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Bankruptcy as a Business a Success Story

Posted by David Falvey on Tuesday, March 6th, 2012 - 514 views

Why has American gone from a forest or wilderness and in 200 years to the world’s superpower? ANSWER: We have had a dynamic economic where people can start again after an economic set-back.

Without bankruptcy protection most of us might still be driving horse-and-buggies—or schlepping around on bicycles—while the wealthy one percent are motoring around in Cadillacs and Lincoln Continentals. What?

Henry Ford’s first company went bankrupt in 1901. Without bankruptcy protection and the ability to restructure his debts he never would have been able to attract investors and form the Ford Motor Company a few years later.

The rest is history: he perfected the assembly line and made the Model T affordable to average Americans.

Bankruptcy is a normal part of corporate life. Donald Trump, for instance, has declared bankruptcy several times—yet has no problem attracting new investors. This is especially in this tanked economy. Some firms are successful; some hang in there on life support, and some “circle the bowl.”

And let’s look at Milton Hershey. He went to bat 3 times and struck out 3 times. And the last time he went to bat, it was during a ‘World Series’. It was tied, 3-3, and this was the 4th game, tied score, bases loaded, bottom of the 9th and Milton Hershey stepped up to bat having filed bankruptcy 3 times before. He pointed to the flag pole and people laughed. The rest is history. And that’s why we have Hershey, PA today the world’s largest candy company.

And that’s America. This is a new land and new beginning and everyone is entitled to a ‘fresh start’.

What leads to bankruptcy, even among respectable companies? Changing economic conditions or bad business decisions, generally. Of course, some bankruptcies are caused by white collar criminals, corporate officers who bleed their companies dry at the expense of stockholders. Enron comes to mind—its company officers’ manipulations cost thousands of employees and stockholders their retirement savings.

But insolvency is not the same as going out of business. A company in financial trouble can often survive by restructuring its debts with creditors, perhaps selling off some equity.

When business people have operated in good faith, they should not be treated as losers for declaring bankruptcy. Businesses can stay in business by negotiating debt settlements with creditors—and salvage some of the original investment and keep employees employed