Madam Speaker, I have read with considerable interest the provisions of Bill C-5, an act to amend the Bankruptcy and Insolvency Act. While there are a number of elements in the bill we can support, there are a couple of things I want to address this afternoon which we cannot support.
To review briefly, the bill does provide some rather interesting remedies for some difficulties in the business of bankruptcy and insolvency. For example, it comes to grips with procedures in consumer bankruptcies and proposals. It deals with landlord compensation where leases are disclaimed in reorganizations. The liability of directors and stays of action against directors during reorganizations are dealt with. There is protection for trustees and receivers against personal liability for pre-appointment environmental damage and other claims. Worker's Compensation Board claims are dealt with, dischargeability of student loans and so on.
A number of these are rather significant. I will address a couple of these which are particularly worthwhile noting. First is the matter dealing with student loans. Students are responsible for their loans two years after they declare bankruptcy. That is significant because at the present time there is apparently an opportunity for students to escape paying their loan simply by declaring personal bankruptcy. This provision alone should save the federal government approximately $60 million.
Another has to do with divorced spouses. The provision in the original draft of this bill was not acceptable, but the minister has agreed to accept one of our amendments. Therefore this area will be covered very well. It deals with divorced and separate spouses who will receive priority ranking among creditors for settlement of claims. Spouses are not now considered creditors under the bankruptcy laws. I think that new provision is a particularly good one and ought to be endorsed.
The business of company director liability is also addressed and directors are permitted to defend themselves against negligence if they can prove they acted with due diligence. They would also get a stay of proceedings against them during reorganization proceedings. This provides a certain element of protection missing in the previous legislation.
In the matter of environmental clean-ups, the act becomes clear as well. It says environmental clean-ups will get top priority over the claims of creditors. Bankruptcy trustees and receivers will have to report environmental hazards they notice after a company becomes bankrupt.
Finally, in securities firms a process is laid out for bankrupt securities firms, particularly with regard to securities and debts held in the name of their clients. This is particularly significant because there have been clients who have been left high and dry by a security firm that went bankrupt and the money which was held by the company in trust was lost.
I would now like to look at another area which has to do with bankruptcies more generally. While this bill begins to come to grips with the ways in which bankruptcies are dealt with, it does not come to grips with the causes of bankruptcy. This gives me the opportunity this afternoon to suggest that there is a far too high an incidence of bankruptcies in Canada.
Consumer bankruptcies have soared in the last 10 years from approximately 20,000 in 1986 to over 60,000 in 1995. This is a threefold increase. Consumer bankruptcies are a sign of the lack of jobs that exist and the failure of the government to adequately address the problem. As a result, this bill cannot address the issue that is really at the heart of what is causing bankruptcies in Canada.
The federal debt now stands at between $580 billion and $585 billion. It is becoming very close to the $600 billion figure. It is all very nice for the Minister of Finance to talk about the wonderful way in which the deficit is being reduced each year, that the deficit this year will be a little less than last year and that it looks like eventually the government will get to the point where the deficit is reduced. However, he has not promised that he will eliminate the deficit.
Every Canadian knows that with each deficit the debt gets bigger. It does not help to say that the deficit is going down if the debt keeps on growing and the interest that has to be paid on the debt becomes greater. That is not the only one of the causes for bankruptcies. The taxes that are paid by taxpayers to pay the interest is constantly increasing and it is therefore more difficult for businesses to operate successfully.
When will the government recognize that as the debt increases, the predatory action of the interest on social programs and on businesses also increases. This bill, while it is a beautiful bill, does not go far enough. The reason we have the bill is because there are
too many bankruptcies. The time has come for us to realize that Canada must get its financial house in order so that it does not go bankrupt and become subject to something like the bankruptcy act in terms of the international monetary situation. I hope it never comes to that. Certainly it does not have to. I would encourage all of us to take the steps necessary to ensure that does not happen.
I draw the attention of the House to three areas where the bill is lacking. These are omissions. The first area deals with the lack of certain requirements of the Superintendent of Bankruptcies to report to the minister. The second area is the omission to provide for unpaid supplier accounts. The final area is the omission of payment of wages to workers whose employment is terminated because a firm went bankrupt.
I want to draw attention to the omission of certain requirements with regard to the superintendent to report to the minister. The role of the superintendent is described in section 5 of the act. It is very interesting what this bill does. I want to put this in the context of a certain management theory which is rather significant. I want to focus it from four perspectives: responsibility, accountability, delegation and power.
Responsibility is the clarity of tasks and lines of authority and communication so that everybody knows which responsibility and which outcome they are responsible for.
Accountability is who checks the work done, where does the final word come from and where does the buck stop. These areas have to be clearly identified.
Delegation is the assignment of tasks to others because no one person can do everything. We must ensure that the delegation is such that the whole operation works.
Finally, there is the matter of power; to effect the discipline necessary to enforce by placing sanctions or the issuance of a reward to those who should be rewarded for the work that they have done.
The principle that I wish to enunciate is that the elected persons are responsible to those who elected them. It is the absolute number one requirement. What has this got to do with the bill? I suggest that in order to accomplish the governing of a nation, a province, a municipality or the administration of a complex organization engaged in business or commercial activities, there are certain management principles which must be observed in order to assure that the goals, purposes and the mission of the organization can be accomplished.
The principles are the division of tasks to be formed into manageable components and to make sure that these tasks are carried out to the satisfaction of those in charge. How does this come into focus for Bill C-5?
Generally speaking, the bill does a reasonable job in meeting the requirements that would normally be associated with the implementation of these principles. However, it falls short in several areas. Two of them are accountability and responsibility.
As in several other pieces of legislation which have been presented to the 35th Parliament, this bill contains the provision of giving to the bureaucracy powers and the assignment of authority and responsibility without recognizing the role and the responsibility of Parliament and the elected representatives whose primary responsibility is to the people who have elected them to manage the affairs of this country in their best interest and to the advantage of all Canadians.
In Bill C-46, for example, which amended the Corporations Act, the minister was given in the initial presentation of the bill powers to determine the winners and losers by determining programs and special assistance in whatever industries, particular industries or commercial establishments, organizations or persons who are members of a particular category of persons defined by cabinet order. The minister changed that later and that is to his credit.
Bill C-99, which amended the Small Business Loans Act, contained provisions that the amount of liability of the government would be decided by cabinet, not Parliament. Again, it was an abrogation of the responsibility of Parliament and the members' responsibility to look after the best interests of the people who elected them.
Bill C-5 does not rectify that situation. Powers have been delegated to a bureaucrat, in this case the Superintendent of Bankruptcy. They should be in my opinion those of the minister.
What are some of these responsibilities? I will read from clause 5 of the bill we are considering:
5.(1) The Governor in Council shall appoint a Superintendent of Bankruptcy to hold office during pleasure who shall be paid such salary-
(2) The Superintendent shall supervise the administration of all the estates to which this Act applies
(3) The Superintendent shall, without limiting the authority conferred by subsection (2),
(a) receive applications for licences and renewals thereof to act as trustees under this Act, and, as authorized by the Minister, issue licences and renewals thereof to those persons whose applications have been approved;
(b) keep a record of all licences granted and of the renewals thereof as they are issued;
(c) where not otherwise provided for, require the deposit of one or more continuing guaranty bonds as security for the due accounting of all property
received by trustees and for the due and faithful performance by them of their duties in the administration of a estates to which they are appointed, in such amount as the Superintendent may determine, which amount may be increased or decreased as he may deem expedient, and the security shall be in a form satisfactory to the Superintendent and may be enforced by the Superintendent for the benefit of the creditors;
(d) keep such records as he may deem advisable of proceedings under this Act;
(e) from time to time make or cause to be made such inspection or investigation of estates as he may deem expedient and for the purpose of the inspection or investigation the Superintendent or any person appointed by him for the purpose shall have access to and the right to examine all books, records, documents and papers pertaining or relating to any estate;
(f) receive and keep a record of all complaints from any creditor or other person interested in any estate and make such specific investigations with regard to such complaints as the Superintendent may determine; and
(g) examine trustees' accounts of receipts and disbursements and final statements.
(4) The Superintendent may intervene in any matter or proceeding in court as he may deem expedient as though he were a party thereto.
It is a good set of duties but members will notice the number of times it says the superintendent "may". He may do this, he may do that and he may do something else.
Let me quote from another clause:
6.(1) The Superintendent may engage such accountants or other persons as he may deem advisable to conduct any inspection or investigation or to take any other necessary action outside the Office of the Superintendent, and the costs and expenses thereof shall, when certified by the Superintendent, be payable out of the appropriation for the Office of the Superintendent.
It continues down through the rest of that clause. Now comes the big, heavy duty clause, clause 7 of the bill which reads as follows:
- When any investigation has been made by the Superintendent or any one on his behalf; and it appears that a licensee-
That is a person or group of persons or a company that is authorized to manage an estate.
-under this act has not performed his duties properly or has been guilty of any improper conduct or has not fully complied with the law with regard to the proper administration of any estate, the Superintendent may make a report to the Minister together with such recommendations to the Minister as the Superintendent may deem advisable.
Notice that there could be an unlawful conduct, or an omission, or not having done something, an omission of some kind. The superintendent is not obligated to report. He may report to the minister. He may make a report to the minister together with such recommendations as the superintendent may deem advisable.
Huge estates could be at stake here. Big companies could be forced to reorganize their financial structures. Huge corporations could be forced to reorganize their international operations or indeed their national operations, affecting literally thousands of people's jobs. Perhaps the welfare of many other businesses depend on this larger organization to function.
If the trustee acts in a manner that is unlawful it is not a requirement of the Superintendent of Bankruptcy to cause that licensee to have his or her licence withdrawn or even a report to be made to the minister. Yet it is the minister who is responsible to look after the welfare of the people of Canada and was elected by those people to represent their interests.
The bill does not address this issue at all. It is silent on this matter. The difficulty is not in the range of responsibilities listed here, nor is it that the superintendent should not have substantial powers to enforce the fair and just administration of the estate of a person or corporation that is insolvent or bankrupt.
The difficulty is that the superintendent is not held to account to any elected official in the event of a licensee who "has not performed his duties properly or has been guilty of an improper conduct or has not fully complied with the law with regard to the proper administration of any estate". That is a serious and a very significant provision in current legislation and this bill does not address it at all.
The difficulty is that the application of the powers to assure fairness and veracity of trustee's reports is not subject to review by law. And it should be. Nor does it appear to be a requirement of the superintendent to make available trustee reports in the event that a civil litigation be launched and in that litigation perhaps charges of unfairness, perhaps bias or maybe even in some cases collusion by creditors against a particular bankruptcy. It is not a requirement of law that if such should be the case, the superintendent is required to present that kind of a report to the courts, and I think it ought to be.
The reason why this is so important is that information contained in bankruptcy reports can be crucial in the examination of the reasons for the bankruptcy or the reorganization requirement of a particular enterprise. Therefore it would appear imperative that amendments be introduced that would replace "may" with "shall". This would effect a shift in power from that of the superintendent to the minister.
The minister should have the final responsibility on matters such as the receiving of reports about the neglect of performance of
duties of licensees who are administering bankrupt estates instead of giving the superintendent absolute discretion in such matters.
The problem is exacerbated because it is the minister who issues and revokes licences. The minister does that but he does it on the advice of the superintendent. With those kinds of powers and with that kind of advice it is obvious what the minister will do. Such broad power is enough to determine the financial and economic success, or at least the viability, of a bankruptcy trustee.
In other words, a bankruptcy trustee may make a livelihood of administering bankrupt estates. If there are 60,000 of them in one year there is a lot of work to do. If the licence should be revoked the very welfare of that trustee could be at stake. If the superintendent of bankruptcies is the one who has that power, we can see how easy it would be for all kinds of things to go kind of funny in the background.
It also makes it possible for certain trustees to have a virtual monopoly on a set of estates or in doing work for a department. Determining the success or failure of a litigation, contesting the administration of the bankrupt estate, the causes which result in a bankruptcy, the fairness of assessing the claims properly and the priority of creditors are all related to the work of the trustee who is in charge of a particular bankruptcy.
Power to abuse is what we have here. There is power to abuse the system and that power needs to have checks and balances. I suggest those checks and balances rest with the minister and with cabinet, not with bureaucrats. Hence I suggest the minister consider the addition of the appropriate amendments to the Bankruptcy and Insolvency Act to remedy these shortcomings.
In matters of this kind there is always the possibility of being tempted to exercise power in a biased or discriminatory manner because of the money involved, thousands of dollars, hundreds of thousands or millions of dollars in some cases.
While there are strong provisions in the bankruptcy act to discourage this biased practice, such provisions are difficult to enforce if other provisions of the act permit certain matters to go unreported to those in positions to do something about them.
There are two other areas of the bill which suffer from inadequacy or from omission. There is the matter of unpaid supplier provisions. Suppliers of goods are frequently in situations in which a debtor has ordered a considerable amount of inventory before being placed into bankruptcy or receivership. The supplier is then left with an unsecured claim for the price of goods while their value benefits the secured creditors who have charges on the business' inventory.
This practice of stacking up an inventory for the benefit of secured creditors is detrimental to the interests of the supplier. There are provisions under the current act to give suppliers the right to repossess merchandise delivered to a purchaser who becomes bankrupt or who goes into receivership.
Nevertheless, these provisions have received criticism from the financial community in which they say the availability of credit would be reduced because lenders would no longer be able to count on inventory as security for their loans. The matter is not dealt with here and probably at some future time it will be. It has been presented to the minister on more than one occasion. In each instance he has decided not to do anything about it.
The third omission is the bill does not provide for the payment of unpaid wages to workers whose employment was terminated as a result of a bankruptcy, receivership or liquidation of their employer. The matter was to have been the subject of a study by a special joint committee of the House of Commons and the Senate. That committee was to report in June 1993. That committee was never established.
Instead, the wage claim payment program of the Bankruptcy and Insolvency Act maintained a preferred creditor status for unpaid wages, for unpaid wage claims, and increased the amounts that could be claimed.
In the interests of the employees who are terminated as a result of bankruptcy the matter should be revisited to determine whether a fairer and more equitable provision for the affected employees can be achieved.
There are a number of provisions in the bill which we can support and there are a number of shortcomings which have been addressed. While in general we will support the bill, I believe the minister would be well advised to recognize there is a lot of work left to be done to deal with those issues which must be addressed.
I underscore again that the real reason bankruptcy is so rampant in the country today has to do with the financial situation, in particular the fiscal situation, in which the country finds itself.
I encourage the Minister of Industry, who is leading this bill, and the Minister of Finance together with the Prime Minister to put all their efforts into one thrust to eliminate the deficit and begin to control the debt so that our interest payments do not continue to rise and we can once again have a fair and level playing field in which private industry, private enterprise, can build a country where all of us will have the economic freedom to spend our money the way we want to, with a minimum of government interference, and be successful in our endeavours so we will not have to deal with bankruptcy.