Finance Committee on June 18th, 2009

[Donald Sproule]

You certainly can. Our actuaries are working on it. Certainly on the pension plan that's well understood, but we're trying to get an estimate now on the remaining items.

We will certainly table those numbers for you. Some may be estimates, and some will be exact figures.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Okay.

I would like to ask for your comment. Obviously, in priority ranking for the creditor status, there's always that dilemma between servicing that individual and/or that pension versus the capacity and availability of being able to raise capital on the markets. As a lender, you're not going to go to a company and say, “Well, we're going to provide x amount of dollars, but it's too bad, so sad, we'll sit at the end of the line.”

It's really a difficult challenge to work through. A number of interesting proposals have been brought forward. I'm wondering if your group has given any thought to trying to find the mix that accommodates both. We can't have just “I win, I win”, and the other corporate entities can't just say, “Only me, only me”. Where do we find that balance in there? I would ask for your thoughts on that.

[The Chair, Conservative, James Rajotte]

Mr. Sproule, and then Mr. Clooney wanted to comment.

[Donald Sproule]

I'll hand it over to Diane in just a second.

In terms of balance, from an OECD point of view, there are studies out there that basically show certain countries doing quite well, where in bankruptcies the pensioners do get priority protection. In other jurisdictions, where there's no such clause, they have tremendous pension benefit guaranty funds that look after the employees.

In the United States, the land of free enterprise, $54,000 a year is what the United States government, in the pension benefit guaranty fund, guarantees to pensioners. In the U.K. it's £28,000 a year. In Canada, Ontario is the only province that will do it, and they're talking about doing $12,000 a year. So 30% of our constituency will get nothing because the other provinces do nothing.

Again, yes, it's a balance. It's a balance in terms of what the capital markets expect. Certainly, from an OECD point of view, it's an accepted policy.

I'll hand it over to Diane.

[The Chair, Conservative, James Rajotte]

Mr. Clooney wanted to comment as well. Then we can go to Ms. Urquhart.

[Lawrence Clooney]

Thank you very much.

I have two comments. The first is with regard to the statement that was made on why we didn't question our LTD benefit.

When I came out of university and joined Nortel, I got all these benefits. I thought they were great. When I looked at the brochures and the glossies, it seemed to me that I was getting an insurance policy, that if I went on disability, I would be insured beyond the life of the employer should they go bankrupt. Everything seemed to look that way. The glossy brochures looked that way. On my T4A statement the payer's name was Sun Life Assurance Company of Canada. Everything looked like that.

We have phoned Nortel HR on several occasions in the last several months to find out if we are insured. We have been given no indication of that. We have not been handed our policies or our contracts--nothing. So we are assuming the worst-case scenario: that we are not insured.

The second thing I'd like to read to you is something that came out of The Economist on May 7, 2009:

On April 30, after the failure of negotiations, Chrysler entered Chapter 11. Under the proposed scheme, secured creditors owed some $7 billion will recover 28 cents per dollar. Yet an employee health care trust, operated at arm's length by the United Auto Workers union, which ranks lower down the capital structure, will receive 43 cents on its $11 billion-odd of claims....

A precedent has been set in the U.S. with regard to giving pensioners and disability people a higher ranking on the creditor list.

[The Chair, Conservative, James Rajotte]

Thank you.

Ms. Urquhart, you have about 30 seconds.

[Diane Urquhart]

Thank you.

I just want to make the point that Australia made an amendment of its bankruptcy acts on a live case in order to give priority status to pension fund deficits. So we do have a precedent in the world. Sweden, Korea, and Japan are among a number of countries who give preferred status to severance and pension fund deficits.

I would argue that Canada and the United States and the U.K., the three places where Nortel has filed for bankruptcy, happen to be the countries that don't have the preferred status protections.

[The Chair, Conservative, James Rajotte]

Thank you.

Colleagues, I know you're looking at the clock. The fisheries committee is scheduled for 11 o'clock, but they've agreed to give us a few more minutes to finish this round.

Mr. Mulcair, you have seven minutes.

[Thomas Mulcair, NDP, Outremont, QC]

Thank you very much, Mr. Chair.

I wish to thank all the people who are here today for putting a human face to this drama.

It's so unbearable to watch what's happening to the individuals but also to realize, as the CEO of Nortel pointed out, that they approached the Canadian government to try to find a solution that would avoid the breakup and destruction of Nortel, which has generated so much wealth and growth and richness and resources, well beyond its own walls, in the Canadian economy and in the intellectual community. The breakup of Nortel is the Avro Arrow of the 21st century. It's one of those colossal mistakes that get made, and I was really distressed to find out that the door had been slammed on an attempt to come to a solution that would have allowed Nortel to continue as a going concern, as opposed to breaking it up.

Mr. Lyons, thank you for pointing out something that a lot of people don't think about, and that is that the money that goes into pensions is simply forgone income. It's your money, but you're putting it there. It doesn't belong to the employer; it doesn't belong to the employee. It's yours for later use, and you have to be able to call on it.

There's another issue the chairman referred to, and it's worth mentioning now. Because of the size and the scope of the changes Nortel has gone through, the variations, every possible perverse effect has been amplified, magnified—for example, the issue of the phantom income. For people who haven't followed the issue, it's going to be dealt with in September. A lot of Nortel employees bought stock, and there was a deemed disposition at a higher price. It was money they never saw—they're being taxed on it. And as they say at the train stations, be careful, because one train can hide another. Once you think one's gone, in bankruptcy there's a further deemed disposition and people are going to get hit again.

On the severance issue, if you had your severance, you wouldn't be going on EI. You'd be able to live off your severance for that amount of time and have EI at the end if need be. Here people will be immediately going on EI—that was the choice of the government when it turned down Mr. Zafirovski's proposition. There'll be a clawback of that when and if you get even 22¢ on the dollar. It's every possible perverse effect of the system amplified.

Mrs. Urquhart, I want to ask you something. Is it your view that if we gave preferred status to severance and pension benefits over bondholders and unsecured suppliers, it would have been an incentive to seek to maintain it as an ongoing concern, as opposed to going into liquidation? Is that your view?

[Diane Urquhart]

I would say that if you did an emergency amendment in this case, I guess I would be shocked to see that the debt holders wouldn't want to go to the ongoing concern plan, because if all of the $3 billion to $4 billion—that's my estimate, whatever it is—of deficits.... The proceeds of the sales will not leave anything for the debt holders. So they would rather have an ongoing concern, which would cause the pension deficits to not be a crystallized deficit, and live for another day. So even if the special contributions that cannot be borne today are sacrificed for an extended period of time, until a better day, they would have better recoveries in the future than to take sale proceeds now, where they are pro rata on a basis of approximately 50-50 in the world—worse in Canada—with the employment-related claims.

[Thomas Mulcair, NDP, Outremont, QC]

Thank you for that explanation. We tend to agree with you, and that's a reason to come back to it.

Mr. Sproule correctly pointed out that there was an NDP motion that was adopted unanimously just a couple of days ago in the House, which calls, for example, for the people at the CPP Investment Board to give back the millions of dollars of bonuses they paid themselves. I think there's a bit of a theme developing there.

The other thing it would do, of course, is fix this type of problem. There's nothing to stop us from doing it. But it would seem, from the meetings that were described, that the government is anxious to see Nortel go into liquidation, as opposed to doing everything it could to keep it vital and keep it as a going concern. That, for us, is extremely distressing information.

Also, the reference to the Income Tax Act is correct. We've looked at this issue in this committee, and it's part of what has to be fixed. Obviously when times are good you have to be able to top up more, and that limitation shouldn't be where it is right now. Your explanation was completely right.

There's another strange thing. The head of the Canada Revenue Agency was in here just a few short weeks ago, and we asked how it was that the employees of JDS Uniphase had had a very special remission with regard to their phantom income, and asked why that deal was not available to Nortel employees. We asked him if he had ever seen that before, that a remission order in a very specific case was not generalized to others. He said that in the 90-year history of the Canada Revenue Agency, no one had ever seen that, and he had never seen that. That's from the head of the agency.

The only difference between the two is that every single employee of JDS Uniphase—and I'm very glad for them that they got the remission—happens to be in Minister Lunn's riding. That's the only thing they seem to have going for them. So let's hope that the fact that a lot of the retirees live in some of the ridings, especially those who are from the Ottawa area, might make them a little more amenable than the ministers who were mentioned: Minister Flaherty; the Minister of Industry, Mr. Clement; and the Prime Minister.

Again, thank you for putting such a human face on this issue for us and explaining your individual situations, especially with the employees on disability.

I would love it if you could provide us, Mr. Clooney.... You gave us a very specific bit of information with regard to documents that refer to Sun Life and a deduction. Perhaps you could supply that to the clerk of the committee so that we could actually see it. It's incredible. I'm not saying I don't believe you. I'm just talking about the situation itself, that people would be led to believe they have insurance, that they find out it doesn't even exist, and that they're general creditors.

[The Chair, Conservative, James Rajotte]

You have one minute, Mr. Mulcair.

[Thomas Mulcair, NDP, Outremont, QC]

Thank you for protecting our time. It's very appreciated, sincerely.

I want to say to all the people who were not able to make it in today--a lot of people are following us online, and a lot of people are outside Parliament--we are going to do everything we can to help you.

Thank you.

[Lawrence Clooney]

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Mulcair.

Mr. Clooney, did you want to comment briefly? If you want to provide that to the clerk, I'll ensure all members of the committee get it.

[Lawrence Clooney]

Would I provide it to Jean-François?

[The Chair, Conservative, James Rajotte]

Yes, please.

[Lawrence Clooney]

We'll provide it within the next 48 hours.

[The Chair, Conservative, James Rajotte]

Thank you.

I want to thank you all for your presentations and your responses to our questions. I want to thank you so much, because it's an issue of very serious concern to you, and you did so very respectfully. I sincerely appreciate that.

In terms of logistics, we try to do four meetings in one. It was a very challenging thing to do. Obviously, there will be an ongoing dialogue about this issue.

There was a request made for Mr. Zafirovski to do a final comment. Mr. Zafirovski, we're pushing another committee back. We have about three minutes, if you want to comment.

[Mike S. Zafirovski]

I'll try to keep it even shorter.

Thank you for the opportunity again. This is very much the human face that has made the decision so difficult and agonizing. When we filed in January, the decision was not made until January 13. I do have a family, with three sons. What I keep telling them is that if you want to accomplish something significant, you have to give it everything you have, and we certainly did that. And I always say just because you do, it does not guarantee success.

Phase one can give assurances to all the employees, former employees, pensioners--who are doing exactly the same level, they're giving everything they have. We're asking customers, suppliers, employees to work with us through this process to optimize, within the current constraints, the values for the liabilities that Nortel has. It's a major imperative. It's the only reason I'm going through this process. You have my personal commitment to that. I've expressed it to the employees on an ongoing basis. I cannot express in any more ways the level of empathy and respect that I have for the 100-plus years that Nortel has been here.

We gave everything we had. It's a different game plan. Still, many of the assets of the company are superb. We're trying to optimize them for the benefit of all, very specifically, employees and stakeholders. Mr. Tay can attest to lots of discussions that we've had internally.

There were a couple of very specific questions on the LTD. We have 409 people. We're continuing those payments. We're looking for options to continue those without any guarantees to deliver a specific update on that.

I have a very quick comment on pensions. We did stop the pension plan in Nortel in 2006. For many large companies that go through different stages, to have 25,000 people paying for 100,000-plus pensioners is a very significant risk. We have changed to defined contributions, which are defined benefits. I believe that it's a smart way to be looking at managing pension assets for employees.

Lastly, there was a comment that we did not make an accurate statement on priorities. I would like to ask Mr. Tay to comment on the $200 million.

[The Chair, Conservative, James Rajotte]

Very briefly.

[Derek Tay]

When we filed, all the creditors were unsecured. As part of the cash constraints that Canada was facing, there had to be money borrowed from the U.S. In order to protect the U.S. estate, the judge ordered certain charges to protect that money, and $75 million has been borrowed under that facility.

[The Chair, Conservative, James Rajotte]

I thank you for that.

I hope this dialogue does continue.

Members, we have a final item of business. I understand there is unanimous consent to adopt Mr. McCallum's motion. Am I correct on that?

Mr. Carrier.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

Mr. Chair, I simply want to mention that we already tabled a similar motion. Our motion sought to schedule a one-hour discussion for self-employed computer science workers. At the suggestion of the parliamentary secretary, we had decided to meet the minister.

We are therefore in favour of Mr. McCallum's motion, but we do want to make sure that it includes self-employed computer science workers, whose problem is similar to what is being described here.