Plans to reorganize in a Chapter 11 can be a miracle solution for a struggling business, as shown by the example of many reorganized and refinanced companies now operating and sometimes even thriving around the country. However, reorganization efforts do not always succeed, particularly if the red ink that plagues the company is too deeply entrenched to be rescued by outside investors. One example is the recent announcement by Sports Authority that it will close all of its 450 stores nationwide, including some in Pennsylvania, and liquidate them presumably in a Chapter 7 bankruptcy.
Generally, when reorganization has failed, the retailer's principals will notify the Bankruptcy Court that it is converting to a Chapter 7 for purposes of final liquidation. The process will bring the particular brand to an end in most situations. One popular way of closing out a network of retail stores is to hold "going out of business" or "liquidation" sales open to the public. In some cases, a final auction or series of auctions of the remains occurs.
Sports Authority, which had been the largest sporting-goods chain at one time, was unable to find fresh investments and deal with its creditors satisfactorily within the Chapter 11 process. The company was ultimately sold at an authorized auction and purchased by a group of liquidation companies. These companies can make a profit by dismantling and parceling out the pieces of a prior retail giant.
According to court filings, out-of-business sales could go until the end of August. Several hundred stores are already effectively closed due to unsuccessful restructuring plans and other circumstances. The current incarnation of the company started out with $1.1 billion in debt as a result of its sale from Kmart to the current equity investors years ago. It never got out from under that massive liability. Where a company must liquidate in Pennsylvania or elsewhere, experienced bankruptcy attorneys are an essential component of the process in that they work to efficiently maximize the return for their respective clients.
Source: baltimoresun.com, "All Sports Authority stores to be liquidated and closed", May 19, 2016