Although most of my Indiana bankruptcy clients are individuals, families, and small business owners, it often helps to use the example of a large company whose bankruptcy is making the news at that time, to emphasize that bankruptcy is not an event, but a process. Our legal system has guidelines designed to restore financial stability to a situation, oversee the sale of assets to pay debt, supervise periodic debt repayment plan, and treat all concerned parties fairly.
The big difference between business bankruptcy and personal bankruptcy is that in a business bankruptcy, debts are not “discharged” by the court. Compromises may be negotiated with creditors of the business, but the assets of the company must be sold and used to pay the debts to the extent possible. By contrast, in a personal bankruptcy, certain debts can be forgiven or discharged by the bankruptcy court, in most cases with no loss of the debtor’s personal property.
Just a month ago, Chicago-based Tribune company filed Chapter 11 bankruptcy. As an example of the process at work, the Tribune had to be authorized by the bankruptcy judge to make payments to employees and to vendors and shippers. The goal of the court in approving the payments was to keep the Tribune operating its business. I stress this fact, because one of the myths about bankruptcy is that it represents the end for a business, when it so many cases companies can restructure and make a new beginning! “The filing is all about relieving the pressure on the company from too much debt,” stated Sam Zell, Chairman of Tribune.
Analysts report two reasons for all that debt. First, only a year ago, the Tribune “went private” (meaning its stock is no longer publicly traded) and did that with borrowed money. Second, due to both the rise in Internet advertising vs. print advertising and the downturn in the economy, revenues had dropped dramatically.
An interesting sidebar to all these developments with the Tribune is that the company owns the Chicago Cubs baseball franchise and its Wrigley Field stadium. Chairman Zell has been trying to sell the Cubs. Now, if a buyer is found, the sale proceeds will become part of what is called the bankruptcy estate. Again, this is all part of the bankruptcy process, under which all the assets and proceeds from sales are managed by a court-appointed trustee.
Does the Tribune bankruptcy process represent a beginning rather than an end? Tribune has hired a turnaround consultant and an investment bank to help craft a restructuring plan. With or without the Cubs, but with the help of the bankruptcy system, the Tribune wants to keep “playing ball”!