# What happens if your company is insolvent?



## PrairieGal (Apr 2, 2011)

The company I work for is in a very precarious position. I fear it may go under. I am the bookkeeper, so I am privy to the numbers. What happens to me and all the other employees? Do we just get a Record of Employment, and we are out of work? What if the company owes us wages? They don't at this point, we are paid right up to July 28, but if it happened close to the end of the month they could owe us money.

What is the difference between Receivership and bankruptcy?

Has anyone ever been in this situation?


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## birdman (Feb 12, 2013)

Normally employees are near the top of the list in the case of bankruptcy. I'm not an expert on this but bankruptcy can occur under a number of conditions but the most usual one is being unable to pay your bills when due. In this case a creditor or creditors apply to the court to petition the business into bankruptcy. I believe the court then appoints a receiver (usually an accounting firm) to wind up of the business. 
In a receivership, a creditor, usually a financial institution appoints a receiver under its security agreement, applies to the court to appoint a receiver and in this case a receiver (generally an accounting firm) either liquidates the assets to satisfy the creditor(s) or in some cases restructures or manages the business to try to save to the business from bankruptcy. In the case of the latter, trade creditors often take less than the amount owed to them as this wasy they would probably get more than if the company went bankrupt. In a bankruptcy items are usually sold off at a fraction of their book value. 
In a receivership or a bankruptcy liquidation there are preferred creditors but I cannot recall the exact priority of each. I believe it goes something like: Receivership fees, rent, utilities, wages, and then preferred creditors.
This is a broad overview only.


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## Just a Guy (Mar 27, 2012)

I'd suggest that, those with insider information (hint, hint), would have already moved on to better options. 

I'd there is no money, things like benefits, vacation pay, etc. probably disappear forever. Employees grumble about how unfair it all is, but you can't get blood from a stone. I imagine their suppliers will suffer a lot more absorbing their losses.


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## MrMatt (Dec 21, 2011)

Just a Guy said:


> I'd suggest that, those with insider information (hint, hint), would have already moved on to better options.
> 
> I'd there is no money, things like benefits, vacation pay, etc. probably disappear forever. Employees grumble about how unfair it all is, but you can't get blood from a stone. I imagine their suppliers will suffer a lot more absorbing their losses.


Matters on the jurisdiction, the applicable (federal/provincial ministry of Labour can help)

It's pretty straightforward though.
Revenue Canada gets their cut.
Back Wages are next, and the directors should be personally liable for them. This is why a missed payroll is arguably the biggest red flag possible.

Everything else is lower, and if they're insolvent, you're likely not getting it.
That includes all benefits, expenses, unfunded pension liabilities etc.

In short, leave now, if they're behind on pay leave immediately. Talk to your ministry of labour for guidance.


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## gt_23 (Jan 18, 2014)

PrairieGal said:


> The company I work for is in a very precarious position. I fear it may go under. I am the bookkeeper, so I am privy to the numbers. What happens to me and all the other employees? Do we just get a Record of Employment, and we are out of work? What if the company owes us wages? They don't at this point, we are paid right up to July 28, but if it happened close to the end of the month they could owe us money.
> 
> What is the difference between Receivership and bankruptcy?
> 
> Has anyone ever been in this situation?


Depending on the size of the firm and the nature of its balance sheet, it might proceed to CCAA, where the court would appoint someone to determine if the firm can be saved or should be unwound. In the latter case, employees who are owed wages can make a claim for them, but ultimately the amount and time that they get them is up to the court.

Also depending on the situation with its creditors and whether the firm is closely held (I'm assuming its private-held), the owners could choose an orderly unwinding outside of the courts, in which case employees would have to protect their own interests.


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## PrairieGal (Apr 2, 2011)

The company doesn't owe us money at this point, other than vacation pay, and hours worked since July 28. I am going on vacation later this month, so it is a good excuse for me to pull out all my vacation pay on the 15th. 

I have been thinking of leaving for a long time, but I hate to kick a man when he is down. But, I need to look out for myself. I am widowed, and I have to be able to support myself. My boss really relies on me for moral support. We had a long heart to heart on Friday, and it is the first time I have heard him admit that the company is insolvent. He is still grasping at straws to try to save it, but the writing is on the wall. 

Thank goodness I have an emergency fund.


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## humble_pie (Jun 7, 2009)

prairieGal you sound like you were a wonderful employee, loyal & competent, one of the best & the brightest. Your boss is undoubtedly lucky to have had you for so long.

perhaps you could look at everything you can salvage? certainly look for & collect the vacation pay; but are there any other accrued benefits that could be realized as cash.

will your years of service look as good as possible on your resume?

is there a company pension plan & to what extent will it be subject to a corporate bankruptcy? how might this affect you?

your boss is going to have to deal with all of this, so i don't think you are causing any harm whatsoever with your concerns. Very soon they will all come home to roost, poor fellow.

wishing you all the best in a tough situation, hoping you'll manage to have a great holiday ...


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## Addy (Mar 12, 2010)

PrairieGal if you are looking for work I don't think it would be considered impertinent to let your location be known here  Plus bookkeeping can be done remotely in most cases.


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## james4beach (Nov 15, 2012)

PrairieGal, you are engaged in a type of market trade with this entity (the corporation).

You provide your labour and brain power in exchange for: cash salary, vacation days, and other non-cash benefits. That's the deal and in fact it's codified by contract.

Now you're in a position where the counterparty may be unable to fulfill their obligations to you. Your job as a prudent market participant is to keep the trade balanced and not suffer a loss on the trade. This means:


 Stop providing labour and brain power if they stop paying salary. This is the fundamental part of your trade with them.
 Seek to keep the trade balanced and fair by using vacation days sooner rather than later; this is part of your compensation too
 If there are other parts of your compensation that are owed to you, make use of them immediately


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## Rusty O'Toole (Feb 1, 2012)

Start looking for a better job NOW. If you wait all the good ones will be taken.

Loyalty is a great thing but what about their loyalty to you? Do you expect them to give you 6 months warning before they go broke so you can find a new job? No, of course not. They will keep up a front to the end. This is business, feelings have nothing to do with it.


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## coptzr (Jan 18, 2013)

I have been here, done that from when I was a kid. 
First time were neighbors who I cut grass for 5 years, I did my part until they started stretching out the intervals. Someone who does not want to do the work, but can not afford someone else to do it. The whole farm and house(s) were for sale the next year.
Next was small business I worked for 7 years until some outside "help" came in who in turn were buyers of the business. The owner kept me busy for the next year but the job was different and money less. 
Skip ahead and joined company(5 employees with a lot of knowledge for a specific industry) went almost 10 years and up to 10 employees, things went up and down with huge contracts which could make/break the bank, stuck it out, the last year I was there we all took turns staying home to save company money. I now know this does nothing but save the owners money and kill a company. We all worked together to get more work, but it was the same deal to make only enough for how it had started with 5 people. I sat down many times and was told I had to make the sacrifices to live off what was given so I bailed after almost 10years of no increase in wages or benefits. Example: 50 weeks on 40+hr/week than 2 week shutdown for vacation payout sometimes working. High side was $2M contract when only 5-7 employees, low side was $600k contract with 10 employees per year. I learned a lot, had a strong personal connection there but had to get a reality check that the owner was driving 2 new vehicles every other year and I was driving a 10yr old beater.


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## OptsyEagle (Nov 29, 2009)

Just so you know. The info that has been given that says that employees are somewhere at the top of the list of creditors is not exactly reality. The problem is that this description leaves out what are known as "secured creditors". These are your banks and mortgage holders and possibly a few others.

Now keep in mind that it is almost impossible to file bankruptcy if you do not owe any money. That is simply called a shut down and may be the case here but is also an unlikely situation. That is because before a business owner shuts down they usually feel their best route is to use a line of credit to take up the shortfall between revenues that are not larger then expenses (better known as losses). The entities that extend these lines of credits are banks and they almost always are secured. These banks like lending money so they will usually extend loans up to the value of most of the companies assets, leaving almost no value for anyone below them.

In a nutshell, the rule of thumb is that when the music stops on a business, it is usually the banks and secured lenders that end up with any remaining money.

So if your company files for bankruptcy, do not plan on receiving much beyond what you have already been given up to that date. Anything you can do to turn amounts owing to you into actual cash now, is well advised. Good luck to you.


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## MrMatt (Dec 21, 2011)

OptsyEagle said:


> Just so you know. The info that has been given that says that employees are somewhere at the top of the list of creditors is not exactly reality. The problem is that this description leaves out what are known as "secured creditors". These are your banks and mortgage holders and possibly a few others.
> 
> Now keep in mind that it is almost impossible to file bankruptcy if you do not owe any money. That is simply called a shut down and may be the case here but is also an unlikely situation. That is because before a business owner shuts down they usually feel their best route is to use a line of credit to take up the shortfall between revenues that are not larger then expenses (better known as losses). The entities that extend these lines of credits are banks and they almost always are secured. These banks like lending money so they will usually extend loans up to the value of most of the companies assets, leaving almost no value for anyone below them.
> 
> ...


It matters what jurisdiction they fall under.

Directors can be held personally liable for unpaid wages in many jurisdictions.
Generally other creditors, even secured creditors, can't go after the directors personally.


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## fraser (May 15, 2010)

I am in the 'start looking for a new job now' camp. Besides, going to interviews is good practice. Get your resume and your references updated. Start working your contacts to see what is out there.

Loyalty will not pay the rent or put food on the table. It is a fine thing....but it can only go so far. You have the edge, you know the financial condition of your employer. Take advantage of that knowledge. Don't place yourself in the position of looking in the rear view mirror and wishing you had started to look for new opportunities several weeks or months earlier.


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