Archive for the ‘Chapter 11 Bankruptcy’ Category
Friday, June 3rd, 2011
Presidential hopeful Mitt Romney says that the reason America's Big Three automakers have bounced back since the recession is due to bankruptcy, not bailouts.
In an interview Friday with the CBS Early Show, Romney repeated the stance he took in a 2008 op-ed piece in the New York Times at the height of the bailout talks - that filing bankruptcy is a responsible step to take when faced with financial hardship.
"The right process for an enterprise in trouble is not to be given free money from the taxpayers with a bailout, but instead go through a bankruptcy process, reorganize debts, and reduce costs and come out stronger," Romney told CBS's Erica Hill Friday.
Of the three major Detroit automakers, General Motors and Chrysler both filed Chapter 11 bankruptcies in 2009. Both also received bailouts from the U.S. Government, funded by tax payers. Only Ford survived the recession without turning to bankruptcy or receiving a bailout, and instead secured a line of credit to help them bridge the recession's gap in sales.
So how did bankruptcy help Detroit? While bankruptcy can be complex, especially for corporations, it offers a very clear benefit: a reorganization of debts into a more affordable plan. In the case of a Chapter 11, business can also renegotiate contracts, sell off unnecessary assets, receive some debt forgiveness, and reorganize as a new business entity. This is typically favored over Chapter 7 bankruptcy, as it allows the business to stay in operation during and after the bankruptcy.
Bankruptcy allowed GM and Chrysler to shed off the obligations that were keeping them from being truly innovative, and reorganize as a new entity that could focus on a successful future, Romney argues. And while the two automakers did receive bailout funds, having gone through bankruptcy first left them in a better position to capitalize on the investment by taxpayers. Both GM and Chrysler have repaid significant portions of the bailouts.
Romney also takes credit for the situation, saying that his 2008 New York Times piece convinced Obama to hold off on an immediate bailout.
"So I'm very proud of the fact that, in fact, we called it like it was, and that is these companies needed to go through a bankruptcy process, come out through bankruptcy, go back to work, get jobs for the people who had would otherwise have lost jobs if these companies just trailed on down," he told CBS.
"And by the way, we could have saved billions of dollars had we moved to bankruptcy from the very beginning."
Posted in Bankruptcy and the Economy, Chapter 11 Bankruptcy, chrysler bankruptcy, gm bankruptcy, mitt romney | Comments Off
Monday, October 18th, 2010
There has been considerable buzz in the news lately about the financial woes of one of the world’s best-known soccer teams, England’s Liverpool Football Club. The trouble involves loan defaults, ownership issues and lots of other juicy bankruptcy-related news – of course, Liverpool’s fans probably aren’t too thrilled.
Loan Defaults and Contract Breaches
According to Bloomberg news, Liverpool Football Club’s money problems are somewhat thorny:
- Parent company behind on its loan: It seems that Kop Holdings, the parent company of Liverpool FC, has fallen behind on a loan agreement with Wells Fargo bank. In fact, sources note that the loan is in default (more than 30 days past due).
- Potential buyout by an American company: According to reports, the American company New England Sports Ventures LLC has proposed a buyout plan that would let England’s most successful soccer team avoid bankruptcy.
- Contract breach might prevent the sale: But, news outlets report, the current owners of the team made eleventh-hour changes to the board to ensure that its members voted against the buyout. Royal Bank of Scotland, however, has challenged the board member change in court, apparently calling it a breach of contract.
So what might happen to the celebrated soccer team from across the pond?
Business Bankruptcy and Its Effects
When businesses file for bankruptcy, the court’s protection tends to work slightly differently than when individuals seek such protection. For example:
- Chapter 11 reorganization: In a Chapter 11 bankruptcy filing, businesses get the opportunity to reorganize their finances and agree to pay off creditors from future earnings. In rare cases, individuals can file for Chapter 11 bankruptcy, but it’s a more common move for corporations. When businesses are in Chapter 11 protection, they can still operate, selling their goods and services as usual.
- Chapter 7 liquidation: When businesses file under Chapter 7 of the U.S. Bankruptcy Code, a bankruptcy trustee generally sells off their assets and uses the money to repay creditors (much like a Chapter 7 filing for individuals). If a company files for Chapter 7 bankruptcy, it cannot continue operations.
- Automatic stay: As in personal bankruptcy filings, businesses that seek bankruptcy protection are protected by the automatic stay for the duration of their case. This legal stay prohibits all collection action against the filing company.
According to Bloomberg, the Royal Bank of Scotland (RBS) is not looking forward to actually enforcing any sanctions against the soccer team itself because of potential negative effects such sanctions might have.
While this story may not resonate with American readers quite the same way it would with those more familiar with England’s soccer leagues, it is a big deal. Consider the same thing happened to the Chicago Cubs last year when its parent company, The Tribune, filed bankruptcy.
Posted in Bankruptcy, Bankruptcy News and Events, Chapter 11 Bankruptcy | Comments Off
Tuesday, November 17th, 2009
On Amelia Island, a coastal community off of Florida's Atlantic coast, a group of local investors have joined up to save a prominent resort from going under.
Amelia Island Plantation is a 30-year-old destination resort for vacationers and conference-goers. Recently, the resort fell on hard financial times, as many businesses have during the recession.
Wages for employees were cut, and other local businesses who depended on resort customers saw their business dwindle.
But rather than watch a local landmark and business stimulant disappear, a group of 22 local investors signed an agreement to keep Amelia Island Plantation financially viable. The investor group is called Red Maple Investors. Every member of the group is also a homeowner on the island.
Structured Bankruptcy Protection
The agreement states that the Plantation resort will seek Chapter 11 bankruptcy protection, and restructure its debts and liabilities. During this process, the resort will continue to operate normally.
Red Maple Investors will provide financial and strategic support to help Amelia Island Plantation through this Chapter 11 restructuring process.
The group's members are hardly amateur investors, however. John Griswold, for example, is the president of Harbor Hotels, and has accrued more than 30 years of experience operating high-class hotels.
"Our investors believe in the potential for the long-term success of Amelia Island Plantation," Red Maple Investors founding member Robert C. Smith told First Coast News. "All of us in RMI want to protect this little paradise we have come to love. And, we are willing to put up our own money to assure its success far into the future."
Community Finances Tied Together
As would be expected on an island of that size, the financial impact of the resort extends to other community businesses as well. The 700 employees and the 240,000 yearly visitors to the resort help many area businesses.
One such business, Dub Mullis’s fruit stand up the road from the resort, struggled along with Amelia Island Plantation.
"My customers are a lot of people from the resort. A lot of workers, people who live there and also visitors to the island," Mullis said.
A decline in corporate bookings at the resort were one of the main reasons for its struggles. The drop in large-scale events meant millions of dollars in lost revenue as companies tightened their belts.
Posted in Bankruptcy, Bankruptcy and the Economy, Chapter 11 Bankruptcy, florida | Comments Off
