Mr. Speaker, thank you for allowing me to join my colleagues in discussing private member's Bill C-405.
My hon. colleague mentioned Professor Jacob Ziegel at the University of Toronto. I would like to mention another one of his colleagues, having attended a number of his consumer and corporate law workshops over the years. My first law job was working on a pension task force in the Province of Ontario for Professor Martin Friedland, a colleague of Jake Ziegel. In that context, I got to know a lot about pensions and to know Cliff Pilkey very well. Here I would note that in addition to his prowess on pensions, he could also play a pretty mean game of pool.
We recognize as a government that there are difficulties with insolvencies and we are committed to getting feedback from pensioners, workers, companies, and lenders in order to move forward with a whole-of-government evidence-based approach to enhancing retirement security for all Canadians.
To put it briefly, the problem with a number of these ideas is that they attack one little point in a complex equilibrium, when in a defined pension plan a benefit is being promised in the future based on actuarial assumptions now. Therefore, there are a number of different challenges there, and merely focusing on one little part of the picture will not necessarily lead to a just or equitable result.
Bill C-405 would amend federal legislation dealing with pensions and insolvency. Other members will be addressing pension matters, and therefore I will instead focus on issues regarding insolvency and corporate restructuring.
Bill C-405 amends the Companies' Creditors Arrangement Act, the CCAA, in order to prohibit approval by the courts of key employee retention plans, known as KERPs, which give incentives to some employees and directors so they will continue to work for an insolvent company, unless certain conditions are met, including: the employee retained must be vital to the company and the employee must have received an offer from a competitor. There will be a ceiling on any incentive offered.
Additionally, for companies with underfunded pensions, in order for a KERP to be approved by the courts, the bill would require that an agreement be reached by the company and the plan administrator to pay the unpaid pension contributions, which correspond to the normal payments that the company must regularly make to the pension fund.
The CCAA is an important marketplace law that supports the Canadian economy in a number of ways. The CCAA promotes the restructuring of financially distressed businesses over their liquidation where possible. This is a preferable outcome. While insolvency is an unfortunate fact in modern economies, a successful company restructuring can help minimize the negative impacts on the many affected parties, preserve company value, maintain jobs and supplier relationships, and allow companies to continue funding pensions and benefits. Therefore, in most cases, keeping the company viable over the long term is the best result for everyone, including pensioners.
Indeed, the CCAA has worked well, helping to prevent the failure of important companies, such as Air Canada, AbitibiBowater, and Stelco, which continue to operate and provide good jobs.
Where a viable restructuring plan is not possible, the CCAA provides a framework to maximize the value of company assets for equitable distribution to creditors and the preservation of jobs and business value in a timely, efficient and impartial manner, using a process that is transparent and predictable.
To address the issue of KERPs, it is useful to outline exactly how the CCAA works. This legislation allows companies in financial difficulty with debt of more than $5 million to negotiate a restructuring agreement with creditors by means of a process that has been tested, is well thought out, is set out in legislation and is part of established practices.
Procedurally, the courts oversee any restructuring carried out in accordance with the CCAA. This gives the courts considerable flexibility in dealing with particular cases and in taking action to facilitate negotiations and preserve the value of a company. All of this is vital to ensuring that the process is fair and is in the best interests of the public.
The CCAA provides for a stay of proceedings to prevent creditors from taking legal action and to allow the company to continue operating, paying its employees and providing services. In many cases, the company covers the legal fees for pensioners and other vulnerable groups to ensure that they are able to participate meaningfully in the negotiations.
Under the CCAA, creditors and the company may agree on a restructuring plan, but this plan must be voted on by creditors and then approved by the courts. As a result, we must look at the possibility of changing how KERPs are handled in the event of insolvency. We must remember that the CCAA does not expressly authorize the approval of KERPs.
The courts have inherent jurisdiction over case management and therefore have authority over the creation of KERPs. The courts have developed tests to determine whether a KERP would help make a restructuring successful.
The bill would reduce judicial discretion over the approval of key employee retention plans, which raises a number of problems.
First, given their precarious financial position, some companies might have a hard time retaining the necessary key employees to guide them in the process. A KERP could prevent a company from losing its employees and increase the chances of achieving a successful restructuring.
Second, when approving offers to employees, the courts look at whether the knowledge and skills of the retained employees are easily replaceable, whether the KERP has been approved by the court-appointed comptroller and whether key employees consider other options in the absence of a KERP.
When weighing these factors, the court will seek to strike a fair balance between competing interests and the creation of conditions conducive to a successful restructuring. It is preferable that this flexibility remain in the hands of the courts to ensure that it is used judiciously.
Third, we must also keep in mind the complexity of corporate restructuring. Indeed, no two cases are exactly alike. A great strength of the CCAA is its flexibility to allow parties to make a deal that suits their circumstances and interests. This flexibility is properly circumscribed by court supervision and the exercise of judicial discretion to balance competing interests in the proceeding. We must therefore consider whether restricting the flexibility of courts to act would support the important goal of promoting restructuring where possible.
Fourth, as described, the CCAA already provides a court-supervised process through which creditors may protect their interests during the proceedings. Creditors and other stakeholders, including employees and pensioners, may make representations to the court as to whether a KERP is appropriate in the circumstances.
Finally, while the bill links KERP approval to the payment of unremitted pension contributions, I note that the CCAA already provides an effective super-priority for these payments before a restructuring plan can be approved, which means they would be paid ahead of payments to key employees.
In sum, these proposed changes reduce the flexibility of courts based on particular situations and facts. These current flexibilities help to achieve the best outcome for the company and pensioners and they might conflict with important policy objectives.
