By: Bayley Wachsmuth
Case Commented On: Taiga Motors Corporation et Deloitte Restructuring Inc., 2024 QCCS 4319 (CanLII)
PDF Version: Taiga Insolvency Proceedings: Reverse Vesting Orders and Wage Earner Protection Program Claims
As of June 2025, hundreds of former Taiga Corporation (Taiga) employees continue to wait for severance, after having been let go more than one year ago (see here). Within the six months preceding their Companies Creditors’ Arrangement Act, RSC 1985, c C-36 (CCAA) application on July 10, 2024, Taiga began laying off its employees. During the CCAA proceedings, Taiga entered into a Reverse Vesting Order (RVO) to facilitate the sale of Taiga while preserving non-transferrable assets and avoiding a time-consuming vote by creditors (see here at para 17). Normally when a company lays off employees prior to entering CCAA Proceedings, the former employees can file a claim under the Wage Earners Protection Program Act, SC 2005, c 47 (WEPPA) to receive payment for eligible wages including severance pay (see recent ABlawg post here). However, when the former Taiga employees applied to WEPPA they were informed that due to the RVO the former employees were no longer eligible to claim under WEPPA.
Concerns surrounding the potential prejudicial effects of RVOs on certain creditors have been raised in several different contexts, including environmental remediation claims, and statutory claims (see here at 12). This blog focuses on one of these areas: how the RVO limits the availability of funds to pay WEPPA claims. Part I will break down what the RVO is and why it is used. Part II will examine the WEPPA and its application to CCAA proceedings. Part III will explain the problem that arose in the Taiga Proceedings, and how RVOs can undermine WEPPA claims. This blog will conclude by providing recommendations on what actions are necessary to prevent this problem from arising in the future.
I. The RVO
An RVO allows a debtor company to transfer its liabilities, including those owing to WEPPA claimants, into a separate company, typically called “residualco” or “garbageco” (see here). A buyer then acquires the debtor company free and clear of any liabilities. Once the liabilities are transferred to “residualco” the RVO releases and discharges the asset-rich debtor company from all obligations to those liabilities (see Taiga Approval and Reverse Vesting Order here at para 27). The buyer’s consideration for the debtor company is then paid into the “residualco” for the benefit of other creditors. The process is court-ordered and bypasses a vote from creditors. After the transaction, the buyer operates the debtor company, while “residualco” goes into bankruptcy. The parties whose claims were transferred to “residualco” are then forced to compete for the limited consideration paid into “residualco”.
The main advantage of the RVO is its preservation of assets that are difficult to transfer, like licenses and permits (non-transferrable assets) (see here at 1). In a traditional approval and vesting order (AVO), assets are transferred from the debtor to the buyer free of liabilities, and in exchange, the consideration paid for the assets is used to pay other creditors (see here at para 71). Under the AVO, however, the buyer cannot acquire non-transferrable assets. In an RVO, since the non-transferrable assets tied to the company were never transferred, the buyer acquires them as part of the debtor company. Although RVOs are beneficial for their efficiency, they risk undermining statutory protections, leaving terminated employees without recourse.
II. The WEPPA
The Wage Earners Protection Program (the WEPP) is a federal government program administered by Employment and Social Development Canada (ESDC). The purpose of the WEPP is to “provide payments to individuals in respect of wages owed to them by employers who are insolvent” (WEPPA, s 4). When an employee is terminated by an insolvent employer, they must apply to ESDC and await the ESDC’s approval (WEPPA, ss 8 and 9). If the application is approved, the ESDC is obligated to notify the trustee or receiver of the insolvent employer (WEPPA, s 12.1). The trustee or receiver is then obligated under the WEPPA to identify and notify each eligible individual, determine the amount of eligible wages owed to each individual, and make the payments to the individuals using funds from the insolvent employers estate (WEPPA, s 21(1)). Although a trustee or receiver is given these duties, the definition of the term “trustee” under the WEPPA includes a monitor in CCAA proceedings (WEPPA, s 2(1.2)).
Wages are given a broad definition under the WEPPA and include salaries, compensation for services rendered, vacation pay, commissions, termination pay, and severance pay. For termination or severance pay to be considered “eligible wages”, the termination of the employee must have occurred within the 6-month period prior to the bankruptcy, or the day on which CCAA proceedings are commenced (WEPPA, s 2(1)(b)). An individual’s eligibility for payment is set out at section 5 of the WEPPA. First, under subsection 5(1)(a) of the WEPPA, the individual’s employment must have been ended due to termination, resignation, retirement, or expiration. Next the former employer of the individual must fit into one of the prescribed categories under subsection 5(1)(b) of the WEPPA. These categories include a former employer that is the subject of proceedings under the CCAA. Lastly, the individual must be owed eligible wages by the former employer. If an individual fits the eligibility under section 5 of WEPPA, the individual can apply online to ESDC for payment of the eligible wages.
III. The Problem
The use of an RVO in Taiga’s restructuring created uncertainty about who would be liable to pay the WEPPA claims. During the RVO application in October 2024, the claims of unpaid former employees were a part of the liabilities transferred to the “residualco” (see Taiga Approval and Reverse Vesting Order here at para 27). When evaluating the proposed RVO in November 2024, the Court did not consider how the RVO would affect the claims of former employees (see here at para 23). In December 2024, when the Court was asked by the “residualco” and the Monitor to determine whether WEPPA applied to terminated employees of Taiga, the Court held that WEPPA did apply, and that Taiga, the entity sold in the RVO, was the “former employer” as defined under section 5 of the WEPPA (see Taiga Wage Earner Protection Act Order here at para 7). The Court then ordered the Monitor to ensure these former employees were paid in accordance with the WEPPA (see Taiga Wage Earner Protection Act Order here at para 8). To date, no such payment has been made (see here).
The reason the terminated employees never got paid, despite a Court order, is because after the RVO was instituted, it was unclear where the money to pay the WEPPA claims would come from. During the RVO, Taiga had vested off its liability to the WEPPA claimants and therefore was no longer liable to the terminated employees. Additionally, the terminated employees were barred from suing Taiga after the RVO. As a result, when the terminated employees contacted ESDC regarding their WEPPA claims, they were told that they were no longer eligible (see here). Since the “residualco” was filled with unwanted liabilities and then put into bankruptcy, it did not have sufficient assets to pay the WEPPA claims. Subsequently, when the terminated employees contacted the Monitor regarding their WEPPA claims, they were told that their former employer was bankrupt and there were no available funds to pay their claims (see here). Therefore, the RVO not only undermined the ability of the terminated employees to make a claim under the WEPPA but limited the available funds to pay any WEPPA claims.
IV. Recommendations
In Arrangement relative a Former Gestion Inc, 2024 QCCS 3645 (CanLII) a Court was tasked with addressing whether WEPPA applies to former employees after an RVO (at para 26). In that decision the Court held that “it would be contrary to the object of the WEPPA to deny compensation to a terminated employee simply because the former employer transfers its liability to a third party under a reverse vesting order.” (at para 35) Despite this finding, and the decision of the Court in the December 2024 order, WEPPA claims are still going unpaid after the use of RVOs.
To correct this error, Courts must carefully consider whether WEPPA claims could apply to the debtor company in their analysis on whether to grant the RVO. If a Court finds that WEPPA claims apply to the debtor company, the Court must ensure sufficient assets are included in “residualco” to cover any money owed to terminated employees under the WEPPA. These steps would prevent terminated employees from being denied the money owed to them under the WEPPA and ensure that RVOs do not undermine the purpose of the WEPP.
This post may be cited as: Bayley Wachsmuth, “Taiga Insolvency Proceedings: Reverse Vesting Orders and Wage Earner Protection Program Claims” (30 June 2025), online: ABlawg, http://ablawg.ca/wp-content/uploads/2025/06/ Blog_BW_TaigaRVO.pdf
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