The worker buyout as a solution for companies in crisis

December 22, 2021

The worker buyout model generally refers to the purchase of capital stock by a company’s own workers. It may also refer to a restructuring strategy in which employees buy a majority stake in their own firm.

In either case, it is a way in which the workers of a company in crisis or otherwise expected to close or liquidate can commit to rescuing their company. Workers become owners and entrepreneurs as the company is essentially transformed into a cooperative structure.

Worker buyouts most often occur following crisis situations. In this scenario, the buyout usually occurs during a crisis period leading to closure; it is rarely prepared in advance with employees.

In general, the crisis scenario involves enterprises that have been or are about to be placed in liquidation because of a crisis (for example, management, strategy, industry or market crisis, as well as economic or other crises, including relating to legal or compliance difficulties).

In order to prevent closure or liquidation, the company is essentially transformed into a worker cooperative through an asset transfer. A number of examples are instructive in this respect:

• Celulosas y Papel, Andalusia, Spain. A successful example of an enterprise transformed into a worker cooperative is Celulosas y Papel, located in Mollina, a rural town of in Andalusia, Spain. In February 2010, following bankruptcy, four former workers decided to invest their unemployment benefits and buy out the enterprise under the worker cooperative form. Support from local regional cooperatives and the Andalusian government were crucial in the transformation of the company into a cooperative.[1]

• West Highland Free Press. In 2009, the West Highland Free Press became the only employee-owned newspaper in the United Kingdom when the original founders and shareholders looked for an exit strategy as they reached retirement age. The owners were keen to ensure that the paper remained independent and offered employees the option of purchasing the business. Had the employee buyout not been completed, an acquisition would have likely been chosen, weighing against its independence and place in the community.[2]

• School Trends. School Trends, a supplier to schools in the United Kingdom, became an employee-owned business in 2004. A key consideration for the previous owner was ensuring that the business continue to operate with the same community-driven ethos and culture. Employees were consulted on the possibility of an employee buyout and a ballot was held, with over 80% of the employees voting in favor.[3]

Discussed as a strategy under the EU’s Social Economy Action Plan, worker buyouts would appear to present a number of benefits. First, the legacy of a business stays in tact. There are no adversarial negotiations. The history and legacy of the company remain in the hands of those who helped build it. Loyal employees remain gainfully employed, and become able to influence how the business is managed and to share in the future reward. Ownership structures and tax benefits vary depending on the chosen structure, as well as the size of the business and number of employees.

CPM

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[1] De Micheli, P., Imbruglia, S. and Misiani, A. (2017), Se chiudi ti compro. Le imprese rigenerate dai lavoratori, Milano, Edizioni Guerini e associati SpA”, p 185, 2017.

[2] Co-Operatives UK, “Simple Buyout: “A guide to employee buyouts and becoming an employee owned business.”

[3] CECOP-CICOPA Europe, “Business Transfers to Employees under the Form of a Cooperative in Europe: Opportunities and Challenges.” Brussels: The European Confederation of Cooperatives and Worker-Owned Enterprises Active in Industries and Services.