Legal — 9

Bankruptcy
In 2003, Canada experienced probably its largest bankruptcy and insolvency proceeding to date with Air Canada’s April application for protection under the Companies Creditors Arrangement Act (CCAA). The IAM, as the largest of Air Canada’s unions, has been centrally involved in this proceeding, which has served to crystallize many of the calls for legislative reform of Canada’s bankruptcy and insolvency legislation, including both the CCAA and the Bankruptcy and Insolvency Act (BIA). By law, both statutes were subject to Parliamentary review in 2003.

The CCAA is similar in function to Chapter 11 of the United States Bankruptcy Code. However, unlike the detailed rules of Chapter 11, the CCAA leaves most issues to the discretion of the presiding judge. A frequent theme in the legislative review process is whether to introduce amendments to draw the Canadian regime closer to the Chapter 11 model.

For unions and employees one very significant difference between the U.S. and Canadian regimes has been that, under the BIA and CCAA, there is no legal process by which the Court can force unions to accept amendments to collective agreements. The result is that a collective agreement will survive the restruc- OFFICERS’ REPORT 2004 51 turing process, unless the union agrees to modify it in negotiations during the CCAA process in order to preserve the Company as a going concern.

The Initial CCAA Order obtained by Air Canada on April 1, 2003 (without notice to the unions, as is typical in these proceedings) took particular aim at unions and employees. It purported to give the Company authority outside the requirements of collective agreements and the Pension Benefits Standards Act to amend and terminate pension plans contrary to its collective agreements; to cherry pick the collective agreements while barring strike actions under the Canada Labour Code; and stated the Company’s intention to ask the Court to allow it to “reject” its collective agreements if permanent amendments acceptable to Air Canada were not achieved through the CCAA negotiations process.

In response to this broadside attack, the IAM and other unions filed legal challenges to the Initial Order. The Court responded by adjourning the motions and placing in “limbo” the challenged provisions while Air Canada and its unions negotiated. Ultimately the IAM and other Air Canada unions were all able to negotiate amendments to their collective agreements. These amendments were approved by the IAM membership.

Despite the new collective agreement terms in place, the CCAA process is far from over. Air Canada and the IAM and other unions are still engaged in high-stakes negotiations over the implementation of their agreement that pension benefits would be maintained at pre- CCAA levels, in the face of a solvency deficiency of approximately 1.5 billion $CAD. This agreement was conditional on the unions joining the Company in seeking regulatory change to allow an extension of the legal period required for retiring the solvency deficiency. As of December, 2003, there is not yet any restructuring plan in place for approval by the creditors, which incorporates the amended collective agreements.