Bill C-281 (Historical)

An Act to amend the Bankruptcy and Insolvency Act, the Canada Business Corporations Act, the Employment Insurance Act and the Employment Insurance Regulations

Bankruptcy and Insolvency Act

[Jerry Pickard, Liberal, Parliamentary Secretary to the Minister of Industry]

Mr. Speaker, Bill C-281 put forward by the member for Winnipeg Centre contains a number of amendments to increase the protection for employees for losses that they may incur in their employment when a bankruptcy occurs. In short, Bill C-281 proposes to create a super priority for all employees' claims that would be ranked ahead of creditors, including any secured creditors.

These amendments would represent a radical change to the bankruptcy system. In doing so they would create a number of direct and perhaps unintended adverse consequences on the Canadian economy.

These amendments would fundamentally change the treatment of debt in bankruptcy. In effect, the proposed regime would override established contractual and legal rights of existing secured creditors which are a fundamental feature of a market economy. Let me explain to members of the House the economic effects that proposed amendment would have. I have to focus my intention on small and medium size businesses and how it would impact them.

It is well established that commercial lenders finance businesses based on the value of assets used to secure loans. In other words, business owners use the value of their company's receivables and inventory as well as fixed assets as collateral to secure financing. Lenders use a borrowing base formula to determine the amount of money the business owner is qualified to borrow.

The single most important determinant of a business's borrowing base is the realizable value of the assets pledged to secure a loan. The lower the realized value in bankruptcy, the lower the borrowing base. The higher the realized value in bankruptcy, the higher the borrowing base. This is where bankruptcy laws intersect with commercial lending practices.

Bill C-281 creates a super priority for claims of losses by employees in bankruptcy. This priority is open-ended and unlimited. As such it creates a great deal of uncertainty for lenders when they are making a lending decision. Given this uncertainty, lenders will face greater difficulty determining the realizable value of a borrower's collateral. As a result, lending institutions will, to protect their own asset base, reduce the amount they will lend to people.

Reducing credit availability by changing the priority scheme in the Bankruptcy and Insolvency Act as Bill C-281 proposes would have detrimental effects on small and medium size business enterprises. These businesses are the most vulnerable to a change in lending practices as they generally have a less diversified source of capital financing than large enterprises.

Small and medium size enterprises account for 98% of all businesses in Canada. Indeed, 75% of all Canadian businesses have fewer than 10 employees. In terms of employment, in 2003 more than five million people, or 49% of our private sector labour force, worked in small and medium size businesses. Those with 100 employees or less are small and medium size businesses. According to Statistics Canada, small businesses made the greatest contribution to net job creation over the period of 1996 to 2003.

We cannot put the engine of economic growth at risk. Bill C-281 would put the brakes on building the 21st century economy as we know it today. Not only would the proposed amendments reduce credit availability, but they would also increase the cost of credit for those who could obtain it. Lenders would re-evaluate the credit risk associated with their entire commercial portfolio, and would conclude that Bill C-281 increases the credit risk. This would translate into higher interest rates not only for existing loans, but for every commercial loan going forward.

The proposed amendments would also require increased monitoring by both lenders and borrowers. This would lead to increased costs for each business, as lenders would pass on their increased monitoring costs. Moreover, businesses would face higher internal compliance costs to ensure that any loans they may have remained as performing loans.

I am strongly opposed to the measures that would cause small and medium size businesses to incur added inefficiencies. Businesses, particularly small and medium size enterprises, would be negatively impacted by increasing the cost of capital. As a result, these firms would find it more difficult to expand and create employment opportunities. In fact, I would also argue that these companies would be more reluctant to invest in innovative technologies. This would have a negative effect on the growth potential of small and medium size businesses and the entire Canadian economy.

The implementation of an open-ended super priority scheme for employees' claims in bankruptcy would also have a detrimental effect on businesses that compete on an international market. None of Canada's major trading partners have such a regime of bankruptcy in their laws. This runs counter to the smart regulations approach that our government has espoused.

In the United States wage claims are given preferred status similar to that in Canada. In some European countries as well as in Australia there are government funded schemes guaranteeing the payment of wages and vacation pay.

The Canadian economy has a strong reliance on international trade, particularly trade with the United States. Close to 80% of our GDP is trade related. Our livelihoods and standard of living are dependent on Canadian businesses and their ability to compete in the international markets. Indeed, with a small domestic market, the steady expansion of multilateral trade is critical to the economy and the continued prosperity of our nation.

However, the proposed amendments contained in the bill would have severe restrictions on Canadian firms' access to capital as well as increasing costs. As such, the proposed amendments would place Canadian firms at a competitive disadvantage in the international marketplace.

All of us in the House are concerned about the problems faced by employees whose employer has gone bankrupt, particularly those who experience unpaid wages and other work related benefits. However, the Bankruptcy and Insolvency Act is a framework law which has horizontal application across the entire economy. Changing it requires careful analysis and balance. There could be unforeseen ripple effects which could have serious unintended consequences on the economy.

The government agrees that there is a need to protect workers who remain unpaid when their employer goes bankrupt. Indeed, it is my understanding that as we speak, the government is studying options to improve the treatment of workers' claims in bankruptcies. I want to see reform to improve the protection for employees' claims in bankruptcy, but Bill C-281 is certainly not the answer.

[Yvon Godin, NDP, Acadie—Bathurst, NB]

Mr. Speaker, I am extremely pleased to speak on this important Bill C-231 introduced by my hon. colleague from Winnipeg Centre.

First, in a way, I am totally saddened, because, while the bill is already at second reading, members still have many concerns. Many members are more inclined to take the side of major employers than that of the workers, even though they like the workers to vote for them when an election comes.

That is unfortunate because, at present, the employees get their pensions, back wages, vacation pay, severance pay and any other benefits only after the taxes, creditors and suppliers have been paid.

The best case in point is what happened just recently when the pulp mill in Nackawic, New Brunswick, went bankrupt. As the principal creditor, the company's president, who was from the U.S., made sure he got paid first by another company he owned.

Earlier, I heard the Conservative member express concern for Canada's banks. The Conservatives, and the Liberals as well, worry about the banks, while the banks are making between $5 billion and $6 billion in profits. Are you afraid they will pack up and go home?

I will tell you something, dear friends in the House of Commons. There are people working underground in the Brunswick mine who risk their health and safety every day. How many miners in Canada do that? How many people work in the woods, from morning till night, with sweat on their brow?

We may be shaken here in the House of Commons by the sponsorship scandal. Nonetheless, even if an election is called, every one of us will receive our salaries and our pensions. However, that is not the case for miners, forestry workers, the man or woman working at the paper mill in Nackawic from morning till night. They will be the last to get paid. It is shameful.

As a former union representative who negotiated many collective agreements, I would say to my colleague from Winnipeg Centre that the bill does not go far enough. The bill should require companies that offer retirement funds to put that money elsewhere rather than keeping it, waiting to declare bankruptcy and then not paying out the pensions to these employees.

It is a shame to see people who have given 20 or 25 years of their lives to a company that made profits, that had some good years, but that went bankrupt because it was not properly managed, with the result that these people lost their pensions.

It was sad to see these people cry in Nackawic, New Brunswick, because they lost their jobs after working 25 years for a company that made millions of dollars in profits. It is sad to see that the last ones to get anything are the workers.

I want this bill to make it to second reading but, at the same time, it must be accepted by the federal government. However, in order to be adopted before the election, the Liberals must stop listening to the right-wing party, namely the Conservatives. Even the member for Kootenay—Columbia said that employment insurance premiums should not be in dollars, but in cents. This is because they do not believe in employment insurance and in workers. They do not believe that when a worker loses his job, he should get some income. That is what is shameful.

It is a shame that today there are still places of employment where people go to work for the company from morning to night, where men and women work for 25 or 30 years and if the company goes bankrupt, they lose their wages. The workers are the last ones to be paid. The creditors get paid first.

The CEO of the pulp mill at Nackawic had another company. He was the principal creditor and he was the first one to get paid before the workers. Does the government support that? Is that what the government is going to do? What a shame. It is a shame to treat the working people of our country like that.

At election time, every member of Parliament is very pleased to shake hands with people and ask for their support. The candidates are always pleased to shake hands with people at the gates of a plant and ask, “Could I have your support? I will support you if I become a member of Parliament”.

We hear today that we have to be careful about the banks, that the banks will not lend money. If they do not want to lend money, they close their doors and go home. We do not need them. They are not all going to close their doors. We do not have to take that threat from anyone. We have to respect Canada's working men and women who get up every morning to go to work for years and years.

Will we as members of Parliament pass a bill in the House of Commons that if we lose in an election, we will lose our pensions? Are we ready to do that? Why are we not ready to support the working people of our country? Why does the same thing not apply to the working men and women of our country as applies to us?

It would not be a shame if for once Parliament looked at Bill C-281 and passed it. I think many companies would agree with it because those families live in communities. When they lose their pay and pension, the whole community suffers for it. Over 850 people work at Brunswick Mine in Bathurst. If the mine went bankrupt and the workers lost their pensions, what would happen to the communities of Bathurst, Chaleur and Acadie? It would hurt those communities. The banks would be laughing. That is what would happen if members do not support this bill.

It would be a shame to water it down to where it does not mean anything anymore. What is wrong about doing a day's work and getting paid for that day of work? What is wrong about making it law that the company would pay for everyone's houses and get the bank to give them the money? The money does not belong to the bank. It belongs to the labourer who works all week. It is his money.

When a pension plan is negotiated, there is a limit on how much one will get from the company, two per cent, four per cent. Does that mean there will be no more pension plans, that we put everything in wages and we get paid right away? Is that the message we want to send to workers? No, we say to people to make a pension plan, make something good of life with the little bit of money they have left. That is what we say, but in the end, if the company goes bankrupt, we will steal it from them, we will take it from them, and that is wrong. It is morally wrong. It is totally wrong.

Anyone who gets up in the House of Commons and does not vote for this bill should never go to a plant gate and shake hands with the working people come election time because they have no respect for the working people if they do that. I recommend very strongly that all parties in the House of Commons think about what they will do and what they will say to the people when they go to the ridings looking for votes. It is just unbelievable.

The CEO of the Royal Bank will not cry on the night a company goes bankrupt. I never see them cry; it is just one big group that was lost. But I see the families cry. I see the father and the mother crying. I see the kids crying. The kids will go to school with nothing. That is what we have done. It is totally wrong not to support Bill C-281.

That is why it is important to adopt this bill at second reading. People must have an opportunity to express their views. Personally, I would even adopt the bill in its present form, because it is so important. If it is amended, it would be to improve it.

Let us look after our citizens and after Canadian families. As I said, I cannot even imagine that a parliamentarian would vote against this bill and then ask workers to support him as a member of Parliament. It would be tantamount to asking workers to vote for him to represent them in Ottawa, and then to rob them of their pensions, salaries and fringe benefits. How could anyone say they would rather defend the banks than support the poor people who worked so hard and who put their health and safety at risk?

I am pleased to have had these 10 minutes to address this very important bill for workers.

[Robert Vincent, Bloc, Shefford, QC]

Mr. Speaker, first of all, I would like to congratulate the member for Winnipeg Centre for having intoduced the bill to amend the Bankruptcy and Insolvency Act to provide better protection for workers. Several of my colleagues in the Bloc Québécois, myself included, would have introduced it if that had not been done already.

There is no need to tell you, therefore, that I am in favour of this important bill that would put workers first on the list of creditors when companies go bankrupt. The reason is simple and obvious: when a company goes bankrupt, it is indebted first and foremost, in my view, to its employees. They should be paid for the hours they worked. In addition, some employers do not hesitate to dip into the workers' pension fund in order to pay off creditors. This means that employers are paying off creditors with employees' money—money that does not belong to them. This is the reason it is somewhat understandable that the Liberals would hesitate to support this bill because they themselves have been misappropriating workers' money by looting the employment insurance fund.

Workers have much more to lose in case of bankruptcy than financial institutions. In light of the billions of dollars in profits that these private institutions make every year, it is only natural that the first creditors paid off by employers in case of bankruptcy should be their workers, whose only source of income is their employment.

Companies that are in danger of having to close their doors put employees in a difficult position. It is not only very hard for employees to evaluate the financial health of the companies for which they want to work but also more difficult for them to absorb a loss of income than it is for large private investors, such as banks.

Changing the law would give workers more security and companies would also benefit. Employers experiencing financial difficulties are at greater risk of losing their most valuable workers if their personnel does not have any protection. If employees knew that they would be first in line to be paid in case of bankruptcy, would they not obviously be less likely to leave their jobs if they sense that their company is in financial danger? Both employees and employers would benefit.

Unless the government wants to support creditors such as banks, I do not see any reason for members not to support this bill. One cannot be against virtue itself!

Hon. members will surely remember that, during the last election campaign, the Bloc Québécois made a commitment to amend the Bankruptcy and Insolvency Act, so that workers' salaries and pensions would be the first debts to be repaid. Personally, I find it even harder to understand how, in a case of bankruptcy, the employer can have access to the workers' pension fund. A pension fund is money set aside for retirement. The employer also contributes to the pension fund, as provided under the collective agreement. That money does not, in any way, belong to the employer, and it should not be used to repay creditors in case of bankruptcy. The problem is that the current legislation allows that. This means that a company can use other people's money to repay its own debts. This is incredible. It does not make any sense.

What would hon. members say if the law allowed the government to dip into their pension fund when there is a budget deficit? There is no doubt in my mind that Bill C-281 would get the unanimous support of this House.

Yet, these members accept the fact that companies can freely use the workers' money to repay debts that have nothing to do with them. I am anxious to see how the Liberals from Quebec will vote on this issue.

In the meantime, they say the bill goes too far, that we have to think about the investors. The workers need to figure out how to cope with a smaller retirement fund, find another job, since they unwittingly did volunteer work for their employer. It is the wealthiest in our society who oppose this bill to protect the weakest from abuse in the private sector. The individual suffers for the benefit of the major investors, yet again.

With investment comes risk, but it is a calculated risk. A job should not be calculated as a risk factor, a job should provide security and stability. A worker should not have to assess the risk of a company declaring bankruptcy. Did the employees at Nortel—which experienced explosive growth a few years ago—calculate the risk of downsizing? Was it their responsibility to do so? Thousands of employees were laid off even though Nortel did not declare bankruptcy. Nonetheless, if it had, would it have been the responsibility of these workers to have calculated the risk?

Would it have been their responsibility to use their salary and their pension fund to pay back the company's creditors? No, they are not investors, they are workers.

Furthermore, an investor only invests if he has the means to do so. He does so in full knowledge of the facts. If an employee could predict the risk of bankruptcy, then maybe he would choose to work elsewhere. The working person does not have the means not to work. Otherwise, he would spend his time, in my opinion, pursuing personal interests, not professional ones. The investor has a choice.

We are talking about labour peace and justice. To me, justice is allowing those less able to bear the burden to be reimbursed first. The worker is not an investor, but a taxpayer, an employee. His salary and pension fund should not be used to reimburse any creditor. It is ridiculous, disrespectful and irresponsible. Drawing from salaries and pension funds in such a way is theft. It is unethical and makes no sense. Workers must be protected, I will not back down from that.

Everyone knows there is a fiscal imbalance between the provinces and the federal government. Everyone agrees except the Liberal Party. Today, we are talking about a social imbalance between workers and creditors.

In addition, the current Bankruptcy and Insolvency Act threatens industrial harmony. I have two examples drawn from events that took place in my riding in the 1990s.

I am thinking of the bankruptcy of the Peters plant in Granby. Management took all the money to pay back creditors, and none of the employees got paid for their work before the bankruptcy. There was no money left. The employees had to initiate legal proceedings against the three principal shareholders in order to reach an agreement and be paid what was due them. Is that the way it should be? I do not think so.

The example of the Simond firm is all the more flagrant. Simond has subsidiaries in a number of countries. The one in Granby went bankrupt at the end of the 1980s or early in the 1990s. It represented only 3% of the company. Following the bankruptcy, in order to pay back its creditors, this major international company drew $6 million from the employees' retirement fund. After a court battle, which went on for seven years, the unionized employees won the case. It took seven years for them to recover the money that had been stolen. In the meantime, 15% of the retirees died.

Furthermore, at the end of this considerable struggle, the law was tightened up so that workers could no longer turn to the courts to defend themselves. The fact that it is legal to take money from the employees' fund was already absurd, but then, the government tightened the regulations. I feel faint when I hear this story or tell it or even think about it. Let me continue, however.

Allow me to point out an interesting fact. Who was the main supporter of the workers throughout these long lean years of the Simond dispute in which the workers' money was stolen? It was none other than the member for Shefford at the time, the current Minister of Transport. I would like to congratulate the member for Outremont on the work he did at that time. So I can reasonably expect him to support this bill. I also expect the Quebec Liberal lieutenant to show leadership among his colleagues so that Bill C-281 will also have the support of Liberal members.

[Jim Abbott, Conservative, Kootenay—Columbia, BC]

Mr. Speaker, I am speaking on Bill C-281, an act to amend the Bankruptcy and Insolvency Act, the Canada Business Corporations Act, the Employment Insurance Act and EI regulations, as presented by the member for Winnipeg Centre.

I am pleased to make my thoughts known as the member of Parliament for Kootenay—Columbia. I have always taken my commitment to people in my community very seriously, wanting to ensure that their interests are protected and that there is a proper balance between employers and employees.

Shortly after I was elected in 1993, there was a major bankruptcy in my constituency that affected many hundreds of people. As a matter of fact, more than 1,100 people ended up applying for EI benefits as a result of that bankruptcy. The communities throughout the Elk Valley and the East Kootenays had to deal with harsh realities far beyond their control.

The bankruptcy caused tremendous hardship for families and individuals who were impacted by the failure. My office worked diligently on behalf of former employees of the corporation to help them secure portions of their pensions. Unfortunately, those portions turned out to be a small portion of the pension funds owing to them.

Through these events, I became acutely aware of the importance of good legislation in the relationships between corporations, their creditors and their employees. I became convinced that in the event of a bankruptcy there is a distinction between wages owed and the status of employee pension funds. Combining pensions and wages in one piece of legislation is not only impractical but unworkable.

As written, this bill is poor legislation. If Bill C-281 were to receive approval from the House of Commons to move to committee, the first thing I would recommend to the committee is the entire removal of the pension provisions.

There may be value in reviewing pension provisions and protection of pensions in bankruptcies, but consideration of pension provisions should be drafted in a totally different bill.

A pension review must include two tracks. Pensions involve employer-employee relations, collective bargaining, previous negotiations, existing pension funds and regulations. In most cases, there is provincial jurisdiction combined with current financial market forces in the national and international investment community. This names simply a few of the issues.

The second track must recognize that pension funds and employee interests can be reduced to dollars and cents, but that money is totally different from funds that can be realized from tangible assets secured by lenders. We must remember that lenders have choices. They are not compelled to lend money. Anything that increases risks increases the costs of borrowing. A lender may reach a point of choosing to withhold funds as risks increase.

Let us take a look at the wage replacement portion of Bill C-281 as distinct from the issue of pensions. There must be a balance between the interests of wage earners, employers and potential lenders. This balance makes the difference between having a healthy business economy with good, productive, meaningful jobs and the potential for impoverishment.

Whatever legislation we become involved in, it is the responsibility of the House to ensure it does not inhibit relationships between businesses, potential lenders or investors. Put another way, it is the responsibility of legislators to create and maintain a healthy economic environment for all Canadians.

As written, Bill C-281 would place wages owing upon bankruptcy ahead of the rights of secured creditors. Its purpose is to provide superpriority status ahead of all other creditors, including secured creditors, for amounts owed to workers in the event of bankruptcy. This would include wages and salaries, payments in the form of severance or termination pay arising from collective agreements and legislation.

The problem is that secured creditors lend money on the basis of real assets, such as property, equipment or accounts receivable, and calculate the potential of realizing cash from those real securities. In other words, while the liability to the company for wages will be a specific amount of money, that liability for wages has no direct relationship to the security pledged to the lender.

Let me explain it this way. By way of example, a company may have $150,000 security in the form of current accounts receivable. The lender may choose to advance a fixed loan or line of credit up to a limit of $100,000 against a $150,000 asset. If the workers have a combined potential of $5,000 payable for two weeks' work the lender would reduce the $100,000 loan or line of credit by at least $5,000, if not $10,000.

This represents a withholding of dollars to protect the lender against possible claims by workers in a bankruptcy. This seriously diminishes the value of the company's securable assets.

It is irrelevant whether we like or dislike this harsh marketplace reality. The fact is, lenders make choices based on their judgment of what makes good business sense to them. Lenders have choices. They are not compelled to lend money.

If Canadian laws put lenders at a disadvantage in Canada, they could make choices to lend in other international jurisdictions. This would create negative pressure for Canadian businesses by increasing costs of loans and decreasing the amount of money available in the Canadian marketplace.

As of December 2003, there were 2.3 million small, medium and large businesses operating in Canada. Almost every business from time to time requires loans or operating lines of credit. That money is almost invariably secured by some form of asset. If all workers in Canada are given superior status over secured creditors, we will see a significant decrease in the amount of credit available to businesses. This would inhibit Canadian businesses' opportunity to access funds necessary for continuation of operations or expansion.

The fact is that while there are 2.3 million businesses, there were only 8,128 business failures in 2003. This represents only four-tenths of one per cent of all businesses operating in that year. To underline or restate, 99.6% of Canadian businesses would have access to business loans reduced as a result of four-tenths of one per cent of business failures. This is simply bad economic policy that reduces jobs and opportunities in Canada. I believe there is a better way.

Beginning with the premise that workers' interests must be protected in bankruptcy, I support the creation of a wage earners' protection fund. Its purpose would be to protect workers while eliminating potential liability for lenders. This is not a new idea. Many European countries have a form of wage protection plan.

It would be built on the original principles of employment insurance, where insurance premiums are paid by employers and employees into a fund that would be based on actuarial data. It would ensure that there were funds available to protect the employees' interests in the four-tenths of one per cent of Canadian businesses that end up in bankruptcy. It would be funded separately from employment insurance and would stand alone.

We have reviewed the European experience and can state that the premiums would be calculated in pennies, not dollars. The existence of the employee protection plan would eliminate the necessity of the consideration of employees' wages from any potential borrowing or lending activity. The fund would pay benefits to workers affected by bankruptcy within a matter of weeks. This would eliminate the long wait for money that employees endure as settlements wind through months and sometimes years of bickering and negotiations.

The Conservative Party has had a subcommittee dealing with this issue, with the encouragement of our leader. We have worked with actuarial tables and based estimates on foreign experiences in European countries.

We believe businesses drive our economy, creating good jobs, wages and benefits, creating wealth for our nation. We fund health care, social programs and other desirable public expenditures from that wealth. The Conservative Party is conscious of the protection of the Canadian wage earner within a balanced, productive business climate.

It is a matter of responsibility for us to create an environment in which personal dignity and a healthy society can thrive.

In summary, Bill C-281 is poorly drafted and unworkable, but because it is an effort to recognize and give greater protection to workers in bankruptcy, I will be voting in favour of it at second reading.

However, if the bill is not rewritten in committee to reflect the necessary changes I have outlined, I will not be able to support it at third reading.

[The Acting Speaker (Mr. Marcel Proulx)]

Before beginning today's private members' business, I have a short statement to make concerning the provisions of Bill C-281, an act to amend the Bankruptcy and Insolvency Act, the Canada Business Corporations Act, the Employment Insurance Act and the Employment Insurance Regulations.

As with all private members' bills, the Chair has examined this bill to determine whether its provisions would require a royal recommendation and thus prevent the Chair from putting the question to a vote at third reading. It has been the practice to raise such concerns about private members' bills before the House takes a decision at second reading.

Among other things, Bill C-281 proposes to give workers first priority to amounts owed them after the bankruptcy of their employer; to ensure that payments from a bankruptcy do not form part of employment insurance benefits; and to provide a procedure whereby employees of bankrupt companies can proceed with claims against the directors.

In this particular case, Bill C-281 contains one provision which appears to require a royal recommendation, that is, a provision which proposes spending that solely the Crown can recommend under our system of parliamentary government.

Clause 6 proposes to modify section 19 of the Employment Insurance Act dealing with deductions to benefits. The clause adds the following provision:

Payments made to a claimant out of proceeds realized from the property of a bankrupt or by the government of Canada or of a province in the event of a bankruptcy shall not be deducted under this section.

In other words, where currently amounts owed to workers form part of the calculations used to determine benefits, this bill would propose that they not be used for future calculations of those benefits. This would result in greater benefits being paid to claimants. Therefore, this provision authorizes additional spending, and such spending would require a royal recommendation.

In its present form, I will decline to put the question on third reading of this bill unless a royal recommendation is received.

Today, however, the debate continues on the motion for second reading as scheduled and the motion shall be put to a vote at the close of this second reading debate.

Airline Industry

[David Christopherson, NDP, Hamilton Centre, ON]

Mr. Speaker, that is ridiculous. Nobody is suggesting that at all.

Consumers are not the only ones devastated this morning. There are 1,350 Jetsgo employees waking up to find their jobs are gone and they have no protection for their pensions or wages owed.

Bill C-281, the NDP's workers first bill, is aimed directly at protecting vulnerable workers caught in exactly these tragic conditions. Will this government at the very least commit today to sending this bill to committee and prove to Canadian workers that their Parliament is working for them too?

Bankruptcy and Insolvency Act

[Marc Godbout, Liberal, Ottawa—Orléans, ON]

Mr. Speaker, the protection of wage earners when their employers go bankrupt is not a partisan issue, nor should it be. All of us in the House are concerned about this problem. We agree, I am sure, that wage earners, whose employers have gone bankrupt, leaving wages and other benefits unpaid, are vulnerable. Over the years, different governments have considered options for wage earner protection. Each option has both benefits and drawbacks. I am confident that members on all sides would like to see the most equitable solution possible and are prepared to work toward the solution.

I wish to congratulate the member from Winnipeg for having brought this to the attention of the House. As a starting point for this debate, let me note that the government agrees that wage protection is deserving of attention. I can also tell the House that the government is actively exploring options in order to deal with this important issue.

To better assess the bill, let me describe the features of the current act. To protect employees, the Bankruptcy and Insolvency Act makes employees preferred creditors when their employer goes bankrupt. That places them ahead of ordinary creditors but behind secured creditors. This preferred status is limited to $2,000 in wages earned in the six months before bankruptcy, including vacation pay. Amounts in excess of $2,000 remain as ordinary claims. It also protects up to $1,000 in disbursements for sales people.

The provision for wage liability also exists in the Canada Business Corporations Act. Right now directors of corporations are jointly and severally liable to employees for six months wages in the event of a bankruptcy. This is an absolute liability.

Bill C-281 would radically alter the situation. It fails in some ways to reflect the many other parties in a bankruptcy. Bill C-281 proposes to give unlimited super priority protection to all employment-related claims. In addition to wages and vacation pay, it would add termination and severance pay and other benefits. It would also add protection for pensions, including unfunded liability. In that respect, I personally have some sympathy for that aspect of the bill.

Upon bankruptcy, these claims would be moved ahead of all other creditors. For any shortfalls in recovery, directors of a company would have personal liability that would be determined, not in court but by an adjudicator, without right of appeal.

There are a great many drawbacks to this bill.

The amount of the termination and severance pay and unfunded pension plan liability could far exceed the total wages owing, potentially reaching several billions. As a result, this super priority will, without a doubt, have a negative impact on credit availability and commercial loan rates, which will make business start ups or expansions more difficult than ever, in a number of situations.

As for the clauses relating to directors' responsibilities, the bill does not add very much, except to set in place a parallel system without some of the usual recourses. Regardless of cost, the standard of rigour imposed by absolute liability would justify the existence of guidelines compatible with formal legal procedures.

Bill C-281 puts pension claims in the same basket as wage claims, despite the fact that pensions are covered by separate legislative regimes, and in a number of instances by provincial legislation. Mechanisms making it possible to address pension issues are already in place in these forums, and concerns relating to unfunded pension liabilities should be raised there to ensure employee protection.

Finally, even with this type of protection in place, payments would not be guaranteed, nor would they be made promptly. Many stakeholders maintain that the promptness and certainty of payment are essential to worker protection. Creation of a wage protection fund is one valid option, which merits a thorough study, along with super priority and other factors.

The significance of this bill is that while it does go a great deal further in protecting workers, the scope of what it includes shifts an unreasonable burden to other stakeholders. As a result, it could have a detrimental impact on the ability of businesses to access credit and increase employment opportunities for Canadians.

This is not what our insolvency system is about. Bankruptcy laws are a significant part of our marketplace framework. The bill would have a negative effect on commercial activity. Creditors grant credit based upon the assessment of risk. Bill C-281 would significantly increase that risk. While some of the creditors who may be adversely affected are those often thought of as being able to take care of themselves, such as large institutions, some are individual contractors and small businesses that are no better able to face the loss than employees.

In fact, small businesses and new start-ups are two of the most vulnerable groups when it comes to insolvency because they are hit twice. As creditors, they cannot afford the greater losses that the bill would cause. Greater costs of borrowing as debtors makes it less likely that they can get started and thus create jobs.

We must be mindful of these effects, as we all know the importance to the Canadian economy of small and mid-sized enterprises.

Our system must respect the risks taken by small businesses and independent contractors that also have claims in bankruptcies. It must respect the security interests of creditors. It must respect the efforts of directors who try to ensure the survival of the company. And yes, it certainly must respect employees. The fact is that bankruptcy is about not having enough money to go around. The issue is how best to allocate that shortfall when everyone deserves to be paid.

I am not saying that superpriority should be rejected as a way of handling wage and pension contribution claims in bankruptcy, but I am stressing that it is a complex issue, that it has a long history and that it involves certain trade-offs. The economic effect of any change needs to be thoroughly considered.

Last year, the Senate Standing Committee on Banking, Trade and Commerce conducted a comprehensive review of our insolvency system. The committee only went so far as to recommend that the existing protection be elevated to a limited superpriority over some assets. It further recommended that pensions not be included in this form of protection and in that aspect I think it did not go too far.

To conclude, I have sketched out these details to make a simple point clear to my hon. colleagues of various stripes.

My point is that this whole issue of wage earner protection in the event of a bankruptcy is of great interest and must be addressed. However, to find a fairer solution than what currently exists will require a great deal of work and thought. The process is already well underway but is not yet complete. The solution put forward in Bill C-281 is neither practical nor reasonable in certain circumstances, because of its impact on other stakeholders.

As I indicated at the beginning, this is not a partisan issue. Different governments have been confronted with this issue, which must be resolved. In 1991, a bill was introduced to establish a wage claim protection program to be financed through payroll, but it was not passed. There are various models for increasing protections, and these were discussed during the period before the amendment of the Bankruptcy and Insolvency Act in 1997. But once again, consensus could not be achieved.

Still, and I stress this point again, while Bill C-281 is certainly well intentioned, it is definitely not the best solution.

Industry Canada is currently working on developing a fair solution to ensure the protection of workers whose employer has declared bankruptcy. Until such time as this work is complete, the government cannot support a bill to amend existing safeguards.

However, I give my personal pledge to work with my hon. colleague to find a solution that is fair to all those involved.

[Carole Lavallée, Bloc, Saint-Bruno—Saint-Hubert, QC]

Mr. Speaker, I want to thank my colleague from Winnipeg Centre for having introduced Bill C-281. As I have already said elsewhere, if he had not introduced it, I would have been happy to do so in my capacity as Bloc Québécois labour critic.

There is no point in repeating that the Bloc Québécois supports the bill in principle. Obviously, employees normally have no way to protect themselves when their employer experiences financial difficulties. Unlike financial institutions, which have more than one source of income, employees do not have the same ability to absorb a loss of income for hours they have already worked.

Obviously, it is difficult for employees to assess the risks of working for a particular company. When an employer has financial problems, its best resources may decide to leave to avoid losing any income, which would further decrease the employer's chances of resolving his problems.

I want to reiterate the commitments the Bloc Québécois made during the last election campaign. The BQ committed to proposing amendments to the Bankruptcy and Insolvency Act so that the wages and pension funds of employees would be the first debts paid if a company went bankrupt.

The current situation, as we know, is inadequate. Under the current legislation, an employee who has worked all his or her life for the same firm can end up without any income if that company goes bankrupt. The employee loses not only future salary income, but also all contributions to the company pension plan.

For example, in 2003, the workers and retirees of the Canadian Steel Foundries in Montreal found themselves with an unfunded pension fund when the foundry closed. In that case, the guaranteed creditors were owed $5 million, which left nothing to pay for the system's unfunded liabilities, such as the pension fund, amounting to $260,000. The employees' pension benefits were reduced but the bank was able to recover its $5 million.

The Bloc Québécois voted in favour of a motion brought before the House by the NDP in October 2003, asking the government to amend the Bankruptcy Act to ensure that the wages and pensions of employees would be the first debts paid in case of bankruptcy. Unfortunately, the Liberal Party voted against that motion and the bill was not passed.

Today, as I said, the Bloc will vote in favour of this bill but during the adoption process, it will propose certain amendments. For example, the Bloc will propose the creation of a fund to guarantee pension benefits, which could provide protection to participants in pension plans that are unfunded when the business closes. Such a fund exists in Ontario.

The wage guarantee has not been changed since 1975. The $2,000 amount would be equal to around $7,300 in 2004 dollars, according to the Bank of Canada's conversion as of December 3, 2004. It should be increased and indexed.

The fact is that the rights of creditors and the rights of workers are seriously out of balance. Secured creditors are usually the ones who can forgo that guarantee, that is, they can survive financially without a guarantee.

Creditors at the top of the list, financial institutions and large suppliers, have the expertise not only to assess a company's risks, but also to create a guarantee in a legal context. In contrast, employees do not have the opportunity nor very often the information they would need to obtain any guarantee that their hours of work will really be rewarded.

Employees cannot easily absorb a loss of income, unlike financial institutions that have several sources of income.

Even though the proceeds of their activities might be higher than wages, financial institutions diversify their risk, which a regular employee cannot do.

Thus, by giving first priority to unpaid wages, Bill C-281 would reduce the burden on an employee who has just lost his job and, need I remind you, would be a better social measure.

It is important to note that there is no guarantee employees would receive the full value of their unpaid wages, since the amount paid would depend on the value of assets being liquidated. Nonetheless, the money paid back would be even less if we kept the current system.

Some have said that making unpaid wages a first priority might inhibit the borrowing capacity of the companies, particularly those with a very large payroll. Some also say that the rules for borrowing could become stricter and that interest rates could increase if lenders no longer had priority status.

In response to these arguments, let us remember that financial institutions broadly diversify their risks and that wages are often much lower than capital costs.

These days, pay day is usually every two weeks, which greatly limits the risk of having huge amounts to pay in wages.

Passing this bill would shake up the bankruptcy and insolvency rules and standards, which have for too long gone undisturbed.

However, this restructuring is more than necessary, since the business world is constantly changing and workers can no longer be so sure about the future of the companies that employ them.

It is wrong not to ensure a minimum of protection for workers' wages and certain benefits, such as the pension funds they contribute to their entire lives while their employer has enjoyed profits.

To those who claim that amending the act will cause major problems for companies in terms of financing, they should never forget that the operation and success of a company depend in large part on its workers.

It is unthinkable that in the quest for profits and the lowest possible operating costs, we are failing to show due respect for workers.

[Ed Komarnicki, Conservative, Souris—Moose Mountain, SK]

Mr. Speaker, I would like to make some brief remarks with respect to Bill C-281.

There is no question that when it comes to protecting the rights of workers and their wages and salaries, every member of the House would agree that those are important issues which need to be addressed. Workers need to be protected. We have many human tragedy stories that would indicate people have suffered through loss of pensions, entitlements or severance pay. It is not a question of whether those rights need to be protected. The big issue is how they are best protected without creating problems in other places and with regard to other interested parties.

There are obvious examples in a bankruptcy of people who have to take economic loss. Many suppliers are even below the worker in terms of unsecured status. They too suffer significantly.

When a business comes into being, there are many dreams, aspirations and hopes by many parties. Fundamental to getting that business started is the ability to raise capital and operating funds to buy inventory, goods and supplies and to have the plant and the process operate. Most people would go to banks, credit unions or third parties to obtain finances to get their businesses started and to establish those jobs in the first place. Those parties provide funds in return for security. It could be hard assets, inventory or floating charge debentures, but they take those things in exchange for providing cash. They expect to realize on that security. That is why secured creditors have been given preference.

I find it hard to understand how employees are in a situation where pensions are unfunded to the degree they are without some policing taking place. The one who provides the funding expects to get the cash back when the business fails. If we start to destroy the concept of secure transactions, we will be unable to start businesses and create the jobs. We need to be careful.

When we look at the scheme that presently exists under section 36 of the Bankruptcy Act, secured creditors are first, then preferred creditors and outside of bankruptcy fees and costs, the workers are number four. Then it goes to unsecured creditors. Workers are protected to the sum of $2,000 in past wages.

The previous bill introduced by the member talked about super priority status for workers, and it was limited to $10,000. Why was it limited to $10,000? It was for good reason. It is hard to estimate or understand the amount and value of unfunded pensions, et cetera. The present bill places the workers ahead of all creditors, regardless of time and dollars. How is a person, who is advancing funds, to know what these liabilities may be?

If this bill were passed, there would be severance, which would depend on the length of time the worker was employed. There would be unfunded pensions. A lack of money in the pension fund could be created by it being actuarially unsound by the economic conditions, or by perhaps negotiations through collective bargaining agreements that would enhance the pension which has not yet been funded or to which no contributions have yet been made. These amounts could be huge, but unknown at the time the business started up and unknown at the time the financing was advanced. The only thing that can happen is they would have to plan for a contingency. They would have to plan for what the eventuality may be, which would then restrict credit, lower the amount that could be loaned or increase the interest rate.

This is not the way we want to go. This is not the way we want to deal with business, taking the problem from one area and placing it in another, particularly when the secured creditor has little to do with funding pensions and policing how that happens.

We must look at other alternatives that would preserve the current lending system and that would look at protecting the workers. I think that is a valid concern.

It is interesting to note that workers in other jurisdictions, the United Kingdom, the United States and Australia are not given a super or high priority status over secured creditors. They have considered something akin to a worker's protection fund where there is a contribution from the employer, the employee and perhaps from the government. These funds are then used in part to protect workers. It is funded by the people who are affected and the people who have some control of the government.

In each of the jurisdictions they have limitations, so there is some certainty as to what is involved. The United States has put a cap in dollars but has given them a preferred status. It is those kinds of options that need to be reviewed. These are options that take into account the rights of the workers and the security of the market. They ensure that trade and commerce can continue, that we are able to do business as we have known business to be done, and it does not take a resolution that resolves one problem and creates another.

It is for this reason that I feel this particular bill ought not to be approved. It should be opposed. We should look at a bill, introduced in proper time, that takes into consideration all of the stakeholders, all of the parties that are involved, and addresses the issue fairly and into the future.

It is not something we can resolve in what is happening today in a particular situation. It is what we do to resolve an industry issue that is of concern to us. We need to address worker protection. We must address the issue of pensions. Some of that may need to be addressed through pension legislation separate and apart from the bankruptcy legislation. In any event, it must be a broader perspective. It must have a broader view. It must take all of the interests into account when it is being drafted.

[David McGuinty, Liberal, Ottawa South, ON]

Mr. Speaker, it is a pleasure to respond to Bill C-281. I congratulate the member for Winnipeg Centre. There is no doubt that wage earners need protection when their employers go bankrupt. Everyone in the House is concerned about this problem and has been for a long time.

Over the years different options for wage earners' protection have been considered. They have been considered here and each with its own benefits and drawbacks.

I would like to offer up some comments as a former unionized worker, as a former small businessman and as a recovering corporate lawyer.

In examining the various options, one question has to be answered and it is this. Is this approach fair to all parties? Make no mistake, bankruptcy means there will be a shortfall and not all debts will be paid. All parties suffer in a bankruptcy, including employees, creditors, suppliers and the owners of the company.

Our challenge here is to find the proper balance in the protection of these various interests.

While it is difficult to say that the protection of workers, the backbone of our economy, can go too far, I believe Bill C-281 does just that. It goes too far. The bill throws all balance and equity out the window. It represents a radical departure from the existing system, one that if adopted into law, could have a dramatic effect on the economy and the very workers that it seeks to protect.

Let me explain. The solution proposed in Bill C-281 is straightforward, an unlimited super priority for all employment related claims to all of the assets of the bankrupt company. In addition to wages and vacation pay, it would add termination, severance pay and other benefits. It could also add protection for pensions, including unfunded liabilities.

The liabilities, in particular the unfunded liabilities, can be huge, outstripping the value of the company's assets and the company's ability to pay.

Due to the magnitude of the super priority contemplated in the bill, it could have serious effects on credit and capital access, particularly for higher risk new businesses, particularly high technology companies, over 1,500 of which exist, for example, in my region here in the National Capital region.

Creditor claims, even those that are secured under the appropriate law, would fall below employment related claims. If all the company's assets go to satisfy worker claims, there would be nothing left to pay remaining creditors. Creditors would be less certain about their ability to collect debts owed to them and it could be assumed would be less interested in investing in Canadian companies.

We must also consider smaller creditors, such as trades people and suppliers. These individuals are in many cases no more capable of protecting their interests than workers. Small businesses and independent contractors take risks when they supply other companies, and our system must respect their efforts as well as their claims in bankruptcies.

Again, we come back to the issue of balance. The underlying factor is that disharmony in the system will have potential economic costs. If credit is not available, businesses will not expand and they might even contract. If business does not expand, new jobs are not created and labourers will see less demand and less opportunities for their services.

The protection of wages must not be examined in a vacuum. Insolvency reform cannot eliminate risk or harm. It should strive to strike the best possible balance of the needs of all parties in a bankruptcy proceeding. The fact is that bankruptcy is about not having enough money to go around. The issue is how best to allocate that shortfall when everyone deserves to be paid.

Bill C-281 does not strike the right balance. It attempts to benefit one group in the equation, while placing an unfair burden on the others. To be sure, the super priority proposed by the bill is not the issue. Indeed, it might be a proper approach to take, but the balance proposed in this bill is off.

It is the position of the government that finding the right balance will require additional study. Reform in this area should wait for the results of the Industry Canada review of this and other insolvency related issues.

I would like to address one other element of the bill that has not received enough attention. The proposed bill also amends the Canada Business Corporations Act. I would commend to my colleague, the member of the NDP, to listen and learn carefully about how the Canada Business Corporations Act actually grants the minister of labour the power to appoint an adjudicator to hear and resolve wage claims by employees.

While it can be appreciated that everyone's best interests are served when claims of this sort are settled quickly, it is unclear as to why the bill would replace the courts as the mechanism for settling these disputes.

The Canada Business Corporations Act already has provisions for wage liability for directors. Right now the directors of a corporation are jointly and severally liable for six months of wages owing to employees in the event of a bankruptcy. This is an absolute liability. There is no statutory defence. These claims, even in a moderate sized corporation, can achieve sums in the millions of dollars.

The courts already have the expertise to deal with large claims of this kind. The small claims courts can deal with situations that involve only a few employees. In any event, given that wage liability is absolute, all that remains for a court to do is satisfy itself that the claim is valid and order the payment. The bill adds little except to set up a parallel system without some of the usual due process rules, including a specific prohibition of a right of appeal. Due process in my estimation should not be capriciously discarded. Despite the cost, the rigorous standard created by an absolute liability offence justifies having the safeguards consistent with a formal court proceeding.

Under the provisions of the bill, the adjudicator may summon and enforce the attendance of witnesses, compel testimony, compel the production of documents, administer oaths and order directors to pay employees the wages owing. This sounds like a court to me. Substitute the word judge for adjudicator and we have a system very much like that which currently exists, and one that operates transparently, fairly, and without the additional layers of bureaucracy. I see no need for these provisions.

The government agrees that wage protection is deserving of attention and is actively exploring the options to deal with this important issue. The solution put forward in Bill C-281 is neither practical nor reasonable, insofar as its effects on other stakeholders. It ignores the concept of balance. It favours one group to the exclusion of all others. It ignores the economic impact of unlimited super priority. It ignores the interests of the many creditors, both large and small, who by taking risks and supporting Canadian business, allow our economy to flourish and allow so many of the hundreds of thousands of jobs to be created in the first place.

[Pat Martin, NDP, Winnipeg Centre, MB]

moved that Bill C-281, an act to amend the Bankruptcy and Insolvency Act, the Canada Business Corporations Act, the Employment Insurance Act and the Employment Insurance Regulations, be read the second time and referred to a committee.

Mr. Speaker,it is a great honour for me to speak at second reading of the bill I introduced, Bill C-281. I would like to begin by recognizing the contribution of my colleagues in the NDP caucus in the development of the bill, first, my seconder, the member for Hamilton Centre, who was instrumental in developing the content of the bill to the form it is in now, and second, my colleague from Ottawa Centre, who brought forward recommendations regarding the bankruptcy laws as they affect workers and employees in this country. I want to recognize and thank both of these colleagues for their contribution.

Every week in this country there are roughly 200 commercial bankruptcies, 1,000 bankruptcies a month, and roughly 10,000 bankruptcies per year, many of which leave behind employees who are owed back wages, benefits and pension contributions. The total figures we can only estimate. Over $1 billion per year is a figure that has been used.

It is workers who pay the price when workplaces shut down. This is especially true when these shutdowns are triggered by bankruptcy, because not only do the employees lose their jobs and their source of income, they also often lose wages that they have not been paid, as I have stated, and vacation pay, termination pay and severance pay.

The reason for this is the order of priority in which employees find themselves when it comes to the distribution of the proceeds of the remaining assets of the company. Workers find themselves at the bottom of the list. I argue that today in the House of Commons in 2004, the members congregated here should be putting workers first in the event of a bankruptcy.

My bill simply reverses the order of priority. Back wages and benefits owing to employees would be ranked at the top of the list when it comes to the distribution of the remaining assets. I urge colleagues to remember or to at least contemplate that big money has controlled things in Ottawa for so long, in my view, that it is no surprise that many of the laws are crafted in such a way as to look after the interests of big money better than they look after the interests of ordinary Canadian voters.

Working people in Canada send us to Parliament to put their interests first, I argue, and in this case, this is one thing we could be doing to look after the interests of Canadian workers as a prime concern, as a priority, by putting them first in line in the event of a bankruptcy.

Parliament has tried to address the inadequacies of the bankruptcy act a number of times in recent years. I am the first to acknowledge that both the House of Commons and the Senate have been seized of the issue and I think this illustrates a growing awareness in Canada that the bankruptcy laws are in fact unfair to workers or at least do not recognize their unique status in the event of a bankruptcy.

When I argue about putting workers as the first priority, we have to view workers who are owed back wages as creditors. I think there is a case to be made that if the company has been operating on or using back wages owed to employees to operate the company, the employees are in fact creditors. Maybe they are creditors against their will in that they certainly did not give any approval to use the back wages and pension contributions to operate the company, but that is in fact what they are.

This is what we are asking members of Parliament to recognize. Employees are justified in being viewed as creditors in the distribution of the assets. In fact, we are asking Parliament to entertain the idea that they should have superpriority, because the other aspect we should acknowledge is the unique trust relationship that exists between the employer and the employee.

Banks, should they take some loss in the event of a bankruptcy, are in that business, we argue. They mitigate that loss by charging interest rates throughout the period of the loan. Even if the order of priority were reversed and employees were paid first, our research shows that the banks would still get most of what was owed to them. They would not lose all of it if some went to workers. The inverse is true, too, in that employees are vulnerable creditors, more so than the banks or the other lenders because they cannot spread that risk over a number of investments. All of their eggs are in one basket.

In the case of a bankruptcy, it is not just the back wages and benefits that are left owing. More often than not in recent high profile bankruptcies, it is the contributions to the pension plan that have a lasting effect, with an underfunded plan leaving employees with far, far less for their monthly retirement than they had earned and were led to believe they would receive.

All of those points add up to a compelling case that the current Bankruptcy and Insolvency Act does not serve the interests of Canadian workers-Canadian voters as it should. We in the House of Commons should put as a priority the best interests of workers and employees, not the best interests of banks and financiers who would object to this reprioritization.

We tested the views of the Canadian public. I brought with me the results of a Vector poll that we conducted with the cooperation of our partners in the labour movement, specifically the United Steel Workers of America which represents a number of workplaces that have been affected by bankruptcy recently.

This nationwide Vector poll of 1,200 Canadians, conducted with what is called a plus or minus accuracy of 1.9%, asked the following question: “Under current laws usually a bankruptcy pays its debts in this order: first, taxes, followed by the banks and other lenders, suppliers and then employees. Do you think the current bankruptcy laws are fair or not fair to employees?” Eighty-four per cent of Canadians said that the current situation was not fair to employees.

When asked a more specific question: “Sometimes bankrupt companies do not get enough money from selling off the assets to pay everyone. Under the current laws, the first to be paid are secured creditors and lenders who have a guarantee. Employees, however, are not secured creditors and may not get the wages owed to them when a company goes into bankruptcy. Should the law be changed to provide more protection for employees' unpaid wages?” Eighty-nine percent of Canadians across the country said that the law should be changed so that it provides more protection for employees' unpaid wages.

I would think that if there was any need for further argument in the House of Commons or any question of whether this is the political ground that the government wants to take, this should give it some comfort that this is what Canadians want it to do.

I welcome any other polls to this effect but I challenge anyone to show us results that are dramatically different from what we have demonstrated here today.

Canadians want a fair shake for employees. We want to put workers first. This after all is the House of Commons and it is not called the House of Commons for nothing. This is where common people send their representatives to make laws that work for them. It is as simple as that.

Lobbyists for the financial interests have been so prominent that laws have been crafted in such a way that they do not look after our concerns any more, at least not in this one example of the Bankruptcy and Insolvency Act.

Bill C-281 would do three things. First, it would reverse the order of priority to put employees first in the distribution of the proceeds from the assets of the bankrupt company.

The second thing it would do, until we can add more fairness to the bankruptcy laws, is it would change the Employment Insurance Act. If employees were laid off due to a bankruptcy and were collecting EI, if they received some settlement for back wages owed to him, those back wages would not be viewed as income in the period of time they were collecting EI. If the wages were, they would be deducted dollar for dollar from their EI payments. Seeing as they earned those wages while the company was still open, those earnings when paid later on should not be viewed as income for the purpose of EI. This is a consequential amendment to the principle and the concept of what we are introducing.

Third, the bill would change the Canada Business Corporations Act to provide a more efficacious procedure by which former employees of a bankrupt corporation who are owed wages by the corporation can proceed with claims against its directors.

In other words, under the current law if the proceeds of the bankruptcy are not adequate to pay for the back wages and benefits, the employees are currently allowed to sue the directors of the corporation to make up for any shortfall. However the process is tedious. It can take years, and not all the employees involved have a union to advocate for them. The bill would expedite that process. The employees could still make a claim against the directors for any shortfall but it would be expedited by an arbitration board or tribunal which could fast track the claim against the directors.

The key principle I ask members to please keep in mind is that what we are trying to do is rejig the order of priority whereby employees would rank first in priority and not at the bottom. Canadians want this and expect it. When members of Parliament are given the opportunity they should be fighting for the little guy, speaking out for the person who is left in the wake of these corporate decisions that are far beyond their control or input.

We can point to dozens of recent examples of Canadians who have been impacted. When there are almost 10,000 commercial bankruptcies per year in Canada there is no shortage of empirical evidence to point to and to draw from. In one recent example in the province of Ontario, 1,300 unionized employees with Ontario Store Fixtures lost their jobs because of bankruptcy. Even though another company restarted the business for a brief period of time it too filed for bankruptcy. When the dust settled in that, over 1,200 employees had lost their jobs. They are owed roughly $12 million in back wages and benefits.

In the case of Ontario Store Fixtures, no money was in the bankruptcy estate to pay for any of these claims. Guess who got paid first? Any cash that was available at the time of the first bankruptcy went to the company's banker, CIBC. Assets from the auction of the property of the second bankruptcy automatically went to other secured creditors, who in this case were the shareholders of the Ontario Store Fixtures partnership.

Virtually everybody received their money except for the actual employees of the company. I ask my colleagues to consider the ancient trust relationship that exists between the employer and the employee.

I, and many people with whom I have spoken, would like to think that whatever assets remain after a bankruptcy and after the owners have walked away, that the company would like to see that money go toward paying some of the wages it owes its employees and then whatever is left could be distributed among other creditors on the list.

This is an idea whose time has come. In the interest of fairness and on behalf of Canadian workers everywhere, I urge my colleagues to allow the bill to pass at second reading and go to committee where we can give it a more fulsome review, submit amendments, craft it whichever way we want as long as the end result is that our number one concern is to protect the interests of employees in the event of a bankruptcy. We must put workers first.

[Pat Martin, NDP, Winnipeg Centre, MB]

moved for leave to introduce Bill C-281, an act to amend the Bankruptcy and Insolvency Act, the Canada Business Corporations Act, the Employment Insurance Act and the Employment Insurance Regulations.

Mr. Speaker, my colleague, the member for Hamilton Centre, and I are proud to introduce legislation today that would provide, in the event of a bankruptcy, that any back wages, benefits or pension contributions owing to employees would rank first in priority when distributing the assets of the bankrupt company, not at the bottom of the list as is currently the case. The bill puts workers first in the event of a bankruptcy.

It is also necessary to make consequential amendments to the EI Act so that benefits from the distribution of the assets of the bankruptcy are not clawed back as income from EI benefits.

The third element of the bill expedites the process by which employees can seek redress from the directors of the company should there not be enough remaining assets to distribute to make up the back wages, benefits or pension contributions.

It is an important bill. There are 10,000 bankruptcies a year. This is on behalf of Canadians and putting workers first in the House of Commons.

(Motions deemed adopted, bill read the first time and printed)