A $500,000 hardship fund created for former Sears Canada employees is facing a possible $200,000 shortfall, according to court documents.

The problem appears to be with a Sears executive who pledged to donate the $200,000 from a retention bonus, but may now be hesitating to cough up the cash.

"There is uncertainty regarding the agreement of the [bonus payment] beneficiary who previously proposed to contribute such funds to now proceed to contribute those funds," the court-appointed monitor for Sears Canada says in the latest report to Ontario Superior Court.

The hesitant beneficiary appears to be Sears executive chairman Brandon Stranzl. He's heading up a bid to buy the retailer, but talks are not looking promising.

Ursel Phillips, the law firm representing current and former Sears employees, fought for the hardship fund for destitute laid-off workers. The firm's lawyer, Susan Ursel, said that as far as she knows, Stranzl had intended to donate the fund's entire amount of $500,000.

She says it's her understanding he has already donated $300,000 from his retention bonus, but has not yet offered up a second lump sum of $200,000 from his second bonus payment, which he received in late September.

During Sears bankruptcy hearings Wednesday, Ursel asked that executives stop receiving retention bonus payments until the matter is resolved.

"The judge said, 'That's reasonable, they agreed to a hardship fund, they shouldn't be using this money for other things,'" she said.

'It was a joke'

Sears Canada agreed to the hardship fund, which got court approval in August and was supposed to supply up to $500,000 for financially strapped employees.

None of the current 3,100 laid-off workers are receiving severance or continued benefits.

All the funding was set to come from the $7.6 million in retention bonuses that the retailer pledged to pay 43 executives and senior managers in instalments during Sears' restructuring.

CBC News asked Sears Canada about the hardship fund's status, but a spokesperson said he couldn't offer any details because the retailer didn't announce the program or confirm which executives were donating a portion of their bonus payments.

Laid-off Sears worker Zobeida Maharaj says she can't imagine the employee hardship fund becoming any smaller. (CBC)

The prospect of a $200,000 shortfall for the fund is not sitting well with financially strapped workers who have lost their Sears jobs.

"I'm disgusted with that," says Zobeida Maharaj. The laid-off senior operations store manager spent 28 years working for Sears in the Toronto area.

She plans to apply for the hardship fund because her husband will also soon be laid off from his job in the auto industry. Maharaj says that when the program was announced, she felt half a million wasn't enough.

"I really thought it was a joke, that little amount. Out of the big bonuses they were given, all they could put aside was $500,000."

For her, the prospect that fund may now drop to $300,000 is distressing.

"I'm just in awe. I didn't think they would sink any lower, but they did," says Maharaj, who has already lost a year's salary in severance payments. "Do they have any kind of human heart? You're affecting people's lives."

CBC News spoke to a source who appears to be in Stranzl's camp and is close to the Sears bankruptcy hearings. He said Stranzl was the only executive who coughed up cash for the hardship fund, and that now Sears can help its employees by approving Stranzl's bid.

"The best way to help them now is for Sears Canada to stop delaying, stop selling off the company in pieces, and to accept the only bid they've received — and the only bid that will keep Sears Canada alive, and save thousands of jobs," he said in an email.

Wasted money?

The monitor's report says that the hardship fund has received 22 applications, 15 of which have been approved. So far, $35,000 has been paid out or committed to recipients.

The report also notes that fund recipients also receiving employment insurance are losing out. That's because the recipients must report the extra funding as earned income, which then reduces or eliminates their EI payments.

The employees' law firm is speaking with Service Canada regarding this problem, says the report.

Sears Canada is closing 58 stores and laying off 3,100 workers as it struggles for survival in a court-supervised restructuring process.

On Wednesday, the cash-strapped retailer will seek court approval to shut down 11 more stores, which would result in 1,200 more layoffs.

Sears will also ask for permission to extend the court's protection from creditors until Nov. 7 while it continues negotiations with Stranzl and his bid for the retailer.