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Chapter 11 bankruptcy ends, creditors and shareholders get little

Most media coverage of corporate bankruptcies in New York and elsewhere focuses on the initiation of the proceeding, especially if the debtor is a major business enterprise. Few stories, however, provide a portrait of how the process ends. The termination of a Chapter 11 proceeding filed by a major department store chain provides an unusual look at how different parties fared in the bankruptcy court.

The debtor is a large department store chain, with headquarters in Omaha and 100 stores in 22 states. The bankruptcy judge recently approved the plan of liquidation. According to the order, creditors with no collateral will receive between 5 and 11 cents on the dollar. As an example, a trucking company that is owed $454,000 but has no collateral will receive next to nothing. Owners of the company's common stock were completely wiped out. Secured creditors will be paid differing amounts depending upon the value of their collateral.

The company sold about half of its 100 stores to a Texas-based chain in an effort to stay afloat, but its efforts were hampered by the board's decision to approve a $70 million dividend. The company borrowed $45 million and used $25 million from its cash reserves to pay the dividend. The largest secured creditor was Wells Fargo, which was owed $66 million. This debt was secured by the debtor's inventory and assets and was paid when these assets were sold. The company itself has ceased to exist.

Anyone who has a stake in a company that may be on the verge of bankruptcy, whether that stake is common stock, unsecured debt or secured debt, can benefit from consulting an experienced bankruptcy attorney. A knowledgeable attorney can provide advice on how the bankruptcy proceeding will affect varying interests in the enterprise and suggest strategies for protecting as much of the stake as possible.

Source: Omaha World-Herald, "Lights out at Gordmans: Bankruptcy is over; unsecured creditors get 5 to 11 cents on dollar," Russell Hubbard, Nov. 6, 2017

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