Workers Are Pushing for Their Share of U.S. Bankruptcy Payouts

March 05, 2019

Workers can lose everything when their employer files for bankruptcy. At least for now.

A pro-labor movement sparked by the employees of Toys “R” Us Inc., and taken up by Sears Holdings Corp., has reached the U.S. Congress.

Representative Tim Ryan, an Ohio Democrat, said he plans to reintroduce 2017 legislation that would define worker claims in bankruptcy as administrative expenses, meaning they’d be paid in full, like the investment bankers, consultants, lawyers and liquidators who earn millions of dollars dismantling dying companies.

Changing the bankruptcy code to elevate worker claims could make new creditors more reluctant to provide rescue financing to preserve a company and its jobs, said Patrick Collins, a bankruptcy lawyer at Farrell Fritz in Uniondale, New York.

“It shifts value from one class to another and it makes it harder to confirm a plan” that would allow a company to exit bankruptcy, he said.

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