Mr. Speaker, I am pleased to rise in my place today to respond to the bill of the hon. member for Portneuf.
Bill C-237 would adjust the priority of claims of the Bankruptcy Act so as to provide employees with the first priority of the proceeds of a bankruptcy, up to a limit of $9,000 per person.
I would remind the House that in 1992 the Bankruptcy and Insolvency Act was revised for the first time in 40 years. There had been six previous attempts to reform the act and they all failed.
Hon. members who were present during the last Parliament will no doubt recall that one of the most controversial aspects of the original legislation was the proposal for a wage claim payment act that would enable employees to obtain wages and expenses after a company has gone bankrupt.
The debate focused on the best way to finance the payment of this type of claim. Several methods were recommended. The original bill provided for the creation of a wage claim payment program, that was to be financed through a tax paid by the employer and collected with UI contributions.
Many members of the Standing Committee on Consumer and Corporate Affairs and Government Operations, however, argued against that method of financing wage claim payments. They maintained it was not right to impose an additional tax burden on business in the name of helping the employees of bankrupt companies. The act might only succeed in driving more companies over the edge and into bankruptcy and the last thing Canadians needed was legislation that might kill jobs. Therefore the government of the day dropped the wage earner protection provisions in the interests of getting the bill through Parliament.
We must examine very carefully the eventual impact of the various proposals, as well as the results of the 1992 amendments. The consequences of the priorities established in the new Bankruptcy and Insolvency Act will help us better understand what works and what does not.
Let me provide an example. The 1992 act gives unpaid suppliers the right to repossess goods sold and delivered to a debtor if the debtor is bankrupt or in receivership at the time the supplier demands the return of the goods. This rights comes into effect when the following conditions exist.
The supplier must demand repossession in writing within 30 days of delivery. The buyer must be bankrupt or in receivership. The goods must still be in the possession of the buyer, trustee or receiver, be identifiable and in the same state as when delivered, and not have been resold or subject to an agreement of sale.
A supplier's right to repossess goods supplied ranks ahead of any other claim against the goods, except that of a purchaser who bought the goods in good faith and for value without notice if the supplier has demanded repossession.
The new bankruptcy laws make other provisions in the case of farmers, fishermen and aquaculturalists. Usually the goods they provide are perishable and the normal 30-day period would not respond to their needs. The goods they provided would already have been processed or resold. The act gives them a super priority over all holders of security in respect of unpaid amounts on inventory supplied within the 15-day period. There is no need to establish the existence of products supplied because they are perishable and will likely be disposed of shortly after delivery.
We must ask ourselves whether the solution proposed by the hon. member will help workers or make life more difficult for them.
If workers were asked what they would prefer, super priority in the event of a bankruptcy or a chance that the company will survive and they will keep their jobs, I am sure there would be no difficulty getting a response. Workers might value a higher priority in bankruptcy proceedings but not at the expense of putting jobs at risk in the first place.
Lending institutions maintained they would raise the interest rates they charge on business loans if super priority were given to wage earners. They say they would be inclined to charge higher rates of interest to labour intensive firms. They say they would be less willing to provide a loan to a company facing tough times and they might move more quickly, regrettably, to realize their securities.
The banks might call the loan before the company declared bankruptcy. Calling that loan would unfortunately result in creating the bankruptcy.
That is what credit institutions said to the various committees that have considered this issue in the past. I do not necessarily agree with them on this. There may be ways of reviewing wage earner protection while guaranteeing the availability of capital. We however need more information than what is now available to us to understand the impact superpriority will have.
At the same time there are other issues that must be addressed in assessing priorities of creditors in the event of a bankruptcy. I wonder if the hon. member has given some thought to protection for consumer deposits, for instance.
A consumer who makes a down payment to a retailer for the purchase price of a good or a service may be left with only a claim as an ordinary creditor. If the retailer goes bankrupt or into receivership before delivery, current law relegates the consumer cannot establish ownership in particular goods to ordinary creditor status. Consumers who pay for goods yet to be identified or not yet produced will be ordinary creditors as will buyers of unperformed services.
Is this fair? Consumers do not intend to give credit and do not see themselves as creditors when they give deposits or make down payments for consumer goods or services.
Consumers are vulnerable. They cannot easily obtain information on the seller's financial situation. They cannot afford multiple risks when they buy. Neither can they realistically expect their deposits to be guaranteed.
The argument can be made that consumers are in as much need of protection as suppliers and wage earners. If we give suppliers protection and wage earners super priority, what are we to do for consumers?
Once again we get into the same difficulty. Any gain for consumer buyers arising out of a privilege would be offset by a corresponding loss for other creditors. Special treatment for consumers would depart from the principle of equal treatment of creditors. This protection might have a detrimental impact on the availability of credit.
There is one more example of the complex issues that arise. Under the Income Tax Act the crown has a super priority to a bankrupt's unremitted source deductions for income tax, Canada pension plan and UI. Bill C-237 puts the wage earner's super priority ahead of the crown's right. The employee might get compensation for wages lost in the bankruptcy, but the crown would find it difficult to have funds to make UI payments. Premiums might have to be raised. The cost of business would rise and more businesses might well fail.
It all has a ripple effect, and I do not believe the bill pays enough attention to the impact it would have on business viability or job creation. We need to examine impacts more closely. We need more information.
Hon. members may be aware that the Bankruptcy and Insolvency Act provides that after three years a parliamentary committee will review both the new provisions and the operation of the act. This provision was established because we do not want to wait another 40 years before we can change the bankruptcy legislation again. We want to keep the act up to date and successful.
According to the act, the review to be conducted after three full years should be held in 1995. We will soon have to study these questions in detail but, for the moment, what we should consider is the big picture.
To prepare for the review the government has created a bankruptcy and insolvency advisory committee. It is a representative group of insolvency stakeholders. The object is to bring together representatives from all interests affected by the law. These groups often have interests that compete with one another, so we want to try to build a consensus on what is fair and reasonable before the government introduces changes as part of the three-year review.
Since its establishment, the committee has created eight working groups that have submitted their preliminary recommendations. This month they will review the recommendations and send them back to the working groups for fine tuning. I hope the report will be complete by the end of this year. The minister will then be able to use these recommendations to draft a new bill.
As you can see, Mr. Speaker, we will have to answer not only the many questions related to the reform of the Canadian bankruptcy legislation but also those concerning wage earner protection. The fact that the previous government could not find a better way to protect wage earners did not make anyone happy. A piecemeal approach to the problem is certainly not the solution.
I believe the House should vote down Bill C-237 and prepare instead to look at wage earner protection as an integral part of the larger issue of bankruptcy reform we will address in coming months.