In this Indiana bankruptcy blog, I’ve been using the bankruptcy of ATA Airlines to
demonstrate an important fact: bankruptcy is a process, not a one-time event. The ATA bankruptcy story actually began years ago, when FedEx decided not to use the airline for its military cargo transports. As quite often happens in business bankruptcies, ATA continued to operate for awhile during the reorganization process, all the while seeking a buyer and auctioning off assets to make payments on its debt. Southwest Airlines, four years ago, paid ATA $117 million for its Chicago Midway Airport gates. Then, in April of this year, ATA landed in bankruptcy court a second and final time.
Just this month, Southwest bought ATA’s LaGuardia, New York airport gates, along with most of ATA’s remaining assets. (In ATA Business Bankruptcy Demonstrates The Process, I had explained how auctioning assets to raise cash for debt repayment is a very common procedure in business bankruptcies.) In fact, according to the Indianapolis Star, ATA is now in the process of auctioning off 80 Web domain names on the GoDaddy online auction site, and bidding is in process for three Lockheed L1011 jets going back to ATA’s early days in the 1970’s.
A second example of a long court process is auto supplier Delphi’s bankruptcy. Just two weeks ago, three years after Delphi’ first filing Chapter 11 bankruptcy, a bankruptcy judge ruled to allow Delphi to default on its loans from GM that are set to mature Dec. 31, and then to move the due date forward to June 30 of next year. Delphi has used the four and a half billion dollars in loans to fund operations while under bankruptcy protection. Now, because of the credit crunch, Delphi has had to postpone emerging from bankruptcy because of lack of credit availability.
By way of quick review, Chapter 11 bankruptcy was “born” in the 1800’s to save the railroads, and has been used since 1978 to help many corporations in financial trouble. The goal of Chapter 11 is rebirth of a company.
As an Indiana bankruptcy attorney for two and a half decades, I’ve concentrated my work on individuals and small business owners, not on large corporations such as Delphi or ATA. But, in order to dispel some of the many myths floating around about bankruptcy and how it works, I find it important to use news stories about big companies that have filed bankruptcy as examples.
Our bankruptcy law is a system designed to be as fair as possible to all parties involved in a business failure. Even if the process goes on for years and years, it’s important to allow companies to reorganize and keep operating if at all possible. Then, if that can’t work, it’s important to treat all the creditors as equitably as possible, and that means finding the best price possible for assets that need to be sold, allowing time for negotiating arrangements, looking for buyers, etc.. In short, bankruptcy’s a process, and that process is not over until – well, until it’s over!