The global pandemic has brought hardship to businesses and individuals alike. Even large retailers who have been around for decades have not been spared. The reduction in all factors such as customer demand, frivolous spending, and travel outside the home has resulted in many such companies declaring bankruptcy.
List of Companies
So far, the list of companies that have declared bankruptcy due to the pandemic include:
- Dean & Deluca
- Apex Parks
- FoodFirst, Bravo and Brio Restaurant Parent
- True Religion Apparel
- CMX Cinemas
- Gold’s Gym
- Neiman Marcus
- Stage Stores
- J.C. Penney
J.C. Penney also was the latest casualty. On Friday, they had made an interest payment of $17 million. This was likely a requirement to extend the loan that will allow them to carry out their bankruptcy plans.
What Does Bankruptcy Mean for a Company?
When a company declares bankruptcy, it does not necessarily mean that they will be going out of business. Bankruptcy usually entails closing some locations and restructuring staff members. When a company goes bankrupt, the top managers might consider whether resignation is the better option for them. However, it may be more beneficial for them to stay on, and work towards guiding the company back to prosperity.
Types of Bankruptcy
There are two main types of bankruptcy that a company could declare. First, chapter 7 bankruptcy is a liquidation method. Unpaid debts such as credit cards or other short-term loans will be wiped out, and the company will not need to repay them through a repayment plan. With chapter 7, the company will have to cease operations, and a trustee is appointed to perform the liquidation. As soon as you file for chapter 7 bankruptcy, an automatic stay order is imposed. This means that creditors will stop pursuing you to collect their money owing. The trustee will work to sell certain property that is not exempt from bankruptcy protection to pay back your creditors any amount that they can get.
The second main type of bankruptcy is chapter 11. Using this method, the business is usually allowed to stay open and continue regular operations. This includes keeping most of the employees who work at the company. This type of bankruptcy is more likely to occur if the company is in a stronger financial position than one who has filed for chapter 7 bankruptcy. In this case, the company’s existing management team will work towards reorganizing the company’s assets and debts with help from the court.
The Cost of Bankruptcy
Some companies do not realize the financial impact that declaring bankruptcy will have. If you suspect that bankruptcy will be a future possibility, start preparing for it soon. Bankruptcy requires a large amount of liquidity in order to pay for counsel and advisors. This isn’t including the cost of creditors, as it is expected that some will not be paid back in full. The entire process of bankruptcy, including hiring counsel, can cost many thousands of dollars upfront.
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