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.
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
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
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
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
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.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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