Industry Committee on June 15th, 2021

[Helena Jaczek, Liberal, Markham—Stouffville, ON]

In other words, this three-year transition period poses all sorts of risks to the workers and to the pensioners possibly.

[Mark Schaan]

My colleagues at the Department of Finance would be far better placed to comment on some of this, but I know there has been contemplation from time to time, for instance, about shortening the time period for special payments—whether special payments should go from a five-year payback period to a three-year payback period. There has been a strong push from plan sponsors that five years for special payments are required because one needs enough runway to have [Technical difficulty—Editor] kinds of folks who are aiming to continue the ongoing operation.

If one knows that a superpriority is coming, as I say, it may very well reward particular types of economic actions to maximize one's return, either as a lender, as an executive or potentially as a sponsor.

[Helena Jaczek, Liberal, Markham—Stouffville, ON]

Thank you.

[The Chair, Liberal, Sherry Romanado]

We have MP Lambropoulos and MP Ehsassi.

Go ahead, MP Lambropoulos.

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

Thanks, Madam Chair.

Mr. Schaan, thank you for your responses.

One of the questions I have had since the last meeting, but did not ask until now, is what the major difference is between smaller and bigger businesses. Is there actually a difference when it comes to this bill? How would they be impacted differently, or does it impact everyone pretty much the same?

[Mark Schaan]

There are probably two contemplations of that. One is the small employers that are plan sponsors. Those are increasingly infrequent. Then there are large employers for which we see the vast majority of defined benefit pension plans being the norm. Those, obviously, are on offer for all.

It's worth noting that there are two considerations for a small and medium-sized enterprise that are different from a large employer. Obviously, if a small or medium-sized enterprise was a provider of a service or other economic transaction that was not paid at the time of a restructuring or a liquidation, this would see them moved to become an unsecured creditor and would be behind the superpriority. If there's nothing left by the time we get to unsecured creditors as a function of superpriority, we might see small and medium-sized enterprises significantly asymmetrically impacted as a function of the role that might play within their overall well-being.

The second is that severance, which is the third component of this, is a superpriority regardless of enterprise size. While we might not see small and medium-sized enterprises have a pension, they may have either benefit plans or severance pay. That would now have superpriority over all other unsecured creditors and potentially secured creditors.

That severance or the benefit plans.... If people were being very worrisome, they might say that a small or medium-sized enterprise that was offering something like a health or dental plan, now potentially, knowing that's a superpriority, may see increased cost of credit because lenders will now need to factor that into the considerations they have when lending. There's similar things on the severance side.

In terms of size of firm and the potential impacts, it would vary based on the three categories, which are unfunded pension liabilities, group insurance plans and severance pay. We'd have to think about it from both their role as sponsor and also, potentially, as creditor.

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

With regard to severance pay, [Technical difficulty—Editor] priority. Obviously, pension plans are different because that has to do with interest. People do receive a severance regardless and this is already being done.

Can you correct me if I'm wrong or if you have anything to say about that?

[Mark Schaan]

Unpaid wages are currently a superpriority. Unpaid wages that go essentially up to a maximum are automatically provided a superpriority in both a restructuring and a liquidation context. As I indicated last week, for unfunded wages, in the case of a liquidation or a restructuring, the federal government actually takes the spot of the employee to be able to pay them out immediately and then allow for the restructuring or liquidation to continue. Ultimately, the government would be recouped the portion that's currently a superpriority, which is $2,000.

I'm looking at Mr. Morrison to make sure that I'm correct on that. He's nodding yes. That's excellent.

Under the wage earner protection program, the employee is able to get paid severance up to $7,200. As I said, it's a superpriority.

This would essentially take severance more generally and apply a superpriority to it. Severance goes well beyond unpaid wages. It also includes potential severance payments and things like separation payments. In some cases, as we've indicated, that may actually be subject to that of executives. If the severance is actually a very large portion of the employee pay packet in terms of a separation piece, that would now be subject to a superpriority.

There's no delineation in this piece of legislation between the two. There's no cap on it. There's no discussion of that in severance pay.

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

Thank you very much.

I see there are several other hands up. I may be back, but I leave the floor to someone else.

[The Chair, Liberal, Sherry Romanado]

On the speaking list we have MP Ehsassi, MP Lemire, MP Badawey and MP Poilievre.

MP Ehsassi.

[Ali Ehsassi, Liberal, Willowdale, ON]

Thank you, Madam Chair.

What I heard from Mr. Schaan was very helpful. I have no doubt that the intention behind this amendment is a good one, but again I'm very much concerned about the unintended consequences. The unintended consequences, as we heard from Mr. Schaan, are several.

First of all, as it relates to employers who already are in difficulty because of their large unfunded pensions, it's not good for them. It obviously doesn't change anything for lenders, who face the risk of nonpayment.

I believe the third point Mr. Schaan made, and this is a true concern, is that employers may very well decide to discontinue with defined pension plans, which obviously is not a good thing, and I don't think anyone on this committee would look forward to it.

In addition to that, if memory serves me well I do recall that among the witnesses we heard from during the course of our deliberations, some of whom were representing retiree groups, some had indicated that there were a number of concerns as well that providing this potential transition period could reduce some of the consequences, whether it was with respect to credit, or making restructuring very difficult.

Given all of those concerns, which are obviously unintended, I was wondering, as Mr. Schaan did suggest, if we could go to the Department of Finance and ask them for some clarification as well as to what the consequences of providing a three-year transition period would be.

[Mark Schaan]

Madam Chair, I'm not sure if that was directed at me. I would simply offer that, yes, the Department of Finance is the policy authority and in fact the regulator, as it relates to the Pension Benefits Standards Act. Given their role in the PBSA and obviously being responsible for the overall macroeconomy, as opposed to the Department of Innovation, Science and Economic Development with responsibilities for the microeconomy, there are macroeconomic considerations that I wouldn't be able to offer an opinion on in terms of the degree to which this may impact things like credit markets or lending.

We've spoken earlier about cost of credit. That's based on analysis that we've been able to do in concert with respect to the superpriority, but in terms of a three-year transition period or others, as I've said, they have considered and contemplated that in their role of pension regulator in the past as it relates to special payments. However, I wouldn't be in a position to provide any clarity or granularity as to the potential implications of that.

[Ali Ehsassi, Liberal, Willowdale, ON]

Madam Chair, I'm sorry. Is Mr. Morrison not here from the Department of Finance?

[The Chair, Liberal, Sherry Romanado]

Mr. Morrison is here.

Mr. Morrison, would you like to respond to MP Ehsassi?

[Paul Morrison, Manager, Corporate, Insolvency and Competition Directorate, Department of Industry]

Thank you very much. I'm actually here as a representative of the Department of Innovation, Science and Economic Development in support of Mr. Schaan. I'm not with the Department of Finance.

[Ali Ehsassi, Liberal, Willowdale, ON]

Okay, my bad.

Mr. Maziade...?

[The Chair, Liberal, Sherry Romanado]

MP Ehsassi, he's the law clerk, but if you're looking for—

[Ali Ehsassi, Liberal, Willowdale, ON]

It was my understanding that we had a witness from the Department of Finance as well. You have my apologies.

[The Chair, Liberal, Sherry Romanado]

Mr. Ehsassi, if you're looking for additional answers with respect to the Department of Finance, perhaps we could communicate with them through the clerk to see if there's something specific that we could...or if there is something outstanding.

I'm just going to turn to the clerk.

Is there a possibility of getting that question to finance officials to answer?

[The Clerk]

Yes, the committee is always free to ask for information from the departments if we have a letter from the chair or even an adopted motion here in committee. It wouldn't, obviously, be today, so there's that consideration.

[Ali Ehsassi, Liberal, Willowdale, ON]

Madam Chair, things being what they are and given that Mr. Morrison has graciously appeared before our committee, I wonder if he would have anything to add to what we heard from Mr. Schaan.

[Paul Morrison]

Thank you, Mr. Ehsassi. I take it that your question is in respect of the transition period that is before us in the amendment.

As Mr. Schaan points out, there is the potential for unintended consequences as a result of the transition period. I would also note that in addition to what Mr. Schaan pointed out, I'm not a legislative drafter, but there does appear to be a discrepancy in the drafting of the bill with respect to the treatment on royal assent and the treatment on coming into force.

There is not a specific coming-into-force clause in the bill, so there is some discrepancy that might require some additional drafting or correction.

[Ali Ehsassi, Liberal, Willowdale, ON]

Thank you.

[The Chair, Liberal, Sherry Romanado]

Okay. We'll now go to MP Lemire.

You have the floor.

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

Thank you, Madam Chair.

I would like to ask that we finish the testimony so that we can vote on clause 6.