Sears Canada Closing: Introduction
Following the Sears Canada failed restructuring, is the Sears Canada closing of all stores. It is leaving 16,000 retirees unclear about the future of their underfunded pension plan. Support is expanding for brand-new laws to better protect Canadian workers during a company’s collapse.
Sears Canada Closing: What CARP has to say
CARP, a nationwide not-for-profit group formerly called the Canadian Association for Retired Persons, was recently on Parliament Hill to meet dozens of MPs as it lobbies for law adjustments.
Wanda Morris, vice-president of CARP, stated that CARP is requesting for the unfunded pension liability be provided priority position so it goes to the front of the line.
Pensioners hold no priority when it pertains to dividing up assets through a bankruptcy, and Ms. Morris wants protection for retirees for underfunded defined benefit pensions when the company goes through a restructuring or into bankruptcy.
Ms. Morris stated that along with the practically 16,000 retirees at Sears, CARP estimates that there are about 1.3 million workers in Canada that possibly could be in danger with defined advantage pension. Sears Canada closing all stores has made the plight of retirees a front and centre issue for CARP.
Sears Canada Closing: Private Member’s Bill C-372 passes First Reading
On Oct. 17, Bloc Québécois MP Marilène Gill suggested a member’s bill, C-372. The intent is to change the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act.
The change attempts to correct the injustice dealt with by retired workers whose pension as well as group insurance policy benefits are not secured when their company declares bankruptcy or undergoes restructuring. The changes are a result of the Sears Canada employees and retirees treatment, as a result of Sears Canada closing locations.
Sears Canada Closing: What the NDP has to say
Hamilton Mountain MP Scott Duvall plans to introduce his very own private member’s bill to try to solve this problem. While he notes he has actually had talks with Gill, he claimed his suggestion will be a bit different.
Mr. Duvall specifies that his bill will amend the regulations from where it’s worded currently. He wishes that when a company goes into bankruptcy protection, the pensioners will be a secured creditor. He is also responding to the process which has led to Sears Canada closing store locations,
Sears Canada Closing: Bloc MP Marilène Gill and her Bill C-372
On October 17, 2017, MP Marilène Gill rose in Parliament and stated:
“Mr. Speaker, I have the honour to introduce my first bill in the House today, a private member’s bill that seeks to amend the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act.
This bill seeks to correct the injustice faced by retired workers whose pension plans and group insurance plans are not protected when their company goes bankrupt or undergoes restructuring.
I will do everything in my power to ensure that this bill receives royal assent, that way, we can help prevent retirees, like those from my riding who are here today to support me, from losing their pensions, and improve the existing legislation by giving pension plans’ unfunded liabilities preferred creditor status, among other things. I hope my colleagues will be supporting this bill.”
Sears Canada Closing: Can it get Royal Assent?
BILL C-372 which passed First Reading on October 17, 2017 is named “An Act to amend the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act (pension plans and group insurance plans)”.
Private member’s bills such as this one rarely pass the House. However, I thought it would be useful to describe what Ms. Gill’s views are as a result of Sears Canada closing.
Below is my analysis of how BILL C-372 proposes to amend the Bankruptcy and Insolvency Act (Canada) (BIA) and the Companies’ Creditors Arrangement Act (Canada) (CCAA). The impetus of course is certain high-profile corporate restructurings/failures with underfunded defined benefit pension plans. With Sears Canada closing, Ms. Gill put forward her private member’s bill.
The most recent corporate failure which initiated her private member’s bill of course was a result of Sears Canada closing.
Sears Canada Closing: Bill C-372 proposed BIA and CCAA amendments
Bill C-372 wishes to amend the BIA as follows:
- In order to be approved by the Court, a corporate restructuring proposal under the BIA, for a company with a prescribed pension plan, the Proposal must include payment in full of any unfunded pension liability or solvency deficiency calculated at the time of the filing of the Notice of Intention To Make A Proposal (NOI) or the Proposal if there is no NOI filed.
- The unfunded pension liability or solvency deficiency calculation is by section 9 of the Pension Benefits Standards Regulations, 1985.
- In a receivership, the receiver is personally liable for paying any unfunded pension liability or solvency deficiency but only from the proceeds of the sale of current assets.
- In either a receivership or corporate bankruptcy, the charge for any unfunded pension liability or solvency deficiency would rank ahead of the charge of any other secured creditor.
- The Officers and Directors of the company are not entitled to the benefit of this secured charge. Even if they are participants in the pension plan that has the unfunded pension liability or solvency deficiency.
- In a corporate restructuring proposal or bankruptcy, the amount not paid under the Wage Earner Protection Program Act (Canada) (WEPPA). It is the amount to adequately indemnify the beneficiaries in the event the employer ceases to take part in a group insurance plan. Such a plan is one that provides for the payment of benefits to, or in respect of, employees or former employees for, among other things, life, disability, health or dental insurance is a preferred claim. It will be a preferred, but still an unsecured claim.
- The amount equal to the difference between any severance pay or compensation in lieu of notice owed by an employer to an employee and any amount previously paid by the trustee for that severance pay or compensation in lieu of notice.
There are also proposed amendments to the CCAA in Bill C-372. It is to bring the same changes in that statute as described above. The intent is that the treatment under both statutes is the same. I won’t repeat those again.
Sears Canada Closing: Will Bill C-372 become law?
As I stated above, it is very rare that a private member’s bill becomes real legislation. The other reason is that the Liberals hold a majority in Parliament. If they don’t want it to pass, it won’t.
On October 25, 2017, Innovation Minister Navdeep Bains said the Liberal government has no plans to change laws to protect pensioners in the wake of Sears’ bankruptcy. That is a pretty definitive statement.
So right now it seems there is a lack of political will to make the proposed law amendments. I suspect that on a financial basis, there will also be opposition for the following reasons:
- In most cases, it will be impossible to have a successful large corporate restructuring if 100% of unfunded pension liability must be paid. Therefore, jobs will not be saved if we have more corporate bankruptcy filings instead of restructurings.
- Lenders will have to now ignore current assets in the borrowing base of corporations. This will make corporate borrowing much more difficult for solvent corporations with pension plans to carry on business.
- Lenders may have to reserve the entire amount of any unfunded amounts. They will rank ahead in a receivership or bankruptcy.
- Severance pay or compensation in lieu of notice will now be a claim ranking ahead of trade suppliers in a corporate restructuring or corporate bankruptcy. This may alter the amount of an unsecured credit line a supplier will be willing to give to a customer.
- It will cause more chaos to normal lending and trade practices which will be a problem for any government.
- Claims under the group health indemnity provisions may not result in any real benefit to employees of a company going through either a corporate restructuring or bankruptcy. There is rarely funds left over after the claims of secured creditors.
We will keep monitoring this important issue. We will update you when MP Scott Duvall puts forward his private member’s bill and as other matters arise.
Sears Canada Closing: What To Do If You Or Your Company Need A Financial Restructuring?
It is now Sears Canada closing time. If you’re attempting to discover a means to restructure your firm’s debt, so that you can avoid a Sears Canada closing scenario, call Ira Smith Trustee & Receiver Inc. If we meet with you early on, we can create a restructuring and turnaround strategy. That way your company won’t have to be like Sears Canada closing.
Our strategy for every person is to create a result where Starting Over, Starting Now occurs, starting the minute you walk in the door. You’re simply one telephone call away from taking the crucial steps to go back to leading a healthy, balanced and tension free life.
