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July 4, 2002

3 Min Read
Editorial:  Bankruptcy boogie

MSnyder.jpgThere was a time not so long ago when filing for bankruptcy was an occasion of personal embarrassment and public humiliation. No more. Bankruptcy has been elevated to an art form. It is a regularly performed song and dance, with a recognized series of moves.

First, a company?s stock price soars on the strength of inflated financial reports issued in complicity with auditors. Second, executives and insiders cash out by selling stock. Third, the stock goes in the tank, stiffing the majority of shareholders. Fourth, the company enters bankruptcy protection, and either restructures its financial affairs or liquidates entirely, leaving creditors holding the bag. Then the song repeats itself as a theme with variations.

Today?s widely publicized bankruptcies reinforce, many times over, the concept that things are not as they seem. Consider the following:

  • A commentator on financial matters advised that U.S. Airways Group, which may or may not be in bankruptcy proceedings by the time you read this, should position itself so that it has plenty of cash on hand if it files for bankruptcy. It?s apparently still true that, rich or poor, it pays to have money.

  • An executive elsewhere reported that his company had experienced no financial problems during its bankruptcy period. A double-digit million dollar debt (it was a small company) apparently was no problem to him. We have truly entered a new era when a company regards itself as having no financial problems during bankruptcy.

  • ?Global Crossing?s Bankruptcy is a Success Story? trumpeted the headline in a Wall Street Journal story of Feb. 5, 2002 under the ?Manager?s Journal? heading, by Harold Furchtgott-Roth. Global Crossing is a huge telecommunications company. The column made legitimate points about how bankruptcy protections make it possible for companies with advanced but economically risky technologies to attract investors, go into operation, and, in times of financial disaster, stay in operation. It just takes a while to get accustomed to this idea that bankruptcy can be considered a success.

    We doubt that plastics processors go bankrupt for lack of skills in their trade. Rather, their business model is suspect, and even that may be overwhelmed by bad luck. Certainly molders have experienced the domino effect of bankruptcy. If a customer goes bankrupt and thereby succeeds in evading payment of outstanding bills, molders may be forced into bankruptcy as well. The molder may not be blameless in this sequence. There is, of course, some question as to whether such an amount of account receivables should have been racked up with a single customer in the first place.

    It has become very politically correct to say that any executive caught and convicted of a crime in connection with a company?s demise should go to jail for his trouble. More should go than will, and those that do should stay longer. But those cases are, for the most part, beyond our influence.

    What can we individually do? The bankruptcy laws are there to protect you if you need it. But for starters, let us resolve that we will not, personally or corporately, misuse the bankruptcy laws. If everyone did likewise, the country would be better off.



    Snyder-Signature.jpg
    Merle R. Snyder
    Editor
    Plastics Auxiliaries & Machinery

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