Chapter 11 bankruptcies can act as a lifeline for struggling businesses, allowing them to remain open while finding ways to refinance debts and restructure. Take for example the case of 100 Montaditos, a chain of Spanish sandwich shops that recently emerged from Chapter 11 bankruptcy. According to the press, the Chapter 11 bankruptcy only affects U.S. locations, and the company has 350 eateries worldwide.
The sandwich chain allegedly ran into money problems while executing a plan to expand into Florida and New York. With $20 million in debt and lackluster demand, the company found itself unable to make loan payments. After reaching an agreement with its creditors, the company has closed 10 of its U.S. locations.
Even though the company is closing 10 of its locations, many are remaining open. Instead of shutting down completely, the company has reorganized its debts and remained in control of operations. This story serves as a good example on the benefits of filing for Chapter 11 bankruptcy.
The Benefits of Filing for Chapter 11 Bankruptcy
For companies with unpayable levels of debt and declining profits, Chapter 11 bankruptcy can provide the means to stay in business.
- Under Chapter 11 bankruptcies, businesses can remain in control as “debtors in possession”. Doors can remain open and businesses can find new ways to become profitable.
- Chapter 11 bankruptcy involves reorganizing debts under a court-approved payment plan, allowing debtors to make gradual payments over time. For businesses suffocating under mountains of debt, a Chapter 11 repayment plan can make payments much easier to manage.
- Filing for Chapter 11 bankruptcy can halt lawsuits and property repossession attempts by creditors. Filing a bankruptcy petition puts an “automatic stay” into effect, temporarily halting many legal actions taken by creditors.
In the case of Montaditos 100, its U.S. operations will survive and it can pursue new avenues for expanding into additional markets throughout the country. Had it not filed for Chapter 11 bankruptcy, the financial consequences could have been far more severe.