Bankruptcy cases are often filed after a distressed company has ­determined the only way for the business to survive as a going concern is to pursue a sale. The sale process is conducted prior to the filing, and the case is filed, together with a request that the court approve the sale of the company pursuant to the terms of the negotiated sale agreement unless a higher offer is received. Often there is no alternative, and the question is whether the sale to the bidder will be approved and closed. If it does not close and the company is forced to liquidate, other federal laws may come into play.

One consideration is whether the debtor has complied with the Worker Adjustment and Retraining Notification (WARN) Act, 29 U.S.C. Sections 2101-2109. The WARN Act requires, among other things, employers that meet certain statutory criteria to give employees at least 60 days' notice of impending mass layoffs. A company that fails to give the required notices will face WARN Act claims from its employees, and these claims may be entitled to priority pursuant to Section 507 of the Bankruptcy Code. This issue was addressed in a recent decision of the U.S. Court of Appeals for the Third Circuit, in Varela v. AE Liquidation, (In re AE Liquidation), 2017 U.S. App. LEXIS 14359 (Aug. 4), where the Third Circuit adopted a strict “more probable than not” standard as the trigger for an employer's obligation to issue WARN Act notices, and held the debtor was not liable under the 
WARN Act.

Bankruptcy Sale Does Not Close

According to the opinion, Eclipse Aviation Corp. laid off its employees in February 2009, when a sale of the business pursuant to Section 363 of the Bankruptcy Code failed to close. The U.S. Bankruptcy Court for the District of Delaware had approved the sale on Jan. 23, 2009, to the European Technology and Investment Research Center (ETIRC), the debtor's largest shareholder. In order to consummate the sale, ETIRC obtained written commitment for $205 million in funding from Vnesheconomban (VEB), a state-owned Russian bank. Despite VEB's commitment, the opinion notes that in the month following entry of the sale order “VEB took ETIRC and Eclipse on a roller coaster ride of promises and assurances that never came to fruition.”

The opinion reviews in lengthy detail how credible people repeatedly assured Eclipse's board that the financing was ­imminent. ETIRC's chairman, Roel Pieper, reported that he had been promised that Russian Prime Minister Vladimir Putin personally would make a decision regarding the sale. Then Pieper and Daniel Bolotin, another ETIRC executive, reported that there was a “high likelihood” that the Russian Parliament would approve the funding that same day, which did in fact occur. Pieper then flew to Moscow the following week to sign the final documents. After he landed, Pieper reported to the board that he expected the signing meeting to occur later that week, and funding on Feb. 13 or 16. Bolotin described Pieper's meeting with Prime Minister Putin's deputy as “positive,” and Pieper noted that “all of the background work in Russia had been successfully completed and all that remained was execution and timing.”