June 5, 2003 (37th Parliament, 2nd Session)


Serge Marcil


Mr. Serge Marcil (Parliamentary Secretary to the Minister of Industry, Lib.)

Mr. Speaker, first, I would like to thank the hon. member for having shared his concerns about the former employees of bankrupt companies. This is not a partisan issue. All of us here in the House are concerned by the problems faced by employees in this situation. We all agree, I am sure, that employees whose employer has declared bankruptcy without paying them their wages are very vulnerable. They face immediate and serious financial difficulties. They need protection.
However, this is not a simple matter. Each solution has its drawbacks and, on numerous occasions, Parliament has been unable to agree on the most equitable approach.
Over the years, various governments have proposed different solutions to protect employees that are good for both the economy and Canadian workers. The problem of unpaid wages and pension contributions when a company goes bankrupt has been considered by the House many times in the past. I am sure that all the members want to find the fairest solution possible.
This motion is very straightforward. It proposes to grant preferred protection to wage claims and pension claims, above all other debts.
At first sight, granting preferred protection to such wage claims and pension claims seems an obvious and effective solution with regard to employees whose employer has declared bankruptcy. Unfortunately, resolving this problem is more complicated than it first seems. As the numerous discussions on bankruptcy law have shown, preferred protection, as is the case for many other options, poses various problems.
One difficulty—and this is where previous proposals have failed—arises from the fact that preferred protection might have an effect on the ability of a company to obtain credit. This could be an important factor when it comes to risk assessment by commercial credit companies and contribute to lower credit being provided. This could have a negative impact on employment and the interests of workers in general. Commercial bankruptcy law plays an important role in risk distribution on financial markets.
I am not saying that preferred protection should be rejected as a means for responding to the wage and pension claims with regard to bankruptcies. I am simply indicating that this is a complex issue that has been discussed for a long time and that requires certain compromises.
Several attempts have been made in the past to amend the legislation. The basic principle of wage earner protection was established 50 years ago in the Bankruptcy Act, 1949. Since that time five committees have reported the possible changes: the Tassé study committee in 1970, the Landry committee in 1981, the Colter advisory committee in 1986, the advisory committee on adjustments in 1989, and the bankruptcy and insolvency advisory committee in 1994. None of their recommendations for wage earner protection were implemented.
Since 1975, eight bills have been introduced in the House and in the other place to amend the act. Only one of these bills substantially altered the provisions for wage earner protection, the bill involving the 1992 amendments to the act.
These committees and bills proposed or analyzed a wide range of approaches including wage earner protection funds financed by contributions from employers, from employers and employees, or by the government through general revenues.
Some bills proposed super priority protection for wage claims. Some bills proposed raising the ranking of wage and pension contribution claims among preferred creditors.
There is a great deal of divergence on who should pay for the cost of wage and pension contribution claims. It was nearly impossible to obtain a consensus on better ways to proceed than what is currently in the Bankruptcy and Insolvency Act. That is why the protection of wage earners requires further examination and consultation.
Despite the amendments to the Bankruptcy and Insolvency Act, 1992, wage earners are still faced with particular problems when their employer declares bankruptcy and they lose their pay and pension contributions. They are vulnerable creditors who often cannot afford to suffer such losses.
As well, they generally lack sufficient information to assess the risk of not being paid what is owing to them by their employer.
To protect employees, the act as modified in 1992 gives preferred status of up to $2,000 in wage claims for services provided in the six months immediately before the employer's bankruptcy. It also protects up to $1,000 in disbursements for sales people.
In the preferred ranking, wage claims are given priority over claims of ordinary creditors but wage claims rank behind those of secured creditors.
Protection for pension contributions is provided in federal and provincial pension legislation, much of which gives secured creditors status to claim unpaid pension contributions.
Very few people would argue against the principle of protecting the claims of wage earners. Fairness weighs in favour of protecting them.
In practical terms wage earners are more likely to have their unpaid wages claims satisfied than ordinary creditors because of their preferred status. In some circumstances as well, secured creditors may allow trustees to pay accrued wages to which the employees are not entitled, strictly speaking.
Industry Canada, which is responsible for the Bankruptcy and Insolvency Act, is aware of the need to protect wage earners whose employers face bankruptcy.
In 1992, Parliament amended the Bankruptcy and Insolvency Act to extend the protection of unpaid wages. In particular, Parliament found it appropriate to increase the protection for wages earned up to six months prior to bankruptcy. This represents a doubling of the previous length of time. In 1992, Parliament also quadrupled the maximum amount that could be claimed from $500 to $2,000.
Further review of this important issue is currently under way. I am pleased to bring members up to date on the plans of Industry Canada to strengthen the Bankruptcy and Insolvency Act.
First, in 2001, the department released a discussion paper addressing wage earner protection.
Following the release of this discussion paper, Industry Canada officials undertook cross-Canada consultations with stakeholders to help identify a fair solution.
The act was referred to the Standing Senate Committee on Banking, Trade and Commerce. To assist the committee, Industry Canada prepared a report describing the wage and pension protection problem, proposing possible solutions and setting out the views expressed by stakeholders about these options proposed.
I can say that the parties were generally of the opinion that wage earners are vulnerable creditors who need protection when their employers go bankrupt. There was considerable support for enhancing the priority protection for wage earners. However, the views expressed varied greatly as to the relative priority they should be given.
The committee has undertaken its study and will no doubt give the matter full consideration.
In conclusion, the minister provided these details to give my hon. colleagues from all parties an assessment of the situation.
I submit that there is great interest in the whole question of wage earner protection following bankruptcies, but finding a fairer solution than what is now available will require a good deal of hard and thoughtful work during the forthcoming parliamentary review.
As I said in my opening remarks, this is not a partisan issue. Several different governments have already grappled with the question. Each option for wage earner protection has its advantages and disadvantages.
Industry Canada is currently working to identify a fair solution to ensure the protection of workers whose employers go bankrupt.

Topic:   Private Members' Business
Subtopic:   Bankruptcy Legislation
Full View