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Modesto
209-521-8100

Why fewer retailers emerge from bankruptcy

The market for mergers and acquisitions in the middle market (i.e. transactions valued between $50 million and $2 billion) are expected to continue at last year’s pace. While that may be good news for some troubled retailers, others are likely to seek Chapter 11 bankruptcy protection as a way to restructure their obligations so that they do not have to close their doors.

While bankruptcy may be a sound and prudent move for struggling retailers that cannot find a merge partner, retailers that seek bankruptcy protection are more likely to fail compared to similar entities in other industries. There are countless stories of failed retailers that go through bankruptcy, including Circuit City, Filene’s Basement and even Radio Shack.  

This post will highlight the a few of the possible reasons behind this trend. 

Rules changes – Prior to the implementation of the BAPCPA, retailers could spend more than a year in bankruptcy getting approval for a reorganization plan before they were pushed into liquidation. Now, businesses only have a matter of months to decide whether they will sell off assets or terminate leases to save money.

A growing liquidation market – More firms have emerged that will handle a retailer’s “going out of business” sale, which is key in allowing vendors to get something back on the value of their goods before the retailer goes under. Further, lenders that have supported troubled retailers are more likely to accept offers from liquidation companies for unsold goods. When liquidation companies can quell lenders’ fears, it is more likely that the retailer will simply go quietly into bankruptcy

If you are a stakeholder in a retail business or creditor,  it is helpful to have an experienced bankruptcy attorney to protect your interests. 

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