Employee Protection in Bankruptcy

• Author: Connie Reeve
• Pages: 275-296



EmployeeProtectionin

Bankruptcy

Connie Reeve*

A. INTRODUCTION

Employeesofaninsolventcompanymaybethemostvulnerableofall

creditorgroupsAlthoughemployeesaretheconstituencythatmaybe

mostresponsibleforgeneratingvalueforotherstakeholderstheyoen

donothavetheresourcestomonitorthecompanysnancialstatusand

takethestepsnecessarytoprotecttheirinterestsintheeventofanin-

solvencyAccordinglyemployeesareuniqueamongcreditorgroupsin

thattheyarenotconsensualcreditorsTheyarenotinapositionto

makeacreditriskassessmentbeforegoingtoworkeachdayInrecogni-

tionoftheiruniquepositionintheinsolvencyprocesstherehavebeena

numberoflegislativeaemptstoprovidespecialprotectionforemploy-

eesinCanadianinsolvencyproceedingsandanyclaimstheymayhave

againsttheiremployer

This paper provides an overview of the priority aorded to em-

ployeeclaimsininsolvencyproceedingsunderthecurrentlegalregime

aswellasthehistoryofeortstoprotectemployeesfromnanciallosses

arisingfromtheinsolvencyoftheiremployerItwillalsodiscussthe

 ConnieReeveisapartneratBlakeCasselsGraydonLLPandamemberofthe

LabourandEmploymentGroupinBlakesTorontooceConniewouldliketoac-

knowledgewiththankstheassistanceofKatieArmitagestudentatlawatBlakes

inthepreparationofthispaperandthecontributionsofcolleagueLincRogers

whoaddedhisinsightfulcommentsfromtheperspectiveofaninsolvencylaw

practitioner

CR

debatethathasaccompaniedtheseeortsAswillbeseenthisdebate

hasledtoapoliticalcompromisethatwilllikelyresultinapriorityclaim

forcertainunpaidwagesbutnotforseveranceterminationandother

claimsthatmayarisefromtheterminationoftheemploymentrelation-

shipThepaperalsodiscussestheliabilityofdirectorsforfailuretopay

wagesa ndhow eect iveimposing t his liability ha s been in ensuri ng

compliancewithadirectorsstatutoryobligations



Thetermsbankruptcyandinsolvencyareoenusedinterchange-

ablybylaypersonsorprofessionalsthatdonotregularlypracticeinthe

areaThusfrequentlyanycompanythatisinnancialdistressorinsol-

ventisreferredtoasbankruptandthereisnodistinctionmadebetween

abankruptcompanyacompanyinreceivershiporoneundergoinga

restructuringwhileundercourtprotectionfromitscreditorsHowever

astherightsandobligationsofaninsolventcompanymayvarywidely

depending on its legal status it is of critical importa nce tor ecognize

thatinsolvencyandbankruptcyarenotsynonymsInsolvencyisa

nancialconditionwherebyadebtorsliabilitiesexceeditsassetsoritis

unabletopayitsobligationsgenerallyastheybecomedueBankruptcy

isalegalstatus

Whenacompanybecomesbankrupteithervoluntarilyorinvolun-

tarilyitsassetsvestinatrusteeinbankruptcywhichisthencharged

withsellingallofthedebtorsrealizableassetsanddistributingthepro-

ceedsofrealizationtothedebtorsprovencreditorsTheproceedsare

distributedbythetrusteeinbankruptcyinaccordancewiththepriority

schemesetoutintheBankruptcyandInsolvencyActandotherapplicable

lawasdiscussedinmoredetailbelowThetrusteeinbankruptcya

representativeofunsecuredcreditorsisappointedsubjecttotherights

ofthedebtorssecuredcreditors

Arightcommonlyexercisedbyasecuredcreditorfollowingade-

faultbythedebtorunderitssecurityagreementistheappointmentofa

receiverorreceiverandmanagerovertheassetsandundertakingsof

thedebtorAreceivertypicallyalicensedtrusteeinabankruptcyac-

countingrmmaybeprivatelyappointedbyasecuredcreditorpro-

videdthesecurityagreementprovidesitwiththisrightorbythecourt

 BankruptcyActRSCcBrenamedtheBankruptcyandInsolvencyActbySC

cBIA