Since 2001, statistics show that about five companies a week have gone into bankruptcy. Although many people don’t realize it, a high percentage of companies filing for bankruptcy are major instit
utions. The bankrupt companies accounted for 80% in terms of asset size, making their situations even more troublesome.
One of the biggest companies to go bankrupt in U.S. history was General Motors. In terms of the number of employees involved, it is the second largest bankruptcy ever with 243,000 employees. In May of 2009, GM closed over 2,600 retail outlets with a loss of 130,000 jobs trying to keep themselves out of bankruptcy court. Even these major cuts didn’t work. By June 1, 2009, GM filed for Chapter 11 bankruptcy. It was the biggest company to file for bankruptcy that year. However, it was also the quickest reorganization process, taking only 40 days.
The U.S. government became 60% owner of the company by backing GM vehicle warranties during the reorganization. If the court had not approved this process, the company would have been forced to liquidate. General Motors sold its Hummer and Saturn brands, discontinuing Pontiac production altogether. The court approved their borrowing $33.3 billion from the U.S., Ontario and Canadian governments. The restructured GM launched a new stock IPO in 2010. Its most profitable assets remained intact under government ownership and the new company emerged.
Thornburg Mortgage filed for bankruptcy in May 2009. At the time it was the second largest mortgage lender in the U.S. After the bankruptcy filing, Thornburg sold $20.5 billion in assets attempting to stay afloat. Even this effort wasn’t able to halt thebankruptcy process. Executives and directors of Thornburg had artificially inflated stock prices due to material information misrepresentations and omissions. Their stock price fell from $23.84 to $13.50 in just thirteen days. The federal court said the company had provided misleading financial statements and filed fraud charges against some of the executives. These executives overstated Thornburg’s income by $400 million. TMST was established as the new company.
A Chapter 11 Trustee was appointed during the restructuring to liquidate Thornburg’s remaining assets to pay claims benefiting equity holders and creditors. The class action lawsuit involved a proposed $2 million settlement. The final payout came to about one cent per share of stock.
The 131-year-old film company, Eastman Kodak, struggled to adapt to the digital world. They tried several strategies and cost-cutting efforts to return the company to profitable status before resorting to bankruptcy. With the help of $950 million from Citigroup the company kept going during the bankruptcy process. Along with the financial aid, the company continued selling its portfolio of 1,100 digital imaging patents to raise additional cash. Kodak became the latest giant company to fail in recent years. When it filed for bankruptcy, Kodak had assets of $5.1 billion and about $6.8 billion in debts.
Kodak had dominated the photographic field until it became plagued with a variety of problems during the last four decades. Foreign competitors such as Fujifilm undercut Kodak’s prices and digital photography limited the demand for traditional film products. Kodak closed 13 manufacturing plants and 130 processing labs, reducing their workforce by 47,000. Lawsuits regarding infringement on their patents were also filed to try to generate revenue. Suits included LG, Fujifilm, Motorola, HTC of Taiwan and Apple Inc. They have already won a settlement from LG and Motorola. If Kodak could reach licensing agreements with the rest it would bring in substantial fees.
Preparing for Chapter 11 filing, Kodak hired advisors to conduct the court-supervised restructuring.Bankruptcy protection allowed the company to default on millions of dollars in pension obligations. The announced corporate overhaul split the consumer and commercial aspects of the business to make the sale of certain parts of the business simpler. The restructuring process is ongoing and it will be a while before it is resolved and the company emerges as a strong entity again.
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