Friday, June 16, 2017

Not All Bankruptcy Filings Are The Same, Economic Expert Explains

Not every bankruptcy filing is the same. While a headline heralding the “bankrupt” declaration is bad publicity on its face, readers who take the next minute to digest the first paragraph of the story soon realize that their favorite brand or store isn’t shutting its doors forever. According to Todd Katz, a professional in the business sector who spent decades leading divisions of companies and eventually attained the title of chief financial officer, companies don’t take the decision to file for bankruptcy lightly. As the former vice president of mergers and acquisitions for a New York City-based law firm, Katz oversaw crisis management during a communication company’s $18 billion bankruptcy restructuring. 

The key word there is “restructuring,” as not all bankruptcy filings are the same. In short, a Chapter 11 bankruptcy filing is a case were a company hopes to reorganize and get its financial matters in order. It’s permitted under U.S. law and any business, corporation or partnership can take this route after being unable to meet financial repayment obligations. After filing a petition in court, the company must declare assets, liabilities, income, expenditures, contracts, leases and more. As the process continues, courts will decide if whether the company’s proposed reorganization under U.S. bankruptcy code will be carried out. The plan for economic recovery that the insolvent company must present is often presented from the onset, but must be offered within 120 days of the filing.

In June 2017, California-based child clothing company Gymboree Corp. announced that it was making a Chapter 11 filing after revealing $1.36 billion in debt. According to the Washington Business Journal, the company owns approximately 1,300 stores across the U.S. and Canada. It hopes to “continue to deliver superior services to our customers,” company President and CEO Daniel Griesemer said in a news release cited in the report. “We expect to move through this process quickly and emerge as a stronger organization that is better positioned in today's evolving retail landscape, with the right size store footprint and greater financial flexibility to invest in Gymboree's long-term growth,” Griesemer continued.

According to Katz, Chapter 11 is an often-chosen route for companies that aren’t ready to throw in the towel via Chapter 7 bankruptcy filing – a liquidation of assets and end of operations.