When deciding whether to take a company into bankruptcy, business owners often worry about the effects of the bankruptcy filing on others, including employees and other professionals who have dedicated their careers to the company.
Many business owners feel a sense of moral obligation to their employees and may delay filing for bankruptcy out of the perceived impact it could have on staff members.
How much impact does business bankruptcy have on the rights of employees? Ultimately, it depends on whether the business will reorganize or liquidate.
When a company decides to reorganize its debts under Subchapter V of Chapter 11 or traditional Chapter 11, restructuring may involve reducing the number of employees on the company’s payroll. For the most part, however, the businesses continue operating as usual.
In scenarios involving liquidation, the company is usually shut down so that the company’s assets can be liquidated for the benefit of its creditors. When that occurs, employees may benefit from learning about the upcoming changes sooner rather than later. That way, employees can start looking for new employment and can protect themselves from the hardship that could come with a sudden loss of income.
A business bankruptcy inevitably has an impact on workers, but business owners and directors preparing to file can still do right by their employees. Reviewing the reasoning behind the bankruptcy and the future of the company with a skilled legal team can help leaders minimize the long-term impact that restructuring or organization bankruptcy has on people working for the organization at issue.