Definitely not how it works in the USA.
Yeah, I know. However I don't see how shifting risk to the employee makes any sense, unless an employer would be required by law to share his profits the same way.
However, it seem that even with your laws that could still happen, just the court appointed manager would have to do it. If there is no revenue and no assets then what is else is there?
Yeah, if it is objectively impossible to continue business people can be dismissed. Unless all employees get fired, maybe a smaller operation could work, or keeping profitable departments in a restructuring is viable, he has to fire people after Sozialauswahl, I.e. he has to fire those people first that are most likely to find a new job and are least effected, those without dependants, those with shorter seniority and so on...
Or does the state automatically pay out?
Yup..insolvency pay for three month. After that I get my unemployment benefits for 12 month (60% of my average net pay/67% if parent of a kid).
Both are insurances, employers pay 0.09% of their payroll for the first, employer and employee pay 2.5% of the employees gross pay, split 50:50, for the other, mandated by law. Outside of welfare our government doesnt really pay for the social system with tax payers money. The insurances also can't turn a profit, so premiums slide up and down with the economy.
To get the curve back to the topic, the government doesnt have the bankruptcy way out, since it by law it can not go bankrupt. In practice that may be possible, but not over budget disagreements.
So it seriously puzzles me how an entity, government or otherwise, could withhold pay that they obviously objectively could pay whenever they chose to, without a court having a good laugh at that silly idea.