Madam Speaker, it is my honour and privilege to speak to the second reading of Bill C-55, an act to establish the wage earner protection program act, to amend the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act and to make consequential amendments to other acts.
The passage of the bill will have real effects on the economy and on individual Canadians. It will affect entrepreneurs, large and small creditors, lending institutions, consumers, workers and students. Approximately 100,000 personal bankruptcies and 10,000 business bankruptcies occur each year, affecting more than $11 billion of debts and redeployment of $4.5 billion of assets.
Bill C-55 will ensure the Canadian insolvency system meets the needs of the Canadian marketplace as well as contributes to the socio-economic objectives of helping Canadians in financial distress.
Canada's insolvency system centres around two main statutes, the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act.
Allow me to explain briefly what each statute does and how they interconnect. The Bankruptcy and Insolvency Act, or BIA, provides the legislative basis for dealing with both personal and commercial insolvency issues. Under the BIA there are two options available. When an individual or company declares bankruptcy, the act provides for the liquidation of bankrupt assets by the trustee and the distribution of proceeds in a fair and orderly way to the creditors.
Alternatively, the act provides a means for persons or companies to avoid bankruptcy by negotiating a settlement with their creditors. It is called the proposal. Under the act the use of proposals has grown considerably in recent years and they now account for 15% of all filings by individuals and 25% of corporate filings under the BIA.
The Companies' Creditors Arrangement Act, or CCAA, applies only to corporate insolvencies involving debts over $5 million. Its purpose is to establish a framework to govern the restructuring of companies. The CCAA provides for a court driven process whereby a company obtains a court order to prevent its creditors from taking action against negotiating an arrangement with its creditors. The use of the CCAA has greatly expanded over the past decade, and most restructuring of large insolvent companies is now handled under the CCAA.
There is a broad consensus among stakeholders that reforms to the insolvency legislation are needed. Bill C-55 has four primary objectives.
First, as the Minister of Labour and Housing has outlined, Bill C-55 greatly enhances the protection of workers where their employer goes bankrupt or undergoes a restructuring process.
Second, it seeks to further encourage restructuring as an alternative to bankruptcy. Restructuring produces better results for creditors, saves jobs and enhances competitiveness.
Third, the bill is intended to make the bankruptcy system fairer and to reduce the scope for abuse. Bankruptcy law is about sharing the burden. Hence it is essential that we consider fair and equitable agreements by all parties.
Fourth, the administration of the system will be improved as many provisions in both the BIA and CCAA need to be clarified and modernized in order to ensure a more effective and predictable insolvency system.
Let me offer specific examples on how Bill C-55 is going to improve our insolvency system. To foster the use of reorganization as an alternative to bankruptcy, the CCAA will be substantially rewritten providing guidance and certainty where none previously existed and codifying existing practice while still preserving the flexibility that has made the CCAA such a successful restructuring vehicle.
Several new rules will ensure greater transparency in the process and a better ability for the active parties to defend their interests. This includes rules on interim financing; the termination of assets of contracts; governance arrangements of the debtor company, including the role of the monitor who will need to be the trustee; the sales of assets outside the ordinary course of business; and the application of regulatory measures.
Finally, this bill will greatly improve the administration of Canada's insolvency system through a number of changes affecting the role and power of trustees, including when they act as monitors in CCAA cases and as receivers on behalf of secured creditors. The supervisory role of the Office of the Superintendent of Bankruptcy is clarified and also includes the establishment of a central registry for the CCAA cases.
It is widely accepted that insolvency rules that govern personal insolvency play an important socio-economic role. They permit honest but unfortunate individuals who experience significant financial difficulty to discharge their debts, obtain a fresh start and thereby have the best possible chance to restore their financial situation.
At the same time, a well functioning insolvency system strikes the appropriate balance among competing interests in circumstances in which by definition there is not enough money to go around. Accordingly, it is important that the system be designed in such a way that it functions effectively and efficiently and provides the right incentives so that it deters potential abuses.
Bill C-55 accomplishes these objectives. It does so through tailored improvements to the Bankruptcy and Insolvency Act. By way of background, the proposed changes to the Bankruptcy and Insolvency Act which impact on individuals were extensively examined by the personal insolvency task force, the PITF, during the period of 2000 to 2002. The PITF was an independent panel established by the Office of the Superintendent of Bankruptcy with membership from all principal stakeholder groups, including creditors, trustees, consumer credit counsellors, lawyers, judiciary and academics.
The PITF released its report in August 2002. The report served as the main point of reference for representations that were made before the Senate Standing Committee on Banking, Trade and Commerce, which conducted its own review of Canada's insolvency legislation in 2003. That is to say that the consumer insolvency issues addressed in Bill C-55 have been the subject matter of extensive debate and consideration by both the PITF and the Senate committee.
In the area of consumer bankruptcy, one of the key challenges is the growing number of cases. Consumer bankruptcies have significantly increased over the past decades, from 1,500 in 1967 to some 84,500 cases last year. The number of insolvencies is tied to many factors, including challenges in consumer lending practices, higher levels of personal indebtedness, and a more tolerant attitude toward bankruptcy.
Since 1998, however, the annual average growth in consumer bankruptcies has decreased to approximately 2% per year, compared to 12% for the preceding three decades.
During the same period, the number of consumer proposals has more than doubled and now represent approximately 16% of all filings. This reform will continue to encourage the use of consumer proposals which offer the debtor an alternative to bankruptcy and typically result in higher recovery by creditors. For instance, the threshold for a consumer proposal has been increased from $75,000 to $250,000, thereby allowing more individuals to choose to make a proposal rather than file for bankruptcy.
Among the significant changes introduced to the consumer insolvency system by Bill C-55 is a provision to curb the potential for strategic behaviour by individuals seeking to extinguish large income tax debts. The bill eliminates the eligibility for automatic discharge for those debtors with personal income tax debts exceeding $200,000, where it represents 75% or more of unsecured debts. Instead, these individuals have to seek a court order for discharge and the court would be able to fix conditions relating to the discharge.
In keeping with the principle that those individuals filing for bankruptcy who have the financial means to repay a portion of their debts ought to do so, Bill C-55 provides for amendments to existing surplus income provisions. Under the proposed regime, first time bankrupts with surplus incomes will be required to pay a portion of their surplus income to their creditors for a period of 21 months, an increase of approximately 12 months to the present situation.
Reform of consumer insolvency provisions is also aimed at making the current system fairer for individuals. This includes the elimination of inequitable treatment of retirement savings plans and improved treatment of student loans and bankruptcies.
Under the existing laws, some retirement savings plans, namely, those associated with life insurance policies and registered pension plans, are generally exempt from seizure in the bankruptcy. Other types of registered retirement savings plans, on the other hand, such as those held by banks, brokerages or in self-directed funds, are generally not exempt from seizure in bankruptcy. The difference in treatment of various retirement savings plans seems to conflict with the public policy goal of encouraging Canadians generally to save for retirement.
Under Bill C-55, the registered retirement savings plans, regardless of whether the savings are a part of the employer sponsored pension plan or whether they are held in a life insurance savings plan, will enjoy the same protection from seizure and bankruptcy.
The bill contemplates that certain requirements must be met in order to ensure the public policy goal is fulfilled and to avoid the incentive for strategic behaviour. Specifically, contributions made within 12 months of bankruptcy and the amounts in excess of the cap would be available to creditors. Furthermore, there is a requirement that the savings be locked in until retirement.
In respect to student loans, the bill proposes that the waiting period before which a student loan debt may be discharged in bankruptcy will be reduced from 10 years to seven years. Furthermore, the bill would reduce the period before which the application may be made to the court to have a student loan debt discharged on the basis of undue financial hardship. That would be reduced from 10 years to five years.
One of the functions of bankruptcy law is to define which parts of the bankrupt property are available to be divided among creditors and which parts will remain under their control. In recent years a series of court decisions has cast doubt on traditional interpretations of which parts of the bankrupt property are available to creditors. The decisions reveal ambiguities in the wording and legislation. These are clarified through changes by the proposed bill.
In addition, proposed changes to provisions which address the way in which the Canadian insolvency system is administered are designated to improve the integrity of the system as a whole. A number of the procedural changes to the consumer insolvency provisions will enable the process to be streamlined along the lines recommended by the PITF. It is anticipated that these changes will result in a system which is better able to respond to the needs of individual debtors and their creditors.
In the Speech from the Throne, as well as the budget, the government clearly staked out its commitment to encourage entrepreneurship and risk taking. It has committed itself to creating a society and a business climate where educated and skilled people want to live and work, as well as a country that is the best place to do business while providing effective safety nets for individuals in financial difficulty.
Bill C-55 is a significant step to ensure that we respect Canada's insolvency laws, that the framework is right, that the rules are fair and equitable and that the regulatory structure is smart and responds to the needs of the marketplace. I am confident that the measures proposed in this bill will have broad support among Canadians. I urge all members of the House to support this important legislation.