Which Companies Have survived bankruptcy?

Corporate Financial Management
Bus 607

By
Marie Dawes Which Companies Have Survived Bankruptcy?

According to Gerald S., bankruptcy is a generalized term for a Federal Court procedure that helps consumers and businesses get rid of their debts and repay their creditors (2014). If anyone can prove that they are entitled to it, the bankruptcy court will protect them during the bankruptcy proceeding. In general, bankruptcies can be categorized into two types: liquidation and reorganization.
The U.S. Court of Bankruptcy (2015), states that among the popular proceedings are chapters 7, 11, 12, and 13, which individuals and businesses use to file. Chapter 7 bankruptcies normally fall into the liquidation category. This means that an individual’s own property can be taken away and sold in the process of liquidation in order to pay back the debts. Conversely, chapter 13 bankruptcies fall under the reorganization category, meaning that the individuals will probably be able to keep their property, but they must submit and stick to a plan that will allow the person to repay some or all of their debts within 3 to 5 years.
A case filed under chapter 11 of the United States bankruptcy code is frequently referred to as a reorganization bankruptcy. Its bankruptcy proceedings are usually employed by struggling businesses as a way to get their affairs in order and pay off their debts. In addition, some individuals also file for chapter 11 bankruptcy when they are not eligible for chapter 13 bankruptcy or own large amount of non-exempt property (like a home). However, chapter 11 can be much more expensive and time consuming when compared to chapter 13, and the individual will probably need to speak to a lawyer to decide whether chapter 11 is the right pick for them (U.S. Court for Bankruptcy, 2015).
The chapter 12 bankruptcy is much like chapter 13, except that it is only available to people who have at least 80% of their debt arising from a family farm. It was put in place due to the fact that struggling farmers had many debts but too high of an income to qualify for chapter 13 bankruptcy and not enough time to file for chapter 11 bankruptcy (U.S. Court for Bankruptcy, 2015).
Many large businesses, corporations, partnerships and limited liability companies use chapter 11 to reorganize their debts and continue operating. Chapter 11 cases are by far the most complicated ones of any bankruptcy cases, and as a result, there are very few firms that handle chapter 11 cases, but many times individuals and companies cannot obtain the relief they need under Chapter 7 or chapter 13; thus a chapter 11 is their best option (Gerald, 2014).
Teloni states that over the years the process of declaring bankruptcy was incredibly simple (2014). The rate for individuals and companies were high where the American bankruptcy law allows people to avoid paying their debts by offering the debtors a discharge without a hash consequence.
Teloni continues to state that, by not having repercussion for their action, bankruptcy filers often plan future bankruptcies, allowing them to steal even more money from creditors with no punishment until April 20, 2005, when President George W. Bush signed into law the Bankruptcy Abuse Prevention and Consumer Protect Act, where the legislative act made several significant changes to the United States bankruptcy code. This Act made it more difficult for some consumers to file bankruptcy under chapter 7. They, instead, were forced to file chapter 13 where the fees are more expensive to file, and a repayment plan was enforced up to five years.
The word “bankruptcy” can bring guilt, shame, embarrassment, frustration and pain onto a business. Many companies survived bankruptcies by changing the ways they did business and paying more attention to how they operated their businesses. In 1987, Texaco filed bankruptcy, the largest file in United States history with assets of $34.9 billion.
Texaco was forced into bankruptcy as a result of the 1985 decision by a Houston jury, because Texaco had illegally interfered with Pennzoil's plan to acquire Los –Angeles based Getty Oil Co. The jury awarded Pennzoil damages of $10.5 billion plus interest, which was the largest award in U.S. history. Nearly one year after filing, the company became part of Chevron, and today, it continues to operate throughout the United States and in over 150 countries, and upon completion of its merger with Chevron Corporation, they stand as the world's largest publicity traded energy firm (Arndt, 1988).
Arndt's article continues to emphasize that Texaco explores, discovers, and produces oil and natural gas, manufactures and markets fuels and lubricant products, operates trading, transportation, and distribution facilities, and manufactures alternate forms of energy for power in the chemical market. Texaco/Chevron's stock on the New York Stock Exchange today is worth $99.88 a share (Arndt, 1988).
Many airlines have also faced bankruptcies where they are left with sky-rocketing fuel costs and lower demand for services and no other choice but to file for bankruptcy. According to Ciliberto and Schenone, the airlines ran better when they filed for bankruptcy protection, because they were able to upgrade their fleet and customers experienced fewer cancellations and delays, (2012). However, it was also stated that after they emerged from insolvency, their performance returned to pre-bankruptcy levels.
After these airlines emerged from bankruptcy, they merged with other airlines to become mega carriers, which dominated the market. These merges can create many problems for employees and consumers. For example, employees grew unhappy with management regarding their wages and pension funds. Passengers were worried about changes of computer integration with the sharing of records and luggage problems. The most unpleasant result of the mergers that passengers feared were the high fares to reduce competition, which oftentimes did not materialize (Maurer, 2003).
Maurer agrees that when Delta emerged from bankruptcy in 2007, its leaders knew that a failed recovery would depend on innovative thinking. Delta had to file for bankruptcy due to the spike in jet fuel prices and the growing competition from lower- cost, low fare carriers. They began by instituting an employee profit sharing program and a unique stock ownership plan that gave 15% of the company equity to pilots, flight attendants, ground crew members and support staff.
Delta also deepened its foreign partnership by buying a minority stake in three overseas carriers, Aero Mexico, Brazil, GOL and Virgin Atlantic, while strengthening its existing alliance with Air France. It moved toward vertical integration by acquiring the trainer oil refinery outside Philadelphia, a decision that shocked aviation but succeeded in driving down the company fuel cost. Executives are making smarter decisions about buying, refining and transporting fuel. Delta also took back their reservation system, becoming the only U.S. airline to own and control the data around it. Because of these changes and other unconventional moves, Delta is now one of the healthiest and most profitable airlines in the world. Delta stock on the New York Stock Exchange today is worth about $41.14 a stock (Maurer, 2003). Another airline that filed for bankruptcy is Continental Airlines who had filed twice. They filed bankruptcy in 1986 where they emerged then successfully re-organized and were sent back into the market fray. But with the competitive market with other airlines, they were having hard time competing and were unprofitable. As consequences of these problems, they were not able to keep it together, so they were, again, forced to file for bankruptcy in December 1990. The bankruptcy filing by Continental Airline Holding Inc. was required because of its heavy debts to various vendors. Additionally, wage benefits and jet-fuel prices have doubled since Iraq invaded Kuwait. At the time of filing bankruptcy, Continental Airlines had $2.2 billion in debt (Cooper, G 2014).
The CEO at that time, Harvey Miller, came under fire for his business practice, believing that filing for bankruptcy is always about re-organizing a solvent company. As a part of their bankruptcy agreement, Continental agreed to sell its prized Seattle-Tokyo route to the American Airline for $150 million to raise cash (Cooper, G 2014). After emerging from bankruptcy, Continental had to make changes to their management team, including its CEO and a number of officers. Then Continental Airlines went on to merge with United Airlines to create one of the world's largest carrier’s worth over $3 billion (Salpukas, 1990).
Ivory gives her view on the automaker industry in America-- yet another factor of bankruptcy that affects the European and Asian manufacturers but is primarily felt in the American manufacturing industry (2014). This crises happened because of the increase of automotive fuels, which discouraged consumers to buy sporty cars or pickup trucks that require a lot of fuel. The U.S. automaker failed to produce more fuel efficient vehicles, and not making these changes quickly to meet the demands from consumers led them to bankruptcy.
The two top U.S. automakers that had filed for bankruptcy were General Motor and Chrysler. They requested emergency loans in order to address impending cash shortage. By 2009, the situation had worsened to the point that both General Motor and Chrysler were faced with imminent bankruptcy and liquidation. With the intent to prevent massive job losses and destabilizing damage to the entire manufacturing sector, the U.S. and Canada bailed them out with loans. General Motor filed for bankruptcy in 2009, where they experienced seven years of decline sales brought by a recession and frozen credit market.
Receiving the Federal aid from the government came big strings attached as President Barrack Obama wanted General Motor to completely reconstruct so it could be more competitive again. Although they had emerged from bankruptcy, the company is still struggling to make profit; they are still losing market share, and it seems that they are unable to develop automobiles that are truly competitive in the U.S. market. They've shed major production brands such as Pontiac, Saturn, Hummer and Saab. Its domestic employment roll fell by more than 22,000 workers. The number of General Motor dealerships shrunk by nearly 1,000, costing another 50,000 to 70,000 jobs. The company also shut down 13 U.S. plants (Cooper, 2014).
Since 2013, the Federal government hasn't owned any more shares in General Motor. It first started with 500 million shares in 2012. The Treasury sold all the General Motor shares by December 2013. Taxpayers experienced losses. The General Motor bailout is $10.5 billion. The Treasury said they recovered $39 billion from selling its General Motor stake and had put 49.5 billion of taxpayer money directly into the General bailout (Cooper, 2014).
In April 2009, Chrysler also filed for bankruptcy, and within the same year, they emerged from it, owned by United Automaker Union and by Italian automaker Fiat S.P.A. The agreement with Fiat stated they would invest billions of dollars in research investment related to (R&D investment for 35% stake in the new Chrysler) Fiat who is known for making small midsize passengers cars (Cooper, 2014).
Chrysler did pay off its high interest government loans by refinancing them at a lower rate in a private sector, and parent Fiat also bought out the UAW Retiree Health Care Trust that had ownership stake in Chrysler. Chrysler had made great strides in improving its relationship with their supplier between 2009 and 2012, but according to a watched annual supplier survey, that progress was halted in 2013. Chrysler had bought one assembly plant back that it intended to close after its 2009 chapter 11 filing. The company continues to add more shifts whereby roughly 25,000 workers were employed. They also continue to expand production at all 36 assembly engine, transmission and parts plants (Cooper, 2014).
The company has also invested $5.2 million into its plants, including thousands of new engineers and designers. Chrysler is much more profitable; its products and marketing are vastly better. Its dealers are making more money than they have in decades. Chrysler is now paying more attention to consumers by crossing over to midsize vehicles like the 3.6 Pentastarr v-6 (Cooper, G 2014).
According to Yerak, as of May this year, fewer businesses are filing for bankruptcy.
When the recession hit the United States around 2007, many businesses were filing for bankruptcy from left to right. Now that the economy is slowly recovering, fewer businesses are now filing (2014). A number of bankruptcies among publicly traded U.S. companies, however, has climbed to the highest quarter level for the past five years (www.bankruptcycompanynews, 2015).
Dropping prices on crude oil is one of the major reasons for the increased filing, and more bankruptcy experts said a more aggressive stance by lenders may also be hurting some companies (Teloni, 2014). While U.S. stock had climbed to near record levels and the jobless rate had declined to a six year low, 26 publicly traded U.S. corporations filed for bankruptcy in the first three months of 2015.
There is also a big concern that many Americans will remain financially strapped for years to come. Millions of baby-boomers refinanced their mortgages in their early 50’s, and with limited retirement savings, they are not retiring anytime soon. Another concern includes a whole generation of college graduates who will owe more in student loans than they do on their mortgages (Maurer, 2003).
In sum, businesses ought to pay more attention to their everyday operations and be one step ahead of the game by investing more into technology, research, and knowing both their competitors and consumers, but most importantly, paying down their debts and managing their cash flow, rather than investing too much into new products.

References

An Empirical Examination of the Act's Business Bankruptcy Effects. Journal of American Bankruptcy Law. 88 (2) 237-276. 32p.
Arndt, M. (1988, April 08).Texaco pays Pennzoil, Leaves Bankruptcy. Chicago Tribune.
Cooper, G (2014). Sell the rumor, buy the facts. Journal of Business of Accounting & Finance, 54 (1) 237-249.13.
(Cooper, G 2014).). What to do when a Customer Files for Bankruptcy. 96 (10) 29-p. p.33.
Ivory, D. (2014, September 24). Report Rebukes treasury for Bail out Packages at G.M and Ally Financial. The New York Times, p.B6.
Maurer, R. (2003). Making a Strong Case for a Change. Journal for quality and Participation. (26)3 41-42. 2p.
Process Bankruptcy Basis. (2015). Retrieved from http://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/process-bankruptcy-basics.

Salpukas, A. (1990, December 04). Continental files for bankruptcy. New York
Times, p.D8.

Teloni, F (2014). The Bankruptcy Abuse Prevention and Consumer Protection Act:
Yerak, B. (2014) Business Bankruptcies ebb, but coming wave expected. Chicago Tribune.