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.

[Diane Urquhart, Independent Financial Analyst, As an Individual]

I'm going to speak technically this morning on the impact of Bill C-501 on the cost of credit.

My conclusion is that the cost-of-credit impact is small on investment-grade owners and corporations with defined benefit pension plans. By comparison, the impact is small relative to the high damages and costs to retirees and severed workers of maintaining the status quo.

With respect to the junk bonds, there is a higher impact, but these are speculative securities that investors recognize when they invest in them.

First of all, the impact of Bill C-501, based on my research, is that the overall bond market exposed to defined benefit pension plans will have an increase in the cost of credit of 20 basis points. This is consistent and in the middle of the range of the 12 to 29 basis points determined by Phillips, Hager & North, owned by the Royal Bank. In addition, my estimate of 20 basis points is consistent with the 25 basis points that has been the outcome of the research of Towers Watson. I believe both of those organizations will be before you.

This level of 20 to 25 basis points impact on the investment-grade markets is consistent with all of the international research that I have reviewed. The basis of my analysis is that the increase of 20 basis points is a calculable matter, as we have also seen with the other financial organizations, since the credit market is the present value of the impact of cash flows. What Bill C-501 does is to reduce the recovery rates for those corporations that do enter default; as a consequence, the risk premium needs to go up in order to compensate for the reduction in recovery rates. If we were not to take legislative change because there was a negative impact, then no legislative change would be undertaken.

The impact of a 20-basis-point increase in the cost of credit for the investment-grade markets is that all of the bonds that have exposure to defined benefit plans will go down only 1.5 percentage points. You'll hear later in this hearing that Phillips, Hager & North have done a roll-up of the top 60 bond issuers and they have determined that most of the bond issuers do have exposure to the defined benefit pension market. However, they too concur with my work that the degree of increase is approximately in the.... They say 12 to 29 basis points, and they consistently also agree that the impact on the bond market is only down 1.5%.

Based on the 20 basis points, the impact on the bond market as a whole is approximately $3 billion, and that's consistent with what the Royal Bank has indicated the bond market impact is as well. There is also an increase in the cost for corporations. I'm saying that that cost is approximately $3 billion, so the total cost of Bill C-501 on the Canadian economy, on a present-value basis, is approximately $7 billion. Seven billion dollars is a nominal amount in relationship to both the bond market values outstanding and the corporate profitability dynamics.

What I'd like to note also is that with respect to pension funds the deficit today, on average, based on the Royal Bank analysis, is 20%. So what we're saying is that the bond market goes down by 1.5%, but for those companies that go bankrupt, the average deficit is 20%. Depending on what the value of the estate recovery is, that will be the degree to which the pension income must be cut in the case of the liquidations, and upon liquidation of corporations pension funds must be wound up.

As a consequence, I weigh the $7 billion to the economy as a whole against the $50 billion of deficits, of which a small proportion will have to be borne, and with fairly significant negative consequences, by the pensioners of companies that are in liquidation.

I'd like to make the point that there is a difference between liquidation and ongoing concern. When you have this small impact on the cost of capital, even in the fallen angels or junk bond part of the market, I'm saying that's 90 basis points. We are not saying that you must pay upfront the deficit in the case of a restructuring as an ongoing concern. That will still continue to be a matter of negotiation and determination with the liability remaining outstanding. The difference is, as in the case of Nortel, where the management decides to conduct a liquidation, there should be no basis where they've already determined to liquidate that the pension deficit isn't taken as a priority over the creditors at that point in time, the consequence of which is that it will have nominal impact on the rest of the bond market and yet will be the right social policy as well as economic policy for the country.

[Ross Laver, Vice-President, Policy and Communications, Canadian Council of Chief Executives]

Mr. Chair, honourable members, thank you for the opportunity to appear this morning.

I'd like to begin by acknowledging the efforts of John Rafferty and other parliamentarians on behalf of private sector workers who are covered by defined benefit pension plans.

The issue of pension benefit security is both serious and complex. Particularly in the wake of the global financial crisis, it has received a great deal of attention in Canada and throughout the industrialized world.

As you know, Parliament has already taken a number of important steps this year to strengthen protection for pension plan members. In the past, for example, a federally regulated company that terminated its DB plan would have been free to walk away from any deficit. As a result of legislation passed this year, such a plan will now have a claim on the assets of the corporation similar to that of any other unsecured creditor, the same level of protection offered to members of provincially regulated plans. Moreover, if the company is behind in its contributions or has failed to remit employee contributions, those amounts will be treated as super-priority claims. Both of these changes are fully consistent with OECD recommendations on pension benefit security.

On top of those reforms, plan sponsors are now also required to file actuarial updates every year rather than every three years. This is intended to reduce the size of future pension deficits by requiring that companies act sooner to make supplementary payments. Also this year, the federal government moved to restrict the ability of employers to suspend contributions when pension plans are in surplus, and to revise the previous tax rule that actually forced companies to halt contributions when the plan was more than 110% funded. Taken together, these changes represent a substantial and important overhaul of the rules surrounding defined benefit plans for employees of federally regulated companies.

Most provincial governments have implemented or are in the process of implementing similar reforms. So let's be clear. The pension system as it now stands is very different from the one that existed prior to the economic downturn.

The issue now with Bill C-501 is whether to go dramatically further by enacting changes that have not been tested in any other advanced industrialized country with a pension system similar to Canada's. Let me expand on that. The proponents of this bill have said repeatedly that most other developed countries already provide the kind of protection offered by Bill C-501. The truth is that most of the countries they cite have pension systems that are in no way comparable to Canada's because they rely predominantly on defined contribution or state-sponsored plans, as opposed to the private sector plans that would be affected by Bill C-501. On the other hand, Germany, Ireland, the Netherlands, Portugal, the U.K., and the U.S. do have pension systems similar to Canada's, yet in not one of these countries are pension deficits given priority over all other creditors in the event of bankruptcy.

Bill C-501, in other words, is an experiment. Before you decide to embark on that experiment, the members of the CCCE would urge you to consider the risks.

The most obvious risk is the impact that this bill will have on the cost and availability of credit. I suspect you're going to hear a lot about this during these hearings. The bill's supporters are going to tell you that the impact would be negligible, that you can go ahead and experiment with the pension system because the financial consequences would be minimal. That's not what the OECD says, however. In a 2007 study of pension protection, the OECD called the idea of giving priority rights to pension creditors controversial--their word. The OECD report said, and I quote, that “assigning ‘super priority’ rights ahead of even secured creditors would likely have a major impact on capital costs, particularly given increasingly market based pension accounting and funding standards”.

Recently a number of independent studies in Canada have reached the same conclusion. I'll leave it to other witnesses to discuss the specifics, but they demonstrate convincingly that the cost to bond holders and companies would be in the billions. What's more, the impact of Bill C-501 would be greatest for precisely those companies that are most in need of credit to stay in business. Lenders would either refuse to provide more credit, or would demand punitive rates.

The bottom line is simple. If passed, this bill will almost certainly force into receivership and into liquidation companies that would otherwise have had a chance to survive. Far from helping workers, it would destroy jobs and hurt Canadian families.

In closing, let me again congratulate members of Parliament for the important steps you have already taken to strengthen Canada's system of private sector defined benefit plans. Bill C-501, however, is clearly a step in the wrong direction.

Thank you.

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

Thank you very much, Chair.

As parliamentarians we're charged with a high duty; that is, above all else, to look out for the public interest. To do this we must weigh the benefits of implementing certain public policies against the costs of inaction. It's a heavy responsibility, but I'm sure we can agree that when confronted by a social injustice we are necessarily compelled to act to remedy it.

What we have witnessed in recent years, during the economic downturn, is the emergence of a massive social injustice that went largely unimagined for a long time, largely because the conditions never existed. With the economic downturn we saw employers like Nortel, Air Canada, General Motors, and AbitibiBowater fail and the value of certain assets and investments sink on a scale not imagined in recent times. It was a perfect storm for workers. Employers failed, jobs were lost, and pension funds became insolvent. Lives were decimated, and I have no doubt that some lives were lost during this crisis.

As parliamentarians we must bear the collective responsibility of having allowed these conditions to exist in the first place. But we bear an even greater responsibility today, and that is to ensure that such an injustice can never occur again.

Bill C-501 will do what, surprisingly, has not been done before. It would in most cases secure the pensions of all Canadians whose employers have fallen on hard times, have undertaken restructuring, have entered bankruptcy protection, or have collapsed entirely and had their assets liquidated. If passed, Bill C-501 will mean that every working Canadian can take comfort in knowing that their pension, their retirement, is as secure as possible.

We'll hear in these proceedings from those who will outline the dire need to implement these reforms. We'll hear from those who oppose such reforms. And we'll hear from others who are no doubt conflicted or have alternate prescriptions. In the end, I urge all members to remember that we alone have the ability and bear the responsibility to act in the interests of the people who have elected us to this place to govern on their behalf.

I believe it's time for Bill C-501 to become law. I believe the testimony of the witnesses will bear this out.

I ask all members of this committee who have thus far worked so cooperatively with me on this bill to continue to do so and to exercise our unique powers to ensure that such an injustice is never faced by a hard-working Canadian again.

Thank you, Mr. Chair.

[Carol Hughes, NDP, Algoma—Manitoulin—Kapuskasing, ON]

Thank you, Mr. Chairman.

I would like to express my thanks for your comments.

Mr. Simard, what is happening in your community is occurring all across Canada. In my riding, whether it's in White River, Smooth Rock Falls, Opasatika or Wawa, we have all seen this before and we continue to see it happen. I sympathize with you. I wanted to mention that you do not seem to have much hope with respect to the company and what it is trying to do. You seem to have great doubts that the company is actually trying to find a buyer or seeking a different option.

There are a lot of issues I would like to address with you today and I will try to put them in perspective. As I said, this is a national issue. We have seen job losses all across the country, from Newfoundland to British Columbia by way of Quebec and Ontario. Many of the workers are still without jobs. In most cases, it is also because they are older. But this is really a question of survival for them, for their families and for the communities. I would also like to address some other points with you.

The NDP has been saying for a long time that one of the first things to be done when a company in Canada—which might be a company in our community—is going to shut down, or even before it shuts down, is to ensure the survival of the workers, their families and the communities.

You also talked about natural resources and the fact that they should remain in the community. There was discussion of protecting pensions and severance pay. I would just like to say that the Conservatives have almost completely abandoned their responsibilities. There has been a lot of inaction. And I mustn't forget to mention that the Conservatives are not the only ones at fault, because the job losses and plant closures began under the Liberals. People saw the problem coming but the Liberal and Conservative governments did not respond.

I would like to know whether you agree with me. This is addressed to the unions and to anyone else who wishes to answer. We tabled Bill C-501, which talks about pension protection. What is important, in your view, when companies fail? Is there a significant need for a government that will respond immediately and try to resolve these problems, so that these people's lives are not ruined?

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

It's going to be very quick.

First of all, to our Liberal friends who were talking about having a superpriority, Bill C-501 is at committee, and we're looking at having a priority, not a superpriority. We can work together on that, I'm sure.

To my friends from the business community who are here, I really appreciate your engagement today.

The CPP offers a safe, well-managed vehicle. It's a defined benefit plan, and as we heard, many of those are just disappearing. So it's a very real outcome that we can work towards.

I'm not going to ask a question because there's not enough time, Mr. Chair. I appreciate it.

Bankruptcy and Insolvency Act

[The Acting Speaker, NDP, Denise Savoie]

The House will now proceed to the taking of the deferred recorded division on the motion at second reading stage of Bill C-501 under private members' business.

The House resumed from May 11 consideration of the motion that Bill C-501, An Act to amend the Bankruptcy and Insolvency Act and other Acts (pension protection), be read the second time and referred to a committee.

Royal Recommendation—Bill C-501—Speaker's Ruling

[The Speaker, Liberal, Peter Milliken]

I am now prepared to rule on the point of order raised on May 11, 2010, by the hon. Parliamentary Secretary to the Government House Leader concerning the need for a royal recommendation for Bill C-501, An Act to amend the Bankruptcy and Insolvency Act and other Acts (pension protection), standing in the name of the hon. member for Thunder Bay-Rainy River.

I would like to thank the parliamentary secretary for having raised this matter, as well as the hon. member for Thunder Bay—Rainy River for his comments.

In his point of order, the parliamentary secretary pointed out that Bill C-501 makes provision for the appointment of adjudicators by the Minister of Labour in connection with claims against directors for the recovery of debts filed under the Canada Business Corporations Act. These provisions are found in clause 6 of the bill.

He drew the attention of the House to section 23 of the Interpretation Act, which indicates that the power to appoint public officials includes the power to pay them. In his view, the appointment of adjudicators under the Canada Business Corporations Act would constitute the naming of officials for a new and distinct function not currently authorized by any existing appropriation.

The Chair has examined Bill C-501 carefully and has taken note of the authorities cited by the parliamentary secretary. The Chair has also looked closely at the existing provisions of the Canada Business Corporations Act.

During his intervention, the member for Thunder Bay—Rainy River maintained that the Minister of Labour has the power to name adjudicators under other legislation. However, what is specifically at issue here is the minister's ability to appoint such officials under the Canadian Business Corporations Act.

As this act in its current form does not provide for the appointment of adjudicators, it is clear to the Chair that the proposal in clause 6 of Bill C-501 proposes a new and distinct function for the Minister of Labour, which would require an expenditure of public funds.

In accordance with Standing Order 79(1), the Chair must therefore rule that the bill requires a royal recommendation, and will decline to put the question on third reading of the bill in its present form unless a royal recommendation is received.

The recorded division later today, however, is on the motion for second reading, which can proceed as scheduled.

The Chair would like to take this opportunity to remind all hon. members of the importance which the Speaker attaches to questions of this nature. The orderly conduct of our proceedings, particularly where it touches on matters relating to the appropriation of public funds or the imposing of charges on the people, is of great importance in permitting the House to deliberate in a calm and well-considered manner. Procedural issues which may arise from time to time are often complex and it assists both the Chair and the House as a whole when they are raised as early as possible in the proceedings.

I thank hon. members for their attention.

Royal Recommendation—Bill C-501

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

Mr. Speaker, I rise on a point of order to respond to the government concerns about Bill C-501.

The week before last the Parliamentary Secretary to the Leader of the Government in the House of Commons argued that Bill C-501 required a royal recommendation. The basis of his argument was that clause 6 of the bill imposed an additional financial responsibility on the Crown. This particular clause would mandate the Minister of Labour to appoint an adjudicator to hear a claim made by a former employee of a company against a director of the same company.

The basis of my bill moves workers' pensions to secured status after a bankruptcy. It gives the pension so-called super-preferred status, meaning workers receive their pensions before shareholders and other creditors receive their money. In the event of a dispute or should a former employee bring a claim against the director of a company, the bill would mandate the minister to appoint a arbitrator to hear the claim.

The parliamentary secretary's arguments fell into two parts, the first being that the appointment of an arbitrator was a new purpose or created a new mandate for the minister. The second argument was that the payment of an arbitrator would increase government spending.

I reject these arguments and do not believe the bill requires a royal recommendation. First, it is already within the mandate of the Minister of Labour to appoint an adjudicator. The Minister of Labour regularly appoints adjudicators, conciliators, mediators and referees often under the powers of the Canada Labour Code. The minister's mandate to resolve disputes, adjudicate claims and protect workers' rights is broad and encompasses the intent of the bill. No new responsibilities or duties are being imposed on the Crown by this bill.

In previous cases stated by the parliamentary secretary to support his argument, all involved bills where new commissions or committees were being created by the minister and where the minister had neither a previous role in appointing such committees nor a mandate to involvement himself or herself in the issue being studied for resolve by that said committee.

In the case of Bill C-501, the minister regularly appoints adjudicators to hear claims concerning workers' rights, labour issues, grievances. In addition, the minister has a clear mandate to involve himself or herself in labour disputes and bankruptcies.

When an adjudicator, mediator or referee is selected to assist with claims or grievances, they are often employees of the federal mediation and conciliation service. These are Government of Canada employees. In this case, no royal recommendation is needed as the staff already carries out very similar tasks. The bill would not change their roles, their duties or their responsibilities nor the cost of their employment.

Should the minister decide to appoint a third party adjudicator, as happens in some cases, the common practice is for the parties involved to pay the costs of the arbitrator. Nothing, and I want to make this perfectly clear, nothing in Bill C-501 makes the Crown responsible for the costs of an arbitrator. In fact, the bill does not even state that there will be a cost.

The parent act to the Canada Business Corporations Act also does not provide for any compensation for an arbitrator. While the minister certainly has the power to pay, the bill does not mandate any payment. In fact, the minister could ask for an eminent Canadian to take the case and discuss and decide in the particular case. Therefore, no money actually has to be spent according to this clause.

Therefore, I respectfully suggest, Mr. Speaker, that the parliamentary secretary is wrong in suggesting that Bill C-501 requires a royal recommendation. These are my arguments for it. I hope you will take them under consideration.

Bankruptcy and Insolvency Act

[The Acting Speaker, Conservative, Barry Devolin]

Pursuant to an order made earlier today the question on the motion for second reading of Bill C-501, An Act to amend the Bankruptcy and Insolvency Act and other Acts (pension protection), is deemed put and the recorded division is deemed requested and deferred to immediately before the time provided for private members' business on Wednesday, May 26.

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

Mr. Speaker, I rise to close debate on my private member's bill, Bill C-501, and thank the House for the opportunity to do so.

The legislative process at times can be messy. We know this and we have seen it with other business presently before the House. However, we also know that sometimes, when there is a common interest and a shared commitment among parties, such as between the Liberals and Conservatives on HST, we know that legislation can pass through this place and the other place in as little as four days.

Bearing that in mind, on June 16, less than a year ago, every member of every party in the House passed a motion that said they fundamentally shared a desire with the NDP to:

—ensuring that workers’ pension funds go to the front of the line of creditors in the event of bankruptcy proceedings...

The Liberal block and, yes, the members who sit with the Conservative government agreed that pension funds must go to the front of the line when a company entered bankruptcy.

Bill C-501 is a simple bill, straightforward, that respects and fulfills the unanimous desire of all parliamentarians in this place to put pension funds at the front of the line when the company enters bankruptcy. If members support this objective, then they will support my bill and vote to send it to committee. If a party opposes the bill, then it is going back on its word and misleading Canadians. It is really that simple.

Today the Conservative government appears to be sliding back on its word or on its commitment to more than 4.7 million Canadian families who worry every day about their retirement income. The Conservative government and its members, who are planning to vote against Bill C-501 or who are trying to stop the bill by other frivolous means, are slaves to an outdated ideology that says we must put the vultures and the shadowy backroom financiers, like those who used to work at Lehman Brothers and those who still work at Goldman Sachs, ahead of hard-working Canadian men and women who have earned their wages, who have earned their pensions and who have earned a dignified retirement.

The Bloc Québécois members have stood by the commitment they made to working Canadians last June and have indicated they will support the bill. I thank them for their support and I hope they will prove to be reliable supporters throughout the legislative process.

The Liberals have made similar noises, but in the past have proven to be unreliable when it comes to supporting workers' rights or progressive bills or motions for that matter. I remind the Liberal caucus that in finance committee on March 25, the Liberal finance critic, the member for Markham—Unionville, said:

—the pensions critic for the Liberals, and myself as finance critic, will be recommending that the Liberal Party support the NDP private member's bill on amendments to the BIA, as and when it comes to the House of Commons.

I thanked the hon. member at that time for his remarks. I remind him and his Liberal colleagues today that words mean nothing if they are not accompanied by deeds.

However, the Liberals do appear to have come around to the New Democrat position that pension security must be among the highest priorities in Parliament. I thank Liberals for their support, if it is forthcoming for the bill, but I remind them that in the end they will be held accountable by the voters for their actions.

It must be said again that each and every member of this place must live up to the commitment that they made to millions of Canadians on June 16, 2009 and that they must vote now to send Bill C-501 to committee, where it can be properly examined, debated and perhaps even amended as need be.

I thank the members of the House who have shared their thoughts, concerns and support for Bill C-501 during this debate. I urge them to live up to their commitment on pension security and pass this bill unanimously.

[Pat Martin, NDP, Winnipeg Centre, MB]

Mr. Speaker, I appreciate this opportunity to join in the debate on Bill C-501. I should point out I am not rising to speak just because I was challenged to do so by my colleague from Elmwood—Transcona. I have a legitimate and longstanding interest in the subject matter.

I want to begin by complimenting and thanking my colleague from Thunder Bay—Rainy River for bringing forward Bill C-501 on the subject of workers' pensions or the status of pensions in the event of bankruptcy.

We should start by recognizing the magnitude of the problem. There are more than 10,000 commercial bankruptcies per year in this country. In fact, that number is probably two or three years old. The number is probably higher, given the economic turndown we have seen happen in recent years.

Of those 10,000 commercial bankruptcies per year, there is over $2 billion in lost wages and benefits when employees are left holding the bag. In the current Bankruptcy and Insolvency Act, wages, back wages and pension contributions rank dead last in order of priority for those claimants waiting to be paid when the assets of the bankrupt company are liquidated by the trustees of the bankruptcy.

A lot of people were surprised to learn that working people, ordinary Canadians, would rank dead last in priority. In fact, if we can trace it back through the NDP, the origins of the bill actually germinated in the riding of Winnipeg Centre, I can say with some modesty.

A number of my constituents, in 2002, came to me with the details of a bankruptcy going on in Winnipeg at the time, involving Storm-Tite doors and the United Steelworkers of America. The bankruptcy was taking place and not only were a bunch of employees owed back wages but the pension plan was in deficit by tens of millions of dollars. They were not able to meet the actuarial promises to the beneficiaries of the plan.

They came to me, shocked to learn that they were ranked so poorly in terms of priority when the trustees of the bankruptcy liquidated the company and that their pensions would be cut. Not only were some pensions cut in half, but some 20-year members would have no pension at all even though, when the assets of the company were liquidated, there were tens of millions of dollars left in assets, more than enough to make the pension plan whole. In other words, other creditors were secured, but the workers were not.

This led to an initiative that we called the workers first bill. We took it to Parliament and we had some co-operation from the Liberal government of the day. We met at length with Joe Fontana, the former minister of labour, and we negotiated and negotiated to try to correct what we thought was a horrible problem with the Bankruptcy and Insolvency Act.

The push-back was not from business owners or the corporate community, because frankly if they are at the point where their business is bankrupt and they have walked away from the company, they do not really care what happens to the division of the remaining liquidated assets. In fact, many would be pleased if that money went to their employees rather than to other creditors. No, the push-back came from the banks. The banks said if they were not number one on the list of secured creditors in the event of a bankruptcy, if the debt to them was not prioritized as number one, they would never lend venture capital again. They were not going to lend money to business if they could not be guaranteed they would paid back first. That is where the push-back came from.

Again ordinary Canadians were frustrated, and we started to do a great deal of research around the country to find out the extent of the problem. We traced the origin of the problem. The real origin of the problem was the fact that so many Canadian pension plans are underfunded, as my colleague from Elmwood—Transcona was saying, not just by the 10% that is contemplated by the Bankruptcy and Insolvency Act, but by 30%, 40% and 50%, because there has been no aggressive and diligent policing of the enforcement of the legislation surrounding pensions. It was at the point where, as soon as private companies started getting into trouble, as my colleague pointed out, they were dipping into the pension plan as a last-ditch effort to try to find some operating capital to keep the company and the plant going for another year or two.

Again, if pensions had joint trustees, this would not happen. However, many of these pension plans are in the absolute control of the company and the company just cannot keep its fingers out of that pool of dough, especially when the going gets tough and it is has a problem. Conrad Black, with Dominion stores, is a classic example. He was taken to court because he took $80 million out of the pension plan of employees and never put it back.

I am proud we are at this juncture in Parliament today.

Some progress was made in the treatment of back wages owing to workers in this initiative. When we did raise the workers first bill, we did get the co-operation of the Liberal government of the day to put in place a special super priority fund for up to $3,000 for back wages payable to employees, so they would get super priority. That was a huge benefit. The $3,000 was adequate. If a guy has not been paid wages for two or three weeks or a month, he probably will quit the job anyway. About 95% of claimants were owed less than $3,000 and would get satisfaction from that fund. I am glad to say progress was made on that front.

The big problem remaining is not the guy who is owed $1,500 or one two-week back pay cheque. The problem is some of these pensions are underfunded by $10 million, $30 million and $50 million. When a company goes bankrupt, the pensioner, who has worked all his or her life in good faith and whose pension has been held as deferred wages on his or her behalf by the company, finds out the money is not there.

We had one example in New Brunswick. There were over $100 million in assets in the company when it was liquidated. It had a great deal of high-tech machinery and property and buildings that were of significant value. The pension shortfall was $40 million. We brought some of these people to Ottawa to plead their case with the government of the day. There was more than enough money in the assets of the company, when liquidated, to make this pension plan whole. We had examples of workers who had 32 years of service and they did not get one nickel in pension.

This was the tragedy in real terms. The effect is overwhelming when we consider 10,000 bankruptcies per year and over $2 billion in back wages per year that should have gone into the pockets of the employees in the company. I would argue that most business owners would rather the moneys realized from liquidating the assets go to their employees as a gesture of good faith as the company wraps up and is closed.

Bill C-501 would address this measure. I know there is broad interest and support from the other parties. If we do nothing else in this session of Parliament, we hope we make Canadian workers who suffer bankruptcies whole in their pension savings and in their retirement security by passing Bill C-501.

[Jim Maloway, NDP, Elmwood—Transcona, MB]

Mr. Speaker, I am pleased to speak to Bill C-501, which was introduced by my colleague. He has analyzed the problem correctly and I think that he is introducing the remedy that is required for the moment.

It is amazing to me that we have found ourselves in this place, given what we and our parents have gone through since the Great Depression of 1929 and on. Our parents went through the Great Depression and came out of it. It took perhaps 30 years for the stock market to recover. By that time, anyone who held stocks was likely to find that the companies they held the stocks in were never to come back.

One would have thought, given the situation out of that recession, that people would have thought ahead and come to the conclusion that we had to work out an insurance scheme for the retirement plans themselves. It only makes sense. If we look at historical records, we will find that companies rarely last for huge amounts of time. We have situations where consumer tastes change. We have obsolescence in companies. Just plain bad management of companies leads companies to fall into tough times.

Workers and their representatives had an undying trust that they would somehow put their money into a pension plan and be able to have the benefits last until the end of their lives. This trust came at a time when there was a lot of optimism on the part of the workers. I also think that when young workers start, they rarely question the pension plan. Whether they are in unions or not, I think most people will agree that it is only when people get to be middle age that they really start to take a deep interest and question what their pension plans are all about and whether the money is going to be there.

Previous speakers have indicated already that we have a patchwork quilt of pension benefits across the country. I believe that only 33% of people have taken advantage of the RRSP program. Only another rather small percentage of people actually have a company pension. Of those, some have the defined benefit plans. Those have peaked and they are not increasing in numbers at all. If anything, they are decreasing over time. Those are the best plans, the Cadillac plans, that came around in the 1950s and 1960s. Those are more or less at an end in terms of their expansion.

Now we are seeing the defined contribution plan taking over. That type of plan is not as good as the defined benefit plans were. Through all of this, I fail to see why successive governments and workers' organizations themselves were not calling for an insurance plan for pension plans as early as the 1960s, knowing what we know can happen and does happen over time to the economy. I can point out other industries that have formed their own compensation plans or insurance plans.

All we have to do is look at the P and C, property and casualty, insurance companies. In 1987, I believe, after several bankruptcies of small P and C companies in Canada, the industry realized that this was bad for business to have a house insurance company go bankrupt and leave people stuck without having the claims paid and the premiums not returned. I could mention some names of some companies, but I will not do that now. It was a long process and at the end of it the companies decided this was a big enough risk that they got together with the governments, or vice versa, and they formed a pool. The P and C companies now have a pool so that if someone's house insurance company goes bankrupt and goes out of business, this pool steps in and there is an orderly wind-down of the company and the policies. As a matter of fact, it is so painless that the public does not even notice it is happening.

The same is true of the life insurance industry. It has a similar type of pooling structure. We have had travel acts in Ontario, in Quebec and in B.C. now for a number of years. Consumers in those provinces know, when they buy airline tickets, that if their agency or tour operator goes bankrupt, like Conquest Vacations did last February, that they are protected. There are provinces like my own, Manitoba, that do not have their own travel fund. They are not protected at all, but the consumers in Ontario, Quebec and B.C. are.

I was at a Canada-U.S. conference in New Orleans on the weekend. We were given a briefing on the oil spill on Sunday morning. They talked about the potential for the worst-case scenario and there is a fund set up for a limited liability of $100 million for oil spills, and the companies pay into this fund. Of course, if there is a case of an oil spill that exceeds the amount, or if the liability is determined that the company was negligent, of course it could be unlimited liability.

Potentially a company like BP, very healthy only a few weeks ago, might end up in a bankruptcy situation in the future. All the shareholders who thought things were going fine two weeks ago would lose their money, and the workers at BP would be in a similar situation to some of the workers we are looking at here, such as those from Nortel.

These are not isolated examples. They happen in the economy all the time, so the question is: Why can we not look forward and take precautions when we know it is going to happen? We are going to have workers who have paid into pension plans for many years and through no fault of their own are going to have a deficiency in what they can draw.

Bear in mind that the workers are not running the companies. It is the management that is running the companies. It is management that is making the bad business decisions that get companies occasionally into trouble. Then we have a situation when the company is going into bankruptcy, when the management ends up looking after itself. It was mentioned by the previous speaker that Canwest is an example. Management took $41 million to take care of itself.

The public gets outraged when it sees that happen. I know the member for Winnipeg Centre is listening right now and I can just see a speech starting to develop over this issue, because people see this happening. They see that management takes care of itself and the workers are the ones who are left holding the bag.

It is time we passed this bill and moved the workers to the front of the line.

[Mike Lake, Conservative, Parliamentary Secretary to the Minister of Industry]

Mr. Speaker, I welcome the opportunity to join my colleagues in speaking to the issue of pensions and income security of Canadians in retirement. In particular, I wish to address the actions already taken by the government to provide protection for the claims of pensioners in insolvency and how these actions are consistent with or exceed the protection provided by other countries under their insolvency laws.

Let me begin by acknowledging the challenges faced by Canadian pensioners and their families during the recent economic downturn. This government understands the issues and considers them extremely important. It is for that reason that we have taken and continue to take measures that will better protect pensions and pensioners, whether it be in a bankruptcy or company restructuring context, in the context of overall retirement adequacy, or in the more general context of how the national economy is doing.

Let me also acknowledge the specific challenges created for pensioners when a company files for bankruptcy under the Bankruptcy and Insolvency Act, BIA, or restructuring under the Companies' Creditors Arrangement Act, CCAA. Such proceedings have an impact on both current and former employees, as well as on the interests of creditors and stakeholders.

The concerns of employees and pensioners who find themselves in the insolvency process cannot be minimized. They have followed the rules. They have made their pension payments. But as a result of the insolvency of their employer, in some instances, they find themselves facing the prospect of reduced pensions.

The protection of pensions where an employer becomes insolvent is a significant element of our existing economic infrastructure. When considering the protection of pensions or any other obligation, it is important to recognize that both the BIA and the CCAA are fundamental marketplace framework laws that play an important part in maintaining Canada's economic well-being. They both set out rules for how individuals and companies may become bankrupt or may restructure their affairs.

It is always unfortunate when individuals or businesses find themselves in the position of being unable to meet their obligations. The economic reality of insolvency is that the creditors and stakeholders of an insolvent business that is no longer viable will receive less than what they are owed.

The insolvency system serves a vital economic purpose by allowing for a fair and orderly treatment of creditors, generally in accordance with the legal rights and obligations that were in place before the insolvency, as well as the fair treatment of the insolvent person or business.

In light of these principles, the government has already taken action to protect the claims of pensioners in insolvency. In recent years amendments were made to Canada's insolvency legislation, both the BIA and CCAA, to provide a higher priority for outstanding regular pension contributions.

This means that unpaid regular contributions are now paid ahead of secured creditors in bankruptcy proceedings under the BIA. In the case of a restructuring under CCAA, a restructuring plan cannot be approved by the court unless the plan provides for the repayment of unpaid regular contributions.

In the consideration of Bill C-501, where we are talking about giving super priority status to unfunded pension plan liabilities, we must assess the potential impact of such changes on the economy as a whole.

Unfunded pension liabilities are made up of the deficit between existing pension assets and the obligations to pay benefits to pensioners. Unfunded liabilities can occur as a result of poor market performance, even if all required regular contributions have been made.

To emphasize the point, the BIA and the CCAA are both important marketplace laws that potentially impact economic activity and business decisions of all sectors of the economy. Lenders, investors, suppliers, landlords, employees and customers, all make decisions based in part on the consequences that may ensue if a business were to become insolvent. Any changes to insolvency legislation should be approached with the effects on all of these players in mind.

When considering the protection of pensions through the use of the insolvency system, it is worth remembering that Canada is not alone in dealing with this issue. The practises of other countries can provide useful guidance in consideration of potential solutions.

As a result of the economic downturn and changing demographics, countries around the world are examining how to respond to the challenge of financing secure retirements for their citizens. Given the shared international challenge, it would be instructive to consider how pension claims are treated in bankruptcy in other major countries, and compare Canada's treatment of such claims in bankruptcy with that of countries with similar economies.

Clearly, any comparison will not be exact. Some countries, such as Italy and France, have mainly state-funded pensions and few private employer-sponsored pensions, which make the insolvency of contributing employers largely irrelevant to the amount received by pensioners.

Other countries, like New Zealand, treat pension claims as wage claims, giving claimants access to wage guarantee funds instead of protection in the bankruptcy process.

Still others, like the United States and the United Kingdom, have pension guarantee funds, financed by premiums or general tax revenues.

Bearing in mind these differences, it is very significant to note that Canada is one of the few countries among the members of the G20 and the 30 members of the Organization for Economic Co-operation and Development, or the OECD, that grant a super priority for outstanding pension contributions. Among OECD members, only Canada, Japan and Poland provide for such a super priority. The other countries have a preferred or unsecured claim, providing for a lower degree of protection than Canada.

However, with respect to the protection of unfunded liabilities, like Canada, a large majority of members of the OECD, including such countries as Australia, France, Germany, Italy, New Zealand, Sweden, Switzerland, and the United Kingdom, treat unfunded pension liabilities as unsecured claims in insolvency.

This government has taken measures to better protect pensions through amendments to the BIA and CCAA, with the steps already taken being more protective of pension claims than that of most economically advanced countries.

The government, consistent with its throne speech commitment to better protect workers whose employers go bankrupt, is looking at broader issues and exploring comprehensive solutions, both inside and outside of insolvency law, to protect pensions and enhance the security of incomes for Canadians in retirement.

A further response to the complex equations implicit in pension discussions will be carefully balanced to do the most good for pensioners while continuing to protect the health of our economy as a whole.

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

Mr. Speaker, I seek unanimous consent for the following motion. I move:

That, notwithstanding any Standing Order or usual practice, at the conclusion of today's debate on Bill C-501, An Act to amend the Bankruptcy and Insolvency Act and other Acts (pension protection), a deferred recorded division be deemed requested, and the vote deferred to immediately before the time provided for Private Members' Business on Wednesday, May 26th, 2010.