Chapter 11 bankruptcy filings climbed above 1,000 in November thanks to a push from such consumer product companies as Circuit City Stores Inc. and Lenox Group Inc.
There were 1,070 businesses and individuals that sought Chapter 11 protection in November, up by 11% from the 962 filings in October, according to new data from AACER, a private firm that tracks bankruptcy filings.
It’s only the second time this year that Chapter 11 filings have topped 1,000 — they hit 1,087 in August. Among the companies that filed Chapter 11 petitions last month are electronics retailers Circuit City and Tweeter Opco LLC, scrapbook products maker The Antioch Co., china and tableware company Lenox, and BH S&B Holdings LLC, the entity formed by the purchasers of Steve & Barry's.
Amid a U.S. recession that has seen consumers cut back on their spending, companies already struggling with debt are finding it tougher to reorganize outside of bankruptcy. That includes such big names as Circuit City, which had announced plans to close 155 stores to avoid a bankruptcy filing.
"What you’re seeing now is the fallout of large retailers," said Craig V. Rasile, co-chair of Hunton & Williams’ bankruptcy and restructuring practice. "Those folks are just so large. If things don’t go exactly correctly and there’s even a little hiccup in consumer spending, then forget it."
Though retailers are still taking stock of Black Friday sales and have yet to see how sales will pan out in the weeks leading up to Christmas, it's clear that this holiday season won’t put as many stores in the black as years past.
Electronics retailers — including Circuit City — already know their Black Friday sales were 14.3% lower than last year's, according to SpendingPulse, a Mastercard subsidiary.
Even though it’s not surprising that consumers "on strike" are leading to high numbers of retail bankruptcies, especially of companies that are already highly leveraged, it is surprising that they’re filing now, according to Joshua J. Angel, litigation counsel in Herrick, Feinstein’s bankruptcy and restructuring group.
Angel said troubled retailers are striving to hang on through the holidays, their most profitable time of year. He added that it’s better to file for bankruptcy when their inventory’s low and they have a lot of cash on hand. But a "triple whammy" is keeping businesses from hanging on through the holidays, Angel said.
"They’ve lost the confidence of the secured lender, they’ve lost the confidence of the trade suppliers and, unfortunately, they didn’t have the consumers to bail them out," he said.
As for December, Angel said bankruptcies will keep climbing as retailers continue to come "under siege". According to AACER, the total number of Chapter 11 filings this year has already hit 8,942, or 43% more than the 6,242 Chapter 11 filings in all of 2007 and 78% more than the 5,010 filings in 2006.
