I work for a company that offers an ESPP. Employees can put money toward the plan throughout the first half of the year, and it is converted to stock at a 15% discount at the end of Q2.

Stock can be sold immediately, so there's little risk involved from stock price volatility. My question is, what happens if the company goes bankrupt, is sold, or fails completely while money is set aside for ESPP purchases before the end of Q2? Is there a chance that I could lose the money before it's converted to stock, or is it protected from being used for other purposes (including paying creditors or bondholders)?

  • Does the contract call it part of your remuneration, or is it deemed a separate transaction (i.e. you notionally get that portion of the salary as cash, then use what is now your own money to buy the shares)?
    – Lawrence
    Dec 11, 2019 at 12:11
  • The interesting aspect of this question is that putting money in an ESPP is basically a vote of confidence in the future of the company. In other words, if you have low confidence (you think there's even a remote chance they'll go under), you should probably be investing elsewhere anyways.
    – dwizum
    Dec 11, 2019 at 14:17
  • 1
    @Lawrence - it is a post-tax payroll deduction, but the fine print makes it seem as though it is a separate transaction.
    – Mark
    Dec 11, 2019 at 20:17

1 Answer 1


what happens if the company goes bankrupt, or fails completely

You would become a creditor that would seek repayment with the liquidation of assets. This would probably be considered wages, and in some jurisdictions wages have a higher priority for repayment. Depending upon the depth of the failure, you would probably get most of your funds returned.

However, if you see this as a possibility, then it would probably be best to stay away from the ESPP.

what happens if the company is sold

The worst case is that the money will be returned to you. If private equity purchases your company then there really is no choice. A new public company might also have an ESPP but with different terms. It is likely that they would give the "purchased" employees the option to cancel and get their money back, or continue with the new plan.

This is probably covered in the fine print of the plan.

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