Industry Committee on June 8th, 2021

[The Chair, Liberal, Sherry Romanado]

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

Welcome to meeting number 44 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. The first hour will be spent on Bill C-253, and then we will move in camera for the second hour, to review a report.

To ensure an orderly meeting, I'd 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 audio. Please select your preference now.

I'll remind you that all comments by members and witnesses should be addressed through the chair. When you are not speaking, your microphone should be on mute. If you have a tendency to move your microphone after you've spoken, please make sure you put it back in place prior to responding.

As is my normal practice, I will hold up a yellow card for when you have 30 seconds left in your intervention, and I will hold up a red card for 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 CanAge, we have Laura Tamblyn Watts, president and CEO, and Brett Book, policy officer. From the GENMO Salaried Pension Organization, we have Michael Powell, president, and Tom Laurie, director.

From l'Observatoire de la retraite, we have with us Mr. François L'Italien, coordinator.

From the Store and Catalogue Retiree Group, we have Kenneth Eady, Sears retiree and court-appointed representative of Sears retirees.

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

We will start with CanAge.

[Laura Tamblyn Watts, President and Chief Executive Officer, CanAge]

Good morning and thank you for the opportunity to address you today about the pressing issue of pension reform.

My name is Laura Tamblyn Watts and I'm the CEO of CanAge, Canada's national seniors advocacy organization. We're a pan-Canadian, non-partisan, not-for-profit organization. We work to advance the rights and well-being of Canadians as they age.

With me today is Brett Book, policy officer, with whom I will be co-presenting.

Canadian pensioners need protection from corporate default, particularly during and post COVID-19. Compared to other jurisdictions, Canada lags significantly in its protection of pensioners. With this bill, government can protect pensioners at exactly zero tax impact to other Canadians. This bill puts the risk back where it belongs, in the hands of corporations.

Members of the committee, seniors vote. Overwhelmingly, 72% of all seniors vote in every election, and 89% voted in the last two federal elections. This is an election issue for them. The issue of pension protection recently scandalized the nation with the catastrophe of Sears pensioners, but it has happened many times before, and will continue to happen again until real change is made by government.

CanAge has three key arguments in support of this bill and pension reform.

First, pension protection is long overdue and COVID has changed the landscape; second, old arguments against pension reform are incorrect and outdated; and third, the financial security of seniors matters.

First, pension protection is long overdue and COVID has changed the landscape. I'd like to tell you a story about a member who reached out to us this year. I'll call him Bob. He works at Laurentian University, where his DB plan is located. Laurentian is now in dire straits. Bob's wife worked at Sears and lost her financial security when she lost her Sears pension. He cried to me, heartbroken, on the phone, and asked how it could possibly be that they both worked their whole lives and contributed to their plans, and now face poverty because they are last in line for their own money?

We know that during COVID-19 many seniors faced hard financial times, with increased costs and low interest rates. With austerity assuredly in sight soon, we also know that more employers are likely to fail. Unless government acts now to protect the deferred wages of pensioners, more seniors will be robbed of their hard-earned money and left to a future of financial insecurity. With an aging population, this is an issue of escalating importance.

I will now turn to Mr. Book to continue.

[Brett Book, Policy Officer, CanAge]

Old arguments against pension reform are incorrect and outdated. CanAge is grateful that a small change was made during budget 2019, which made a difference for a small slice of pensioners. However, the underlying problem remains.

Most of the rationale for not fixing the problem is based on three outdated and unsupported arguments.

First, the adoption of superpriority of pensions and pension protections will mean fewer employees will start up defined benefit plans. With respect, that ship has already sailed. Defined benefit plans are not being created. In Ontario, DB plans fell by more than 10% between 2017 and 2019, even after the Ontario government lowered funding requirements for solvency from 100% to 85%. The only changes that happened were that there are fewer DB plans, not more, and corporations saved billions.

Second, corporations with DB pension plans will have loan rate premiums that will make them uncompetitive and lead to more insolvencies. If profound pension deficits were such a key concern, corporations, pursuant to good risk management and corporate governance, would never permit these enormous pension deficits to occur on their books.

The third argument is that superpriority can have the side effect of making it harder for companies to pull up out of insolvency. This is simply not the case. Companies have the financial ability to fund pension requirements, but instead choose to use their cash for bonuses to corporate executives, dividends and share buybacks. Corporations do not have the legal requirement to protect pensions, so they don't.

The financial security of seniors matters. Seniors who are stripped of their pensions must rely on government benefits, which are not enough to make ends meet. They draw down hard on our already stretched systems, and any additional private savings they might have are in a slump due to flat interest rates—all of this in a rapidly aging population where one in five Canadians will be at the age of retirement by 2030.

CanAge has five recommendations in support of this bill and pension reform, which are to create a superpriority for defined benefit pensioners in the case of corporate insolvency; create pension benefit guaranteed funds across Canada; require pension funds to be fully funded, 100%; establish a retroactive and recurring refundable tax credit equal to what those who have lost have experienced; and finally, create a flexible and modern pension reform system.

We respectfully ask the committee to carefully consider our recommendations and review “Voices of Canada's Seniors: A Roadmap to an Age-Inclusive Canada”, which can be found on our website, canage.ca/voices. For detailed recommendations, specifically look under section E, regarding economic security.

We thank the committee for the opportunity to present today. It is respectfully submitted. Thank you.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

As a gentle reminder, when you see the cards you can wrap it up.

Our next presentation will be by the GENMO Salaried Pension Organization. You have five minutes.

[Tom Laurie, Director, GENMO Salaried Pension Organization]

Thank you.

GENMO is an organization that advocates on behalf of over 7,000 of GM Canada's salaried retirees, and we thank you for the opportunity to speak to you this morning.

Like most people, we thought government regulations protected pensioners. After all, defined benefit pensions are supposed to be guaranteed for life. Then, in 2008 and 2009, GM Canada came perilously close to bankruptcy. In fact, GM in the U.S. and Nortel both did file for insolvency. A vague potential pension problem became too close to being real for us.

Out of this situation, GENMO was born in May of 2010. We discovered that pension advocates are the only stakeholders making proposals to solve this problem. While other stakeholders all profess to understand that pensioners are unfairly treated and should be better protected, they haven't brought forward a single credible solution. We have to thank Madam Gill and Mr. Duvall for joining with pension advocates to try to correct this inequity.

The only credible solution on the table today is Bill C-253. It is opposed by some stakeholders. They claim it would put companies with defined benefit pension plans at risk by facing lending premiums that would lead to insolvencies. However, the Ontario Indalex ruling, which made pension deficits a deemed trust, stood for two years without any resulting wave of insolvencies.

Companies will operate within the legislative environment that governments set. Change this environment and companies will change their behaviour. Implementing Bill C-253 will likely have two major impacts on corporate behaviour towards pensions.

First, the pension obligation will be real, not something that disappears during an insolvency. Companies will better fund their pensions to maintain a good standing with all of their creditors. For example, when boards consider dividends, share buybacks and executive bonuses, they will consider their pension obligation more seriously.

Studies have shown that companies with defined benefit pension plans pay out far more out of the company than would be required to address their pension obligations. Sears, as an example, literally took hundreds of millions of dollars out of the company, while leaving behind a pension obligation in the millions.

Secondly, companies would improve their pension fund risk management. Company pension contributions come from two sources: cash from their continuing operations and money earned on the assets within their plan. There is an incentive for companies to take risks with pension assets to try to generate higher returns, thereby reducing the contributions from their operations. If they lose or miscalculate on this bet, what is the downside? They may get five, 10 or 15 years to make it up, and if worse comes to worst and the company goes out of business or fails, the debt literally vanishes.

In my case, in 2009, when GM Canada told salaried employees their pension was 95% funded, the reality was that after the market crashed, the pension fund was probably in about the 50% funded range. Was GM taken by surprise? Certainly. Was GM too heavily invested in higher-returning equities? Absolutely.

Under the tighter controls that followed, GM Canada reduced significantly the risks in its pension fund and actually brought it to over 100% funded. This is possible with the right motivation.

We hear lots of speculative claims about the consequences of superpriority. How would small businesses get financing? Who would be impacted? In fact, very few, if any, small businesses have defined benefit pensions.

What about other stakeholders during insolvency? If businesses make the adjustments I have discussed previously, there should be little impact. In any case, every other stakeholder has negotiated their risk. They have at risk only the unpaid portion of their contract. Pensioners actually have 20, 30 or 40 years on the table.

We also hear about deflection. You will likely hear witnesses say the solution is elsewhere, in tighter solvency regulations, limits on dividends, etc. However, these things are very difficult to deal with. The point is that while some of these ideas sound reasonable, they are a jurisdictional nightmare. They involve three areas of legislation—pension, business and tax—and they cross provincial and federal jurisdictions. It would take a lot of effort to do this.

The single point at which to address protection in Canada is insolvency legislation. Bill C-253 provides a reasonable solution.

Thank you.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

I now invite Mr. L'Italien to take the floor.

You have five minutes, Mr. L'Italien.

[François L'Italien, Coordinator, Observatoire de la retraite]

Good morning, ladies and gentlemen.

My name is François L'Italien and I am the coordinator of l'Observatoire de la retraite.

Here are a few words about our organization, which has been in existence since 2014. Our organization has two main missions: first, to produce and encourage economic research on retirement to deepen knowledge on this issue of general interest; second, to contribute to the public debate on retirement by disseminating knowledge that is likely to raise the civic competence of Quebeckers on this issue.

We bring together 14 major institutional and organizational partners in Quebec, including fund managers, the major retiree associations and the main labour unions.

L'Observatoire de la retraite has been interested in the issue of the impact of corporate restructuring on retirees for several years now, since pension protection is a fundamental concern for us and for Quebec society.

We agreed to contribute to the work of the committee with respect to Bill C‑253 to highlight the existence of a structural problem with the Companies' Creditors Arrangement Act, namely, in our view, the overrepresentation of the interests of a particular group in the restructurings that are carried out under this act.

Since 2010, as you know, there have been many cases of company restructurings or bankruptcies that have led to pension cuts for pensioners, and these have often been in the media. We need only think of White Birch Paper, Sears Canada and Groupe Capitales Médias, to mention just a few. These cases not only showed the powerlessness of the retirees affected by the restructuring, but they also highlighted a legal process where those directly affected by the restructuring could not speak out or negotiate. It is a legal process that justifies an increasingly unfair distribution of the benefits and risks of financial restructuring.

With the hindsight provided by these repeated restructurings, the process, actors and effects of restructurings are becoming better documented and known, and make us see aspects of the legislative and legal framework of the Companies' Creditors Arrangement Act that the legislator probably did not see at the very beginning. The further we go, the more we see that a law that is intended to revive companies in difficulty opens the way to business strategies that have nothing to do with difficulties suffered. In fact, we are seeing the emergence, more and more, of a pattern in which defined benefit plans are being undermined.

The structural problem that we have to deal with in the Companies' Creditors Arrangement Act, which is I think the subject of Bill C‑253, is the fact that the best organized financial players, the privileged creditors, preferred creditors and business owners, who are by the same token the least vulnerable to financial shocks, emerge with a significant advantage in the restructuring process when compared to other stakeholders, including pension plans.

These financial actors may of course suffer losses in the process, that is not the point, but these are nothing like those of other stakeholders, starting with pension plan members who are at a very vulnerable point in their lives. Since the pension plan's claim against the company is not considered a priority claim or entitled to the same protection as employees' wages, resorting to the Companies' Creditors Arrangement Act has virtually become a way to wind up the plans and this directly affects people's lives.

Unlike the large financial firms and business owners who file under the CCAA, who manage wealth and have large incomes, these are real people with limited financial resources at a time in their lives when they cannot financially recover.

The case of White Birch Paper was very clear in this regard. On the one hand, we saw that the CEOs of Black Diamond Capital and White Birch funds, who proceeded to buy the company, benefited from the Companies' Creditors Arrangement Act by fetching more than $4.2 million in interest charges and $12 million in professional fees. On the other, we saw retirees whose pensions were cut by 20% to 30%.

This inequality between large financial organizations and pension plan members not only creates immeasurable economic consequences, but generates an increasingly widespread sense of economic injustice.

In addition, as the number of restructuring cases rises, trust in public institutions is beginning to fray.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

I now invite Mr. Eady to present for five minutes.

[Kenneth Eady, Sears Retiree and Court-Appointed Representative of Sears Retirees, Store and Catalogue Retiree Group]

Thank you very much.

Good morning, everybody. My name is Ken Eady. I am a Sears retiree and a court-appointed representative for the 17,000 Sears retirees who were affected by the bankruptcy of Sears.

Most of you know the story of Sears, which was a long-time Canadian company, 65 years, and for decades a trusted company in Canada, with employees who worked at Sears for a full career—40 years, sometimes 50 years.

Sears made promises to its employees that, quite frankly, we all believed and accepted as true, that we would have a guaranteed retirement income when we retired, and that we would have health and dental benefits and group life when we retired. That pension was a condition of employment at Sears, and it was a contributory plan. The employees contributed every month to that plan—our money, our wages.

Then, in 2005, the takeover of Sears U.S. threw the control of Sears Canada into the hands of a hedge fund. You've all read the stories of how that unfolded, and it was mentioned here this morning as well. We'll let you draw your own conclusions about the practices that were held there. It's enough to say that in 2017, the company sought creditor protection.

That's when things changed. It changed for everybody who worked at Sears who was a retiree. The pension plan lost 20% of its value right away.

Now, with 20%, people can say, well, maybe that's not so bad, but if you have a small pension and you lose 20%, that can make an enormous difference in how you live. Think about losing 20% of your current income and trying to maintain your lifestyle. Health and dental, group life, all disappeared, and it's hard to replace when you are 85 years old. You can't possibly buy group life, and health and dental are very difficult to replace.

Of all the creditors, the retirees are the ones who have the least likelihood of mitigating their losses. Others can continue to stay in business and can change their business. In fact, the employees can go out and get another job if they are lucky, but the majority of retirees can't mitigate that loss. That money is gone, and gone for good.

The real story here is that Sears broke that promise, a promise that, as a management person, I participated in making to employees, because I believed it was true as well. Sears broke that promise after making it over and over again. As well, after repeatedly being informed—repeatedly told—the federal and provincial institutions that would or should protect vulnerable seniors failed to protect them. They didn't protect them. There was absolutely no protection.

The real story is about the thousands of retirees who lost their pension and lost that income. A guy like Don, retired at 77 years old, has had to go back to work at Home Depot as a greeter so he can afford the medication for his wife's illness and so they can stay in their home. Doris, a 50-year employee of Sears, worked to the last day but lost 20% of her pension. The plans that she and her husband had for retirement changed substantially. Jack is 82, but Jack has to use his line of credit to subsidize his income so that he and his wife can stay in their home.

My colleagues have made a lot of really great points today, with real meaning, but I want to leave you with one important thought: Is it just and is it fair that in Canada, banks receive more protection under bankruptcy laws than seniors? Is it just and is it fair that in Canada, banks receive more protection than vulnerable seniors do? I believe it is not.

You're the ones who can make a difference here, folks. The MPs on this committee can vote in favour of this bill and help protect seniors. I suggest you do.

Thank you very much.

[The Chair, Liberal, Sherry Romanado]

Thank you very much, Mr. Eady.

We'll now start our rounds of questions.

The first round of questions, for six minutes, goes to MP Poilievre.

[Pierre Poilievre, Conservative, Carleton, ON]

We've now heard all the arguments for and against the bill. What I need is some technical information. My first question is this: In the event that this bill were to pass, how would it be possible for a business to collateralize assets in order to get loans for expansion and new hiring?

Perhaps Mr. Powell would be the right person to address that technical question.

[Michael Powell, President, GENMO Salaried Pension Organization]

Yes. I think the answer to that is that if you assume that businesses make no change to their behaviour, then that's going to be a problem, absolutely. However, I see that as a false assumption. Businesses will adapt and adjust, just as they did when Ontario ruled in the Indalex case that the unfunded pension liability was a deemed trust. There was not a wave of insolvency. We did not read in the papers that companies were failing left, right and centre.

As Tom pointed out—

[Pierre Poilievre, Conservative, Carleton, ON]

I'm not so much suggesting that they would fail. I'm just wondering about the legal question: How would you write a collateral agreement that says that the lender will lend money to the business, that the business will expand, and that, in the event of default, then the lender has recourse to the collateral? How would you write that, with this bill in place, which removes collateral primacy and replaces it with pension primacy?

[Michael Powell]

Yes, and pensions become another.... There is superpriority already in insolvency today—

[Pierre Poilievre, Conservative, Carleton, ON]

Right. It's for salaries and things like that.

[Michael Powell]

—for things like that. This becomes another one. That would be a risk that would be evaluated as they make those loans, as they do today. Again, I would suggest that businesses would be much more careful about the pension deficits they build up, just as—

[Pierre Poilievre, Conservative, Carleton, ON]

Yes, that's a strong argument for the bill. Many businesses should be forced—in the present tense—to get their pensions in order so that they can raise money in the markets. You make a good point.

I don't want to be convinced anymore on anything. I just want an explanation. Is there anyone else who has technical insight on how that would work: a collateral agreement if this bill is in place? Is there anyone else who can jump in on that narrow question?

It looks like we don't have anyone on that point.

My next question is this: Do we need a transition period for the coming into force of this bill? If the bill just dropped like a brick today, it would reorder the priority of creditors in the event of an insolvency or a bankruptcy. It would do so midstream. Creditors that made loans under the existing regime would suddenly have new rules of the game halfway through it.

I see Laura Tamblyn Watts nodding.

Do you want to jump in on that question?

[Laura Tamblyn Watts]

Thank you.

It actually folds into the last question as well. In order to ensure that the books are in the proper order and that risk mitigation and management are able to be overseen by corporate governance, in my respectful view, we need a roll-in period. That can start with companies that are starting up now starting with the new rules and with having a roll-in period of approximately three years. That's enough time for foresight of corporate governance to make sure that they are able to change the contractual obligations, that the pension funds are more fully funded, and that on external loan guarantees these new particulars are put in.

[Pierre Poilievre, Conservative, Carleton, ON]

You said three years. Is that for existing businesses, and then it would be immediate for new businesses?

[Laura Tamblyn Watts]

Yes.

[Pierre Poilievre, Conservative, Carleton, ON]

Okay.

Does anyone else want to comment on the issue of transition? Okay.

I think that's a sensible suggestion, Ms. Tamblyn Watts. What about in cases where there are loan agreements that are 30 years long that have collateral arrangements built into them? Three years would then interrupt those contractual arrangements. How would you respond to that problem?

[Laura Tamblyn Watts]

Governance knows that rules change. Anyone who's sat on a corporate governance committee or anyone who's ever negotiated contracts knows that you need to keep up with the laws. Canada has been so far behind the U.S., the U.K. and even Australia. The street knows that this needs to happen and is coming. Already, it's being built in.

A three-year notice period, in our respectful view, is appropriate, even when there are existing contractual loan guarantees. It's enough for the underlying loan support system to work through that process.

[Pierre Poilievre, Conservative, Carleton, ON]

What about not having three years and instead just saying that all new loans and liabilities that businesses with a defined benefit plan take on after this date will be prioritized behind the pension? That way, you wouldn't interrupt existing arrangements. Would that be an alternative?

[Laura Tamblyn Watts]

It is an alternative.

[Pierre Poilievre, Conservative, Carleton, ON]

Mr. Powell?