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Comment by httpz | Hacker News Reader

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.

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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?

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.

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.

"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).

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.

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

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