Delev & Associates, LLC

Creditors' interest at stake when businesses file bankruptcy

There are many trade and retail supplier companies across Ohio that make their money through providing loans to retailers. When a store is financially stable, the relationship between creditor and borrower typically runs very smoothly.

However, if that store or company ends up failing, creditors could be at risk of losing huge amounts of money if the company files for bankruptcy protection. In some cases, the company recovers and debts are ultimately repaid. In other cases, however, the company cannot recover and there is little or no chance for creditors to get any of their money back. That is the very real fear creditors are facing now that RadioShack has filed bankruptcy.

According to reports, the electronics chain of stores filed bankruptcy and has asked a judge to approve a plan that would allow Standard General LP to take over more than 1,700 of their stores. The offer made by Standard General values the company's inventory at just under $130 million and the sale would cancel $16.4 million in debt owed by RadioShack.

While this may seem like a good deal for Standard General and RadioShack, as it could save thousands of jobs and result in re-launched branding efforts, other creditors are understandably concerned. 

Reports suggest that the amount of cancelled debt that comes with this proposed deal is not enough to leave the company with enough money to repay other creditors. There has also been some dispute about the auction process, which was reportedly rushed through without giving creditors adequate notice.

In an article on our website, we discussed this exact type of situation and the many challenges that suppliers can face when a business files bankruptcy. We noted that suppliers must act quickly to protect their financial interests, and we also explored some ways that companies can do this with the help of an attorney. To read that article in full, click here.

Unfortunately, situations like the one involving RadioShack happen all too frequently, especially in a struggling economy. In order to seek a satisfactory resolution, it can be crucial for lenders to challenge unfair or inadequate bankruptcy deals and to work aggressively to defend their rights.

Source: NorthJersey.com, "RadioShack buyer sees rescued jobs, creditor fears losses," March 26, 2015

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