According to the Financial Post, Sears Canada has agreed to create a fund for former employees who were denied severance payments as the company restructures itself.
The deal was hammered out by lawyers representing the company and workers, and will be funded to the tune of $500,000—coming directly from money earmarked for executive bonuses. While it will not make employees as a group whole, the fund will target those facing genuine hardship. Sears' severance obligations were modified as a component of the court-controlled restructuring process under the Companies' Creditors Arrangement Act (CCAA). Using the Act, Sears was able to shed roughly 2,900 jobs across the country without severance.
Under the Act, a debtor company can seek an initial order from the court that grants them a 'stay' against its creditors while it renegotiates or restructures its debts. In simple terms, this means that creditors are prevented from exercising their rights to collect on a debt, agreements with suppliers cannot be terminated (from either party), and further transactions require court approval. For example, under a stay, a creditor with an outstanding secured debt would be prevented from repossessing the secured property (like a piece of equipment, etc.).
The stay is not indefinite, however. The guiding purpose of the Act is to give companies who qualify time to restructure so they can meet their creditor obligations. Generally, a business may only qualify if the total claims against the company are more than $5,000,000 (s.1). The counterpart to the CCAA is the Bankruptcy and Insolvency Act (BIA), which applies to individuals, corporations, income trusts, and partnerships. The key difference is complexity, debtor companies apply for CCAA protection because of their size, while individuals and small businesses operate under the BIA. The processes are similar, however, and both offer debtors the tools to preserve their business, renegotiate with creditors, and, most importantly, avoid liquidation.
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