Right you are, Jana. Unfortunately, the publisher/author relationship isn't a creditor/debtor one, but one of commercial business partners. Authors aren't truly even unsecured creditors. Every book in a publisher's list is an "asset" of the business, just like the books on your shelf at home are assets of yours. Royalties owed are contract disputes between equals, rather than 'services rendered'. In effect, an author's claim for royalties is LESS than a copier lease, or even the phone bill.
I had a long talk with a friend who's not only a published author but a bankruptcy trustee in her day job. It was an enlightening, and sobering, discussion.
The bankruptcy clause in a publisher contract is pretty much useless as many other defunct publishers have learned. More than one tried to revert the rights to authors when they first started contemplating bankruptcy, thinking they were being kind . . . only to discover that's considered
fraud by the court. A bankruptcy court can "unwind" any transaction involving assets of the company for up to a YEAR
before the bankruptcy is filed. Reversion of rights is one of those transactions. It's sort of like the Bernie Madoff issue where the court reviewed each transaction to family and friends for months before he was arrested because they peeled away his assets that could be sold and used to pay back those defrauded. That's a no-no.
The bankruptcy trustee's goal is to pay the debts of the company---secured first (land with deeds of trust, or recorded financing statements), then unsecured debts for services rendered. That means selling all assets owned by the debtor at whatever price they can get. In the case of a publisher, what often happens is they sell the entire list of contracts (including the inventory of warehoused physical books) to a new publisher who may, or may not, sell the books to the public. Often they do if the book is still in print because that's how they get their money back. But not always.
Mostly, the bankruptcy clause in a contract works best in "reorganizations" situations rather than true bankruptcies. Smaller publishers are often d/b/a's or sole proprietorships . . . meaning when the "publisher" goes under, it's the actual individual failing. A Chapter 7 is a personal bankruptcy, so if that's what the publisher files under, the chances are slim for a reversion of rights if there are no other physical assets to sell.
If a Chapter 11 has been filed, that's a reorganization and can be for an individual or an entity (corporation, LLC, partnership etc.) There's the best chance for reversion because the goal isn't to dissolve the company, but slim it down to get it back on its feet.
A Chapter 13 bankruptcy is often referred to as an "involuntary" bankruptcy, which is when the debts mount up so high that the courts step in to take over and force the company to dissolve. I fear a Chapter 13 could be what happens in this case if things get much worse for Dorchester.
But I've got my fingers crossed for a lot of buddies that the company accepts the inevitable, if that's the way it's headed, and voluntarily files. That would go a long way toward making amends in the publishing community. But only time will tell.