Tennessee residents are familiar with longtime gun maker Colt. Like many businesses, Colt has had its share of ups and downs over the past several years as the economy recovers from a recession. After accumulating hundreds of millions of dollars in debt, the company has filed for business bankruptcy in an attempt to better position itself in a competitive market. Despite the Chapter 11 filing, the firearm manufacturer has remained open for business and predicts no customer impact.
Colt has $500 million in assets and the same amount in debt to 50 creditors. While filing for Chapter 11 bankruptcy was not the company's preference, the move will offer many advantages, such as the ability to restructure and meet obligations to vendors and customers. The company has secured lenders who will pony up $20 million to fund operations. Sciens Capital Management will take over Colt's assets during the bankruptcy proceedings, which are expected to last up to 90 days.
Chapter 11 is a good choice for businesses- primarily large, well-known ones - who have heavy debt burdens but want to stay in business after the bankruptcy. This type of bankruptcy allows companies to restructure and find ways to trim costs while remaining operational and profitable. The company creates a reorganization plan that details how the company will repay debts - most importantly, wages to employees, interests to stockholders and taxes to the government. The plan must be approved by the court.
While it offers many benefits for struggling businesses, Chapter 11 can be time-consuming and costly. Business owners should put a lot of thought into whether or not this is the best type of bankruptcy to fit their needs. An experienced bankruptcy lawyer can help with this type of decision.
Source: The Daily Caller, "Colt: Open For Business After Bankruptcy Filing," June 22, 2015