By Douglas Welbanks
The recent court approval for the final days of Sears Canada unveils a confusing place out of step with the rest of the world. Here, debtors are often stripped of their assets by a taxpayer-funded system of debt collection, otherwise known as the courts.
Creditors routinely use the courts to pursue debtors, garnishee wages, obtain and execute judgements, foreclose on mortgages, and liquidate assets for the benefit of creditors.
The concepts of fairness and social justice undergo transformation in bankruptcy and insolvency proceedings. This is why the public and Sears employees were shocked to hear that employee benefits and severance packages would not be paid, even though this was excessively unfair to the workers.
To also find out in a CBC report that more than $2 million to 36 head office staff would be paid in retention bonuses further shocked journalists and the public. Sears will end up paying up to $6.5 million in bonus payments to head office staff from the time it filed for insolvency in June until the liquidation process ends.
Layer upon layer of arcane legal complexities in insolvency proceedings scare detailed scrutiny away from the outside world because it’s confusing and difficult to understand. Preferred creditors, secured creditors, unsecured creditors, purchase money security interests, general security interests, leases, landlords, a long list of government creditors, and others aggressively compete for the corporate remains.
Law library stacks overflow with disputes between debtors and creditors that end up in court.
The current Sears demise indicates that a serious review of current insolvency legislation and court procedures is needed when it comes to insolvency and the priority of employee wages, pensions and benefits.
The practice of government cherry picking which companies it will save and which ones it allows to fall into financial extinction lacks consistency. The retention of jobs often forms the justification for a bailout or rescue mission as it did for the automobile industry and ongoing subsidization of the Canadian airline industry. But Sears and more than 16,000 middle class employees who have recently lost or will soon lose their jobs without receiving any severance—and many of them will likely collect reduced pensions (as reported October 19 by CBC)—received no hint or offer of any compassionate government intervention.