Industry Committee on June 8th, 2021

[Michael Powell]

I would say it's an alternative. I think you'd have to be very careful with the implementation date, kind of like what we saw this week with Air Canada. If you let people know it's going to happen, I think you'll see a rush of loan applications to beat that deadline. We saw that with Air Canada, with the bonuses this week.

[Pierre Poilievre, Conservative, Carleton, ON]

Okay. I have 30 seconds left. Does anyone want to jump in on any of these technical matters before my time lapses?

All right. Thank you. That was very helpful.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

We'll now go to MP Erskine-Smith.

You have the floor for six minutes.

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

Thanks very much.

I want to pick up where Pierre left off on the state of DB pension plans. If you have a transitional period that says this will take effect only on a going-forward basis, isn't there still great risk to pensioners, given the existing liabilities that companies have that are at the moment prioritized over and above unfunded liabilities as they relate to pensions?

[Michael Powell]

I think if you left it open-ended like that, it clearly would be a problem, but Laura and I have been talking about three years to get your house in order, which is a reasonable amount of time. If you took an alternate view, it would be some form of go-forward, as Mr. Poilievre mentioned, although, again, I would have concern about how you set that cut-off date so that you don't get a rush of companies signing in for deals and avoiding the pension liability going forward.

From our perspective, certainly the three-year period gives enough time for the companies to reorganize and the lenders to reorganize what they're doing.

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

I saw a note from CARP and the Canadian Federation of Pensioners that listed a series of different possible solutions. One of those solutions was a deemed trust, but even they acknowledged that in the case of a deemed trust for all pension liabilities, it would impact the DIP lender negatively, such that you would see maybe fewer restructurings.

Walk me through why that same concern doesn't also exist in relation to the superpriority plan.

[Michael Powell]

Again, I have to point out that with Indalex in Ontario, pensions were essentially a deemed trust for almost two years, at least in the most recent legal case. Deemed trust comes first, and that would supersede every other priority in insolvency. That simply is not reasonable. That would throw everything out of whack. Superpriority already exists, as you've probably heard, with the wage program, employment expenses and things like that. It's already out there. It's already being used. It doesn't put pensioners at the very top, where deemed trust would be. It puts them in the next level down, essentially.

As to what that would do, again, if you give the companies enough time to respond, that's a very reasonable place for that priority to sit. It wouldn't cause the same concern as deemed trust. Deemed trust is clearly the nuclear option. That puts pensions ahead of every other expense. DIP lenders would never lend if it was deemed trust.

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

Let me ask about the balance between protecting those who deserve to be protected, the pensioners who have worked their entire lives—the Supreme Court has acknowledged that these pensions are deferred wages, and that much is clear—against the certainty in the restructuring process for lenders. Can we look to international examples that identify superpriority in full? I've had examples put to me that show that, as I think we heard from the Canadian Federation of Pensioners in previous testimony, other jurisdictions have a cap, a superpriority of up to, say, $50,000.

I wonder what you think about establishing a cap in this legislation that would then strike the balance between both protecting pensioners and establishing certainty.

[Michael Powell]

Yes, that's an option. Certainly, that would go a long way to fixing the problem we have today. No other country has the same legislative environment that Canada has. The countries you've heard of—the U.S., the U.K., Australia and most of the EU—do a better job of protecting pensioners, but they do it in ways that are within their legislative environment. Frankly, the complex nature of Canada has multiple jurisdictions dealing with pensions across multiple legal realms. This involves tax law, pension regulations and business regulations.

I used to work for General Motors of Canada. My pension is regulated by Ontario. General Motors is registered in Nova Scotia. If you tried to have one of these other solutions, such as the U.K. or even the U.S. solution, you would have to get all of these jurisdictions to all agree to uniform change across things like tax and pension legislation. I don't know how you would do that. I've never heard a credible solution to—

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

It's another challenge we face at the federal level with this idea of an insurance pool. It's an obvious idea to have, but then you create, obviously, material risks if the federal government is loaning out money but then provincial governments are walking away from their obligations, potentially.

Mr. Book, I saw you nodding your head at one point. I'd be interested in other panellists' views on whether we should leave the legislation as is or whether they think it would be preferable to establish a cap as it relates to the superpriority.

I'm starting with Mr. Book.

[Brett Book]

Thank you.

Once again I'd like to go back to what Mr. Powell said about working within the legislation here. If it works that a cap would be more beneficial to pensioners, we would support that idea, but we want to underscore the importance of the superpriority and the importance of making sure that pensioners do have a priority that's put ahead of the creditors.

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

Understood.

Ms. Watts, do you have a view on the cap and whether we should leave the legislation as is for the full superpriority or whether we should cap it?

[Laura Tamblyn Watts]

I prefer the full superpriority. I would accept a cap.

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

Understood.

Mr. Eady, do you have a view on this?

[Kenneth Eady]

Yes, I'm with Laura on this. I could accept it as a negotiated settlement, if you would, but it's not my preference. I'm not sure why pensions should be capped when lending institutions are not.

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

Yes, I guess I would look to international examples, then, to the wage earner protection piece as well, which has a cap, but I completely take the point. If the principle is pension protection, then it should be protected in full.

Thanks, all.

[Kenneth Eady]

This is debt—real debt. It can be classified in very similar ways to debt that the banks hold, so I'm not sure why it would be capped—but I understand.

Thank you.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

I now invite Mr. Lemire to take the floor.

You have the floor for six minutes.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

Thank you, Madam Chair.

Thank you for your statements. Thank you very much, Mr. Eady, for your very compelling testimony. I understand the emotional charge associated with this issue.

I also thank my colleagues for reflecting on these concerns and doing so outside the box. Refocusing the issue of fairness is important to me.

Maybe we could take a cue from White Birch Paper, for example.

Mr. L'Italien, you have studied this particular case. What can we learn from this saga?

[François L'Italien]

Thank you for your question.

In fact, we did a thorough economic analysis based on the documents that were made available by the financial comptroller Ernst & Young at the time of the restructuring, in 2010. We were able to reconstruct the owner's financial strategy by getting hold of the annual reports, as well as reports produced by independent auditors.

We should have investigated further, but due to lack of resources and time, we were unable to pursue this avenue. However, we came to the conclusion that behind the exorbitant indebtedness of the Stadacona plant in Quebec City there was a corporate scheme. Given the maturity of the defined benefit plan for the plant's employees, given also that the bulk of the management costs and all the variable capital, i.e. the expenses associated with salaries and the pension plan related to this plant, were disproportionate in the eyes of the owner, there was a strategy of excessive indebtedness; this led the owner to place himself under the Companies' Creditors Arrangement Act, the CCAA.

In our view, what emerges from this case is that, while the CCAA was originally intended to enable companies in real financial difficulty to get back on their feet, over time it has enabled some employers to develop stratagems.

There really should be thorough economic investigations. We know that the case of Sears Canada in Ontario pointed in the direction of improper payment of certain revenues to the company's shareholders at a time when it was known that the company was in financial difficulty. So we see that the argument in the CCAA that creditors must be protected from default or business risk does not hold up in a systematic way. We need to look at these cases. We have been seeing repeated restructurings for several years now, and we think the time has come to at least take stock of the restructuring cases and adjust the focus.

In our view, raising the level of protection for pension plans is a step in the right direction to take stock and improve pension protection.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

In the interest of fairness, passing this bill quickly seems necessary.

I would like to hear from you on the inequities in the bankruptcy process. When you look at the stakeholders by comparing the priority shareholders, the owners and the workers, where do you think the inequalities in the process are? Can we argue that there is inequity in the risk, but also in the consequences of bankruptcy? Is there an economic injustice?

[François L'Italien]

In the case of White Birch Paper, this is undeniable. People here can bear witness to other cases. We heard about Sears Canada, where there is clearly a structural asymmetry between, on the one hand, workers, and, on the other hand, creditors or owners who, thanks to the CCAA, have their financial interests protected, even enhanced, because the CCAA suspends all negotiations, collective agreements, and, in Quebec, all provisions of the Labour Code to reopen collective agreements.

The CCAA gives a lot of power to the owners and creditors to revive a business, whereas when it comes time to discuss the business recovery agreement, the retirees have no voice, they are not involved, unless the stakeholders as defined by the CCAA decide so. They are not called by the judge to testify about the consequences that a restructuring might have, or to give, quite simply, their endorsement of the revival agreement.

There are two profound injustices. The first relates to the consultation of stakeholders on the recovery restructuring agreement. The second is related to the economic and financial consequences. I was talking about this in my speech, if we take the case of White Birch Paper, we see that the financial situation of the creditor and the owner has improved with the CCAA, while the pensioners have had to deal with extraordinary financial problems. So on the one hand, we have fund managers and banks, institutions where people's assets are not at stake. On the other hand, we are talking about real people who have relatively modest amounts of money to live on and who have no say in the process that directly affects them. This is an unfair process.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

I have one last question for you.

I understand that the ability to absorb negative effects is much easier for a bank, for example, than for a worker. In Bill C‑253, as preferred creditors, are banks affected, in your opinion?

[The Chair, Liberal, Sherry Romanado]

You may answer, very quickly.

[François L'Italien]

That's an excellent question.

From our point of view, no study shows that this is the case. We need studies, because we don't have enough data to determine objectively whether or not that is the case.