Many California companies have used the bankruptcy remedy to achieve an economic reorganization and emerge from bankruptcy in good operating condition. It may seem counter-intuitive, but there are numerous investment companies that are willing to consider putting money into companies that have filed a Chapter 11 bankruptcy, which is the business reorganization chapter of the federal Bankruptcy Code. Investors may take a percentage of ownership in the company in return for infusing fresh capital into the enterprise.
In the best of worlds, the company that has filed Chapter 11 will not miss a beat in its daily operations. It will continue to operate, employees will continue to work and be paid and the vendors and contractors to the company will be accommodated through a workable Chapter 11 plan. A Chapter 11 may also allow the company the ability to reduce secured debt down to the current value of the collateral.
Despite the foregoing example, businesses may have widely differing reasons for filing a Chapter 11 reorganization case. Some companies, for example, may file because of a large burden of unexpected liability due to defective products, harmful pharmaceuticals or other disastrous damages. The company may be facing a flood of litigation for monetary damages in connection with consumer complaints, including massive class action lawsuits. It literally files to seek the protection of the Court.
Others have an easier road and can emerge quicker and with an operating business still intact. That happened recently when the NORDAM Group, Inc., an aerospace manufacturer, announced that it had found an investment partner that had agreed to finance the company's exit from the Chapter 11 bankruptcy. The private owners of the company will stay on and the equity investors, Carlyle Group, have agreed to allow the owners to continue to run the business. Many bankruptcy filings by businesses in California are successfully resolved in a similar manner.