Pedigree is obviously an attractive attribute in business, but it must be accompanied by profitability. Although Sears has stood strong on that one anchor for far longer than a century, the iconic retailing giant has failed to deliver on the bottom line in recent years.
And that reality has brought it to commercial bankruptcy, with the 132-year-old chain business making a Chapter 11 filing in a New York federal bankruptcy court earlier this week.
The reasons underlying company decision makers’ actions are clear enough. A recent Bloomberg article chronicling the filing stresses that Sears “has been struggling for several years and is drowning in debt.”
That is a prototypical recipe driving commercial debtors to Chapter 11. Sears has been steadily closing stores in malls and neighborhoods across the country for more than a decade, and its mounting financial woes have been well reported. Bloomberg notes that the “final straw” on its IOUs came this past Monday, when the company couldn’t make good on a $134 million debt repayment.
Our legal blog has regularly reported other instances where Chapter 11 has been invoked by prominent business players dealing with onerous commercial realities. We make two prominent points regarding the process on our website.
One points out that while corporate bankruptcy can indeed be a go-to strategy for some stressed business entities, “it is not always the only option available.” Other responses might be equally viable or more effective and should be fully explored with proven legal counsel.
The other point is this: Chapter 11 is not always a death knell for struggling companies. The process can in some instances shed troublesome debt and enable an entity to reorganize and reemerge in a streamlined and more potent form. That is Sears’ stated goal, with its chairman noting that the company’s bankruptcy filing will ultimately help it to “become a profitable and more competitive retailer.”
We invite questions to Rich Michaelson Magaliff, LLP concerning corporate bankruptcy and other strategies that a business might reasonably employ in responding to material debt-related challenges.