Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, February 20, 1994 TAG: 9402180046
SECTION: BUSINESS PAGE: B-1 EDITION: METRO
SOURCE: John Levin
DATELINE: LENGTH: Medium
Yet some recent studies suggest that being in debt over your head no longer carries any stigma for individuals. And clients and suppliers generally are willing to stand beside companies that are forced to reorganize.
For big retail chains, airlines and real estate developers, reorganization under the protection of bankruptcy increasingly is seen as a way out of a bad economy, an unfriendly labor settlement or bad luck.
But the statistical fact is that bankruptcy most often is rooted in financial mismanagement and that petitioners, especially businesses, emerge from the process with no guarantee of future success.
So some might have winced if they heard Lonza Kingery sigh with relief recently, saying a cloud had been lifted from over his 19-year-old company.
Kingery, better known as Sonny, operates Valley Wheel and Parts Inc., a Roanoke distributor of parts for heavy-duty trucks and construction equipment.
He sought bankruptcy protection last June after a jury awarded two Roanoke Valley men $1.75 million in a judgment against Valley Wheel. The men were injured when a hydraulic hose supplied by Valley Wheel failed and the bucket of a front-end loader fell on them. Parker Hippert, awarded $1.5 million by the jury, had his legs crushed in the accident. Millard Williams, whose knee bones were broken, won $250,000.
Both men, who have collected workers compensation benefits, claim permanent damage. After periods of unemployment, both are now working; however, they are no longer able to perform their former construction jobs.
When they were awarded the judgment against Valley Wheel, which did not carry product liability insurance, Kingery said his choices were bankruptcy protection or going out of business. In its petition, Valley Wheel listed assets of $571,300 and liabilities - including the claims by Hippert and Williams - of $3.5 million. Valley Wheel's attorney, Carter Magee Jr., in September told the bankruptcy court there was no chance the company would survive.
He said "rumors in the industry abound concerning the demise of the debtor, competitors are slashing prices in order to drive the debtor out of business, employee morale is at an all-time low." In addition, he said, assets were being drained, inventory was running low and receivables were becoming difficult to collect. Now, five months later, Kingery described his company as having trimmed the payroll from 33 to 23 full-time workers with a couple of part-timers. He said half his vendors again are extending credit and sales are off just 6 to 7 percent from pre-bankruptcy days.
Some who have dealt with Valley Wheel are skeptical, Kingery said, but despite all the problems the company turned a small profit on $3 million in sales in 1993.
"I know the odds," he said, "but I think we can live with it."
The reorganization called for Valley Wheel to pay $50,000 last month and $4,562 a month for five years to settle the liability suit.
Hippert and Williams will see little, if any, of the money, Magee said. Most will go to repay the workers comp liability insurer and lawyers.
Hippert, who said he lives in constant pain, calls the settlement "not right." Williams said he has no ill feeling against Kingery but is disappointed with the outcome. "You can't get blood out of a turnip," he said.
So the question is about Valley Wheel's prospect for survival. Despite Kingery's optimism, the odds say coming out of bankruptcy - actually having his reorganization plan approved by Bankruptcy Judge Clyde Pearson - is but the initial hurdle.
The bankruptcy code's chapter 11 - reorganization - accounts for only 2 percent of all petitions filed, said Edward Flynn, an analyst in the administrative office of the U.S. court system.
Most petitioners, including businesses, seek the faster route of liquidation. Bankruptcy itself is such a long and expensive process "that 85 percent of them can't afford the game," said John Craig, clerk of the bankruptcy court for the Western District of Virginia in Roanoke.
Legal and other fees are $2,000 to $200 million, and it takes an average of two years to get to confirmation, Valley Wheel's current stage, Flynn said.
Of every 100 business bankruptcies filed, only 17 will attempt reorganization, he said. And of those, only 10 will emerge as strong enough to survive.
"The others won't be able to make payments required under the plan and ultimately will fail," he said.
Craig is more optimistic. For a reorganization to win the judge's approval, the company and creditors must look at its prospects with realistic eyes.
"It's always been my impression that they're stronger afterward," he said. "It's what Chapter 11 was meant for. It gives a company a chance to catch its breath and get on its feet."
by CNB