Contract broadcast engineers have no
foolproof way to protect themselves against bankrupt clients. In fact, the
bankruptcy code leans the opposite way, providing protection to a bankrupt
The promising news for contract engineers — at least based on anecdotal
evidence and opinions of industry observers — is that the economy is improving
and the number of broadcast bankruptcies has slowed. (BIA and NAB said they typically don’t
track radio group bankruptcies.)
Engineers may be
affected when a broadcaster declares bankruptcy. Source: Chris Imlay, SBE
Yet the recent recession serves as a
reminder that broadcast engineers, especially
contractors, should take steps to limit risks and complications brought on by reorganization
The legal layers of a bankruptcy filing
in the United States are complicated. Even if your client pays you before declaring
bankruptcy, the money may not be safe; a court-appointed bankruptcy trustee can
seek a refund of certain payments from creditors.
Chris Imlay, general counsel of the Society of Broadcast
Engineers, has delivered presentations about the effect of bankruptcy and
reorganization of broadcast facilities on engineers.
He says most broadcast bankruptcies are Chapter 11, a reorganization
process. The more dramatic Chapter 7 filing calls for liquidation of all
“Almost nothing a contract engineer puts in a
contract can protect them in a Chapter 11 filing,” Imlay said. “A contract
engineer will be lumped in with all of the unsecured creditors, who are behind
all of the secured creditors and the IRS.”
However, he continued, most broadcaster reorganizations are successful in the long run.
“That is simply because the value of a broadcast license typically negates the
need for liquidation.”
Unsecured debts may be paid out at only
pennies on the dollar, said Raymond Quianzon, an attorney specializing in
bankruptcy at communications law firm Fletcher Heald and Hildreth.
Source: Chris Imlay, SBE
“An engineering firm or contract engineer
may want to secure a debt that it is owed by filing a financing statement,
attachment or lien in the appropriate state or county location — although the
bankruptcy court usually will still treat a secured debt with a higher priority
than any unsecured debt,” he said.
Imlay noted that the FCC still holds
stations responsible for complying with technical rules. Therefore, the value
of a broadcast engineer may actually increase during bankruptcy.
“It’s beneficial to be as helpful as
possible during the reorganization process,” he advises engineers. “The trustee
is going to need the services of the engineers during the reorganization
process. Then the engineer will be paid by the trustee for work done during the
reorganization. The trustee has a lot of incentive to keep the engineer working
and honoring the contract.”
If the bankruptcy grim reaper does strike a broadcast
engineer’s client, and assuming there is an outstanding debt, Imlay suggests that
the contract engineer have a claim in the bankruptcy filing.
“Contact the trustee and see if
there is a chance to continue work during the reorganization. Not many trustees
or receivers are going to be technically inclined. They will likely need your
Further, the warning signs of financial
doom often are visible earlier to a broadcast engineer than to other station
personnel. A trail of unpaid vendors is a telltale sign of financial problems,
according to observers who spoke to RW for this article.
All the more reason a contract engineer
should never make advance payment for hardware or subcontracting services on
behalf of a client.
“Everything should be done in the name
of the licensee, and especially during the reorganization period. You really
shouldn’t count on any reimbursement at that point,” Imlay advised.
The best protection a contract engineer
can have is a written and enforceable contract with a client station, said Jeffrey
Tarkenton, a bankruptcy specialist with Womble, Carlyle, Sandridge & Rice.
Source: Chris Imlay, SBE
“That way an engineer
can also avoid the risk they may have to repay any payments received within 90
days of bankruptcy which constitute preferential payments,” he said.
Once the bankruptcy case has been filed, the engineer
typically will have little if any leverage on outstanding invoices unless the
engineer is a “critical vendor,” Tarkenton said.
“Critical vendors are creditors who are determined to be so
vital to the debtor company that the creditor’s refusal to perform could
imperil the debtor company’s operations or reorganization.”
The engineer should always file a “proof of claim” with the
court for unpaid sums, Tarkenton said. A proof of claim is a form issued by the
There are strict deadlines for filing the claims, and claims
that are not “timely filed” will be disallowed, according to Tarkenton.
Although creditors usually receive little or nothing in the way of
distributions in a bankruptcy case, there are cases in which creditors who file
proofs of claim receive full payment, plus interest.
A staff engineer is in a much better
position than a contract engineer during a bankruptcy filing, Imlay said, since
seldom is a broadcast engineer considered an excess cost in a broadcasting
operation, though of course any employee is affected
when a company undergoes financial turmoil.
“You’ll be paid like everyone else.
Problems only could arise if the trustee believes it is cheaper to hire a
contract engineer, but usually other types of staff are impacted first by
layoffs. The problem for a staff engineer is if the reorganization plan should
All sources contacted for this story
recommended that a broadcast engineer consult a bankruptcy lawyer in the event
of a client or employer bankruptcy.
Imlay said sample contracts for
engineers are available to SBE members online at www.sbe.org.
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