Bankruptcy

Buyers Dry Up, So More Firms Liquidate

Under bankruptcy protection, retailers like Levitz and Mervyn's lead the way in choosing liquidation over reorganization.
Stephen TaubOctober 31, 2008

In another sign of mounting recessionary pressure, companies filing for bankruptcy recently — especially retailers — are deciding in greater numbers to liquidate rather than reorganize. The market, of course, has worsened for potential buyers, and for obtaining the financing needed to pay creditors, suppliers, and employees.

Last week Levitz Furniture made plans to liquidate rather than reorganize, according to The Miami Herald. Levitz is under bankruptcy protection for the third time in 11 years. And Mervyn’s LLC has speeded up its plans to liquidate, according to the Associated Press, which said that inventory at the 59-year-old company, valued at about $900 million, will be liquidated “to the bare walls.” Mervyn’s also received approval to pay its employees for accrued vacation time, after it repays its debtor-in-possession financing, the report said.

Also in the retail industry — famous for overexpanding during boom times — Value City Department Stores has filed for Chapter 11 bankruptcy. And Reuters said last week that the discounter also was planning to liquidate its remaining 66 stores, citing the economic downturn, higher gasoline prices, and increasing unemployment as reasons for its demise.

Meanwhile, camera maker Concord Camera Corp., a consumer-oriented company though not a retailer, said its board has approved a plan to wind down operations, lay off employees, and liquidate remaining assets after the company was unable to find a buyer, according to the AP.

Other retailers that have filed for bankruptcy this year include Linens ‘n Things, Sharper Image Corp., Lillian Vernon Corp., Steve & Barry’s, Goody’s Family Clothing, and Mrs. Fields’ Original Cookies Inc. Mrs. Fields’, however, managed to emerge quickly from Chapter 11 with a prepackaged bankruptcy plan, asserting it had improved its balance sheet and secured a good working capital position to go along with new ownership.

Still, the rash of liquidations has become a concern for companies that specialize in the bankruptcy world. At the recent Turnaround Management Association annual meeting, The Wall Street Journal pointed out, attendees who generally benefit from disasters and ailing economic conditions were lamenting that a lack of financing could deprive many advisers of much-needed time and money to repair ailing firms.

“This is clearly the most devastating economic situation I’ve seen in my 40 years. I would say there is some distress even among the distressed-debt community,” Henry Miller, cofounder of the turnaround firm Miller Buckfire, told the paper. “Many of the patients are getting to us too late, I fear.”