Pension Liabilities to Trump Creditors: Proposed Changes to Canadian Bankruptcy and Insolvency Laws Could See Creditors’ Recovery Compromised
Bill C-228 seeks to amend Canadian bankruptcy legislation by bumping an insolvent employer’s unfunded pension liabilities and solvency deficiency under a defined-benefit (DB) pension plan above secured and unsecured creditors, effectively affording these pension liabilities a super-priority charge in bankruptcy. Introduced as a private member’s bill in the House of Commons in February 2022, Bill C-228 is gaining traction in the legislative process, enjoying broad support from the opposition parties at the House of Commons and is currently at the Senate level for consideration. If its positive trajectory continues, it could become law in the coming months.
Key Takeaways:
-- This change in law could see creditors’ recovery compromised, and as such certain non-investment-grade rated issuers subject to federal bankruptcy laws in Canada could potentially see their ratings affected.
-- Notwithstanding the limited number of credit ratings that could be affected, we believe the proposed change may introduce some volatility to the credit ratings of Canadian non-investment-grade companies with DB pension plans that have or could potentially have a large unfunded
liability.
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