Having actually worked as a financial advisor in “restructurings” aka bankruptcies, many (most?) of the comments in this sub thread are not correct. Pre-petitio

Having actually worked as a financial advisor in “restructurings” aka bankruptcies, many (most?) of the comments in this sub thread are not correct. Pre-petition, post-petition and restricted payments (say management bonuses a few weeks before bankruptcies which are ellgibile for claw back) are treated differently. There is a strict order of preference (priority) which can be found in the bankruptcy code. Generally, employee wages are sacrosanct. What ends up happening with vendors is the following: “hey guys everything pre petition is washed, but here’s 2 cents on the dollar for your claim, AND the bankruptcy court has allowed us to use cash collateral to keep using you, soooooo, since it’s a sunk cost, how about you keep servicing us? And when we emerge the bk court requires a test of financial validation to our plans so you’ll know for sure we’re safe. “. As unfair as that is, many/most vendors take the deal. A large vendor will have a certain small %age of their customers go bk every year so they’re generally sophisticated and know how to play the game. Same for landlords. Also the unsecured creditors have a committee through which they voice their concerns. Further, if you play games and try to not sign the bk papers as a debtor, 7 creditors can band together and force you in, which doesn’t usually happen because of the game theory around that. But basically, as a general rule, don’t fuck around. Your scenario as described is unethical, and a virtuous investor would have topped up those delinquent payments with some premium since those employees essentially funded the company with financing. In a bk, you also have access (I won’t explain this) to debtor in possession financing which is super senior to everything except basically tax liens iirc, and if there’s a working capital deficit like the wages mentioned in your case, those can be resolved. The courts are very very strict on the bright line on pre and post petition spend and liabilities and shenanigans aren’t really tolerated. Also, the “zone of insolvency” brings significant liability to officers and directors of the company, and D&O insurance won’t always protect you against risk of this magnitude, so it’s best to steer far far away from unseemly behavior in any liquidity constrained situation. Those refs bite, and they bite hard. Sorry you had to go through that.