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Gibson Guitars plans to exit bankruptcy, resume production

Many people were saddened by the announcement of Sears' bankruptcy, but a smaller group experienced even greater sadness when iconic guitar maker Gibson announced its bankruptcy in May of this year. Based in Nashville, Gibson manufactured many types of guitars, including both electric and acoustic. But its most famous product was the electric "Les Paul" model. The recent announcement that Gibson was emerging from bankruptcy gladden the hearts of many guitar aficionados.

Gibson experienced financial difficulties when it attempted to expand beyond the manufacture of musical instruments. The company borrowed money to fund the purchase of electronics manufacturers in an effort to expand its revenues, but sales were slow while debt continued to increase. Finally, a heavy turnover in the company's financial executives prevented any new business plan from being effective.

In bankruptcy, Gibson was able to persuade two-thirds of its creditors to reduce the company's debts as spelled out in its reorganization plan. The company will have a new board chairman, chief executive officer, chief merchant officer and chief production officer. According to the incoming executive team, the company will return to its basic business of making quality musical instruments. The outgoing CEO will remain with the company for one year as a consultant and will thereafter have no connection with company.

Gibson's fame could not protect the company from changes in its marketplace, but what appears to be strong new leadership may be able to restore the company to its prior place of dominance in the guitar market. Any company experiencing similar difficulties may wish to explore the options available in a business bankruptcy in either a Chapter 11 reorganization or a Chapter 7 liquidation. While it may seem like an overwhelming and scary process to go through, it may be the step to take to save a business.

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