Law Times

Law Times • march 23, 2009 FOCUS PAGE 13 Program soon will include severance pay protection BY GLENN KAUTH Law Times bankrupt companies will soon expand to include protection for severance pay, according to the recent budget. The move improves on the A new federal program providing wage guar- antees to workers of assets through payments to se- cured creditors before workers could line up for their turn, Starnino notes. "In today's economy in which debtors are often . . . entirely leveraged, that doesn't leave a whole lot for the preferred claimants such as employees." "I think it's fair to say that Wage Earner Protection Pro- gram, which came into effect only in July as part of the gov- ernment's sweeping changes to Canada's insolvency legislation in 2005. It covers outstanding salaries, commissions, and va- cation pay owed by companies either in bankruptcy or receiver- ship up to the greater of $3,000 or an amount equal to four times the maximum weekly insurable earnings under the Employment Insurance Act. Also eligible for compensation are production bonuses, shift premiums, and tips owed to an employee. "Now [that] they're going to include severance pay, you're materially increasing coverage," says Max Starnino, an associate with Paliare Roland Rosenberg Rothstein LLP in Toronto. The program aimed to ad- dress long-standing complaints that insolvency rules often left employees with little cured creditors got their piece of the pie. With wages having the status as an unsecured claim, the bankruptcy process would typically exhaust the company's after se- it's a fair bone of contention for employees who historically have been left in circumstanc- es where their wages haven't been paid," Starnino adds. Previously, a possible re- course for workers left in the lurch was to try to hold a com- pany's directors and officers liable for the payments under the Ontario Business Corpo- rations Act. But that requires going to court, meaning em- ployees often shied away from that route. Now, they can make an application to the WEPP rather than litigating. The government, in turn, will then seek reimbursement from the company through the bankrupt- cy or receivership process. It gets priority over most other claims against the employer's current assets, Starnino points out. To be eligible for a WEPP payment, the employee must have wages within the six months before the company went bank- rupt. Directors, officers, man- agers with financial authority, and anyone with a controlling interest in the business can't get earned the outstanding 'Now [that] they're going to include severance pay, you're materi- ally increasing coverage,' says Max Starnino. compensation. "Rule of thumb: If you have material control over whether wages get paid or not, then you don't get cov- ered," Starnino says, noting the government can also go after directors and officers to recoup its WEPP payments should the company's assets not cover them. In announcing the program, the government said between 10,000 and 20,000 workers make claims for unpaid wages every year, only about a quar- ter of whom ever received any money. Nevertheless, and bankruptcy professionals lawyers wages, he relies on the com- pany's books, but with business owners not necessarily eager to co-operate with a receiver and the staff sometimes long gone, getting reliable information isn't always easy. "The quality and availability of information are certainly critical to the success say questions about it remain. Starnino, for example, says that while it covers a com- pany's pension contributions, the WEPP doesn't include payments for outstanding employee benefits. Sheldon Title, a partner with accounting firm Shim- merman Penn Title & Asso- ciates Inc. in Toronto, adds that the program has meant challenges for people like him who act as trustees and receivers in insolvency cases. The problems are practical ones. Receivers, for example, must provide Service Canada and the employees with in- formation on how much the company owes them within 35 days of it going under. But, he notes, "35 days are of- ten not enough time whenev- er you find the records of the company aren't up to date." To calculate the unpaid of the Wage Earner Protection Program," says Title. The result is a "whole new level of administration" as Title fields calls from employees dis- puting his calculations. In such cases, the government is advis- ing workers to work it out with the receiver, all of which Title says means increased costs that whoever is paying for his services has to cover. "It puts us in the middle," he notes. "It's not as if we were in the company's payroll department before. So you're try- ing to put the pieces of the puzzle together as best you can." Starnino, meanwhile, is also concerned about the appeals process for workers wanting to challenge the government's decision on whether to pay them. So far, people who dis- agree with a ruling on whether they're eligible can request a review in writing. At the same time, people concerned about how much they receive can also have a review and, if unsuccess- ful, appeal the decision to an adjudicator. But that decision is final, meaning a court can't have its say, something Starnino predicts will lead to challenges. "There's a potential for litiga- tion after this," he says. LT CORRECTION Law Times' March 16 Focus section included a story called "That's right — you can get life for civil contempt." Our article incorrectly stated that the imprisonment term in Bell v. Rogers was 15 months. In fact, it was only four months. A 15-month term, however, was imposed in Milligan v. Lech. Law Times apologizes for the error. Canadian Commercial Reorganization: Preventing Bankruptcy Richard H. McLaren Designed to help you manage or avoid bankruptcy by keeping you up to date on the legislative and judicial changes. This resource helps you understand both the Bankruptcy and Insolvency Act (BIA) and the Companies' Creditors Arrangement Act (CCAA). Looseleaf & binders (2) • $229 • Releases invoiced separately (3/yr) P/C 0413030000 • Vol. 1/2 ISBN 0-88804-147-0/-294-9 caseAlert – Bankruptcy & Insolvency An easy to use electronic service that keeps you up-to-date with the latest decisions in bankruptcy and insolvency law. Each week subscribers receive an e-mail bulletin summarizing recent court decisions in the bankruptcy and insolvency area. 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• Competition Act
• Dead Time
• Focus On Corporate Restructuring & Insolvency