Bankruptcy isn’t what it used to be

September 15, 2014

Radio Shack is considering bankruptcy. The electronics retailer has struggled in the digital age, and announced today that its CFO, John Feray, resigned last week. He will be replaced by Holly Etlin, a managing director at AlixPartners, which has been advising Radio Shack financially since 2013. Even with outside help, the company’s share price has tumbled since 2010:

radioshack

Bankruptcy isn’t quite as helpful for a company as it used to be. While retailers used to be able to use Chapter 11 as a shelter to devise new business plans, with around half emerging from bankruptcy, a 2005 law has changed all of that.  Reuters reports that if Radio Shack files for Chapter 11, it isn’t likely to recover, thanks to the nine-year-old law that only gives companies 210 days to turn things around. Now, only 12 percent of companies emerge from bankruptcy without going out of business. “Circuit City Stores, Borders Group, Filene’s Basement, Linens ‘n’ Things, Coldwater Creek and plenty of smaller chains have gone out of business after filing for Chapter 11,” write Tom Hals and Nick Brown.

In reality, they add store chains do not even have seven months. “Lenders will typically only offer companies about three or four months of financing during bankruptcy to ensure that, if things do not work out, there is enough time to conduct a going-out-of-business sale.” That might make it a good time to stock up on those items for your home office.

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