New Canadian Bankruptcy Act

As small to medium sized businesses we are faced with tough business decisions every day especially in these uncertain economic times.  Customers may change strategies, outsource overseas, or even dissolve.  When this happens, the “little guys” are the first in line to get hurt and the last in line to get paid (meaning probably never).  The business owner has literally no protection if something goes wrong.


Now there is a new Act that will make it even harder for small business to compete.  This Act, The Wage Earner Protection Program Act (WEPPA) is both a blessing and a hardship for small business.  WEPPA places the employees of Canadian companies who declare bankruptcy right at the top of the creditor pile.


Most businesses, small, medium or large, have a majority of employees who are living paycheque to paycheque.  For the ethical business owner, their employees’ wages are usually at the forefront.  Owners lose sleep over who or what to pay when money is tight.  Sometimes they may hang onto government remittances a little longer or not save for vacation pay payouts to employees. The stress of not having funds to pay these as well as regular wages can cause heart attacks, insomnia, and untold mental anquish.  Do you feed your own family or do you feed your employee’s family?  Tough decision!

The Blessing of WEPPA is that, in bankruptcy, the employees now come first – even before government remittances and taxes.  Now, if you’ve come to the unpleasant decision of bankruptcy, you can know that your employees will be paid first this article.  If there isn’t enough cash in your business to pay, the taxpayers of Canada, through Human Resources & Social Development Canada (HRDSC) will pay up to $3000 per claim for unpaid wages, travelling expenses and vacation pay incurred during the previous six months from the bankruptcy or insolvency.  $3000 may not come close to what the company owes its workers, but it’s better than nothing at all.   The fact that employees have some protection may make the ordeal a tiny bit easier.


The hardship of this Act is that it will force Banks to scrutinize small business even more than it has in the past.  Bankers are going to take a closer look at the Balance Sheets of small business and follow the payment history of payroll, government payroll and federal and provincial sales tax remittances.  The reason Banks are going to take an active interest in making sure you have been paying your employees and taxes is that they have been put farther down the list of creditors to be paid.

The order of creditors will now be employees, government remittances, secured creditors, and then unsecured creditors.   We, as small business owners, will very likely see a rise in interest rates to cover the risk of increased liability to the banks.

Also under WEPPA, company owners and directors become personally liable for any wages owed to employees at bankruptcy or insolvency.  So, if you think that incorporating will relieve you from any liability, think again.  If the company goes bankrupt or insolvent, you may have to sell assets or declare personal bankruptcy to make these payments as well as pay back the HRDSC.

So having been on both sides of the track, an employee and a business owner, I have mixed feelings about this Act.  The humanitarian in me applauds it as I feel people should be paid what is owed to them.  But as a business owner it is just another barrier that, if I let it, could keep me from expanding and growing my business.  At a time when the government wants low unemployment, it’s not encouraging me to hire.

What is your take on this new program?