Madam Speaker, the purpose of the bill before us today is to move employees from fourth to first place in the legal order of precedence when a bankruptcy occurs. If it was passed, this bill would provide that when the assets of a bankrupt person or corporation were divided, the first people to receive payment would be employees instead of other people like funeral directors, lawyers and administrators, and secured claimants.
Funeral expenses, legal and administrative fees are not the main obstacle presented by this bill. Those who currently have the first right of payment are secured creditors, which is a broader and more significant category involving mortgage holders. These secured creditors are the ones who would suffer most from the enormous changes the bill would bring about in our financial system.
What are we really talking about when we speak of the order of precedence in the Bankruptcy Act? We are describing levels of risk. The one in first place on the order of precedence is taking the least risk in the case of bankruptcy, because the first one will be the first one paid out.
We know that all business ventures do not succeed. Some make it but some do not. When an employee or a lender enters into a contract with a business person, the risk of business failure is always there. The place one takes on the order of precedence will determine just how much risk one is willing to undergo.
Employees are now fourth on the list, so employees bear more risk than some others. This means they should carefully consider whether they want to give their time to a business they suspect might fail. The hon. member who spoke previous to me already pointed out that they are smart enough to make that decision already. It goes without saying that if lenders were moved lower in the order of precedence, they would have to consider more carefully than they do already whether or not to lend money to a business.
If we change the order of precedence on a broad, nationwide basis, we are making a determination about risk and who should bear it. We are also making a statement about what is most necessary in society for the efficient functioning of business. Given that we all want private enterprise to flourish, we must make the rules in such a way as to facilitate the most efficient way for all Canadians and the marketplace to prosper.
Government could put up all sorts of artificial and unnecessary barriers to the free functioning of the marketplace for one political reason or another at the expense of the efficiency in the marketplace.
For instance, the environment is important so the government could pass a zero emissions law for the auto industry, stating that automobiles could not pollute at all. In this impossible example it is obvious that the auto industry would immediately grind to a screeching halt. I merely want to demonstrate that in considering what laws to pass, governments must strike a balance between the efficiency of the market and the kind of business it wants to foster.
From that example let us move back to the matter at hand. If an employee was first on the order of precedence, the employee would be taking the least risk in the case of bankruptcy and the lender would have to incur more risk than before. This consideration of greater risk would have inevitable efficiency results in the marketplace. I want to describe what they might be.
Certainly there would be one positive result, namely that of paying back employees who were not paid full wages or severance pay if a person or corporation went bankrupt. This would be nice for the employees. Employees are important and necessary actors in our financial system and deserve due consideration. But this is the only positive effect I have been able to think of in this bill.
This scenario is directly analogous to the auto industry I was just talking about. I maintain that the passage of Bill C-237 would have a harmful effect on employment in general in the country. It would make small business less efficient and slow the pace of economic activity across the nation. Just like a zero
emissions policy in the automobile sector would do more harm than good, I am convinced that the sum total of harm caused to employees would be vastly greater than the losses they now suffer as a result of being in fourth place on the order of precedence.
The first harmful effect a change in the order of precedence would cause would be a reduction I believe in the overall employment in Canada. A company which needed, for example, $1 million and wanted to employ 25 people would not be able to compete for funding with a company that also wanted a $1 million loan but was only going to employ 10 people.
The risk would be much reduced if there were fewer employees to pay out before the lender received his or her share. This would cause businesses to shy away from labour intensive enterprises and move toward enterprises involving technology even more than labour. People would become less important players in our financial markets as a result of this change and machines would become more important.
The second effect we would feel at a national level would be more important. It would have a direct impact on foreign investment. Capital is very mobile on a global basis and foreigners invest in our economy all the time. If another country had laws that would guarantee them less risk than Canada could, then their money would tend to flow out of Canada and into other safer business enterprises around the world.
Canada depends a lot on foreign capital. We cannot afford to send foreigners a message that they are not welcome here. The loss of their financing would mean less investment and fewer businesses. Again this would have a direct, more serious negative employment effect across the country.
The final effect would be the most serious of all. If lenders had to undergo more risk than they do now in lending they would be forced to think twice before lending at all. This would mean that more marginal business ventures would have a harder time raising capital. When they wanted to borrow money they would have to pay a risk premium, in other words, a higher interest rate for that money. This would mean that many businesses simply would never get off the ground because they would not be able to afford the interest payments on their loans.
Government currently plays a role, unfortunately, by lending to marginal, more risky businesses through agencies like the Western Diversification Fund and the Atlantic Canada Opportunities Agency. But the capacity of governments to do so in the future is being vastly reduced by government debt. Therefore government in this case would not be able to take up the slack in this area of the market.
We all know that many innovations never succeed but a few pay off handsomely. Innovative entrepreneurs are important in our economy and Bill C-237 might discourage them from taking risks. Their ideas would never see the light of day if access to risk capital were reduced.
It is obvious that fewer people would be employed as a result of this restriction on lending capital. What employees gained in wage security they would lose in job security. The old adage that you cannot get something for nothing is truly relevant here. What little you might have gained in one sector of the economy you would lose far more in another. Bill C-237 would have a detrimental effect on employees.
As usual, government meddling with the marketplace would have the most detrimental effect on small businesses. I would remind members that over 97 per cent of all firms in Canada have less than 50 employees. Small business is the engine of economic growth and we want to keep fueling that engine, not choke off its fuel by unnecessary government restrictions such as the one we contemplate here today.
The argument is that we need to be kinder to employees. Somehow we need to make them more secure. But is it really a kindness to give them that kind of security and then throw them on the dole? What kind of effective security is that? It is security for some but it is unemployment for others.
As I said a few moments ago we will all be more prosperous if private enterprise flourishes in Canada. That is a given. All we need to do is discover what rules to set in place that will make this happen. I would remind members that the rules in the Bankruptcy Act are not arbitrary. They represent the interests of people acting in the marketplace over generations of litigation and thousands of cases of business relationships.
I have stated adequately my clear opposition to this motion. It is not because I appreciate workers less than the member for Portneuf. The rules of business should maintain the overall efficiency of private enterprise because the security of private enterprise ensures job security for Canadian workers.
In my opinion, the order of precedence assigns risk in a way that benefits business efficiency. In that way it serves the public interest. It should, therefore, remain intact.