Court File and Parties

COURT FILE NO.: BK-23-02986886-0031 DATE: 20240424 SUPERIOR COURT OF JUSTICE – ONTARIO (COMMERCIAL LIST)

RE: IN THE MATTER OF THE BANKRUPTCY AND INSOLVENCY ACT, R.S.C. 1985, C. B-3, AS AMENDED AND IN THE MATTER OF THE PROPOSAL OF METROLAND MEDIA GROUP LTD. OF THE CITY OF TORONTO, IN THE PROVINCE OF ONTARIO

BEFORE: Conway J.

COUNSEL: Andrew J. Hatnay and Abir Shamim, Representative Counsel for Non-Union Employees and Retirees Walter Kravchuk, Emily Atkinson and Rebecca Ro, for the Attorney General of Canada David T. Ullmann and Alexandra Teodorescu, for Grant Thornton Limited in its capacity as Proposal Trustee for Metroland Media Group Ltd. Steven Graff and Samantha Hans, for Metroland Media Group Ltd. Brett Hughes, for Unifor Local 87-M

HEARD: April 8, 2024

Reasons for Decision

[1] In these insolvency proceedings, Metroland Media Group Ltd. (“Metroland”) made a proposal to its creditors, which was approved by this court. Under the terms of the proposal, the unsecured creditors are entitled to receive a distribution of approximately 17% of their claims (the “Distribution”).

[2] His Majesty in Right of Canada (“Service Canada”) has approved payments to certain of Metroland’s former non-unionized employees under the Wage Earner Protection Program Act, S.C. 2005, c. 47 (the “WEPPA”). The issue on this motion is the extent of Service Canada’s rights under the WEPPA to recover those payments from the Distribution. [1]

Background Facts

[3] The background facts are not in dispute and can be summarized briefly. Metroland is a media publisher and distributor and subsidiary of TorStar Corporation. Metroland is headquartered in Toronto. It is in the business of publishing and distributing 70 newspapers in southern Ontario.

[4] On September 15, 2023, Metroland filed a Notice of Intention to Make a Proposal under s. 50.4(1) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“BIA”). Grant Thornton Limited was appointed the proposal trustee (the “Proposal Trustee”).

[5] At the time of filing of the Notice of Intention, Metroland terminated approximately 600 employees en masse. Approximately 104 of those employees are unionized and 500 employees are non-unionized. On October 13, 2023, Koskie Minsky LLP was appointed representative counsel (“Representative Counsel”) for the former non-unionized employees of Metroland.

[6] Several versions of a proposal were developed between October and December 2023. The draft proposals contemplated that the employees would apply for payments under the WEPPA (“WEPP payments”). An issue arose as to whether the employees were able to apply for those payments under the WEPPA. On December 8, 2023, Grant Thornton Limited was appointed as a private receiver over Metroland’s inventory. The appointment of a receiver enabled the terminated employees to apply for payments under the WEPPA.

[7] On December 11, 2023, 99.6% of creditors voted in favour of the Third Amended Proposal (the “Proposal”). [2] Justice Kimmel approved the Proposal on January 24, 2024. At the same time, she scheduled this motion to determine the statutory interpretation issues under the WEPPA. [3]

Overview of the WEPPA

[8] Section 4 of the WEPPA states that the Wage Earner Protection Program was established “to provide for payments to individuals in respect of wages owed to them by employers who are insolvent.” The WEPPA was introduced in 2005 in Bill C-55 along with various amendments to the BIA, including the creation of a super-priority for up to $2,000 in employee wage claims. The objective of the amendments was to assist vulnerable workers whose employers became bankrupt or insolvent. Key to these provisions was the timely payment of up to $3,000 in WEPP payments to employees for unpaid wages.

[9] From the outset, the WEPPA provided that Service Canada could recover WEPP payments from available funds paid by the trustee or receiver to the employer’s creditors. This was done by way of subrogation to the employee’s rights against the employer. Section 36(1) provided:

36 (1) If a payment is made under this Act to an individual in respect of unpaid wages, Her Majesty in right of Canada is, to the extent of the amount of the payment, subrogated to any rights the individual may have in respect of those unpaid wages against

(a) the bankrupt or insolvent employer; and

(b) if the bankrupt or insolvent employer is a corporation, a director of the corporation.

[10] In 2009, the benefits under the WEPPA were expanded. Previously, the WEPP payments only applied to unpaid “wages”, which excluded severance and termination pay. The 2009 amendments included severance and termination pay in the definition of “eligible wages” and “wages” for which the employee could receive a WEPP payment. By definition, Service Canada’s subrogation rights under s. 36(1) extended to severance and termination payments.

[11] In 2018, the financial provisions of the WEPPA were amended. In s. 36(1), the term “unpaid wages” was replaced with “eligible wages”, but the subrogation wording remained the same. A new section, s. 36.1(1), was introduced. That section directs a trustee or receiver to pay Service Canada its subrogated amount before making any payment to the individual on account of eligible wages:

36.1 (1) If, under a court judgment or for any other reason, a trustee, receiver or

any other person is required to pay eligible wages to an individual who the trustee,

receiver or other person has reason to believe has received a payment under this

Act, the trustee, receiver or other person shall

(a) ascertain whether Her Majesty in right of Canada is subrogated to any rights

the individual may have in respect of the eligible wages; and

(b) if Her Majesty in right of Canada is subrogated, pay to Her Majesty the

amount in respect of which Her Majesty is subrogated before making any

payment to the individual in respect of eligible wages.

[12] The amount of the WEPP payments have increased over time. In 2023, the maximum amount an individual was entitled to receive under the WEPPA was $8,278.83.

Positions of the Parties

[13] The WEPP payments in this case relate to unpaid severance pay. The Attorney General of Canada (“AGC”) accepts that these are unsecured claims and do not attract the priority for unpaid wages in ss. 81.4 and 136(1)(d) of the BIA. It acknowledges that Service Canada’s subrogation rights under s. 36(1) of the WEPPA relate to unsecured claims.

[14] As noted above, the Distribution to unsecured creditors, including to employees for severance pay, is 17 cents on the dollar. Representative Counsel, supported by the Proposal Trustee, Metroland, and Unifor Local 87-M, submits that since Service Canada is subrogated to an unsecured claim, it is entitled to receive only 17 cents on the dollar for each WEPP payment made to an employee. The balance is to be paid to the employee.

[15] The AGC submits that under Service Canada’s subrogated right, it is entitled to recover from the Distribution on a dollar-for-dollar basis, up to the full amount of the WEPP payment made, with the balance to be paid to the employee.

[16] By way of example, an employee with an unsecured claim for $100,000 against Metroland will receive a Distribution of $17,000. The parties’ positions, based on their respective interpretations of the WEPPA, are as follows:

• Representative Counsel’s position is that Service Canada will recover 17% of the WEPP payment made to the employee, with the balance going to the employee. Therefore, if the WEPP payment was $8,000, Service Canada will receive $1,360 (17% of $8,000) and the employee will receive $15,640 ($17,000 minus $1,360).
• The AGC’s position is that Service Canada will recover the full amount that it paid to the employee on a dollar-for-dollar basis, with the balance going to the employee. Therefore, if the WEPP payment was $8,000, Service Canada will receive $8,000 and the employee will receive $9,000 ($17,000 less $8000).

[17] To be clear, in either case the former employee retains the $8,000 WEPP payment received from Service Canada. This issue before the court is what Service Canada and the employee will be entitled to receive, respectively, out of the Distribution by Metroland.

[18] The difference in the amount payable to the employees under the two interpretations is approximately $2 million.

Principles of Statutory Interpretation

[19] In the case of Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27 (“Rizzo”), at para. 21, the Supreme Court of Canada adopted the following modern approach to statutory interpretation:

Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.

[20] The court also stated that benefits-conferring legislation should be interpreted in a broad and generous manner. Any doubt arising from difficulties of language should be resolved in favour of the claimant: Rizzo, at para. 36.

Analysis

Wording of Sections 36(1) and 36.1

[21] I start with the wording of s. 36(1). The current version reads:

36 (1) If a payment is made under this Act to an individual in respect of eligible wages, Her Majesty in right of Canada is, to the extent of the amount of the payment, subrogated to any rights the individual may have in respect of the eligible wages against

(a) the bankrupt or insolvent employer; and

(b) if the bankrupt or insolvent employer is a corporation, a director of the corporation.

[22] According to s. 36(1), if Service Canada makes a WEPP payment “in respect of eligible wages”, it is “to the extent of the amount of the payment” subrogated “to any rights the individual may have in respect of the eligible wages” against the employer.

[23] The language in s. 36(1) is broad. Service Canada is subrogated to “any rights” the individual may have against Metroland with respect to eligible wages. The subrogation right is “in respect of” any rights the employee has to receive eligible wages from Metroland. The words “in respect of” are to be given the widest possible scope: Nowegijick v. The Queen, [1983] 1 S.C.R. 29, at p. 39. Taken together, this language confers a broad subrogation right on Service Canada: see Criminal Injuries Compensation Board v. Ditroi (1975), 8 O.R. (2d) 133 (C.A.).

[24] However, since this is a right of subrogation, Service Canada’s rights against Metroland can be no better than those of the employee. Service Canada can only step into the shoes of the employee: Douglas v. Stan Fergusson Fuels Ltd., 2018 ONCA 192, 139 O.R. (3d) 721 (“Douglas”), at para. 55. In other words, Service Canada cannot assert that its subrogated right is a priority claim, ranking ahead of Metroland’s unsecured creditors. Service Canada can only have recourse to the funds that are distributed to the employee as an unsecured creditor (in the above example, $17,000).

[25] There is another limitation built into the language. Service Canada’s rights are “to the extent of the payment” made in respect of eligible wages. The AGC submits that this language imposes a monetary cap on the amount that Service Canada can recover pursuant to its subrogated rights. In other words, Service Canada can recover no more than it paid the employee. The AGC submits that this is consistent with the common law on subrogation rights and is intended to ensure that Service Canada collects only what it pays and no more: see Douglas, at para. 57.

[26] Representative Counsel reads s. 36(1) differently. Its interpretation is that if the WEPP payment is $8,000, Service Canada steps into the shoes of the employee and collects only 17 cents on the dollar for that payment.

[27] The fundamental problem with this submission is that it creates an artificial division of the employee’s claim against Metroland into two claims: Service Canada’s claim and the employee’s claim. It treats Service Canada as a separate unsecured creditor of Metroland with respect to its WEPP payment, requiring it to share in the Distribution with other unsecured creditors on a pari passu basis. That is inconsistent with the language of s. 36(1) that provides Service Canada with a right of subrogation.

[28] As the court explained in Douglas, at paras. 55 and 56, the right of subrogation is derivative. Where “an insurer is subrogated to the claim of its insured, the claim nonetheless remains that of the insured in whose name and with whose rights the claim must be advanced”. Here, Service Canada is subrogated to the employee’s claim to eligible wages from Metroland. Service Canada is not asserting its own claim against Metroland. Therefore, while Service Canada can only recover from whatever the employee receives from Metroland (in the example, $17,000), Service Canada is not limited to 17 cents on the dollar of its WEPP payment to the employee as if it was a separate creditor of Metroland.

[29] This interpretation is reinforced by the language of s. 36.1. Again, that section reads:

36.1 (1) If, under a court judgment or for any other reason, a trustee, receiver or any other person is required to pay eligible wages to an individual who the trustee, receiver or other person has reason to believe has received a payment under this Act, the trustee, receiver or other person shall

(a) ascertain whether Her Majesty in right of Canada is subrogated to any rights the individual may have in respect of the eligible wages; and

(b) if Her Majesty in right of Canada is subrogated, pay to Her Majesty the amount in respect of which Her Majesty is subrogated before making any payment to the individual in respect of eligible wages.

[30] This language is directive. It says that where the trustee/receiver is required to pay eligible wages to an employee who the trustee/receiver believes has received a WEPP payment, the trustee/receiver shall determine whether Service Canada is subrogated to any rights of the employee to eligible wages. If so, the trustee/receiver shall pay Service Canada the subrogated amount before making any payment to the employee in respect of the eligible wages.

[31] Representative Counsel submits that this is simply an administrative section, to be treated in the same manner as source deductions. I do not accept that submission. If, as Representative Counsel argues, Service Canada is only entitled to a pari passu distribution along with the other unsecured creditors, there would be no reason for it to receive its payment ahead of the employee. In my view, this language evidences the legislative intention that Service Canada’s subrogated amount be paid out of the employee’s distribution first and that the employee receive the balance after Service Canada has been paid.

[32] The language of s. 36.1 requires that the trustee/receiver determine whether Service Canada is subrogated to any “rights the individual may have in respect of the eligible wages” and then pay Service Canada the “amount” in respect of which Service Canada is subrogated. This further supports the broad nature of Service Canada’s subrogation – it is subrogated to a “right”, not an amount. The reference to the “amount” is the monetary cap on what Service Canada can collect out of the funds paid to the employee – no more than the WEPP payment.

[33] Representative Counsel argues that it was never intended that Service Canada would obtain full recovery of its WEPP payments. It points to the fact that when the WEPPA was introduced, the WEPP payment for unpaid wages was $3,000 and employees had a priority wage claim for $2,000 under the BIA. Representative Counsel also relies on the case of Ted Leroy Trucking Ltd. v. Century Services Inc., 2010 BCCA 223, 9 B.C.L.R. (5th) 96 (“Ted Leroy”), at para. 13, in which the British Columbia Court of Appeal described the statutory scheme as follows: (i) an employee may recover up to $3,000 of unpaid wages through the WEPPA; (ii) on paying the employee, Service Canada is subrogated to the employee’s rights against the bankrupt; (iii) the first $2,000 of unpaid wages is secured and ranks ahead of all other claims against the bankrupt’s assets; and (iv) as a result of subrogation, Service Canada has priority for the first $2,000 and stands as an unsecured creditor for the balance of the claim.

[34] Representative Counsel argues that the statutory scheme remains as described in Ted Leroy. I agree. There is no dispute that in this case, Service Canada is only entitled to be paid out of funds distributed to the employee as an unsecured creditor. However, s. 36(1) does not restrict Service Canada’s subrogation rights to super-priority amounts under the BIA. To the extent that there are sufficient unsecured funds available in the bankruptcy or insolvency, Service Canada’s subrogation rights entitle it to recover the WEPP payments out of those funds. [4] I see no conflict with the scheme described in that case. Further, and as discussed below, this right of recovery does not change the employees’ priority in the distribution scheme vis à vis Metroland’s other creditors.

[35] In my view, the wording of ss. 36(1) and 36.1 reflect the intention of the legislature to permit Service Canada to recover WEPP payments out of any funds due to the employee from the bankrupt or insolvent employer, up to the amount of the WEPP payment. This is further supported by a review of the other statutory provisions of the WEPPA, and the purpose and intent underlying the WEPPA.

Other Statutory Provisions

[36] The WEPPA creates a government funded program. A review of the statute shows the intent of the legislators to limit what can be paid to the employee under this program and to enable Service Canada to recover WEPP payments if and when funds become available from the bankrupt or insolvent employer (my emphasis added):

• Section 7(1) limits the WEPP payment to seven times the maximum weekly insurable earnings under the Employment Insurance Act.
• Section 7(1.1) states that the amount that may be paid out under the WEPPA is to be reduced by any amounts provided for by regulation. The Wage Earner Protection Program Regulations, SOR/2008-222, s. 6, states that the amount of the deduction is equal to “[a]ny amount that an individual has received in respect of eligible wages or in respect of the termination of employment that is paid by the former employer or from any other source, excluding any amounts received through other federal or provincial programs, after the date of the bankruptcy or receivership…”.
• Sections 32 to 34 provides the Minister [5] with rights to determine if an employee received an overpayment and the authority to recover any such overpayment.
• Section 36(1) provides the broad subrogation rights to Service Canada with respect to any rights the individual may have in respect of the eligible wages against the employer.
• Section 36.1(1) provides that the subrogated amount shall be paid to Service Canada before the employee receives a payment in respect of eligible wages.

[37] Section 7(1.1) is particularly instructive in the analysis. If an employee receives a distribution from the employer post-bankruptcy or insolvency before a WEPP payment is made, the WEPP payment is reduced by that amount. For example, if the employee receives a distribution of $17,000 before an $8,000 WEPP payment is made, the full amount is deducted from the WEPP payment the employee might otherwise have received. The employee receives $17,000 from the employer. Service Canada pays nothing.

[38] According to the AGC’s interpretation, the same economic result occurs if the distribution is made to the employee after the WEPP payment is made. If the employee is entitled to a $17,000 distribution after receiving the $8,000 WEPP payment, the employee retains the $8,000 and receives $9,000 ($17,000 less the $8,000) from the distribution. The employee receives $17,000 in total, and Service Canada receives back the full amount of its payment.

[39] Representative Counsel’s interpretation creates a potential inequity among employees depending on when they receive the WEPP payment. According to its interpretation, the employee who receives the WEPP payment after a distribution would receive less than the employee who receives the WEPP payment before the distribution. Using the example above, the first employee receives $17,000. The second employee receives $8,000 in the WEPP payment and an additional $15,640 ($17,000 less $1,360 paid to Service Canada = $15,640). In total, the second employee receives $23,640 ($8,000 + $15,640). I do not accept that the legislature intended employees to receive different treatment under the WEPPA scheme solely because of the timing of their WEPP payments.

Purpose and Legislative History

[40] The purpose of the WEPPA is to provide timely, limited relief to employees whose employers are insolvent or bankrupt. Since these types of proceedings can be lengthy and uncertain, the focus of the WEPPA was to get monies for unpaid wages (and later, severance and termination pay) into the hands of the employee quickly rather than waiting for a distribution to occur months or years down the road, if at all. It was intended to be a “safety net” for employees. See House of Commons, Standing Committee on Industry, Natural Resources, Science and Technology, Evidence, 38-1, No. 60 (1 November 2005) at 0950 (Hon. Jerry Pickard), 1015 (Hon. Joe Fontana), and 1050 (Hon. Jerry Pickard); and Debates of the Senate, 38-1, Vol. 142, No. 98 (23 November 2005) at 1500 (Hon. Bill Rompkey).

[41] However, the legislators sought to strike a balance in this statutory scheme. Recognizing that WEPP payments are funded with taxpayer dollars, the program sets limits on the WEPP payments. It further includes provisions enabling Service Canada to recover funds if and when they later became available in the bankruptcy or insolvency.

[42] Further, this recovery right of Service Canada acts as a deterrent to strategic behaviour on the part of companies facing bankruptcy or insolvency. See Debates of the Senate, 38-1, Vol. 142, No. 98 (23 November 2005) at 1500 (Hon. Bill Rompkey). Any attempt to forgo payment of wages to employees in favour of payments to be made under the WEPPA is undermined by Service Canada’s right to recover the WEPP payments if there are funds later available in the bankruptcy or insolvency.

[43] In my view, the AGC’s interpretation of a dollar-for-dollar recovery of its WEPP payments is more consistent with the objectives underlying the WEPPA. Employees are paid quickly from Service Canada, up to a prescribed limit. Service Canada is required to wait and see if there will be any distributions from the bankrupt or insolvent employer. Service Canada will only recover funds if and when there are distributions, up to the amount paid by Service Canada to the employee.

[44] I add that in a bankruptcy or insolvency, there are often limited or no funds available to unsecured creditors. In many cases, Service Canada may not recover any of the WEPP payment or may recover only a portion of it. In the above example, if Service Canada pays the employee $8,000 and the employee only recovers two cents on the dollar for the $100,000 unsecured claim, Service Canada will only recover $2,000 of the $8,000 WEPP payment.

Other Considerations

[45] Representative Counsel submits that dollar-for-dollar recovery affords Service Canada priority in the distribution scheme from the insolvent employer. I disagree. The priorities are set out in the BIA. The employees have certain priorities for unpaid wages over other creditors. They are unsecured creditors for severance pay. They share any distributions for their unsecured claims for severance on a pari passu basis with other unsecured creditors.

[46] Nothing in the WEPPA or Service Canada’s subrogation rights alters these priorities. In the case of severance, the employees will still only receive a pari passu share of the distribution available to unsecured creditors (in this case, 17%). The fact that Service Canada takes its recovery from that distribution before the employees receive their share does not change the employees’ priority vis à vis Metroland’s other creditors.

[47] Indeed, Representative Counsel’s interpretation would result in the employees receiving a higher percentage of the Distribution than they would otherwise receive as unsecured creditors. In the above example, the employee that receives $23,640 in combined payments from the company and WEPPA is receiving more than the 17 cents on the dollar that the employee would have received without the WEPP payment. In effect, Service Canada’s funds have subsidized the distribution to which the employee would otherwise be entitled. That goes beyond the “safety net” purpose of the legislation.

[48] Representative Counsel argues that the AGC’s interpretation would lead to an absurd result. First, it says that employees with an unsecured claim of $8,278.83 would receive the same amount of funds from the combined WEPP payment and the Distribution as those with a higher unsecured claim. I do not consider this an absurd result. It is simply a feature of the limited relief that the legislators intended to provide under the WEPPA.

[49] Second, Representative Counsel says that, on the AGC’s interpretation, the WEPPA would provide no benefit to employees in cases where Service Canada’s WEPP payment is repaid in full out of the Distribution. I disagree. Even in those cases, the employee will have had the use of the funds from a much earlier date than they otherwise would have received them on a distribution.

[50] Representative Counsel argues that the AGC’s interpretation amounts to an assignment of the employee’s claim, not a subrogation. I do not accept this submission. It is the subrogation rights in s. 36(1) that entitle Service Canada to recover the WEPP payments out of the Distribution that would otherwise go to the employee. There is no assignment of the employee’s rights.

[51] Finally, there is no issue with interpreting the WEPPA in this manner as benefits conferring legislation. On the AGC’s interpretation, the employees receive the timely, limited benefit to which they are entitled once their employer becomes bankrupt or insolvent. The WEPPA’s purpose has been served. Even if Service Canada is later able to recover those payments from available funds, the employees will have had the benefit of receiving the WEPP payment at a time when their employment had been terminated and they were most vulnerable.

Decision

[52] I direct the Proposal Trustee to pay to Service Canada, from the Distribution owed to a WEPP recipient, the amount of that Distribution on a dollar-for-dollar basis, up to the amount of the WEPP payments made to that recipient. The Proposal Trustee shall make the payment to Service Canada before paying the balance of the Distribution to the WEPP recipient.

[53] No costs are sought or awarded on this motion.

Conway J. Date: April 24, 2024

Footnotes

[1] The Proposal Trustee has brought this motion seeking advice and directions on the issues arising under the WEPPA before making the Distribution.

[2] The Proposal recognizes that former employees of Metroland may receive WEPP payments as well as distributions of any residual unsecured amounts from the Metroland estate. Under s. 2.3(f)(i) of the Proposal, Metroland agreed to remit approximately $4.6 million to the Proposal Trustee. If Service Canada determined that terminated employees were not eligible for a WEPP payment, the $4.6 million would be available for distribution to the terminated employees; otherwise, it would be added to the $3.7 million for residual unsecured claims. Since Service Canada has approved WEPP payments for certain employees, some or all of the $4.6 million is to be added to the amount of the distribution to unsecured creditors.

[3] There had been an issue with respect to the amounts that could be offset against the WEPP payments under s. 7 of the WEPPA. Counsel confirmed at the hearing that this was not an issue to be decided on this motion. Counsel further confirmed that the Proposal was approved and will be implemented regardless of the outcome of this motion. The creditors knew about the WEPPA issue when they approved the Proposal.

[4] Service Canada may not have expected to fully recover its WEPP payment of $3,000 because the super-priority claim for unpaid wages was only $2,000. On a bankruptcy or insolvency, there often limited or no funds available for unsecured creditors.

[5] The Minister of Labour has been designated to administer the program established by the WEPPA.