In difficult economic times, a business may seek to settle its debts through a Chapter 11 bankruptcy. Chapter 11 bankruptcy affords a business the opportunity to reorganize and restructure its debts as opposed to selling off all of its assets like in a Chapter 7 bankruptcy. However, when a large company, such as Hostess, decides to commit to a Chapter 11 bankruptcy, resolving disputes can get quite complicated.
On Nov. 27, the bakers’ union of Hostess Brands Inc. officially requested that the judge presiding over the snack maker’s bankruptcy select a neutral Chapter 11 trustee to oversee the process. The New York lawyers representing the union stated their objections to allowing the existing management to supervise the company’s Chapter 11 bankruptcy process.
The liquidation stage began after previous efforts to negotiate an agreement between Hostess and the labor union failed. Negotiations broke down after the union turned down another round of salary and benefit cuts. Lawyers representing the union expressed interest in an accelerated motion to appoint a trustee. Meanwhile, legal counsel for Hostess management filed papers to oppose such a motion, in which they cited skepticism of the legal foundations for the union’s request.
Previously, the judge shut down a request to approve a Chapter 7 bankruptcy claim in which a trustee would have also been present. The judge cited a belief that a perceived delay in auctioning off the company’s assets would be catastrophic. The company opted to liquidate and sell its assets after a strike caused the company to lose approximately $1 million a day.
In general, bankruptcy proceedings are complex affairs involving many different contractual agreements. All parties involved in business reorganizations and Chapter 11 bankruptcies ought to learn more about the process and what could be at stake. Doing so may save the business and save jobs.
Source: Chicago Tribune, “Bakers’ union seeks Chapter 11 trustee for Hostess liquidation,” Nov. 27, 2012