New bill protects employee pensions if company declares bankruptcy

On Nov. 23, the House of Representatives passed a private lawmaker’s bill that would protect employee pensions if a company declares bankruptcy. Sponsored by Conservative MP Marily Gradou, Building C-228 Passed unanimously, 318 to 0.

This bill was based on the previous concept. tried Since 1975, proponents have sought to amend the federal bankruptcy law.

However, all bankruptcy reform bills have failed so far.

Bill C-228, a law amending the Bankruptcy and Bankruptcy Act of 1985, the Corporate Creditors Arrangement Act, and the Pension Benefits Standards Act, provides that if a company goes bankrupt, it will have to pay its employees before dealing with other financial liabilities. ensure that employee pensions are prioritized. Declare insolvency or bankruptcy.

Employees effectively become preferred creditors in bankruptcy settlements. according to To the BlackRock reporter.

“It’s been a long journey,” Gradu said. During her third hearing of the bill, she said it was right for Canadians to “protect those who have worked their whole lives and joined pension funds.”

Gladu cited the 2017 Sears Canada bankruptcy as an example of why the law is needed. When Sears went bankrupt, the employee had his $133 million shortfall in the corporate pension plan.

“Sears Canada paid more than $3 billion in dividends to shareholders despite operating at a loss and underfunding its pension plan,” Gladu said.

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Opposition leader Pierre Polièvre said at the same debate that the bill would force companies to invest enough money to “secure the future and retirement of workers”. said it would.

According to Finance Canada, an estimated 1.2 million private sector workers with defined benefit plans will have their pensions protected by the bill.

In 2021, the Canadian Bankers Association testified similarly during a hearing before the House Standing Committee on Industry and Technology. Building C-253 This leads to higher borrowing costs for businesses.

Polyèvre disagreed.

During a debate in the House of Representatives, he said, “Companies should set aside sufficient funds to ensure that they have sufficient funds to fund these pensions in the event of bankruptcy or a stock market crash.” It’s clear,” he said.

“But now companies don’t have to pay these pension obligations before paying other creditors. That’s legal, and the courts decide who gets what.”

The Canadian Association of Pension Managers (ACPM) also opposed the bill.

October 17th letter To the House Finance Standing Committee, the ACPM said the proposed means of achieving its goal of securing retiree pensions in the event of employer bankruptcy had “flawed, serious and undesirable unintended consequences. will bring about,” he said.

For some companies that sponsor defined-benefit pension plans, regular borrowing will become “more difficult, expensive or impossible,” he said.

This is because prioritizing pension protection fundamentally changes the risk profile of a company as assessed by financial creditors, requiring financial creditors to adjust their approach.

For example, a creditor may require a borrower to agree not to assume a new defined benefit pension plan in the course of a loan.

The APCM also warned that the law could lead to higher interest rates on loans, higher collateral requirements, and a negative impact on the credit ratings of companies with defined benefit plans. Some companies with defined benefit plans may terminate those plans as a result.

The bill will pass its first reading in the House on February 3rd, its third reading on November 23rd, and its first reading in the Senate on November 24th.

Marnie Cathcart


Marnie Cathcart is a reporter based in Edmonton.