Bankruptcy can be a difficult journey for a financially troubled business, but the risks for customers of the debtor can also be both significant and unexpected. One of the greatest hazards faced by customers of companies in commercial bankruptcy is the chance of having a once stable and ongoing business relationship turned on its head if the trustee should decide that one or more of the debtor's contracts is not necessary to the health or recovery of the business. Such contracts are referred to as "executory contracts." Any business that has a business relationship with a bankrupt or nearly bankrupt firm should be aware of what may happen to such contracts.
The coal mining industry may seem to have only a tenuous connection with Bradley County, but a recent bankruptcy filing by a coal mining company that is headquartered in northeast Tennessee calls attention to the struggles of an industry that can affect the rest of the state. President Trump has blamed what he calls overly-strict regulations for the worsening financial condition of the coal industry, but in fact, the main problem is the competition from cheaper forms of energy, especially natural gas.
Filing for bankruptcy is often touted as a miracle cure for financial troubles. Many people in Bradley County wonder how a complicated federal statute can repair years of overspending and poor financial decision making. The answer is two-fold: bankruptcy is not a miracle, but in the right circumstances, it can provide additional time to negotiate with creditors and perhaps reduce the amount of outstanding debt.
One of the most publicized bankruptcies of the summer was the decision by Toys R Us to end its business operations. Perhaps because so many people had beloved memories of visiting the stores with their parents, the business bankruptcy filing struck an emotional nerve in eastern Tennessee and other states. Now, the company's secured creditors have announced plans to attempt to resuscitate the brand.
Companies who find themselves in a bankruptcy proceeding often decide to sell a portion of their assets to generate cash that can be used to pay creditors' claims. Some debtors even sell all or a substantial portion of their businesses while in bankruptcy. For buyers of such assets, the bankruptcy code provides a powerful incentive: such sales generally result in the transfer of assets free and clear of all liens and encumbrances. The starting point for such sales is Sec. 363 of the bankruptcy code.