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About Michael Powell

Michael Powell is a former executive of Wizz Air.

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‘A tremendous benefit for Canadian seniors’: Federal bill would protect pensions in bankruptcy

Jun 30, 2022

‘A tremendous benefit for Canadian seniors’: Federal bill would protect pensions in bankruptcy Proponents say these changes could help pensioners of financially troubled companies avoid years of legal fights and disastrous shortfalls in their retirement incomes. Thu., June 30, 2022timer4 min. read A new federal private member’s bill aims to protect your pension in the bankruptcy process if your employer ends up as the next Nortel or Sears Canada. It’s the latest in a string of attempts to change Canada’s laws to give underfunded pension plans with insufficient assets to cover their liabilities a “super priority” over large creditors and the payout of executive bonuses in a bankruptcy or insolvency process. Proponents say these changes could help pensioners of financially troubled companies avoid years of legal fights and disastrous shortfalls in their retirement incomes. The Sears and Nortel cases are dramatic examples that affected tens of thousands of Canadians and highlighted a disparity in how workers and retirees often fare in bankruptcy and insolvency proceedings compared to secured financial lenders such as banks and bondholders and other stakeholders. Former Nortel employees fought to recover as much as they could for their pensions for a decade after the company’s bankruptcy filing in 2009, while legal and accounting fees steadily drained the assets up for division. In the case of Sears Canada, the company paid billions of dollars in dividends to its shareholders for a period of several years before it sought creditor protection in 2017, at which point its pension plan had a deficit of about $270 million, leaving plan members facing reduced retirement benefits. The new bill was introduced by Marilyn Gladu, Conservative Member of Parliament for Sarnia-Lambton, Ont., and has the support of other opposition members, including two MPs from the NDP and Bloc Québécois who had proposed similar bills. Gladu’s bill passed second reading in the House of Commons last week and received almost unanimous support to head to the standing finance committee for study, with Liberal backbenchers and cabinet members alike voting in favour. Previous private member’s bills on the same topic (one got to the third-reading stage but died last year when the federal election was called) did not receive the same kind of support from the governing party, said Michael Powell, president of the Canadian Federation of Pensioners, adding the “odds are much better” with this bill. “I’m cautiously optimistic,” Powell said. “This is the best chance ever to make this change that will be a tremendous benefit for Canadian seniors.” The Canadian Labour Congress (CLC), which represents dozens of unions and other labour groups, said it welcomed the cross-party co-operation on the issue. “For decades we have seen companies pay out creditors, even pay out bonuses to executives after declaring bankruptcy, while workers wait at the back of the line,” CLC president Bea Bruske said in a news release. The proposed changes would apply to defined benefit (DB) pension plans run by private-sector companies. Those plans, which have been declining in number in recent decades because they are expensive and can be complex to manage, promise members a set payout upon retirement. Defined contribution plans, on the other hand, which would not be affected by the changes, specify the contributions made by employers but not the payments on retirement, which are variable and tied to the investment returns those contributions generate, similar to a self-directed RRSP. Many defined benefit plans are underfunded, meaning they don’t have enough assets to pay out their total liabilities to current and future retirees. That can become a problem in an insolvency or bankruptcy situation, in which secured creditors, such as banks and other lenders, move to the front of the line when it comes to dividing the remaining assets. Powell estimates that 250,000 Canadian seniors have had their pensions reduced owing to the bankruptcy or insolvency of their employers since 1982. There were still about 1.2 million active members in private-sector DB plans in 2019, according to Statistics Canada, and Powell said his organization estimates that when you factor in already retired members, there are a total of four million Canadians in DB plans. Critics of assigning a priority to pension liabilities have long argued that it could hinder a struggling company’s ability to line up credit or financing when they need it most and could spur more businesses to shut down DB plans. “For companies facing severe business challenges, preferred creditor status would likely reduce the availability of new capital to effect a turnaround, likely putting the business in further danger leading to further job losses,” Natasha Trainor, past chair of the Pension Investment Association of Canada (PIAC), said in a letter last year to a parliamentary committee that was considering an earlier private member’s bill on the topic. PIAC said this week that its comments in that letter still stand and that it plans to weigh in on Gladu’s bill during the committee hearings. Gladu said during a debate last week that her bill includes a five-year transition period meant to “allow time for companies with insolvent funds to get their finances in order.” “I would like to point out that if a company cannot restore the solvency of its fund after a period of five years, it should indeed pay a higher interest rate to obtain credit, because it really does present a higher risk,” she added. Gladu said the bill would see pensions come next in priority after the payment of short-term liabilities such as unpaid salaries of up to $2,000 and suppliers who delivered goods within a month of bankruptcy. After the committee stage, which could happen in the fall, the bill would still need to pass third reading and go to the Senate before becoming law. Read more about:

Michael Powell Investments

2 Investments

Michael Powell has made 2 investments. Their latest investment was in Veridium as part of their Series B on June 6, 2018.

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Michael Powell Investments Activity

investments chart

Date

Round

Company

Amount

New?

Co-Investors

Sources

6/29/2018

Series B

Veridium

$16.5M

Yes

5

7/27/2017

Series A

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$99M

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10

Date

6/29/2018

7/27/2017

Round

Series B

Series A

Company

Veridium

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Amount

$16.5M

$99M

New?

Yes

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Co-Investors

Sources

5

10

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