figures for it. I can provide you with all of the costs to the program.
Senator Ringuette: I would appreciate that. I am looking at an article that appeared in the paper in Halifax dated
Ms. Frith: I am familiar with the article.
Senator Ringuette: I am sure that you are very familiar with the article. If you have effective communications people,
then you would know about it. The article indicates that a recent Access to Information request has revealed that the
government is charging students nearly double what it costs to borrow the money for student loans. In currency terms,
that means the federal government would pocket $549.5 million in interest revenue throughout 2009-10. This was an
excellent initiative from a young student from Vancouver through the Access to the Information Act, so he had to
jump a lot of hurdles to get this information. The article indicates that it was Vancouver's Julian Benedict who started
the Coalition for Student Loan Fairness that made the Access to Information request. Benedict made other discoveries
with his request. The government has recovered more than $1 billion on defaulted student loans — bravo — and
$180.8 million was paid to collection agencies to gather that money. Roughly 20 per cent of what you collected went to
collection agencies, if the article is correct. The rate, whether you are looking at variable or fixed rate on student loans,
goes from 8.75 per cent to 11.5 per cent. That is where over $500 million in interest revenue is projected.
Ms. Frith: Yes.
Senator Ringuette: Yet for the two programs that you have in place, you can only tell me that last year one of them
cost $64 million, and the new one that was put in place two years ago is too new so you cannot provide me with the
The bottom line is what are we really doing for students? How are we really encouraging them? I am astonished,
looking at the interest rate that we are charging these students. It should be maximum prime, because this is an
investment not only in an individual future but a collective investment into Canada's future.
The Chair: Senator, if I may, I have been letting you go on because I think it is very interesting for the minister and
the parliamentary secretary to hear this information. I must point out to you that this bill does not deal with the
administration of the program. It does provide some relief, but the student loan program is a totally different matter. I
am letting you go on, but not for long.
Senator Ringuette: It is an issue. We are talking about student loan insolvency, students having to declare
bankruptcy, and wherever there is an effect, there is a cause. I am looking at the elements of cause.
The Chair: As I said, senator, up to now I have let you go on. Perhaps you would be crisp with your questions. You
have raised an interesting point that is not in this bill. We have heard that it is important that we hear about 23
witnesses, and I think it is very important that the government take note of the problem you have raised. If you would
like to ask questions, I am allowing them, but please get going with them rather than have a public policy discussion.
Senator Ringuette: Let me specify that Ms. Frith will look into the cost of the new debt relief program and provide
that information to you, chair.
As well, did I hear you saying that there was a current review of the scheme of student loans?
Ms. Frith: You have raised two issues. Just on the interest issue, to make it very clear, in 2009-10, I believe it was
about $549 million that Mr. Benedict said we would be collecting in interest. I would just like to note that in 2009-10
we are also forecasting the total cost to the program will be $1.2 billion, which is more than twice what we will recover.
I just want to make it very clear that the while the person is in school there is no interest charged whatsoever. That is
a cost to the government. When the student graduates, leaves school and commences repayment, he or she is given a
choice between the variable rate and the fixed rate. Over 95 per cent take the variable rate, not the fixed rate, which I
understand is very high. For those graduates who are unable to make payments, there is interest relief, a reduction in
repayment, or a revision of terms. The latter option means that the student may pay back the loan over 15 years
instead of the normal term of 10 years. In addition to that, there are textbook tax credits the students are given each
year. On top of that, students are eligible for a tax credit on the interest paid on the loan, which in fact reduces the
overall interest rate by 1 per cent to 1.5 per cent.
In effect, it is clearly costing the government more than twice as much as what is recovered in interest payments. I
will bring you the exact costs for one of our most recent years so that you can see the difference between what we are
collecting and what we are paying out.
Senator Ringuette: Thank you very much, and I appreciate the information you will be providing.
The Chair: We are hoping that this piece of information that came out during our consideration of Bill C-12 will be
communicated to your colleagues in the cabinet.
Mr. Blackburn: Basically, Mr. Chairman, that is true to some extent; you said that scholarships were administered
by another department. I find this exchange interesting, and I think that we have seen the real costs to government of
this. This is also something we need to look at. When a student has difficulty paying back his or her loan for some
major reason, it is always possible to discuss the problem with the authorities to have the repayment period or the
It is somewhat similar to income tax. Where a taxpayer has set monthly amounts of tax to pay, they can call the
authorities and reach an agreement if their standard of living changes because they are earning less than before. When
people act in good faith, a solution can generally be found.
With what we are doing today to protect wage earners with this legislation, we estimate that the annual cost to
government will be around $37.5 million a year. If more people were to declare bankruptcy and more workers were
affected, the amount could potentially reach $50 million.
Taxpayers and parliamentarians wanted workers affected by employer bankruptcies not to have to wait forever to
be paid. The government will take charge of the situation and Service Canada will assist workers. They will explain the
situation, indicate the amount of earnings they have lost over how many weeks, and Service Canada will pay them so
that they do not have to wait until the end of the process. The government will then deal with the company and will
seek reimbursement if there are assets remaining.
Senator Biron: Welcome, Mr. Blackburn. My question is along the same lines as that of Senator Ringuette,
concerning the Registered Education Saving Plans.
Students, after all, are not responsible for choosing their elders, and they are not responsible for their bankruptcy.
As Senator Ringuette mentioned, it is in the interest of a country to have a well-educated population; when students do
not have enough money to finish their education, it is a great loss for the country.
Moreover, the losses incurred by creditors who participate in the education savings plan are relatively low because
the average loan amounted to $10,000, divided by a certain number of creditors. This could amount to a few hundred
dollars per creditor. However, it is a tremendous loss for the student. In addition, the cost of education is constantly
Could we find some way to arrange that payments made by a benefactor become the property of the student? I
understand that the education savings plan has a very complicated structure, but I think that it could be an interesting
Mr. Charland: Would you please clarify your question?
Senator Biron: Could we try to find an arrangement whereby the funds contributed by a benefactor to the education
savings plan eventually become the student's property or the property of the person in whose name the funds were
Mr. Charland: This question does not fall under my purview. It really has nothing to do with Bill C-12 or with what
we are doing now.
Senator Biron: It was just meant to inform Mr. Blackburn. Eventually, he might discuss it with others. It is a
Mr. Blackburn: If we accept this as a suggestion, we can, in fact, look at ways of arranging this, if it can be done. It is
worth looking at. We listen to suggestions from taxpayers and citizens and we try to follow up on them. We will see
what we can do.
The Chair: It is a good suggestion, Senator Biron.
Senator Moore: This committee studied the Bankruptcy and Insolvency Act in 2003, and prepared a highly detailed
report with 53 recommendations.
Mr. Carrie, in your comments I did not see any reference to the committee's report among the things that you
looked at when you talked with stakeholders and so on. The chair of the committee played a big role in the work of
that report. I did not see any reference to the chair or the report.
Mr. Carrie, I do not know whether you looked at our report but one of the recommendations contained therein was
that RESPs be protected so that the students not lose the money set aside for education because of the actions of the
contributor to the plan. That is an important point. I know that the senator brought in a draft bill last year and time
ran out on it. Have you read the report?
Mr. Blackburn: You know that this bill, before it went to the Senate, was amended twice due to a motion by the
Quebec government that did not want the provincial RRSPs to be involved in this. There were various opinions about
it. Some thought that if someone invested in an RRSP within the 12 months preceding the bankruptcy, that the money
invested within those 12 months could be recovered, but not the money invested before that.
We had to have a consensus, and that is why we heeded the recommendation to leave RRSPs out of this. Mr. Carrie
could tell you more about it.
Mr. Carrie: We looked at that report and at its successor, which was tabled in 2005. Concerning the RESPs, a
thorough review showed that an exemption would be rife for abuse under the program for three reasons. The first
reason is the debtor may access the capital that he or she contributed to the plan at any time; second, the assets are not
restricted to be used by the child only for educational purposes; and third, a debtor can open multiple RESPs. That is
why we did not do that.
Senator Moore: Could we not add a kind of pay cut-off date to prevent that abuse? For example, if a man owns a
business and sees by his statements that things are not going well and the business might crash, he could decide to tuck
away $20,000 or $50,000 in the business for his grandson's education. Could we not have a provision that would enable
RESPs to be protected as long as the deposits were made at 12 months or 18 months?
Mr. Carrie: The point raised would promote a good debate. I would like to clarify that Bill C-12 is more or less the
Senator Moore: I know. We have been going around this subject since 2003.
Mr. Carrie: We are trying to fix what we have and implement it. Then, over the next few years, as my colleagues
have said, we will review it. Perhaps we could look at the various excellent suggestions of senators in respect of policy.
We need to understand that the bill as it stands is not ideal and we are trying to ensure that we have improved
legislation. Bill C-12 is good proposed legislation. We would like to see if we can get this moving forward as quickly as
Senator Moore: The existing statutes, which this amends, have a statutory legislative five-year review, which means
that the two parent statutes will be reviewed next year. Is that right? I believe that the last one was in 2003 and we are
heading into 2008 for the review of those two statutes, which is normally done by this committee. Is that the correct
Mr. Charland: It is correct but not entirely accurate.
Senator Moore: What does that mean?
Mr. Charland: The five-year review began in 2003, which led to the initial tabling and passing of chapter 47. Chapter
47 was never brought into force and, therefore, the new five-year cycle was never officially started. We want to move
forward quickly by amending chapter 47 in order to fix it so that it can be brought into force, after which the five-year
period will begin. It would not be accurate to think that the five-year period began in 2003.
Senator Moore: I thought the review of the two main statutes happened every five years regardless of the impact of
You are telling me that because the bill was not proclaimed, that the five-year period is still open, and indeed that it
has not even begun. I did not understand that to be the law, but I might be wrong.
Assuming that I am partially correct; could the legislation dealing with the workers be looked at in step with the
other main two statutes. I know it has a five-year review provision, but would it not make sense to review the three
statutes at the same time?
Mr. Blackburn: Why are we now dealing with this legislation to protect workers and their wages in case the
employer goes bankrupt? It all began with a unanimous decision by Parliament. All the political parties agreed that this
had to be protected. Then, we looked for a way to protect the wages of the workers. We realized that this would involve
amending two pieces of legislation; it would also involve the Department of Labour, as well as the Bankruptcy and
Insolvency Act and the Companies' Creditors Arrangement Act. We had to take that into account.
However, if we want to make a full review of the two acts that I just mentioned, to find out if anything else should be
changed or improved or brought up to date to 2007 or 2008, and if we also want to review the Companies' Creditors
Arrangement Act, we will never see the end of it.
If we did that, we would no longer be able to produce legislation for protecting workers, because we would be
looking at an extremely long process.
We should, rather, do what Parliament has asked for, and we must protect the workers.
Senator Moore: Mr. Blackburn, you are suggesting that we perform the statute reviews separately.
Mr. Blackburn: That is exactly it.
Senator Moore: Mr. Carrie in your brief you write, ``Again, as a matter of fairness, debts that existed before an
insolvency filing will not be entitled to jump ahead of other creditors.'' Is the reference to secured debts?
Mr. Carrie: Yes.
Senator Moore: What debts could there be after, unless something was incurred as an ongoing concern?
Mr. Dooley: This portion of presentation was in respect of interim financing such that a lender agrees to provide
financing to a company undergoing a restructuring.
The Chair: Is that referred to as debtor-in-possession, or DIP, financing?
Mr. Dooley: Yes, it is. The proposed legislation says that if you provide DIP financing, the special security granted
by the court will only apply to the DIP funding. For example, where the lender was owed $100 million prior to the
company filing for insolvency, that lender provided more financing after the insolvency. They included $100 million in
that special charge to cover the pre-existing debt. The existing lender had been ranked below the other creditors but by
pulling that $100 million up to the top of the pack, it secured the lender first place over other creditors who had a
higher priority in the bankruptcy. The practice, called ``boot-strapping,'' is not well received. Unfortunately, it has
happened before and we want to ensure that it does not happen again because it is simply unfair to the existing
Senator Moore: Therefore, the lender to the insolvent firm would bring money he was owed by the company and
add it to the outstanding debt.
Mr. Dooley: Yes.
Senator Moore: Therefore, the lender would be ahead of all other creditors. Does the court allow that practice?
Mr. Dooley: Yes, it has happened. For example, they lend $100 million afterward but their charge would be for the
full $200 million. Unfortunately, it has happened and, as I say, we would not like to see it happen again.
Senator Moore: Bill C-12 makes it clear that a trustee or receiver should not be personally responsible for existing
obligations. To ensure that workers are not left without recourse, Bill C-12 also makes it clear that their claims
continue against the new purchaser. Therefore, the trustee is not responsible for obligations that he or she finds when
they take over the insolvent company. The ongoing concern is hoping to put it together and sell it. If they take on debt
to do that, are they responsible for that new debt?
Mr. Carrie: Basically, yes they are responsible.
Senator Moore: Are they personally responsible?
The Chair: Usually it is a corporate responsibility.
Mr. Carrie: Yes, they are usually corporations.
Senator Moore: That is quite a risk.
Mr. Carrie: They seemed to be okay with that, though, in the consultation process.
The Chair: It is in the context of debt restructuring. They cannot continue the business and the judge gives them 30
days to get their act together. If they do not accept the plan, they go to the tank. People who are putting up the money
have a great deal of leverage.
Senator Moore: They are personally responsible for debts incurred on behalf of the ongoing charge.
Mr. Carrie: They seem to be okay with that. The idea is to clarify that because recent court decisions put the trustees
at risk of personal liability for debts. Therefore, we wanted to clarify that.
Senator Moore: My last question is with regard to restructuring the rights of equity holders. It is possible for equity
holders to get paid when other creditors do not. This is a problem because equity holders should not have greater risks
in a restructuring of debt than they would have in a bankruptcy.
Do secured creditors, such as preferred shareholders, lose that preference? Normally, they remain in place and they
receive their dividends when a restructured company is able to payout.
Mr. Dooley: Under corporate law and insolvency law, the payment of dividends when the company is insolvent is
prohibited. If the shares continue, in effect, after, then they would have their preferred claim as well. That would
depend upon the plan and what it says about how those shares are to be dealt with — whether they are to be wiped out,
as has happened in some cases, or whether they are to continue.
The Chair: Very good question, Senator Moore. Thank you for that.
Senator Peterson: I have a question regarding the Wage Earner Protection Program. In the event of insolvency, does
Revenue Canada have first dibs on the left over funds?
Munir A. Sheikh, Deputy Minister of Labour, Human Resources and Social Development Canada: The government
has the first claim to monies owed to government by a firm that becomes insolvent. For example, if the business held
employment insurance contributions or Canada Pension Plan contributions, according to the priority in the
Bankruptcy and Insolvency Act, the government has the first claim on it. That has not changed. The changes to the
Wage Earner Protection Program and the Bankruptcy and Insolvency Act have not been effected in any way.
Mr. Blackburn: I have a point of clarification. Regarding the protection of workers' wages, wage claims are only
subordinate to the rights of unpaid suppliers to repossess their merchandise, under certain conditions, and to claims
related to deemed trusts such as undisbursed payroll deductions, including employment insurance and Canada Pension
Senator Peterson: In the presentation, we said that the amounts are usually very small, but they are very important
to the worker who is not being paid. Really, what we are saying is it is more important to the government than the
worker — that they should get it first, is that correct? If they are not collecting their unemployment insurance and tax,
they must be aware of that non-payment. Why would the wage earner have to take the hit on that?
Mr. Blackburn: I must clarify this point. The worker is protected; the government will pay, with our $37.5 million
fund. If there is a bankruptcy, we will pay the employee's wages to cover him up to a maximum of $3,000, or four
weeks. Afterward, the government will seek payment from the trustee. However, the worker's salary is protected up to
a maximum of $3,000.
The Chair: That is without having to take legal proceedings. That is why it appears the government has a preferred
interest, but it is the reverse. They pay first again.
Senator Peterson: Thank you for the clarification.
Senator Ringuette: My questions are in the same vein. Earlier, Mr. Minister, you said that the Employee Wage
Protection Program would cost between $37 million and $50 million.
Mr. Blackburn: Yes.
Senator Ringuette: Could you tell me how much of these estimated costs will be spent on administering the program?
Mr. Blackburn: From the $37.5 million, we estimate $28.5 million will serve to reimburse workers' wages when
companies go bankrupt, $3.5 million will serve to manage the program, and $2.5 million will serve to reimburse the
sums left unpaid by trustees and receiver agents.
Senator Ringuette: Will the program be managed centrally from your office?
Mr. Blackburn: The management will be done by Service Canada because they are close to the citizens who receive
federal government services. When a company goes bankrupt, a worker can get in touch with Service Canada and the
process will be set in motion so that people get paid promptly.
We estimate that about 10,000 or 20,000 workers will receive such payments every year. Of course, there could be a
larger or smaller number of bankruptcies in any given year, but these are our current estimations.
The Chair: Senator Biron, do you have another question?
Senator Biron: No.
Senator Moore: I have another question. Minister, in your remarks, you said that chapter 47 will reduce the
discharge prohibition period from 10 years to seven years; in the case of hardship, it would be reduced to five years.
When our committee was doing the review of these statutes in 2003, banks and the credit rating agencies all said that
five years was an appropriate period. Students, of course, wanted zero, which is understandable but not realistic. Your
bill says seven years.
How did you arrive at seven years? In view of all the input we had — and this was from a whole cross-section of
people interested in this area, including the banks — they thought five years was an acceptable period of time. How did
we arrive at seven?
Mr. Carrie: From our standpoint, where the numbers are depends on how you want to make the program viable and
continue its viability so that it is ongoing. As for details on the decision of how the number was arrived at, I would ask
Ms. Frith to provide that information.
Ms. Frith: The seven years is basically a representation of the debt management measures that have been put in
place. Since 2004, student borrowers who go into bankruptcy are able to access interest relief and debt reduction in
their payment. That period of time covers five years of interest relief with no interest payments, no payment on the
principal. For the following three years, they would be entitled first to a reduction of $10,000, then a year later another
$10,000 and another year later $6,000. That would reduce them by $26,000 overall, and that covers eight years.
Therefore, seven years was considered to be very reasonable in terms of alignment with the current debt management
Senator Moore: It is lined up with the program, is that correct?
Ms. Frith: Yes.
Senator Meighen: We have talked a lot about the Wage Earner Protection Program Act. I think the minister just
said that a worker would receive a maximum of $3,000, covering four weeks of wages.
My understanding is that would cover about 97 per cent of wage earners. Was that an obvious break point? Did you
arrive at it because over that, you are dealing with perhaps middle management that may earn a considerably higher
salary and therefore did not need protection; or was it that the protection of 100 per cent of wage earners would have
been substantially more expensive?
Second, where does that person rank who falls in that 3 per cent that is not covered? Do they rank as they would
have without the Wage Earner Protection Program Act?
Mr. Blackburn: If we cover 97 per cent of the workers, and our objective is to protect as many people as possible, we
think that it would amount to $3,000 for four weeks of wages, as the current average weekly wage is about $750.
Beyond that, the claimant will still receive a total of $3,000.
Senator Meighen: Is that so?
Mr. Blackburn: Of course. You are protected up to $3,000. However, if your income was much higher, you would
still receive the basic $3,000. As for the rest, those who do not have it will have to rely on claims. According to the
statistics, in previous years, 79 per cent of workers never received anything. Thus, there might be nothing left for him.
Senator Meighen: Is he still covered by the unpaid wages claims or is he considered on the same footing as an unpaid
supplier? Is he still covered by the unpaid wages claims?
Mr. Sheikh: There are basically three categories of workers. Anyone who is eligible will get reimbursed up to $3,000.
Someone may get $1,000 or $2,000, but the figure is up to $3,000. Nobody will be left out. However, obviously some
people may not qualify immediately. For example, there is a provision that says if you are related to the owner of the
business, you may have difficulty collecting your money; even those people can put a claim in to Service Canada and
demonstrate that the claim is above board. They would be covered as a second group of people, but they would be part
of the Wage Earner Protection Program. The third group of people includes people who have claims above $3,000 or,
for some other reason, do not qualify. They are like any other creditors on the priority list. Wherever they fall, they fall.
The third group does not receive preference.
Senator Meighen: Even though it is an unpaid salary, which under the present laws, as I understand it, has a certain
preference, you will rank them along with any other unpaid creditor for the portion over 3,000.
Mr. Sheikh: As the priority list stands, they will stay where they are.
Senator Meighen: I am still not clear. Under the present act, if I am owed $10,000 in salary, do I not have a different
rank from a trade creditor who is owed $10,000?
Mr. Sheikh: Of course. My colleagues from Industry Canada can explain the priority list. There is a list of priorities
as to how the assets will be distributed. That has not changed. The only thing that has changed is that the government
will pick up the tab for up to $3,000.
Senator Meighen: I get that, but you have not told me where the difference between $3,000 and what I am owed in
salary of $10,000 ranks. Is it ranked as unpaid salary or just another unsecured credit?
Mr. Carrie: My understanding is that it would be ranked as another unsecured creditor. With the present situation,
employees may get 13 cents per dollar when the time comes. I spoke earlier about having a balanced approach. Here,
the government is taking the hit up front and putting in the $3,000 so the employee is paid up front. The government
will only be able to recover a maximum of $2,000 of that later on. The employee who is owed above the $3,000 will go
as unsecured. It will go onto the list, and they will have to wait for that money. They may end up 13 cents on the dollar
for that. Everyone is taking a little bit of a hit here, and that is the balance.
Senator Meighen: I believe this legislation is a great improvement.
Mr. Carrie: Yes, it is.
Senator Meighen: However, under present legislation, if I am owed $10,000 for salary, do I not rank ahead of a trade
creditor? If so, you are telling me now that the proportion above $3,000 under the proposed legislation will fall a rank.
It will no longer be considered unpaid salary but will rank just like any trade creditor.
Mr. Carrie: That is a good question. Mr. Dooley will give the technical answer.
The Chair: Are the directors on the hook under the Business Corporations Act to pay that?
Mr. Dooley: While you are correct that a wage claim does have what is called a preferred claim, which ranks above
unsecured, it is limited to $2,000. We have simply moved the preferred claim to above the secured so they are now
called a super priority. They have not lost anything. They are moving up a step.
Senator Meighen: For $1,000?
Mr. Dooley: You get $3,000 from the WEPP, but the super priority is only $2,000. The recovery for the WEPP will
only be up to $2,000, which is the amount of the current preferred claim. For the extra $8,000 wage claim owed in the
example, you would have been unsecured previous to this act anyway. It is an improvement.
Senator Meighen: Thank you very much.
Senator Meighen: If, theoretically, we adopted the technical amendments in this bill today, how much time would it
take before workers could benefit from this legislation? Do we not have to draft regulations before we can apply it?
Mr. Blackburn: You are right, we have to go through the entire process. We think that it could take about six
months. Implementing regulations always takes time. Even I, as a government minister, was surprised to see how much
time it always takes. But that is how the system works and we have to go through the entire process, which involves the
participation of Service Canada. As of today, we expect it to take about six months.
The Chair: The witnesses agreed to be here until one o'clock. I wonder if we have reached a point where we could
thank the witnesses for their attendance but ask them if they would have their officials monitor our hearings on this bill
and make themselves available to come back, if necessary, to deal with this issue of possible other amendments. As you
know the process, it is conceivable we will hear evidence that will drive us to say we cannot report this bill back unless
there is some accommodation for whatever it is that comes out in the evidence.
If I understood the discussion earlier, there is a possibility that we could obtain an undertaking from both ministers
that, in consideration of us not reporting the bill with amendments, they will ensure the department comes forward not
in five years but as soon as possible. There is no guarantee, even though we are conscious there is the possibility at any
moment in a minority government that there could be an election and there is a need for this bill. We are in this Catch-
22. We want to do our job properly. Given the circumstances, unfortunate as they may be, all this time has passed. We
would like to get the bill through, but we want to ensure it is either ready for prime time, and if not, that we have a
process in place to fix it.
Mr. Blackburn: Ladies and gentlemen of the committee, you are recognized as experts. You see that this is a complex
problem. We have to deal with two departments. On the one hand, we have the Bankruptcy and Insolvency Act, and
on the other hand, the Companies' Creditors Arrangement Act; and then there is the Department of Labour. I know
that you would like to make many amendments to the two acts that I just mentioned and that involve Industry
Canada, because things have changed.
However, we want to protect workers as promptly as possible, those who work for companies that go bankrupt, and
we want to protect their family income because it is important.
This is why we tried to be as flexible as we could to accommodate the will of Parliament. If you want more
clarifications from us, we will, of course, be available. And if we do not do all the things that you would want us to do,
in your wisdom, in the forthcoming legislation, if you think that we could act more quickly to protect our workers, we
would be ready to hear your suggestions when you come back to the House of Commons.
The Chair: Mr. Minister, you have understood me correctly; thank you very much.
Mr. Carrie: We realize you are working with us. It is important for Canadians that we get Bill C-12 through. It is
good legislation. Whatever we can do to help your job go more smoothly, I am sure we will be able to make those
resources available to you.
The Chair: Will your officials be monitoring our hearings as they progress in the next two weeks?
Mr. Carrie: Absolutely.
The Chair: On behalf of all members on this committee, we thank all of you.
The committee adjourned.