[Recorded by Electronic Apparatus]
Tuesday, September 24, 1996
.1529 
[English]
The Clerk of the Committee: Hon. members, I see a quorum.
According to Standing Order 106(1) and 106(2), your first item of business is to elect a chair of this committee, and I'm ready to receive motions to this effect.
Mr. Bodnar.
Mr. Bodnar (Saskatoon - Dundurn): I nominate David Walker as chair.
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The Clerk: Are there any other motions? It's been moved by Mr. Bodnar that Mr. Walker take the chair of this committee. Is it the pleasure of this committee to adopt the said motion?
Motion agreed to
The Clerk: Mr. Walker.
The Chairman: Thank you for your vote of confidence. I appreciate the good working relations we have on all sides of the committee for the witnesses and for the legislation, and we are very appreciative.
We have the task of electing two vice-chairmen now. I'll turn to Mr. Bodnar for his nomination.
Mr. Bodnar: I nominate Walt Lastewka as vice-chair.
The Chairman: Is it the will of the committee to elect Mr. Lastewka as vice-chair?
Motion agreed to
[Translation]
Mr. Asselin (Charlevoix): I would like to nominate an Opposition member, Mr. Nic Leblanc, for the position of Vice-Chairman.
[English]
The Chairman: Is it the pleasure of the committee to have
[Translation]
Mr. Leblanc for Vice-Chairman?
[English]
Mr. Hill (Prince George - Peace River): No.
Mr. Mayfield (Cariboo - Chilcotin): I'd ask for a recorded vote, please.
Motion agreed to: yeas 7; nays 2
The Chairman: Congratulations to the two vice-chairs. I look forward to your participation, particularly in the steering committee, and in making this an effective committee.
There being no further business, I would like to turn to the work of the committee right now. We shall resume consideration of Bill C-5, an act to amend the Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act and the Income Tax Act.
Before I call the witnesses I want to ask Mr. Lastewka to take the chair today.
For members of the opposition,
[Translation]
...we will not be hearing from witnesses next week. If possible, we would like to continue to review the amendments and proposed changes to the legislation.
[English]
We'll make the official announcement next week.
The Vice-Chairman (Mr. Lastewka): We'll resume consideration of clause 1.
From the Fédération des ACEF du Québec, I'd like to welcome Louise Blain, representative of the social action development committee, and Monique Émond. We will begin by having the witnesses make some opening statements and then we will carry on with questioning.
Welcome to the committee. Who's going to begin?
[Translation]
Mrs. Monique Émond (Representative, Social Action Development Committee, Fédération des ACEF du Québec): Good afternoon. The Fédération des ACEF du Québec consists of eight member associations from an equivalent number of regions across Quebec. Our association has been active for over 30 years in the area of indebtedness, budgeting and consumer affairs.
Our involvement with the problem of indebtedness comes about primarily through the budget counselling service we provide to people facing debt problems. We are also involved in this area through educational activities designed to inform consumers and warn them against over-reliance on credit. To this end, we offer budgeting courses and information workshops on how to deal with debt, finance contracts and so forth.
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When the new Bankruptcy and Insolvency Act was passed in 1992, our federation saw it as a welcome initiative; we had been calling for an overhaul of the Act for a number of years. One of the things the legislator addressed with this reform, and with which we were in complete agreement, was the financial rehabilitation of former bankrupts, with an emphasis on preventing repeat occurrences.
However, the means proposed by the Minister to achieve this have always been problematical from our perspective. The legislator decided to redefine the role of trustee to include responsibility for the process of rehabilitating the debtor. We have always objected to this new role for the trustee, because it is in many respects at odds with his primary mandate of bankruptcy administrator.
We also objected to the prescribed rehabilitation procedure, because in our view it did not yield the anticipated results. We therefore became involved in the review process scheduled to take place over a three-year period following the coming into force of this Act by playing an active role on the BIAC and on certain other working committees.
We felt that our experience in the area of credit and indebtedness could contribute significantly to making the Act a real solution to the problems of indebtedness faced by many families in Quebec and Canada. We also seized the opportunity to make known our concerns and to raise the whole issue of debt prevention, an issue that is pivotal, and yet is completely absent from the debate.
It is therefore from the angle of prevention, and with the same concerns regarding the rehabilitation process provided for in the Act, that we will be making recommendations with respect to the proposed amendments as part of these consultations.
Our analysis of the issues and the resulting proposals are primarily concerned with consumer bankruptcy and the role of the trustee. We also thought it important, however, to preface our remarks, once again, with our position on consultation. We will also touch on the matter of consumer proposals, in light of the difficulties encountered in implementing this alternative. Finally, we will conclude our brief with recommendations regarding student loans and government financial claims.
Let us begin, therefore, with the reminder that the indebtedness of Canadian families now exceeds $110 billion, and that the number of bankruptcies reached a record level of 65,432 in 1995. This state of affairs requires that all concerned parties (the Bankruptcy Branch, trustees, financial institutions and community groups) become involved at different levels in order to prevent debt overload, look for effective solutions and develop alternatives, and thus to promote real financial rehabilitation.
In 1992, with a view to rehabilitating debtors, the legislator made provision for consultations, known as second and third meetings, and assigned responsibility for them to the trustee. In addition, the trustee's role was redefined and he was reminded of his obligation to conduct a detailed analysis of debtors' financial situations, with an eventual view to giving preference to solutions other than bankruptcy, in particular consumer proposals. To the role of bankruptcy administrator for which he was trained was thus added the role of budget consultant.
By assigning to the trustee the role of analyzing the budgetary and financial situation of the debtors consulting him, for the purpose not just of assessing the appropriateness of bankruptcy as an answer to the problem, but also of proposing a solution that reflects the debtor's overall position, we are putting him in an impossible situation. How can he, in all objectivity, propose the solution best suited to the situation of the debtors consulting him when he knows that his income depends on their opting for bankruptcy?
He thus places himself in a position of conflict of interest. In order to satisfy the legislator, we believe that each individual, before meeting with the trustee, should be able to seek advice from an independent budget consultant, who can then review his overall position with a view to recommending a satisfactory solution to his debt problem and proposing a means for him to regain control of his budget.
This type of service is currently available. During the 1970s and 1980s, budget counselling groups sprang up in different areas, particularly in Quebec and Ontario. Budget counselling, as provided by ACEFs in Quebec and Credit Counselling Services in Ontario, is a service designed to offer assistance to people experiencing debt problems by sitting down with them and doing a complete analysis of their financial situation, looking for lasting solutions and providing the necessary guidance to help them take control of their budget.
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So, using this definition, budgetary counselling is a service that must precede a visit to a trustee. Its purpose is to ensure that the best possible solution will be recommended. The groups that offer this type of service must therefore guard against any conflict of interest that might lead them to favour one solution over another. The work they do is truly preventive in nature and provides clients with the tools they need to regain control of their budgetary situation, thus often helping them to avoid personal bankruptcy.
However, despite all our efforts to this end, we have never been able to bring home to the legislator and the Bankruptcy Branch the need to encourage the development of budget counselling groups, despite the fact that they meet all the financial rehabilitation objectives of the Bankruptcy Branch, and even help prevent debt overload, while at the same time meeting the test of neutrality essential to the success of this work.
Therefore, our first recommendation is that an amount of money be set aside from bankruptcy estates and used to provide financial assistance to non-profit groups working directly with people experiencing debt problems.
We realize that this recommendation goes beyond the framework of the Act, because it requires that action be taken prior to bankruptcy being declared. However, if the Department truly wants to tackle the problem of debt overload, which inevitably leads to higher numbers of bankruptcies and not just to problems of multiple bankruptcy, it must take preventive measures.
As far as consumer proposals are concerned, there are two amendments in particular we would like to focus on: the amendment providing for a joint proposal when another person is closely involved in the indebtedness, and the introduction, in new Section 173, of the possibility of refusing the discharge of a bankrupt on the grounds that a consumer proposal would have been possible.
We believe the possibility of a joint consumer proposal to be a very important element in many situations involving couples, where the two parties are closely linked financially. We wholeheartedly approve of this amendment.
We are puzzled by the use of an argument such as the one that the bankrupt chose to proceed with bankruptcy, rather than make a proposal, as grounds to refuse a discharge. This can only be seen as a negative inducement to submit a consumer proposal.
As we see it, the consumer proposal process must be reviewed so that this solution to indebtedness becomes a genuine alternative for consumers experiencing debt problems.
The consumer proposal, as provided for in the existing legislation, has not proven to be effective. The figures are telling: 2,419 consumer proposals in Canada in 1995, of which 393 were in Quebec. We know that from the very beginning, trustees have been calling for increased compensation to administer a proposal, because this solution entails greater administrative costs than bankruptcy. They are therefore not inclined to propose such a solution.
Furthermore, in many cases, financial institutions are not interested in consumer proposals because they also feel that the relative expense of administering a file for a number of years outweighs the potential benefits.
As for the consumers, where there is no estate to preserve, which is often the case, choosing this course of action offers no real advantage, since the credit file takes no account of efforts made by a debtor to assume a portion of his debts.
Thus, when all the parties (creditors, trustees and debtors) have only a limited interest in them, and when the means of implementing them are this haphazard, not to say contradictory, it makes no sense to impose consumer proposals as a solution, since we would simply be opening the door to stalling tactics on the part of creditors, without providing any real recourse.
Rather than taking a punitive approach, it would be preferable for the legislator to seek some way of improving consumer proposals to make them a simple and more appealing alternative, so as to encourage debtors in difficulty to opt for this solution.
We are therefore recommending that the Bankruptcy Branch review consumer proposals over the next three years in order that this solution to debt overload may become a viable alternative to bankruptcy.
I will now turn it over to Louise, who will address the matter of the trustee's role and the powers of the Superintendent.
Mrs. Louise Blain (Representative, Social Action Development Committee, Fédération des ACEF du Québec): The proposed amendments, far from limiting the role of the trustee administering the bankruptcy, as we would advocate, expand it further by introducing new measures in Bill C-5, particularly those found in subsections 68(1) and 170(1).
As we mentioned earlier, the Act passed in 1992 assigned to the trustee the role of budget consultant and advisor with respect to rehabilitation.
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In addition to his role of administering bankruptcies and consumer proposals, he was charged with evaluating the financial situation of the people who consulted him and advising them on the solution most appropriate to their situation. In our view, this placed him in a position of conflict of interest and raised questions about his objectivity in proposing a specific option to the debtor.
According to the proposed amendments, the trustee will also have to fix the monthly amount that the bankrupt will be required to pay to the estate of the bankrupt (new section 68), based on standards established by the Superintendent.
In addition, in his report, he may request a conditional discharge based on a variety of factors, including the bankrupt's adherence to the conditions set out in section 68, the total amount paid to the estate given the bankrupt's level of indebtedness and financial resources, and on the fact that the debtor chose to proceed to bankruptcy as a solution, rather than make a proposal. This application for conditional discharge will be deemed to be a rejection of discharge.
The trustee must there juggle all his different roles: indebtedness advisor, administrator of possible solutions to indebtedness, and opponent of discharge. He thus runs a strong risk of placing himself in situations of conflict.
The very fact that the trustee or the creditor can now object to discharge on the grounds that the debtor chose bankruptcy as a solution, rather than a proposal, raises questions in our mind about how this section will be applied. What will be the basis for determining that the debtor could have made a proposal? To what degree will the trustee be held responsible for the debtor's decision to opt for bankruptcy? Furthermore, it seems that the burden of proof and the ensuing penalty will rest solely with the bankrupt, without any consideration being given to how the bankrupt might have been influenced by the trustee's advice in deciding to proceed with bankruptcy.
Considering the arbitrary nature of this reasoning, the absence of clear rules with respect to determining exactly when a proposal, as opposed to bankruptcy, must be chosen as the solution, and the failure to clarify the role of the trustee in recommending one option over another, we are recommending that the decision to choose bankruptcy rather than a proposal as the means to resolve indebtedness not constitute grounds for rejecting discharge.
In addition, where the bankrupt does not agree with the recommendation of the trustee regarding discharge, the bankrupt must advise the trustee in writing that he wants the matter referred to the receiver for mediation. He must therefore turn to the person to whose report he is objecting in order to be entitled to mediation. One might wonder whether the bankrupt will have any real power in cases of disagreement or conflict with the trustee. Will he even be advised of the action he may take in such cases?
If, despite these contradictions, the government is determined to expand the role and powers of the trustee, we would recommend the creation of a mechanism whereby the bankrupt, in cases of disagreement with the trustee, may obtain mediation without having to go through the trustee.
As we see it, the expanded and often contradictory roles assigned to the trustee, as well as the new grounds for rejection, such as whether the bankrupt has met the conditions set out in section 68, and the choice of bankruptcy rather than a proposal, require that the Superintendent have greater authority when it comes to supervising the implementation of the Act.
The proposed amendments to Section 14.01, that relates to decisions regarding a trustee's licence, considerably strengthen the powers of the Superintendent by allowing him to suspend or cancel the licence of a trustee found guilty upon investigation of failing to comply with the present Act, even if the public interest is not at stake.
Furthermore, trustees will now be subject to a code of ethics. Yet these checks and balances do not go far enough in our view. The fact that the exclusive right to administer a federal statute has been passed to the private sector, in the form of trustees in bankruptcy, requires that there be a great deal of transparency vis-à-vis taxpayers with respect to the administration of this statute, the process for dealing with problems, the offences committed and their consequences for trustees. As things now stand, there are no mechanisms for ensuring transparency and problems are dealt with in isolation.
In view of these considerations, we are recommending the creation of a committee that would be responsible for reviewing trustee practices and that would include a representative of the general public. One of the tasks of this committee would be to deal with complaints regarding the practices of certain trustees.
As far as student debts are concerned, given the increased losses attributable to bankruptcies by debtors owing money on government guaranteed student loans, it may seem legitimate for the government to want to limit recourse to bankruptcy for this type of debt. However, even though the Bill prohibits discharge of these amounts only in the case of debtors whose date of bankruptcy occurs within two years of the date they completed their studies, we question the decision to target this clientele in particular.
The press release issued by the government when the Bill was tabled contained a thinly veiled suggestion to the effect that students would plan their bankruptcy to rid themselves of student debts.
.1550
While some students, just like any other taxpayer, may plan a bankruptcy, there is no denying that the increase in the number of bankruptcies resulting from student debts is more a function of the present economic context, with its very precarious youth employment situation. Many young graduates have accumulated a considerable debt load - between $15,000 and $25,000 in many cases - and are not finding jobs, when they find any at all, that pay high enough salaries to enable them to pay off such a large amount.
A recent survey by the Quebec Ministry of Education revealed that 18 months after completing their studies, fewer than 39 per cent of graduates with a B.A. find a permanent, full-time job related to their field of study. The remainder turn to contracts, "McJobs", or part-time work. Furthermore, the government very rarely takes into consideration the financial position of students when it comes time to set their monthly payments, thus driving them into bankruptcy.
At the present time, the reality is that the Ministry of Education almost systematically rejects discharges of bankrupts with student loans, with the result that situations of abuse are thus kept well in check. Finally, is it more reprehensible to declare bankruptcy for student debts than to declare bankruptcy for tax debts? In our view, there is no justification for using abuse as an excuse to target students more heavily. The effect is to penalize those who have no other choice but to resort to this solution, and in our experience, it is rarely with a light heart that they do so. There are not many young graduates who want to start out their working lives with a personal bankruptcy.
We are thus recommending that student loans be debts dischargeable through bankruptcy just like other debts to the government.
It is, however, true that the government is losing a great deal of money through bankruptcies. Unlike other creditors, it is more often than not a creditor in spite of itself. It has not chosen to make loans with a risk factor, as do lending institutions, and the bottom line is that taxpayers as a whole lose. By giving up its status as a preferred creditor, it has succeeded only in increasing its losses to the benefit of financial institutions.
In order to lessen the impact of bankruptcies on taxpayers generally, we are therefore recommending that the government restore its preferred creditor status.
Finally, the legislator is recommending that the Act, as amended, be reviewed in eight years. We feel this is too long a period, given the amendments suggested. We therefore recommend that the Bankruptcy Act be reviewed in five years, rather than eight.
In conclusion, we would like to emphasize our support for two new measures proposed in the Bill - the non-seizability of income support payments, such as GST refunds, and the priority given to provable claims from support creditors.
[English]
The Vice-Chairman (Mr. Lastewka): Thank you very much. We very much appreciate your report and your being succinct in your recommendations for improvement.
I will call on Mr. Lebel first.
[Translation]
Mr. Lebel (Chambly): Good afternoon, ladies. You have made a recommendation regarding the role of a budget consultant, and I would like to get some clarification of what you have in mind. What kind of professional are we talking about? What kind of training would he or she have? Do you have any concrete suggestions to make in that respect? I presume you are referring to someone whose area of expertise would be providing financial advice to couples or individuals. Could you explain what you have in mind?
Mrs. Émond: Let's look at the first recommendation. What we are saying is that a number of organizations, particularly the ACEF network in Quebec and Counselling Credit Services in Ontario, already offer the services of budget consultants. In other words, the type of education, prevention and assistance referred to here is already available. If we really want to rehabilitate consumers, we have to encourage those groups to pursue that work. I would point out that the organizations we're talking about are strictly non-profit.
Mr. Lebel: I could not agree more, but having practiced law in Quebec, it is my sense that the kind of people who declare bankruptcy are not generally the kind who have regular involvement with ACEFs or community support groups.
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I'm thinking of businessmen, for example, who experience some financial bad luck... Are you suggesting that in all such cases, when it comes time to distribute assets, a certain amount be set aside for an organization that the bankrupt or the proposer has consulted, or would you exclude such organizations?
Mrs. Blain: In practice, the current legislation allows a trustee to use part of the monies from the estate for the second and third meetings, which are for rehabilitation counselling, once the person has declared bankruptcy.
What we are suggesting is that rather than setting aside money from the estate for debtors - which in itself is not a bad idea, since this would give them the means to rehabilitate themselves - that money would be put into a fund to be distributed to organizations that provide budget counselling and debt prevention services. This would be a way of encouraging those organizations to pursue and expand their efforts in this area and of helping them to reach a wider public.
We are not necessarily recommending that this service be mandatory, only that it be available and adequately funded, so that people can consult someone more neutral before going to see a trustee and using money from the bankruptcy estate to...
Mr. Lebel: I'm going to have to interrupt you, because otherwise I won't have enough time to ask my other questions.
At one point, you raised the issue of trustees placing themselves in a position of conflict of interest. I must admit I am inclined to agree with you there. I have even said so at previous meetings. But in terms of the way the current system operates, what is the basis for your belief that a trustee often has a conflict of interest? Is it because of the method of appointment? Is it because of the legal imperatives facing him on both sides? What are the grounds for your assertion that a trustee may have a conflict of interest?
Mrs. Émond: While previously the role of the trustee was simply to administer bankruptcies, that role has been expanded to include not only administering bankruptcies but administering consumer proposals and acting as a budget consultant.
Two weeks ago, the Journal de Montréal published two full pages of advertising by trustees that included the following invitation to the general public: "Come and see us if you're having problems. Bankruptcy is clearly a last resort, but we can assist you and advise you." Increasingly they are becoming budget consultants rather than bankruptcy administrators.
As far as we are concerned, the role of the trustee is not to act as a budget consultant, with all that that involves. But let's be clear on the definition of that service. A budget consultation involves looking at the overall situation of the debtor, the current family budget and the social context. Only then can one determine whether there is any chance that the debtor can regain control of his financial situation and possibly avoid bankruptcy. In our view, the trustee cannot properly fulfil that role.
Mr. Lebel: So, if I understand you correctly, possible confusion regarding the mandate of the trustee is in fact a direct consequence of the current legislation. His mandate is not clearly defined in the Act. At times he is representing the bankrupt, while at other times, he is representing the creditors - because the trustee is also supposed to represent the creditors as a whole. That is where you say his role becomes ambiguous, leading to potential conflicts of interest.
Mrs. Blain: He has been assigned a role for which he has not been trained. Let's be quite clear on one thing: trustees are businessmen who administer bankruptcies. Their role is not to provide budget counselling services. As Monique was saying, they make their profits through bankruptcy and consumer proposals. What interest would they have in saying to someone: "Well, I think you should negotiate with your creditors rather than declaring bankruptcy"? That doesn't mean they are not honest. Some are honest and others aren't, as in any profession, but the fact is the law places them in a position of apparent conflict of interest.
.1600
Mr. Lebel: One of your recommendations surprises me. The Federation has recommended that preferred creditor status be restored to the Crown. What is the reasoning behind that recommendation?
Mrs. Émond: Well, we are looking at this in the context of the legislation. For example, the Quebec Ministry of Education automatically challenges any bankruptcy for student loans. They challenge it every single time, and yet we really wonder what the difference is between declaring bankruptcy for a student debt and declaring bankruptcy for a tax debt. As far as we are concerned, if the government wants to counter abuse in that area, it should restore its preferred creditor status. Unlike the private sector, where an institution can decide not to lend money to someone if he is insolvent, the government does not choose its debtors. The government has no such ability, since it is not a private company. Given the government's position - in other words, the fact that it represents taxpayers as a whole - we seriously wonder why the government ever relinquished its preferred creditor status.
[English]
The Vice-Chairman (Mr. Lastewka): Thank you, Mr. Lebel.
Mr. Mayfield.
Mr. Mayfield: Thank you very much, Mr. Lastewka, and good afternoon, ladies. I appreciate your report.
I really do not understand who you are or who you represent, and I was just wondering if you could give me a bit of background. I ask that with respect. Who are the representative groups that form your federation and what is their reason for being? Could you answer that for me, please.
[Translation]
Mrs. Émond: The Fédération des ACEF represents eight regional ACEFs (family economy co-operative associations). For instance, there is an ACEF that covers the entire Mauricie area, another covering the Gaspé, another in Montreal, and so forth. So, the Federation represents ACEFs that are active at the regional level. One of the main services they provide is budget counselling. They are non-profit organizations that are partly subsidized by the government, and also receive funding through special projects, the religious communities, and so forth. They are managed by boards of directors whose members are often people who have used their services.
In Quebec, ACEFs are the oldest community groups around, having been active for some30 years now. One of their goals is to help people regain control.
[English]
Mr. Mayfield: I appreciate that explanation. Thank you very much.
I was wanting to ask more specifically about recommendation 5, which is:
- We recommend the creation of a committee, on which would sit a representative of the general
public, to supervise the conduct of trustees. One of the tasks of this committee would be to deal
with complaints regarding the conduct of certain trustees.
- I'm wondering if you have in mind to whom this committee would be accountable. Who would
appoint this committee?
Mrs. Émond: Well, we didn't actually go into that kind of detail. Initially, it would be up to the Bankruptcy Branch to establish the committee. Who would sit on it? Well, I expect there would be someone to represent creditors, someone to represent trustees, someone from the Bankruptcy Branch, and a representative of the general public, to ensure transparency. One has the feeling that the only people involved in the decision-making are the Bankruptcy Branch and trustees, and that trustees, who are part of the private sector, enjoy a total monopoly as far as administrating the legislation is concerned.
There has to be greater transparency in that respect. When complaints are lodged against trustees who do not perform their duties properly, the process has to be completely open and public, and certainly much more transparent than it currently is. There must be some sort of watchdog committee and, as is the case with other professions or organizations, the general public must be represented on that committee in order to guarantee an adequate degree of transparency.
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[English]
Mr. Mayfield: I have some concern about the establishing of another committee. Do you believe there might not be some way for the superintendent to adequately meet the proposals that you suggest for this committee?
[Translation]
Mrs. Blain: Are you talking about a committee that is already in place?
[English]
Mr. Mayfield: No, the committee that you're proposing: ``We recommend the creation of a committee...''.
[Translation]
Mrs. Blain: Are you saying that it should be a committee that's already in place? I'm afraid I didn't understand your question.
[English]
Mr. Mayfield: I'm sorry. I have some concern with the creation of another committee that does not now exist. I was wanting to ask you if you might see some way, rather than having the creation of this committee, that the terms of reference of the superintendent might be modified to do what you see this committee doing.
[Translation]
Mrs. Émond: Well, let's take the example of bailiffs in Quebec. They have their own disciplinary committee, which included - that has just been changed - a representative of the general public.
We are talking about a completely independent organization that hears and deals with complaints about bailiffs. Ideally, that is the sort of committee that would be needed to examine problems when they arise.
I see no reason for the Superintendent to perform that role, when we could just as well create a committee to deal with these kinds of problems with as much openness as possible.
[English]
Mr. Mayfield: Now, you've suggested that a representative of the general public would be available for that. How would that person be selected? Who would select that person? Would that person be paid, and who would pay that person? Are we adding another level of bureaucracy in this program?
[Translation]
Mrs. Blain: There are a great many of them, at least in Quebec. I don't know how things are in the rest of Canada. In Quebec, though, there are many such committees; when the government wants to include a representative of the general public, it gets in touch with groups that have a direct interest in the problem and asks them to submit names; it then chooses someone from a list of names they have proposed.
Some members of these committees are paid, others are not. It depends on the committee. Sometimes their travel expenses are reimbursed. But they are not necessarily paid a salary. Also, it may not be standing committee that sits all year long.
Several different models could be used. Generally, stakeholder groups are asked to submit names and the government makes the final decision. That is one possible method. There may be others as well, but I do know that in Quebec, that is the process most often used to appoint a representative of the general public. The selection is made from a list of names submitted by stakeholder groups.
[English]
The Vice-Chairman (Mr. Lastewka): Thank you, Mr. Mayfield.
Mr. Mayfield: Thank you very much.
The Vice-Chairman (Mr. Lastewka): I wanted to find out what you were really getting at. Maybe you can come back at it the next turn.
Mr. Shepherd.
Mr. Shepherd (Durham): Thank you very much for your presentation.
In your very first recommendation, you are entertaining the concept of charging the bankrupt estate basically to fund organizations, I presume, much like the members of your organization. Doesn't that really represent a tax on creditors? In a sense, you're removing money from a bankrupt estate for the payment of your own organization. It really simply is a direct tax on creditors who happen to end up in situations where they can't collect their money.
[Translation]
Mrs. Blain: Yes, I realize it could be perceived as such, although it should be borne in mind that creditors must bear some responsibility for increasing a person's level of indebtedness by offering credit. There are new forms of credit available nowadays, and it is quite easy to get credit. Not only are the criteria fairly broad but there is fierce competition between financial institutions.
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Creditors must bear their share of responsibility for debt problems that arise. The amount we have suggested could be seen as a contribution from creditors for purposes of rehabilitation. Indebtedness is not only an individual problem. All those involved have some responsibility when problems arise.
[English]
Mr. Shepherd: Yes, I understand what you're doing and I'm sympathetic with it, but I wonder whether a way to fund your organization wouldn't be through lenders generally rather than through those who find themselves... For instance, I think of financial institutions who have the wherewithal to do that. Maybe your local car dealer, or whoever it is, in Chicoutimi can afford that levy, whatever it is. That's just my thought process there.
Throughout your dissertation you seem to take a dim view of trustees and how they're currently undertaking their obligations. In other words, I think you're very cynical about the process - that is, people are generally motivated to go into bankruptcy and forget about the possibility of negotiating their debts.
Is there some other way to address that problem? Is there some way that the bankrupt himself or herself could be made more responsible for part of that negotiating process?
[Translation]
Mrs. Émond: In terms of cynicism about trustees, I think it is important to say that the latter do have a role to play. There is room for them as well, and we have made room for them. As Louise said, it is a business, and every trustee runs his business as he sees fit.
That is how it should be; however, when it comes to bankruptcy, the issues are a lot more complex. Louise was talking earlier about the whole issue of indebtedness. We are now seeing a real proliferation of credit - credit of all kinds. The trustee is not the only one who is responsible. The financial institutions and other organizations also have to bear their share of responsibility.
Setting aside an amount of money from bankruptcy estates to encourage neutral organizations whose aim is rehabilitating individuals with financial difficulties would be a very good investment and would help to counter the kind of things we're currently seeing with respect to credit. It's like everywhere else, and finance companies are once again gaining the upper hand. There is definitely a problem there.
Using money from bankruptcy estates to encourage groups that could not otherwise develop would be a very good investment. A full range of services could then be provided in every region of Quebec and the other provinces, because many organizations simply do not have the financial means to perform that kind of function.
Conversely, what is stopping creditors, trustees, the Bankruptcy Branch and the government from saying: "We agree on the objective. Let's invest. This is a good investment"?
Mrs. Blain: Indeed, this would be beneficial to creditors because there would be fewer bankruptcies if people could call on these kinds of organizations to help them regain control over their financial affairs before considering bankruptcy.
We believe this would benefit creditors even though it would mean losing part of the bankruptcy estate. The fact is fewer people would go bankrupt.
[English]
Mr. Shepherd: Just out of interest, how do you get your funding now? How are these organizations funded? I know you're saying they're non-profit, but they certainly need operating budgets of some kind. How are they funded today?
[Translation]
Mrs. Émond: The Ministry of Education provides funding for some of our budgeting courses. In addition, the Quebec Office de la protection du consommateur funds part of our work in the area of consumer affairs. There is also the United Way, in some areas of Quebec, and the rest comes from the religious communities, and so forth. That is basically it.
[English]
Mr. Shepherd: Just for my own edification - I saw the connection with the education department - do you also provide courses in the CEGEPs, or credit counselling, how to handle credit? Does your organization do that sort of thing? I'm trying to think of preventive medicine rather than -
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[Translation]
Mrs. Émond: Yes, we do give courses. For example, all ACEFs offer budgeting courses in their own facilities aimed at the general public. Many ACEFs meet with young people in high schools, CEGEPs and universities to promote debt prevention and explain consumer credit and the way it works. Yes, we definitely do that sort of thing. We are very involved in education.
We also provide services directly to people who are experiencing debt problems. We call it budget counselling. The rest of the work carried out by an ACEF involves debt prevention and public information and education.
[English]
The Vice-Chairman (Mr. Lastewka): Thank you, Mr. Shepherd. Mr. Lebel is next.
[Translation]
Mr. Lebel: I have no further questions.
[English]
The Vice-Chairman (Mr. Lastewka): Mr. Mayfield, did you want to rephrase your question?
Mr. Mayfield: Yes, I'd like to try again, if I may, please.
Ladies, I'm very interested in what you're doing. I think what you're suggesting is that there needs to be some education pointing out the dangers and disadvantages of credit as well as the benefits and advantages. You're to be commended in that. But as one who is looking at amendments to an act of Parliament, I'm wondering how we would take your suggestions and put them in the language of legislation.
So I'm asking these questions: Where does the committee come from? Who appoints the members? To whom are they accountable? How would they be disbanded? There have to be terms of reference for this to be put into legislation. I do not have a clear picture of your concept of this committee and how it would work, and I was asking you if you could explain that to me.
[Translation]
Mrs. Blain: The purpose of our brief was not necessarily to suggest specific wording for amendments as they should appear in the legislation. We were really only trying to provide some direction to the committee with respect to the objectives of the Bankruptcy Act.
If there is to be a committee, the legislation would have to make provision for such a committee and clearly define its mandate.
Our goal in coming here today was primarily to bring forward that suggestion for your consideration. It was not necessarily to give you a clear indication of the exact composition of such a committee, when it would come into existence or how its members would be compensated. We are simply proposing that the government move in this direction, since there is no such provision anywhere in either the legislation, the regulations or the guidelines. Nothing along those lines is even hinted at, and that is why we are suggesting this as an avenue to be explored. Of course, this is still quite preliminary; the details would obviously need to be fleshed out.
[English]
Mr. Mayfield: Thank you, Mr. Chairman.
The Vice-Chairman (Mr. Lastewka): I'm going to go to Mrs. Brown and then I'll come back.
Ms Brown (Oakville - Milton): Thanks, Mr. Chairman.
Thank you for your presentation. This is the first time we've had anybody challenging the status quo that this act represents and suggesting that we look prior to the idea of bankruptcy at some of the causes and some potential solutions. So I thank you for your creative thinking. I think I thank you for your courage too, because I realize you're challenging a status quo that is fairly lucrative for certain people.
One of my colleagues mentioned your idea of the fund that would come out of the bankruptcy estate as a tax on creditors. But is it not true that trustees' fees come out of the bankruptcy estate? Would I be correct in assuming that the trustees' fee per hour of work, per execution of the bankruptcy, would be far, far higher than yours for the advising of a potential bankrupt? Is that correct?
[Translation]
Mrs. Blain: Yes.
[English]
Ms Brown: Could you give us an idea of the comparative size of the investment that would have to come out of the bankruptcy estate to fund your activity, which might result in the person not going bankrupt and indeed paying back some of their creditors at least a portion of their debts, as compared to the fees to the trustee, where the person does declare bankruptcy and perhaps is discharged?
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[Translation]
Mrs. Blain: The new Act currently provides for the trustee to conduct one consultation, as well as two other meetings to discuss a budget. He receives between $125 and $175 from the bankruptcy estate per case. We're suggesting that we multiply $175 by the number of personal or commercial bankruptcies and set that amount aside in a separate fund. I believe that would be a very positive step.
When the Act was passed three or four years ago, provision was made for the trustee to be paid $175 more from the bankruptcy estate for the purpose of conducting those consultations. If we take that $175 and set it aside in a separate fund to be used for preventive counselling, before bankruptcy occurs, we believe that would be a very positive step.
Mrs. Émond: I would just like to add something. I realize this is not a problem in every province, but it certainly is in Quebec.
We all know that when a problem appears in society, there is always a group of sharks just waiting to jump in and take over the market. In Quebec, we are currently experiencing what are known as financial adjusters. They are people who work in the private sector, often with direct links to a trustee, and they demand astronomical fees for budget counselling, even though the people involved always end up declaring bankruptcy.
If the Bankruptcy Branch or another branch of government - because there are other departments that should be performing that function - do not provide encouragement to groups such as ours, which are non-profit, we will be completely overrun by financial adjusters. They will take over the market, but not necessarily with a view to meeting the objectives of the Bankruptcy Act, which refers, among other things, to rehabilitation.
They have absolutely no interest in rehabilitation. What they are interested in is making fast cash and getting rid of people. Whether or not they go bankrupt or whatever course they may take is of absolutely no interest to them. In the case of groups such as ours, the goals we pursue are completely different. If the Bankruptcy Branch and the various departments do not provide us with some encouragement, there is a strong chance that we...
Let me give you an example. A regional ACEF has a budget of about $70,000 to cover the entire area it serves. The base subsidy is only about $40,000. The rest we have to go out and lobby for in order to be able to provide services to the general public. That is the financial reality we are facing.
The fact is we do not have the financial wherewithal to serve the entire province, even if we were asked to do so. Through the back door, all kinds of organizations have come in and decided to take over the market, and when people are having financial problems, they are prepared to pay any amount to get themselves out of the hole. Those organizations have far greater financial resources and can afford to do a lot more advertising and so forth to reach these people; that is the problem, and it is one that must be resolved. This is a major problem in Quebec but not in other provinces. In Ontario, for example, the Counselling Credit Services have really sewed up the entire market.
We believe the government has a role to play here. It should be encouraging this kind of work.
[English]
Ms Brown: I think we understand this idea of some extraneous groups or people trying to move in on people in trouble. As MPs, we think about some of the immigration consultants who are out there attracting large dollars from people who are desperate, and I think there is a similar situation in the bankruptcy field.
If I may, I'll just share the fact that in Ontario we do have credit counselling services in most towns. They are often attached to the family counselling agency, because so many families who get into trouble think they have emotional problems or relationship problems, but when the social worker gets into the meat of the issue it turns out that a lot of their problems go back to debt. So they are referred to a credit counselling agency.
.1625
But the fear is that with the cutbacks in provincial governments, the cutbacks in municipal governments, the problems in some cases with United Ways not getting as much money out of the community, these things are going to fold. It is very cheap to invest in per-hour counselling compared to the expensive fees of bankruptcy trustees.
The Vice-Chairman (Mr. Lastewka): Thank you very much. Mr. Lebel is next.
[Translation]
Mr. Lebel: I will pass. My questions have all been answered.
The Vice-Chairman (Mr. Lastewka): Mr. Milliken.
Mr. Milliken (Kingston and the Islands): I have a question about student loans. You say the exemption for students should not be removed, as proposed in the Bill.
Every year, tuition fees increase in universities and colleges all over the country - even in Quebec which receives large federal transfers as everyone knows...
Mr. Lebel: Don't exaggerate.
Mr. Milliken: ...and it's the same situation in Ontario. After four years of university or college, a student probably has loans totalling approximately $30,000. What advantage is to be gained by avoiding bankruptcy, particularly if the student has no savings bonds or property, and has nothing to declare other than his loans? What kind of options are available to such a student if he wants to avoid bankruptcy?
Should we not be considering other ways of protecting the rights of governments who have provided loans? Should we not consider amending the Act so that a student who has a job could not benefit by declaring bankruptcy?
Mrs. Blain: Trying to get at students through bankruptcy is not the right approach.
Mr. Milliken: I agree, but...
Mrs. Blain: There is definitely a problem in this area. Perhaps the options for repaying a loan should be reviewed, and perhaps the government should be more flexible and give greater consideration to a student's circumstances.
I know a student loan now has to be paid back in ten years. The government is starting to change the regulations, but under the current regime, a student has ten years to pay back his loan.
In other words, whether you owe $15,000, $20,000, $25,000 or $30,000, you have ten years to pay back your loan. But ten years to pay back a $30,000 debt is not a very long time. $30,000 is practically a mortgage. People who start working at minimum wage and make only $1,000 a month or less are not in a position to make payments of $300 or $400 a month for ten years running. There should be some flexibility there. The real problem is access to education.
It is a major problem which is becoming increasingly serious because of the high cost of university and other studies. I don't think the solution is to restrict the Bankruptcy and Insolvency Act. Before we consider doing that, perhaps we should look at the problem as a whole and consider other solutions. I think there are other options. This is a problem that is affecting a growing number of young people. We have more and more students coming to see us who are unable to pay back their debts. At the same time, they do not want to declare bankruptcy.
I certainly agree that some of them are prepared to do anything in order to avoid paying taxes. They pay no taxes whatsoever for five, ten or fifteen years and then declare bankruptcy. They will end up being discharged. There is no doubt about that. Some of them will definitely manage to get themselves discharged by doing that, but there are also others who do not want to declare bankruptcy.
I think we have to be careful not to drive them into bankruptcy, simply because for the first two years after finishing school they have only a low-paying job and are unable to start paying back their loan.
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So, I think we have to look at the problem from a broad perspective and not immediately impose a solution that may not be appropriate.
Mr. Milliken: Yes, it certainly is a problem. My concern is for the student who has nothing, or even for one who gets a job in order to finish his B.A. It's much easier to declare bankruptcy when you have a large debt.
However, there are a lot of people who would be interested in the idea and my concern is that the government will lose a great deal of money.
Mrs. Émond: Well, some people who come to our offices are prepared to do anything in order to declare bankruptcy, just to get rid of their debt. They want to arrange a meeting with a trustee immediately. That kind of individual is obviously not going to solicit advice from an association such as ours.
On the other hand, we meet with a lot of young people who have student debts, and possibly other debts as well, who would like to reach an agreement with the government to pay back their loan based on their available income.
In such cases, we often have to deal with officials who are not interested in this kind of arrangement and are not prepared to negotiate, which obviously poses a problem. We generally ask officials in the Ministry of Education to look at their budget. Based on their budget, they could probably pay back, say, $150 a month. But interest rates are high. In one case, we went as far as to ask senior government officials to withdraw interest charges, because the individual was able to pay back the capital in a lump sum. But they never agreed to it.
What exactly do they want? That the individual be forced into bankruptcy? This particular case involved a woman who was living off welfare, as well as some other income, but she was in a position to pay a lump sum towards the capital. I think government officials have to be more flexible. They have to take into account the particular circumstances of the individual involved when the negotiations are taking place.
Mrs. Blain: I don't know whether this is the case in other provinces as well, but in Quebec, the Ministry of Education opposes - often with good reason - the discharge of any such person who declares bankruptcy and that person is still required to pay back half of his loan. These individuals are not discharged, which prevents a lot of abuse. We believe the system works well.
If a judge realizes that he is dealing with a really desperate situation, the individual is not found guilty and is therefore completely discharged. In other cases, if he believes he is dealing with a bankruptcy that is more convenient than necessary, or if it appears that he or she made no effort to make other arrangements and has never repaid a cent, he will require that that individual pay back half or three quarters of his loan. In other words, he will not be discharged by declaring bankruptcy. We always tell people, even before they declare bankruptcy, that they may well be forced to pay part of their student loan back even if they declare bankruptcy.
That is already a very good deterrent, as we have had occasion to note in our own dealings with such individuals. Hence we see no reason to add anything further along those lines.
Mr. Milliken: I don't know whether the policy is the same in other provinces, but I must say, in reference to the first point you raised, that I receive the same requests at my own office. Often students contract large debts and request assistance from government departments, particularly federal government departments, to have the interest cancelled, and so forth.
Thank you very much for your suggestions.
The Vice-Chairman (Mr. Lastewka): Mr. Lebel.
Mr. Lebel: Clause 104 of the Bill replaces subsection 177(a) of the current Act. It relates to marriage contracts and donations made by means of such a contract. A specific provision of the Act dealt with donations stipulated in a marriage contract made before marriage. The new Bill amends subsection 177(a), which relates to transactions that are deemed fraudulent. Those provisions dealing with goods held in trust are also being amended. They are being completely removed.
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The Bill states:
(a) a settlement is made before and in consideration of marriage and the settlor is not at the time of making the settlement able to pay all his debts without the aid of the property comprised in the settlement,
It seems to me that would be an infringement of provincial law. I'm a little surprised that you did not address that issue. Did you see that in the Bill?
Mrs. Émond: I must admit I didn't really notice it.
Mrs. Blain: Neither did I.
Mr. Lebel: So you are not in a position to enlighten me, then?
Mr. Blain: No.
Mr. Lebel: Thank you.
Mrs. Émond: But that's a good question and we will have a look at it.
[English]
The Vice-Chairman (Mr. Lastewka): Are there any further questions? Seeing none, I'd like to thank the witnesses for coming here with their perspectives and having good questions and answers.
I declare this committee adjourned until Wednesday, September 25, starting at 3:30 p.m. Thank you very much.