Published by Mark

Bringing you up to date on the ATA bankruptcy hearing, I emphasized how bankruptcy is a process with certain stages. By now you know that, as a small business bankruptcy attorney, I need to stay on top of news about businesses in various stages of that process, so as to offer the most up-to-date legal and business advice to my Indiana bankruptcy clients. Three business stories from just the past week or two illustrate what I mean by “bankruptcy process”. The first story is about a 175-year old company called American LaFrance, or ALF, which is one of the oldest fire and emergency service vehicle companies in the U.S.. (One observation to make here is that even very old and solid companies sometimes need to make use of the bankruptcy system.) The bankruptcy court judge entered an order confirming ALF’s Chapter 11 Plan of Reorganization, which means the company can emerge from bankruptcy. ALF was “in bankruptcy” for less than 17 weeks. In an earlier bankruptcy blog I explained that the bankruptcy law is designed to treat all parties fairly. In the ALF case, 90% of the creditors supported its plan. In Virginia, Movie Gallery, Inc. successfully emerged from Chapter 11 bankruptcy protection after restructuring its debt. Movie Gallery, started with 97 stores thirteen years ago, is now the second largest North American video rental company in the country. “Through this restructuring,” explained the company chairman, “we have effectively addressed our financial and operational challenges.” In practical terms, all of Movie Gallery’s existing common stock and bonds were cancelled, and under the bankruptcy plan, new common stock and bonds are being issued to unsecured creditors of the company. Again, bankruptcy is a process. Meanwhile, In Delaware bankruptcy court, Hilex Poly Company, the world’s largest plastic bag company, announced an agreement with its creditors under a “voluntary” Chapter 11 reorganization plan. This means the company can continue to operate as usual while the debt restructuring is in process. In this case, all obligations to customers could be fulfilled, and suppliers could be paid in full. The mechanism used in this case was special financing from GE Capital and Morgan Stanley. Once more, a process was put into play. My work as a small business bankruptcy attorney in Indiana is to help each bankruptcy client business owner move through the process as smoothly as possible by adopting strategies that are best for that business, and then carrying through step by step towards a successful fresh business start.

June 9, 2008 at 5:50 am

A couple of months ago, I wrote about the ATA Airlines bankruptcy that completely shut down the company. As a small business bankruptcy attorney in Indiana, I have an intense interest in stories about bankruptcy filings by Indiana companies. As I counsel my small business bankruptcy clients, it’s important to draw lessons from other companies that can help my clients avoid mistakes as they rebuild their businesses. Then, too, any time a company closes its doors, my individual bankruptcy clients can be affected. Some may be laid off because they worked for ATA or perhaps for a company that was a supplier or customer of ATA. The decrease in employment opportunities will have an effect on how quickly my clients can get back on their feet financially following a personal bankruptcy.

Here’s the situation right now with ATA: At the end of last month, a 341 meeting was held. This is a special meeting, part of all bankruptcy cases, at which executives of the company are questioned about what caused the company to fail. In my work as a bankruptcy attorney in Indiana, I am involved in the bankruptcy process. I use that word “process” by design, because, despite the myths, bankruptcy is not a one-day “event”, but an orderly legal process with different stages. I was personally involved in drafting changes to the Indiana bankruptcy statutes, and I know that the process, while certainly not perfect, is designed to have the courts arrive at as fair a settlement as possible. That means trying to be fair to both the business owner(s) and the creditors who are owed money. It also means, in many cases, trying to “save” a business and allow it to continue to operate to retain as many of its workers as possible, and to serve its customers.

The ATA story is an especially sad one, in a way, because the company was founded right here in Indianapolis thirty-five years ago. Many attempts were made to keep the company going. These strategies included selling ATA to Georgia-based Global Aero Logistics, and taking on government contracts to transport troops. Then, along with other airlines, ATA was hit with spiking fuel prices. When it lost its government contracts, the airline simply could not keep going.

I think one lesson small business owners can learn from ATA is to start working on strategies at the very first signs of trouble. Sometimes a sale or merger can improve the situation dramatically. With ATA, it just wasn’t enough. When consumer travel began to fall off, ATA diversified into other areas of business, another good lesson for all small business owners. Again, with ATA, it just wasn’t enough. Adverse market conditions just proved too strong for the company to keep flying. And that’s exactly where the Indiana bankruptcy process comes in as a safety net.

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