New Bankruptcy Ruling Could Hurt Employees Whose Company Goes Belly Up – Are You at Risk?

Supreme Court considers bankruptcy case
Image Source: Flickr User David

This bankruptcy issue is so controversial that the Supreme Court has agreed to hear the case of Czyzewski vs. Jevic Holding Corporation and it’s all about how employees are prioritized in bankruptcy. There has always been a pecking order that placed employees near (but not at) the top of the order to receive money when a company fails and files bankruptcy, but a New Jersey trucking company’s bankruptcy has shaken that up and has all eyes watching for the SCOTUS ruling.

The Jevic Case

Jevic Transportation is a New Jersey company that was struggling and was bought out in 2006, and when that flopped, filed bankruptcy in 2008. According to critics, the company that did the buyout, Sun Capital Partners, piled debt onto the trucking company and it never had a chance. When the company officially went belly up, more than 1,750 drivers and other employees found themselves jobless without notice. The lack of notice violated state and federal laws on mass layoffs.

The legal team representing the employees says those laid off are owed roughly $8 million altogether. This claim was part of the bankruptcy petition along with other creditors that Jevic owed at the time it went under. The employees filed suit against Sun Capital and CIT Group, the company that funded the leveraged buyout of the New Jersey trucking company, alleging that the terms of the buyout fraudulently forced Jevic into bankruptcy costing nearly two thousand workers their jobs.

The Sketchy Bankruptcy Deal

The standard order of payout when a business goes bankrupt is that those who have debts secured by assets get paid first. This means that if Jevic has trucks and properties that were financed, those lenders would be first in line when funds became available from the sale of assets and other proceeds. After that, attorneys and others involved in the administration of the bankruptcy are next in line. Next are “junior creditors,” and this is where employees are prioritized

After employees, there are other unsecured creditors and shareholders will get any equity that’s left but there is usually little to none left over. The controversy with this case is that Sun Capital and CIT cut a $3.7 million deal with unsecured creditors that should have ranked behind the employees. The Jevic employees were then left with nothing. The employees’ case has worked its way through the court system all the way to the Supreme Court which has now heard arguments.

Why This Case Is So Important

Because Sun Capital and CIT broke protocol by skipping over a class of creditors with greater priority in bankruptcy, it could set a dangerous precedent if it’s allowed to stand. Law professors that have filed briefs in the Supreme Court related to the case believe this is dangerous because parties in bankruptcy could conspire to skip ahead of other creditors if they’re willing to cut a deal with the company filing bankruptcy.

The bankruptcy judge that originally approved the deal defended his actions saying it was allowed under the law and necessary because Jevic was in “dire circumstances.” The appeals panel was split 2-1 and called the settlement the “least bad alternative.” However, since the employees and their attorneys allege the dire circumstances were directly caused by the actions of Sun Capital and its financial backer, there was no reason to allow the bankruptcy to skip steps.

How This Case Could Affect You

Businesses go into bankruptcy every day. If you’re working for a company that goes under, you might find yourself without wages, insurance, and other benefits. Not all companies that go into bankruptcy will fail but many do. Protecting yourself if you hear talk about your company going bankruptcy is wise. That might mean saving up extra money, dusting off your resume and hunting for a new job, cutting back on expenses, and postponing major purchases are things to consider.

If you’re struggling with debt because of a job loss or major life event, filing individual North Carolina bankruptcy might be a good solution. Contact the Law Offices of John T. Orcutt. Call +1-833-627-0115 now for a free North Carolina bankruptcy consultation at one of our offices in Raleigh, Durham, Fayetteville, Wilson, Greensboro or Wilmington.

Resource:

Supreme Court docket