TORONTO - The dismantling of Nortel Networks in the midst of a recession signalled the start to a disastrous year of corporate restructurings that could see thousands of Canadian workers lose their jobs and pensions at the former tech giant and other insolvent companies next year.
Numerous iconic Canadian companies buckled under their debt in 2009, as the downturn in the economy shook the foundations of household corporate names from media giant Canwest, to newsprint producer AbitibiBowater and Air Canada.
While the outcome varied for each business, it became glaringly apparent that aside from debts owed to banks and other lenders, former employees were also taking a hit on their pensions - the money that was supposedly reserved for their retirements.
In all the cases, workers at the recession-battered companies are nervous about lost jobs and the safety of their pensions as 2010 looms and uncertainty abounds about the future of their industries.
"There's going to be a showdown in 2010 around the laws governing private pension plans," predicted David Coles, national president of the Communications, Energy and Paperworkers union, which represents numerous companies, including AbitibiBowater.
"There's going to be a real debate about what we should do in Canada about pensions, period."
The dispute hinges on the ability for a company to wind up its pension plan when it goes under.
Over the course of 2009, the problem with pensions began to rear its head at companies across the country as the economic downturn wore into their finances.
At bankrupt Nortel, there is an estimated $1.8 billion shortfall in its pension, meaning that the company's former employees will, at best, receive a fraction of the money they were originally owed.
Hundreds of Nortel workers protested at the Ontario legislature and on Parliament Hill demanding governments pass new laws to protect workers when companies go bankrupt.
"The sad thing is that pensioners are very vulnerable," said former bankruptcy judge James Farley, who was appointed to mediate a pension dispute at Air Canada (TSX:AC.B) this past summer.
"Nobody likes to take an immediate haircut, particularly if you're living on solely that pension and you've geared your standard of living to that pension."
So far, the outcome has varied at companies across the country.
Air Canada averted a second potential bankruptcy protection restructuring, and it was partly due to the federal government allowing them to approve a moratorium on past service contributions on its $2.9 billion pension deficit. The company also received funding support from the government and others.
However, pension plans at Canwest, AbitibiBowater and Fraser Papers Inc. (TSX:FPS) are still engulfed in disputes with the company's unions and former employees. The companies are under creditor protection, which isn't as dire as bankruptcy, as is designed to help the companies attempt to restructure operations rather than close down.
Coles said the courts and lawyers consider workers a low priority behind creditors, including the banks and other businesses, which has been a point of major contention with pensioners.
"Some of the corporate right and politicians are saying companies can't afford to continue these rich pension plans - problem is, it's not their frickin' money to start with," Coles said.
"This is money that was either deferred wages or direct contributions (from employees) in the first place - they gave this money to the employer in trust. Just in the wink of an eye that promise doesn't count, but the promise to the banks does count?"
The pension problem could compound if other corporations start to face similar financial problems next year, as the economy launches a sluggish recovery even as company debts come due.
"I think it's going to get worse," said Kenneth Kraft, a partner at the Heenan Blaikie la firm who focuses on insolvency and finance.
"The first and second quarter of next year is probably going to be the worst we've seen."
Kraft believes that some retailers will be forced to file for creditor protection if their holiday shopping results aren't profitable, while tourism companies could also fall victim to reined in travel budgets.
He added that a tight lending environment has made it even tougher for many companies to stage a recovery.
"Two or three years ago people would be happy to refinance them," Kraft said. "In the last year, nobody was prepared to lend the money that was needed to keep these companies afloat."
In 2010, pensioners will have a fight on their hands as their former employers trudge through the lengthy court supervised restructuring process, which can take a several months or even a year.
"There's just so much to deal with," said Hap Stephen, the chief restructuring adviser for Canwest.
"It's not just two parties negotiating. You're often bringing five or six groups into the negotiation, and it just makes it exponentially more complex."
"Part of the general problem is that you've only got a limited amount of offer each of them so they hall have to take - typically, this is a generalization - some form of haircut."