Public consultations on enhancing retirement security led by the Ministry of Innovation, Science and Economic Development Canada closed in late 2018. Given the importance and complexity of the subject matter, the one-month consultation period offered by the government was curiously short. Given that 2019 is an election year, the quick completion of the process could suggest that the federal government anticipated the direction in which it would proceed with any legislation.
Earlier in 2018 legislation was introduced in the Senate by Liberal Senator Art Eggleton to, among other things, amend the Bankruptcy and Insolvency Act (“BIA”) and the Companies’ Creditors Arrangement Act (“CCAA”) to ensure that unfunded liabilities or solvency deficiencies of pensions would be granted priority in the event of bankruptcy proceedings. Although it seems unlikely that a bill introduced in the Senate will proceed, could this be an indication of the view of the government on the subject?
The Ministry’s consultation document contains a backgrounder as to the current landscape of pensions in Canada. While describing that our retirement income system is strong, it notes falling defined benefit plan membership and pressures on employment-based pension plans due to demographic trends and economic factors. Current legislative protections are described as adequate and the 2008-2009 BIA and CCAA amendments to protect outstanding pensions and wages up to $2000 ahead of secured creditors are highlighted. A 2014-2015 review of this legislation is also noted as having failed to reach consensus due to concerns about shifting pension losses to other creditors.
Having recapped this background, among other governance items, the Ministry asked for comments and views on previously-provided proposals, such as amending insolvency legislation to ensure that unfunded pension liabilities are paid ahead of the claims of secured creditors and that employee claims for the termination of employee benefits are paid before secured creditor claims. The request for comments noted this as the “starting point”. In response, the Pension Investment Association of Canada issued a strongly worded statement in opposition to further enhanced super-priorities for pension liabilities as having negative effects on the availability of credit for companies that sponsor defined benefit plans.
In addition the consultation document mentions the possibility of amendments to the CCAA that would allow for enhanced protection of pensioner interests. These could include, the document suggests, increase participation for pensioner and employer groups by limiting the scope of initial CCAA orders, requiring creditors to disclose their real economic interest and imposing good faith duties on all parties.
In light of the Sears insolvency, the tenor of the backgrounder and the short consultation process, it is not unreasonable to predict the introduction of legislation that trends further along the lines of the 2008-2009 amendments in terms of limiting secured claim priority when pension unfunded liabilities and wage shortfalls exist.