Employee-Related Liabilities in Restructuring

While companies today are less exposed to defined employee benefits than they were in the past, the lessons from historical restructuring transactions in these areas can and have been applied to other types of nondebt liability claims. These types of claims will surely continue to play a significant role in causing corporate financial distress in the years to come, especially given the rise of mass tort bankruptcies. Such lessons include how to utilize (1) the Chapter 11 bankruptcy process to consolidate and adjudicate large amounts of similar claims and reduce the size of competing debt liabilities, (2) estimates of contingent claims in order to expedite what might otherwise be an expensive and lengthy bankruptcy process, and (3) trusts to separate the claims-adjudication process from the business enterprise, while forcing the debtor to make a meaningful contribution to the solution. Through these mechanisms, a proposed restructuring plan may have a higher probability of maximizing the value of the estate for the benefit of all claimants and stakeholders.