Canadian lawmakers are seeking to clarify that public post-secondary institutions are barred from filing for bankruptcy protection, but remain uncertain about a viable alternative for a sector stung by the lingering crisis in Laurentian University.

A measure pending in Canada’s Upper Legislative House would ban public colleges and universities from using the country’s standard bankruptcy processes and instead promise them an option to be developed specifically for academia.

Among the enthusiastic supporters of the project of Post-Secondary Institutions Bankruptcy Protection Act is the Canadian Association of University Teachers, whose members feel scarred by Laurentian’s unexpected and historically unique decision to file for creditor protection in 2021 and then make body cuts faculty, staff, courses and students.

“It was an unnecessary, inappropriate, costly and destructive decision on the part of the university administration,” said David Robinson, chief executive of CAUT, which represents 72,000 employees on 125 Canadian campuses.

But some outside experts have urged federal lawmakers to be cautious, saying it’s unclear what better options may ultimately be available to university leaders who fear their institution’s financial health could rapidly collapse – and warning that private establishments should not be swept away in the process.

The Companies’ Creditors Arrangement Act — the law used by Laurentian, which allows insolvent companies to restructure their operations — appears to be ill-suited to public higher education, said one of the experts advising lawmakers, Virginia Torrie, Associate Professor of Law. to University of Manitoba.

Indeed, universities largely have non-financial missions, have collegial governance structures and – especially in the case of public institutions – owe transparency to taxpayers, Dr Torrie said.

The Saint-Laurent situation has been widely recognized as a mess to be avoided. It was the first publicly funded university in Canada use bankruptcy lawamid controversy over whether it should even have been allowed. Laurentian’s tactics led him to shoot 200 academics and other staff, and losing about half of its 9,000 students and more than a third of its academic programs.

The Auditor General of Ontario, Bonnie Lysyk, conducted an investigation who concluded that the university did not need to make these cuts because the provincial government had offered to help. She blamed the crisis on a decade-long campus expansion campaign that was based on a misjudgment of student demand.

The legislative sponsor of the pending proposal is Lucie Moncion, a banker appointed to the Canadian Senate by Prime Minister Justin Trudeau. She, too, cautioned against the tendency of bankruptcy filings to exclude the possibility of broader solutions. “This puts an end to many negotiations that could continue [for] the province to work with the university to resolve some of the situations,” Ms. Moncion told her colleagues at a recent hearing.

While it’s unclear how the government will ultimately address the special needs of universities in financial difficulty, Dr Torrie said, the Moncion plan at least makes clear the need to address them before the underlying ban bankruptcy filing comes into effect. “There’s an opportunity here to really provide the predictability and certainty that any struggling university lacks right now,” she said.

Another area in need of clarification, said Emmanuel Phaneuf, a Montreal lawyer specializing in corporate restructuring, was the boundary between public and private institutions. Bankruptcy protections must absolutely remain in place for private institutions, as creditors would otherwise have no realistic recourse if their bills are not paid. Yet the measure presented by Ms. Moncion, he said, appears to offer a fuzzy definition, as it says that the ban on the use of bankruptcy protections would apply to any post-secondary institution that receives government funds for its operations.

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