Industry Committee on June 15th, 2021

[The Chair, Liberal, Sherry Romanado]

I will call this meeting back to order. We are still waiting for one of the witnesses to join, but I don't want to hold off any longer.

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 would like to now welcome our witnesses. They are here today as a resource for the committee during its clause-by-clause consideration of the bill.

With us today we have Mr. Mark Schaan. Welcome back to INDU. He is the associate assistant deputy minister, strategy and innovation policy sector, and we are hopeful that Mr. Paul Morrison, manager, corporate, insolvency and competition directorate, will be able to join us.

I also want to give a little shout-out to our legislative clerk, Monsieur Jacques Maziade.

Welcome back to INDU, and thank you for your assistance.

(On clause 1)

We had a speaking list. In the last meeting, when we left off, Mr. Poilievre had the floor, and we had Mr. Ehsassi and Mr. Duvall on the speaking list.

I see Monsieur Lemire has his hand up as well, so I will add him to the list.

I am just going to check and see.

Monsieur Poilievre, you had the floor. If you still need the floor, the floor is yours.

[Pierre Poilievre, Conservative, Carleton, ON]

I don't need the floor anymore, Madam Chair. Thank you.

[The Chair, Liberal, Sherry Romanado]

Okay, that is perfect.

We will now go to MP Ehsassi. You have the floor.

[Ali Ehsassi, Liberal, Willowdale, ON]

Madam Chair, I have to confess that I am not quite sure why I had my hand up last time, but I am sure, as we go through today's session and we go through every one of the various clauses, there will be ample opportunity to flag some issues that may be of concern.

[The Chair, Liberal, Sherry Romanado]

Thank you.

I am just going to check with the clerk. Last time we had Monsieur Duvall here as a substitute, and I had him on the list. Because I can't see him in the room, I don't know if he is actually now in the room, or if it's Mr. Bachrach.

[The Clerk of the Committee, Mr. Michael MacPherson]

I believe we are waiting for Mr. Duvall to join us.

[The Chair, Liberal, Sherry Romanado]

Okay. I will keep him on the list, and as soon as he arrives I will give him the floor, but we will go to MP Lemire.

Mr. Lemire, you have the floor.

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

My goal, as you can imagine, was to make sure that we could move on to clause‑by‑clause consideration. As a result, Mr. Duvall's presence is particularly significant as we move forward. Given the circumstances, I'll ask a question.

How would the passage of Bill C‑253 affect the government? We agree that there won't be any financial impact. Could it have other implications for the government, or is this purely ideological opposition from a party opposed to the bill?

[Mark Schaan, Associate Assistant Deputy Minister, Strategy and Innovation Policy Sector, Department of Industry]

Thank you for your question.

This bill will have many implications for the government.

First, the passage of the bill would affect the insolvency system in Canada. One of the government's roles is to manage that system. If a more significant change were made to the system, as proposed in the bill, there would be some implications for creditor communications and for the ongoing analyses of the impact on the financial sector, small and medium‑sized businesses and creditors.

Second, the government is also a creditor in certain insolvency cases. This bill establishes implications for each type of creditor. These types of changes to the legislation would have a significant impact because the government is sometimes an unsecured creditor.

In short, this bill would have two implications for the government. The first concerns its role in managing the insolvency system [Inaudible—Editor] and the second concerns its role as a creditor.

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

Thank you.

[The Chair, Liberal, Sherry Romanado]

Thank you, Mr. Lemire.

MP Duvall, welcome to INDU. We had you on the list to speak last time. I will turn the floor over to you.

[Scott Duvall, NDP, Hamilton Mountain, ON]

Thank you, Madam Chair.

Thank you to everyone for being here.

I want to talk to Mr. Schaan. Last week, he mentioned that federally regulated pensions are protected, because they're required to be 100% funded. However, I understand there are a lot of federally regulated pensions that aren't 100% funded. Is that true?

If you look at Canada Post, are they 100% funded? Do you know what the deficit is?

[Mark Schaan]

I don't have the Canada Post unfunded liability currently before me. Maybe I can clarify, because I think I talked a little last week about how the process of a federally regulated pension was held.

The standard requires that the pension be [Technical difficulty—Editor] but then, obviously, there are actuarial valuations that actually determine the relative level of funding, and then a process by which to make up that gap.

To be absolutely clear, the federally regulated defined benefit pension plans are subject to the funding requirements that are set out in the Pension Benefits Standards Act of 1985 and the pension benefits standards regulations of 1985. Those plans are required to be 100% funded on a solvency basis, but with any shortfall paid by the employer within five years in order to help ensure that the plans have sufficient assets to provide for all benefits, both while the plan is ongoing and in the event of a plan termination.

If the latest—

[Scott Duvall, NDP, Hamilton Mountain, ON]

Mr. Schaan, I understand, but what I'm trying to get at is that Canada Post has a huge deficit. They've had a five-year plan, but they've also asked for extension after extension and they're not paying into it, so the deficit gets higher and higher.

Who is going to be responsible for that if something happens?

[Mark Schaan]

In the case of an amendment [Technical difficulty—Editor]. When an actuarial valuation occurs, the plan sponsor then needs to be making special payments on each of the subsequent five years to be able to make up that gap. Any variation from special payments needs to be approved by the pension regulator. In the case of the federal government, that would be OSFI.

If there is a plan that currently has an unfunded pension liability and the plan sponsor is not making that up, that's under the express approval of the pension superintendent for the purposes of extenuating circumstances, and that's the bar the regulator sets to ensure that it truly is extraordinary circumstances.

I talked last week about the fact that this is often in co-operation. In the case of Air Canada, for instance, which was a federally regulated pension, the deferral of continued pension payments was with the approval of the union for the purposes of allowing for a market rebalancing and a return to normal returns, which ultimately did occur and ultimately allowed for the plan sponsor to be able to make up that unfunded pension liability and return to good solvency.

[Scott Duvall, NDP, Hamilton Mountain, ON]

Right, but at the same time, with Air Canada, I think it was Mr. Flaherty at that time who actually put limits on the dividends and the executive pay to stop such a large deficit until the fund was going.

My other question is this. The Canadian Centre for Policy Alternatives, which was the lion's share, illustrated that companies with defined benefit plans have the capacity to fund their pensions, but they just don't have to. Do you think, after listening to all the witnesses...?

They were saying that a change is needed, that it's time. If we don't do something, then companies are just not going to have to, because they're not obligated to. We have to put some pressure on them to make those payments.

[Mark Schaan]

As we discussed a little last week.... I can point to the policy choices that have been made at the federal level. As indicated, the standard that companies are held to is 100% funded on a solvency basis, with a gap that needs to be made up over the subsequent five years.

I do think that companies actually are obligated, federally, to ensure that they are keeping their plans well funded and to continue to have to make payments. That's obviously not the case, necessarily, in all provinces, but we do think that there are significant unintended economic consequences of providing a superpriority as opposed to potentially looking at the solvency requirements that are held in other jurisdictions that would actually ensure that the plan is well funded while it is in operation, as opposed to trying to make up the difference for when it's in insolvency.

[Scott Duvall, NDP, Hamilton Mountain, ON]

Mr. Schaan, do you have any data to demonstrate to me that Canadian companies with defined benefit plans are currently experiencing liquidity problems? How many companies are there? What is the dollar exposure?

[Mark Schaan]

Each province pension superintendent often provides additional information about the plans under their respective coverage. I don't have that information handy, but I can say that OSFI, for federal purposes, does keep track of the overall number of plan sponsors and those entities and their degree of fundedness. As indicated, in the case of a federally regulated plan, the federal plan requires an actuarial evaluation annually, should the plan be less than 100% funded on a solvency basis.

In terms of the general liquidity needs, I would say, obviously, that these are extraordinary times. We've just been through a global pandemic that's put significant challenges onto the overall economy. There are a number of additional liquidity measures that have been put in place to try to ensure that firms can stay active and solvent during this time period at all levels of sizes of companies, all the way from general liquidity measures that were available to all companies like the Canada emergency business account to very large companies that had access to bridge financing through the large employer emergency financing facility, so—

[Scott Duvall, NDP, Hamilton Mountain, ON]

I'm sorry, Mr. Schaan, for cutting you off there, but we have very little time.

Indalex demonstrated, even given the pension deficit deemed trust status, it did not result in a tsunami of liquidations. I don't see, as Mr. Poilievre said, a lineup of business people here as witnesses protecting what they're saying, which is that the sky will fall. In fact, what I'm hearing is a lot of people saying enough is enough and that we need to change the law to protect pensioners from deferred wages that they worked for not to be taken up by the global market.

[Mark Schaan]

Yes, a deemed trust is a complicated piece of insolvency, so it's difficult to generalize on the basis of deemed trusts, and Indalex is an issue that remains an issue in a number of potential and current cases.

To your broader point, though, about relative levels of fundedness, it is worth noting that the current funded ratio for DB pension plans belonging to companies in the S&P/TSX composite index increased from 90.8% to 91.2% funded over the past 12 months. We are seeing high levels of fundedness, particularly for those plans that are held to high-funded solvency ratios like they are in the federal zone.

In terms of the economic rationale for the potential implications of a superpriority, which we discussed, I don't know if it was through Mr. Poilievre's urging or others', but we did, I believe, through the clerk receive.... We received and then, I believe, the clerk received an indication from the Association of Canadian Pension Management of their strong concerns about the economic implications of a superpriority.

Just to note, there has been some, but I can't speak to the others. All I can say is that we do worry about the potential implications of a decline in restructurings and not liquidations.

[Scott Duvall, NDP, Hamilton Mountain, ON]

Right, and pensioners are really worried about saving their pensions and not losing them.

Madam Chair, I'm just wondering. Are we going to be going clause by clause, or are we just going to be asking questions all day? I was hoping that in clause 1 that we're dealing with, we would start to have a vote on it and get down to business.

[The Chair, Liberal, Sherry Romanado]

We are doing clause-by-clause. I'm waiting to make sure that everyone who has a question regarding each clause has the opportunity to be heard. You were the last person on the list for clause 1, so I'm just going to ask if there are any other comments or questions regarding clause 1 before I turn it over for a recorded division.

Are there any other questions or comments regarding clause 1? I will turn it to the clerk for a recorded division, because I can't see everybody.

(Clause 1 agreed to: yeas 11, nays 0)

(On clause 2)

Are there any questions or comments regarding clause 2? If so, please use the “raise hand” function, and if you're in the room, please signal to me so I can see you, and I'll put you on the speakers' list.

MP Ehsassi, please go ahead.

[Ali Ehsassi, Liberal, Willowdale, ON]

Thank you, Madam Chair.

With regard to clause 2—and this is true of every clause we're considering today—there are potential impacts on beneficiaries, employers and on other creditors as well. I was wondering if we could ask Mr. Schaan to perhaps unpack the impact that clause 2 would have on all three of those groups.

[Mark Schaan]

Thank you for the question.

Clause 2 extends the superpriority for unremitted employee contributions and unpaid employer normal cost contributions owing to the pension plans to any unpaid special payments and unfunded pension liability. It also extends the superpriority for unremitted employee contributions and unpaid employer normal cost contributions owing to the pension plans to any unpaid special payments and unfunded pension liability.

As noted, this essentially creates a superpriority that would place unfunded pension liabilities and unremitted pension contributions.... It's worth noting that unremitted pension contributions—actually those contributions that would have been subject to a payroll contemplation in the lead-up to an insolvency—already have a superpriority. The major piece here is the extension of the superpriority to the overall, including unfunded, pension liability. This includes, in the federal case, those special payments that were required to be made over the subsequent five years to make up for the gap.

What that essentially does is place them above preferred claims in the case of a restructuring. It also places them above unsecured and secured creditors in the case of a restructuring. In many cases, this would essentially mean that the unfunded pension liability would take precedence, potentially leaving significantly less available in the estate for the purposes of secured and unsecured creditors.

In this case, because it's a superpriority, thereby meaning it's an automatic.... For the case of restructuring, this may mean that the unfunded pension liability is such that the assets remaining are simply insufficiently interesting or won't allow for a restructuring to occur. This would mean that the entity would proceed into liquidation and people would be paid on a pro rata basis. We would essentially be prioritizing the unsecured claim of unfunded pension liabilities above those of other unsecured creditors, which can include small and medium-sized enterprises, other suppliers and other providers of services and assets to the now liquidated entity.

In the case of clause 2, this is with respect to BIA liquidations. In a liquidation, this would essentially prioritize and provide that superpriority for the unfunded pension liability.

As discussed, we [Technical difficulty—Editor] impact on the cost of credit and the availability of the entity to proceed through restructuring, and then, should they be in a position to continue, to potentially allow them to access the necessary liquidity to do so.