Contact: John Hartgen
703-894-5935
ABI JOURNAL ARTICLE DETAILS HOW
TERMINATED EMPLOYEES SCORED A KEY RULING ON PRIORITY TREATMENT OF
SEVERANCE CLAIMS
September 6, 2011, Alexandria, Va. — An
article in the September edition of the ABI Journal looks at a
recent district court ruling that provided laid-off employees with a key
victory on the priority treatment of severance claims. Author
Gregory Fox of Friedman Kaplan Seller & Adelman LLP
(New York) explains how the U.S. Court of Appeals for the Fourth Circuit
addressed the issue in the chapter 11 case of Land America Financial
Group, Inc. The Fourth Circuit upheld a bankruptcy court ruling to grant
full priority treatment to severance claims of laid-off employees of
LandAmerica. “This case represents a bittersweet victory for the
workers who are often the casualties of bankruptcy, and should be
considered carefully by corporations seeking to address severance
obligations through a chapter 11 plan,” Fox writes.
Employee layoffs are frequently part of a failing company’s
cost-cutting strategy. During the 180-day period prior to filing for
chapter 11 in 2008, LandAmerica terminated 125 employees who, as of the
bankruptcy filing, had not received their severance payments owed to
them under the company’s severance plan. The former employees then
filed proofs of claim against the company’s bankruptcy estate,
seeking priority treatment for their claims up to the statutory cap set
by § 507(a)(4) of the Bankruptcy Code. The liquidating trustee
appointed under LandAmerica’s confirmed reorganization plan
objected to these proofs of claim in 2010. The bankruptcy court
overruled the trustee’s objections and held that the severance pay
was earned on the date of the worker’s termination and the
severance claims brought by the former employees were entitled to
priority treatment. On July 6, 2011, the Fourth Circuit affirmed the
bankruptcy court’s ruling that LandAmerica’s former
employees should receive priority treatment to recoup their severance
claims.
“The Fourth Circuit bolstered a significant employee-protection
statute and went against the grain of case law that had been upholding
debtors’ and trustees’ efforts to limit the amount of
severance obligations that actually reaches the pockets of terminated
employees,” Fox wrote. “In the future, debtors seeking to
take advantage of the chapter 11 process will need to consider the
result in LandAmerica if they have significant unpaid severance
obligations incurred six months in advance of the bankruptcy
filing.”
To obtain a copy of “Laid-Off Employees Score Key Victory on
Priority Treatment of Severance Claims,” published in the
September edition of the ABI Journal, please contact John
Hartgen at 703-894-5935 or via email at
href='mailto:jhartgen@abiworld.org'>jhartgen@abiworld.org.
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