Industry Committee on June 1st, 2021

[The Chair, Liberal, Sherry Romanado]

I call this meeting to order. Good morning, everyone.

Welcome to meeting number 42 of the House of Commons Standing Committee on Industry, Science and Technology.

Today's meeting is taking place in a hybrid format pursuant to the House Order of January 25, 2021. The proceedings will be made available via the House of Commons website.

So you are aware, the webcast will always show the person speaking rather than the entirety of the committee.

For this meeting, the first hour will be spent on Bill C-253. Then we will move in camera for the second hour to review a report.

To ensure an orderly meeting, I would like to outline a few rules to follow.

Members and witnesses may speak in the official language of their choice. Interpretation services are available for this meeting. You have the choice at the bottom of your screen of either “Floor”, “English” or “French”. Please make sure to select your preference now.

This is a reminder that all comments by members and witnesses should be addressed through the chair. Before speaking, please wait until I recognize you by name. When you are not speaking, your microphone should be on mute.

As is my normal practice, I will hold up a yellow card when you have 30 seconds left in your intervention. I will hold up a red card when your time for questions has expired. Please keep your screen in gallery view so that you can see the cards when I hold them up.

Pursuant to the order of reference of Wednesday, May 12, 2021, the committee is meeting to continue its study of Bill C-253, An Act to amend the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act.

I'd like to now welcome our witnesses.

From the Canadian Federation of Pensioners, we have Michael Powell, president. From the Canadian Labour Congress, we have Hassan Yussuff, president, and Chris Roberts, director, social and economic policy. From the National Pensioners Federation, we have Trish McAuliffe, president.

We also have two representatives of the United Steelworkers with us: Dominic Lemieux, director of district 5, Quebec, and Nicolas Lapierre, representative, Sept-Îles regional office.

Each witness group will have up to five minutes to present, followed by rounds of questions.

With that, we will start with Mr. Powell.

You have the floor for five minutes.

[Michael Powell, President, Canadian Federation of Pensioners]

Good morning.

My name is Mike Powell. I am the president of the Canadian Federation of Pensioners.

CFP's 23 member organizations advocate directly for over 300,000 defined benefit pensioners, and our allies represent millions more. We support Bill C-253 and the extension of superpriority to pension deficits. This is the simplest solution to meaningfully improve pension protection for Canadian seniors.

In our Canadian regulatory environment, the only single place to protect pensions is within insolvency regulations. This committee and Parliament face a decision between the status quo—which leaves seniors' future financial well-being at risk and perpetuates an unfair system designed to exclude seniors from protecting their own financial interests, an unfair system that has been proven to significantly harm older Canadians—and a new future that offers protection to vulnerable seniors.

I'd like to address five concerns that stakeholders in insolvency may raise.

The first is that lending rates would increase for companies with defined-benefit plans, leading to more insolvencies. This argument was central in 2010 when a similar bill, Bill C-501, was debated. In 2011, though, the pension deficit was ruled a deemed trust by the Court of Appeal for Ontario in the Indalex case. A deemed trust is the highest priority in insolvency, above the superpriority envisioned in Bill C-253. This ruling stood for two years before it was overturned.

It is critical to note that there was no fallout from this decision. The wave of insolvencies of companies with DB plans that was predicted did not occur. Borrowers and lenders made accommodations, and business continued.

The second is that there would be fewer restructurings and more liquidations. This is also an old and flawed argument that would get a failing grade in a first-year business policy course. Envision submitting a paper whose key assumption of your argument was, “Given a significant change in a regulatory environment, business management would not change their critical strategic decisions; therefore, I will use past results without adjustment in my future model.” Along with a failing grade, there would likely be a comment that basing your argument on inept company management is not recommended in policy development.

The third concern is that this would discourage new DB plans and lead companies to close existing plans. The harsh reality is that DB plans have been on the decline for many years, despite actions taken by governments to reduce costs for companies.

The fourth is that other creditors would be disadvantaged. This is based on the false notion that stakeholders are treated equally today. The impact of insolvency is much greater on pensioners than on other creditors. Pensioners lose a significant portion of their income for the rest of their lives; other stakeholders only lose a portion of the money owed them at the time of insolvency, not their entire contract, nor do they face future reductions in revenue due to the insolvency of one of their customers.

There's also a difference of control. The other stakeholders at the insolvency table have all negotiated their financial exposure. They've made conscious decisions to address payment terms, prices, interest rates and contract conditions. Government treats seniors as wards of the state. Pensioners have no ability to control, approve or even influence their financial risk in insolvency. Pensioners are not even ensured a seat at the insolvency table.

The fifth is that changes made in the 2019 budget have levelled the playing field. Pension protection in 2019 is the proverbial bailing of the Titanic with a teacup. You can measure progress, but it won't change the outcome. We need to ask this: Would the changes in budget 2019 have protected the Sears pensioners? The answer is no.

In summary, government has appointed itself as sole guardian of the vulnerable seniors' future financial well-being. Government legislation precludes pensioners from any form of control or even influence over their pensions in insolvency. Bill C-253 addresses this imbalance.

This committee and Parliament are faced with a decision. You know of the real price paid by seniors left in collateral damage in an insolvency. This is fact. You will hear concerns raised by other stakeholders of theoretical harms. This is speculation. The choice is yours to make. Our 300,000 members strongly urge you to stop treating pensions as piggy banks in insolvency and support Bill C-253.

Thank you.

[The Chair, Liberal, Sherry Romanado]

Thank you very much, Mr. Powell.

We will now go to the Canadian Labour Congress.

You have the floor for five minutes.

[Hassan Yussuff, President, Canadian Labour Congress]

Thank you, Chair.

First let me thank the committee for the opportunity to present to you today.

I represent the Canadian Labour Congress, Canada's largest central labour body in the country, and it speaks on national issues on behalf of three million working men and women from coast to coast. The CLC, of course, supports Bill C-253, and I want to thank the members who voted to advance this bill.

For years, the CLC has advocated changing the bankruptcy laws in our country. Workers and pensioners should be first in line, not last, when it comes to paying creditors. Workers pay for their defined benefits, pensions and other post-retirement employment benefits by deferring part of their compensation. Employers have a legal obligation to pay these promised pensions in retirement. It is totally unacceptable that earned benefits are taken away from pensioners, through no fault of their own, at a time in their lives when they are least able to adjust. Pensioners cannot simply go back to work when their pensions are cut. They need the post-retirement drug coverage and benefits that they have earned through working for a lifetime.

This tragedy has gone on too long. It has occurred too often. It cannot go on any longer. It is time to fix this problem.

The insolvency process is rigged against working people. The recent Laurentian University example shows how small unions are isolated and besieged by CCAA proceedings. Workers are threatened with devastating job losses unless they agree to make deep concessions to wages, pensions and benefits.

The CLC believes that public institutions should be excluded altogether from the CCAA and the BIA. The federal insolvency laws are meant for commercial corporate reorganizations. They were never meant to provide cover for provincial governments that refuse to live up to their fiscal obligations and expect workers and pensioners to pay the costs. The CLC would prefer that the claims of workers and pensioners be moved to the front of the line, as Bill C-253 seeks to do.

If there is no consensus to do so, the CLC believes that all parties should consider granting pensioners' and employees' claims the status of “preferred claim”. This would place them immediately behind the secure creditors in priority of claims, but ahead of unsecured creditors. We believe that treating employees' claims as preferred claims will materially improve outcomes for workers and pensioners.

However, getting the data to establish this is not easy. Currently the data is controlled by the big accounting firms—especially Ernst & Young, KPMG, Deloitte and PricewaterhouseCoopers —that act as monitors in CCAA proceedings and trustees in bankruptcies. There is a clear public policy purpose for making this data available for researchers. We are seeking aggregate anonymized data for large business insolvencies in which pension deficits are involved. We are not seeking commercially sensitive data. In our view, the superintendent of bankruptcy should be required to obtain this data from monitors and make it available to researchers.

We also recommend that the federal government conduct a feasibility study to establish a national mandatory pension insurance scheme for Canada. This study should form the basis of discussions with the provinces to establish a national scheme to rescue stranded pensions.

Finally, the government must stop company executives from enriching themselves and shareholders when there is a serious pension deficit.

The 2017 Sears Canada CCAA filing and liquidation was an outrage. Beginning in 2010, Sears paid $1.5 billion to shareholders in dividends and share buybacks. By doing so, Sears paid five and a half times more to its shareholders than it would have cost to entirely erase the deficit in its DB pension plan. Sears' decision in 2013 to pay a $500-million dividend when the pension deficit stood at $313 million would alone have been enough to eliminate the deficit. Instead, Sears Canada pensioners outside of Ontario were forced to accept cuts in benefits. This is a profound injustice. It should never be permitted to happen again.

Thank you very much. I look forward to any questions that committee members may have.

I wish all the best to you.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

We'll go to Ms. McAuliffe in a moment.

We're having difficulty connecting with you, Ms. McAuliffe.

Your headset is not selected; it is actually going through the computer. I'm going to ask IT to reach out to you. They're trying to reach out to you to walk you through how to select it.

We will go to Métallos, and then we'll come back to you.

I will therefore give the Steelworkers representatives the floor for five minutes.

[Dominic Lemieux, Director, District 5 - Québec, United Steelworkers]

Thank you very much, Madam Chair.

I would like to point out that we represent 225,000 workers all across Canada, of whom 60,000 are in Quebec. Pension plans are a subject of great importance to the Steelworkers.

I would also like to thank all of the parliamentarians we have met in the course of the lobbying activities we took part in before the COVID‑19 crisis. We met with over 250 MPs and senators to talk about the problem with pension plans. I would say that we had some very good discussions with all of the parliamentarians we talked to.

The Steelworkers have been hard hit by what happened at Cliffs Mining on the North Shore. As my colleague Mr. Yussuff said, there have also been problems at White Birch Paper, in Quebec City, and at Sears, Nortel, and Stelco, where I once worked. These are a few examples among many.

Unfortunately, in the case of Cliffs Mining, there were consequences for over 1,700 retirees, widows and spouses. This was a major tragedy for us. Unionized and non-unionized workers and retired managers fought a long legal battle. Ultimately, they were able to recover $18 million out of the $28‑million deficit in the pension fund. Nonetheless, retirees' pensions were cut by 8.5% and this was catastrophic, particularly for our oldest retirees. Some of them are living on a monthly pension of only $800. It is tough seeing retirees lose a significant portion of their pension when they have no way to make up their losses. These are people aged 80 and over, including widows, who cannot return to the labour market. It has truly been a disaster. Throughout this time, Cliffs in the United States continued to rake in tens of millions of dollars in profit.

As I said earlier, we lobbied. Throughout that process, we listened. Initially, we were seeking to be put ahead of the banks in the ranking of creditors. We then understood that this might interfere with companies' economic recovery, since the banks would be more hesitant about financing their recovery. We therefore changed our position somewhat: we are prepared to be ranked just ahead of municipalities and school boards. This means that we will not be jeopardizing companies' recovery.

It must be understood that this affects 1.2 million Canadians. The Steelworkers believe that it is the role of government, the role of all of you, to protect all middle-class Canadians. Retirees who have defined benefit pension plans are all members of the middle class. The 2019 budget introduced by the Liberals spoke expressly about a desire to protect pension plans. In fact, at the Liberal Party of Canada convention held in Halifax in 2018, the party reiterated its intention to protect pension plans, most of which have no protection. It is important to pool the risk to which these retirees are exposed and not leave them on their own.

The COVID‑19 crisis came with enormous volatility in the markets. Some businesses will have trouble surviving when the Canadian government assistance programs end. We therefore believe that this is the ideal time to legislate protection for pension plans. The time is right and I think there is a degree of openness on the part of all parties to the idea of legislating protection for pension plans that we have rarely seen. This is the third draft of a bill of this nature in the last five years. We have been trying to protect pension plans for 17 years, so we must not fail to take this opportunity while the time is right.

I want to tell you that we need you. This is important. There is a consensus on this issue. Surveys show that 75% of Canadians support the idea of finding a mechanism to protect pension plans.

When a disaster happens, we often say that we have to learn from it in order to avoid repeating it. When an accident happens, for example, we say we are going to make every effort to avoid it happening again. Retirees have endured multiple disasters. I think it is time to find a way to make these disasters stop.

Thank you, Madam Chair.

[The Chair, Liberal, Sherry Romanado]

Thank you very much, Mr. Lemieux.

We'll now go to Ms. McAuliffe. You have five minutes.

[Trish McAuliffe, President, National Pensioners Federation]

Greetings, and thank you for this opportunity to present to the INDU committee review on Bill C-253.

My name is Trish McAuliffe, and I'm president of the National Pensioners Federation, representing nearly one million members across Canada for over 75 years—not me in particular, but we have been around for 75 years.

We have a strong advocacy group on pension protection. Today, we're here to support Bill C-253, and respectfully, I would like to support your committee with our posed question of “Why now?” after nearly two decades of seeing similar bills being presented in the House of Commons to no avail.

What is different now is our emerging seniors demographic and the 4.2 million retired seniors who rely on defined benefit pension plans.

DB plans are known to be an essential part of Canada’s three economic pillars of our retirement system. We must safeguard all of this, and it will be at no cost to the government, as proposed here in Bill C-253.

Further, it is a COVID crisis response, and for years to come. It is true that the government has provided financial backups for seniors with increases in OAS and GIS funding, recognizing that it is important for every senior to live and retire in dignity at all costs. The best and most efficient way to provide a secure and predictable income for all Canadian workers is, in fact, by having protected defined benefit pension plans and a healthy CPP. Otherwise, government-funded backstops and hard times would only continue to mount.

Again, I know we are all here because we understand this and we want to ensure that all Canadians have a secure retirement income.

Noticeably, the Conservative Party of the past voted down similar bills, yet the new leader, the Honourable Erin O'Toole, has pledged his support towards building better relationships with unions and workers. Here, Bill C-253 could be the start of that opportunity.

Let me further emphasize that defined benefit pension plans are the most efficient way to use current earnings to fund retirement. Worker-organized workplaces, such as unions and associations, have proven track records of working with employers to ensure that defined benefit pension plans are sustainable. Sustainable plans are in workers' best interests as well. Pension plan members pay a significant portion of the cost of their pensions, and these plans are a part of the negotiated total compensation package—a contract, if you will, that your investment will be there for you at the end of your work life, guaranteed. In this context, a “defined benefit” means that the pension promises that an employer makes to a worker become legally binding obligations on the employer. We would argue that it's a deemed trust. Why should that change in priority at any time, and why are retirees not at the table or, at the very least, consulted?

The Canadian economic landscape of the past two decades has offered up many reasons for financial crisis for big business. I experienced this fright myself in 2008, just shy of my own retirement. Workers associations and unions came to the table to negotiate with their employers and the government in the 2008 bailouts to find viable solutions ahead of bankruptcy. Workers and retirees gave concessions, and today those corporations thrive. Workers and retirees have never recovered, nor are they expected to. Is that fair?

Ultimately, banks thrive. Why do we fixate on the lenders and their actors when we've seen, for the past 20 years and more, that it's the retirees, the workers, their families and the community that bear the heavy burden from such sudden bankruptcies?

No sector is untouched by the harms of the CCAA and the BIA. Today, Laurentian University is the first Ontario university to declare insolvency and enter CCAA proceedings, the first line of defence under financial distress. These are public sector workers, and undoubtedly they'll be followed by P3 workplaces as we promote them.

History has shown us that sharpshooter insolvency lawyers have made quarter-century careers of abusing bankruptcy and insolvency legislation to disassemble companies and sell them off for pennies on the dollar. They regularly gut workers' pensions, tear up their contracts and enrich their clients at the expense of employees who were never in positions of power. It's their job, and they're well compensated for it. What's more, they've been destroying the lives of employees and families for the 20 years while we have watched governments debate this devil of a detail.

Madame Gill reminded you of the social toll of bankruptcies. Well, here's a life lesson: Don't expect a different result when you keep on doing the same harm. Try something different.

As coalition advocates for pension security, we have provided many solutions with credible submissions with no cost to government. I ask this question: What have opponents of Bill C-253 or the past likes of it provided?

[The Chair, Liberal, Sherry Romanado]

Ms. McAuliffe, you're over time. Could you please wrap up?

[Trish McAuliffe]

Yes.

This is an election year. The democratic solution is this: The governments we elect are beholden to serving the electorate, and that's us. Make this a reality and support Bill C-253.

Thank you.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

With that, we'll start our round of questions. Our first six-minute round goes to MP Poilievre.

[Pierre Poilievre, Conservative, Carleton, ON]

Thank you. Anybody can answer this question.

In the case of a bankruptcy in which there's a pension shortfall, pensioners currently are on scale with a whole series of other creditors that stand to lose in the event of that bankruptcy. For example, in Ottawa we had the massive bankruptcy of Nortel. Not only were pensioners, whose pension fund had dropped in value, in trouble, but so were a lot of little contractors, tiny businesses that went over to that big old building just off Highway 417 and did plumbing work and electrical work and fixed the windows and did the painting and maintaining. They were all contractors who hadn't been paid. Those people as well were left holding the bag.

If this bill were to pass, would they move further down the pecking order for claims on payment from the liquidation of the bankrupt company's assets?

Mr. Yussuff, I see you putting your hand up.

[Hassan Yussuff]

Yes, Mr. Poilievre. I think it's critical to put this in some context.

The key, in terms of our argument, is that the promise that employers made to workers on deferred wages and benefits is supposed to be accounted for, obviously, in their books. Of course, what we see time and time again is that employers have not made the contribution or have allowed their pension fund to not meet the obligation.

When they get into bankruptcy, we're told the secure creditors—the banks and others—have to get ahead of workers. We think that's fundamentally wrong. In regard to the situation you're describing about local contractors, they will be in the line; the question is what priority they might be. Of course, they might be in back of workers.

Our argument is that workers should be the first in line, and then we'll work our way through who else should be there once workers' pension and benefits are taken care of—

[Pierre Poilievre, Conservative, Carleton, ON]

Thank you. I'm sorry, but we're just very short on time.

Right now, as I understand the rules, the issue is not that the company contribution to the pension is not being fulfilled; it's that the pension benefit, the defined benefit, is not being upheld. Under the law right now, unpaid wages, severances and pension contributions are at the front of the bus, but what is not is the guarantee that the pension will deliver the defined benefit it promised.

That's really what we're debating: It's whether a pension should be made actuarially sound to deliver the benefit to the worker that is promised. For that to move forward in the priority, then other things will have to move down by definition, or else we wouldn't be here. I'd be curious about some of the other very sympathetic people who are not bankers and who are obviously going to lose in the case of a bankruptcy as well.

I'll move on to my next question now, and someone can feel free to jump onto the previous one if they like.

If a company, let us say, wants to hire 200 people but needs to open a factory to do it, they go to get a loan because they don't have the money. If this bill we're debating is in place and the lender says, “Sure, we'll give you the loan, but we need collateral,” and the company says, “Well, we can't offer you any collateral because all the collateral is first and foremost committed under this law,” then the factory doesn't open.

How would you ensure that this bill will allow businesses to continue to offer collateral that would not be superseded by law?

Mr. Powell, would you comment?

[Michael Powell]

Part of it goes to the.... If pensions were granted superpriority, the companies would make different decisions about their pensions. It would become a real obligation. Everybody knows today that if you file for insolvency, your pension obligation disappears like a wisp of smoke. This would make it a real event.

The concept of a new company—

[Pierre Poilievre, Conservative, Carleton, ON]

Mr. Powell, that is actually a persuasive argument. That's why I supported the bill to come to committee, and it's one of the reasons I am inclined to support the bill, in general, because you make a great point.

I am curious, though. How does collateral work, really specifically? I come to you for a loan and I have a pension fund for my employees. You say you need collateral to lend me the money to open a factory, so I can hire more employees. I am going to say, “Well, I can't, because the law requires all my collateral to be committed to the pension.”

Tell me: How can we resolve that with this bill?

[Michael Powell]

I guess the answer to that is history. The Indalex case in Ontario found that the pension was actually a deemed trust, a much higher priority than superpriority, and there was no wave of insolvencies. The lenders and borrowers worked it out.

The other thing to keep in mind is that when you look at this issue at large, DB pensions are fading. They are disappearing. A lot of that, I believe, is because of demographics. People don't expect to work for a company for 34 years like I did. It's not a way to attract talent. A pension doesn't attract talent, because the people coming into the workforce don't see any value in it.

[Pierre Poilievre, Conservative, Carleton, ON]

Listen, I think you make some good points. Some businesses say they are worried they won't be able to raise money in the market if they wrap up because their pensions are not properly funded. Well, my view is that if you're a CEO and you are not properly funding your pension, you should be getting a tongue-lashing from the market.

[The Chair, Liberal, Sherry Romanado]

Thank you very much, MP Poilievre.

We'll now go to MP Lambropoulos for six minutes.

[Emmanuella Lambropoulos, Liberal, Saint-Laurent, QC]

Thank you, Madam Chair. I'd like to thank all of our witnesses for being here with us today.

I was also going to go along the lines of what Mr. Poilievre was asking with regard to creditors and lenders. I imagine that if the act were to change, it would be across the board, and all companies would have to do this. I guess the way we look at lending would also change, and people would have no choice. However, it could still have implications and risks for our economy.

Can any of you give us any information about what other countries do as it stands right now, and how would this make Canada different from other countries? How would it either put us at an advantage or a disadvantage worldwide?

Mr. Powell, would you comment?

[Michael Powell]

No other country has the same legislative environment as Canada. Does any country have our exact solution? Probably not.

If you look at the United States, for example, you see that it has a pension benefit guaranty corporation. That's a national entity that guarantees pensions. The last time I checked, a couple of years ago, if your pension failed when you were 65, you would be guaranteed a pension of up to $60,000 a year, and it goes up every year.

The United States can do that because it has a national pension regime. The United States has also given that corporation the power to go in and compel companies to put more into their pensions and to compel companies to change their investment risk portfolio. These are enormous powers.

Would something like that be good for Canada? Probably, but I'm not sure how you would get around the jurisdictional problems, in that we have 11 different pension jurisdictions in Canada. If we could solve that, it would be a great way to go, but again, our environment is quite different from other environments around the world.

[Emmanuella Lambropoulos, Liberal, Saint-Laurent, QC]

Thank you. I appreciate what I was able to hear. Unfortunately, my Internet bugged, and I missed half of it. I can watch this again later.

Mr. Lapierre, do you want to add something?

Madam Chair, I can't hear anything. I'm not sure if it's my Internet or what's going on.

[The Chair, Liberal, Sherry Romanado]

We can hear you.

MP Lambropoulos, are you asking Mr. Lapierre if he would like to contribute to the question?

[Emmanuella Lambropoulos, Liberal, Saint-Laurent, QC]

Yes, I saw his hand up.

[The Chair, Liberal, Sherry Romanado]

Mr. Lapierre, can you hear us?