Bill C-228: Pension Protection Laws Continue to Advance

On November 3, 2022, a new law intended to give an additional priority to pensions in bankruptcy proceedings is one step closer to becoming law.

Bill C-228 – “An Act Amending the Bankruptcy and Insolvency Act [“BIA”]the Companies’ Creditors Arrangement Act [“CCAA”] and the Pension Benefit Standards Act [“PBSA”], 1985” or “Pension Protection Act” for short – was passed in the House of Commons on June 22, 2022 in the second reading and then submitted to the Standing Committee on Finance of the House of Commons for consideration. On November 3, 2022, the Standing Committee presented its Report on Bill C-228 to the House of Commons, proposing various amendments. The current version of Bill C-228 can be found here.

As the Standing Committee discussed the bill, committee members highlighted major bankruptcies, including Eatons, Sears, Nortel, Indalex and Grant Forest, and the importance of ensuring pensions are protected in such processes.

To provide some context for companies, lenders and others considering the potential impact of this bill, below is a brief description of the current BIA and CCAA pension protections, the expanded pension protections proposed in Bill C-228, and the potential impact of extended protections, the termination and severance priority added to the Act, and the next steps for Act C-228.

Current BIA and CCAA pension protection

Currently, the BIA and CCAA provide the following primary protections in relation to mandatory pension plans[1]:

  • Amounts deducted from an employee’s compensation for payment to the pension fund; and
  • unpaid “ordinary expenses”, defined contributions and amounts payable to the administrator of a pooled registered pension plan, each to the extent that such amounts are (or would have been required to be) paid by an employer to the fund set up for the purpose of the pension plan , if the prescribed plan had been regulated by law).[2]

Existing legislation protects such amounts by:

  • Provisions requiring that no CCAA plan of arrangement (CCAA s.6(6)(a)) or BIA proposal (BIA s.60(1.5)) be approved by the court with respect to an employer with a mandatory retirement plan unless the plan or proposal provides for the payment of such amounts and the court is satisfied that the employer can and will make such payments (the “Plan/Proposal Requirements“); and
  • Provisions granting security for such amounts over all assets of the debtor in bankruptcy (BIA s.81.5) or receivership (BIA s.81.6) which take precedence over any other claim, right, encumbrance or security against the assets of the bankrupt debtor, except for rights under Sections 81.1 and 81.2 (30-day commodities and farmers, fishermen, aquaculture priorities), amounts under subsection 67(3) deemed to be held in trust (with respect to bankruptcies) and securities under Sections 81.3 and 81.4 (Bankruptcy and receivership priorities versus current assets for $2000 in unpaid wages less amounts paid) (the “Legal security regulations“). It is noteworthy that such legal safeguards apply to all of the debtor’s assets, including current assets, equipment, real estate, intellectual property and other intangible assets.

Bill C-228 Extended Protection

Bill C-228 proposes to amend the plan/proposition requirements and statutory security requirements in the BIA and CCAA to expand the protected annuity amounts to also include:

  • an amount equal to the sum of all special payments determined in accordance with Section 9 of the Pension Benefits Standards Regulations, 1985 (the “PBSA regulations’) payable by the employer to the fund set up for the purpose of the pension plan to liquidate an unfunded liability or solvency deficit; and
  • any amount required to liquidate any other unfunded liability or solvency of the Fund.

This represents a significant extension of the priority for impacted defined benefit plans, as they would include not only “normal costs” (the cost of benefits incurred during a plan year based on a going concern assessment, excluding “bonus payments”) any arrears in the periodic payments required to settle a shortfall (“special payments”) and the actuarial shortfall itself, including the two liquidation costs:

  • an unfunded liability, which is the extent to which an actuarial valuation of the plan indicates that the plan is insufficiently funded to pay benefits that are or will be due if the plan is continued indefinitely; and
  • a solvency deficit, which is the extent to which an actuarial valuation of the plan indicates that the plan’s working capital is insufficient to meet the obligations that would become due if the employer ceased operations and wound up the plan.

The bill applies to any mandatory pension plan for the benefit of the bankrupt debtor’s employees if the company is an employer subject to the BIA or CCAA.[3]

Bill C-228 includes transitional provisions such that these changes will not apply to existing mandatory pension plans until 4 years after the Act comes into force.

The bill also proposes to amend the PBSA to require the Superintendent of Financial Institutions to report to the Treasury Secretary at the end of each fiscal year, including on corrective actions taken or ordered to deal with pension plans that fail to meet the funding requirements . The bill provides for the report to be tabled in each House of Parliament and forwarded to provincial finance ministers and provincial securities commissions. These requirements appear to be designed to increase transparency regarding potential funding issues that pension plans face each year.


The expanded scope of the pension priorities proposed in Bill C-228 will be of particular interest to companies with mandatory defined benefit plans and their lenders, where those companies are “employers” subject to the BIA or CCAA. [4]

As various parties have suggested to the Standing Committee, it is possible that employers will phase out defined benefit plans in favor of defined contribution plans, or that employers with affected defined benefit plans may find it more difficult or costly to access credit. These outcomes may arise because lenders may find it difficult to monitor, predict and manage unfunded liabilities that are fluctuating but would still take precedence over their secured position.

Such concerns formed part of the justification for including a four-year period before the relevant provisions of Bill C-228 apply after they come into force. The theory seems to be that the four year period will allow the companies in question to recover from their unfunded liabilities and solvency deficiencies or, failing that, they may in fact face other repercussions.

As Bill C-228 draws nearer to becoming effective, it will certainly be important for businesses and lenders to carefully consider whether the provisions apply to them or their customers and, if so, how best to manage the risks posed by the proposed changes can they be enacted. For lenders, this may include a review of their portfolio to identify defined benefit borrowers who may be impacted by this bill, and at least beginning a discussion with them about the best way to manage the increased risk for lenders that do would be created by this bill.

termination and severance pay

While Bill C-228 has been on the radar for its impact on pension priorities, the current draft of Bill C-228 also includes an amendment to the priority allocation scheme in Section 136 of the BIA to prioritize termination and severance payments.

This provision was not included in the original draft law but was added by the Standing Committee. The amendment, as a new section 136(d.001) of the BIA, would give precedence to termination and severance amounts. This priority is in addition to certain other claims that are given priority over unsecured claims (e.g. administrative expenses, bankruptcy fee, 3 month rent arrears and 3 month rent premium, etc.). As with all other preferential payments under Section 136 of the BIA, this priority is subject to the rights of secured creditors. It will be interesting to see if this provision will be the subject of further discussion when the bill returns to the House of Commons for its third reading.

Next steps for Bill C-228

Now that the report of the Standing Committee on Finance has been submitted to the House of Commons, the next steps for Bill C-228 are: a third reading in the House of Commons, a similar review in the Senate (first and second readings in Senate; review by a Senate committee that drafted the bill examines and submits a report to the Senate; and third reading in the Senate); and royal approval. With the backing of the Conservatives, Bloc Quebecois and NDP, the bill appears to have enough support to pass and it’s possible the remainder of the approval process could be completed before the end of the year, although the process continues until mid-year could be 2023.

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