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.

Pensions

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

Mr. Speaker, Canadians are worried about the high cost of living and their retirement income. In northern Ontario the price of gas went up 10¢ last night. Home heating costs are skyrocketing, thanks to the government's HST scheme.

A poll of Canadian CEOs on my pension protection bill, Bill C-501, found that a majority believe the bill is fair and that Parliament should pass the bill.

Will the government respect the wishes of Canadian CEOs and pensioners and support Bill C-501 and protect six million Canadians?

[The Chair, Conservative, David Sweet]

Mr. Farrell, Mr. Aitken, Mr. Lopez, Mr. Robertson, I appreciate your being here.

I wanted to correct one thing, and I think this is the first time I've asked a question or had any comment in this committee other than in chairing it. Just for accuracy, Mr. Lopez, when you answered a question, you said that all pensions would have been paid if you'd gone into CCAA bankruptcy protection, and that had Bill C-501 been in place, the pensions would have been paid but the jobs wouldn't have been saved. Actually, the pensions would only have been paid if the assets were there, correct?

[Serge Cardin, Bloc, Sherbrooke, QC]

Thank you, Mr. Chair.

Thank you, dear members. You are most kind.

I believe that it goes without saying that all our witnesses and committee members are primarily concerned with companies and their ability to operate properly. It's easy for us to say that we're favourable to maintaining jobs in the companies and respecting mutual commitments toward current and retired employees, as far as pension funds go.

However, the reality of the matter may be different. The Nortel situation is a good example. Mr. Farrell clearly stated that this was the worst-case scenario when it comes to pension funds, among other things, and even when it comes to company management and how the company came to an end.

Now, we are discussing a bill whose objective is to help retirees retain their pension fund. However, it appears that the business and finance community sees things differently and, according to its basic principles, pension fund retention is not a likely outcome if the bill passes.

Mr. Robertson and Mr. Lopez, you say that, had Bill C-501 been in force, the companies would no longer exist, but pension funds would have been retained. You also say that, without this bill, meaning as things currently stand, the company is still alive and can become increasingly healthy. The idea is that, once the economic situation improves, the business situation will improve as well, and pension funds will also be retained at 100%.

As for the deficit, will it be absorbed by all the pensioners, on the one hand, and future pensioners, on the other hand, who have retained their pension fund, in your case?

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Thank you, Mr. Chair, and thank you, witnesses, for coming.

I want to go on from where Ms. Sgro left off. In this whole debate there's a disturbing element of “them against us”. Earlier this week we heard from some of the witnesses from Nortel that this bill could become retroactive and that there was a court ruling in B.C. We on this side and, I think, most people would disagree with that. It shows how the whole drift of the bill is heading in the wrong direction.

We just talked about Bill C-393, and I'll get to that in just a second. I remember being challenged by the grandmothers when I walked out the door, and they told me to do the right thing. I said at one point in this committee as well that we passed legislation in 2006, the Federal Accountability Act, that stopped every one of us in this room and everybody in the House from taking any funds from anybody except from private individuals, and then only to the amount of $1,000. That was a significant bill, because we're no longer tied to any one person or any one group. We can say as parliamentarians, “I want to do the right thing. I don't have a bank or something that bankrolls my campaign”.

There was a time not too long ago.... It was before my time, but if you go back in the records, you can see members who had almost their entire bankroll funded by one group or one individual. Those days are gone.

As a government we try to keep the ship afloat, and I've got to dump on my friend John again.

I like our member across the way. I think he's a great guy, but the NDP consistently comes up with bills that are mischievous. This is another example, and I could give you more. It all sounds good. Affordable housing is an example: we're going to save the housing crisis in this country. We're struggling with that. I say we need to keep the ship afloat. Affordable housing.... There was Bill C-393, the grandmothers' bill. Who would disagree with grandmothers trying to save people in Africa from dying of AIDS? Who would disagree with that? But the fundamental principle, again, is wrong.

Bill C-501 is one of these bills.

Today we have an NDP motion in the House to stop oil tankers from floating down the west coast. There's been one accident. Correct me if I'm wrong, though not at this point, because it's my time. One ferry has sunk, and it's leaking oil, and that's tragic. Again, I could go on.

The NDP constantly wants to shut down the oil sands. They like to call them the “tar sands”. In the end, when everything is said and done, we have to realize that the hallmark of a free and open society is a free and open marketplace.

I think Ms. Sgro was absolutely right. We have to make sure that when we move legislation forward, it's not them against us. We, as a group of parliamentarians and as the government, want to make sure we have a healthy and transparent society that allows the free flow of goods. This bill seriously undermines that. It more than undermines it; it threatens it.

I often say I've seen societies that have attempted this, and it's not pretty. I've been to Cuba. They have everything in common, but it's common misery. I know everybody here doesn't want to see that; I certainly don't.

I had to give my rant because I, like everyone else, feel terrible about what's happened to Nortel. I feel bad when these things happen, but we don't want to do something as a knee-jerk reaction that's going to cause even more grief.

My time is almost up, but I think I've got 30 seconds. If anybody wants to comment, go ahead.

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

You're here as the restructuring officer, and your task is reorganizing and getting the company back on its feet. It is not an easy job. It is a very difficult job, I'm sure.

You've chosen to attend these hearings to fight Bill C-501. Let me ask you, though, in terms of your job, whether you have also spent time scheduling meetings with the federal government to ask for loan guarantees to help in those efforts. Have you ever asked the federal government to match or negotiate an end to the massive billions of dollars in U.S. subsidies--such as the black liquor subsidy or the BCAP program--that provided your U.S.-based competitors with more than $10 billion in capital while you were in the middle of restructuring?

Did AbitibiBowater press the federal government and tell them to listen? I'm saying this because I have done that. I have done it in the House. I have pressed the government either to match those subsidies or to ask the Americans to get rid of them. They put our forest companies at a disadvantage. Was part of what happened with restructuring pushing the federal government and saying that these subsidies have to be matched?

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

No one will ever forget what happened to Nortel in 2008.

Canaccord Capital estimated that BIMCOR also had a full 58% of the BCE pension fund riding on the stock market, and that pension lost about $2.8 billion in that year alone. The comment I have for you, Mr. Farrell, is to ask you to please go back to your membership and ask them to start investing conservatively—in bonds instead of stocks—and simply live up to their fiduciary and, I would say, legal obligations to the pensioners. That's just a comment that I want to make, because I think we need to be clear.

The next question is for Mr. Lopez. We need to be clear that there has been a lot of mismanagement here too. You talk about markets, and certainly that has been a problem in the wood industry, but what you don't talk about is that for decades and decades, the forest industry, instead of making investments where they should have--in their properties and elsewhere--paid shareholders when times were good. The industry has always been like this, but when times have been good, management has failed to make those investments. Abitibi is, I think, a good example. When you talk about management and you talk about the kinds of decisions management makes, I will put it to you that in terms of Bowater, Abitibi was maybe not the best investment to make for the forest industry.

There are problems with the market, absolutely, but let us not forget that these companies were not always well managed. I just want to put that to you.

You said earlier that you didn't know how many pensions would have been saved if Bill C-501 had been there, and later you corrected yourself when you said they would all be saved. Of course they would. That was actually my question for you, and you answered it. Thank you for that.

I have questions for Mr. Robertson.

Thank you for joining us, Mr. Robertson. I'm sure you're aware that in my riding of Thunder Bay—Rainy River you have two plants that are still operating, and they represent thousands of current and former workers who depend on AbitibiBowater for their income and for their retirement, so I'm glad to see you here.

Bill C-501 was tabled partly because of the problems that AbitibiBowater is having and will hopefully soon be out of. You entered supervised restructuring partly because your executives, the board of directors, and the pension plan administrators failed to live up to their simple obligations to adequately fund the pension plan. That's one of the reasons you're there. I see that your job tasks you with saving a company that perhaps has not been as well run as it could have been over the last number of decades. You talk about more than $1 billion, and so in essence you have reneged on some of your duties there with regard to pensions.

My questions today are posed in that context. I'm hoping you'll be brief, because I have some other questions too.

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

Had Bill C-501 been in force, would the outcome have been the same? Would you have been able to fund their retirement benefits?

[Bruce Robertson]

Thank you, sir.

If you look at the liabilities of the company, particularly as they relate under Bill C-501, you would have pension solvency deficits in the neighbourhood of $1.3 billion. Then you would have some secured debt on top of that, which would be securing all of the Canadian assets.

For a company to emerge from creditor protection, they need to make sure that they have a proper balance sheet, not too much leverage, and sufficient access to capital. Creating a super-priority basically creates a first charge for the entire solvency deficit over all of the assets of the company. We're talking about, in Canada, liabilities of $1.3 billion, and that number can float all over the place. As we've recently discussed, the solvency deficit is at times a function of interest rates. It is largely a function of interest rates, as well as plan performance and what have you.

To successfully emerge, you need access to capital. You need liquidity. At the end of the day, we wouldn't have had sufficient assets for us to be able to secure the exit financing to be able to continue ordinary operations. It would have resulted in liquidation of the company.

Perhaps some of the mills might have found new owners. We've recently seen that mills that have continued to operate have been basically operating with the help of provincial support, but it is extremely unlikely that the company as a whole would have continued to operate.

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

Thank you, Mr. Chair.

Good morning and thank you for coming in to testify.

I will direct my questions first to Mr. Robertson, and then Mr. Lopez can add to the answers.

Both of you said that, had Bill C-501 been in force, you would have had to liquidate your facilities and assets. I believe that you both said this. Basically, you're both against Bill C-501.

Mr. Robertson, you said that the bill would have made things difficult in terms of credit. I would like to get more details on this issue. Would bankers or your lenders have raised the interest rates they charge? What real consequences would you have suffered?

Mr. Robertson could answer first, and then Mr. Lopez could go ahead.

[John Farrell]

I wanted to say that I think there are solutions. The problem with Bill C-501 is that it's just not the right kind of solution. I've observed what AbitibiBowater has been doing. They worked with the regulator in Quebec and the regulator in Ontario. They found a way to protect their pensions without reducing their value for current employees and they restructured the basic pension formula moving forward, so there was not as much of a contingent liability for their plan.

Bruce, I could let you speak to that, but I'm aware that you've done a great job, and a very difficult job, in working with the provincial governments, the provincial regulators, and the unions. You've put together a deal that works for everybody, and it allowed you to restructure.

[Anthony Rota, Liberal, Nipissing—Timiskaming, ON]

How many would be left after this, if Bill C-501 were in place?

[Anthony Rota, Liberal, Nipissing—Timiskaming, ON]

Very good. Thank you.

I'll go to Mr. Robertson. After that I have a question for Mr. Farrell as well.

Mr. Robertson, you're restructuring. You're coming to a certain point where everything looks very positive. You have 8,500 employees and 20,000 pensioners, mainly in Ontario and Quebec.

I basically have the same question for you. If Bill C-501 had been in place when you started restructuring, where would we be right now?

[Anthony Rota, Liberal, Nipissing—Timiskaming, ON]

Thank you, Mr. Chair.

I want to thank the witnesses here today for coming out and making what they've gone through and the effects that Bill C-501 would have had on them very graphic and real. As you know, Bill C-501 is an attempt to fix a real problem, a pension problem, and it's a problem that has developed over years. Someone mentioned a perfect storm. It just seems that the interest rates, the bond and equity markets, a weak economy, and everything else all seemed to happen at once. We're reacting to that and trying to prevent it from happening again.

The bill, as it was introduced, secures what is owed to pensioners from the date of insolvency to bankruptcy. That was my understanding. Now amendments brought forward have revised the wording, and now, as Mr. Farrell has mentioned, it would make it so that all pensioners would have priority over all creditors, or priority status.

It's difficult here because we're all sitting here trying to balance the interests of the pensioners, the employees, and industry. We're trying to get the results right and trying to make it work.

Mr. Lopez, I know the story of Tembec and the success rate that has come up. With the modified amendments giving full priority status, I think you alluded to where Tembec would be today. Where would it be today if this bill were in place? It's a very simple question.

[John Farrell, Executive Director, Federally Regulated Employers - Transportation and Communications (FETCO)]

Thank you, Mr. Chairman.

My name is John Farrell, and I'm the executive director of Federally Regulated Employers - Transportation and Communications. With me today as an advisor is Mr. Brian Aitken, vice-president, CFO, and treasurer of Nav Canada. Nav Canada is a member of FETCO.

Regarding the amendments to Bill C-501 proposed by Mr. Rafferty, the revised wording clearly extends the super-priority treatment to the entire solvency deficit, such that the entire deficit would have to be paid in order for plans of arrangement under CCAA to be approved by the courts. This is consistent with the preamble of the bill. It is also consistent with the basis upon which FETCO made its submission to this committee on November 23. Our submission on November 23, 2010, remains unaltered by the proposed amendments to Bill C-501.

It is clear that the former Nortel employees and pensioners have suffered significant losses as a result of the bankruptcy of Nortel. This is extremely unfortunate. Employees much prefer defined benefit pension plans over defined contribution plans because they reduce many of the risks to employees. However, it is not possible to remove all the risks.

Bankruptcy is fundamentally the death of a company. CCAA is a mechanism that is analogous to intensive care, where the object is to prevent the death of the company so that it can recover and continue as a going concern. However, if the company cannot be saved, bankruptcy follows, and it is a process designed by legislation to settle the estate of the deceased company in a way that is fair to all stakeholders.

The CCAA bankruptcy proceedings at Nortel happened at the worst possible time. The company failed. We all know that. Financial markets were crashing, and equity values were extremely low. The major culprit was and continues to be persistent low long-term interest rates not seen in over half a century. Low rates have dramatically increased the calculated value of solvency liabilities. Simply put, typical defined benefit pension plans' solvency liabilities, which are a proxy for the cost of settling the plan's obligations, have increased by 30% as long-term Canada bond yields have fallen over the last decade from approximately 5.5% to 3.5%. For a large, mature, defined benefit plan, a 0.25% reduction in long-term interest rates can cause an increase in pension liabilities in excess of $250 million.

I have no doubt that those advocating Bill C-501 are well-meaning. However, the facts demonstrate that Bill C-501 will inflict far greater harm than good on employees, pensioners, and companies with defined benefit pension plans. It would also hurt individual Canadians who hold corporate bonds issued by these companies in their RRSPs, their mutual funds, and their individual retirement portfolios.

There is no doubt that this a complicated matter. This committee has seen a parade of expert witnesses and has received a number of written submissions. The people who have been here include the top solvency and bankruptcy experts in Canada, the top actuaries and pension experts and consultants in Canada, a major Canadian law expert in pension law and bankruptcy proceedings, several top credit market analysts and experts, and some of the leading employers' organizations in Canada. Witnesses from the forest products industry have provided real examples of the harm that Bill C-501 can have on a company's ability to raise capital, make investments for future growth, and maintain employment for thousands of Canadians.

What are all these witnesses saying? They're all saying the same thing: Bill C-501 is bad medicine. It is medicine that kills the patient and infects everyone in the community. You've heard the witnesses say the following: companies with defined benefit pension plans that are in financial difficulty may be forced to seek protection under CCAA. Some companies in CCAA may not be able to restructure and emerge. They may be forced to liquidate, causing the unnecessary loss of jobs. It will increase the cost of capital for companies with defined benefit pension plans, particularly those companies with investment grade bonds. They would see Bill C-501 cause their ratings to fall below investment grade. It would reduce the value of corporate bonds that have been issued by companies that provide defined benefit pension plans.

As a result, countless Canadians holding corporate bonds of the companies that sponsor defined benefit pension plans will have their individual RRSPs, mutual funds, and personal retirement savings portfolios hurt. The passing of Bill C-501 would inflict serious harm and could cause a sudden event that will raise the cost of capital for many Canadian companies that provide the bulk of defined pension benefit plans in Canada. This bill will be the death knell of DB plans in Canada as we know them today.

Pensions and retirement security are a major public policy issue in Canada. The federal and provincial governments have been modifying their laws to strengthen pension plan funding rules, which will improve the security of private pension plans and benefit entitlements.

Further, finance ministers across the country—

[James Lopez, President, Tembec Inc.]

Good morning, Mr. Chairman, honourable members, and ladies and gentlemen. My name is Jim Lopez. I'm the president and CEO of Tembec Inc. We are a company that has 5,000 employees worldwide, 4,000 of whom are right here in Canada.

My business is the forest products business. We produce lumber as well as pulp and paper in many rural communities throughout Canada. In this country our company operates in Quebec, Ontario, and British Columbia, so it's safe to say that Tembec is the most pan-Canadian forest products company in Canada. I think we have a good breadth when we touch our communities and when we talk about the impact of Bill C-501 on our operations.

I'm here today not to talk to you hypothetically; I'm here to talk to you about real experience, practical experience, that I personally have had with Tembec, just as Mr. Robertson has had with Abitibi.

This industry went through a decade of very difficult times, a decade of downturn in virtually all our commodity products that was exacerbated by the high Canadian dollar. It has been very difficult for a lot of companies in Canada to compete and has created financial stress on many of our balance sheets. Tembec was a perfect example of that.

That resulted in a need for the company to restructure its balance sheet in February 2008. Our company's restructuring was done through a CBCA plan of arrangement, as opposed to a CCAA arrangement. The difference is that in a CBCA, the creditors and the shareholders do a consensual deal. As opposed to a court-imposed deal, it's a consensual deal that the court blesses once the shareholders and the other debt holders agree to it.

The linchpin of getting through that process was how this company was going to deal with its new debt going forward. During our restructuring we were able to obtain a $300 million U.S. term loan and renegotiate the company's operating line, which was an asset-backed loan. With that were first and second liens on the company's fixed assets.

Without this arrangement with our ABL lenders and the new term lenders, our CBCA plan of arrangement would never have happened. With this bill in place, those arrangements could never have been made with those lenders. What would have been the consequence? Our restructuring would not have gotten done, and we would have been, in all likelihood, in a liquidation mode.

Given the fact that this industry was going through very difficult times and that many operations were unprofitable at that time, it likely would have meant that 30% to 40% of our assets would have been liquidated. They would have been shut down. The balance probably would have been sold, but 30% to 40% would have been shut down, thus involving 30% to 40% of our employees, including, in all likelihood, the largest pulp and paper operation in Canada, in Témiscaming, which was going through very difficult times at that point in the cycle. It would have been shut down.

In this industry, we have 4,000 jobs in Canada. The traditional multiplier for indirect jobs is four. That's 16,000 people, so 30% to 40% of the 16,000 people who have depended on Tembec to get its restructuring done would have been let down if this bill had been in place.

I'm happy to say that we did get a restructuring done. I'm also happy to say that defined benefit pension plans for all of our employees were unaffected by our restructuring. I'm happy to say that all the solvency requirements for the various provincial jurisdictions where we operate continue to apply for our pension plans, and we're funding them as per the law.

Furthermore, the loans that were put in place in the restructuring had a maturity date of 2012, so it still was a black cloud hanging over the company's head, because it was still a relatively short-term loan. We went to the public debt markets this summer and sold $255 million U.S. of new debt, which we used to repay the other debt. We extended their maturities to 2018, and now the company is in a great position to be able to invest $50 million in operations this year, with a plan to spend several hundred million dollars over the next five years. We never would have gotten that indenture done in the U.S. with this bill in effect.

In summary, I think this bill is going to be a killer of Canadian jobs and a killer of investments in Canada.

Thank you, Mr. Chairman.