First goes secured creditors, like Eddie.
Next goes the bankruptcy administrators,
third goes payroll, pensions, vendors, taxes, and other unsecured debts.
Last come shareholders.
Given the total lack of equity, there third tier might come up short.
8 replies (most recent on top)
I have no dog in this fight and have never posted here, but the lack of totally off-base information and wishful thinking that is posted here is just short of dangerous in it's potential if people take it as truth. First, there is a lot of gray area in BK of any type, 7, 11, total and involuntary or voluntary. A lot of deals are to be made by the Fed BK judge & BK trustees in the case. Nobody has even mentioned the category of SuperCreditor (I know, you'd think the BK court would have a better name) of which part of Eddies debt must surely be. I seriously doubt he would have jumped through all the hoops thus far without obtaining first position. And remember that he has shareholders on his HF side to protect as well. But all this is almost a moot point because what matters is AFTER Bk. It may have been better for employees if the company had just continued to voluntarily wind down instead of being forced into BK of any type. Be assured that once the filing is done, virtually ALL credit that is acquired by SHLD after that will have priority over all previous debt...that's why it's called Debtor in Possession Credit. This should be obvious, why do you think all the vendors, lenders, et. all are waiting until after the BK filing to provide credit, goods, services to SHLD? Because of the assurance of first position debt. All existing debt, pay/pension obligations, etc. will be wacked by the BK filing instead of pro-rated at their tier with an orderly wind-down. Say what you want about Eddie and the upper investors, their credit positions typically get paid with any type of wind down. His losses are already locked in and his shareholders have long since departed and his gain/loss by these final procedures are minimal. I'm a little confused why he has been fighting this hard for company with a micro-cap since there is so little upside for his investment. From pure biz perspective, he should have cashed out and gone home a long time ago. Purchasing the real estate, brands & services with "cents on the dollar" is not a good strategy when you are also the person on the other side of the equation that has lost the cents. Bottom line, with any BK filing, which looks inevitable at this point, the extra filing and processing costs of just the administration of the BK will probably wipe out $100s or millions, it will make all creditors from this point forward have position, and it's sad that anyone thinks that third tier (common) debt holders will get anything other than a nice update letter from the BK judge about every 6 months. And for future reference, here is how you know if posters know anything about the BK process....if you think the payroll and payment process is anything but slow once it must go the extra steps of approval but a bunch of lawyers on BOTH sides of the debt, the trustee(s) and the BK judge, you'll have aged several years before you understand how undesirable BK is for ALL parties. My heart goes out to all effected here but it's time to plan with some information for the sake of your families. I hope my input helps a bit even if it's not what you want to hear. I don’t plan to post anymore so don’t read anything into my non-response to what I’m sure will be confrontational responses. I get it, this s---s for everyone. My best wishes for you all.
In a chapter 7 liquidation, the court decides who gets paid and how much. And it will take months to get your pay. It will not be business as usual.
If they pull off chapter 11, then yes. There will be massive cuts on the next day, to the point where there is only barely enough to run. Hoffman is going to get hit with an axe. They will pay only legally required payroll. Which probably means no vacation, no severance. This is as bad as it gets.
there is enough money to pay employees. Management keeps enough money to pay employees and payroll taxes to avoid jail or worse. You don't want 80,000 mad employees
@1plb If there were to really not be enough money to pay all the employees, I'd think the final paychecks for everyone would be pro-rated (all reduced by the same percent).
A hypothetical question:
If we have 3 employees and we can pay only 2, who will get paid?
What kind of criteria will be used here - someone will get the short end of the stick, but who?
First paid is employees salaries and vacation time. Then secured creditors, non secured creditors then stockholders
+1