Agriculture committee  I have to say that from examining the matter, if you wanted a system that covered both insolvency and non-insolvency situations, you would have to have both federal and provincial legislation, the federal legislation dealing with insolvent debtors and the provincial legislation dealing with not-insolvent debtors.

Agriculture committee  It may and it may not. The only way I can answer that is to refer to other similar situations. The Bankruptcy and Insolvency Act has been amended over the years to give preference to unpaid suppliers of tangible property, also unpaid employees, and to give priority for claims resulting from pension deductions.

Agriculture committee  My answer is, yes, it would. There's a special clause in the proposed act saying that this trust would take priority. Put it this way; this trust would affect property even though that property is subject to a security interest. There's no doubt, then, that the special priority that banks occupy, and not just banks but any lenders, when they have security interests on assets, will be affected.

Agriculture committee  I think the only group seriously affected would be the secured lenders who take security interests in those accounts receivable. Of course, it's not for me to say, but this would be a policy decision. If Parliament should go ahead, it has decided that on the one hand there's an important public policy to protect suppliers, and also that those secured creditors, the banks and the big institutions, have ways of protecting themselves and would not be seriously affected by it.

Agriculture committee  Yes, maybe we can carry on with the scenario Mr. Shipley raised, that is, without this act, the suppliers would be just regular unsecured creditors of the bankrupt. They would share on a pro-rated basis with all of the other unsecured creditors of the bankrupt buyer. Under this act, they wouldn't be sharing with the other unsecured creditors.

Agriculture committee  You'll have to forgive me; that is more of, I suppose, a political issue than a legal one. Why they weren't able to come up with something, I don't know. I did see a lot of study papers that were prepared exploring different approaches to this, but in all cases there was still the constitutional question, the doubt as to whether Parliament could do anything outside of areas where it has exclusive jurisdiction.

Agriculture committee  Yes. That's a very good point. Let's take two scenarios, one scenario in which this act doesn't apply, in which the act isn't passed. What happens when that buyer goes bankrupt? Well, the suppliers, the sellers, will all have a claim in the bankruptcy, but the problem, of course, is that they are just one group of creditors.

Agriculture committee  Oh, oh!

Agriculture committee  Thank you.

Agriculture committee  Of course, I can't speak for the U.S. Department of Agriculture, but I think the answer to that is we would have, if this act were passed, a system very much like theirs. In other words, their system is based on the trust concept, and so would our system be, so that their people would get as much protection as our people would get under their system.

Agriculture committee  Well, I didn't hear their testimony on that point, but forgive me, I don't understand what they would be talking about. No doubt it would be a problem to put this into the Bankruptcy and Insolvency Act, but as a stand-alone act it's no different from what the Americans have. They have their regular bankruptcy act and this special trust system protecting certain types of suppliers.

Agriculture committee  I'm sorry?

Agriculture committee  Oh no. I haven't. I'm sorry. I haven't been dealing with that. I've been dealing through Mr. Webber, for whom I'm working, but no, we haven't had those. We did have a conference call meeting, I guess, with bankruptcy lawyers from Industry Canada, as it was then. I don't want to speak for them, but of course they don't want to do this.

Agriculture committee  Yes: insolvency necessarily, not always bankruptcy, because there could be insolvency proceedings, but yes, essentially the buyer has ceased operation.

Agriculture committee  That's a very good question. The way the act is structured is simply this. It says that any product received by that buyer, and it could be, in this context, from several sellers, or any of what we call the proceeds of that product...and this is more likely to be the case, the accounts receivable.