Hey there, time traveller!
This article was published 6/2/2013 (1396 days ago), so information in it may no longer be current.
Last week, the Supreme Court delivered another blow to beleaguered pensioners, ruling Canadian law prioritizes bankers and hedge funds over retired people facing drastic reductions in their income.
In a 5-2 decision, the Supreme of Court of Canada rejected an Ontario Court of Appeal decision that gave an underfunded pension plan first dibs on money from assets sold during bankruptcy restructuring.
In 2009, Indalex Limited sought Companies' Creditors Arrangement Act protection. As a result, 170 of its former employees saw their pensions slashed in half.
But two years later, the Ontario court ruled the firm, which administrated the pension plan, broke its fiduciary responsibility to the pensioners. Indalex failed to keep retirees' pension plans fully funded or to give proper notice that they were going under.
As such, the Ontario court granted the pensioners $6.75 million in assets sold during bankruptcy restructuring, which the Canadian subsidiary had planned to send to its U.S. parent company to pay back last-ditch "debtor-in-possession" loans.
In overturning the lower court's decision, the Supreme Court agreed (unanimously) Indalex breached its fiduciary responsibility to the pensioners.
Nonetheless, the highest court ruled the provincial pension law under which the Ontario court applied its ruling was overridden by the Companies' Creditors Arrangements Act, federal rules that provide a super-priority to "debtor-in-possession" financing whereby banks and hedge funds lend to distressed companies.
The Supreme Court's decision is of significant import. Over the past few years, tens of thousands of Canadian retirees have seen their pensions wiped out during bankruptcy proceedings.
In a particularly odious example, 800 retirees of Fraser Papers lost between 30 per cent and 40 per cent of their pensions when the company filed for protection under the CCAA four years ago.
The company's secured creditors, including Brookfield Asset Management, CIT Bank, CIBC and the Government of New Brunswick, were paid the $110 million owed them.
The unsecured creditors, which included $219 million owed to the pension plans, received little.
Unbelievably, the principal shareholder that took Fraser Papers into the CCAA, Brookfield Asset Management, maintained a dominant ownership position in the restructured company. In effect, this $150-billion corporate behemoth used bankruptcy protection to wipe out its pension obligations.
Bankruptcy laws that prioritize wealthy creditors over pensioners are fundamentally unjust. It's time to amend CCAA rules so employees' pensions are considered deferred wages, which have priority status over other creditors.
But reforming CCAA rules to better protect pensioners during bankruptcy hearings is a half measure. These changes should be accompanied by efforts to lessen the risk inherent in employer-run pension plans.
The best way to do this is by expanding Canada Pension Plan coverage.
CPP has proven to be highly secure as risk is distributed over a huge pool of contributors and the plan is backed up by the government. It also has far lower administrative fees than most private pension plans and CPP is portable across provinces and jobs.
The Canadian Labour Congress has called for doubling CPP benefits by gradually increasing, over a seven-year period, workers' and employers' contributions to 7.7 per cent of wages. This would bring the maximum CPP benefit to approximately $20,000 per year when fully phased in.
The Supreme Court's recent decision is a blow to pensioners. But there is a silver lining. In its ruling, the high court noted "there are good reasons for giving special protection to members of pension plans in insolvency proceedings."
But the Supreme Court said it's Parliament, not the courts, that should determine where pensions rank in a restructuring.
Stephen Harper, are you listening?
Dave Coles is the national president of the Communications, Energy and Paperworkers Union.