As we warned in our earlier articles, “Wage Earner Protection Program Act Comes Into Force - Secured Creditors Be Wary” and “Extension of the WEPPA – Further Protection for Employees”, the Wage Earner Protection Program Act (the “WEPPA”) took effect on July 7th, 2008 to establish a new regime to give employees enhanced protection for wages and pensions in the event of the bankruptcy or receivership (court or privately appointed) of their employer. These protections were subsequently extended to include severance and termination pay owing to employees by an employer who became bankrupt on or after January 27th or whose property was placed in receivership after that date.
Now that the one-year anniversary date of the WEPPA has passed, we felt that it would be helpful to remind our secured creditor friends of their obligations under the WEPPA and to warn them that the WEPPA may apply to security enforcements. Specifically, we understand that there has been some confusion as to whether the receivership provisions contained in the WEPPA apply only to traditional receivership cases where an accounting firm is appointed to act as a receiver. The short answer is that receivers under WEPPA include not only traditional receivers but also secured creditors acting as their own receivers who take possession or control pursuant to a security agreement of substantially all of the inventory, accounts receivable or other business property of a debtor. Thus, standard personal property security enforcements by secured creditors can be caught by the WEPPA.
Secured creditors who conduct their own enforcements must comply with the WEPPA (as well as the Bankruptcy and Insolvency Act requirements regarding notice and reporting). The secured creditor will be required to register with the Office of the Superintendent of Bankruptcy as a receiver, provide former employees with notice of their WEPPA rights and assist former employees with their WEPPA claims. These administrative duties are in addition to dealing with any super-priority claims against the employer’s current assets that former employees may be able to assert under WEPPA for outstanding wages and unpaid pension contributions.
Prior to a security enforcement, secured creditors need to ensure that they have formulated a plan to deal with their potential WEPPA obligations. This may include retaining a qualified accounting firm to deal with the compliance aspects of the WEPPA and obtaining proper and proactive legal advice.