New federal bankruptcy legislation that will shield RRSPs from creditors, if the planholder goes bankrupt, was passed before Parliament was felled by a non-confidence vote on Monday.

However, the legislation will not come into force until at least mid-2006 due to serious reservations by the Senate Banking Committee over how the legislation was rushed through Parliament without proper study and consultation with concerned stakeholders.

The new protection is part of a legislative package with amendments to the federal Bankruptcy and Insolvency Act, the Companies’ Creditors Arrangement Act, and a new statute to provide wage earner protection.

The amendments affecting RRSP holders will provide unprecedented protection. However, it doesn’t provide the complete protection against creditors presently given to employer-sponsored registered pensions and insurance-based RRSPs.

The legislation was supposed to have gone through parliamentary committee hearings this month, and this discrepancy was going to be raised by groups representing both the mutual funds industry and the insurance industry.

But the Bill was passed by the House of Commons this past Monday, November 21, and subsequently passed by the Senate, with significant reservations from the Senate Banking Committee, on Friday. It received Royal Assent the same day.

The records of the Senate Banking Committee’s proceedings show that it not happy with the way the bill was forced through the House of Commons without amendment or proper study. As a result, a deal was struck in the Senate, deferring the legislation’s coming into force for at least six months.

This will allow the Senate time to study the legislation and propose further amendments. It will also allow time to draft the necessary regulations are needed to implement the legislation.