Restructuring and InsolvencyWEPPA Amendments May Eliminate Key Bankruptcy Eligibility PeriodPublished: 02/03/2012 Confusion Created for Canadian Trustees The definition of “eligible wages” under the Wage Earner Protection Program Act1 (“WEPPA”) was amended on December 15, 2011. Under the original definition, employees could claim under the wage earner protection program (“WEPP”) for payment of wages earned during either (i) the six-month period ending on the date of bankruptcy of the former employer, or (ii) the six-month period ending on the first day on which there was a receiver in relation to the former employer. The definition did not deal with CCAA or BIA restructurings. In the December amendments, the definition of “eligible wages” was changed to include wages owed where the employer attempts a CCAA or BIA restructuring which ultimately ends in a bankruptcy or receivership. The amendment was made to fill a significant gap in the original WEPPA definition. For example, if a company now files for CCAA protection with unpaid wages owing to its employees, and the restructuring ends in a bankruptcy or receivership, the six-month period used to determine employees’ wage claims would end as of the commencement of the CCAA proceedings, and not the date of the bankruptcy or receivership. Under the amended definition, claims for pre-CCAA wages owing in these circumstances are preserved. However, the amended definition of “eligible wages” appears to have inadvertently eliminated the eligibility for the six-month period ending on the date of bankruptcy, unless the former employer had filed a BIA proposal or commenced proceedings under the CCAA. While an argument may be made that the six-month period ending on the date of bankruptcy may still be preserved within the amending language, the parameters of the newly created “look-back” periods are definitely unclear. Upon a strict reading of the new language, employees of companies that do not restructure and simply file for bankruptcy may no longer be eligible to claim for unpaid wages incurred in the six-month period prior to the bankruptcy of their employer. Such employees would still have a super-priority claim under section 81.3 of the BIA for accrued unpaid wages (but not termination and severance pay) in the six months preceding a bankruptcy to a maximum of $2,000 per employee. However, the BIA super-priority claim does not provide the same level of benefits to former employees of a bankrupt company than those provided through WEPP, most importantly that the WEPP claim can include severance and termination pay and the claim is paid by the Ministry of Labour, and not through the bankrupt employer’s assets (of which there may be none). The amendment will create uncertainty surrounding the reporting obligations of a trustee in bankruptcy. WEPPA creates a rigorous reporting regime for trustees (and receivers), and the Ministry does not appear to have changed its guidelines and requirements for reporting where there is a bankruptcy in light of this amendment. Trustees are obligated under WEPPA to report to the Minister of Labour on all employees having eligible wage claims. For trustees of companies that did not file for CCAA protection or file a BIA proposal, the amendment may have done away with their obligation to report – as the employees may not qualify for WEPP under the new definition of “eligible wages” – although this would almost certainly not have been Parliament’s intent. Based on Hansard transcripts and the legislative summary of the Act2 which amended WEPPA, Parliament’s intentions seem to have been to further broaden the rights of unpaid employees, by including employees whose employers attempted to restructure using the CCAA or the BIA proposal process. However, as it stands, the new amended definition did not clearly carry forward the concept of the “six-month period ending on the date of the bankruptcy.” The uncertainty created by the amendment calls into question rights of employees and reporting obligations of trustees. Careful legal consideration of those rights and obligations will have to be given going forward. Please contact Eleonore Morris if you have any questions or comments about this article. 1 S.C. 2005, c. 47, s.1 (“WEPPA”). |