“Two questions about what happens when an employer declares bankruptcy – one from Oregon (U.S.), one from Ontario (Canada)”

Question #1: My company is filing for Bankruptcy under “Chapter 7.” It owes me expense monies and commissions. Do I have any recourse to collect these?”

A Blog Visitor from Portland, Oregon

Answer #1: In the U.S., Chapter 7 Bankruptcy means that the company is truly going out of existence (often called a “complete liquidation.”) All of the company’s assets are collected by a single person, called the Bankruptcy Trustee, who then applies those assets to satisfy as much of the liabilities as possible. There might be 10 cents of assets to pay off each dollar of liabilities, or there might be 95 cents of assets to pay off each dollar of liabilities. Ultimately, the Bankruptcy Judge assigned to the case makes final decisions on payments.

If you write a letter to the company, preferably by certified mail (or to the Trustee if you know who it is) and state that you are owed commissions and expenses, you will receive a Bankruptcy Court form that you need to fill out, and return as directed. This will make an official record of your claims. After that, the Trustee, will keep you informed periodically of any progress. The process can take years, but does get done eventually.

Question #2: When an employer gets bankruptcy protection, and a successor employer takes over, is the successor employer responsible for the termination and severance pay for employees laid off by the original employer?

A Blog Visitor from Peterborough, Ontario

Answer #2: Your employer seems to have chosen not to “liquidate” in bankruptcy, like the employer above, but instead is “emerging” from bankruptcy, to “live another day.” That is what we call “reorganization” bankruptcy. In reorganization bankruptcy, the Judge does not simply match up assets and liabilities, but also tries to do what he or she can to give the company a “fresh start” as a going concern.

I am only partly familiar with Canadian bankruptcy laws. I believe they act similarly to the U.S. laws, in that they seek to gather together all of the assets, and pay off the liabilities of a company in bankruptcy, to the extent that is possible. If Canadian bankruptcy law acts the same as U.S. bankruptcy law, you will be treated as a creditor, paid off to the extent the Judge feels it is feasible, and then the successor company would be given a “fresh start,” free from your claims and the claims of all others, as well.

I highly recommend you contact the Office of the Superintendant of Bankruptcy, an agency of Industry Canada. They can be reached in Ontario at (613) 995-2994, and have a very helpful website at www.ic.gc.ca/eic/site/bsf-osb.nsf/eng/home.

Thanks to you both for your questions. Please consider subscribing to our blog . . . it’s free.

Best, Al Sklover

Model Agreements for Consulting, Independent Contractor & Partnership. Just [click here.]

P.S.: If you would like to speak with me directly about this or other workplace-related subjects, I am available for 30-minute, 60-minute, or 120-minute telephone consultations. (Even 5-minute “Just One Question” calls). Just [click here.] Evenings and weekends can be accommodated.

Print Article