Bill C-501 (Historical)

An Act to amend the Bankruptcy and Insolvency Act (termination and severance pay)

This enactment amends the Bankruptcy and Insolvency Act to ensure that the claim of a clerk, servant, travelling salesperson, labourer or worker who is owed termination and severance pay by a person is secured as of the date of the bankruptcy or receivership by security on the person's current assets.

[Jack Walsh]

Just to finally wrap up, our pensioners and their widows from these companies I outlined to you are very deeply concerned about the pension scenario as it's developing in this country. They also are aware of the critical role that getting Bill C-501 right could play when other companies start to hit the wall, which I'm sure is going to happen over the next couple of years. We haven't seen the end of this Nortel kind of scenario. That's one thing we all have to be concerned about.

We thank you legislators, first of all, for listening to us. This is kind of rare. Normally, pensioners are completely ignored, so it's good to see that parliamentarians are finally saying that they want to listen to the people who are being affected. That's terrific, but we look forward to you really pushing and getting Bill C-501 right so that we can go back to our people and tell them that we're on the right track and that this thing is going to get fixed.

[John Rafferty, NDP, Thunder Bay—Rainy River, ON]

Things have, in your case, wound up, and Nortel is very far along.

I just want to clarify for everybody in the room here that no one, neither the Liberal Party, the NDP Party, me, my staff, or anybody else, has ever said or made any promises that this is going to help your cause. That's just so we're clear, because there seemed to be quite a few questions about it. I just wanted to be sure that everybody is on the same page.

I would like to continue that line of questioning.

Mr. Walsh, that was the first time you had to chat. I'd like to give you a moment extra.

Mr. Hilton and Ms. Clark-Stewart, I'd also like to give you a chance to speak. Do you have anything further to say to this committee or to your individual MPs who are not here today about Bill C-501?

Mr. Hilton, go ahead.

[Serge Cardin, Bloc, Sherbrooke, QC]

Given the current economic situation, funds are not performing that well, so there isn't likely to be much of a surplus. We witnessed what happened during the financial crisis. You depend on company management when it comes to pension funds. Pension fund managers and the large financiers are also part of the equation. We've only to recall the negative impact of asset-backed commercial paper on many people. So, there are a number of Canadian pension funds that are very close to being in the red if they are not already.

You talked about the consequences for Nortel. Let's imagine that Bill C-501 had been implemented. You feel that $200 million should have been contributed to the Nortel pension fund as privileged debt. Is that right?

[Judy Sgro, Liberal, York West, ON]

Thank you all very much for being here. I'm very sympathetic to your cause, to all of you.

You talk about pensioners having no other options. I think bond holders have lots of options, and other people have lots of options. But pensioners getting caught in this bind don't have any options, or have very limited options. I think we have been trying to find ways to address this issue.

I have a couple of straight questions. By the way, in the white paper I just recently released, which has 28 recommendations, most of those are up front, not at the end. If those changes were to be introduced and become part of government policy, I would hope they would go a long way toward preventing many other people here in Canada from having to undergo the terrible status that many of you from Nortel or otherwise have gone through.

The issue before us here is Bill C-501. Sadly, the bill is flawed, and there are some serious problems with it. It's not going to help the Nortel people, as you've indicated, which is very sad, because I believe many of us wanted it to. But the other thing is that Bill C-501 helps only with special payments. We heard this morning that there would be a major financial crisis throughout this country and so on if Bill C-501 were passed. Bill C-501 goes only to those special payments that are announced, let's say, in June when insolvency is announced until the time that the bankruptcy is finalized. The special payments for six months or eighteen months is all this bill addresses.

One of the gentlemen this morning said that it wasn't clear enough. Everyone I have consulted says it's very clear. This bill—Bill C-501—only handles special payments. So maybe it's two years maximum until insolvency is finalized, but that's all it does. So the sun isn't going to fall out of the sky tomorrow. This is giving a little bit of protection—that's all it's doing--but we're trying to find ways of making a little bit of protection out there to help a few people.

Don or anyone who wants to can comment. How familiar are you with this? And do you realize that this covers only special payments?

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

I will, Chair.

I'll just assure Mr. Wallace I wasn't going to ask that question, but I'm glad he's clarified it for the committee.

Mr. Sproule, my party has made a number of recommendations, and my colleague Judy Sgro, who is our pension critic, has made 20 recommendations. I acknowledge what has happened to you and Nortel pensioners as something that has certainly seized Parliament and has created a lot of attention for us here, and we do want to try to find a way out of this. We know that the Supreme Court of Canada several times has said that retroactive changes to pensions are not possible. Each and every time a request has come, they have struck it down.

If you're looking for a modification, how would you go about it? We need the silver bullet here. We need your help. How are you going to be able to do this? You've suggested that the approach of Bill C-501 misses the mark. It goes for a super-process. You're looking for just the preferred status. Mr. Sproule, how do we do it?

[Donald Sproule]

Thank you, Mr. Chairman.

Let me begin with where I will end in five minutes. Since the spring of 2009, our Nortel group has been asking for pension deficits to receive preferred priority status, not the super-priority status as currently tabled in Bill C-501. We want pension deficits to be at the front of the line of unsecured creditors.

I'm a Nortel pensioner with 27 years of service. The NRPC, my organization, was formed in January of 2009 to protect the interests of some 20,000 former employees and pensioners who would be affected by this bankruptcy. We now have 8,200 paid members in our group, despite having to find people who were ill and unable to access e-mail. Basically, we've reached out as well as we can to that pensioner class. Within that group, there are some 11,700 pensioners in pay, with an average age of 74 years. I'm one of the younger guys, and that's why I'm here; I have the energy to do it.

The average pension is $17,500. It is not a gold-plated pension by any standard. In addition, our retirees have been receiving health and life insurance benefits from the corporation. For the past 22 months, we've all been receiving 100% of our pensions and benefits.

Here is where I have to stand up and feel like the ghost of Christmas future. I know what's going to happen to the Nortel pensioners. First, at the end of this year our health benefits will be taken away. Second, some time early in 2011, the pensions will be cut back by 36%. There will be hardship for all Nortel pensioners, and poverty for some. A modified Bill C-501 could significantly improve that situation.

The assets of Nortel are being sold off. What we will get from them will be determined by how the global lockboxes into which all of the assets are going will be unlocked. The judges within the U.K., Canada, and the U.S. have to decide how to unlock them. We're going to get some money out of them, but we don't know how much or when. The problem, we think, is that the amount may be ten cents on the dollar—twenty cents on the dollar could be optimistic for us. But we're also appalled by the fact that the U.S. estate is probably going to get more than the Canadian estate. There's not much here to console Canadian Nortel pensioners who work in the service of a global Canadian company.

Again, we are looking at Bill C-501 as a mechanism to improve our lot within the Canadian estate.

To give you some idea of the magnitude of what's happening to the Nortel pensioners, approximately $1.5 billion in assets will be taken away from us, with $1.1 billion coming from the pension plan and another $250 million in lost health insurance. When you take into account the combined loss of pension plan and health benefits, we calculate that some people, especially those outside of Ontario who don't have the pension benefit guarantee fund, will suffer a loss of 45% of their income.

How did the pensioners get into this sorry state? Nortel faltered during the economic crisis and meltdown, and the pension plan was collateral damage. From 2006 to 2010, the wind-up rate of the pension plan went from 86% down to 64%. While it's harder to prove, we also believe that the bankruptcy was strategic and probably driven by the junk bond holders, who had no interest in the company actually resurrecting and restructuring itself. The gain of the junk bond holders would come on the backs of the pensioners. None of us pensioners—none of us, I repeat—ever figured out that we'd be in this situation. None of us ever thought that our registered pension plan was at risk. I had long discussions with our lawyer, saying no, this cannot be true, and he kept coming back and saying yes, it's true.

Let's compare the two competing classes of unsecured creditors, the bond holders and pensioners. Bond holders never want for sophisticated money managers. They negotiated bonds with a sophisticated corporation. The pensioners were not sophisticated, let me tell you. The bond holders can distribute their risk across many corporations, whereas the Nortel pensioners have all of their assets tied up in one single entity. Bond holders calculated the probability of Nortel going bankrupt—that's what it's all about—and they have many different instruments to manage their risk. The bond holders have cross-licensed their bonds between Canada and the United States, so if the United States estate paid out better, they'd do well, as they can double-dip in both estates. We in Canada are only dependent on what actually ends up in the Canadian estate—and it's a cash-poor Canadian estate, because we had the global headquarters and the global R and D, but none of the money.

The bond holders could actually buy credit default swaps and buy a form of insurance against a corporation going bankrupt.

Again, I have a list of many things the bond holders could do, but the pensioners were totally unprotected. So we never contemplated that we were going to go into default. In fact, our taking a pension was a form of risk mitigation: Would I live too long and not have enough money to carry into my retirement, or would I die too soon and my spouse not be looked after?

So our conclusion is that it is unfair and it's an uneven playing field when you pit pensioners against bond holders initially, and now against junk bond holders. That's why we're asking for Bill C-501 to provide preferred or higher priority to pensioners.

Thank you.

[Jim Cole, Vice-President, Fixed Income, Phillips, Hager & North]

Thank you, Mr. Chair and members of Parliament. I do thank you for inviting me to meet with you today.

I'm a fixed-income portfolio manger with Phillips, Hager and North Investment Management. PH and N has been investing in corporate bonds for over 25 years and currently invests approximately $18 billion in corporate bonds, many of which are held by defined benefit plans and other retirement vehicles.

We requested to meet with the committee today to express our views on the potential impact of Bill C-501 on credit markets, and we hope these comments will be helpful to the committee and all members of Parliament in considering Bill C-501 as a way to enhance the security of defined benefit pensions for Canada's workers and retirees.

The first point that we wish to make is that Bill C-501 has the potential to affect most of the significant issuers of investment-grade corporate bonds in Canada. Today 60 entities represent about 90% of the market value of all investment-grade corporate bonds outstanding; 54 of these issuers are corporations, and of those 54, 48 report having defined benefit obligations in their public accounts. The impact from a credit market perspective, therefore, is potentially broad.

Second, we believe the cost to existing bond holders and to the issuers of corporate bonds could be in the billions of dollars if unfunded pension obligations are given super-priority or preferred-creditor status. We estimate that existing bond holders could see the value of their investments decline by as much as $4.5 billion. Corporations will also face higher costs for new debt issues, and we estimate that these costs could be in the range of $7 billion to $17 billion. We do not expect these costs would be shared equally across the market. Corporations with large pension liabilities, particularly those with lower investment-grade credit ratings--triple-B, for example--and the investors in the bonds of these corporations are the ones that stand to be most affected.

Third, we believe there is a potential for perhaps unintended consequences that could result from Bill C-501. For example, some corporations could become at risk of a credit downgrade if unfunded pension obligations are given senior credit ranking in the event of insolvency. Credit downgrades increase the cost of borrowing to varying degrees, but as an example, a 150 to 200 basis point or 1.5% to 2% increase in the cost of debt would not be unreasonable for a triple-B rated company that is downgraded to below investment-grade status.

Corporations may also find that they're not able to raise debt when they most need to. Unsecured bond holders will be less willing to lend given a large senior claim that could rank ahead of them should the corporation default, or alternatively, they may demand a punitive interest rate on any new bond issues. Constrained access to capital markets could force more companies into bankruptcy.

I would like to conclude by saying that we do understand the importance of securing retirement benefits for Canadian workers and retirees and we appreciate the objectives of Bill C-501. We also believe that Bill C-501 will impact credit markets in meaningful and potentially unintended ways and we hope the committee will find our raising these points helpful to its deliberations.

Thank you for your attention, Mr. Chair and members of the committee. I look forward to answering your questions.

[Brian Rutherford, President, GENMO Salaried Pension Organization]

Thank you.

Thanks, Bob. And I thank the committee for seeing us.

I'm going to take a different twist at this. My name's Brian Rutherford. I'm the president of GENMO, which is an organization of salaried General Motors retirees. We formed and incorporated in 2009, when General Motors was in deep distress.

I will talk about the rights of deferred payment first.

Most business transactions have terms of payment, such as net immediate, net 25, net 30. Most of those terms of payment are deferred. The company I worked for had payment terms of second month, second day—there's a new one for you—that stretched the suppliers' payments to 45 days. As for the Companies’ Creditors Arrangement Act, or CCAA, these deferred payments only to suppliers are recognized. Suppliers are unsecured creditors. After their obligations owing to the secured creditors are satisfied, the unsecured creditors have the opportunity to receive payments for goods or services that they provided to the insolvent company prior to and during bankruptcy protection.

Employee pensions are a deferred payment. Employees have contracts with their employers. It is a legal understanding that as an active employee, you will receive an agreed-upon compensation at a set frequency. You're also earning a deferred compensation that you will receive at a future date. This deferred compensation is normally in the form of a registered pension plan. As for federal and provincial pension laws, the employer as the plan sponsor is legally obligated to ensure that the pension plan is adequately funded. A healthy pension plan fund should be in excess of 85% funding on a solvency basis.

The suppliers and their deferred entitlements are recognized in CCAA as unsecured creditors. Pensioners, at the very least, should be no different. This is just.

Current bankruptcy legislation does not reflect the unique circumstances faced by pensioners. In bankruptcy proceedings the pension plan solvency deficiency--that is, a shortfall of assets on the fund as compared to the liabilities of the fund--is treated as an unsecured claim. This claim is addressed after all super-priority claims, secured claims, and preferred claims have been met. After these claims, if there are assets remaining, pensioners must share the assets with the rest of the unsecured creditors.

Pensioners are unlike most other creditors. Other creditors can amend their business plans to help make up for the loss of compensation they had been expecting from bankrupt companies. Current employees have the potential for securing employment elsewhere, albeit with some challenges. Most pensioners have no opportunities. Pensioners have already lived their lives of employment, a life where deferred compensation was promised.

While the provisions of Bill C-501 would not guarantee the pension promised, they would be an improvement over the situation that pensioners face under the current legislation. It is more than likely that a pension plan is in distress in CCAA. Current legislation would provide no aid for the plan. Preferred status, if as amended in Bill C-501, could provide aid for the plan and vulnerable pensioners. Pensioners' rights should be no less than the rights of other creditors.

My own experience with GENMO: The General Motors of Canada salaried pension plan, as of the report of the actuarial valuation as of September 1, 2009, has 12,445 members, of whom 7,361 are retirees and beneficiaries. The average yearly pension is $22,007, which is fixed. The wind-up ratio of the plan was 5.99 at this point. A large portion of this deficiency was due to the Ontario government's 'too big to fail' legislation, which allowed the sponsor to underfund the pension on a solvency basis. Had General Motors of Canada followed its parent into bankruptcy, the value of the average yearly pension would now be $13,182. The current wind-up ratio is approximately 0.8. At this rate, the average yearly pension will be $17,606.

To make matters worse, there is an insufficient capacity in the Canadian insurance market to support the immediate purchase of annuities for all the plan beneficiaries who would want to retain the right to a monthly pension in the event of a plan wind-up. In bankruptcy, pensioners would lose all of their benefits, and that would be an additional financial burden. Most benefits are required, more so for the aged versus the young actives. For the current bankruptcy legislation, everything is stacked up against the vulnerable pensioner. There would be less income to support higher costs due to loss of benefit support and inflation. Independent and secured pensioners could now become a social and economic burden to society.

In conclusion, it is time for Canadian pensioners to enjoy similar protections for their pensions in bankruptcy as are enjoyed by pensioners in most developed countries in the world. Preferred status protection is the norm, not the exception. It is time that the Government of Canada passes legislation to protect pensions in bankruptcy. It is time for economic and social justice for Canadian pensioners.

Thank you.

[Robert Hilton, President, Canadian Federation of Pensioners]

I'll endeavour to do that.

I'm here today as the former president of the Hamilton Specialty Bar Slater Steel Salaried Pensioners Association to talk about Bill C-501.

I want everybody in this room to be fully aware that nobody from the Slater Steel group is going to get any benefit out of this, because our plan has been wound up. What I would like to point out is that when our plan was wound up, while the pension side of the plan meant I lost 23% of my income, when you add to that the compounding effect that I lost all of the benefits that I was supposed to get for life, the net effect is 35% of my pension.

Now, my pension was better than average within the company.

I'm also the president of the Canadian Federation of Pensioners, and as president of CFP I'm here on behalf of the 15 pension associations, with memberships exceeding 150,000.

We as a group certainly hope that all members of Parliament in attendance today are here with a truly open mind, even though my own MP has issued an e-mail that indicates that's not truly the case for everybody.

There are some people in this country who think that pensioners on private pensions are fat cats, or, because some are or were members of unions, they don't deserve any consideration. Neither comment is either correct or fair.

I'm going to provide you some simple statistics from the Bell pensioner association. They total some 32,000 members in their defined benefit plan. Their pensioners' average age is 68. Their average annual pension is the grand sum of $22,000. For the survivors, their average age is 74 years of age. Their average pension is less than $15,000.

So let's put a little bit of an equation there: take $15,000 and 10% is $1,500; 20% is $3,000; and 30% is $4,500. Now, for most of the people in this room, if your income dropped by $4,500, you would complain bitterly. But for those pensioners, if it dropped $4,500, they're in a disastrous set of circumstances.

And I might point out that the Bell pension plan is more generous than most.

I would also point out that our pension plans are nothing but deferred wages. And I can state that at one point in time, when the marketplace went south for steel, the company did not give out salary increases. They said to the employees, “We can't give out salary increases this year, but we're going to modify your pension plan and improve it a little bit.” That meant that they were giving a little bit, but they were delaying how they were having to pay it out.

Now, if you're protecting current employees at a certain level for that last little bit of their payments, their salaries, why should we be treated any differently? To do so is unfair. On that basis alone, we should in all fairness be granted “preferred” creditor status—and I read the word “preferred” as opposed to “secured” or “super-priority” for a very good reason. We certainly feel we should be ahead of the bond holders and the junk bond lenders or any unsecured creditors.

The other thing I'd like to point out is, as a member of a DB plan, there was a limitation that was placed on the amounts that we could contribute to registered plans, such as RRSPs. That limitation reduced the amount that we could have done compared to other people. Hence, if we're forced to take a reduced pension, then we're being victimized twice over: once on the pension itself and secondly due to the RRSP limitations.

I don't have to talk about what Diane Urquhart has said because she's been here today; you've heard it. Mr. Manley and his fellow CEO associates take exception to a lot of what has been said and they certainly would like to not change the plans. In fact, my MP has stated it could be as high as a 35% cost. Yet you heard this morning what Diane said. Interestingly enough, they haven't provided the studies that would say it would be much higher. Diane Urquhart has been very open about where her studies were done and how.

Preferred status is the norm in many countries. Yes, it's not the status in all countries, but in many of the countries where it is not the status there are other mechanisms put in place to take care of failed pension plans.

[Diane Urquhart]

Yes, I was a financial expert in the asset-backed commercial paper bankruptcy, which was the largest bankruptcy in Canada. It involved $220 billion of credit default swaps.

I have updated my analysis and have determined that there are $4.5 trillion of credit default swaps on the global junk bond market. There are only $2.5 trillion of junk bonds. The conclusion I reached is that credit default swaps are a form of insurance for the bond owners of the world. You can purchase credit default swaps, which have the impact that, should a company enter bankruptcy, you can get a cash settlement for all of the damage on the bond that the bankruptcy creates.

There is a serious problem in the bankruptcy laws of Canada and throughout the world, because there is no requirement to disclose your position in credit default swaps. You may be fully hedged or in fact short and yet drive a bankruptcy process.

The problem is this. In the 1750s you could buy insurance on ships you didn't own. Needless to say, many ships sank in the oceans. The reason for having this insurance is that you could collect on the insurance of the sinking ships and were able to make substantial profit. Exactly the same is happening today in the credit default swap markets affecting junk bonds.

We believe that if there isn't change in bankruptcy law, the credit default swap has the impact of substantially increasing the frequency of bankruptcies. It also has the impact of creating liquidation of companies without any effort to continue as an ongoing concern, which is what we saw in the Nortel case.

If we don't adopt Bill C-501, we have a situation in which more than twice the value of the junk bonds of the world is covered by credit default swaps, the impact of which is that you get to receive a cash settlement, you get to keep the bonds, you get to take the billions of dollars out of the obligations to top up the pension fund, the consequence of which is that you make a higher profit as a result of the bankruptcy and that you prefer a liquidation.

If we do Bill C-501, we believe it will be the stick that ensures you do not want to liquidate, because if you do liquidate you have to owe up all the billions that are owed. You would rather restructure.

So I have the opposite opinion from the council of CEOs.

Thank you.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

If the federal government were to take responsibility for pension plans, as Quebec has done to avoid pension funds being liquidated, do you think this move would provide better protection for retirees than that provided under Bill C-501, which is currently before us?

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

Thank you.

If the federal government were to take responsibility for pension plans, as Quebec has done to avoid pension funds being liquidated, do you think this move would provide better protection for retirees than that provided under Bill C-501, which is currently before us?

[Douglas Rienzo]

I understand what you're saying and I understand that it could be interpreted to just apply to those payments, so there are two other concerns there. First of all, Parliament is already passing Bill C-9, which deals with other ways to strengthen the pension system, at least on the federal level.

There's a provision the bill which provides that if a company becomes bankrupt, then all the money needed to fund the deficit becomes immediately due and payable. So there's a balloon payment due on bankruptcy. The concern there is that Bill C-501, in combination with Bill C-9, could cause the entire deficit to be due right on bankruptcy, and therefore that super-priority could apply to the whole deficit. So there's a concern there.

The other concern is--

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

I want to get a second question in, so I'm going to stop you at that point.

This question is for Mr. Rienzo. Interpretation of what Bill C-501 actually says is problematic. You spoke quite a bit about it. Our interpretation of the bill is that it in fact makes changes to only a very small portion of what we call the “special payments” that were to have been paid by the company pension plan during the time between restructuring and actual bankruptcy. That's our interpretation of what Bill C-501 actually does. It touches only that special payment part of it. So given that, would it be fair to say that maybe we're making too much out of the predictions that this is going to throw the credit markets into turmoil as a result of what is actually contained in Bill C-501?

[Douglas Rienzo, Partner, Pensions and Benefits, Osler, Hoskin & Harcourt LLP]

Thank you.

Good morning. My name is Douglas Rienzo. I'm a partner with the law firm of Osler, Hoskin & Harcourt.

I'd first like to extend to the committee our appreciation for the opportunity to appear before you and to contribute to the work of the committee studying Bill C-501. My colleagues and I at Osler believe we can provide this committee with a unique perspective on the issue of protecting pensions, which is the cornerstone of Bill C-501.

Osler is home to one of the largest groups of full-time pension law practitioners of any Canadian law firm through our teams in Toronto, Montreal, and New York. Our group represents a broad range of clients in the private and public sectors. Our clients sponsor some of the largest defined benefit pension plans in the country, regulated at both the federal and provincial levels.

My colleagues and I collectively have decades of experience in the area of pension law. We have worked with our clients in corporate Canada through years of constant change, from the times of pension surpluses to the present day when many are facing challenging pension funding issues.

Many of you have heard and read about the precarious health of private sector employer-sponsored defined benefit pension plans. The comments and concerns have come from employees, retirees, organized labour, and also from employer organizations. Consultants and academics have also expressed their views. The proposals that are put forward by these stakeholders are often conflicting, and the issues are extremely technical and complex.

One issue on which most commentators would agree, however, is that the health of a private sector defined benefit plan is entirely dependent on the financial ability of the employer to support it. This is particularly true in times of financial crisis, such as the one Canadian employers have been struggling with since 2008.

Although some may think that the financial crisis is now behind us, given the rebound in the stock markets over the last year, long-term interest rates are at a historic low and the impact of these low interest rates on pension plan funding is very significant. In fact, one might say that the current financial crisis facing pension plans results more from low long-term interest rates than it does from employer underfunding. In addition, market volatility has not disappeared and employers’ contribution obligations continue to be onerous.

The stated purpose of Bill C-501 is “to ensure that unfunded pension plan liabilities are accorded the status of secure debts in the event of bankruptcy proceedings”. That's from the summary.

Certain provisions of the bill appear to be limited to expanding the so-called super-priority status to all amounts that were required to be paid into the pension fund and are in arrears, including solvency deficit amortization payments. However, when the amendments to the Bankruptcy and Insolvency Act and to the Companies’ Creditors Arrangement Act proposed by the bill are read in light of its stated purpose, the wording could result in the extension of super-priority status to the entire solvency deficit itself, and not just those solvency deficit amortization payments that are due but not yet paid.

Extending either super-priority or preferred creditor status to the entire solvency deficit would place significant additional burdens on the financial capacity of defined benefit plan sponsors and impede their ability to cost-effectively raise capital, adversely affect their ability to invest in Canada's economy and remain competitive, and negatively impact their ability to fund their pension obligations.

It is therefore critical that the amendments to the BIA and the CCAA proposed by Bill C-501 not be adopted.

A number of submissions to this committee have been or will be made showing the massive negative impact on credit markets in Canada that would result from granting priority status to solvency deficits. In addition to this impact, the proposed amendments to the BIA and CCAA could have the following results: first, the amendments could elevate billions of dollars of potential pension claims ahead of lenders in the priority ladder; second, the amendments could cause credit markets to re-value assets available for security and deduct higher-priority claims, thus resulting in a significant reduction of available credit; and third, the amendments could result in immediate default situations based on covenants in existing trust indentures restricting the existence of claims that would have priority over the existing lender.

The proposed amendments to the BIA and CCAA would, in certain circumstances, also result in the acceleration of the amortization of DB plans solvency deficits, which in most Canadian jurisdictions can be paid over a period of five years. In fact, it could be said that Bill C-501 is tantamount to mandating the permanent full funding of DB plans in certain circumstances, which is currently not required in Canada.

Let me briefly explain the current funding rules under both federal and provincial pension standards legislation.

While a plan is ongoing, every three years an actuarial evaluation has to be prepared, in some jurisdictions every year. The assets are valued and the liabilities are assumed to be fully settled. If the assets are insufficient, the deficit must be paid by the plan sponsor over a period of five years.

The proposed amendments to the BIA and CCAA would result in the acceleration of the amortization payments in certain circumstances by requiring a full deficit to be funded on a super-priority basis in the case of bankruptcy, or as a condition precedent to the approval of a proposal under the BIA or a plan of arrangement under the CCAA.