21 March 2017

HH Gregg and Contemporary Bankruptcy

You can go here to read about the hiccup in the Chapter 11 bankruptcy of HH Gregg. The retailer, which filed for bankruptcy relief late on March 6 (read my pre-bankruptcy observation here), does not plan to reorganize as that term was understood through the end of the 20th century. Instead, like the first go-round of Family Christian Stores (beginning here and end here), HH Gregg planned to use the structure of Chapter 11 to get out of the leases at its underperforming stores, sell its assets to another entity, and use the proceeds of the sale to pay its secured creditors leaving a few pennies on the dollar for everyone else.

Well, that is, until the unnamed buyer backed out.

Gregg's management still believes it can sell itself as a going concern and they may be right. Or not. The current liquidation of Family Christian Stores after its sale-through-bankruptcy in 2015 stands as a cautionary tale for anyone even remotely thinking of getting into the brick-and-mortar retail business.

Some folks have raised the question of whether a government-funded Chapter 11 system should be available to companies who do not intend to reorganize. After all, the thinking goes, the bankruptcy system exists for the benefit of all stakeholders, not a few select creditors. When stakeholders such as employees, local governments, and unsecured creditors get little or nothing, what public good does Chapter 11 serve?

I am not among the the sale-through-bankruptcy naysayers. The current truncated Chapter 11 process is imply another step in the increasing efficiency of market capitalism. While one might question whether efficiency should be as important as it has become, there is no a priori reason why the government should not provide a legal forum to enhance the efficient redistribution of assets. Rather, the reason not to increase efficiency is when it would otherwise be unjust, and I can't see anything unjust about sales-through-bankruptcy.


1 comment:

  1. Perhaps the governement needs to look into changing the terms of chapter 11 bankruptcy so businesses who utilize it have more left over for the stakeholders such as employees. While any business can be unsuccessful there should be steps in place to ensure sucess, when businesses do well so does the economy.

    Robert @ Weik Bankruptcy Attorney

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