One myth that our bankruptcy law firm consistently encounters concerns the public perception of a bankruptcy filing. Admittedly, bankruptcy laws are intended to provide protections to businesses facing certain debt management issues. Yet far too often, we hear from clients concerned that a Chapter 11 business reorganization plan will be a death sentence. To the contrary, there are many examples of businesses that have used a repayment plan to emerge stronger than ever.
Take the example of General Motors. The auto manufacturer was struggling during the 2008 recession – over $30 billion, to be precise. It filed for Chapter 11 in 2009. With a legal strategy toward its debt in place, the company took the opportunity to restructure and rebuild its brand. This long-term vision paid off: the company’s second quarter net income was over $3 billion, representing an increase of over 150% from the year before.
Another notable example is American Airlines, which filed for bankruptcy in 2011. The company worked with the bankruptcy trustee and court and came up with a plan to restructure its business debt. The court, finding the plan feasible, approved it, and American Airlines got to work with rebuilding its service and branding. By 2014, the company had its first profitable year since the filing.
These examples illustrate the true intent behind Chapter 11, which is reorganization. Rather than prolonging an inevitable collapse, many companies use the relief provided by federal bankruptcy law to take a fresh perspective. Yes, the initial public reaction might be a plummet in stock prices, but savvy investors also recognize an opportunity to purchase shares in company that is rebuilding its solid product or service.
Source: Forbes, “How To Keep Your Brand Strong After Bankruptcy,” Steve Olenski, Sept. 8, 2016