Editor’s Note: Since the Nortel pensioners’ plight has been brought to light there has been a public outcry calling for reform of the Banking Insolvency Act. Many feel that pensioners should not be last in the line of creditors when it comes to claiming the pension earnings they were promised. The bill was renamed C-501, it is likely to be debated before the end of this session of Parliament.
We asked the original sponsor, NDP MP Wayne Marston for a primer on his bill and we asked all the Federal Parties for their position on the bill. At press time we received an answer from Judy Sgro (Liberal) and Carole Freeman (Bloc Quebecois)- posted below. In the Finance Subcommittee on Thursday, Liberal Finance Critic John McCallum also indicated his support for the intent of the bill. We will keep you updated on this story as it unfolds.
Primer: An Act to amend the Bankruptcy and Insolvency Act
On Tuesday, November 3, 2009, NDP Pension Critic Wayne Marston tabled Bill C-476: An Act to amend the Bankruptcy and Insolvency Act and other acts (unfunded pension plan liabilities). The bill is designed to close loopholes in prior legislation that allowed companies to windup their pension plans without providing for their unfunded liabilities.
In the language of pension law, unfunded liabilities are considered “special payments,” a euphemism for “employee pensions collected by the company.” At this time, special payments are not protected by the BIA. Bill C-476 extends this protection to the Companies’ Creditor Arrangement Act (the CCAA), closing yet another loophole in Canada’s bankruptcy law, one that allowed companies that go into restructuring proceedings to leave their retirees high and dry. Only companies with over $5 million in debt are able to seek restructuring under CCAA, and CCAA is a companion piece of legislation to the Bankruptcy and Insolvency Act.
Why we need Bill C-476:
Ranking priority for how assets are distributed during bankruptcy or restructuring proceedings:
1. The Crown
2. the claims of fishermen and farmers who have supplied products to the bankrupt within 15 days of the bankruptcy
3. the right of suppliers to repossess goods they supplied but were not paid for
4. Unpaid wages and pension contributions (important: but not unfunded liabilities—see below)
5. Secured debt, such as bank loans of one form or another (these can number in the hundreds).
6. Unsecured (also can number in the hundreds). Various types of investors, purchasers of bonds, and such. Unfunded pension liabilities are considered unsecured debt and often rank well behind banks, investment firms and venture capital.
*Unfunded pension liabilities are those that are paid out to company retirees on an ongoing basis, for so long as they live, after they have ceased to work for the company, and the amounts are based on complex actuarial calculations.
Amending Bankruptcy Law: What the NDP’s Bill proposes
• Protecting unfunded pension liabilities by treating them as “secured” debt with the same status as other secured obligations in restructuring or bankruptcy proceedings.
• Bill C-476 is fundamentally about fairness for workers, whose pensions are, quite simply, deferred wages, negotiated with their employers in good faith.
• The federal government argues that the vast majority of workplace pensions are provincially regulated, so reform is largely a provincial responsibility. Yet two federal laws have a direct impact on the predicament of workers whose employers enter bankruptcy or bankruptcy protection without properly funding their pension plans.
• The Bankruptcy and Insolvency Act (BIA) determines who gets paid what when a company declares bankruptcy.
• The Companies’ Creditors Arrangement Act (CCAA) allows a company to reorganize its affairs and renegotiate obligations, usually, but not always, so it can continue operating.
• Neither the CCAA nor the BIA currently provides adequate protection for debts owed to workers by their employer: unpaid wages, severance pay, health and disability benefits and pensions.
• Under pressure from the New Democrats, the government amended the BIA and CCAA in September 2009 to give unpaid wages and severance “super-priority” status, ahead of most other debts. An important step. However, those payments were capped at $3,000 per worker, in most cases not nearly sufficient to discharge the debt. Bill C-476 removes those caps.
• Neither the BIA nor the CCAA requires companies to treat unfunded pension liabilities as priority debt, (i.e. money they owe to workers’ pensions.)
• As a result, companies can ignore those obligations and leave workers with pensions worth a fraction of their promised value. They can take the money they owe pension plan members and use it, instead, to pay off other creditors – whose investments may even be insured against loss. Bill C-476 would end that practice.
Keywords: pension reform