Influences of Corporate Bankruptcy

Corporate Bankruptcy- How It Affects Employees

There are mainly two chapters under which a bankrupt company can file a financial distress case. These are chapter 7, also known as the liquidation chapter or chapter 11 which allows the company in debt to pay as they continue operating. When a corporate insolvency petition has been filed under chapter 11, the court appoints an official who takes up the responsibility of making financial decisions in the company while the managers continue with the day-to-day running of the company.

Corporate bankruptcy filed under chapter 11, gives the company a chance to reorganize as they pay their pending debts. There are proposed changes in the company financial distress petition. These are under the Bill C-55. Claims for unpaid wages and vacation pay will be given first priority. Presently secured creditors are given first priority, followed by unsecured creditors. This change will be enacted under the Wage Earner Protection Program, WEPP.

The WEPP, which will be under the ministry of labor and housing, was formed to compensate workers who have not received their monthly payments and vacation pay six months prior to the filing. This bill intends to protect workers under their umbrella in case their company decides to declare insolvency. This bill also seeks to protect employees retirement benefits and any retirement plans that the employee could have in case the company became insolvent. Any such retirement plans will be given priority above the secured creditors.

Corporate bankruptcy will also protect the contracts of the employees. The debtor company will have to serve the court with an order that, in order to restructure they might need to cut down the number of employees. The company has to convince the court that this step will help them come out of debt.

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