Strategic bankruptcy

A strategic bankruptcy may occur when an otherwise solvent company makes use of the bankruptcy laws for some specific business purpose.[1] For example, in 2002 Kmart filed Chapter 11 for protection from creditors. One of the main problems affecting Kmart's cash flow and therefore its liquidity was that Kmart was locked into long term leases at premium rates with respect to various unprofitable stores. While in chapter 11 reorganization, Kmart was able to renegotiate or rescind those particular leases.

In some countries, like Sweden, it is common at least for smaller companies with deep debts, to have a bankruptcy, and close down the company, but where the owner has prepared a new company which buys important assets including the name, and continues with much smaller debts.

See also

References

  1. ↑ See Kevin J. Delaney, Strategic Bankruptcy (University of California Press, 1998) for a discussion of this phenomenon by reference to particular cases.