Finance Committee on March 25th, 2010

[The Chair, Conservative, James Rajotte]

You have one minute.

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

What I was indicating there is, from a psychological point of view, there's a status thing that goes on with all people, but with seniors in particular, and the amount of money they have. Naturally, of course, if you have millions of dollars, you'll have lots of friends, but you could have a million dollars and no friends, and not live longer.

Ms. Comeau.

[Gladys Comeau]

Well, yes, I neglected friends. Fortunately, there's quite a group who volunteer. Don't ask me why I do all this volunteering, but until I can't, why not?

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

I wish you all a long life.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Rafferty.

We'll go to Mr. McKay, please.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Mr. Chair, this committee never ceases to be informative. I've been wondering for years why I had no friends. Apparently it has something to do with the size of my wallet.

[Daniel Paillé, Bloc, Hochelaga, QC]

It's because you are a Liberal.

[John McKay, Liberal, Scarborough—Guildwood, ON]

I want to go back to the conversation with Mr. Sproule earlier.

You made the analogy of unpaid wages, or deferred wages I guess is the better way of putting it, that this is money you are owed and should have been paid, and you weren't because it was put into a pension plan.

Refresh my mind: what is the priority of unpaid wages in bankruptcy proceedings now?

[Donald Sproule]

In terms of unpaid wages and contributions for existing employees to pension plans, it's the Wage Earner Protection Program Act legislation, which I think was approved recently under Companies' Creditors Arrangement Act as well. That amounts to $3,000.

[John McKay, Liberal, Scarborough—Guildwood, ON]

So there's a $3,000 cap.

My vague recollection is that if there are unpaid wages in excess of that at a bankruptcy, there's a director liability. Is that correct?

[Diane Urquhart]

That's correct, and in a bankruptcy filing you have to ask for the right to litigate against the directors. It's subsection 5.1(2) of the Companies' Creditors Arrangement Act. In that, you have the right to sue directors for misrepresentation, wrongful conduct, and oppression. I believe that's where unpaid wages get captured.

[John McKay, Liberal, Scarborough—Guildwood, ON]

If we carry the analogy to the unpaid wages situation further, would you be made whole if you put the vulnerabilities about pensions in the same category as wages—assuming the cap is off?

[Donald Sproule]

It all depends on what's left in the estate, the Canadian estate. It would certainly improve our lot. And again, we don't know what the answer is going to be, but right now we're pitted against $4 billion in bonds and a $2-billion asset to the U.S. estate, and the list goes on in terms of claims on the estate. We would move ahead of that and do a lot better, but there's no guarantee that we'd get 100%.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Really, your request here is to move up the scale somehow or another. In effect, you're not moving up the scale to secured, you're just moving up the scale to preferred. Is that what it boils down to?

[Donald Sproule]

That's correct.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Okay.

In the process of moving up the scale to preferred, your argument is that it would not harm capital formation. You then made the argument that these companies are junk bond. When the capital is being formed, when the capital is being invested, these companies are not at the junk-bond status. Nortel, at one point, was sort of like Mother Bell on the stock. So again I go back to that question, that it does seem to be counterintuitive that if in fact the whole system were changed there would be a potential drag on capital formation.

I'd be interested in your opinion on that.

[Diane Urquhart]

The first thing I would note is that 34 out of 53 countries have preferred or super-priority status, so Canada is the laggard. We're by no means going to create any offence to bond investors of the world who are accustomed to investing in those 34 countries.

The second point I'd make is that for those that are investment grade and have pension fund deficits, my estimate is that the impact on the cost of capital, if they are not hedged with the credit default swap, is 0.16%. This is an amount that is easily borne, and should be borne, when you consider the social cost that comes when these companies, through perhaps being hedged with credit-default swaps, seek to enter bankruptcy for the purpose of double-dipping and making profit. They shouldn't be getting the opportunity to make a higher profit by causing seniors, the long-term disabled, and survivors to take a loss.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mr. McKay.

Monsieur Desnoyers, s'il vous plaît, cinq minutes.

[Luc Desnoyers, Bloc, Rivière-des-Mille-Îles, QC]

Thank you, Mr. Chair. I'm really pleased to be meeting with you. This is a unique opportunity. The presentation that you made to the government was good, because for the first time they're listening to you, they hear you.

I remember seeing you demonstrate on Parliament Hill. There were folks from Aciers Atlas, Mine Jeffrey, Nortel, and a lot of others were there too. Your stories are important and must be taken into account. At that time, the government said that it wasn't its responsibility, and that the buck stopped with the provincial government of Ontario. The government was blaming everyone else, but everyone knew that it had to do something. Unfortunately, it didn't.

And you've come here now with recommendations and ideas that the government didn't have. I find it interesting that they're open to hearing what you have to say. There have to be additional safeguards to protect pensions. You said that there needs to be serious checks and balances. The kind of checks and balances that you were subject to for 40 years as a taxpayer. The taxman took money out of your wallet over all this time and made sure it was the right amount.

Today, you need help, because there was no rigorous system of checks and balances. You're scrambling, and the house is going up in flames. And they're not sending the firefighters; they're sending decorators instead. But that doesn't fix the problem, and real action is needed right now. We need enhanced bankruptcy laws, that much is clear. We need a pensions act. You talked about reducing taxes when part of your pension is lost, and of taking advantage of these deductions to save money. And I'm really struck by the social impact of all of this. I want to hear what you have to say about that.

When you lose your retirement fund, you get poorer, you have access to less in the way of health care, you can afford fewer things than before. And what's more, you said that it wouldn't cost Canadians a cent. I hope that they're all ears. This is important. They don't need help tomorrow, they needed it yesterday. Time is of the essence.

I'd like to hear your comments on the social impacts and the fact that it won't cost Canadians a cent. Anyone can respond, Ms. Urquhart, Ms. Bernard, or Mr. St-Michel. And if at the same time you want to say more about your ideas, I'd welcome that too.

[Bernard Neuschwander]

As far as the social cost is concerned, Ms. Urquhart may be able to say more.

[Diane Urquhart]

I'd just like to make a point. It's not an issue that's not going to cost the government. If you do not act to amend the Bankruptcy and Insolvency Act and the CCAA it will cost the government.

We see in the Nortel case alone that we're going to have an estimated $355 million of downloading. The downloading is coming primarily from the survivors as a result of them getting 60% of 60% of the working spouse's wage and then getting a further 36% cut. This is going to put them in the range of requiring guaranteed income supplement if they do not have other savings.

For the long-term disabled, they are all already on the CPP disability, but for them it's going to be a burden on the provinces because of the provinces having the prescription drug programs.

We've not spoken much about severance because this is a session on pensions, but all of the severed persons go onto the employment insurance plan. So there is a heavy burden that's placed on the employment insurance plan when there are other more deserving unemployed, more deserving survivors perhaps, and long-term disabled who didn't have employers. So when employers have billions of dollars they should be obliged to honour their contractual obligations.

[Luc Desnoyers, Bloc, Rivière-des-Mille-Îles, QC]

What do you think, Mr. St-Michel?

[Pierre St-Michel]

This is about the social costs. We have lost money from our pension fund. You can tell me that there was no violence involved, but there certainly has been psychological violence. Peoples' morale has especially taken a hit.

A little earlier, I said that folks can hardly think of anything else. It has completely changed their lives. I know many people who have had to sell their houses and rent accommodation. You cannot set about doing a lot of projects. It is all the more shocking because it is our money. That is what people are saying. They just do not understand. People are saying to me that, if this was about the pensions of members of Parliament, the law would be quickly changed. I think they are right.

[Luc Desnoyers, Bloc, Rivière-des-Mille-Îles, QC]

What do you think of the social costs, Mr. Fréchette?

[Gaston Fréchette]

You would not believe how widespread the hardship is, how many houses are up for sale and how many families are having difficulty. There was a study in our region. Our population now has one of the highest suicide rates. Currently, 300 retirees are getting Guaranteed Income Supplement benefits. It is not as if they are asking for more than they are entitled to, after working for 35 or 40 year in a mine.

They say there is quite an art to getting a company back on its feet. But they do not say much about getting our pensions back.