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Chapter 11 as a Business Strategy


For more than 50 years, Jackson Corporation manufactured high quality door hardware for sale to the aluminum and tempered glass industry. Within the industry, the company’s products were generally recognized at the high end of the market and its installations were worldwide. Economic forces in the last quarter of 2008 resulted in a significant downturn in business. Cash flow difficulties actually preceded the downturn and the company’s owners of 15 years, had begun providing the capital necessary to keep the business running. In fact, they were its largest unsecured creditors and had personally guaranteed almost $2.7 million of bank debt. In addition to financial challenges, the owners lived in the United Kingdom and could not provide the day-to-day supervision needed to efficiently manage the operation.

The company had been generating annual gross sales revenue of approximately $12 million. It achieved these financial results with a work force of 95 people during the early part of 2008. During the summer of 2008, management significantly reduced the workforce and laid off nearly 60 people. Revenue dropped to $500,000 per month. The company had to sustain itself without sales and marketing; but the demand for product was such that new business could be initiated by order-takers. At this level, the company could run indefinitely, servicing its interest obligation to the Bank, but that was not the preferred course of action. Management made a decision to sell the assets as a going concern.


The Chapter 11 filing allowed the company to reorganize and focus on the orderly sale of the company’s assets. Initially, nine different companies expressed an interest in acquiring the assets. Some were competitors and one was a foreign company looking to establish a foothold in the industry in the U.S. The list of potential purchasers was reduced to three, and then to one, as the “stalking horse bidder.”

Sale of Assets

The Bankruptcy Code requires that any assets to be sold must be subject to overbid. A debtor makes application to the Court to sell assets to a specific buyer under an asset purchase sale agreement; however, no sale can be finalized unless those assets have been exposed to the market to determine if another buyer is prepared to pay more. At the hearing to approve the Jackson Corporation’s asset sale, two other bidders appeared and drove the selling price of the assets to nearly $1 million more than the opening bid. An auction environment frequently drives the selling price higher than expected, and to the Debtor’s (i.e., owners’) delight, that is what occurred. The owners’ personal guaranty liability was dramatically reduced, and the bank allowed certain value to be allocated to unsecured creditors from its collateral.


All initial efforts were devoted to preserving the operating integrity of the business, to protect its goodwill and trade name, and maintain a level of business operations sufficient to remain administratively solvent. From start to finish, the case took just over one year to complete. The Debtor/owners were completely successful. Following the asset sale, all efforts were then devoted to making payments in accordance with what is known as a liquidating plan of reorganization. This process allowed for finality and a level of certainty by the shareholders that nothing problematic would later surface.