Circular No. 3R3

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Employment Insurance

Date:

To: Trustees and Registrars

Subject: Circular No. 3R3, Employment Insurance

The Office of the Superintendent of Bankruptcy (OSB) has amended Circular No. 3R2, Employment Insurance, to provide trustees with updated documentation prepared by Service Canada (SC), Employment Insurance Program.

SC's document continues to provide guidelines for trustees on how to handle overpayments of Employment Insurance (EI) benefits and the procedure to follow when forwarding payments. Of note is the update to Appendix B where SC has replaced the outdated list of SC regional EI coordinators for trustees with a hyperlink to SC's website. The hyperlink will allow SC to update the list of its regional EI coordinators for trustees as required without the need for the OSB to re-issue this Circular. Since SC regional EI coordinators for trustees are the initial point of contact for trustees, the hyperlink will ensure that trustees have the right contact information at all times.

Please note that this Circular supersedes Circular No. 3R2, issued on .

Enquiries

If you require further information, please do not hesitate to contact a SC regional EI coordinator for trustees at: http://www.servicecanada.gc.ca/eng/common/contactus/trusteescontacts.html

William R. James
Superintendent of Bankruptcy


Insolvency Circular

No. 3R3

employment insurance

Issued:

(Supersedes Circular No. 3R2, issued on , on the same topic)

Purpose
  1. The purpose of this Circular is to provide trustees with the document prepared by Service Canada (SC), Employment Insurance Program, entitled "Subsection 46(1) of the Employment Insurance Act and its effects on a trustee acting pursuant to the Bankruptcy and Insolvency Act."
  2. The document provides guidelines respecting the procedure to be followed by in determining whether overpayments of Employment Insurance (EI) benefits are owed to SC when individuals produce claims for unpaid salary to a trustee and, where applicable, the procedure to be followed for forwarding that payment to SC.
  3. In addition, the Office of the Superintendent of Bankruptcy wishes to inform trustees that, pursuant to section 147 of the Bankruptcy and Insolvency Act, the Superintendent's levy applies before a payment is made to SC. Furthermore, the amount that must be reported by the trustee to SC in accordance with paragraph 5.1 of the document mentioned in paragraph 1 of this circular is the amount of the dividend after deduction of the Superintendent's levy.
  4. Where it has been determined that an "overpayment" is payable to SC, the trustee should communicate by letter with the individuals who have filed claims to inform them of the possibility that amounts may be deducted from their claim. Sample letters, appropriate for such circumstances, can be found in Appendix C of this circular for use by trustees at their discretion.
  5. For further information, please do not hesitate to contact your nearest SC regional EI coordinator for trustees found on the SC Web site at http://www.servicecanada.gc.ca/eng/common/contactus/trusteescontacts.shtml

William R. James
Superintendent of Bankruptcy


Employment Insurance Act - 46(1)

Subsection 46(1) of the Employment Insurance Act and its effects on a Trustee acting pursuant to the Bankruptcy and Insolvency Act.
  1. introduction

    Former employees of bankrupt employers quite often file claims for Employment Insurance (EI) benefits. If a settlement is subsequently made for unpaid wages, severance pay or other monies owed to the employee at the time of termination of employment, these earnings may be allocated, for EI purposes, to the period of time before or after termination. This action may result in the creation of an overpayment of EI benefits.

    The Employment Insurance Act contains provisions with respect to the liability of trustees in bankruptcy. Pursuant to subsection 46(1) of the EI Act (Appendix A) an employer, a trustee in bankruptcy or any other person who becomes liable to pay earnings to a claimant for a period and has reason to believe that EI benefits have been paid to the claimant for that period, shall ascertain whether an amount would be repayable if the earnings were paid to the claimant. If so, they shall deduct the amount from the earnings payable to the claimant and remit it to the Receiver General as repayment of an overpayment of benefits.

    For the purposes of this document, the term "Trustee" is used as a generic expression, to include any person acting as trustee or receiver, as these are defined pursuant to the Bankruptcy and Insolvency Act, and who may have an obligation pursuant to subsection 46(1) of the EI Act.

  2. purpose

    This document provides guidelines for the application of subsection 46(1) of the EI Act and provides information concerning communications between Service Canada (SC) and trustees. It has been prepared for use of trustees.

  3. determination of earnings

    Section 35 of the EI Regulations (Appendix A) defines what monies are or are not earnings for EI benefit purposes.

    Generally, earnings are the entire income arising out of any employment, including amounts payable to a claimant in respect of wages, accumulated sick leave credits, vacation pay, wages in lieu of notice, severance pay, bonuses, pecuniary benefits and all other advantages, pecuniary or non-pecuniary, that are related to, attached to or arising out of employment.

    Earnings are taken into account to determine the amount to be deducted from EI benefits, to determine an interruption of earnings and the amount of EI benefits to be repaid under certain circumstances by the claimant, the employer or the trustee in bankruptcy.

    Amounts payable as dividends concerning unpaid wages claims pursuant to paragraph 136(1)(d) and subsection 136(3) of the Bankruptcy and Insolvency Act (Appendix A) inter alia, are considered as earnings arising out of employment under subsection 35(2) of the EI regulations.

  4. policy
    • 4.1 To apply subsection 46(1) of the EI Act it is necessary for the trustees and SC to work cooperatively to communicate and share information in order to provide timely service to the bankrupt.
    • 4.2 Pursuant to subsection 46(1) of the EI Act where a trustee becomes liable to pay earnings to a claimant for a period and has reasons to believe that EI benefits have been paid to the claimant for that period, the trustee shall ascertain whether EI benefits are repayable to the Receiver General, and deduct that amount from the overall dividend for submission to the Receiver General.
    • 4.3 In order to ensure an efficient process and timely service, a trustee should initiate contact with the SC Regional Coordinator and provide the necessary information to allow for a determination of whether an allocation of the trustee's payment would create overpayments of EI benefits against individual claimants.
    • 4.4 Once advised by the SC Regional Coordinator of the amount of money paid in excess to a claimant, the trustee must deduct from the payment owed to that claimant an amount equal to the overpayment of EI benefits and remit such an amount to the Receiver General.
  5. process
    • 5.1 The Trustee contacts SC and provides all necessary information so that SC can determine whether an allocation of the Trustee payment creates an overpayment of EI benefits against individual clients.

       The initial point of contact will be the SC Regional Coordinator (Appendix B), responsible for the region where the trustee is located.

       The trustee submits a list, preferably by region (refer to Appendix B for list of regions), of former employees to whom payments are to be made and specifying, to the extent that such information is available:

      • the name of the company involved;
      • the name, the full address/province and Social Insurance Number (SIN) of each individual;
      • the total amount of gross earnings to be paid as dividends by the trustee, the nature of the payment and the breakdown of such payment (unpaid wages, bonuses, accumulated sick leave credits, vacation pay, statutory holiday, severance pay , pension, employee's pension contribution, etc.);
      • salary earned during last week worked;
      • the last day worked.

       SC will do the following:

      • acknowledge receipt of the list supplied by the trustee;
      • utilize the Social Insurance Number to determine the existence of a benefit claim at the time of or after the bankruptcy;
      • identify those with no claims and then share this list immediately with the trustee;
      • undertake discussions with the trustee to allow the determination of an acceptable time frame for completion of the process and the frequency and method of communication of information;
      • review and assess each file to determine if an overpayment is to be created by the payment of earnings by the trustee;
      • create the overpayment to allow recovery through the trustee;
      • notify the EI claimant of the earnings decision rendered based on the information received by the trustee and advises the claimant that the trustee will deduct from any dividend payment the amount of overpayment which is payable to the Receiver General;
      • provide the trustee with a list giving solely the amount of overpayment arising from a dividend.
    • 5.2 The trustee deducts from any money owed to each client, in accordance with the list submitted by the Regional Coordinator, an amount equal to any overpayment of EI benefits, pursuant to subsection 46(1) of the EI Act.
    • 5.3 The trustee remits via the Regional Coordinator, a cheque payable to the Receiver General, for each region (if more than one region is involved) and a list of the client's name and SIN for whom the reimbursement applies.

       SC will ensure that monies received from the trustee cover all overpayments to be recouped, or if that is not the case, will perform the appropriate reconciliation in cooperation with the trustee.

Dan Charrette
Director, EI Operational Policy


Appendix A

relevant legislation

Employment Insurance Act (S.C. 1996, c. 23)

Return of benefits by employer or other person
  • 46.(1) If under a labour arbitration award or court judgment, or for any other reason, an employer, a trustee in bankruptcy or any other person becomes liable to pay earnings, including damages for wrongful dismissal or proceeds realized from the property of a bankrupt, to a claimant for a period and has reason to believe that benefits have been paid to the claimant for that period, the employer or other person shall ascertain whether an amount would be repayable under section 45 if the earnings were paid to the claimant and if so shall deduct the amount from the earnings payable to the claimant and remit it to the Receiver General as repayment of an overpayment of benefits.

Employment Insurance Regulations

Determination of earnings for benefit purposes
  • 35. (1)The definitions in this subsection apply in this section.

    "employment" means

    • (a)any employment, whether insurable, not insurable or excluded employment, under any express or implied contract of service or other contract of employment,
      • (i)  whether or not services are or will be provided by a claimant to any other person, and
      • (ii) whether or not income received by the claimant is from a person other than the person to whom services are or will be provided;
    • (b)any self-employment, whether on the claimant's own account or in partnership or co-adventure; and
    • (c)the tenure of an office as defined in subsection 2(1) of the Canada Pension Plan. (emploi)
    • "income" means any pecuniary or non-pecuniary income that is or will be received by a claimant from an employer or any other person, including a trustee in bankruptcy. (revenu)

    "pension" means a retirement pension

    • (a)arising out of employment or out of service in any armed forces or in a police force;
    • (b)under the Canada Pension Plan; or
    • (c)under a provincial pension plan. (pension)
    • "self-employed person" has the same meaning as in subsection 30(5). (travailleur indépendant)
  •   (2)Subject to the other provisions of this section, the earnings to be taken into account for the purpose of determining whether an interruption of earnings under section 14 has occurred and the amount to be deducted from benefits payable under section 19, subsection 21(3), 22(5), 152.03(3) or 152.04(4) or section 152.18 of the Act, and to be taken into account for the purposes of sections 45 and 46 of the Act, are the entire income of a claimant arising out of any employment, including
    • (a)amounts payable to a claimant in respect of wages, benefits or other remuneration from the proceeds realized from the property of a bankrupt employer;
    • (b)workers' compensation payments received or to be received by a claimant, other than a lump sum or pension paid in full and final settlement of a claim made for workers' compensation payments;
    • (c)payments a claimant has received or, on application, is entitled to receive under
      • (i)  a group wage-loss indemnity plan,
      • (ii) a paid sick, maternity or adoption leave plan,
      • (iii)a leave plan providing payment in respect of the care of a child or children referred to in subsection 23(1) or 152.05(1) of the Act,
      • (iv)a leave plan providing payment in respect of the care or support of a family member referred to in subsection 23.1(2) or 152.06(1) of the Act, or
      • (v) a leave plan providing payment in respect of the care or support of a critically ill child;
    • (d)notwithstanding paragraph (7)(b) but subject to subsections (3) and (3.1), the payments a claimant has received or, on application, is entitled to receive from a motor vehicle accident insurance plan provided under a provincial law in respect of the actual or presumed loss of income from employment due to injury, if the benefits paid or payable under the Act are not taken into account in determining the amount that the claimant receives or is entitled to receive from the plan;
    • (e)the moneys paid or payable to a claimant on a periodic basis or in a lump sum on account of or in lieu of a pension; and
    • (f)where the benefits paid or payable under the Act are not taken into account in determining the amount that a claimant receives or is entitled to receive pursuant to a provincial law in respect of an actual or presumed loss of income from employment, the indemnity payments the claimant has received or, on application, is entitled to receive pursuant to that provincial law by reason of the fact that the claimant has ceased to work for the reason that continuation of work entailed physical dangers for
      • (i)  the claimant,
      • (ii) the claimant's unborn child, or
      • (iii)the child the claimant is breast-feeding.
  •   (3)Where, subsequent to the week in which an injury referred to in paragraph (2)(d) occurs, a claimant has accumulated the number of hours of insurable employment required by section 7 or 7.1 of the Act, the payments referred to in that paragraph shall not be taken into account as earnings.
  • (3.1) If a self-employed person has sustained an injury referred to in paragraph (2)(d) before the beginning of the period referred to in section 152.08 of the Act, the payments referred to in that paragraph shall not be taken into account as earnings.
  •   (4)Notwithstanding subsection (2), the payments a claimant has received or, on application, is entitled to receive under a group sickness or disability wage-loss indemnity plan or a workers' compensation plan, or as an indemnity described in paragraph (2)(f), are not earnings to be taken into account for the purpose of subsection 14(2).
  •   (5)Notwithstanding subsection (2), the moneys referred to in paragraph (2)(e) are not earnings to be taken into account for the purposes of section 14.
  •   (6)Notwithstanding subsection (2), the earnings referred to in subsection 36(9) and allowances that would not be deducted from benefits by virtue of subsection 16(1) are not earnings to be taken into account for the purposes of section 14.
  •   (7)That portion of the income of a claimant that is derived from any of the following sources does not constitute earnings for the purposes referred to in subsection (2):
    • (a)disability pension or a lump sum or pension paid in full and final settlement of a claim made for workers' compensation payments;
    • (b)payments under a sickness or disability wage-loss indemnity plan that is not a group plan;
    • (c)relief grants in cash or in kind;
    • (d)retroactive increases in wages or salary;
    • (e)the moneys referred to in paragraph (2)(e), if
      • (i)  in the case of a self-employed person, the moneys became payable before the beginning of the period referred to in section 152.08 of the Act, and
      • (ii) in the case of other claimants, the number of hours of insurable employment required by section 7 or 7.1 of the Act for the establishment of their benefit period was accumulated after the date on which those moneys became payable and during the period in respect of which they received those moneys; and
    • (femployment income excluded as income pursuant to subsection 6(16) of the Income Tax Act.
  •   (8)For the purposes of paragraphs (2)(c) and (7)(b), a sickness or disability wage-loss indemnity plan is not a group plan if it is a plan that
    • (a)is not related to a group of persons who are all employed by the same employer;
    • (b)is not financed in whole or in part by an employer;
    • (c)is voluntarily purchased by the person participating in the plan;
    • (d)is completely portable;
    • (e)provides constant benefits while permitting deductions for income from other sources, where applicable; and
    • (f) has rates of premium that do not depend on the experience of a group referred to in paragraph (a).
  •   (9)For the purposes of subsection (8), "portable", in respect of a plan referred to in that subsection, means that the benefits to which an employee covered by the plan is entitled and the rate of premium that the employee is required to pay while employed by an employer will remain equivalent if the employee becomes employed by any other employer within the same occupation.
  • (10)For the purposes of subsection (2), "income" includes
    • (a)in the case of a claimant who is not self-employed, that amount of the claimant's income remaining after deducting
      • (i)  expenses incurred by the claimant for the direct purpose of earning that income, and
      • (ii) the value of any consideration supplied by the claimant; and
    • (b)in the case of a claimant who is self-employed in farming, the gross income from that self-employment, including any farming subsidies the claimant receives under any federal or provincial program, remaining after deducting the operating expenses, other than capital expenditures, incurred in that self-employment;
    • (c)in the case of a claimant who is self-employed in employment other than farming, the amount of the gross income from that employment remaining after deducting the operating expenses, other than capital expenditures, incurred therein; and
    • (d)in the case of any claimant, the value of board, living quarters and other benefits received by the claimant from or on behalf of the claimant's employer in respect of the claimant's employment.
  • (11)Subject to subsection (12), the value of the benefits referred to in paragraph (10)(d) shall be the amount fixed by agreement between the claimant and the claimant's employer and shall be an amount that is reasonable in the circumstances.
  • (12)Where the claimant and the employer do not agree on the value of the benefits referred to in paragraph (10)(d), or where the value fixed for those benefits by agreement between the claimant and the claimant's employer is not reasonable in the circumstances, the value shall be determined by the Commission based on the monetary value of the benefits.
  • (13)The value of living quarters referred to in paragraph (10)(d) includes the value of any heat, light, telephone or other benefits included with the living quarters.
  • (14)Where the value of living quarters is determined by the Commission, it shall be computed on the rental value of similar living quarters in the same vicinity or district.
  • (15)Where the remuneration of a claimant is not pecuniary or is only partly pecuniary and all or part of the non-pecuniary remuneration consists of any consideration other than living quarters and board furnished by the employer, the value of that consideration shall be included in determining the claimant's income.
  • (16)For the purposes of this section, living quarters means rooms or any other living accommodation.

Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3)

Scheme of Distribution
  • 136. (1)Subject to the rights of secured creditors, the proceeds realized from the property of a bankrupt shall be applied in priority of payment as follows:
    [...]
    • (d)  the amount of any wages, salaries, commissions, compensation or disbursements referred to in sections 81.3 and 81.4 that was not paid;
    • (d.01) the amount equal to the difference a secured creditor would have received but for the operation of sections 81.3 and 81.4 and the amount actually received by the secured creditor;
    • (d.02) the amount equal to the difference a secured creditor would have received but for the operation of sections 81.5 and 81.6 and the amount actually received by the secured creditor;

      [...]

  • 136. (3)"Balance of claim" A creditor whose rights are restricted by this section is entitled to rank as an unsecured creditor for any balance of claim due him.
Security for unpaid wages, etc. — bankruptcy
  • 81.3 (1) The claim of a clerk, servant, travelling salesperson, labourer or worker who is owed wages, salaries, commissions or compensation by a bankrupt for services rendered during the period beginning on the day that is six months before the date of the initial bankruptcy event and ending on the date of the bankruptcy is secured, as of the date of the bankruptcy, to the extent of $2,000 — less any amount paid for those services by the trustee or by a receiver — by security on the bankrupt's current assets on the date of the bankruptcy.
  • (2) For the purposes of subsection (1), commissions payable when goods are shipped, delivered or paid for, if shipped, delivered or paid for during the period referred to in that subsection, are deemed to have been earned in that period.
  • (3) The claim of a travelling salesperson who is owed money by a bankrupt for disbursements properly incurred in and about the bankrupt's business during the period referred to in subsection (1) is secured, as of the date of the bankruptcy, to the extent of $1,000 — less any amount paid for those disbursements by the trustee or by a receiver — by security on the bankrupt's current assets on that date.
  • (4)  A security under this section ranks above every other claim, right, charge or security against the bankrupt's current assets — regardless of when that other claim, right, charge or security arose — except rights under sections 81.1 and 81.2 and amounts referred to in subsection 67(3) that have been deemed to be held in trust.

    [...]

Security for unpaid wages, etc. — receivership
  • 81.4 (1) The claim of a clerk, servant, travelling salesperson, labourer or worker who is owed wages, salaries, commissions or compensation by a person who is subject to a receivership for services rendered during the six months before the first day on which there was a receiver in relation to the person is secured, as of that day, to the extent of $2,000 — less any amount paid for those services by a receiver or trustee — by security on the person's current assets that are in the possession or under the control of the receiver.
  • (2) For the purposes of subsection (1), commissions payable when goods are shipped, delivered or paid for, if shipped, delivered or paid for during the six-month period referred to in that subsection, are deemed to have been earned in those six months.
  • (3) The claim of a travelling salesperson who is owed money by a person who is subject to a receivership for disbursements properly incurred in and about the person's business during the six months before the first day on which there was a receiver in relation to the person is secured, as of that day, to the extent of $1,000 — less any amount paid for those disbursements by a receiver or trustee — by security on the person's current assets that are in the possession or under the control of the receiver.
  • (4) A security under this section ranks above every other claim, right, charge or security against the person's current assets — regardless of when that other claim, right, charge or security arose — except rights under sections 81.1 and 81.2.

    [...]


Appendix B

Service Canada Regional EI Coordinators for Trustees
Service Canada Regional EI Coordinators for Trustees
The following link provides the names and telephone numbers of Service Canada's regional EI coordinators for Trustees: http://www.servicecanada.gc.ca/eng/common/contactus/trusteescontacts.shtml

Appendix C

sample letter

TO ALL EMPLOYEES OF: space to insert company name c/o space to insert responsible of company

space to insert month and day 20space to insert year

Sir/Madam:

Re: In the matter of the bankruptcy of space to insert name of bankrupt c/o space to insert responsible of company

On space to insert date of authorization of payment, the bankruptcy inspectors authorized the payment of an interim dividend to the preferred (or ordinary) creditors. However, the bankruptcy trustee must verify whether Employment Insurance (EI) benefits in the name of former employees of the bankrupt should be reimbursed to the Receiver General for Canada.

In order to do this, we have recently contacted Service Canada to determine whether there are EI benefits to be repaid by the employees, and if so, in what amount.

We will communicate with the employees again once we have obtained the requested information from Service Canada. This normally takes about 45 days.

Sincerely,


sample letter

to all employees of: space to insert company name c/o space to insert name of bankrupt's trustee

space to insert month and day 20space to insert year

Sir/Madam:

Re: In the matter of the bankruptcy of space to insert name of bankrupt c/o space to insert name of bankrupt's trustee

Pursuant to our letter of space to insert name of bankrupt concerning the payment of a dividend to preferred creditors, we wish to confirm that we have been informed by Service Canada as to the amount to be reimbursed to the Receiver General for Canada.

You will therefore find attached a cheque representing the dividend owing to you, with deductions having been made for Employment Insurance benefits to be reimbursed to the Receiver General for Canada and the levy payable to the Superintendent of Bankruptcy.

Sincerely,

Important notice:

The HTML version of this Circular is not the official version. In the event of an inconsistency between the HTML and PDF versions of this Circular, the PDF version prevails. Users are required to exercise due diligence with respect to the HTML version.

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