By: Jassmine Girgis
Matter Commented On: Insolvency Proceedings of Hudson’s Bay Co.
PDF Version: Hudson’s Bay in Insolvency Proceedings: Employees’ Severance Payments & Directors’ Retention Bonuses
Hudson’s Bay Co. (Hudson’s Bay), founded in 1670, is the oldest company in North America. It is now, unfortunately, insolvent, and has obtained protection from its creditors under Canada’s restructuring legislation, the Companies’ Creditors Arrangement Act, RSC 1985, c C-36 (CCAA) (see In Re Hudson’s Bay Company, 2025 ONSC 1530 (Re Hudson’s Bay)).
Court proceedings are currently ongoing, though in his most recent decision, Justice Peter Osborne of the Ontario Superior Court of Justice, rejected the restructuring agreement, thereby increasing the likelihood that the company will end up in receivership (here).
As part of its insolvency proceedings, Hudson’s Bay is laying off thousands of employees, likely without paying them severance. It also plans to pay up to $3 million total in retention bonuses to 121 managers and executives (here and here). Employees, reacting to this perceived inequality, are understandably frustrated and resentful (here).
This post addresses two issues arising from the real possibility that employees will not receive severance payments. First, is this treatment of employees normal in these types of proceedings? And second, what are the priorities in insolvency proceedings and what protection do employees have?
Restructuring and Liquidation Proceedings
This is customary practice. For example, in the Sears Canada (Sears) proceedings, Sears did not pay its employees severance but it did pay $2.8 million in retention bonuses to 36 head office staff, despite the failure of its restructuring efforts (here).
On a human level, this practice seems exceedingly unfair. Employees, typically paid much less than executives, arguably need that money more than executives, particularly when they are staring down unemployment. So why do the executives get these bonuses?
Companies pay these bonuses, typically referred to as retention bonuses, when they need to retrain key employees. Retention bonuses are paid to staff considered essential to the company’s operations as it either attempts to restructure or starts liquidating. At this crucial time involving restructuring or liquidation, companies need the expertise and knowledge these employees bring, which also happens to be the time these employees, facing uncertain futures, would be looking for other employment. These are people familiar with the operations of the company and whose institutional knowledge and experience are necessary to the restructuring or liquidation efforts. Regardless of whether Hudson’s Bay ends up closing most or all its 96 Canadian stores, these employees will oversee liquidation sales, financial matters, human resources, and deal with pension issues.
Priorities of Creditors
Insolvency proceedings involving large employers typically raise questions about whether employees have enough protection in a bankruptcy, and arguments inevitably arise about giving them higher or special priority in the bankruptcy distribution scheme. Employees do have some protection, as detailed below, but getting a higher priority in the scheme of distribution is unlikely.
The bankruptcy distribution scheme determines the order in which creditors get paid in bankruptcy proceedings (see the Bankruptcy and Insolvency Act, RSC 1985, c B-3 (BIA) at s 136). These priorities are the result of long and hard-fought policy battles between different groups of stakeholders. With a few limited exceptions, secured creditors, typically banks, take first priority, followed by preferred creditors, then unsecured creditors. Unsecured creditors get pennies on every dollar in a bankruptcy because by the time they collect, there is little left to distribute.
Secured creditors are given first priority in the bankruptcy scheme of distribution because they are vital to our economy. They extend large loans and revolving lines of credit to allow for the founding, operation and expansion of businesses, thereby creating jobs, increasing productivity and innovation, encouraging investment, and contributing to higher tax revenues. In other words, when businesses flourish, we as citizens have a higher standard of living and long term economic stability.
But secured creditors can only offer these loans because they have enhanced protections in the event of default, thereby lowering the risk of nonrepayment on these substantial loans. Provincial legislation allows them to seize property as collateral for the loan (see for example, Personal Property Security Act, RSA 2000, c P-7) and insolvency legislation, as noted above, gives them first priority. Moving these creditors down on the priority scale increases the risk of non-repayment, potentially leading to the extension of fewer loans or higher interest rates, which then impacts business and the economy as a whole.
Employee Protection
Parliament has developed ways to protect employees, such as enacting the Wage Earner Protection Plan Act, SC 2005, c 47 (WEPPA). The WEPPA is a federal government program that provides payments to individuals owed wages, vacation pay, termination pay, or severance pay by employers who are subject to bankruptcy or receivership proceedings. Pension payments are not “eligible wages” under WEPPA and directors and officers cannot claim under WEPPA.
When the WEPPA was enacted, the BIA was amended to elevate the ranking of unpaid wages and vacation pay to a limited super-priority status. Under ss 81.3 and 81.4 of the BIA, the Crown can recover up to $2000 per claim from the insolvent employer’s estate.
WEPPA provides financial relief to employees, who, as otherwise unsecured creditors, would otherwise receive less in a bankruptcy, and would have to wait until the liquidation of the estate to receive any of the payments. But the WEPP is not perfect. It provides limited compensation, up to the current capped amount; for some employees, the amounts paid by WEPPA will not come close to satisfying the severance obligations owed to them under their employment contracts, and WEPPA does not compensate for things like unpaid bonuses or wrongful dismissal claims. WEPPA also speeds up the process of receiving payments, but the payments are not immediate.
The harsh reality of bankruptcy, however, is that none of the unsecured creditors, who only have contractual claims against the debtor and who are last in line to be paid, will receive anywhere close to what they are owed, leaving them with a devastating financial loss with minimal recovery options. The good part about WEPPA is that it provides employees, who are in a particularly vulnerable position, some, albeit limited, protection.
This post may be cited as: Jassmine Girgis, “Hudson’s Bay in Insolvency Proceedings: Employees’ Severance Payments & Directors’ Retention Bonuses” (31 March 2025), online: ABlawg, http://ablawg.ca/wp-content/uploads/2025/03/Blog_JG_HBay_Insolvency.pdf
To subscribe to ABlawg by email or RSS feed, please go to http://ablawg.ca
Follow us on Twitter @ABlawg