June 13, 2007 - Bankruptcy Reform Back on track. First reading passes in the House. Bill C-62, an Act to amend the Bankruptcy and Insolvency Act, the Companies’ Creditors Arrangement Act, the Wage Earner Protection Program Act and chapter 47 of the Statutes of Canada, 2005 received first reading in the House of Commons this date.
The Bill had been hung up in the House over the issue of exempting RRSPs and RRIFs. The Bloc Québécois refused to approve passing of the Bill as it felt that the wording concerning RRSPs and RRIFs infringed on Quebec’s jurisdiction. In order to get the Bill passed unanimously, the wording concerning RRSPs and RRIFs was changed to make RRSP and RRIF exemptions in accordance with the laws of the province, where the provinces have such exemptions. The provinces that have RRSP and RRIF exemptions are Saskatchewan, Manitoba, Quebec, Prince Edward Island and Newfoundland and Labrador.
This change in RRSP wording will result in the following:
* A one year claw back will only be in effect for RRSPs in provinces without RRSP exemption laws;
* There will be no upper cap on the amount of RRSPs that can be protected;
* There will be no need to set up the RRSPs in a locked in plan to make them eligible for exemption;
* The court will have no jurisdiction to extend the one year claw back period period in an appropriate case.
Insolvency professionals and everyone interested in a fair and just bankruptcy system will be very upset with the proposed change to RRSPs. The change in wording governing the exemption of RRSPs opens the system up to abuse as a person will be able to set aside funds in an RRSP thereby protecting them in a bankruptcy and then once the person is discharge the funds can be used with impunity.
The Bill still has to go to the Senate, probably in the fall. The Senate can be expected to give the bill a thorough review, including hearing expert testimony.
For more information on bankruptcy reform please refer to this link.
