Many businesses, especially smaller businesses, can feel the effects of any change in their local economy. For example, if a tourist area in California known for skiing has a long and snowy winter, the businesses in the area will thrive. It also works the opposite way. For example, if a business in a tourist area is hit by a substantial storm, the business may not be able to recover.
A company that owns clothing stores recently filed for Chapter 11 bankruptcy protection. The company cited the effects of Hurricane Sandy in its bankruptcy filing. The company hopes to continue operation of its stores through the bankruptcy process.
The retailer, Big M Inc., began restructuring in November of 2011 following the economic downturn. It closed over 20 of its stores that did not perform well, renegotiated leases and followed through on various other means to reduce costs.
The storm, which hit in late October, closed almost all of their stores in New York and two nearby states. These stores had to be closed for about a week, including the distribution center and offices. Three stores were closed for a month and are still only operated with limited hours.
In addition, the retailer has yet to receive any insurance money because of a disagreement over how much is owed to them. Overall, the fact that the company has not received insurance money and the reduction in business has left it without the funds needed to continue operating.
Filing for Chapter 11 protection can allow a business time to reorganize and restructure without the stress of creditors. Filing for bankruptcy protection stops all creditors' collection actions immediately. It also allows a business to create a debt reorganization plan that may reduce interest payments. Also, any fees or penalties may be reduced or even eliminated.
Source: The Sacramento Bee, "Retailer seeks bankruptcy protection, cites storm," Eileen AJ Connelly, Jan. 7, 2013