On July 23, 2008, the Canadian Government proclaimed into force amendments to the Bankruptcy and Insolvency Act (Canada) (the "BIA") that provide super-priority security to claims, subject to specified limits, for unpaid wages ("Unpaid Wage Claims") and unpaid pension plan contributions ("Unpaid Pension Contribution Claims") in a bankruptcy or receivership proceeding, effective as of July 7, 2008.

A few weeks ago, the Sixth Circuit affirmed the Western District Court of Michigan’s holding in U.S. v. Quality Stores Inc., 424 B.R. 237 (W.D. Mich. 2010), that severance payments made to employees pursuant to an involuntary reduction in force were not “wages” for Federal Insurance Contribution Act (“FICA”) tax purposes. U.S. v. Quality Stores Inc., No. 10-1563 (6th Cir. 2012). The Sixth Circuit’s decision creates a circuit court split with the Federal Circuit and its 2008 decision in CSX Corporation v. United States, 518 F.3d 1328 (Fed. Cir. 2008).

No Respite for Distressed Companies in Hong Kong

In Hong Kong, a company that is financially distressed may generally only avoid being liquidated or wound up if it:

On December 14, 2007, Bill C-12 was given Royal Assent. The Bill involves a comprehensive reform of Canada’s insolvency system. A key component of these reforms was the creation of the Wage Earner Protection Program (WEPP). The WEPP provides statutory wage protection for workers when a) their employer becomes bankrupt or subject to a receivership, and b) their employment is terminated as a result.

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.

Bankruptcy

Directors and officers of corporations are often subject to potential personal liabilities as a result of their positions. This potential for personal liability may be increased in the insolvency context, where a corporation’s creditors will seek to collect on certain debts from alternate sources, such as directors and officers. Directors and officers often utilize insurance and various court mechanisms in order to mitigate their personal liabilities.

When a company files for bankruptcy, employees are faced with uncertainty on a number of issues. Everything from outstanding wages to benefit entitlements are suddenly at risk. Further, when a company becomes insolvent, employees are often laid off in circumstances that fail to satisfy statutory or common law notice period entitlements. However, under the Bankruptcy and Insolvency Act (“BIA”), employees are often barred from fully recovering what they are owed.