Madam Speaker, I oppose this bill to amend the Bankruptcy Act because it would result in inefficiencies and an unfair burden on the general public.
I can understand the motive behind the proposed legislation. Why should banks, funeral businesses and accounting firms be paid out of the proceeds of a bankrupt firm before workers who typically have fewer resources than these enterprises?
The new law presumably would reduce profits of these firms without any dire social consequences while it would prevent the misery for the families of workers who can ill-afford to lose income they have earned. However, this view is shortsighted.
In a free society and under current law funeral businesses and accounting firms do not have to take business for which they are not paid. The proposed law does not envisage changing this condition. Therefore when an estate is to be dissolved and it is clear that if after the payment of labour there is no money left for funeral expenses and accounting services, who will do this work?
I see only one answer to this question. A government will have to undertake the task or at least pay for it out of general tax revenue. People have to be buried, accounts have to be settled to meet the requirements of property laws that have existed for centuries.
Under either approach the public ends up paying for these services. Therefore, the proposed legislation will enrich workers of a bankrupt company at the expense of the general public. I do not see the fairness of this outcome, especially because the wages earned by workers in different occupations and industry tend to compensate them for all kinds of risks in the first place. I will return to a discussion of this proposition in a moment.
Let me now turn to the not so obvious consequences of ranking secured loans below wages. This rule will increase the interest rates which lenders charge to businesses for loans for the purchase of tangible assets. This is not a malicious plot of capitalists. By doing so lenders will simply meet their fiduciary responsibility.
I venture to guess that none of us in this House would be very happy if our savings in a bank or credit union were used to lend to risky borrowers without proper risk premium and collateral. We would be very unhappy if the fiduciary holders of our money did not pool risky investments and did not make sure that on average interest earned on the pool minus payments for bankruptcy losses is equal to what they could have earned by investing our money in secure government bonds.
This is of course what lenders to business do. Therefore any government legislation like the one proposed which increases the rate of loss from loans requires an increase in the interest rate charged to all members in the pool of risky loans. One rather obvious consequence of this action is that borrowers' profits are reduced. They will try to raise the cost of their services and products to compensate for this reduction. This can be done only to a limited extent, otherwise they would have already charged higher prices before the interest costs went up.
To the extent that they succeed and get higher prices, the money which goes to workers first in line in a bankruptcy proceeding comes from the general consumer. I see no fairness in this. A less obvious effect of the higher loan rates to business is that some firms will not be started at all. As a result the demand for labour and the wage rate are lowered.
In addition, the average amount of capital held by business will be smaller. Therefore, labour productivity and wages will be lower. In effect, the rest of labour is forced to pay for the income earned by the workers in a bankrupt firm indirectly through higher interest rates charged by lenders. I see no fairness in this.
Finally, it should be noted that the probability of bankruptcy of firms can be predicted to some degree by the characteristics of an industry, a firm or the personality of the employer. Workers are smart and know how to look after their own interests. They enter employment contracts considering their pay in light of a wide range of conditions, including the risk of their employer going bankrupt. The idea of buyer beware is relevant to goods and services as well as the sale of one's labour.
The vast majority of workers therefore will accept employment where the risk of bankruptcy exists only if their wages reflect properly this condition. Otherwise they will find employment elsewhere. They will continue to stay with a company only if they feel their wages properly reflect the risk they are taking.
The motives for doing so are complex. I certainly would not hang around and work for a company about to go bankrupt and unable to pay me wages owed unless the prospective benefits are fully worth it.
I would postulate that the wages of workers, everything else remaining the same, are higher the greater a firm's risk of bankruptcy. The proposed law would remove or significantly lower the risk of wage losses from such events. This would encourage such workers to accept employment in such industries at lower wages. They would therefore on average be no better off than they were under the present law, except that the efficiency of the economy would be reduced because there would be an over expansion of risky firms and industries and a job and output reducing tax on the rest of the workers.
There are always some people who do not obey the principle of buyer beware or who have poor judgment about the prospect of a company's bankruptcy and ability to pay owed wages. I think the number of these people is small. I have confidence in workers.
Canadian workers are not dumb or unaware of the functioning of markets. Helping those few through the proposed legislation is very indirect and costly for reasons just discussed. Help for them should come through education and the publication of relevant information. Unions could play an important role in this process. They have the resources and are driven by the right humanitarian motives. Those who cannot be reached by these direct methods and who need help have to be taken care of by existing systems of private charity and public aid.
In sum, the present law regulating the order in which obligations of estates are settled in the case of a bankruptcy or death have existed for centuries. Institutions which have survived for so long should never be changed without very good cause.
They may appear to create injustices for some, but closer examination of their effects typically will reveal that serious unforeseen consequences are likely to arise if they are changed. The long survival of such institutions strongly implies that past efforts to improve them have failed.
I believe that my analysis of the indirect effects of the proposed change in the bankruptcy law support this view of the sociobiological evolution of institutions. I urge members of this Parliament to vote against these proposed changes.