Bankruptcy of Manufacturers

Manufacturers are typically corporations that have officers and guarantors. They encounter the same issues that typical corporations, offers and guarantors encounter.

One of the difficulties encountered by a manufacturer, as with other business debtors, is that the decision to either cease operation or to attempt to reorganize under Chapter 11 is often not an easy one. As a result this decision may be delayed and in the process the business makes more commitments and incurs more debt .

If a manufacturer chooses to wind down the business, one problem that it must consider upon winding down is its commitments for future production.

One of the rules of thumb for winding down a business is to treat all creditors fairly (including the officers) and do it in a way that everyone understands what his happening and understands that what is happening is inevitable. The purpose of this approach is not simply because it is right and honest, but also because it is effective to avoid future litigation.

If there are inflexible commitments for future production for which payment has already been made, then the manufacturer should make significant accommodation to meet those demands. The failure to do so could create a scenario that could lead to a lawsuit against the principals.

If there are manufactured goods that have not been delivered, then accommodation should be made to get them either delivered or make them available to the purchasers.

Unfortunately, there is no easy answer to the question of whether a manufacturer should attempt to reorganize. But the earlier management decides this issue, the better off they will be. The decision should not be made without advice from bankruptcy counsel.

Charles Chesnutt