Despite what many people in Pennsylvania think, seeking protection from creditors does not have to be the end of a company. In fact, filing for bankruptcy offers businesses a chance to reorganize their assets and holdings in a more efficient way, and sometimes the corporations emerges stronger and better prepared to deal with the ups and downs of the marketplace. Nevertheless, the rising number of commercial bankruptcies has some economists alarmed.
Even the doomed Twinkie cake can emerge strong from a bankruptcy. Not seen so much in Pennsylvania, where the Tastykake brand remains supreme, the Twinkie was nonetheless the nation's best known sweet-tooth junk-food indulgence for many years. The company had to choose bankruptcy, however, in 2012 as a result of the trend toward eating healthier foods and internal union issues within the Hostess Brands parent company.
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.
In Pennsylvania and all jurisdictions, a company's filing for bankruptcy protection may facilitate the resolution of many different types of business disputes and claims. For example, in the recent filing by SunEdison Inc., a dispute pending in another court turned its focus to the Bankruptcy Court. Vivint Solar Inc. had sued SunEdison over SunEdison's alleged failure to live up to its obligations under a merger agreement. Vivint, which installs solar panels, announced that it would participate in the bankruptcy proceedings to protect its interests and maximize its recovery.
Business bankruptcies in Pennsylvania and other jurisdictions often serve the purpose of bringing together the bankrupt company with an investment firm that acquires most or all of the company's assets. This happened recently in connection with the Chapter 11 bankruptcy of a large industrial supply company. An investment firm called Staple Street Capital made a "stalking horse" bid for purchase of the national pipe, valve and fittings supplier.
Sometimes those who advertise a program to help people organize or pay off their debts must also get debt relief. That is generally what happens in Pennsylvania and nationwide when a company is exposed as not providing the consumer service that it advertises. Recently, a company called the Student Aid Center, Inc. filed for Chapter 7 bankruptcy. The filing comes on the heels of several complaints and a lawsuit filed by an attorney general of one state.
It appears that many mid-size retail companies are facing pressing challenges from online marketing platforms that have eaten into their revenue streams in recent years. One of the latest retail apparel chains to register a crisis is Joyce Leslie, with its 47 stores, including some in Pennsylvania. The company, which caters to younger women aged 15 to 35, filed a Chapter 11 bankruptcy recently on the heels of a sharp decline in revenue.
Even luxury product manufacturers have a right to attempt reorganization in a business bankruptcy. The current example is the filing of a Chapter 11 bankruptcy by the Tamara Mellon brand of luxury shoe products. Although filed in a neighboring state, the action will impact the brand that is sold in Pennsylvania as well as nationally.
In some business bankruptcies in Pennsylvania and other jurisdictions, the bankrupt entity will end up being sold at an auction to the highest bidder. That recently happened to a well-known military school in a nearby state that counts Donald Trump and other notable people in its list of graduates. A drastic decline in enrollment was mentioned as the reason for the school's closing and filing of bankruptcy this year.
Because bankruptcy is a federal remedy and is guided by the U.S. Bankruptcy Code, the general procedures and basic legal principles for a small business bankruptcy will be largely the same in Pennsylvania as in other states. Many businesses close after a bankruptcy, but some choose to continue to operate under the terms worked out during the bankruptcy proceedings. Whether one filed a personal bankruptcy in connection with a failed business, or whether the business is still operating, both the individual and the small business will find it possible to obtain financing for starting a new business or continuing the one that is operating.