I was at a shopping plaza yesterday and it had a Borders and a Toys-R-Us.
Borders, of course, is currently going out of business. But I remember that Toys-R-Us also went bankrupt a few years back and obviously some version of the company is still in operation.
I assume that what happened was that some business stepped in and bought Toys-R-Us and nobody did the same for Borders. I also assume that the difference was over debt. Presumably whoever bought the company would also become liable for the money they owed. In the case of Toys-R-Us somebody decided the brand was worth the debt; in the case of Borders, nobody felt the brand was valuable enough to be worth picking up the debt. Am I basically correct so far?
So what happens to Borders brand? Once the company goes completely out of business will anyone own the name? What happens if two years from now I decide to open a local chain of bookstores in Buffalo, Rochester, and Syracuse in - could I name my stores Borders? If somebody else still owns the legal rights to the name can they open new Borders stores at some point without the old Borders debts arising? Can they sell the rights to the name?
That is the thing about bankruptcy. It doesn’t just allow you to close up shop and walk away and disappear forever. Everything that can be sold will be sold to pay off creditors who stand in a prioritized line with their hands out. That includes the name and everything else associated with the company. The name is presumably worth something to someone so it will pass on in ownership. The people that get it are free to let it fade into oblivion or try to revive it later. It isn’t uncommon for company names to get a second wind after bankruptcy and reorganization but it is a risky bet.
There are two basic types of bankruptcies for companies. Chapter 11 and I think chapter 7.
Chapter 11 the company under the supervision of the court works with the creditors to come up with some plan for paying a reduced amount of money. The shareholders of the company tend to get very little or nothing at all. The companies usually go on with the same name a lot of the same employees and the same basic business. Often there are new investors.
Almost all companies try chapter 11 first. Then if they cannot workout a deal with the creditors and come up with a plan to emerge from bankruptcy and make money they will go to chapter 7 and sell the assets of the company to pay off the creditors to the extent possible. This is what happened to Borders. They could not find a way to raise money to keep the company going.
I don’t think that toys r us went bankrupt recently. They were purchased in 2005 and taken private. Meaning all the shares were purchased. The investors that purchased it in 2005 have filed papers with the SEC to start selling shares to the public again.
Depending on circumstances a company may declare bankruptcy and attempt to reorganize. In such a case the court seeks to arrange payment plans and/or forgiveness of debt from creditors. The company needs to show a plan that should make it profitable. It may be in the interest of debt holders to play along. If they force liquidation they may get pennies on the dollar. If they feel they may get more in time by waiting or forgiving some debt then they may choose to do that.
Liquidation is outright selling all the company assets and then divvying up the pot to debt holders. They get what they get and the rest is a loss to them.
During a bankruptcy, a business is handled by a trustee - basically, the trustee’s goal is to maximize the value that can be obtained by the business. As a result, trustees often keep a bankrupt business running for quite some time - possibly multiple years - until a favorable sale can be worked out.
The final sale can happen in any number of ways based on what can be negotiated. It could be the purchase of virtually the whole company, or parts of the company might be sold to different buyers - one might want the inventory, another the real estate, a third might buy just the name (or other intangible assets).
So you can see that Toys R Us might be operating under the estate, or it might have been sold to some new operator. Finding out which might require some research into court records.
In the case of a name like Borders (probably including its borders.com domain name), I would be shocked if someone wasn’t willing to buy it for something. The trustee would always rather get something whenever possible, even if it’s pocket change.
Mostly correct, except an operating Chapter 7 is rare - say, a factory might stay open for a month or two to process what remaining materials they have on hand to make new trinkets, but almost never will a business continue operating in an ongoing fashion in a 7.
That would be a Chapter 11, and they are very expensive to the Debtor, creditors and the Estate. Most non-ginormus companies go with a Chapter 7.
A company’s name is an asset (usually lumped into the general category of “good will” and can be sold. The name “Braniff Airlines” was resurrected twice (and attempted at least twice more). Meanwhile, what’s left of the original Braniff (mostly its pension obligations) are now owned by a company named Asworth. For years “National Lampoon” pretty much existed only as a name owned by J2 Communications and licensed out to various entertainment properties.
I’m still wondering how K-Mart was the store that went bankrupt, but Sears was the one that got bought by them.
Not that I care that much. It’s just a little grating to turn on the radio and hear about Craftsman[sup]TM[/sup] Tools being available anywhere but Sears. Do those still come with a NQA replacement guarantee, btw?