Commercial Bankruptcies: Prepackaged Bankruptcies

The items below are excerpted from the Business Bankruptcy News Bulletin. A full issue contains information on dozens of troubled companies, as well as informational and analysis highlights. Please visit the insideARM bookstore for information on subscribing to the Bulletin.

If the number of prepackaged bankruptcy filings and “363 sales” last year is any indication, creditors are in for an unsettling trend.  In 2009, the number of publicly-held companies that filed prepackaged bankruptcies tripled–to thirty. This does not include such restructurings as those that took place in the auto and finance industries, where the government stepped in and assisted companies.  While on the one hand, seeing financially troubled companies work and communicate with their creditors to resolve problems and work out solutions is a good policy to follow, to do so as a way to restructure a company and/or reduce a debtor’s obligations is considered by some creditors as a disturbing trend and, in certain situations, a quick fix to a long-term problem.

A Brief Look at Changing Management in a Bankruptcy Proceeding

The feasibility of changing management of a bankrupt debtor depends somewhat on the size of the company.  Many, or even most, small companies that file Chapter 11 would likely collapse without present management through their personal contacts, etc.  Particularly for smaller companies, creditors might find it difficult or unwise to demand a change in management.  It should be noted, however, that larger businesses that go bankrupt can often continue without current management.  In fact, creditors may want to consider replacing existing managers unless the managers who had brought the company to its financial problems have already been replaced.

Daufuskie Island Resort & Breathe Spa in South Carolina will sell most of its assets to North Carolina-based Montauk Resorts for about $50 million. Daufuskie’s owners filed for bankruptcy protection almost a year ago.

Firstfed Financial Corp., Woodland Hills, Ca., filed Chapter 11 in the U.S. Bankruptcy Court for the Central District of California. The firm listed assets of between $1 million and $10 million and liabilities of between $100 million and $500 million. The filing was under case number 10-10150. For more information contact the court at 866-522-6053.

Freedom Airlines Inc., Phoenix, Az., filed Chapter 11 in the U.S. Bankruptcy Court for the Southern District of New York. The firm listed assets and liabilities of between $500 million and $1 billion each. The filing was under case number 10-10020. For more information contact the court at 866-232-1268.

Gottschalks Inc., the Fresno, Ca.-based retailer which filed Chapter 11 a year ago and over the summer closed its last stores, is now estimating that unsecured creditors will likely get next to nothing on the $75 million to $105 million that it owed to them.

International Aluminum Corp., Monterey Park, Ca., filed Chapter 11 in the U.S. Bankruptcy Court in Delaware. The firm listed assets and liabilities of between $100 million and $500 million each. The filing was under case number 10-10003. Also filing were IAC Holding Co. under case number 10-10004 and United States Aluminum Corp. under case number 10-10005, along with several other affiliated filings. For more information contact the court at 302-252-2560.

Symbio Solutions Inc., Dallas, Tx., filed Chapter 11 in the U.S. Bankruptcy Court for the Northern District of Texas. The firm listed assets of between $1 million and $10 million and liabilities of between $10 million and $50 million. The filing was under case number 10-30134. For more information contact the court at 800-886-9008.