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For the purposes of this article, consider the history and recent business practices of a company we’ll call JKL Shoes. JKL, a privately-held company, is a well-established, family-owned women’s footwear manufacturer. Consider these facts:
Owned and operated by the second generation, the company enjoyed for many years a strong record of success. In recent years, the business generated revenues of $75 million and had a reputation within the industry for superior technical expertise. Its clients were largely comprised of solid Fortune 1000 companies.
Empirical data suggests that companies that emerge from chapter 11 are more likely to file for “chapter 22” than those that never filed. In general, companies that emerge from bankruptcy protection never reach their former level of strength and vitality. This article explores the principal reasons for “chapter 22” filings as well as the forces that encourage reorganization as the preferred chapter 11 outcome.
