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Comment by fsckboy | Hacker News Reader

Chapter 11 petitions have been accurately and usefully described in other comments, I justed wanted to add, chapter 11 doesn't "cap" or "downfall" anything, just as record profits don't cap or downfall anything. It's an orderly measure to try to preserve as much value as possible for stakeholders.

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The question is, who gets the short end of the stick under such circumstances?

The court decides but the rules are quite literally written in the Chapter 11 of the United States Bankruptcy Code. The shareholders usually gets the shortest end of the stick.

I believe creditors are first in line. Then preferred shareholders, then common shareholders.

There is a lot more to it than that. For instance, employees mostly come before other creditors.

How is it that time and time again, business die and the executives walk away with a parachute while the regular employees walk away with not even the rest of their pay, but hacker news and Reddit consistently states the regular employees come first?

The anecdotes are not aligning with the observations. So what’s the deal here?

if there's any money at all, employees get their pay. Shareholders can be forced to go in their pockets and pay employees wages due.

I don't know of this happening to a large corp, but if a local restaurant goes bankrupt, or a local construction company, and the owner is not also bankrupt, they can be forced to pay employees. Usually they are also bankrupt. Not sure if those debts survive through personal bankruptcy.

You may be referring to employees losing retirement or other benefits like that, but the worst of those loopholes have been closed (the pension can't be in the company's own stock, that type of thing)

> Shareholders can be forced to go in their pockets

no they cannot. Shareholders can only lose at most the capital they put in originally - they cannot be liable for additional debt.

> the owner is not also bankrupt, they can be forced to pay employees.

That would be because the owner mixed their own personal wealth with their business (e.g., as a single entity), instead of a limited liability company. Therefore, any assets the owner has is subject to be sold to pay the debt of the business. It's why only small businesses, owned by a single owner (who would have nothing else) is done this way (cheaper administratively i presume).

Not true in many locations specifically for unpaid wages:

https://cmmllp.com/shareholder-liability-for-unpaid-wages/#:....

That is fair enough. I did not realize this was enacted about 5 years ago.

That seems to be New York State soexific( rather than federal.

It’s usually state labor laws. Some states don’t have it, most do. Wages are treated as a special case, often with these type of forced payout clauses and even criminal penalties.

"top 10 shareholders" is quite a specific class of shareholders

It's similar to the class of shareholders that have disclosure requirements (such as owning more than 10% of the shares).

We're talking about Chapter 11 here, which means the plane has already crashed and the court is deciding who gets what on what is left of the plane, which could still be somewhat valuable. People with golden parachutes already jumped off before the crash.

Do preferred shareholders still get their liquidation preference in a bankruptcy? I don’t think they should, they are usually the ones responsible for the bankruptcy. Common shareholders are going to be the employees in this case with ESOPs or RSUs, getting the shortest end of the stick.

Preferred shareholders can be VCs who are usually not directly responsible for the bankruptcy. Also, WeWork is a public company so common shareholder can really be anybody, not necessarily all employees.

https://www.law.cornell.edu/uscode/text/11/507

In theory the existing shareholders should be the first to lose their stake - though those with inside access can benefit by re-investing at a low price once the restructuring is complete.

Those owed debts can lose much of what they are owed. In the case of WeWork, landlords will likely lose a lot of owed rent, and lease agreements will be cancelled or renegotiated at much lower rates.

Employees are meant to be at the top of the list to be paid what they’re owed, but that’s still contingent on funds being available to pay them.

Usually the lenders / creditors.

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