TORONTO — Ontario's Superior Court is expected to make a ruling next week regarding a proposed fund aimed at supporting former Hudson's Bay Company (HBC) workers, who faced job loss after the company's collapse last year. Over 9,300 employees were impacted, many not receiving severance pay, while others lost access to vital long-term disability and post-retirement health, dental, and life insurance benefits.
The proposed hardship fund is designed to assist those struggling with essential expenses such as rent, mortgage, utilities, car loans, and medical bills. Eligible former HBC workers and retirees could receive one-time payments of up to $9,600. Additionally, those facing urgent medical or other emergencies could qualify for up to $2,500 in extra assistance.
What are hardship funds?
Hardship funds are typically established by companies undergoing insolvency under the Companies' Creditors Arrangement Act, focusing on aiding their most vulnerable employees. This group often includes low-income earners, seniors, and individuals with disabilities. According to Martyn Siek, an associate at Workly Law in Toronto, these funds are not intended to cover lost severance or benefits but rather to alleviate financial distress among former staff who are encountering mounting bills and lack of income, sometimes coupled with health issues that hinder their job prospects.
“They are primarily aimed at preventing adverse outcomes related to social assistance, such as eviction, utility disconnection, food insecurity, and the inability to address urgent medical needs,” Siek explained.
When have hardship funds been utilized?
Instances of hardship funds being established are rare. Brandon Smith, a senior vice-president at Ira Smith Trustee & Receiver Inc. in Vaughan, Ont., has noted their emergence mainly in the wake of the collapses of prominent companies like Nortel Networks Corp. and Sears Canada. For instance, Sears Canada set aside $500,000 for its hardship fund, where qualifying individuals received monthly payments equivalent to up to eight weeks of regular wages, capped at $1,200 per week, and additional cash for emergency needs.
On the other hand, Nortel's fund was significantly larger at $2.3 million, allowing former employees to receive up to $1,200 weekly and additional funds for emergencies, with pensioners eligible for maximum payments reaching $10,000.
Eligibility and application process
For the proposed HBC hardship fund, employees must submit an application detailing any income from Employment Insurance (EI), social assistance, or other sources, along with their health benefits status and the circumstances leading to their financial need. A court-appointed monitor will evaluate these applications, with appeals available through a hardship committee comprising company representatives, employees, and the monitor.
Funding sources for hardship funds
The HBC hardship fund intends to draw upon resources from three specific sources: a Zellers health and welfare trust valued at approximately $9.9 million, an HBC reserve fund worth about $1.6 million, and $250,000 on hand. According to Smith, companies sometimes create hardship funds through liquidation proceeds, but require court authorization for these funds, as reallocating money for employee assistance may conflict with creditor and lender recovery.
Additionally, some funds have been formed from monetary contributions by directors as a goodwill gesture outside the bankruptcy framework. For example, Sears Canada's hardship fund was fueled by unallocated bonuses meant for key employees during the business's wind-down phase.
Duration of hardship funds
Typically, hardship funds consist of a limited amount of money, which is not replenished, making it imperative for employees to seek alternative assistance once the funds dwindle. The Sears Canada hardship fund operated for about three years and was concluded without exhausting all available resources, as HBC's court applications indicate that only 104 individuals applied for aid, collectively receiving $176,000.
Perspective of lenders and creditors
Lenders and creditors may express concern regarding hardship funds as they diminish the recoverable cash amount. However, Smith notes that opposing such programs can present a “bad and greedy” image to the court, which is likely to view objections negatively, especially when the funds aim to provide critical support to the most disadvantaged former employees.
