Out of the box Government bail out for distressed companies
If a big company that employs many workers is in financial trouble, should the government step in to bail out the company and keep the workers employed?

Some people argue that the company should be allowed to go into bankruptcy or be taken over by another company. They do not like tax payers' money to be used to benefit the shareholders. 

When the company is liquidated, many workers will lose their jobs. Many of them will not be able to find alternative jobs that pay well. The expertise in the company, built up over the years, will be lost. 

There is a case for the government to "bail out" the company to preserve jobs and to retain the accumulated knowledge and experience. 

The danger of the bail out is that the shareholders benefit from the action and the management may refuse to change their bad practices. 

Here are some steps that can be taken to ensure equity and preserve the company for the benefit of all parties:

a) The bail out should be in the form of a soft loan. The loan has to be repaid with interest set to the rate of inflation.

b) The loan should be tied to the payroll of the company and its rental expenses.

c) The company can reduce its cost by asking all workers to take some no-pay leave. The soft loan can also be extended to the workers to cover their reduction of income. 

d) The granting of the loan, if it is of a large amount, can be conditional on a change in the management or board of directors. This change will help the company chart a new strategy.

e) The loan may be converted into shares in the company at a valuation that is determined by an independent panel.

If the distressed company is valuable to another company, it will be able to attract new capital to continue its operations. If not, the bail out from the government is an alternative that can be pursued.

Tan Kin Lian

Vote - to you like this approach to helping distressed companies to avoid retrenching their workers?





 

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