Copyright 2009, Blake, Cassels & Graydon LLP
Originally published in Blakes Bulletin on Restructuring & Insolvency, February 2009
The federal government delivered the proposed 2009 Budget (the Budget) on January 27, 2009. The House of Commons passed the Budget on February 3, 2009 by a vote of 211 to 91. As expected, the Budget contained a number of stimulus initiatives for the Canadian economy and specifically seeks to give support to particular "key sectors" of the economy and address the financial hardships and credit crises facing many industries and sectors.
EMERGENCY LOANS
The Budget specifically refers to the emergency short-term loans to GM Canada and Chrysler Canada that were announced on December 20, 2008. These loans were to be up to C$4-billion and managed by Export Development Canada (EDC), which provides trade finance and risk-management services to Canadian exporters and investors. GM Canada, which was to receive C$3-billion of the emergency package, has recently confirmed that it will not be drawing on these emergency loans for the time being. This is not mentioned in the Budget. There are no further emergency loans contained in the Budget.
BUSINESS CREDIT AVAILABILITY PROGRAM
The government will be increasing the authorized capital limit, borrowing limit and contingent liability limit of EDC to enable it to enhance its guarantee and insurance programs, including in the area of accounts receivable insurance. The Business Credit Availability Program is being introduced to enable both the EDC and the Business Development Bank of Canada (BDC), which focuses on small- and medium-sized businesses, to provide additional loans and credit support to businesses "with viable business models whose access to financing would otherwise be restricted". The additional funding being given to EDC and BDC will be C$15-billion.
SUPPORT FOR "KEY SECTORS"
The Budget states that the government will be specifically supporting the automotive parts manufacturing, forestry and agriculture industries, which are identified as "key sectors".
The Budget contains C$170-million worth of funding over two years to Natural Resources Canada for a variety of projects including programs aimed at the development of new technologies, international marketing and new product development. The Budget restates the 2008 Budget commitment of C$1.3-billion over five years for the Growing Forward agricultural policy and proposes an additional C$500-million over five years for new agricultural programs.
The Budget states that it will support the automotive parts industry by improving their access to credit through accounts receivable insurance offered by EDC.
PURCHASE OF ASSET-BACKED SECURITIES
The Budget contemplates the creation of the Canadian Secured Credit Facility. This is a C$12-billion facility which will be used to purchase asset-backed securities backed by loans and leases on vehicles and equipment. The aim of the facility is to increase the availability of credit for consumers to purchase and lease new vehicles. The facility will be priced on commercial terms and federally regulated financial institutions will be able to participate in it. Provincially regulated financial institutions may also be eligible to participate with the approval of the Ministry of Finance. The Budget also indicates that the government will be considering changes to the legislative and regulatory regime governing leasing activities.
CHANGES TO THE WAGE EARNER PROTECTION PROGRAM
The Wage Earner Protection Program (WEPP) is a federal program that reimburses eligible workers for unpaid wages and vacation pay they are owed when their employer declares bankruptcy or becomes subject to a receivership, up to a maximum amount. The maximum amount is currently C$3,254 (four weeks of insurable earnings). The Canadian government has a subrogated claim against an employer for any unpaid wages paid under the program. These amounts constitute a claim against the employer's current assets and rank ahead of the claims of secured creditors, up to a maximum of C$2,000 per employee. Under the 2009 Budget, WEPP will be expanded to include payments to employees of severance and termination pay as well as unpaid wages, but the maximum amount payable to employees will remain the same. There is no mention in the Budget of any change to the scope of the government's subrogated claim, so it does not appear that this change will have an impact on secured lenders.
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