jps wrote:


Are the union concessions considered owed payroll or wages? Under BK
law, anything that's owed to the employees comes before everything,
including secured debt.




I believe they are handled a little bit differently.

Employee wages owed and taxes are two of the few liabilities that transcend
the "corporate veil".
Officers of the corporation can be held personally liable for them in the
case of bankruptcy.
I am not 100 percent sure how it works and how they are handled when it
comes to satisfying secured creditors.

I'll give you an example. A company I worked for back in the 80's was
forced into de facto bankruptcy.
The owner had put his house up as collateral for a business loan. He
defaulted and the bank called the note. Vendors were also knocking the door
down looking for their money for past due invoices. None of us knew
anything about it until our paychecks bounced one payday. The bank had
gone to court and had all the company's accounts frozen in preparation for
an expected bankruptcy court proceeding.

I was not officially an officer of the company, but had a small stock
position and the title of "Director of Engineering". I was also relatively
young, only a few years out of the Navy, enthusiastic about the company and
naive as hell. The owner turned out to be a sleaze and knew the bank was
going to call the note (30 days notice is required by law) and he took off
to Maine on "vacation" the week it occurred. He didn't want to face the
music.

When people started coming back from trying to cash their checks and told me
they couldn't cash them, I called the VP at the bank who handled the
company's accounts. He told me, "sorry, I can't comment". Meanwhile, I
was also trying to contact the company owner, without success.

So, I called our corporate attorney. He checked into it and called me back
a half hour later.
He told me to listen carefully and do exactly as he instructed. He told
me to call a company meeting that afternoon and inform everyone that they
were laid off, effective immediately. He said anyone who wanted to continue
working needed to sign a document that he (the lawyer) prepared
acknowledging that they did so voluntarily. It was a mess. We were
working on a major project and were a few days away from receiving a
significant progress payment, which would resolve the bank issue. Some
people stayed and continued working to help get that payment.

Long story short .... the company was eventually put into Chapter 7 and an
auction was held to sell whatever assets it had. It was fixed. Another
company came in and bid on the whole operation in a "fire sale". I remember
it well because their first bid wasn't enough to satisfy the bank note and a
recess was held while the bank VP, the company owner and the bidder went off
to an office to talk.

They came back out and the bidder opened with another, higher bid than the
one that he had previously just announced.

It was a very educational experience for me who had virtually no knowledge
of business or how situations like this were handled. I left that company
shortly after the auction, did what unemployed engineers do ....
"consult"... and then decided to start the company I founded in 1990.
The described experience was good and I learned a few lessons. The first
one was that I never used a bank for financing that type of company.

Banks are no risk operations and don't belong being involved in a high tech
type business that they don't understand. They are fine for well known
industries and products, but not for a business that they can't look up an
asset in a book and get a fair market value.

In fact, I never borrowed any money for the company. It grew slowly out of
profits, when we had any. A couple of key people were given "sweat equity"
stock for their participation and one, who joined in 1998 invested $100k
for 20% of the company stock. Two years later, when lightening in a jar
struck and I sold the company, he walked away with over $4M.

I could write a book, I swear. I had dinner one evening with the
president of one of our major vendors.
He was an MBA and had run the finance department for a Fortune 500 company
before getting tired of the rat race and bought the company that we in turn
bought equipment from. He asked me how my company was financed. When I
told him how we operated, he put his drink down and stared at me in
disbelief.

He couldn't begin to understand how it was possible. It violated everything
taught in business schools. Being a financial doofus, I explained in plain,
non-financial terms how we did it. He told me a few years later that he
had begun to adopt some of our business and financial ways of doing things.

One thing I am very proud of. We had our ups and downs but we never missed
payroll (except mine occasionally) and never screwed a vendor. Didn't have
to worry about any other creditors because I didn't have any (other than
rent, etc.) Every invoice the company ever had was paid in full.

It wasn't a big company by any measure .... the revenues grew from less than
half a million the first year to just over 17 million the year I sold it.
But it was run with more common sense than brilliance.

Eisboch