Western Canada Business Litigation Blog

Bankruptcy Reform in Canada – Yet Further Protection for Pension Plan and Employee Claims?

Posted in Bankruptcy & Insolvency, Pension
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Amendments to the Bankruptcy and Insolvency Act (BIA) and related new legislation came into force in the summer of 2008 which were aimed at significantly enhancing and protecting, among other things, employee related claims against bankrupt or insolvent companies.  The amendments included a super priority charge over all assets for some, but not all, pension claims as well as a limited priority charge over certain assets for some wages owing to employees, subject to a cap for each employee.  The new system has not been without controversy and litigation has in fact ensued regarding, among other things, the interpretation of what amounts are to be included in the definition of “wages” which are sheltered by the new legislation (see, for example, this recent case from the BC Court of Appeal which determined that “wages” is broad enough to include payments to third party benefit providers such as health and welfare plans).

A movement is now underway to attempt to further enhance the protection afforded to pension and employee claims in an insolvency.  In March of this year, several bills were re-introduced in Parliament all of which seek to build upon the priority given to pension funds and employees just over two years ago.  One such bill seeks to give super priority status to “special payments” ordered by a pension regulator to fund a solvency deficit where any such payments became due but were not paid prior to commencement of a proceeding under the BIA or the Companies Creditors Arrangement Act.  Further, another bill seeks to provide a super priority charge to employees for severance or termination pay due as a result of termination of employment where an employer is in bankruptcy or Receivership.  Finally, there is also a provision in the bills which have been introduced which would provide for the continuation of various long term disability and health benefits where an employer seeks to either restructure, becomes bankrupt, or is in Receivership.

Various interested parties or associations have opined on the viability or suitability of the proposed changes as currently drafted.  Two such associations, the Canadian Association of Insolvency and Restructuring Professionals (CAIRP) and the Canadian Council of Chief Executives, appear to be very concerned about the changes and have voiced their concerns in position papers on the topic.  There is currently no timetable for when the bills may be passed into law either as is or as amended based on the concerns and comments of various stakeholders.  We will keep our eye on relevant developments and will strive to provide updates on the process as and when received.