Building a successful business is very difficult and when doing so some may encounter financial hardship. The law has established a process that can help rescue businesses. This is called bankruptcy. What is bankruptcy to a company? How does bankruptcy rescue businesses? The reader will understand the meaning of bankruptcy to a corporation, be familiarized with types of proceedings, and identify with businesses that have been rescued by bankruptcy proceedings.
Bankruptcy is a federal system of statutes and courts which permits persons and businesses which are unable to pay debtors or in some cases face potential insolvency, to place their financial responsibilities under the control of the bankruptcy court (www.law.com). The way this works is that when the business’s debts exceed its assets or is unable to pay, the business can file a petition with the bankruptcy court. This called filing for voluntary bankruptcy.
If a business does not file for bankruptcy the unpaid creditors can file an “involuntary” petition to force the business into bankruptcy (www.law.com). It is better and most common for businesses for file voluntary bankruptcy (www.law.com).
There are three types of petitions: Chapter 7, Chapter 11 and Chapter 13 (www.law.com). The most popular is for business to petition is under Chapter 7 (www.law.com). In Chapter 7, businesses are appointed a trustee by the court (www.law.com). The trustee is like a financial wizard. The trustee counts up the businesses assets with the plans of keeping them from the bankruptcy, pays debts the business owes with paying taxes first (www.law.com). The trustee then focuses on paying secured debts such as mortgages and lastly unsecured debts (www.law.com).
Then the court officially declares the business bankrupt and discharges the unpayable debts, this is a lost for the creditors (www.law.com). Filing a bankruptcy petition will suspend all existing legal actions like foreclosure and other imposition of judgment. Businesses cannot file for bankruptcy again for seven years (www.law.com).
Chapter 11 bankruptcy allows a business to reorganize and refinance to prevent dislocation of the organization (www.law.com). Most of the time there is no trustee appointed, but the business is given time to present a plan of reorganization (www.law.com). This does not always work well for business (www.law.com). The final plan usually causes the creditor to decrease the amount owed or take monthly payments over a long period of time (www.law.com).
“Chapter 13 is similar to Chapter 11, but is for individuals to work out payment schedules, which is more likely to be worthwhile. Bankruptcy law has become a specialty due to complex regulation as well as administration” (www.law.com).
With these three options for an organization to rescue itself from financial hardship has this help any businesses save itself. There are a few organizations of whom have been rescued by bankruptcy and a few that are currently experiencing hardship. In this paper you will read about 3M, NationsRent and Kmart. These three businesses has filed a bankruptcy petitions and was rescued.
3M Company, what a remarkable corporation and when faced with financial hardship they persevered. 3m is an international corporation with subsidiary companies in more than 60 countries and are in nearly 200 markets, not to mention their international operations (http://galenet.galegroup.com/servlet/BCRC). Their products range from post it notes and scotch tape to transdermal patches of nitroglycerin. This corporation has seven different business divisions with fifty different department. How did this corporation who is now the largest manufacture in Minnesota come to life?
It was 1902 and five industrious and tenacious northern Minnesota businessmen with diverse occupations came together and founded 3M Company (http://www.3m.com./about3M/histroy/founders.jhtml). They were not very bright entrepreneurs they first attempted to mine the rare mineral corundum or so they thought, the material turned out to be a low grade anorthosite, a virtually useless igneous rock (http://galenet.galegroup.com/servlet/BCRC). This almost bankrupt the company but they did not give up.
In 1905 principle investor named Edgar B. Ordway convinced friend Lucius Pond Ordway a self made millionaire to join with him rescuing 3M (http://galenet.galegroup.com/servlet/BCRC). Ordway paid the company’s debt of thirteen thousand dollars and added twelve thousand dollars as capital (http://galenet.galegroup.com/servlet/BCRC). He went on to invest an additional two hundred and fifty thousand dollars to grow the business and add profit. Ordway did this for 3M without a salary and in 1910 he moved the company to St. Paul after World War I (http://galenet.galegroup.com/servlet/BCRC). This is when 3M became a healthy company. It has strive from bankruptcy to a multi-billion dollar company (http://galenet.galegroup.com/servlet/BCRC).
3M’s success did not come easy and they have proven themselves worthy of their position in the business market (http://galenet.galegroup.com/servlet/BCRC). It is currently the largest manufacture in Minnesota and the 89th largest in the US over all (http://galenet.galegroup.com/servlet/BCRC). Fifty-two percent of their business revenue is from international sales (http://galenet.galegroup.com/servlet/BCRC). They have 50,000 products in over 60 counties and nearly 200 markets (http://galenet.galegroup.com/servlet/BCRC).3M stocks are currently at 80.57 on the New York Stock Exchange (http://galenet.galegroup.com/servlet/BCRC). NationsRent did not have the same success, yet they are still building their business.
NationsRent was founded in August 1997 (www.nationsrent.com). NationsRent is an equipment rental company. They rent everything from garden tools to backhoes to bull dozers (www.hover.com/nationsrent/–ID_57275–/free-co-factsheet.xhtml). The Company serves a both commercial and residential customers; they are in homes and on construction sites (www.nationsrent.com). NationsRent build their corporation by purchasing small mom and pap equipment rental stores and build a large corporation.
In October 2000, NationsRent entered an alliance contract with Lowe’s Companies, Inc (www.nationsrent.com). This alliance provide NationsRent with the opportunity to add a NationRent rental center onto Lowes stores (www.nationsrent.com). But this transaction caused NationsRent a lot of financial burden that the corporation was not prepared for. On December 18, 2001 NationsRent filed for Chapter 11 bankruptcy.
NationsRent did not give up. They set a plan for reorganization. NationsRent stuck to their plan, as an employee at the time I can vouch for that (www.nationsrent.com). I was the National Account manager for NationsRent up to January 2003. “As of March 2004, the Company operated 99 of our stores at Lowe’s home improvement stores and expects to have a total of 100 such stores by the end of June 2004” (www.nationsrent.com). In 2004, Rental Equipment Register, ranked NationsRent number 6 out of the top 100 equipment rental companies for the year (www.nationsrent.com). NationsRents has come a long way but they have made it and looks strong. I hoping the same success for Kmart.
Over one hundred years ago, Sebastian Spering Kresge opened a five-and-dime store in downtown Detroit and changed the entire landscape of retailing (www.kmart.com). Kresge did not stop there today that one store has multiplied into more than 1,500 stores and an Internet presence that reaches millions of customers (www.kmart.com). War and financial depressions hit America over the next decades, but Kresge stores always provide affordable product for the American families (www.kmart.com).
By the 1950s, Kmart made changes to continue to be a leader in the growing competitive retail environment (www.kmart.com). Harry B. Cunningham, who became Kresge President in 1959 help them make that change (www.kmart.com). That was decades ago and again Kmart needed to make a change to save itself from its competitor Walmart. This change did not come in time to prevent bankruptcy.
Kmart Corp., who is the second largest discount retailer with Walmart being number one, filed for Chapter 11 bankruptcy protection on January 22, 2002 (Grant, 2004). This would become the biggest retail bankruptcy ever filled in the United States (grant, 2004). Kmart’s trouble began when their competitor Walmart began opening stores next door to Kmart. Walmart stole Kmart’s customers be using great customer service and lower prices. Kmart is expected to emerge from bankruptcy protection soon, but reviving its public image will require recovering consumer trust (Grant, 2004). On May 6, 2003, Kmart emerged from the Chapter 11 reorganization process and is looking to regain the confidence of its customers (www.kmart.com). This is new recovery and Kmart has a long way to go according to ABC news.
In conclusion, bankruptcy is a way for businesses to rescue themselves when in financial hardship. Not every company will make it. Some may be lost, but the law provides every business the opportunity to fight for it’s survival. 3M, NationsRent, and Kmart have all made it through and is looking for a promising future.
3M Company web page. Http://www.3m.com
Company News; Citing Weak Demand, 3M Says it is Cutting 125 Jobs, New York Times, 2003.Section C. P.4. Http://www.newyorktimes.com
Law Dictionary, http://www.law.com
Lorrie Grant. Kmart should exit Chapter 11 quietly, expert say. USA Today. April 2004
Minnesota Mining & Manufacturing Company (3M)” International Directory of Company Histories, Vol. 26. St. James Press, 1999. Reproduced in Business and Company Resource Center. Farmington Hills, Mich.:Gale Group. 2003. Http://galenet.galegroup.com/servlet/BCRC
NationsRent Company web page. Http://www.nationsrent.com
Troy Bryant. NationsRent, Hoover.com, http://www.hovers.com/nationsrent/–ID_57275–/free-co-factsheet.xhtml. retreived July 12, 2003