Business owners who have been in their particular industry for some time may realize that sometimes, restructuring or closing a business is a much smarter choice than sustaining continuing losses. However, the initial decision to go through this process, either through bankruptcy or some other means, is among the toughest decisions that any business owner may have to make -- even if it is the best decision when all paths are considered.
Recently, RadioShack, a well-known electronics chain, filed for Chapter 11 Bankruptcy. According to news reports, the bankruptcy filing did not come as a surprise because the company was reportedly sustaining steady losses for the past 11 months. However, RadioShack chose not to liquidate all of its assets; instead, it struck a deal with telecom giant Sprint and General Wireless, a Standard General affiliate, in which RadioShack would be selling many of its stores to those two companies.
As a part of the deal, Sprint and General Wireless will buy 2,400 and 1,500 stores, respectively, of the more than 4,000 stores that RadioShack owns and operates across the United States. These two companies, along with RadioShack, will start a chain of co-branded stores at as many as 1,750 of the acquired locations. As a part of the bankruptcy process, RadioShack has also engaged Hilco, a liquidation firm, to close some of the under-performing stores that the company presently operates.
According to RadioShack's bankruptcy petition filed in Delaware, RadioShack's assets are worth approximately $1.2 billion but its debts are much greater, at $1.39 billion. However, for operating the business during the bankruptcy process, RadioShack has been successful in obtaining a loan of $285 million from several lenders, which is being led by DW Partners.
Despite the specific issues facing RadioShack, filing for business bankruptcy is not necessarily a major setback in a business owner's life. Instead, that business owner must look at the bankruptcy filing as an instrument of debt relief. However, bankruptcy, or debt relief, is a complex area of the law and often, a lack of thorough understanding may land a business owner in further financial trouble. Being fully informed is a great first step towards charting the best course forward.
Source: Reuters, "RadioShack files for bankruptcy, sell up to 2,400 stores," Nick Brown, Feb. 5, 2015