As we have seen, bankruptcy could touch any corporation no matter its size is. In previous posts, we have talked about different bankruptcy or liquidation cases, showing how this process is and the multiple existing alternatives for surpassing these kind of crisis. Some of the most used methods for avoiding bankruptcy are debts restructuration, payment agreements or credit unification, among others. All these possibilities could be supported by the law, under the chapter 11 of the United States Bankruptcy Code.
In this post, we will show some of the largest cases in the United States, where giant corporations used the chapter 11 for their bankruptcy processes. These mentioned cases touched amazing businesses, valued in billions of dollars, affecting not only the American economy and investors but businesses and money funds around the world. Before we talk about these cases, it is vital to understand in a few words what the Chapter 11 is.
The Chapter 11
This concept could be basically understood as the chapter of the United States Bankruptcy Code that gives to those organizations with a financial crisis, the possibility of a reorganization to meet their payments or credits. In other words, Chapter 11 gives the elements for restructuring the financial problems that a specific business could have, so it can surpass its crisis and keep with its operations.
For using the alternatives given by the Chapter 11, the company in crisis must present a bankruptcy petition, with the debtors’ requirements. After this, a specialized court should accept it and accomplish different processes for the reorganization.
As we mentioned, this is a brief explanation of what the Chapter 11 is, and knowing this basic concept, then we can talk about the following cases. However, this concept has more topics and elements, but for the article at hand, we will not talk about its details.
Lehman Brothers Holdings Inc.
Founded in 1850 by Henry Lehman, Emanuel Lehman and Mayer Lehman, was a financial service, investment banking, and investment management organization valuated for its assets in more than $630 billion dollars, declared bankruptcy in 2008. By the time of its liquidation, Lehman Brothers Holdings Inc. employed almost 30.000 people and had offices in various countries around the world.
Due to the 2008 mortgage crisis, this organization implements the Chapter 11, after having losses for more than $2.8 billion dollars. Due to this crisis, this organization was going to be negotiated with the Bank of America or with Barclays, but none of these agreements worked. After this failure, Lehman Brothers reached a debt for $613 billion dollars, which is considered the largest bankruptcy in the United States history.
After more than 100 years of history, surpassing different financial crisis like the Wall Street Crash of 1929 and a Civil War, Lehman Brothers left the Chapter 11 in 2012. After its bankruptcy, this company paid more than $65 billion dollars in debts to its creditors, and it is still owing more than $450 billion dollars.
This consumer banking and financial services organization was founded in 1889 and faced bankruptcy in 2008, being the second largest case in the United States history filing the Chapter 11. For that date, this company had more than $325 billion dollars in debts and financial commitments.
In 2008, after declaring insolvency, the Washington Mutual Bank negotiated with JP Morgan Chase, who assumed all its debts and credits. This agreement included almost $310 billion dollars in assets and $180 billion in deposits. JP Morgan acquired the Washington Mutual Bank for $1.9 billion dollars, assuming its debts.
Presently, this bank is operating with headquarters in Seattle, Washington, employing 50.000 workers and its subsidiaries (Washington Mutual Investments, Inc.; Washington Mutual Insurance Services and Washington Mutual Card Services). In addition, this bank has assets for more than $200 billion dollars and a revenue for more than $16 billion dollars.
Founded in 1983, this telecommunications company faced a bankruptcy process in 2002, filing the Chapter 11 and being for that time the largest bankruptcy case in the United States history. The WorldCom bankruptcy was originated by a fraud scandal involving some of its directors and managers, overcoming the Enron crisis, which had been the largest ruin process executed in that country for committing fraud. For 2002, WorldCom had financial responsibilities for $103 billion dollars.
After the bankruptcy scandal, WorldCom acquired MCI, a smaller telecommunications company, giving origin to a new business under this name: MCI. After filing the Chapter 11, this organization restructured and reorganized some of its debts and credits, and paying a $2.25 billion penalty.
In 2005, MCI was acquired by Verizon Communications for $7.6 billion, which is currently generating operative incomes for almost $30 billion dollars, employing more than 160.000 people and being recognized as one of the most important telecommunications companies in the United States.
Related: Important Early Steps for Chapter 11 Creditors by Suzzanne Uhland
* Featured Image courtesy of Sam valadi at Flickr.com