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What will a Chapter 11 bankruptcy do to your essential staff?

On Behalf of | Mar 23, 2022 | Business Bankruptcy

Chapter 11 bankruptcy will typically involve restructuring the entire company and renegotiating specific business debts. Your company will likely need to streamline staff by eliminating redundant positions or entire departments. If you have multiple locations, you may close less-profitable ones to focus on the most successful ones instead as you rebuild.

The staff that you hope to retain during and after the Chapter 11 bankruptcy will have a lot of work on their hands to help you bring the business back into the black. Can you count on all of your best and hardest-working talent sticking with the company through the bankruptcy?

Employees often suffer in Chapter 11 proceedings

You need to consider how bankruptcy will affect the workers you hope to retain, not just the company as a whole. Workers can feel the stress of extra work after you eliminate other positions and departments. They may feel like they have little job security. If there are unpaid wages, emotions may soon become intense.

Companies have to re-evaluate and renegotiate their obligations in a Chapter 11 filing. All too often, outside creditors receive full consideration while employees have to make major concessions during collective bargaining. This will impact the likelihood of certain people staying with the company.

For example, workers may assume that the company will try to terminate pension obligations to them. Such practices are common if the company transfers hands during the bankruptcy process. Others assume that the company’s workforce will need to make major concessions about pay, benefits and other concerns during the bankruptcy process.

If your staff members believe that they will lose opportunities and pay or be at increased risk of sudden unemployment when the company fails in the future, they are less likely to stick with the business as it rebuilds through the Chapter 11 process.

Prepare for major changes in your staffing

Simply put, the terminations your company initiates during this process will only be the start of the human resources changeover that occurs during Chapter 11 bankruptcy.

Planning carefully so that the company will not suffer any major setbacks from the loss of specific workers that you retain could be the difference between succeeding in a Chapter 11 filing and floundering as a company when you lose the workers who keep things going.