Legal Question in Bankruptcy in Maryland

Re: Employer chapter 11 question

On the one hand the parent can argue that it is being a Good Samaritan by taking care of the people who have taken care of it. Given the holiday season and the events of September 11, this type of altruism is not surprising.

The one potential illegalty I see would have to do with their taxes. The company may end up reporting salary expenses that they did not incur during the prior month. Shareholders could also bring a suit where this action drives up expenses unnecessarily and adversely impacts shareholder wealth. The company may be opening itself up to a shareholder's derivative suit.

I sincerely cannot call this action unethical given the reason for doing it, however, the action has created exposure to potential legal action. Also, were all employees treated this way? There may be grounds for discrimination claims but I am not sure on this one.

Alton Drew

Alton Drew

Re: Employer chapter 11 question

Retaining the employees to collect debts is proper

in a Chapter 11. Moreover, the employees' back pay gains

the highest priority during the bankruptcy proceeding so

retaining them and paying them to effect the collection

of debts is a proper function during such a proceeding. Otherwise, the

company could have hired collection agents or attorneys to

pursue the claims and this clearly would not have been a

good economic choice. There are a multitude of other issues

embedded in your situation, and these are too numerous to address given the

lack of factual matter provided in your question. The following are just a few: discrimination claims may lie,

inequity with severance packages, usurpation of opportunity (the parent company seizing

resources properly attributed to the subsidiary company), and diversion

of assets subject to the bankruptcy (where the collected debts were not included in the proceeding).

DISCLAIMER: The foregoing is not legal advice but rather information about the law. No attorney-client

relationship is founded by this communication and no reliance thereon should be placed. This information is neither

confidential or priviledged. When dealing with a legal issue, the best advice is to obtain the assistance of an attorney.