Terrie's Job Tips -- What if Your Company Goes Bankrupt?

The last four weeks have created unimaginable fall-out in the financial markets, with the USA going from five major investment banking firms in March 2008 to none in September. Of these, Lehman Brothers was allowed to go bankrupt, Bear Sterns was sold off to J.P. Morgan Chase, and Merrill Lynch was sold to the Bank of America. Morgan Stanley and Goldman Sachs substantially shored up their capital with outside investors as well as converting into fully regulated banks.

Given that these companies all have a major presence here in Japan and are major employers of foreigners and bilinguals, we have been following this dramatic unfolding of events with special interest. The initial direct effect to the recruiting community was of course a surge in resumes from people working at these companies, who have suddenly realized that their job security may not be as good as it once was. In fact, this surge didn’t last long, because Nomura Securities soon announced that it had successfully bid for the Lehman businesses in Asia, Europe, and the Middle East, and that it planned to keep the bulk of Lehman’s 5,500 employees on.

Nonetheless, during the short span of mental freefall for these employees, we couldn’t help wondering what actually happens when your employer goes bankrupt suddenly? Are you simply pitched out on the road and made to wait for payments along with all the other creditors, or is there a special process to ensure that employees are properly looked after? To find the answer to this, we turned to our own company “Sharoshi” (Labor Consultant).

What we were told is that when a company files bankruptcy in court, in order to protect the company assets while it reorganizes, the general procedure is that the company will be required to make an orderly disposition of its assets and use the incoming cash to pay off creditors. Apparently, taxes come first, followed by employee obligations, then outside creditors, and finally the shareholders. So from this point of view, so long as your employer has sufficient assets and the bankruptcy was voluntary, then you can be reasonably sure that even though you may have to wait a while for your salary it should nonetheless come.

Of course, a company seeking court protection is not a company in good shape, so the payment order doesn’t mean that you won’t get laid off. Therefore, it is best to keep in mind that you could be collecting your salary, bonus, and severance pay all at the same time…

Where a company goes bankrupt after being forced to do so by creditors, or by the board of directors admitting defeat – which happened in Nova’s case last year, the situation is a bit different. Here the company did not have sufficient assets to pay the employees, and I believe that many teachers were short-changed by the company. Of course they can sue to get whatever comes out from the court-appointed receiver as the firm’s assets are finally disposed of, but the amounts could be rather small.

The moral of this story, then, is that if you find out that your employer is somewhat shaky, you may want to make sure that you are completely up-to-date with holidays taken and financial claims made, so as to lessen any potential impact on your personal finances later. Also, remember not to take any job for granted. Even the largest and best-paying of employers can be unexpectedly sideswiped by global events and wind up not being able to take care of its own.

Meanwhile, for those employees at Lehman, the question is now one of whether Nomura will continue paying at the same levels that the previous owners did, and whether the career prospects will be the same. My guess is that Nomura, being more team oriented and less short-term profits focused, will eventually want to bring Lehman salaries and career development in line with the rest of Nomura. Thus, this is probably a good time for Lehman people to be reassessing their financial and career priorities.