Agriculture Committee on June 1st, 2016

[Ronald Cuming]

Oh no. I haven't. I'm sorry. I haven't been dealing with that. I've been dealing through Mr. Webber, for whom I'm working, but no, we haven't had those. We did have a conference call meeting, I guess, with bankruptcy lawyers from Industry Canada, as it was then. I don't want to speak for them, but of course they don't want to do this. They saw problems with it, but my interpretation was that they're not technical problems but policy problems.

[Joe Peschisolido, Liberal, Steveston—Richmond East, BC]

One of the problems I think they put forth was that it would impact our financial system, that because you're reworking the priorities and the relationships between creditors amongst different classes, that would have a dampening effect on the financial system. How would you respond to that?

[Ronald Cuming]

I think the only group seriously affected would be the secured lenders who take security interests in those accounts receivable.

Of course, it's not for me to say, but this would be a policy decision. If Parliament should go ahead, it has decided that on the one hand there's an important public policy to protect suppliers, and also that those secured creditors, the banks and the big institutions, have ways of protecting themselves and would not be seriously affected by it. Again, that's a judgment call, I would have to say.

[Joe Peschisolido, Liberal, Steveston—Richmond East, BC]

Thank you, Chair.

[The Chair, Liberal, Pat Finnigan]

Thank you, Mr. Peschisolido.

Ms. Sansoucy, you have six minutes.

[Brigitte Sansoucy, NDP, Saint-Hyacinthe—Bagot, QC]

Thank you, Mr. Chair.

First, I would like to thank our witness, Mr. Cuming, for his comments.

I must admit that I was particularly surprised by the clarity of your explanations on the constitutionality of the issue before the committee today.

I would like to come back to the question my colleague Mr. Shipley asked. So that I understand this properly, could you give me an example of a scenario, with or without this act, that might help resolve the situation?

[Ronald Cuming]

Yes, maybe we can carry on with the scenario Mr. Shipley raised, that is, without this act, the suppliers would be just regular unsecured creditors of the bankrupt. They would share on a pro-rated basis with all of the other unsecured creditors of the bankrupt buyer.

Under this act, they wouldn't be sharing with the other unsecured creditors. They would only be sharing amongst themselves with respect to the property that's subject to the trust, so that if there is trust property, they would be in a much better position than they would if this act hadn't been passed and they were just regular unsecured creditors.

[Brigitte Sansoucy, NDP, Saint-Hyacinthe—Bagot, QC]

Thank you.

At the last meeting, Mr. Webber told us about the situation. In fact, for over 50 years, the reciprocity of access to dispute resolution services existed between Canada and the United States. The preferential rights were lost in October 2014. Yet the Canada-U.S. Regulatory Cooperation Council committed in 2011 to creating comparable approaches to protect Canadian and American suppliers of fruits and vegetables against payment defaults.

In light of your experience and your knowledge, how can you explain that, for all these years, no progress has been made to create comparable approaches to protect the producers?

[Ronald Cuming]

You'll have to forgive me; that is more of, I suppose, a political issue than a legal one. Why they weren't able to come up with something, I don't know. I did see a lot of study papers that were prepared exploring different approaches to this, but in all cases there was still the constitutional question, the doubt as to whether Parliament could do anything outside of areas where it has exclusive jurisdiction.

For that reason I concluded that insolvency really was the only way this could be done in a manner that would satisfy the Americans and that would be constitutionally acceptable in a Canadian context.

[Brigitte Sansoucy, NDP, Saint-Hyacinthe—Bagot, QC]

In your presentation, you explained that the jurisdictions were shared and that the issue of insolvency was the only one from a federal perspective.

Yet what we are talking about here is a constitutional issue. You told us about Saskatchewan's experience, which was a precedent, but I would like to know what work needs to be done with the provinces to come to a comprehensive solution.

[Ronald Cuming]

I have to say that from examining the matter, if you wanted a system that covered both insolvency and non-insolvency situations, you would have to have both federal and provincial legislation, the federal legislation dealing with insolvent debtors and the provincial legislation dealing with not-insolvent debtors.

I have worked for many years in the area of debt law, and I wouldn't be optimistic of being able to bring the provinces into the picture in this way. This is simply a personal point of view. I think it would take a considerable amount of time.

The approach we're proposing doesn't prevent a province from setting up trusts that would be effective in a non-bankruptcy situation where the debtor is not insolvent. That would be up to the provinces to do. But I think it's fair to say that the great bulk of problems will arise where the debtor's insolvent and therefore the role of the provinces may not be that significant.

[Brigitte Sansoucy, NDP, Saint-Hyacinthe—Bagot, QC]

Thank you.

It was said in committee that the lenders and the creditors groups say that a similar system in Canada might have a negative impact on the cost and availability of credit for businesses.

Do you agree?

[Ronald Cuming]

It may and it may not. The only way I can answer that is to refer to other similar situations. The Bankruptcy and Insolvency Act has been amended over the years to give preference to unpaid suppliers of tangible property, also unpaid employees, and to give priority for claims resulting from pension deductions.

In other words, the act has been amended to give special priority to other vulnerable creditors, and yet credit is readily available in Canada. Indeed, we did hear at the time that if we did that and we changed that law, credit would be negatively affected by the statistics—

[The Chair, Liberal, Pat Finnigan]

Thank you, Mr. Cuming. We have to move to the next presenter.

Mr. Drouin, you have six minutes.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

Thank you, Mr. Chair.

Thank you, Mr. Cuming, for being with us today. Full disclosure: I don't have a law degree background, so I may ask you to explain in layman's terms some of the terms.

Building on Madame Sansoucy's question, can you finish your comment about the special priority? I know the bank sector is worried about the superpriority. Does the special priority have priorities over banks in the...?

[Ronald Cuming]

My answer is, yes, it would. There's a special clause in the proposed act saying that this trust would take priority. Put it this way; this trust would affect property even though that property is subject to a security interest. There's no doubt, then, that the special priority that banks occupy, and not just banks but any lenders, when they have security interests on assets, will be affected.

For example, if our buyer had given a general security interest in all of his or her accounts receivable to a bank, those accounts receivable would be subject to the trust, and the trust would take priority. Let me just respond by saying that this is a judgment call. Parliament will have to decide whether it is prepared to give protection to this small group of vulnerable suppliers over what are really the most powerful banks in the world.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

When you drafted this bill, obviously you looked at the American model.

[Ronald Cuming]

Yes.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

In the States, there was no impact on credit lending?

[Ronald Cuming]

I didn't research that particular point, although you may recall that Mr. Webber testified last week that his inquiries had led to the conclusion that the answer was, no, there was no significant effect on the availability of credit. But I'm sorry, that's not an issue on which I have particular expertise.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

I know you worked with the industry to draft this, because I see a draft bill here. I know you consulted with the bankruptcy division at Industry Canada, but did you consult with some of the banks?

[Ronald Cuming]

No, not me personally.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

Okay.

I'm just trying to understand the rationale here. I'll quote from page 3 of your document: “...under a deferred payment contract providing for payment not later than 30 days from the date of delivery. The sellers offering terms longer than 30 days would not qualify for protection under this Act.”

What's the rationale for those who would want to set terms longer than 30 days? Is that the risk factor?

[Ronald Cuming]

This feature was recommended to me by people in the industry. They took the view that if you're going to grant credit for a much longer period of time, then the question of protecting you and ensuring you are covered becomes quite a bit more complex. There had to be some limit. That limit may be viewed as arbitrary, but the idea is that there has to be some way to put a fence around these claims, so to speak.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

Do you know if in the United States it's the same? Do they have that 30-day clause in there as well?