With the hectic pace of the holiday season occupying most of your time during the past couple of weeks, you may have missed a major holiday gift courtesy of the federal government.
Two weeks ago, before senators adjourned for their six-week recess, Bill C-12 received Royal Assent and became law. This bill, which amends the Bankruptcy and Insolvency Act (among other Acts), contains the long-awaited measure that would attempt to level the playing field by extending creditor protection in the event of bankruptcy to all RRSP and RRIF savings in Canada.
Under current rules, absent existing specific provincial exemptions, only employer-sponsored registered pension plans (RPPs) and insurance-based products such as segregated funds and insurance-based deposit RRSPs and RRIFs enjoy protection from the claims of creditors upon bankruptcy.
The new bill would exempt all RRSPs and RRIFs, including registered bank deposits, registered mutual funds and self-directed registered plans, from being liquidated on behalf of creditors should an investor declare personal bankruptcy.
Why the legislative change? "It's a social policy matter," says Edward A. Sellers, a partner in Osler's business law department and a leader of the firm's insolvency and restructuring practice group.
As Mr. Sellers explains, the government's intention was "to create an underlying approach that suggests that if you worked throughout your career and made contributions, it's a socially desirable object to protect that which you reasonably earned and saved."
The genesis of Bill C-12 can be traced back to a 2003 report that formed the basis of the legislation. However, several of the originally proposed conditions that would have restricted both the amount that could be protected as well as access to the funds post-bankruptcy, have been removed from the final rules.
The sole remaining condition in the final legislation that was passed is that any RRSP contributions made in the 12 months prior to bankruptcy will not be exempt from seizure, unless your provincial law states otherwise.
Although Bill C-12 has been passed into law, most of the bill, including the new RRSP and RRIF creditor protection legislation, is technically not in effect yet. That's because the Senate still wants additional time to hear from certain stakeholders who expressed concerns about several of the provisions within the bill.
To that end, the standing Senate committee on banking, trade and commerce announced that it intends to invite submissions from these stakeholders in early 2008.
According to Industry Canada spokesperson Lisa-Marie Gagne, the bulk of the provisions "will come into force on days fixed by the Governor in Council, which is expected to be within six to 12 months." Stay tuned...