Operational conflict settled

Employees of a bankrupt company are not the preferred creditors of the bankrupt principal
|Canadian Employment Law Today

In British Columbia, section 96 of the Employment Standards Act (ESA) provides that directors and officers of corporations are personally liable for unpaid wages for up to two months’ for each employee. In the event of a bankruptcy by the corporation, employees still have recourse to recover some unpaid wages by operation of this section. But what happens if a director and/or officer of the corporation declares bankruptcy personally in addition to the bankruptcy of the corporation?

In three different corporate bankruptcies the trustees in bankruptcy disallowed the preferred claims filed by the director of employment standards on the unpaid employees’ behalf. Unfortunately for the employees, after the payment of the secured creditors and other priority claims there was insufficient funds in the companies’ estates to pay wage claims in full.

The corporate insolvency also resulted in financial problems for the principals of each company, necessitating claims for personal bankruptcy. Relying on section 96 of the ESA (s. 96), the director filed a claim for unpaid wages against each of the estates of the bankrupt principals on behalf of the employees.