Payless Emerges From Bankruptcy After Four And A Half Months

Business owners often ask us how long it will take to go through a restricting bankruptcy. In typically lawyerly fashion, we answer, “It depends.” No two bankruptcies are alike, and what happens in one case can only hint at what might happen in a similar situation. A look at the Payless bankruptcy provides a glimpse into a Chapter 11 bankruptcy that was rather quickly resolved and is therefore intriguing, particularly to those in the retail sector.

Retail Continues to Take a Beating

When Payless ShoeSource, the retail shoe store chain that revolutionized shoe shopping by championing self-service and low prices, announced in early April that it was filing for Chapter 11 bankruptcy, there were few people who thought it would complete the restructuring process very quickly. After all, American Apparel, Aeropostale, Rue 21, Gymboree, True Religion, Radio Shack, Eastern Outfitters, Gander Mountain and other companies have all struggled to restructure and close out their bankruptcy cases during the past year. Retail chains continue to struggle in the wake of the economic crisis and the emergence of e-commerce.

What Made Payless’s Bankruptcy Different?

It is difficult to say what made Payless’s bankruptcy run more smoothly than that of other retailers. What we do know is that they shook up their leadership, got rid of a bunch of debt, and updated their retail strategy.

In a statement announcing its restructuring and emergence from Chapter 11, the company said CEO Paul Jones will retire, and a search committee comprised of current board members and employees will look for new leadership.

The statement also revealed that the company eliminated over $435 million in funded debt through the Chapter 11 process. It was able to renegotiate leases and get its trade credit extended too.

According to Reuters, “Payless has closed roughly 700 mostly mall-based U.S. stores in bankruptcy… but is opening four mega stores here to add to some 3,200 post-bankruptcy locations in the U.S. and abroad. It plans to invest $234 million over five years, including on systems that will adjust inventory quickly in response to customer demand and improve its competitiveness on line…”

Is This Typical?

As Payless’s speedy bankruptcy illustrates, there really is no such thing as a typical bankruptcy.

Four and a half months is a really quick turn-around for a company the size of Payless, even if it wasn’t in the struggling retail sector. This timeline is more typical for smaller companies. However, the size of a company is not the only thing that can impact the length of time it takes a company to go through the Chapter 11 process.

Oftentimes the length of a bankruptcy will be determined by the availability of buyer or the viability of the business generally rather than any individual decisions the company makes or any action the court takes.

If you have questions about how long a bankruptcy will take, you should consult an experienced attorney rather than looking only at what has happened at another company.

Fewest Bankruptcies in a Decade

During the first half of 2017, 8,921 bankruptcies were filed in Wisconsin. This sounds like a lot, but it is actually the fewest filings during that period since 2007, when 7,642 cases were filed during that same period. This is a 1.5% drop from 2016, when 9,060 bankruptcies were filed January through June. We have been at recession levels for so long, this drop is a great sign for our state, and for the Milwaukee area, which leads the state in the number of bankruptcies per capita.

Why are we seeing fewer bankruptcies?

The Milwaukee Journal Sentinel speculated that we would be seeing even fewer bankruptcies if credit was harder to get and more people had health insurance because wages are up and the employment rate is down. That’s probably true, but there are other factors at play as well.

From what we are seeing, a lot of people have been holding off on filing for bankruptcy. Some people have simply not been able to afford the process, while others have waited to file because they expected things to get worse and wanted to start over on an upswing. It is encouraging that these sorts of people are filing now because it indicates that people and businesses are doing better, and expect to be doing better in the near future.

Once the pent-up demand for bankruptcy passes, we should be back to normal, pre-recession bankruptcy levels, which are dictated more by things like access to credit and medical debt.

How low can the bankruptcy rate go?

There are always going to be some number of bankruptcies filed, no matter how good the economy gets. In fact, experts worry when there are too few bankruptcies being filed even more than they worry there are too many. Too few bankruptcies indicate that the economy has slowed to a level that makes people afraid to take risks.

Not just a statistic.

Knowing that bankruptcies are a normal, expected part of the economy is obviously not too comforting when you are the one filing for bankruptcy. Our office tries to make the bankruptcy process as pain-free and quick as possible for our clients. To us, a bankruptcy is not just a statistic.