Have Retail Reorgs Gone the Way of the Dodo?
In the past two months, four retailers have filed bankruptcy cases. RadioShack is rumored to be preparing a chapter 11 filing, and other retailers certainly appear to be struggling (see Stephen Lubben’s post here). But if you were counseling any of these retailers, would you recommend a chapter 11 filing? Okay, put aside the professional fees you might earn—would filing really be in the best interests of your retail client? (For a discussion of fees and costs in chapter 11, see Part IV.A.8 of the ABI Commission Report.)
Consider this: from 2006-2013, the number of retailers liquidating in chapter 11 increased significantly. Although no data are perfect, the various data we have on chapter 11 filings are quite telling. For example, according to the UCLA-LoPucki Bankruptcy Research database, during 2006-2013, 41.2% of large public retailers (excluding eating and drinking places) emerged from chapter 11 and 58.8% liquidated while, during 1980-2005, 60.5% of large public retailers emerged from chapter 11 and only 39.5% liquidated. Likewise, a quick look at the New Generations Public and Major Private Companies database suggests a similar trend for 2006-2013: approximately 62% of retail cases in the database ended in a liquidation (36 of 58). A chapter 11 filing has, quite literally, become a “bet the company” decision for retailers.
As you might expect, the Commission also received testimony on the other side of these issues. Some witnesses asserted that chapter 11 is working just fine as currently structured, and others refuted the suggestion that the changes implemented by the 2005 amendments to the Code were having a negative impact on retail cases. All perspectives represented by the testimony, as well as the Commission’s related recommendations on postpetition financing and adequate protection in chapter 11, the section 365(d) deadlines, and section 503(b)(9), are set forth fully in the ABI Commission Report (see Parts IV.B and V.A, E ). The primary objective of the recommendations is to make chapter 11 a better bet for distressed companies (including retailers) and all of their stakeholders.
*Note: The views expressed in this post are those of the author and are intended to spark a meaningful dialogue about chapter 11 reform. They are not attributable to the American Bankruptcy Institute or the ABI Commission to Study the Reform of Chapter 11.
Cartoon image from Shutterstock
Was there ANYTHING good to come out of BAPCPA? The consumer provisions stink, and the business provisions, if less commented on, are just as bad.
Posted by: Adam Levitin | January 22, 2015 at 08:12 AM