Bankruptcy Buys Time For Businesses To Work The Plan

March 28, 2008 6:31 am Published by

Just this month, several fairly large companies filed motions with the bankruptcy court.  While I did not serve as legal counsel for any of the companies I’m going to talk about here, I wanted to share these stories with my blog readers and clients.  Why? These companies are good examples of bankruptcy being used as a valuable tool to enable companies to deal with problems and get their businesses back on track.  As a consumer bankruptcy specialist and small business bankruptcy attorney, one theme I try to stress to everyone is that the bankruptcy process should be thought of as a beginning rather than an ending, because bankruptcy buys precious time for businesses to regroup.

Hancock Fabrics is my first example.  This company filed a motion with the bankruptcy court to allow them to conduct Going-Out-Of-Business sales at three of their stores in Arizona and Illinois.  The purpose here is not to shut down the company, just the opposite!  Hancock wants to continue to operate the business. The bankruptcy process is giving them the opportunity to downsize and to devote their efforts to the most profitable locations.

W.R.Grace, which had previously filed their bankruptcy case and is now working through the rebuilding process, got permission from the bankruptcy court to make the required minimum contributions to their employee retirement fund.  By keeping up with these retirement contributions, the company helps employee morale and productivity while they work to pay their debts and become profitable again.  This is another case in which the bankruptcy process is “buying” crucial time.

In the case of Leiner Health Products, which filed Chapter 11 bankruptcy in Delaware, they do want to sell the business.  But the company still needed time, which they are using to restructure their debt obligations and negotiate in unhurried fashion with potential buyers.

Dura Automotive System, which filed a Reorganization Plan with the bankruptcy court, has yet a different goal in mind.  Dura expects to emerge from its Chapter 11 bankruptcy as a brand new public company.

What I want to bring out here is that bankruptcy is a tool.  That tool is flexible enough to use in different ways, buying the time for business owners to make decisions and chart a course for the future.

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This post was written by Mark Zuckerberg

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