Mr. Speaker, I certainly appreciate the opportunity to speak to the issue raised by the member for Churchill in this private member's motion.
I would like to point out that the whole issue of bankruptcy and insolvency legislation is certainly a matter under discussion. There are three reviews of which I am aware that deal with this issue. One is by the Personal Insolvency Task Force of 2002. Another review is by the Insolvency Institute of Canada and the Canadian Association of Insolvency and Restructuring Professionals' joint task force on business insolvency law reform. The third is by the review of the Standing Senate Committee on Banking, Trade and Commerce.
At the outset I would like to give due credit to the member for Churchill for bringing a very timely issue to the House. The motion reads:
That, in the opinion of this House, the government should amend bankruptcy legislation to ensure that wages and pensions owed to employees are the first debts repaid when a bankruptcy occurs.
Undoubtedly, the Canadian Alliance would like for all wages and pensions to be paid in the cases of firms that do go bankrupt. We have received a number of letters on this issue and we certainly empathize with those who are left without their due wages. We recognize that employees are the most exposed in any bankruptcy and are the least able to absorb losses.
Bankruptcy legislation in Canada does have some quirks. For instance, while the federal government ultimately is in charge of bankruptcies, it is the provincial governments that set out the things that are in fact exempted. In reviewing the history of bankruptcy and insolvency law in Canada, I would like to paraphrase from the Insolvency Institute of Canada and the Canadian Association of Insolvency and Restructuring Professionals' recent joint task force on business insolvency law reform:
Canadian insolvency statutes are largely based on the English bankruptcy and company statutes of the late 19th century.... During the 1980s, influenced by the 1978 changes in U.S. bankruptcy law and primarily as a result of developments in the western provinces (particularly Alberta and British Columbia), Canada became the second major country in the world after the United States to develop a reorganization culture. These are very important strengths which make the Canadian system superior to the U.S. system by minimizing transaction costs, minimizing the resources devoted to the insolvency system itself, and minimizing the...effects of companies operating for long periods of time with the benefit of court protection.
Although there may be a need to review this legislation, we should recognize that it certainly does have some strengths.
Under the Bankruptcy and Insolvency Act, creditors are classified as follows: first, secured creditors; second, preferred creditors; third, ordinary creditors; and fourth, deferred creditors. These classifications determine where creditors rank in relation to their claims against the bankrupted debtor's assets.
Secured creditors rank first because a trustee in bankruptcy takes title to a debtor's property, subject to the rights of the secured creditors in that property. Unpaid wages currently rank fourth in the next list of creditors, the second group, preferred creditors. These include, in order: first, testamentary and funeral expenses of a deceased bankrupt; second, fees and expenses of the trustee in bankruptcy and legal costs; third, the superintendent of bankruptcy's levy; fourth, unpaid wages and salaries of employees earned within six months prior to the employer's bankruptcy, up to a maximum of $2,000, and salespersons' expenses of up to $1,000 during that six month period.
One can see how the first three within this second list of preferred creditors, we would assume, would not be great amounts. Basically, as we understand the motion, it would move unpaid wages to not only first on the list of preferred creditors but also in fact above secured creditors.
With respect to the whole issue of pensions, the member for Churchill spoke very well about the obvious concern many people have with regard to pensions, with regard to them being unfunded as has been reported recently in a lot of the papers in Canada. Obviously Air Canada stands out as a very notable example. I think that is a legitimate concern. My suggestion would be that this whole issue of unfunded pensions would be better addressed through the Pensions Act rather then through the Bankruptcy and Insolvency Act.
Though it may sound strange to some, good bankruptcy and insolvency laws do make for good investments. Investors gain confidence knowing that should something go wrong, there is a stable system in place to protect what is left of their assets.
I have a few concerns with the motion. First, it overlooks the fact that insolvency and bankruptcy laws contribute to the initial startup of a company because they provide assurances to creditors that their risk in investing in a company or idea will have some degree of security.
When we think of investors in companies we often think of extremely large companies and extremely large investors, but that is not always the case. In fact most businesses in the country are small businesses. When people invest a lot of their life savings in a small business or in a friend's small business, we need to have some degree of security for them. In many cases that is as much of a wage or pension for them as anything else. That is why this is one concern that should certainly be raised.
The second concern I have is that the motion overlooks the entire restructuring process. Canadian law has been criticized for not allowing companies that enter into bankruptcy protection to restructure. That would be the second concern with this motion as stated in the sense that we do not want in some situations a company to not be able to restructure because it is afraid of having to pay wages and pensions first off.
I should note that within the Canadian Alliance obviously we have a policy of free votes on private members' business. I have it on good account that some of my colleagues in the Alliance may disagree with me on this issue, which is entirely their right. Therefore, I would not be too surprised if a few of them actually voted for this motion. I can understand why some individuals would support the motion, as I think the intent is certainly a good one.
Perhaps as a piece of advice, and I hope the member who moved the motion receives it with the graciousness intended, and that is, I myself could certainly support a motion that perhaps stated “That in the opinion of this House the government should study bankruptcy legislation to determine whether wages and pensions owed to employees should be the first debts repaid when a bankruptcy occurs”.
Frankly, there are some concerns I have, particularly as it regards smaller investors who put a lot of their income into a company, as to whether they should be the first or whether wages and pensions should be the first. I think that is a legitimate debate. I am not prepared at this point to simply say that the wages should be the first debts that are repaid.
While I do not support the motion, I certainly appreciate its intent. I am glad to have had the opportunity to discuss this issue in the House today.
