Businesses large and small in Texas and throughout the country will inevitably run into peaks and valleys. With this in mind, it is important to prepare for every possible contingency and understand the potential value of filing for Chapter 11 bankruptcy. Contrary to popular belief, a reorganization under Chapter 11 does not automatically mean that the business is finished and will therefore have no future. In reality, a business bankruptcy under Chapter 11 can help a business get back into a better position to move forward with a debt reorganization and come out stronger than before.
According to reports, the retailer Sports Authority Inc. is putting the pieces in place to file for Chapter 11 bankruptcy. An upcoming debt payment has spurred the decision. The company has been negotiating with its lenders -- including one in Texas -- to reorganize through Chapter 11. The company currently has more than 450 stores and is planning to close up to 200. With more that $340 million in subordinated debt and an approaching interest payment of $20 million that it failed to pay, the negotiations on how to proceed are ongoing.
Overall, the company is more than $640 million in debt and has been dealing with the increased competition of other sporting goods stores as well as new entrants into the marketplace. The Texas company that gave the loan to Sports Authority provided $70 million out of $95 million allowing it to continue its operations through the holidays.
While this bankruptcy possibility involves a large sporting goods company, all companies -- whether small, medium-sized or large -- should take note of how the Chapter 11 bankruptcy process works. Whether it is a family business, an LLC, a partnership, a sole proprietorship or a closely held business, all can benefit from reorganizing debt by a strategically planned Chapter 11. If there are financial issues approaching or the business is failing, speaking to an attorney about how to proceed with a business bankruptcy can be useful to get back on stronger financial ground.
Source: Bloomberg, "Sports Authority to Take Steps Toward a Bankruptcy Filing," Jodi Xu Klein, Lauren Coleman-Lochner, Feb. 4, 2016