Chair’s Message: Rebuilding Success
As I reflect on the last few months this fall and winter, I have to admit it has been hectic, a beehive of activity.
In this Chair’s message, I want to focus on a few of the items that have kept us busy, to be mindful of your reading time.
In addition to CAIRP’s ongoing efforts to provide education programs and professional development for its members, including its support of the recent highly successful ARIL Conference, CAIRP’s Board, committees and staff have been fully engaged on a broad range of OSB and government consultations.
On the OSB front, CAIRP worked closely this fall with OSB staff to review and finalize the Trustee Annual Report (“TAR”), provide feedback on proposed changes to Forms 31, 65, 68 and 79 and participate on the OSB Surplus Income Review Committee. This sounds straightforward, but our Consumer and Corporate Practice Committee members along with our Board members and CAIRP representatives on OSB Working Groups spent countless hours to ensure the feedback CAIRP provides is fulsome and measured. We are pleased that such feedback resulted in changes that are consistent with our recommendations, in substantially all cases.
CAIRP also worked closely with the OSB in developing and issuing a joint OSB-CAIRP Consumer Alert about debt consultants. The release was issued on November 9, 2022 during Financial Literacy Month. This is the first time CAIRP and the OSB have issued a joint, single message in the public domain. The focus of the consumer alert was to urge Canadians to beware of unregulated, unlicensed debt advisors and provide information on LIT services and how to find an LIT on the OSB’s and CAIRP’s websites. CAIRP also issued a follow-up media release and social media posts to amplify the message and encouraged members to engage on social media. As a follow-up to the Consumer Alert, CAIRP has been providing feedback on the OSB’s Comparative Table of Debt Solutions, which the OSB launched on February 3, 2023. Our thanks to members for their efforts in spreading the message. CAIRP and the OSB will be discussing next steps to build on the momentum.
The above projects relating to the TAR, the proposed changes to the forms, the Consumer Alert and the Comparative Table of Debt Solutions demonstrate the high degree of cooperation and excellent working relationship between CAIRP and the OSB.
CAIRP participated in two consultations with Finance Canada over the fall. CAIRP prepared a submission in response to the Department of Finance Canada’s Consultation on Fighting Predatory Lending. The Federal Budget 2021 announced the Government of Canada's intention to consult on fighting predatory lending by lowering the rate of interest considered excessive under the Criminal Code. The “criminal” rate of interest, which is currently set at 60% (effective annual interest), is applicable to most lending products in Canada. The government’s consultation paper sought views and feedback on proposals related to the criminal rate of interest and provision of high-cost installment loans in Canada. CAIRP was asked by government officials to also provide any insights into commercial dimensions on changes to the criminal rate of interest, in addition to the impact on individual Canadians.
A submission was prepared by CAIRP in response to the House of Commons Standing Committee on Finance’s annual Pre-Budget Consultations. CAIRP focussed its submission on the MSME issue to take advantage of an opportunity to bring more focus to the gap that exists within Canada’s insolvency system. This gap needs to be addressed to reduce the number MSMEs who are essentially “walk aways,” where the business is abandoned due to the debt burden and the costs and efforts associated with insolvency proceedings. While the gap has become more prevalent during the last few years because of the pandemic and the current economic challenges including high inflation, the reality is that this gap is a systemic issue that has long needed attention and remedy.
CAIRP recently appeared before the Standing Senate Committee on Banking, Commerce and the Economy (“BANC”) on the issue of Bill C-228 and were among the last witnesses called on this bill. The main objective of Bill C-228 is to create a super-priority for unfunded pension liabilities of deferred benefit plans (“DB Plans”) in BIA and CCAA insolvency proceedings. This issue has been considered several times over the years through various Private Member Bills which did not proceed. CAIRP has engaged on this issue several times in the past.
Since my last Rebuilding Success message, Private Member’s Bill C-228 has moved forward at rapid speed. Given the momentum of the Bill, the general consensus is the Bill will pass. It was referred to the House of Commons Standing Committee of Finance (“FINA”) in October 2022 for review. CAIRP sent a letter/submission to FINA in October along with a request to appear. The Committee heard from government officials followed by one round of appearances by witnesses and then decided to move to a clause-by-clause review of the Bill with no further appearances. The Bill unanimously passed Third Reading in the House of Commons on November 23, 2022 and passed First and Second Reading in the Senate on November 24 and December 14, 2022 respectively.
CAIRP sent a letter/submission to the Chair and Co-Chair of the Standing Senate Committee on Banking, Commerce and the Economy along with a request to appear. On February 16th, 2023 Alex Morrison (EY Toronto) joined me in presenting CAIRP’s submission to the Senate Committee and responding to questions. Our opening comments are included below. With the exception of a brief appearance of Algoma Steel, the Senate Committee decided not to hear from any further witnesses and moved forward with a clause-by-clause review of the Bill. The report of the BANC Committee has not yet been issued, but based on the discussions during the hearings, it seems almost certain that the report will recommend adoption of the Bill in its current form, which would trigger putting the Bill on an agenda for a third reading. Considering the apparent support from the BANC Committee and the overwhelming support received in the House (the Bill was approved unanimously, with 318 MPs voting), it is likely this Bill will proceed as is and will be sent to the Governor General for Royal Assent, in the near future. The Bill provides that the new provisions would come into effect four years after the Bill receives Royal Assent. CAIRP will continue to monitor the Bill and provide insight to members on its likely impact, before the provisions come into effect.
These are just a few highlights of CAIRP’s efforts on behalf of its members over the last few months. I want to take this opportunity to congratulate our recent CIRP graduates who successfully challenged the CNIE exam this year on a job well done and offer words of encouragement to others. Our pass rate was 67% which was a good result. As always, I want to extend our sincere thanks to all of our CAIRP volunteers on the various CAIRP Committees including our volunteer markers who make the CNIE possible and the CAIRP staff for their excellent work on our behalf.
Stay safe and well. I look forward to seeing you in person at the CAIRP Forums over the next few months.
Opening Comments to the Standing Senate Committee on Banking, Commerce and the Economy
on Bill C-228, An Act to amend the Bankruptcy and Insolvency Act, the Companies’ Creditors Arrangement Act and the Pension Benefits Standards Act, 1985.
Thursday, February 16, 2023
Good morning Madam Chair, Mr. Deputy Chair and distinguished members of the Committee.
My name is Jean-Daniel Breton and with me today is Alex Morrison, appearing on behalf of the Canadian Association of Insolvency and Restructuring Professionals, known by the acronym CAIRP.
CAIRP is the national not-for-profit organization that represents approximately 1400 members and associates dedicated to commercial and consumer insolvency and restructuring work.
CAIRP’s members act in a variety of roles in insolvency files in Canada, including as bankruptcy trustees, proposal trustees, receivers, and court appointed monitors.
By the nature of their work, licensed insolvency trustees do not represent any specific group or constituency, but rather have a responsibility to administer insolvency mandates in accordance with the law, in the best interest of all stakeholders, as Court Officers.
CAIRP’s mission includes advocating for a fair, transparent and effective insolvency and restructuring system throughout Canada.
We have prepared a submission to this Committee, that outlines our views of Bill C-228. Today, we would like to outline our submission, and engage in a discussion with you on the points raised therein.
Before we begin, we want to stress that pension benefits is a deferred compensation due to employees for work performed, that employees and retirees are a vulnerable class of creditors, and that exploring ways to minimize the loss is a commendable exercise.
Unfortunately, we believe that the process contemplated in Bill C-228 will not achieve this objective, and may cause additional employment losses.
We caution that distribution of proceeds in insolvency is a zero-sum situation and other claimants will also assert that they are vulnerable and have a right to recover their debt. The legislation must reflect policies that balance the interests of each stakeholder group, to fairly allocate limited resources, and optimize results. We do not opine on which group is more deserving in such an exercise, but stress that a process that enhances the priorities of one stakeholder group needs to take into consideration the impact on the others. An example of such balancing exercise can be found in the report produced by your committee in November 2003, titled “Debtors and Creditors Sharing the Burden”.
I will now ask my colleague Alex Morrison to present our submission.
I would firstly like to correct a misunderstanding regarding the nature of the debt addressed by Bill C-228. It does not address amounts that the employer or the employee is required to pay to a defined benefit or defined contribution pension plan as a regular contribution. Protections already exist in the BIA and CCAA for these.
Bill C-228 intends to extend the protection to a particular debt that relates to a market change that causes the value of the plan assets to decrease, or the performance of the investments to be insufficient, or a change in the discount rate used to estimate the DB Plan’s liabilities.
It does not come from a failure of the employer to pay what was contracted to be paid under the plan, it comes from factors outside of the employer’s control, that create an obligation for the employer to contribute additional amounts to ensure that the employee receives a predetermined pension amount in a DB Plan. This amount changes from time to time, up or down, based on market changes.
Turning now to CAIRP’s submission, we consider that the measures contemplated in the Bill are likely to be ineffective and in fact may lead to a deterioration in the position of workers in general, for the following reasons:
- The super-priority contemplated in Bill C-228 provides an illusion of protection without real benefit. Our experience tells us that the assets available in a liquidation process are not sufficient to provide a significant recovery. The OSB reports that the dividends paid on files that were closed in 2021 were less than 2% of amounts due.
- The super-priority will likely cause the gradual elimination of remaining DB Plans because of challenges in raising secured debt financing.
- The changes contemplated in Bill C-228 are likely to affect restructuring proceedings under the insolvency legislation, by having a chilling effect on interim financing necessary to explore a restructuring process or exit financing to complete the process. A decrease in restructuring activity would likely result in a loss of employment and a loss of value for the stakeholders in general. If a restructuring proceeds, we expect the Bill would likely cause pressure to wind up the pension plans, rather than preserve them.
- Finally, the transitional rules are likely to create problems with the administration of estates. Typically, insolvency legislation changes are applied to debtors that enter an insolvency proceeding on or after a certain date. The Bill contemplates a single implementation date set 4 years hence, which means that the rules would come into effect partway through an administration.
Thank you for your attention. My colleague and I will now try our best to answer your questions.