Bill C-264 amends the Bankruptcy and Insolvency Act (BIA) and the Companies’ Creditors Arrangement Act (CCAA) to treat amounts needed to liquidate unfunded pension liabilities and solvency deficiencies — including special payments calculated under section 9 of the Pension Benefits Standards Regulations, 1985 — as priority claims in insolvency and restructuring. It also adds a new priority claim for amounts required to indemnify beneficiaries if an employer stops participating in a group insurance plan, and clarifies that shortfalls in severance pay previously paid by a trustee are a preferential amount.
The practical effect is to elevate certain pension-related and group-insurance claims ahead of other unsecured creditors when a company enters bankruptcy or CCAA proceedings. That change affects trustees, proposal and CCAA negotiators, lenders, and pension plan sponsors because it changes recoveries, alters bargaining leverage in restructurings, and creates timing and valuation issues for determining the “amount required” at the moment proceedings begin.
At a Glance
What It Does
Specifically adds sums required to liquidate unfunded pension liabilities and solvency deficiencies — including 'special payments' per s.9 of the Pension Benefits Standards Regulations — to the list of priority claims under multiple BIA provisions and mirrors that treatment in the CCAA. It also inserts new preferential categories for group-insurance cessation indemnities and severance shortfalls in BIA s.136(1).
Who It Affects
Employers that sponsor pension and group-insurance plans, pension plan trustees and administrators, insolvency trustees and monitors, secured and unsecured creditors, and insurers that provide employer-sponsored group benefits.
Why It Matters
By changing claim priority, the bill reallocates loss in insolvency toward pensioners and insured employees and away from other creditors, potentially reducing credit recoveries and altering restructuring incentives and financing terms for distressed companies.
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What This Bill Actually Does
Bill C-264 rewrites priority rules in Canada’s insolvency law to give certain pension-related and group-insurance claims special treatment. It inserts new subclauses into existing priority lists in the Bankruptcy and Insolvency Act so that amounts required to liquidate unfunded pension liabilities and solvency deficiencies — calculated in part by reference to ‘‘special payments’’ in s.9 of the Pension Benefits Standards Regulations, 1985 — are treated as preferential claims.
The same language is added to the Companies’ Creditors Arrangement Act so restructuring proposals must account for those amounts when determining payments to stakeholders.
The bill does two parallel things when it comes to pensions. First, it requires that special payments and other amounts required to wipe out an unfunded liability or solvency deficiency be included in the priority pool under several BIA provisions (notably s.60(1.5) and ss.81.5–81.6).
Second, it treats provincially prescribed plans as if they were federally regulated for purposes of calculating those special payments where the text says “would have been required…if the prescribed plan were regulated by an Act of Parliament.” That language attempts to create a federal calculation yardstick even where plans fall under provincial law.Separately, the bill amends s.136(1) of the BIA to add two specific preferential items: (d.001) an amount required, in a prescribed manner, to indemnify beneficiaries when an employer ceases to participate in a group insurance plan (life, disability, health, dental, etc.), and (d.002) the shortfall between severance or pay-in-lieu owed to certain workers and any amount the trustee has already advanced for those obligations. The CCAA amendments ensure that companies in restructuring are treated no better than if they had been bankrupt on the day proceedings began — i.e., these pension and group-insurance amounts are folded into the comparability test used in CCAA plans.Two transitional rules soften the immediate impact.
Sections targeting pension claims do not apply to employers or companies that, on the day before those provisions come into force, participate in a prescribed pension plan; those employers and companies are exempt until the third anniversary of the act coming into force. Finally, the bulk of the Act (section 4 and part of the CCAA amendment) comes into force three years after royal assent, creating a multi-year lead time for stakeholders to adjust practices and contracts.
The Five Things You Need to Know
The bill adds special payments (as defined by s.9 of the Pension Benefits Standards Regulations, 1985) and other amounts needed to liquidate unfunded pension liabilities or solvency deficiencies to BIA priority lists (e.g.
s.60(1.5), ss.81.5 and 81.6).
It inserts two new preferential items into BIA s.136(1): one for indemnities when an employer ceases participation in group insurance plans (d.001) and one for severance shortfalls previously advanced by a trustee (d.002).
Parallel amendments to the CCAA require restructuring plans to account for the same pension and solvency-deficiency amounts as if the company had been bankrupt on the day proceedings commenced (CCAA ss.6(5) and 6(6)).
The ‘‘amount required’’ to be treated as preferential is determined at the time of filing a notice of intention or proposal in BIA cases, or on the day proceedings commence under the CCAA if no notice was filed, making the valuation date early in the insolvency timeline.
Most of the Act does not take effect immediately: key provisions come into force three years after royal assent, and employers/companies already participating in a prescribed pension plan are exempt from the pension-related sections for three years after the Act comes into force.
Section-by-Section Breakdown
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Adds pension liquidation amounts to priority claim in s.60
This amendment expands the list of debts treated as priority under s.60(1.5) by expressly adding the sum of special payments and other amounts required to eliminate an unfunded liability or solvency deficiency. Practically, trustees must include these pension sums when calculating the pool available to preferred claimants; that shifts part of the unsecured distribution ladder upward and changes the insolvency administrator’s cash-flow planning at the start of a filing.
Priority for pension plan deficits in employer and administrator contexts
The bill inserts identical language into ss.81.5 and 81.6 so amounts tied to unfunded liabilities and solvency deficiencies are caught whether the plan is directly addressed in employer circumstances or in administrator/trustee contexts. The new text references special payments under the federal Pension Benefits Standards Regulations as the method for calculating some of these amounts, and it also covers other unfunded liabilities determined at the valuation date. That creates a uniform rule across multiple subsections implicated in pension priority calculations.
New preferences for group-insurance cessation and severance shortfalls
Section 4 adds two discrete priority categories to s.136(1): one for indemnifying beneficiaries when an employer ceases participation in a group insurance plan, and another for severance shortfalls where trustees previously paid an employer’s severance obligations. Both are to be determined in the prescribed manner, which pushes the technical detail to regulations and raises questions about how those indemnities will be quantified and timed in practice.
Mirrors BIA pension priorities in CCAA restructurings
Amendments to the CCAA fold the BIA changes into the CCAA’s comparability test: amounts the creditors would have been entitled to in a bankruptcy now include the pension special payments and solvency-deficiency sums. That forces court-appointed monitors and plan negotiators to account for these pension liabilities when structuring a compromise and can materially affect cram-down calculus and voting outcomes in CCAA plans.
Three-year delay and temporary exemptions for existing plans
The Act delays entry into force of key provisions until three years after royal assent. It also temporarily exempts employers and companies that, immediately before the provisions take effect, participate in a prescribed pension plan — those entities remain subject to the pre-existing priority regime for three years. The delay and carve-outs create a predictable phase-in but also enable regulatory and commercial adjustments ahead of the priority shift.
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Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Pension plan members and retirees — The bill raises the priority of amounts needed to eliminate unfunded liabilities and solvency deficiencies, improving the likelihood that pension deficits are addressed ahead of other unsecured claims in insolvency.
- Group-insurance beneficiaries — By creating a prescribed indemnity amount when an employer ceases participation in a plan, the bill improves the protection for employees and former employees who rely on employer-sponsored benefits.
- Pension trustees and plan administrators — Prioritization clarifies the trustee’s entitlement in insolvency, reducing legal uncertainty about the standing of pension deficits in distributions and strengthening trustees’ negotiating position in proposals and restructurings.
Who Bears the Cost
- Unsecured creditors and trade creditors — Priority for pension and group-insurance claims reduces the pool available for distribution to other unsecured creditors, lowering expected recoveries and potentially raising risk premia in lending.
- Distressed companies and pension plan sponsors (employers) — Sponsors may face increased funding pressure, reduced restructuring flexibility and higher hurdles to reorganize because pension-related priority claims must be accounted for early in insolvency.
- Lenders and creditors involved in CCAA restructurings — Banks and secured lenders negotiating restructuring plans will face shifted bargaining dynamics and may demand stricter covenants or higher pricing to cover the additional priority claims.
Key Issues
The Core Tension
The central dilemma is protecting pensioners and insured employees by elevating their claims versus preserving the flexibility and creditor confidence needed for corporate rescue: prioritizing pension deficits increases protections for beneficiaries but reduces the pool for other creditors and can raise the cost or reduce the feasibility of restructurings that save businesses and jobs.
The bill creates several implementation and valuation challenges. First, it anchors priority amounts to calculations under section 9 of the Pension Benefits Standards Regulations and to the ‘‘amount required’’ to liquidate liabilities at the filing or commencement date.
That raises immediate practical questions about which valuation methodology prevails, how to treat going-concern versus wind-up valuation assumptions, and whether actuarial contingencies (e.g., mortality, interest-rate assumptions) will be litigated in every insolvency. Regulators or courts may be asked to pick among competing actuarial valuations, increasing litigation costs and delaying distributions.
Second, the statute’s ‘‘prescribed plan’’ and ‘‘as if regulated by an Act of Parliament’’ language tries to harmonize treatment of provincially regulated plans, but it could create jurisdictional friction. Provinces with their own funding rules and valuation regimes may find federal calculation standards inconsistent with local requirements, leading to conflicts about which regime controls and whether federal calculations override provincial pension protection rules.
Finally, the mandatory early valuation date (notice of intention/proposal or day of commencement) can lock in large contingent amounts before a restructuring has been negotiated, making rescue via CCAA or proposals more expensive and potentially discouraging restructurings that would otherwise preserve jobs and enterprise value.
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