THE NEWSPAPER’S VIEW
Hurried changes to bankruptcy legislation miss the mark
In the final hours of the minority Liberal government, a bill was hurriedly pushed through the House of Commons, received scant scrutiny by the Senate and obtained royal assent.
The unseemly rush to make Bill C- 55 the law of the land was clearly intended to serve as evidence that the Liberals, with their partner, the New Democratic Party, can get results for average Canadians. The bill included a provision called The Wage Earner Protection Program Act, which aims to preserve wages, benefits and pensions in a corporate bankruptcy proceeding.
On the eve of an election campaign, it was unlikely any party would oppose legislation with such lofty, laudable goals and, sure enough, it passed unanimously in the blink of an eye.
Haste makes bad law and Bill C- 55 is a flawed piece of work that has unions crowing victory and insolvency experts crying in alarm. In order to make the protection program effective, the government had to amend the Bankruptcy and Insolvency Act as well as the Companies’ Creditors Arrangements Act, effectively gutting the safeguards built into what up to now have been well-functioning, carefully crafted and continuously revised laws governing troubled companies.
So anxious was the government to seize an opportunity to curry favour with voters that it undermined the rights of secured creditors, specifically the financial institutions that provide the capital that allows business to function.
These extensive and far-reaching changes re-order priorities so that secured creditors’ claims lose rank to those of workers. A company heading into bankruptcy or receivership must now pay up to $3,000 in wages for each affected worker before creditors’ claims are considered. Given the nature of insolvency, these obligations can only be a charge on assets — assets that have been put up as collateral for loans extended by financial institutions.
Lenders will have to take into account that there’s another claimant ahead of them in the lineup and factor that new reality into their risk assessment on every commercial loan. That will make it more expensive for operating businesses to obtain the loans they need to grow and create jobs. Rather than financing a company based on 80 per cent of the value of its assets, for example, a lender might finance based on 50 per cent — and add a percentage point or two to the rate to account for the claims that rank ahead of its own.
As if that weren’t worrying enough, Bill C- 55 also amends the Companies’ Creditors Arrangements Act to prohibit the court from interfering with collective agreements in a corporate restructuring. That hands all power to unions to determine how, or if, a company can restructure. If the collective agreement is sacrosanct and untouchable then restructuring is pointless and shutting down the business is the only practical recourse. Furthermore, Bill C- 55 requires that any plan of reorganization include bringing up to date any unremitted pension contributions, a provision that may well stymie restructuring.
In its rush to win votes, the government has introduced legislation that will be detrimental to both employers and employees.
Fortunately, implementation of these measures has been delayed until June 2006, leaving open the possibility that the Senate will have a sober second look and amendments could be introduced in Parliament to correct some of the misguided provisions in the legislation.
No one objects to reasonable protection of workers’ rights. But the way to do it is to ensure businesses have access to capital, that financial institutions have some assurance that their loans are recoverable and that troubled companies have sufficient flexibility to restructure.
Workers’ rights are best protected by an operating business with the means to provide pay, benefits and pensions. Bill C- 55 should be amended to recognize that fact.