Sears Canada entered bankruptcy protection last week.  The intent of this protection is to enable the Corporation to continue to operate although their debts exceed their assets.

The concept is, by restructuring both the debtors and the Corporation will ultimately be better off.  That is the debtors will end up with more than they would by seizing and selling the assets, the Corporation can continue to exist (in some form)

Of course, the debtors probably still end up with some losses, although depending on how well secured your debt was you might break even.

In theory, the restructuring allows the company to emerge from bankruptcy as a slimer invigorized entity ready to be a world beater once again.

Theory does not always work in practice and some companies have been known to go from bankruptcy to bankruptcy.  (I guess the restructuring teams probably benefited somewhat each time).

Good for the Employees

By continuing to operate in bankruptcy, wholesale layoffs of the work force can be avoided – although restructuring will probably affect some percentage of the employees.

The case of Sears though, is a reminder of how those employee directly impacted can be adversly impacted.  Although the restructing plan is not completed, Sears Canada announced preliminary layoffs of about 3700.

The catch, no serverence will be paid to laid off employees regardless of years of service.

The company does say those employees can sue for their severance, but given the bankruptcy protection any successful litigation would simply result in a unsecured claim.