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.