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Section 136 of the BIA establishes the following priorities for the distribution of money from the bankrupt company. All claims of a higher class are paid before any claims of the next class. Outlined below is the order in which payments are made.
1. Super-priorities:
(a) Compensation to the Crown for the costs of environmental damage
(b) Unremitted wage deductions for Canada Pension Plan and employment insurance premiums, and for employee tax with-holdings
(c) Fees and expenses of the trustee
2. Secured creditors 3. Preferred creditors
(a) Costs of administering the bankruptcy (trustees’ fees and legal expenses)
(b) Levy on all estates to help defray the expenses of the Office of the Superintendent of Bankruptcy
(c) Wage claims up to $2,000, plus $1,000 in salesmen’s expenses
(d) Municipal taxes
(e) Claims for rent
(f) Costs of the creditor
(g) Claims of workers not covered by Workers Compensation 4. Ordinary (other unsecured) creditors 5. Preferred shareholders 6. Common shareholders Government claims for taxes withheld from employee wages, wage arrears, pension contribution arrears and environmental clean-up costs have priority over all other claims in liquidation and reorganization under the BIA. Recently the Wage Earner Protection Program Act together with certain amendments to the BIA have established a limited super-priority to claim employee wages and an unlimited claim to pension contribution arrears in liquidation proceedings. After secured and preferred creditors have been paid in full, unsecured creditors receive the remaining proceeds on a pro rata basis. Under the BIA, the court has the right to modify the priority of creditor claims in order to deal with any unfair payment situations. Claims of common shareholders are typically last on the list and they generally lose their entire investment in a BIA proceeding. Under CCAA proceedings, their old shares become worthless and often new shares are issued in the restructured company. Holders of preferred shares rank above common shareholders in terms of creditor priority but they too often do not get back the full value of their investment.
What happens when a company goes bankrupt?
The process of Bankruptcy
Different types of creditors
Priority of claims in a business liquidation
Secured and unsecured creditors
Amendments to the BIA and CCAA |
