Companies with excessive debts and dwindling profits may benefit from filing for Chapter 11 bankruptcy. We can use a recent and local example to further discuss how businesses use Chapter 11 bankruptcy to restructure debts and keep their doors open.
Peabody Energy, a St. Louis-based coal company, has filed for Chapter 11 bankruptcy amid a global slump in the energy industry. According to Peabody Energy, the company has faced competition from the fracking industry, lower demand overseas and tough domestic regulations. These poor circumstances have contributed to Peabody Energy piling on $10.1 billion in debt, despite only having $10.9 billion in assets.
Peabody Energy’s bankruptcy is not the first for the coal industry, but it is the largest coal company to file. In the last two years, several other coal companies have filed for Chapter 11 bankruptcy. Companies such as Arch Coal, Alpha Natural Resources and Xinergy Ltd. have all filed. In fact, Xinergy Ltd., which had filed last April, emerged from Chapter 11 bankruptcy in February. Xinergy Ltd. restructured its debts and became a subsidiary of White Forest Resources, Inc.
Coal companies are facing dire circumstances beyond their control. During a period when market circumstances were favorable, many of these companies approved large expenses to expand. The unforeseen downturn in the coal industry has left many companies with excessive debts and dwindling profits. Unable to meet obligations to their creditors, these companies can (and many have) filed for Chapter 11 bankruptcy.
Will Filing for Chapter 11 Bankruptcy Benefit Peabody Energy?
By filing for Chapter 11 bankruptcy, businesses can maintain control over operations and restructure debts. Peabody Energy can continue operating its coal mines during Chapter 11 bankruptcy. As we saw in the case of Xinergy Ltd., Chapter 11 bankruptcy does not mean the death of a company.
Keep in mind that while our blog is discussing the largest coal company in the United States, small businesses can also utilize Chapter 11 bankruptcy.
The Kansas City bankruptcy attorneys at The Sader Law Firm can help struggling businesses file for Chapter 11 bankruptcy.