Since Hoyes Michalos & Associates Inc. is a firm that concentrates on personal bankruptcy in Ontario and consumer proposals, we discuss personal bankruptcy issues. However, since the main stream press will talk most about Bill C-12 and the new Wage Earner Protection Program Act, we want to provide our comments as well.
The new program guarantees the payment of up to $3,000 in wages owed to workers whose employers go bankrupt or into receivership.
In fact, the government's own press release about bankruptcy reform leads with talk of the new Wage Earner Protection Program.
For the record, we agree with protecting worker's rights. We do not doubt that in the past companies have timed their bankruptcies so that workers are left "holding the bag." The government estimates that the cost of the Wage Earner Protection Program "could reach $50 million" per year. Given most government's track records on managing our money, it is likely that the cost will be even higher. It will be up to the people of Canada to decide if the cost is worth it.
It should be noted that, according to the law in Bill C-12, in addition to the Wage Earner Protection Program, employee's wages will now have a priority higher than secured creditors, up to a maximum of $2,000.
Under the present system, in a corporate bankruptcy the banks get their money before the unsecured creditors. In the new system, the employees will get up to $2,000 in back wages before the banks are paid.
While this appears to be a good idea, it may reduce the amount of money banks are willing to lend to businesses. For example, a bank might lend up to 75% of a company's accounts receivable value. A company with $1 million in receivables could borrow up to $750,000 to finance operations and pay payroll. However, if the company has a bi-weekly payroll of $200,000, the bank may reduce by $200,000 the amount they are willing to lend the company, since they know that in the event of a bankruptcy they would lose that money.
The company in this example now only has a $550,000 operating line, which reduces what they can spend to buy inventory and fill orders. Ultimately, that may cost jobs, and only time will tell if this is new program for workers. (For the record, the Canadian Labour Congress seems to think it's a good idea, which shows the influence the NDP and the Labour Movement has had on this minority parliament).
We recommend that you contact our Ontario bankruptcy offices for more information on Bill C-12 and the Wage Earner Protection Program.
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