Life is full of uncertainties, but sometimes, we are caught off-guard. Take the example of your employer declaring bankruptcy. Most of the time, nothing prepares an employee for their employer to go out of business. When this happens, employees are left wondering what they should do moving forward. The good news is that as an employee, there are steps that you can take when your employer is affected by insolvency proceedings. It pays to be in the know, and this article helps you understand the steps you can take when your employer declares bankruptcy.
What Happens When an Employer Declares Bankruptcy?
Bankruptcy occurs in a situation where a company or employer can no longer pay its debts. The debtor can voluntarily declare bankruptcy. Alternatively, they can be forced into it by one of the creditors of the business. If this happens, they hand over their non-exempt property to a licensed insolvency trustee (LIT) who is tasked with selling and distributing the money to Creditors.
A majority of bankruptcies fall under consumer bankruptcies, meaning that most of the debts are not business-related. If the debtor's assets are worth below $15,000, the case is processed under summary administration. This kind of situation is easy to handle because creditors do not need to meet. Creditors cannot take a debtor to a court or continue any hearings if the case is dealt with as a summary administration. Secured creditors can take ownership of assets that they hold a security. While there are clear paths for creditors to follow when dealing with a bankrupt business, many employees have no idea where to go if their employer declares bankruptcy.
What Happens to Employees?
Before a company considers filing for bankruptcy, the employer must have gone over a list of options regarding what they can do. Many companies consider finding a trustee that will help them evaluate their situation, so they know what they will lose once they file for insolvency. With a trustee, the employer understands what will happen to their employees and even the contractors in detail.
The first step that takes place once an employer declares bankruptcy is that a trustee is appointed over the company that faces insolvency. This trustee has several duties, including liquidation of the employer’s estate, so that the creditors can be paid. The creditors are notified of the bankruptcy as well, and the assets of the bankrupt person are protected. The trustee then runs the company, even though it is insolvent. Many times, contracts with third parties and employees end up terminated. Interestingly, some key employees may retain their positions or get rehired because they are essential to running the company or safeguarding their critical assets.
What Should the Employee Know?
As an employee of a bankrupt business, you are protected under the Wage Earner Protection Program. Debts are paid to creditors according to the federally legislated BIA. If the employees have a wage claim, they are considered to be creditors. The steps to be taken next depend on whether these employees are in a union or not. If it’s there, they will be represented by the union, and the matter is solved. If the employee were not part of a union, the employee would have to deal directly with the trustee appointed for the company.
The Wage Earner Protection Program is responsible for the reimbursement of eligible employees for any unpaid and deserved monies including wages, vacation pay, termination pay and severance pay that the employer owed them after the declaration of bankruptcy.
As an employee, the first step would be to file a proof of claim with the company’s trustee, and the request should be filed with Service Canada within 56 days of the bankruptcy date. Service Canada is the body responsible for making payments under WEPP. The trustee is not liable to make any payments to the employee.
Service Canada is also entitled to the dividend payments that the receiver or trustee makes to the employee on the amounts paid by Service Canada. The federal program compensates employees for amounts of up to $3,000. Wages include salaries, commissions, vacation pay, compensation for services, and severance pay. Payments that fall within ss 81.3 and 81.4 of the BIA should be considered when considering employees who should be compensated upon bankruptcy.
Declaring bankruptcy comes as a shocker for many employees. It is mostly unclear to the public about what should happen to the employees once their employer declares bankruptcy. While the stipulations are clear for creditors, it is not so clear for employees. In this article, however, an employee learns how the law protects them and how they can claim compensation that should be theirs.