Many businesses are hitting headlines as they enter bankruptcy protection after years in a tough economy. American Airlines, Hostess Brands Inc. and The RoomStore are all names that have gained attention as business bankruptcy filings become more commonplace. However, what hasn’t been heard of until recently is the increase in case conversions from Chapter 11 reorganization to Chapter 7 liquidation cases.
What’s Going On?
Businesses have had a tough go for quite some time. Big or small, in demand or over-supplied, businesses of all sizes and industry levels have shared similar financial risks lately. As the economy slowly begins to shift pace, many are finding that they can’t make ends meet any longer and must face legal help with their debt resolution efforts.
Chapter 11 is often the first line of financial defense for any company that desires to remain in operation. Offering a chance to repay debts and regain financial control, many companies end up pursuing cost cutting measures as well in order to boost chances at future profitability. One of the big challenges in Chapter 11 cases is the lack of investors, which used to be plentiful and would jump at the chance to absorb a competitor. These days not many companies can afford to buyout or invest into partial ownership of a dying company.
Market share competition has become fierce, often eliminating the weak quickly once their reputation is on the line with a bankruptcy filing. The fact is that successfully exiting Chapter 11 has become more challenging than ever before for many companies within certain industries. Aside from sports teams and major service providers, many companies lack the appeal necessary to bring the a bid high enough to save their operation.