In turbulent and uncertain financial times, employers and employees more often than ever find themselves immersed in and affected by insolvency proceedings. Particularly for employees, there is often misunderstanding and misinformation respecting the nature of the proceedings and employees' rights thereunder. In this article, after a brief description of the most common forms of insolvency proceedings in Canada, the rights and entitlements of employees under these proceedings will be discussed.
Under the Bankruptcy and Insolvency Act (BIA), a trustee in bankruptcy is appointed over the insolvent company. The trustee is a licensed accounting firm that is not the auditor of the bankrupt. Generally, the trustee's duty is to liquidate the debtor's estate for the benefit of the creditors. Steps are also taken to identify and protect all the bankrupt's assets and notify all its creditors. The trustee has the authority to continue to operate the bankrupt corporation but usually will immediately take steps to terminate all employees and most contracts with third parties. Various key employees may be retained or re-hired as consultants to safeguard all assets and maintain essential contracts or services.
In reviewing creditor claims, including claims of employees, the trustee can dispute the entitlement, security or amount claimed. Any disputes between creditors and a trustee can be resolved by the court through bankruptcy proceedings and applications that are generally much more expeditious than typical civil proceedings.
A receiver and manager, most often simply termed a "receiver," may be appointed either through court process or privately. A receiver is entitled to take control of the debtor's assets and arrange for their sale or, alternatively, carry on the debtor's business indefinitely pending a sale of the assets either as a going concern or on a piecemeal basis.
The receiver has an obligation to be fair to all creditors, including the employees of the company.
Companies' Creditors Arrangement Act
If the employer has filed for protection under the Companies' Creditors Arrangement Act (CCAA), some different considerations arise. By filing for protection under the CCAA, the company is attempting to restructure its debts in order to survive and avoid bankruptcy. The courts will often provide applicant debtors a great deal of latitude in an attempt to preserve the debtor company as an ongoing business concern. The CCAA...