How long can a business stay afloat? : LUSENET : TimeBomb 2000 (Y2000) : One Thread

What happens to a business when it's financial affairs are a mess?

Do they go out of business right away?

Do they send out a Press Release saying their books are "a shambles"

Do they "do it manually"? What if they were already "doing it manually"?

No, they hire consultants. Then they pay the consultants with money that was supposed to pay for worker's health insurance. (shhhhh don't tell the workers)

Then after 6 months....they go out of business....overnight.


These things happen all the time though. I'm sure it won't happen to you. It always happens to someone else.

Note: this is not about computer failures....yet.,1051,SAV-9904290183,00.htm


By Stephen Franklin Tribune Staff Writer April 29, 1999

Juana Vasquez worked at her factory job until the day before she gave birth in February, thankful that she had a steady job--one that provided health-care benefits.

But soon after the birth of her son, she discovered that she had neither. Instead, she now has a hospital bill of nearly $20,000, and it's not clear who will pay it.

Her employer, financially troubled Erickson Cosmetics Co.,abruptly shut down March 19, allegedly without paying workers for at least their last week on the job.

And, the North Side Chicago plant's 400 workers discovered April 1, their health benefits had been canceled as of Jan. 1-- even though workers had kept up their share of the premiums.

"I feel awful," Vasquez said. "The hospital keeps writing me and telling me I should pay, or go on public aid. I tell them I will file a lawsuit against the company or whoever is responsible."

Congress is now considering legislation that might ease the plight of Vasquez and thousands like her.

The problem, as experts and government officials explain, is that it is tough for workers of bankrupt or financially distressed firms to get the back pay owed them, and even harder to make their former employer pay for their medical bills. In most cases, they wind up stuck with enormous medical bills or plunged into bankruptcy.

"Something should be done. Nobody would like to be blindsided like this," said Ken Bazar, the Chicago region director for the U.S. Labor Department's Pension and Welfare Benefits Administration.


In the case of privately held Erickson Cosmetics, which had manufactured body lotions and other products for major companies, it is unclear how the workers lost their health-care benefits or last paycheck.

The situation is even murkier, from the workers' viewpoint, because the firm did not declare bankruptcy, so they can't rely on Bankruptcy Court protections.

The company, founded and largely owned by Wallace A.Erickson, ran into financial problems last fall, said Case Hoogendorn, Erickson's attorney. The company had "grown way too fast and taken on way too much debt," he explained.

Minneapolis-based U.S. Bancorp, which had lent the company money, "essentially cut off their credit (last fall) and agreed to give them time to work out things under a carefully supervised plan," Hoogendorn said.

With the company's senior executives let go and Erickson, who is in his 80s, playing a minimal role, the firm was led by consultants, Hoogendorn said.

"We found a real mess there. The company's books were in a shambles," said Gary Wentcel, an official with Alex D. Moglia & Associates, a Schaumburg-based consultancy firm that stepped in.

His firm always included health-care payments in its budget, he said. But if the business fell short on finances, it had to cut back on its spending, he explained. Still, he added, such a decision on payments was up to company officials.

His firm, which worked with Erickson until early March, when it was replaced by another consultant, was paid for its work despite the firm's financial problems, Wentcel said.

Hoogendorn suggested that there was not a decision to withhold health-care payments, but "somebody dropped the ball" as the firm shifted from one consultant to another.

But it's unclear when that may have taken place, because the workers said they were informed by their health carriers that the benefits had been canceled retroactive to Jan. 1.

What was unusual about the Erickson workers, Wentcel added, is that a number of them kept working after their paychecks stopped: "You never see that. It was a tribute to the employees. These were decent people. We really felt sorry for them, but unfortunately in our business we see it all the time."



-- Plonk (, April 29, 1999


We work in the health care industry (I'm a paramedic my wifes a speech therapist) and a couple of weeks ago a therapy company started issueing promissory notes for paychecks! we have several friends who work for this co. and you'd be surprised at the people who will accept this as a form of payment. They are going into their second paaay period and no word. I guess people just want to believe that things will work out so bad that they delude themselves.

-- Johnny (, April 29, 1999.

How long?

The answer depeands on the creditors. On the one hand they won't want to throw good money after bad. On the other, the usual situation is that a business that's a day-to-day going concern is much more valuable than a piecemeal liquidation of its property. So (certainly here in the UK and also in the USA) there is a legal framework to allow it to continue trading for a while after it declares bankrupcy, the hope being that someone will want to buy the business and thereby turn a 100% loss to the creditors into some lesser percentage loss. There's also scope for financial reorganisation, like converting loans that won't be repaid into junk bonds that just might be, in many years' time, if the business is able to keep going.

A sudden, complete, unheralded collapse suggests financial misconduct that's either verging on or actually criminal.

The great depression was made worse by bankers who believed that the best way to cure it was tight money and ruthless liquidation. It's now generally thought that this was perverse in the extreme.

-- Nigel Arnot (, April 30, 1999.

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