Bankruptcy Is Good For Gibson Guitars

Elvis, B.B. King, Eric Clapton, Jimmy Page, Carlos Santana, Pete Townshend, Jimi Hendrix Slash, and Dave Grohl are just a handful of the musicians who have made Gibson guitars the most popular guitars in the world. The iconic instruments are so essential to modern musicians that there was a debate on the day Gibson filed for bankruptcy over whether that was the new “day the music died.” Those people have obviously not been reading this blog, because as we have said time and time again, for many companies, bankruptcy is the beginning of a new chapter rather than the end of the story.

The Details on Gibson’s Ill-Fated Diversification

Gibson Brands Inc. was founded in 1902 by Orville Gibson as Gibson Mandolin-Guitar Mfg. Co. Ltd. in Kalamazoo, Michigan. The company started out making only mandolins, but soon branched out, and became popular with those who embraced electric instruments. It’s most famous guitar, the solid-bodied, electric Les Paul, named after the Wisconsin native who designed it, remains most of the most popular guitars of all time, and early versions of it are highly collectable.

In the 1980s, the company moved to Nashville, where it expanded its line and attempted to diversify its brand by becoming a musical lifestyle company with products including headphones, speakers, and accessories. It was this ill-fated attempt at diversification that lead to the company’s 2018 bankruptcy.

The company says that it sells over 170,000 guitars annually in more than 80 countries, but its consumer electronics business is lagging. In its bankruptcy petition, which notes that the company currently has up to $500 million in debt, the company states that it will use the Chapter 11 process to refocus its operations on its musical instruments and professional audio business, “unburdened by the challenges experienced by [the company’s] separate, primarily non-U.S., consumer electronics business.”

Same Old Story, Same Old Song And Dance

Gibson’s decision to file for Chapter 11 bankruptcy in order to reorganize and refocus is not unusual. Sophisticated businesses understand that bankruptcy exists for a reason. It is not just a way to wind down operations, it is a mechanism that can be used to re-tool a business and make it profitable again.

More businesses, and individuals, should consider taking advantage of the bankruptcy process. It is not the right option in every situation, but far more people and organizations could benefit from it than currently do.

Businesses and individuals who are facing financial difficulties, and who are questioning what their options are, should not hesitate to make an appointment with an experienced bankruptcy attorney. An attorney will be able to offer advice on what options are available, and outline how they can be used to move forward. And moving forward should be the focus. Despite the fact that many people and businesses equate bankruptcy with failure, it is more about moving forward than anything else.

Bankruptcy Leads to Felony Charges At UW-Oshkosh

When the UW-Oshkosh Foundation filed for bankruptcy last year, few could predict what a wide-ranging impact that case would have. Now, bankruptcy attorneys, college administrators, and policy makers are closely watching the case and debating what steps can be taken to keep other foundations, universities, and lenders from suffering a similar fate.

Last fall, the UW-Oshkosh Foundation, which is a separate, supposedly self-funded entity designed to support UW-Oshkosh, filed for Chapter 11 bankruptcy. Normally, these sorts of foundations fundraise on their namesake organization’s behalf in order to provide scholarships and other financial support, but the UW-Oshkosh Foundation went a bit out of the box and inked five development deals that it hoped would provide revenue to the school over time.

It backed two bio-digesters that turn farm animal waste in energy, an alumni welcome center, a sports complex, and a hotel in downtown Oshkosh. The hotel has proven financially solvent, but the other investments have put the Foundation $14.5 million in debt.

Former Chancellor Richard Wells and former Vice Chancellor Tom Sonnleitner are facing criminal charges over all of this because it appears they lied to the Foundation’s lenders, saying that UW-Oshkosh — so students and taxpayers — would back the loans if the Foundation couldn’t make its payments. Both men are charged with five counts of misconduct in office by acting beyond their authority as parties to a crime. The maximum penalty for each charge is 3.5 years in prison.

The UW System is suing Wells and Sonnleitner in civil court over all this as well. They do not want the System to be on the hook for the UW-Oshkosh Foundation’s debts. And they really don’t want any taxpayer dollars or student funds used to pay off creditors. There are, however, questions about how much the UW System knew about what was going on at Oshkosh. Did the Board of Regents really not know that the school itself had agreed to pay for an alumni welcome center if the Foundation couldn’t make its debt payments?

Lawmakers in Madison are poised to take action to ensure that the 90-some “affiliated organizations” in the state that are similar to the UW-Oshkosh Foundation — in that they are supposed to be non-taxpayer-supported organizations that promote or support some function of the University of Wisconsin System or a specific college or university — are acting appropriately, and that the Board of Regents is exercising proper oversight over them.

From a bankruptcy law perspective, this case highlights how quickly things can get complicated when someone or some organization that is closely related to other entities files for bankruptcy. Although all related parties should know what financial commitments they have, too often leaders sign agreements with a wink and a nudge that suggest other assets could be in play if needed.

Our firm wades into the thick of disagreements over who owes who what all the time, and we have years of experience settling and litigating such matters.