Bankruptcy cases are often filed after a distressed company has determined the only way for the business to survive as a going concern is to pursue a sale. The sale process is conducted prior to the filing, and the case is filed, together with a request that the court approve the sale of the company pursuant to the terms of the negotiated sale agreement unless a higher offer is received. Often there is no alternative, and the question is whether the sale to the bidder will be approved and closed. If it does not close and the company is forced to liquidate, other federal laws may come into play.
One consideration is whether the debtor has complied with the Worker Adjustment and Retraining Notification (WARN) Act, 29 U.S.C. Sections 2101-2109. The WARN Act requires, among other things, employers that meet certain statutory criteria to give employees at least 60 days’ notice of impending mass layoffs. A company that fails to give the required notices will face WARN Act claims from its employees, and these claims may be entitled to priority pursuant to Section 507 of the Bankruptcy Code. This issue was addressed in a recent decision of the U.S. Court of Appeals for the Third Circuit, in Varela v. AE Liquidation, (In re AE Liquidation), 2017 U.S. App. LEXIS 14359 (Aug. 4), where the Third Circuit adopted a strict “more probable than not” standard as the trigger for an employer’s obligation to issue WARN Act notices, and held the debtor was not liable under the WARN Act.
