Bankruptcy/insolvency proceedings can have a significant impact on the employees of the debtor company. Here are some of the key implications: Job Loss: In many cases, bankruptcy/insolvency proceedings lead to job losses as the company may not have sufficient funds to pay salaries or sustain the workforce. The employees may be laid off or terminated as a result. Delayed Salaries: If the company is unable to pay salaries on time, the employees may face financial difficulties and may have to resort to legal action to recover their dues. Reduction in Benefits: The company may be forced to cut back on employee benefits such as health insurance, retirement plans, or bonuses in order to conserve cash. Uncertainty: Bankruptcy/insolvency proceedings can create a great deal of uncertainty for employees, as they may not know whether their jobs are secure or whether they will receive their salaries or benefits. Impact on Reputation: The bankruptcy/insolvency of a company can damage its reputation and make it difficult for employees to find new jobs or advance their careers. However, it is important to note that the Insolvency and Bankruptcy Code (IBC) provides some protection to employees of the debtor company. Under the IBC, the resolution professional appointed to manage the affairs of the company during the insolvency process is required to take into account the interests of the employees and ensure that their rights and interests are protected. The IBC also provides for the payment of unpaid salaries and dues to employees as part of the resolution plan.

Dear Client, The effect of bankruptcy and insolvency proceedings on the employees of the defaulting company may be substantial, although the Insolvency and Bankruptcy Code (IBC), 2016) affords some safeguards. During the Corporate Insolvency Resolution Process (CIRP), the firm remains a going concern under a Resolution Professional (RP).Workers tend to keep working unless the RP orders otherwise. Ambiguity regarding salary payments and job security is the rule in this period. The dues of employees (unpaid wages, salaries, and other benefits) are considered operational debts under the IBC. During liquidation, their claims are governed by a particular order of priority. According to Section 53 of the IBC, workmen's dues for the last 24 months and unpaid employee dues (excluding workmen) up to 12 months are ranked immediately below secured creditors and above all other unsecured debts. If a resolution plan is sanctioned, it has to provide for employee dues. But these dues need not be paid entirely, particularly if the business entity does not have much assets. If the business entity enters into liquidation, a large number of employees could lose employment, though they can recover outstanding dues under the liquidation waterfall. In total, insolvency proceedings bring uncertainty to the employees about their continuity of job and recovery of wage, although the IBC does have a clear mechanism for determination of dues and payment prioritization. I hope this answer helps. In case of future queries, please feel free to contact us. Thank you.