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.

[Michel St-Germain]

Thanks.

I want to start by saying that no private plan sponsor is forced to have a defined benefit plan. It's something they decide themselves, subject to labour negotiations. It seems to me that you have to encourage private sector sponsors to set up and maintain their defined benefit plans and to fund them properly. Make their lives easier by having more flexible and better regulations. Encourage them to put more money in the pension plan by telling them if they put too much money into the pension plan they will not lose it.

This bill, Bill C-501, makes the lives of plan sponsors more difficult. It doesn't encourage them to maintain pension plans. It encourages them to terminate their pension plans.

[Gaston Carrière]

First of all, because employers have to stop taking advantage of workers and commit to complying with provincial and federal legislation, to paying workers' severance, separation and pension plans. Yes, we want to be secured creditors. Our severance and termination pay must be secured claims. I repeat: what they're doing is abominable.

Since when are workers paid in shares? The multinational is going to pay us our separation and severance in shares, up to 36.5% of what it owes us. Find me a Metro store, an IGA store, a car dealership, a city, that will accept shares as payment? That's how the multinational wants to pay us, 36% and not 100% of the value of our separation and severance pay.

The multinationals aren't penalized by Bill C-501. This one doesn't have enough teeth. It has to be given some. The multinationals come after our materials and don't invest in infrastructure. They transport them to other countries, if not to other continents. Bill C-501 is so weak that three-quarters of Canada's forest mills are under the protection of the Companies' Creditors Arrangement Act. It's not just AbitibiBowater, Fraser or White Birch. There was Smurfit-Stone. Some are lining up to be placed under the act's protection, Domtar, Catalyst Paper, in the west, or Cascades. They're all lining up. The entire sector will be under protection because these companies won't be able to compete with the companies that are restructured under the CCAA, not to mention all the other sectors of the Canadian industry that will want to take advantage of the same opportunity. This is one of the reasons why the bill has to be given some teeth.

I've also heard it said many, many times that what happened in the case of the renewal of AbitibiBowater's collective agreement is good. We saved the pension plans. It should not be forgotten that the Quebec Pension Plan overrode its provincial regulations. Instead of repaying the $1.3 billion in balance benefits over five years, it has extended them over 10 years.

There's also the fact that we've always stayed in a benefit plan. We stuck with the traditional system, but they're starting a new plan at AbitibiBowater through the CEP. It's still a benefit plan. Workers and employers will pay more. I'm not a banker, but everyone knows that it takes 15% to administer a plan. They're going to allocate 18% to it and 3% will be held back. The employer will no longer be exempt from paying premiums. It will have to continue paying its fixed share into the plan to rebuild its solvency.

Workers have abandoned the equivalent of 17% of their working conditions when the last collective agreement was renewed in 2010, 10% of payroll and 7% benefits, not to mention what the Government of Quebec did to protect this multinational. Don't come and tell me that, if we put some teeth into Bill C-501, we're going to force the multinationals into bankruptcy. That's false. In the case of AbitibiBowater, what the Quebec Pension Plan and workers did, no banking institution would have been able to do. If the Quebec Pension Plan and workers hadn't done it, that would have been the end of AbitibiBowater.

To thank us, company officials want to award themselves bonuses. Fortunately, the media are reporting this morning that the restructuring of the business has been accepted in the United States. We know why that was being blocked. The Americans didn't want Canadian managers to award themselves bonuses. These companies come and exploit our natural resources in Canada. They have no right—no right—to dump workers. These are Canadian citizens, and they have no right to dump them as they've done. It isn't happening just in Gatineau, but in Dolbeau, Beaupré, the Belgo plant in Shawinigan, in Mackenzie, Grand Falls, Newfoundland, and Thunder Bay as well. It's not true; it isn't clear. They don't have to do that.

For all these reasons, gentlemen, we think Bill C-501 has to be given some teeth, for the workers' sake.

Thank you very much for listening to us.

[Guy Caron]

Thank you, Mr. Garneau.

We understand that there are concerns among the companies, investors, actuaries and pension plan managers, and a proposal that we submitted last year could address those concerns.

In fact, in the middle of the crisis last year, 70% of our members were working for a company that was under the protection of the Bankruptcy Act or the Companies' Creditors Arrangement Act.

Our proposal provides for the creation of a national investment and pension fund, somewhat similar to what there is in Quebec, and we discovered in the meantime that the two concepts were very similar. The federal government could establish a fund without investing any money. The fund would be administered by the Canada Pension Plan, separate from the plan itself, and we could have a guarantee that the assets of the companies that have put themselves under creditor protection could be invested in it in order to grow. At that point, those funds would no longer be subject to a plan termination and could be managed less conservatively than the funds of insurers. So we're talking about a mix of stocks and bonds that would permit a higher return.

That would subsequently assist the companies because, when restructuring, they would ultimately no longer need to calculate their shortfall on a solvency basis. They could consider the shortfall on an ongoing basis since we would have a guarantee that the plans would not be terminated.

I know it takes quite a long time to explain, but I have inserted the explanation in your documents. This kind of fund would help allay the companies' fears about this and it should be an essential partner for Bill C-501, which is still absolutely essential in protecting workers and retirees.

[Phil Benson]

We couldn't agree more.

There are three points we raise consistently. One is that Bill C-501 is some kind of approach. But that's to close the gate. Before it happens, we have to put in rules and regulations to ensure that money is invested more like an insurance company, with more in bonds and bond equivalents, and second, that they're adequately funded. We should never have a situation where a company can get up and say “Rather than giving the money I should to my pension fund, I need the money to run my company”.

I think if that were in place, this bill would not be onerous, because the marketplace would have taken care of it. We have to get the horses in line, but this is certainly part of our three ideas for fixing it. And I think it's needed. Whether it's this bill, the next bill, or some other time, this will eventually have to become law.

[Leigh Ann Bastien, Partner, Mercer (Canada) Limited]

Thank you for the opportunity for Michel and me to speak today.

I'm Leigh Ann Bastien. I'm a pension lawyer. I have expertise in pension legislation across Canada, including the Pension Benefits Standards Act, as amended by Bill C-9.

Michel St-Germain is a pension actuary. He has 36 years of experience providing advice on the funding and design of employer pension plans.

Our statement today, in simple terms, is that defined benefit pension plans are good things. They deliver pensions to many people through most market downturns and through most downturns in an employer's business. But the retirement system is struggling. Governments are trying to strengthen the defined benefit pension plans and to strengthen the retirement system. Bill C-501 would work in the other direction, making plan sponsorship less viable for employers.

Private sector sponsors of defined benefit pension plans will likely change the funding and design of their plans or leave defined benefit plans entirely if the bankruptcy laws change to make the pension deficit a fully secured creditor.

I'll turn it over to Michel, who will provide more details.

[Karen Figueiredo, Member, Towers Watson]

The cost of preferred creditor status is not evenly distributed among all employers who issue bonds. The impact of Bill C-501will depend on their credit rating, the relative size of their DB plan, their DB plan's funded position, and on prevailing economic conditions. Although the average impact on corporate bond interest rates may only be a quarter of 1% in normal market conditions—for example, moving from 5% to 5.25%—some companies will pay much higher costs than others.

Ian has a page that has the top 60 bond issuers in Canada, all of them investment grade, and visually you can see the ones in orange are the ones rated triple-B. It's those triple-B-rated companies with DB deficits that are likely to experience a downgrade in their credit rating and could see their financing costs increase by 2%, 3%, 4%, or even 5% as a result of the bill. If the rating drops them below investment grade, this would—as opposed to could—result in forced sale of their bonds by most Canadian pension plans.

It's important to note the dichotomy in the Canadian bond market. Most of the corporate bonds that are highly rated—i.e., that pay the lowest interest rates—are issued by financial institutions, whose DB plans tend to be less material relative to their corporate balance sheet and income statement, and by regulated utilities that arguably have an automatic ability to pass the pension costs through to ratepayers. Many triple-B-rated companies are household-name industrial companies, such as CP Rail, Telus, and Bell, where the DB plans are hugely material. In effect, it's Canada's industrial base that would take the majority of the hit if preferred creditor status or super-priority were given to DB plan deficits.

There will be increased volatility for corporate bond issuers, and that may deter foreign investors from investing in Canadian corporations with DB plans. Several fixed income experts indicated to us that they would develop new models to assess risks associated with DB plans, something that many foreign investor firms may be unwilling to do, given the time and complexity involved. By the same token, investment capital could focus more on investment opportunities outside Canada. While many DB plans face risk for their members' employers, market upheavals will happen. No one predicted how far along bond interest rates would affect DB solvency in the last five years. We can absolutely assure you that the best form of security for pension benefits of DB plan members is the existence of financially sound employers, combined with pension benefits legislation that enhances the funding of ongoing plans in a balanced and sensible manner.

[Gaston Carrière, President, Local 142, Communications, Energy and Paperworkers Union of Canada]

Good morning. I want to thank the committee, ladies and gentlemen, for hearing us. First I want to emphasize that we agree on Bill C-501. However, we sincerely believe that additions should be made to it to give it more teeth.

Why? Who is currently suffering most from the deficiencies of Bill C-501? The situation of AbitibiBowater's Gatineau and Dolbeau workers should be enough to bring about changes to Bill C-501. But as my colleague said earlier, we need more than that. What happened at Fraser Papers was abominable.

They took away 35% of total benefits from retirees who were already receiving retirement benefits, in addition to scrapping the pension plans, before other owners started the plant back up.

An even worse situation is that of White Birth Papers, formerly Masson Papers, where they are in the midst of negotiations. There too they are working to try to save pension plans and working conditions. Negotiations are underway, and a conciliation meeting is being held this morning.

The worst part of all that is having the courts sanction all the actions taken against workers in the pulp and paper industry. It has been accepted by the courts that our working conditions have been greatly weakened. The companies are entitled to do that in order to restructure. It's abominable and terrible. Let me tell you that the situation is extremely serious and a major concern because it's all being done with the courts' authorization under the Companies' Creditors Arrangement Act.

The companies now have a right and the opportunity to liquidate their debts. Do you think they hesitate to do so? No, not at all. That's why the act has to be revised and corrected in order to provide better protection for the amounts owed to workers, while equipping them to maintain their pension plans and so on. What's being done is abominable, abominable, and it's spreading to other sectors. Employers have found a crack because Bill C-501 is weak; it has deficiencies. They are weakening our working conditions, our pension plans, termination and severance pay, in addition to penalizing us for unemployment purposes. We'll have to pay money back.

Thank you very much.

[Guy Caron, Director, Special Projects, Communications, Energy and Paperworkers Union of Canada]

Thank you very much, Mr. Chairman.

Thank you, committee members, for agreeing to hear us.

You will not be surprised to hear that we support Bill C-501. We think the present system really works to the detriment of workers, as demonstrated by a number of examples from the great recession. I would like to talk to you about a specific example.

In some cases, we were able to salvage the situation. In the case of AbitibiBowater, for example, we were able to negotiate with the company to protect retirees' pensions. Of course, that required concessions on the part of workers, but pensions were protected during the major crisis, particularly as a result of the fact that it was possible to work with AbitibiBowater.

Fraser Papers is a much sadder story. A company, Brookfield Asset Management, owned a 70% interest in the business. It was one of the most viable forest companies. Fraser Papers was able to weather the crisis and to come out of it stronger than the rest of the industry.

And yet Brookfield Asset Management decided to place Fraser Papers under Bankruptcy Act protection. Under the restructuring plan that was adopted, a new company was created, the major shareholder in which was still Brookfield Asset Management, and it managed to secure repayment of the money that Fraser Papers owed it on paper and to repay secured creditors. Ultimately, what that meant for workers was that the Thurso plant shut down. Workers have yet to receive severance pay.

As for other retirees, their pay was cut by 30% to 35%, and all that was because Brookfield Asset Management had no remorse in shutting down a plant that was profitable and was doing better than other companies in order to secure its concessions under the Companies' Creditors Arrangement Act. That was a flagrant abuse of the CCAA for specific purposes that ultimately hurt the workers.

In that sense, the CCAA is currently an obsolete tool, and we advocate passage of Bill C-501. With regard to the issue of investors—I know that has been the subject of extensive discussion and that you have heard from companies and restructuring experts who tell you that's impossible—and we have a proposal, which I won't have time to present to you, but I invite you to ask me questions on the subject. I will be pleased to answer them.

[John McKenna]

We've been talking about pension deficits. I would like to say that Bill C-501 covers severance and termination super-priority as well. That will impact every single employer across the country negatively. You heard from the CBA, who said that the availability of credit for smaller and mid-size companies is purely driven by the asset value—the recoverable value from those assets if liquidation is required. If there is a priority ahead of the bank's security, it will come off the availability they calculate, and every single employer will suffer.

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

Thank you, Mr. Chair.

Thank you all for coming. It's been very enlightening.

I'm pleased to hear, and I was aware of it too, that AbitibiBowater has restructured and has come out of bankruptcy protection.

Much of the dialogue has the unfortunate premise that it's them against us. I think this is an obvious example of how that's just not the case.

I want you to tell the committee one more time why, in a situation such as this, it is important that we not force the hand, so to speak. Maybe you could share with this committee how many you would say, in today's market and considering that we've experienced some real tremors in that market, would be in the position, if a bill like Bill C-501 were enacted, under which the banks would have to pull the trigger? What would your assessment be, just quickly?

[Michael Boychuk]

I'm talking specifically to Bill C-501.

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

Is that assuming the effect of both Bill C-501 and Bill C-9 and what it might imply, or is it strictly based on Bill C-501 and its focus on special payments?

[Jean-Daniel Breton]

Unfortunately, Bill C-9 is something that has already passed and is already law. Certain provisions of Bill C-9 could bring about an acceleration of the payments in an insolvency situation. That brings the entirety of the deficit into play at that point.

Even though we are absolutely in agreement with the fact that the special payments should be protected and should be afforded super-priority status, the other legislation that is out there extends the effect of Bill C-501 to things that are other than just the special payments amount. That is the difficulty.

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

We're talking about Bill C-501. We're not talking about something that might come along.

[Jean-Daniel Breton]

If I may, the problem is not with Bill C-501, it is with the other legislation that would then push those special payments—