The Supreme Court faces a decision that could change Chapter 11 bankruptcy indefinitely. In 2006, the Jevic Transportation Company was buyed out for $77.4 million by the private equity firm Sun Capital Partners. Two years later, Jevic had to file for Chapter 11 bankruptcy because of too much debt. The bankruptcy put 1,785 drivers and staff out of work, but the employees sued for wages under federal law and state law since they weren’t warned 60 days ahead of time before the mass layoffs. The employees and creditors also filed suited against Sun Capital and Jevic’s main lender, CIT Group for fraudulently forcing Jevic into bankruptcy.
Sun Capital and CIT Group settled with only the creditors and not the laid-off employees, and here lies the problem. In normal practice, the employees who lost jobs should receive money before any creditor owed money. The creditors received $3.7 million while the workers got nothing from the deal.
The Supreme Court thus faces the case of Czysewski vs. Jevic Holding Corp. The corporation fears that if the court rules against them, then that would bring into question every case where creditors were paid in suits, especially in the early practices of bankruptcy. The drivers fear that if they lose, then bigger parties will have the power to squeeze out any small party they choose.
The workers have an abundance of support from both the Loan Syndications and Trading Associations, as well as a friend-of-the-court brief signed by nineteen law professors. They share the same desire to keep intermediate creditors from being squeezed out by senior and junior creditors.
Jevic and its private equity owner argued that the settlement was the best option for the creditors. If the company was liquidated, small creditors would receive nothing “because of secured creditor liens on the company’s assets” according to the NY Times. The company thought it would be better for creditors to receive a smaller portion and that would be in the best interests of most amount of creditors overall.
A decision has yet to be reached.